SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: February 1, 1999
APPLE RESIDENTIAL INCOME TRUST, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 0-23983 54-1816010
(State of (Commission (IRS Employer
incorporation) File Number) Identification No.)
306 EAST MAIN STREET
RICHMOND, VIRGINIA 23219
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code:
(804) 643-1761
<PAGE>
APPLE RESIDENTIAL INCOME TRUST, INC.
FORM 8-K
Index
PAGE
NUMBER
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Item 2. Acquisition or Disposition of Assets 3
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
a. Independent Auditors' Report 7
(Grayson Square Apartments)*
Historical Statement of Income and
Direct Operating Expenses
(Grayson Square Apartments)*
Note to Historical Statement of
Income and Direct Operating
Expenses (Grayson Square Apartments)*
b. Pro Forma Statement of Operations 8
for the Year ended December 31, 1998
(unaudited)*
Pro Forma Balance Sheet as of
December 31, 1998 (unaudited)*
c. Exhibits
4 Instruments Defining the Rights of Lenders
10.1 Purchase Contract for Grayson Square Apartments
10.2 Property Management Agreement for
Grayson Square Apartments
10.3 Certificate of Limited Partnership of Apple REIT VII
Limited Partnership.
10.4 Limited Partnership Agreement of Apple REIT VII
Limited Partnership
23.1 Consent of Independent Auditors*
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* To be filed by amendment.
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<PAGE>
Item 2. Acquisition or Disposition of Assets
GRAYSON SQUARE APARTMENTS
Grapevine, Texas
On February 1, 1999, Apple REIT VII Limited Partnership (together with its
parent companies, Apple Residential Income Trust, Inc., Apple General, Inc. and
Apple Limited, Inc., the "Company") purchased the Grayson Square Apartments
located at 2300 Grayson Drive, Grapevine, Texas (the "Property").
The Property comprises 200 apartment units. The purchase price for the
Property was $9,350,000. The seller was Grapevine I Partners, Ltd., a Texas
limited partnership, which is not affiliated with the Company, Apple Residential
Management Group, Inc. (the "Advisor") or their affiliates. The purchase price
was paid through a combination of (i) approximately $2,357,215 in cash using
proceeds from the sale of the Common Shares of the Company, and (ii)
approximately $6,992,785 by assumption of a mortgage loan. Title to the Property
was conveyed to the Company by special warranty deed.
The Property was acquired with the assumption of a mortgage loan in the
original principal amount of $7,350,000 held by Fannie Mae. On February 1, 1999,
the outstanding balance of the mortgage loan was $6,992,785. The interest on the
mortgage loan currently is 6.505% per annum; amortization is based on a 28-year
amortization term; and prepayments are permitted after May 1, 2001 with a 2%
prepayment penalty, after May 1, 2002 with a 1% prepayment penalty, and after
May 1, 2003 with no prepayment penalty. The maturity date of the mortgage loan
is April 1, 2005, and the balance due at maturity, assuming no payment has been
made on principal in advance of its due date, is $6,200,873. The current
required monthly payment of principal and interest is $46,634.00.
In connection with the original financing of the Property, the previous
owner of the Property agreed to certain restrictions on the use of the Property
set forth in a special warranty deed and deed restrictions. In connection with
the purchase of the Property and the assumption of the mortgage loan, the
Company entered into an assumption of the special warranty deed and deed
restrictions. Among the restrictions agreed to by the Company is that at least
20% of the apartment units must be occupied by the persons who, at the time of
initial occupancy of the apartment units, are "lower income tenants." The term
lower income tenants is defined, generally, as one or more persons who occupy an
apartment unit whose aggregate anticipated income does not exceed 80% of the
median income for the area where the Property is located.
LOCATION. The Property is located on Grayson Drive near Highways 121 and
114 in Grapevine, Texas. The Property is within Tarrant County, near Dallas,
Texas. The Property is located within the greater Dallas/Forth Worth
metropolitan statistical area, or as it is called locally, "The Metroplex."
The following information is based in part upon information provided by the
Dallas Chamber of Commerce. The Dallas/Fort Worth Metroplex is in the
north-central part of Texas and is composed of nine counties. The 1996
population of The Metroplex was approximately 4,400,000. The Dallas metropolitan
area is the second largest in the state, behind Houston.
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The economy of the Dallas/Forth Worth area is complex and diversified. Key
economic factors include a large manufacturing base (including as products
military hardware, electronics, automobiles, industrial equipment, oil-field
parts, food products and chemicals), banking, insurance services,
communications, oil and gas production and air transportation. Major employers
in the area include Texas Instruments, Southwestern Bell, General Motors, J.C.
Penney, NationsBank and Vought Aircraft Company.
The Metroplex is also an established transportation center for the nation.
The Dallas/Fort Worth International Airport occupies approximately 17,600 acres
of land between the two cities. It is the second largest commercial airport in
the United States in terms of land area, and is the second busiest airport in
the world, with more than 2,500 daily arrivals and departures.
The area also has a well-established system of interstate highway and
supporting secondary routes. The Metroplex is located at the hub of Interstates
35, 45, 20 and 30. Two outer loops, Interstate 635 in Dallas and Interstate 820
in Forth Worth, surround the respective cities.
The many institutions of higher learning in the area include Southern
Methodist University, the University of Texas at Dallas, the University of Texas
at Arlington, the University of North Texas, and Texas Christian University.
The Property is in a neighborhood consisting of other multi-family and
single-family housing, and commercial and retail development. The Property is
located near restaurants, businesses, schools and churches, and is readily
accessible from Highways 121, 114 and 360. The Property is an approximately
25-minute drive from Dallas, an approximately 15-minute drive from Fort Worth
and an approximately 10-minute drive from the Dallas/Fort Worth International
Airport.
DESCRIPTION OF THE PROPERTY. The Property consists of 200 garden-style
apartment units in 20 two-story buildings on approximately 10.8 acres of land.
The Property was constructed in 1985. There are four apartment unit types. The
unit mix and rents being charged new tenants as of February 1999 are as follows:
<TABLE>
<CAPTION>
APPROXIMATE INTERIOR MONTHLY
QUANTITY TYPE SQUARE FOOTAGE RENTAL
- -------- ---- -------------- ------
<S><C> <C> <C> <C>
30 One bedroom, one bathroom 600 $ 540
60 One bedroom, one bathroom 750 640
60 One bedroom, one bathroom w/den 900 740
50 Two bedrooms, two bathrooms 1,018 875
</TABLE>
The apartments provide a total of approximately 168,000 square feet of net
rentable area.
The Company believes that the Property has generally been well maintained
and is in good condition. However, the Company has budgeted approximately
$200,000 for repairs and
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improvements to the Property, to include clubhouse renovations, exterior
painting, replacement of gutters and downspouts, and interior upgrades.
The following information is provided by the seller. Physical occupancy at
the Property averaged approximately 96% in 1994, 99% in 1995, 96% in 1996, 95%
in 1997, and 92% in 1998. Leases at the Property are generally for terms of one
year or less. Average rental rates for the past five years have generally
increased. As an example, a one-bedroom, one-bathroom apartment unit with den
(900 square feet) rented for $615 in 1994, $660 in 1995, $670 in 1996, $690 in
1997, and $705 in 1998. The average effective annual rental per square foot at
the Property for 1994 through 1998 was $8.43, $9.05, $9.19, $9.46, and $9.67,
respectively.
The Property has an outdoor swimming pool, a Jacuzzi, a playground and a
fitness center. There is also a clubhouse with a leasing office and ample paved
parking for the tenants.
The buildings are wood frame construction with exteriors consisting of a
combination of brick veneer and painted wood siding. The buildings are on
concrete slab foundations and roofs are pitched and covered with asphalt
shingles on plywood sheathing.
Each apartment unit has wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and an individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. All of the units, other than the smallest one-bedroom units,
have full-sized washer/dryer connections. Each upstairs unit has vaulted
ceilings and each downstairs unit has nine-foot ceilings. Selected apartment
units have a wood-burning fireplace and built-in bookcases. Each apartment unit
has walk-in closets, private outside storage, a covered balcony or patio, and
ceiling fans. The owner of the Property pays for cold water, sewer service,
trash removal, gas for hot water and basic cable television service. The
residents pay for their electricity usage, which includes cooking, lighting,
heating and air-conditioning.
There are at least four apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are
comparable to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy in nearby competing properties averaged
approximately 89% on February 1, 1999.
As of February 10, 1999, the Property was approximately 88% occupied. The
tenants are a mix of white-collar workers, students and retired persons.
The following table sets forth 1998 real estate tax information on the
Property:
JURISDICTION ASSESSED VALUE TAX RATE TAX
------------ -------------- -------- ---
Tarrant County $ 7,000,000 $ 0.60532 $ 42,372.12
City of Grapevine 7,000,000 1.92279 134,595.30
-----------
Total $ 176,967.42
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<PAGE>
The basis of the depreciable residential real property portion of the
Property (currently estimated at about $8,778,065) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Internal Revenue Code of 1986, as amended (the "Code"). Amounts to be
spent by the Company on repairs and improvements will be treated for tax
purposes as permitted by the Code based on the nature of the expenditures.
The Advisor and the Company believe that the Property is and will continue
to be adequately covered by property and liability insurance.
MATERIAL FACTORS CONSIDERED IN ASSESSING THE PROPERTY. The factors
considered by the Advisor and the Company to be relevant in evaluating the
Property for acquisition by the Company included the following:
1. The Metroplex was perceived as being characterized by a
diverse, stable and steadily growing economy. It was believed
that these factors would support stable occupancy rates and
reasonable increases in rents at the Property.
2. The Property was perceived as being in a desirable rental
market of the Metroplex with a location convenient to major
employment areas as well as recreational attractions. For
example, the Property is close to the new 1,000-acre Texas
Motor Speedway, which is expected to create approximately
6,200 new permanent and temporary jobs.
3. Based upon an engineering report and its own inspections, the
Advisor believes that the Property has been well maintained
and is in good condition, although the Advisor believes that
the planned repairs and improvements for the Property will
allow further increase in rents.
ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of services
rendered to the Company in connection with the selection and acquisition of the
Property, the Company paid Cornerstone Realty Income Trust, Inc. became entitled
to a property acquisition fee equal to 2% of the purchase price of the Property,
or $187,000. At closing, $47,144 of the fee was paid. The balance will be paid
if and when the debt encumbering the Property is repaid. Cornerstone Realty
Income Trust, Inc. will also serve as property manager for the Property and for
its services will be paid by the Company a monthly management fee equal to 5% of
the gross revenues of the Property plus reimbursement of certain expenses.
The Company is not aware of any material adverse factors relating to the
Property not set forth in this report that will cause the financial information
contained in this report not to be necessarily indicative of future operating
results.
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<PAGE>
ITEM 7.a.*
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* To be filed by amendment.It is impracticable to include herein the required
financial statements for the Property. The required financial statements will be
filed as an amendment to this report as soon as possible, but in no event more
than 60 days after the date of filing of this report.
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<PAGE>
ITEM 7.b.*
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* To be filed by amendment. It is impracticable to include herein the required
pro forma financial information. The required pro forma financial information
will be filed as an amendment to this report as soon as possible, but in no
event more than 60 days after the date of filing of this report.
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<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Apple Residential Income Trust, Inc.
Date: February 16, 1999 By: /s/ Glade M. Knight
-----------------------------
Glade M. Knight
President of Apple Residential
Income Trust, Inc.
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<PAGE>
EXHIBIT INDEX
Apple Residential Income Trust, Inc.
Form 8-K dated February 1, 1999
EXHIBIT NUMBER EXHIBIT
- -------------- -------
4 Instruments Defining the Rights of Lenders
10.1 Purchase Contract for Grayson Square Apartments
10.2 Property Management Agreement for Grayson Square
Apartments
10.3 Certificate of Limited Partnership of Apple REIT VII
Limited Partnership.
10.4 Limited Partnership Agreement of Apple REIT VII
Limited Partnership.
23.1 Consent of Independent Auditors*
* To be filed by amendment.
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Exhibit 4
Instruments Defining the Rights of Lenders
The instruments defining the rights of the holders of the long-term
debt encumbering the Grayson Square apartments are omitted, pursuant to the
rules of Item 601(b)(4)(iii)(A) of Regulation S-K, because such debt is not
being registered and the amount of the debt does not exceed 10% of the total
assets of the registrant and its subsidiaries on a consolidated bases. The
registrant agrees to furnish a copy of all instruments defining the rights of
holders of the long-term debt upon the request of the Securities and Exchange
Commission.
EXHIBIT 10.1
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
GRAPEVINE I PARTNERS, LTD. ("SELLER")
AND
CORNERSTONE REALTY GROUP, INC. ("BUYER")
GRAYSON SQUARE APARTMENTS
TARRANT COUNTY, TEXAS
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1..........................................................1
DEFINITIONS...............................................1
ARTICLE 2..........................................................4
PURCHASE AND SALE.........................................4
ARTICLE 3..........................................................4
PURCHASE PRICE; DEPOSIT; ADJUSTMENTS......................4
ARTICLE 4..........................................................8
PRECLOSING OPERATION......................................8
ARTICLE 5..........................................................9
ACCESS, INSPECTION, DILIGENCE.............................9
ARTICLE 6.........................................................14
TITLE AND SURVEY.........................................14
ARTICLE 7.........................................................16
CONDITIONS PRECEDENT AND CLOSING.........................16
ARTICLE 8.........................................................21
CASUALTY AND CONDEMNATION................................21
ARTICLE 9.........................................................22
BROKERAGE COMMISSIONS....................................22
ARTICLE 10........................................................22
DEFAULT, TERMINATION AND REMEDIES........................22
ARTICLE 11........................................................23
REPRESENTATIONS AND WARRANTIES...........................23
ARTICLE 12........................................................27
MISCELLANEOUS............................................27
i
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ARTICLE 13........................................................31
IRS FORM 1099-S DESIGNATION..............................32
ARTICLE 14........................................................32
CONSENT REQUIREMENT AND SELLER'S RIGHT TO TERMINATE.....32
LIST OF EXHIBITS
EXHIBIT A - THE LAND
EXHIBIT B - PERSONAL PROPERTY
EXHIBIT C - PROPERTY CONTRACTS
EXHIBIT D - EARNEST MONEY ESCROW INSTRUCTIONS
EXHIBIT E - RENT ROLL
EXHIBIT F - FORM OF ESCROW CLOSING INSTRUCTIONS
EXHIBIT G - LEAD-BASED PAINT DISCLOSURE
EXHIBIT H - DILIGENCE DOCUMENTS
EXHIBIT I - EXISTING LOAN DOCUMENTS IN POSSESSION OR CONTROL OF SELLER
EXHIBIT J - 1099 DESIGNATION AGREEMENT
EXHIBIT K - FORM OF AUDITOR'S LETTER
ii
<PAGE>
PURCHASE AND SALE AGREEMENT
GRAYSON SQUARE APARTMENTS
THIS PURCHASE AND SALE AGREEMENT (this "AGREEMENT") is entered into as of
the 9th day of November, 1998 by and between Seller and Buyer, upon the
following terms and conditions:
WHEREAS, Seller desires to sell and Buyer desires to purchase, the
Property (hereinafter defined) on the terms and conditions hereinafter set
forth;
NOW THEREFORE, in consideration of the mutual undertakings, covenants and
agreements contained herein, and other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE 1
DEFINITIONS
References in this Agreement to the following terms shall have the
following meanings:
Buyer: Cornerstone Realty Group, Inc., a Virginia corporation
Deposit: See Section 3.1
Documents: All documents listed on EXHIBIT H, attached hereto.
Environmental All laws, ordinances, statutes, codes, rules, regulations,
Requirements: agreements, judgments, orders and decrees now or hereafter
enacted, promulgated, or amended, of the United States, the
states, the counties, the cities or any other political
subdivisions in which the Real Property is located and any
other political subdivision, agency or instrumentality
exercising jurisdiction over the owner of the Real
Property, the Real Property or the use of the Real Property
relating to pollution, the protection or regulation of
human health, natural resources or the environment, or the
emission, discharge, release or threatened release of
pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or waste or Hazardous
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Materials into the environment (including, without
limitation, ambient air, surface water, ground water or
land or soil).
Escrowed Amount: See Section 3.1
Existing Loan: That certain first mortgage loan in the original
principal amount of $7,350,000.00 from Lender to Seller,
evidenced by the Note and secured by the Mortgage and the
Existing Loan Documents.
Existing Loan
Documents: That certain Amended and Restated Multifamily Note (the
"Note") in the original principal amount of $7,350,000.00,
dated as of October 1, 1989 made by Seller in favor of
Lender secured by: (y) that certain Multifamily Deed of
Trust, Assignment of Rents and Security Agreement (the
"Mortgage") dated as of January 1, 1985 therewith
encumbering the Real Property, as amended, and (z) any and
all other documents and instruments evidencing, security or
relating to the Existing Loan from Lender to Seller
executed in connection therewith, all of which are
incorporated herein by reference.
Hazardous Any substance which is or contains: (i) any "hazardous
Substances: substance" as now or hereafter defined in Section 101(14)
of the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended (42 U.S.C. Section
9601 et seq.) or any regulations promulgated thereunder;
(ii) any "hazardous waste" as now or hereafter defined in
the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.) or regulations promulgated
thereunder; (iii) any substance regulated by the Toxic
Substances Control Act (15 U.S.C. Section 2601 et. seq.);
(iv) gasoline, diesel fuel or other petroleum hydrocarbons;
(v) asbestos and asbestos containing materials, in any
form, whether friable or nonfriable; (vi) polychlorinated
biphenyls; (vii) radon gas; and (viii) any additional
substances or materials which are now or hereafter
classified or considered to be hazardous or toxic under
Environmental Requirements or the common law, or any other
applicable law related to the Property. Hazardous Materials
shall include, without limitation, any substance, the
presence of which on the Real Property: (A) requires
reporting, investigation or remediation under Environmental
Requirements; (B) causes or threatens to cause a nuisance
on the Real Property or adjacent property or poses or
threatens to pose a hazard to the health or
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safety of persons on the Real Property or adjacent
property; or (C) if emanated or migrated from the Real
Property, could constitute a trespass.
Improvements: All buildings, structures and other improvements situated
upon the Land and all fixtures, systems and facilities
owned by Seller and located on the Land, which includes 200
rental units.
Intangible Property: All of Seller's right, title and interest, if
any, in all intangible assets of any nature relating to the
Land, the Improvements or the Personal Property, including,
without limitation, all of Seller's right, title and
interest in all (i) warranties and guaranties relating to
the Improvements or Personal Property in the possession of
Seller, (ii) all licenses, permits and approvals relating
to the Real Property, (iii) all logos and trade names
currently used by Seller exclusively in the operation of
the Land and Improvements, including the use of the name
Grayson Square Apartments, and (iv) all plans and
specifications, in each case to the extent that Seller may
legally transfer the same.
Land: All of the land described on EXHIBIT A attached hereto,
together with all privileges, rights, easements, and
appurtenances belonging to such land and all right, title
and interest (if any) of Seller in and to any streets,
alleys, passages, and other rights-of-way or appurtenances
included in, adjacent to or used in connection with such
land and all right, title and interest (if any) of Seller
in all mineral and development rights appurtenant to such
land.
Leases: All of Seller's rights in all leases covering any portion
of the Land or Improvements.
Lender: Federal National Mortgage Association
Personal Property All furniture, carpeting, appliances, equipment, machinery,
inventories, supplies, signs and other tangible personal
property of every kind and nature, if any, owned by Seller
and installed, located at and used in connection with the
ownership, occupation and operation of the Real Property,
including, without limitation, the Personal Property listed
on EXHIBIT B attached hereto. Personal Property
specifically excludes: (i) any items of personal property
owned by tenants at or on the Real Property, and (ii) any
items of personal property owned by third parties and
leased to Seller.
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Property: The Real Property, the Personal Property, the Leases, the
Tenant Deposits, the Intangible Property and the Property
Contracts known as Grayson Square Apartments, located in
Tarrant County, Texas.
Property Contracts: All of Seller's rights, if any, in the contracts
listed on EXHIBIT C attached hereto, being all service,
supply and equipment rental, management, operating and
leasing contracts affecting the Property, to the extent
that (i) Seller is entitled to transfer the same to Buyer,
and (ii) Buyer does not elect to have Seller terminate them
in accordance with Section 4.3 below.
Purchase Price: $9,350,000.00
Real Property: The Land and the Improvements.
Seller: Grapevine I Partners, Ltd., a Texas limited partnership
Tenant Deposits: Seller's rights to unapplied security deposits
under the Leases.
Title Company: Lawyer's Title Insurance Corporation
4311 Oak Lawn, Suite 600
Dallas, TX 75209
Attention: David Long
ARTICLE 2
PURCHASE AND SALE
2.1 Seller hereby agrees to sell and convey the Property to Buyer and
Buyer hereby agrees to buy the Property from Seller for the Purchase Price and
otherwise subject to the covenants, provisions, terms and conditions contained
herein.
ARTICLE 3
PURCHASE PRICE; DEPOSIT; ADJUSTMENTS
3.1 Deposit. Contemporaneously with the execution and delivery of this
Agreement (and as a condition precedent to the effectiveness of this Agreement),
Buyer shall deposit immediately available funds with the Title Company
(hereinafter the "Escrow Agent") the sum of Two Hundred Fifty Thousand and
00/100 ($250,000.00) Dollars (the "DEPOSIT") to secure
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Buyer's obligations under this Agreement. The Escrow Agent shall hold the
Deposit in a segregated interest bearing money market account with an FDIC
insured bank reasonably acceptable to Buyer and Seller. The Deposit and all
interest accrued on the Deposit (collectively, the "ESCROWED AMOUNT") shall be
maintained by the Escrow Agent in such account or accounts until the Escrow
Agent is required to cause the Escrowed Amount to be disbursed pursuant to the
terms and conditions of this Agreement and the Earnest Money Escrow Instructions
attached hereto as EXHIBIT D. The Escrowed Amount shall be applied to the
Purchase Price if the Closing occurs, as provided in Section 3.2(c) below.
Simultaneously with the delivery of the Deposit to the Title Company by Buyer,
Buyer shall deliver to Seller the sum of One Hundred Dollars ($100) as
"Independent Consideration," which Independent Consideration shall be retained
by Seller in all instances, but which shall be applied against the Purchase
Price if Closing occurs hereunder.
3.2 Purchase Price. The Purchase Price, subject to adjustment as provided
herein, shall be as specified in Article 1 above and shall be paid on the
Closing Date (as hereinafter defined) in the following manner:
(a) Buyer shall assume the payment of the existing principal balance
of the Existing Loan as of the Closing Date (the "Loan Principal
Balance"), and the payment of interest accruing thereon from and after the
Closing Date, and shall agree to perform, assume and observe all
obligations of the Seller under the Existing Loan Documents and the
Existing Loan.
(b) Buyer shall pay to Seller in United States dollars by wire
transfer of federal funds, the Purchase Price (as adjusted pursuant to
this Agreement) less the Loan Principal Balance (the "Cash Balance").
(c) The Escrowed Amount shall be applied towards the Cash Balance.
3.3 Tax Proration. All due and payable real estate taxes, all general and
special assessments on the Land and ad valorem taxes, if any, on the Personal
Property (based on the most recent ascertainable taxes) attributable to the
Property through the Closing Date shall be prorated and adjusted as of the
Closing Date. In no event shall Seller be charged with or be responsible for any
increase in the taxes on the Property resulting from the sale of the Property or
from any improvements made or leases entered into on or after the Closing Date.
If the tax statements for the fiscal year during which the Closing Date occurs
are not finally determined, then the tax figures for the immediately prior
fiscal year shall be used for the purposes of prorating taxes on the Closing
Date, and at such time as the actual amount of taxes for the current fiscal year
are known, Seller and Buyer shall, if required, readjust the amounts to be paid
by each party pursuant to this Section 3.3. Any tax refunds or proceeds
(including interest thereon) on account of a favorable determination resulting
from a challenge, protest, appeal or similar proceeding relating to taxes and
assessments relating to the Property (i) for all tax periods
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occurring prior to the applicable tax period in which the Closing occurs shall
be retained by and paid exclusively to Seller and (ii) for the applicable tax
period in which the Closing occurs shall be prorated as of the Closing Date
after reimbursement to Seller and Buyer, as applicable, for all fees, costs and
expenses (including reasonable attorneys' and consultants' fees) incurred by
Seller or Buyer, as applicable, in connection with such proceedings such that
Seller shall retain and be paid that portion of such tax refunds or proceeds as
is applicable to the portion of the applicable tax period prior to the Closing
Date and Buyer shall retain and be paid that portion of such tax refunds or
proceeds as is applicable to the portion of the applicable tax period from and
after the Closing Date. Neither Seller nor Buyer shall settle any tax protests
or proceedings in which taxes for the tax period for which the other party is
responsible are being adjudicated without the consent of such party, which
consent shall not be unreasonably withheld, conditioned or delayed. After the
Closing, Buyer shall be responsible for and control any tax protests or
proceedings for any period for which taxes are adjusted between the parties
under this Agreement and for any later period. Buyer and Seller shall cooperate
in pursuit of any such proceedings and in responding to reasonable requests of
the other for information concerning the status of and otherwise relating to
such proceedings; provided, however, that neither party shall be obligated to
incur any out-of-pocket fees, costs or expenses in responding to the requests of
the other.
3.4 Contract Proration. To the extent Property Contracts are not
terminated pursuant to Section 4.3, (a) prepaid or past due amounts and (b)
prepaid fees or bonuses under any Property Contracts which are assigned to Buyer
at Closing shall be prorated and adjusted as of the Closing Date.
3.5 Utility Proration. Seller shall use commercially reasonable efforts to
terminate its accounts for electricity, gas, water, sewer or other public
utility usage at the Property as of the Closing Date, and the Seller shall pay
all charges for such utilities which have accrued on or prior to the Closing
Date; provided, however, that if and to the extent such charges are paid
directly by tenants, no such termination or payment shall be required. Buyer
shall activate its own account as of the Closing Date. If Seller is unable to
terminate any of its accounts, the Seller shall cause all meters for
electricity, gas, water, sewer or other public utility usage at the Property to
be read as of the day immediately preceding the Closing Date, and the Seller
shall pay all charges for such utilities which have accrued on or prior to the
Closing Date; provided, however, that if and to the extent such charges are paid
directly by tenants, no such reading or payment shall be required. If the
utility companies are unable or refuse to read meters for which payment by the
Seller is required, all charges for such utilities to the extent unpaid shall be
prorated and adjusted as of the Closing Date based on the most recent bills
therefor and no further adjustment shall be made. The Seller shall provide
notice to the Buyer within five (5) days of the Closing Date setting forth (i)
whether utility accounts will be terminated by Seller or (ii) whether utility
meters will be read as of the Closing Date and shall provide a copy of the most
recent bill for any utility charges which are to be prorated and adjusted as of
the Closing Date.
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3.6 Income and Expense Proration.
(a) Collected rents for the then current and any future period,
prepaid rentals, and all expenses and other charges in connection with the
operation of the Property shall be apportioned and full value shall be
adjusted as of the Closing Date, and the net amount thereof, if in favor
of Seller, shall be added to the Purchase Price, or if in favor of Buyer,
shall be deducted from the Purchase Price. Security deposits which have
not been previously applied by Seller shall be added to the Purchase
Price. From and after Closing all security deposits credited to Buyer
shall thereafter be deemed transferred to Buyer and Buyer shall assume and
be solely responsible for the payments of security deposits to tenants in
accordance with the Leases and applicable law. Seller shall be entitled to
retain or if transferred to Buyer receive a credit for any utility
deposits and any deposits for third parties under any of the Property
Contracts. For a period of sixty (60) days after the Closing Date, Buyer
shall use commercially reasonable efforts to collect owing past due or
uncollected rents as of the Closing Date, and such past due or uncollected
rents, less reasonable expenses of collection thereof, shall be
apportioned between Buyer and Seller (if and when collected). If Seller
has committed to give any future monetary concessions to tenants under
existing leases to which Buyer would become liable, then such amount shall
be deducted from the Purchase Price at Closing.
(b) If Seller has committed to give any future monetary concessions
to tenants under existing leases to which Buyer would become liable, then
Purchaser shall receive a credit therefor at Closing.
3.7 Prorations Generally. A statement of prorations and other adjustments
shall be prepared by Seller in conformity with the provisions of this Article 3
and submitted to Buyer for review and approval not less than two (2) business
days prior to the Closing Date. For purposes of making prorations, Seller shall
be deemed to be in title to the Property and entitled to the income from and
responsible for the expenses thereof, on the Closing Date. Seller and Buyer
agree to adjust between themselves after Closing any errors or omissions in the
prorations or adjustments made at Closing, which obligation shall survive the
Closing for a period of six (6) months.
3.8 Closing Costs.
(a) Seller shall pay: (i) its legal fees and expenses related to the
negotiation and preparation of this Agreement and all documents required
to close the transaction contemplated hereby, (ii) 50% of the escrow fees
of the Escrow Agent, (iii) grantor's tax, (iv) all expenses of
satisfaction and prepayment of the any outstanding mortgages on the
Property other than any of the Existing Loan Documents and (v) the premium
for a basic unendorsed owner's title insurance policy (including all
standard exceptions) (the "Basic Title Policy").
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(b) Buyer shall pay: (i) 50% of the escrow fees of the Escrow Agent,
(ii) charges to record the Deed (as hereinafter defined), and evidence of
Buyer's existence or authority, (iii) Buyer's legal fees and expenses
related to the negotiation of this Agreement and all documents required to
close the transaction contemplated hereby, (iv) all costs related to the
Buyer's inspection and due diligence, including, without limitation, the
cost of appraisals, architectural, engineering, credit and environmental
reports, (v) all charges and premiums to upgrade the Basic Title Policy,
including charges and premiums incurred to delete the standard exceptions
(including the so-called survey exception) and to obtain any endorsements
desired by Purchaser, (vi) all costs allocable to preparation of the
survey, (vii) the cost of the Phase I Report update, (viii) all state and
county taxes associated with the transfer of the property and the
assumption of the Existing Loan and Existing Loan Documents, and (ix) all
costs and fees associated with the assignment by Seller and assumption by
Buyer of the Existing Loan and the Existing Loan Documents.
(c) All other closing costs shall be paid by Seller or Buyer in
accordance with the custom in the jurisdiction where the Property is
located.
ARTICLE 4
PRECLOSING OPERATION
4.1 Leases. A rent roll (the "Rent Roll") containing a list of all
occupants of the Property pursuant to the Leases as of the date hereof is
attached hereto as EXHIBIT E. During the pendency of this Agreement, Seller may
enter into Leases with new tenants or modifications of Leases with existing
tenants substantially in accordance with Seller's existing leasing practices,
provided that in all events any new or modified Leases shall (i) be at or near
market rent, (ii) be for a term of not more than one (1) year (with respect to
residential Leases only), and (iii) on the Seller's current standard form of
lease.
4.2 Conduct of Business. At all times prior to Closing, Seller shall
continue (a) to conduct business with respect to the Property in the same manner
in which said business has been heretofore conducted, (b) to insure the Property
substantially as currently insured, and (c) maintain the Property in its current
condition, reasonable wear and tear and damage by casualty excepted, including
ordinary preparation of residential units vacated prior to Closing to "rent
ready" condition. A residential unit shall be deemed to be in "rent ready"
condition if such unit (i) is clean, (ii) is serviced with customary heating,
plumbing and electrical systems, (iii) has freshly painted walls, and (iv)
contains the following appliances and/or amenities (in good working order and
condition): carpet in living areas; refrigerator; oven/range; garbage disposal;
dishwasher; mini-blinds for exterior windows; floor tile at interior entrance;
and vinyl floor covering in kitchen and bathroom(s).
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4.3 Property Contracts. Seller shall make copies of all Property Contracts
available for Buyer to review promptly after the date hereof. On or before the
Diligence Date (as defined below), unless Buyer has provided written notice to
Seller of Buyer's election to terminate this Agreement, Buyer shall provide
written notice to Seller of the Property Contracts that Buyer desires to have
terminated by Seller, and Seller will terminate the Property Contracts so
identified at or before Closing, provided that such Property Contracts may be
terminated without cost or liability to Seller and if there is cost or liability
to Seller, Buyer shall be responsible for any such liability. At Closing, Seller
shall assign and Buyer shall assume the Property Contracts, except those
Property Contracts which Seller has agreed to terminate. Notwithstanding the
foregoing, Seller's existing management contract and lease brokerage contract,
if any, for the Property shall be terminated by Seller effective as of the
Closing Date at no cost to Buyer.
ARTICLE 5
ACCESS, INSPECTION, DILIGENCE
5.1 Access/Purchaser's Responsibilities/Purchaser's Indemnity.
(a) From the date hereof through the Diligence Date (hereinafter
defined), Seller agrees that Buyer and its authorized agents or
representatives shall be entitled to enter upon the Real Property during
normal business hours upon advance written notice to Seller and make such
reasonable, nondestructive investigations, studies and tests including,
without limitation, surveys and engineering studies as Buyer deems
necessary or advisable, provided, however, that Buyer shall not be
permitted to conduct physical testing without Seller's prior written
consent, which consent shall not be unreasonably withheld, conditioned or
delayed. Seller's prior written consent for physical inspections or
testing may be conditioned upon receipt of a detailed description of the
proposed physical inspection or testing, a list of contractors who will be
performing the physical inspection or testing, evidence of insurance
satisfactory to Seller, and such other information as Seller reasonably
requires in connection with such proposed inspection or testing. Buyer
acknowledges that Seller has delivered to Buyer or has made available to
Buyer at the Property, on or before the date hereof, all Documents.
(b) Buyer agrees that in conducting any inspections, investigations
or tests of the Property and/or the Documents, Buyer and its agents and
representatives shall (i) not unreasonably interfere with the operation
and maintenance of the Property, (ii) not unreasonably disturb the tenants
under the Leases or unreasonably interfere with their use of the Property
pursuant to their respective Leases, (iii) not damage any part of the
Property or any personal property owned or held by any tenant or third
party, (iv) not injure or otherwise cause bodily harm to Seller, the
property manager, or their respective guests, agents, invitees,
contractors and employees or any tenant or their guests or
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invitees, (v) maintain comprehensive general liability insurance in terms
and amounts reasonably acceptable to Seller covering any accident arising
in connection with the presence of Buyer, its agents and representatives
on the Property, and deliver a certificate of insurance verifying such
coverage to Seller prior to entry upon the Property; (vi) promptly pay
when due the costs of all tests, investigations and examinations done with
regard to the Property; (vii) not permit any liens to attach to the Real
Property by reason of the exercise of Buyer's rights hereunder, (viii)
fully restore the Property to the condition in which the same was found
before any such inspection or tests were undertaken; and (ix) not reveal
or disclose any information obtained during the due diligence period
concerning the Property and the Documents to anyone outside Buyer's
organization, except in accordance with the confidentiality standards set
forth in Section 5.5 herein.
(c) Buyer will indemnify, defend, and hold Seller and its partners
and Seller's property manager harmless from all losses, costs, liens,
claims, causes of action, liability, damages and out-of pocket expenses,
including, without limitation, reasonable attorneys' fees incurred by
Seller as a result of the entry upon or inspections, tests or
investigations of the Property conducted by or on behalf of Buyer. This
indemnity obligation of Buyer shall survive the termination of this
Agreement for any reason.
(d) Buyer acknowledges and agrees that the Documents are provided to
Buyer for informational purposes only and do not constitute
representations or warranties of Seller or its agents, employees or
representatives of any kind as to the truth, accuracy or completeness of
the Documents or the source(s) thereof. Seller has not undertaken any
independent investigation as to the truth, accuracy or completeness of the
Documents, and is providing the Documents solely as an accommodation to
Buyer.
5.2 Diligence. Subject to Section 5.1, above, Buyer shall promptly
commence and actively pursue the following due diligence items:
(a) Review title and survey matters;
(b) Review Property Contracts;
(c) Obtain and review engineering reports;
(d) Review environmental reports on oil, hazardous waste, and
asbestos;
(e) Review applicable zoning and other land use controls, and other
permits, licenses, permissions, approvals and consents; and
(f) Review all Leases affecting the Property.
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Buyer shall complete its due diligence on or before the date that is ten
(10) business days following the date hereof (the "DILIGENCE DATE").
Notwithstanding any other term or provision herein to the contrary, in the event
that Buyer's due diligence shall reveal any matters which are not acceptable to
Buyer, in Buyer's sole discretion, Buyer may elect, by written notice to Seller,
received by Seller on or before the Diligence Date, not to proceed with this
purchase, in which event this Agreement shall terminate, the Escrow Agent shall
return the Escrowed Amount to the Buyer and this Agreement shall be null and
void without recourse to either party hereto (except to the extent such recourse
arises in connection with a provision of this Agreement which is intended to
survive termination). In the event that Buyer does not terminate this Agreement
pursuant to this Paragraph 5.2, the Escrowed Amount shall become nonrefundable
and shall either be (a) applied to the Purchase Price as provided in Section
3.2, or (b) in the event of default, casualty or condemnation, disbursed to
either Buyer or Seller according to the applicable terms hereof. BUYER
ACKNOWLEDGES THAT, PURSUANT TO THE TERMS OF THIS AGREEMENT, BUYER SHALL BE
AFFORDED A FULL OPPORTUNITY TO INSPECT THE PROPERTY, OBSERVE ITS PHYSICAL
CHARACTERISTICS AND EXISTING CONDITIONS AND CONDUCT SUCH INVESTIGATIONS AND
STUDIES ON AND OF SAID PROPERTY AS IT DEEMS NECESSARY AND THAT, UNLESS BUYER
TERMINATES THIS AGREEMENT PURSUANT TO THIS SECTION 5.3 BUYER SHALL BE DEEMED TO
HAVE WAIVED ON THE DILIGENCE DATE ANY AND ALL OBJECTIONS TO OR COMPLAINTS
REGARDING (INCLUDING, BUT NOT LIMITED TO, FEDERAL, STATE OR COMMON LAW BASED
ACTIONS AND ANY PRIVATE RIGHT OF ACTION UNDER STATE AND FEDERAL LAW TO WHICH THE
PROPERTY IS OR MAY BE SUBJECT, INCLUDING BUT NOT LIMITED TO, CERCLA AND RCRA)
PHYSICAL CHARACTERISTICS AND EXISTING CONDITIONS, INCLUDING, WITHOUT LIMITATION,
STRUCTURAL AND GEOLOGIC CONDITIONS, SUBSURFACE SOIL AND WATER CONDITIONS AND
SOLID AND HAZARDOUS WASTE AND HAZARDOUS SUBSTANCES ON, UNDER, ADJACENT TO OR
OTHERWISE AFFECTING THE PROPERTY. BUYER FURTHER HEREBY ASSUMES THE RISK OF
CHANGES IN APPLICABLE LAWS AND REGULATIONS RELATING TO PAST, PRESENT AND FUTURE
ENVIRONMENTAL CONDITIONS ON THE PROPERTY AND THE RISK THAT ADVERSE PHYSICAL
CHARACTERISTICS AND CONDITIONS, INCLUDING, WITHOUT LIMITATION, THE PRESENCE OF
HAZARDOUS SUBSTANCES OR OTHER CONTAMINANTS, MAY NOT HAVE BEEN REVEALED BY ITS
INVESTIGATION.
5.3 Copies of Reports/Return of Documents.
(a) If this Agreement is terminated for any reason whatsoever, Buyer
shall promptly deliver to Seller all Documents delivered to Buyer or
Buyer's agents, representatives or designees by Seller or Seller's agents,
representatives or employees pursuant to this Agreement.
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(b) The return of the Escrowed Amount to Buyer under this Agreement
shall be contingent upon Buyer's fulfillment of its obligations under
Section 5.3(a).
5.4 Confidentiality. Buyer acknowledges and agrees that any and all of the
Documents are proprietary and confidential in nature and will be delivered to
Buyer solely to assist Buyer in determining the feasibility of purchasing the
Property. Further, each party hereto agrees to maintain in confidence, and not
to discuss with or to disclose to any person or entity who is not a party to
this Agreement, any Document or the information contained herein or any material
term of this Agreement or any aspect of the transactions contemplated hereby,
except as provided in this Section. Seller may publicly disclose the existence
of this Agreement provided that the identity of Buyer is not disclosed. Buyer
shall not disclose to anyone other than its partners and financiers the
Documents and/or any information disclosed by Seller to Buyer which is not
generally known by the public regarding Seller's operations and/or the Property.
Each party hereto may discuss such matters with and disclose such matters to its
accountants, attorneys, existing or prospective lenders, investment bankers,
underwriters, rating agencies, partners, consultants and other advisors to the
extent such parties reasonably need to know such information and are bound by a
confidentiality obligation identical in all material respects to the one created
by this Section. Additionally, each party may discuss and disclose such matters
to the extent necessary to comply with any requirements of the Securities and
Exchange Commission or in order to comply with any law or interpretation thereof
or court order. This provision shall survive termination of this Agreement, but
except for the next sentence, shall terminate upon the Closing. Any press
release to be made regarding any matter which is the subject of the
confidentiality obligation created in this Section shall be subject to the
reasonable approval of Buyer and the Seller, respectively both as to timing and
content.
5.5 Buyer's Acknowledgment. BUYER ACKNOWLEDGES THAT AS OF THE DILIGENCE
DATE IT HAS HAD AN OPPORTUNITY TO CONDUCT DILIGENCE ON THE PROPERTY AND IS
ACQUIRING THE PROPERTY IN ITS CURRENT CONDITION BASED ON ITS DILIGENCE. BUYER
FURTHER ACKNOWLEDGES THAT NEITHER SELLER NOR ITS PARTNERS NOR THEIR RESPECTIVE
EMPLOYEES, AGENTS OR REPRESENTATIVES HAVE MADE ANY REPRESENTATION OR WARRANTY AS
TO THE CONDITION OF THE PROPERTY OR THE PRESENCE OR ABSENCE OF ANY HAZARDOUS
MATERIALS ON, IN, UNDER OR WITHIN THE PROPERTY OR A PORTION THEREOF. THE BUYER
ACKNOWLEDGES AND AGREES THAT THE PROPERTY IS TO BE CONVEYED BY THE SELLER TO THE
BUYER "AS IS," "WITH ALL FAULTS," AND SUBSTANTIALLY IN ITS CURRENT CONDITION.
THE BUYER FURTHER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY CONTAINED
HEREIN, NEITHER THE SELLER NOR ITS PARTNERS NOR THEIR RESPECTIVE AGENTS,
EMPLOYEES OR OTHER REPRESENTATIVES (OR PURPORTED AGENTS, EMPLOYEES OR OTHER
REPRESENTATIVES) HAS MADE ANY GUARANTEE, REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED (AND THE SELLER AND ITS PARTNERS SHALL NOT HAVE ANY LIABILITY
WHATSOEVER) AS
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TO THE VALUE, USES, HABITABILITY, CONDITION, DESIGN, OPERATION, FINANCIAL
CONDITION OR PROSPECTS, OR FITNESS FOR PURPOSE OR USE OF THE PROPERTY (OR ANY
PART THEREOF) OR ANY OTHER GUARANTEE, REPRESENTATION OR WARRANTY WHATSOEVER,
EXPRESS OR IMPLIED, WITH RESPECT TO THE PROPERTY (OR ANY PART THEREOF) OR
INFORMATION SUPPLIED TO BUYER WITH RESPECT THERETO. FURTHER, THE SELLER AND ITS
PARTNERS SHALL HAVE NO LIABILITY FOR ANY LATENT, HIDDEN, OR PATENT DEFECT AS TO
THE PROPERTY OR THE FAILURE OF THE PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH
ANY APPLICABLE LAWS AND REGULATIONS. IN PARTICULAR, THE BUYER ACKNOWLEDGES AND
AGREES THAT ANY INFORMATION PROVIDED TO BUYER BY SELLER OR ITS PARTNERS OR THEIR
RESPECTIVE AGENTS, EMPLOYEES OR OTHER REPRESENTATIVES WITH RESPECT TO THE
PROPERTY UNDER THIS AGREEMENT (AND ANY OTHER INFORMATION THE BUYER MAY HAVE
OBTAINED REGARDING IN ANY WAY ANY OF THE PROPERTY, INCLUDING WITHOUT LIMITATION,
ITS OPERATIONS OR ITS FINANCIAL HISTORY OR PROSPECTS) IS DELIVERED TO THE BUYER
AS A COURTESY, WITHOUT REPRESENTATION OR WARRANTY AS TO ITS ACCURACY OR
COMPLETENESS, AND NOT AS AN INDUCEMENT TO ACQUIRE THE PROPERTY; THAT NOTHING
CONTAINED IN SUCH DELIVERIES SHALL CONSTITUTE OR BE DEEMED TO BE A GUARANTEE,
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, IN ANY REGARD; AND THAT THE
BUYER IS RELYING ONLY UPON THE PROVISIONS OF THIS AGREEMENT AND ITS OWN
INDEPENDENT ASSESSMENT OF THE PROPERTY AND ITS PROSPECTS IN DETERMINING WHETHER
TO ACQUIRE THE PROPERTY. THE PROVISIONS OF PARAGRAPHS 5.2, 5.5, 5.6 AND 11.4
SHALL SURVIVE CLOSING.
5.6 Buyer's Release of Seller. SELLER AND ITS PARTNERS AND SELLER'S
PROPERTY MANAGER ARE HEREBY RELEASED FROM ALL RESPONSIBILITY AND LIABILITY
REGARDING THE CONDITION (INCLUDING THE PRESENCE IN THE SOIL, AIR, STRUCTURES AND
SURFACE AND SUBSURFACE WATERS, OF MATERIALS OR SUBSTANCES THAT HAVE BEEN OR MAY
BE IN THE FUTURE DETERMINED TO BE TOXIC, HAZARDOUS, UNDESIRABLE OR SUBJECT TO
REGULATION OR THAT MAY NEED TO BE SPECIALLY TREATED, HANDLED AND/OR REMOVED FROM
THE PROPERTY UNDER CURRENT OR FUTURE FEDERAL, STATE AND LOCAL LAWS, REGULATIONS
OR GUIDELINES), VALUATION, SALABILITY OR UTILITY OF THE PROPERTY, OR ITS
SUITABILITY FOR ANY PURPOSE WHATSOEVER. BUYER ACKNOWLEDGES THAT ANY INFORMATION
OF ANY TYPE WHICH BUYER HAS RECEIVED OR MAY RECEIVE FROM SELLER, ITS PARTNERS,
SELLER'S PROPERTY MANAGER OR THEIR RESPECTIVE AGENTS, INCLUDING, WITHOUT
LIMITATION, ANY ENVIRONMENTAL REPORTS AND SURVEYS, IS FURNISHED ON THE EXPRESS
CONDITION THAT BUYER SHALL MAKE AN INDEPENDENT VERIFICATION OF THE ACCURACY OF
SUCH INFORMATION, ALL SUCH INFORMATION BEING FURNISHED
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WITHOUT ANY WARRANTY WHATSOEVER. SELLER, ITS PARTNERS, SELLER'S PROPERTY MANAGER
AND THEIR RESPECTIVE AGENTS ARE HEREBY RELEASED FROM ALL RESPONSIBILITY AND
LIABILITY FOR SUCH MATERIALS.
ARTICLE 6
TITLE AND SURVEY
6.1 Title and Survey. Promptly following the execution of this Agreement,
Buyer shall obtain:
(a) A current ALTA as-built survey of the Real Property or an update
of Seller's survey (the "SURVEY"); and
(b) A commitment for an ALTA Owner's Policy of Title Insurance from
the Escrow Agent (the "TITLE COMMITMENT"). Buyer shall cause a copy of the
completed Title Commitment to be forwarded to Seller.
If the Survey or matters listed as exceptions in the Title Commitment are
not satisfactory to Buyer, Buyer shall, five (5) business days before the
Diligence Date, provide Seller with written notice of such objections (the
"Title Objections"). Seller, at its sole cost and expense shall have the right,
but not the obligation, to cure or remove any Title Objections and shall give
Buyer written notice on or prior to the Diligence Date, identifying those Title
Objections, if any, that Seller agrees to use reasonable efforts to cure;
provided, however, that Seller shall not be obligated to incur any costs or
expenses in excess of $10,000 in connection with any such cure undertaken by
Seller. If there are Title Objections which Seller is unable or unwilling to
cure, Buyer may terminate this Agreement as provided in Section 5.3, above or
waive such objections which Seller is not willing or able to cure and proceed to
closing. Those exceptions or title deficiencies which (i) Buyer does not object
to pursuant to this Section 6.1 or (ii) are waived because Seller is unwilling
or unable to cure shall be the "Permitted Exceptions."
6.2 Deed. On the Closing Date, Seller shall convey by good and sufficient
deed without covenants or warrantees (the "Deed") to Buyer good and clear record
and marketable fee simple title to all of the Real Property free and clear of
all liens, encumbrances, conditions, easements, assessments, restrictions and
other conditions, except for the following:
(a) All Leases;
(b) All zoning, building and other laws applicable to the Property;
(c) All matters which arise after the Diligence Date which are
agreed upon or consented to by Buyer;
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(d) The lien, if any, for real estate taxes for current year not due
and payable prior to the Closing Date (subject to proration in accordance
with Section 3.3 herein);
(e) All matters shown on Schedule B of the Title Commitment or of
public record as of the effective date of the Title Commitment and which
Seller has not agreed to cure pursuant to Section 6.1, above;
(f) The Permitted Exceptions;
(g) Any matters shown on the Survey;
(h) All matters, whether or not of record, to the extent caused by
Buyer or its agents, representatives or contractors; and
(i) The Existing Loan and the Existing Loan Documents.
6.3 Existing Loan.
(a) The obligations of Seller under this Agreement are contingent
and conditioned upon the following:
(i) Lender's approval of the assignment to Buyer of the
Existing Loan;
and
(ii) Receipt by Seller from Lender at Closing of a release of
(A) all obligations of Seller and any guarantor or indemnitor under
any and all environmental or hazardous substance remediation or
indemnification agreements for events occurring or arising from and
after the Closing Date and (B) all other obligations of Seller and
any guarantor or indemnitor under the Existing Loan Documents.
(b) Within three (3) days of the date hereof, Seller shall provide
Buyer with a true, correct and complete copy of all Existing Loan
Documents executed in connection with the Existing Loan in its possession
or control, which documents are listed on EXHIBIT I attached hereto.
(c) Buyer shall, at its sole cost and expense, simultaneously with
the execution of this Agreement, deliver to Seller a check payable to
Seller in the amount of $1,500.00 or such other amount as may be required
to reimburse Seller for the fee(s) charged to Seller by Lender for
applying for its consent to the assignment and assumption of the Existing
Loan. Buyer and Seller agree to diligently pursue such application until
Lender grants its approval of the assignment and assumption of the
Existing Loan to Buyer or
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responds that it will not grant such approval or conditions such approval
on requirements unacceptable to Buyer or Seller (in each of such party's
commercially reasonable discretion), including, but not limited to, timely
submission of all materials reasonably requested by Lender and/or those
documents required to be submitted to Lender pursuant to the applicable
provisions of the Existing Loan Documents. Each party shall advise the
other party as to the status of the application process from time to time
promptly following the request of the other party.
(d) Buyer shall pay all fees and costs, if any, charged by the
Lender relating to the assignment and assumption of the Existing Loan.
(e) Buyer and Seller agree to cooperate with Buyer's efforts to
obtain Lender's consent. Subject to the other provisions of this
Agreement, Buyer and Seller each agree to execute and deliver any and all
documents or instruments or take such other action as may be necessary or
proper to effectuate, confirm, perform or carry out the assignment and
assumption of the Existing Loan.
6.4 Lease Assignment. At the Closing, Seller shall assign the Leases to
Buyer and Buyer shall assume Seller's obligations thereunder and Seller shall
convey the Personal Property to Buyer by quitclaim bill of sale.
ARTICLE 7
CONDITIONS PRECEDENT AND CLOSING
7.1 Buyer's Conditions Precedent. In addition to any other conditions
precedent in favor of Buyer as may be set forth elsewhere in this Agreement,
Buyer's obligations under this Agreement are expressly subject to the timely
fulfillment of the conditions set forth in this Section 7.1 on or before the
Closing Date, or such earlier date as is set forth below. Each condition may be
waived in whole or in part only by written notice of such waiver from Buyer to
Seller.
(a) Seller performing and complying in all material respects with
all of the terms of this Agreement to be performed and complied with by
Seller prior to or at the Closing; and
(b) Satisfaction in full of the requirements of Section 6.3 with
respect to the Existing Loan.
Notwithstanding the foregoing, if any conditions of Closing (other than an
obligation of Buyer under Section 7.2 below) shall not have been fulfilled on or
before the Closing Date
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(including, without limitation, satisfaction in full of the requirements of
Section 6.3 with respect to the Existing Loan), Seller shall have the right (in
its sole discretion), exercisable by written notice to Buyer at or before the
Closing, to extend the Closing Date for a period of up to forty-five (45) days
to provide additional time for the fulfillment of such conditions. Upon any such
extension, the term "Closing Date" as used herein shall mean the date set forth
in such written notice from Seller. If Buyer's conditions as set forth in this
Section 7.1 have not been met as of the Closing Date (as the same may be
extended as aforesaid) then Buyer shall have the right to terminate this
Agreement by written notice to Seller, and upon receipt of such notice Seller
shall direct the Escrow Agent to return the Escrowed Amount to Buyer and this
Agreement shall thereupon terminate and be of no further force or effect.
7.2 Seller's Conditions Precedent. In addition to any other conditions
precedent in favor of Seller as may be set forth elsewhere in this Agreement,
Seller's obligations under this Agreement are expressly subject to the timely
fulfillment of the conditions set forth in this Section 7.2 on or before the
Closing Date, or such earlier date as is set forth below. Each condition may be
waived in whole or part only by written notice of such waiver from Seller to
Buyer.
(a) Buyer performing and complying in all material respects with all
of the terms of this Agreement to be performed and complied with by Buyer
prior to or at the Closing, including, without limitation, payment by the
Buyer of the Purchase Price (as adjusted as otherwise provided herein);
(b) On the Closing Date, all of the representations of Buyer set
forth in this Agreement shall continue to be true, accurate and complete;
(c) Satisfaction in full of the requirements of Section 6.3 with
respect to the Existing Loan; and
(d) The release by Lender of Seller from any and all obligations and
liability under the Existing Loan Documents and the form of the assumption
and release documents being satisfactory to Seller in its sole discretion.
7.3 Closing Date. Subject to Seller's right to extend the Closing Date as
provided in Section 7.1 and Buyer's right to extend the Closing Date as provided
below, the consummation of the purchase and sale contemplated in this Agreement
(the "CLOSING") shall occur through an escrow closing arrangement as described
in EXHIBIT F attached hereto on the date that is seven (7) days following the
Due Diligence Date (the "Closing Date"), at the office of the Escrow Agent or
through the escrow closing arrangements set forth in the Form of Escrow Closing
Instructions attached hereto as EXHIBIT F. It is agreed that time is of the
essence in this Agreement.
The Closing Date shall be extended to a date not later than the date that
is ninety (90) days following the date hereof to the extent necessary to obtain
(i) Lender's approval of the assignment
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to and assumption by Buyer of the Existing Loan and (ii) the releases described
in Section 6.3(a)(ii). In such event, the Closing shall occur on the date that
is three (3) business days following Seller's receipt of items (i) and (ii) of
the preceding sentence.
Buyer shall have the right to extend the Closing Date for up to ten (10)
additional business days upon delivery of written notice received by Seller not
less than two (2) business days prior to the scheduled Closing Date set forth
above and the deposit with Escrow Agent of the sum of One Hundred Thousand
Dollars ($100,000.00) (the "Additional Deposit") received by Escrow Agent not
less than two (2) business days prior to the scheduled Closing Date set forth
above. The Escrow Agent will hold the Additional Deposit with the Deposit,
together with all interest earned thereon, as the Escrowed Amount. The Escrowed
Amount shall be maintained by the Escrow Agent until the Escrow Agent is
required to cause the Escrowed Amount to be disbursed pursuant to the terms and
conditions of this Agreement and the Earnest Money Escrow Instructions. The
Escrowed Amount, including the Additional Deposit, shall be applied to the
Purchase Price if the Closing occurs, as provided in Section 3.2(c), above.
7.4 Closing Deliveries. On the Closing Date, Seller shall deliver or cause
to be delivered:
(a) The Deed duly executed and acknowledged;
(b) A duly executed quitclaim bill of sale and general assignment
conveying the Personal Property and the Intangible Property to Buyer;
(c) A duly executed assignment and assumption of the Leases and
Tenant Deposits (the "ASSIGNMENT OF LEASES");
(d) A duly executed assignment and assumption of Property Contracts
being assumed (the "ASSIGNMENT OF CONTRACTS");
(e) A certificate of non-foreign status from Seller;
(f) Customary affidavits sufficient for the Escrow Agent to delete
any exceptions for mechanic's or materialmen's liens and parties in
possession from Buyer's title policy and such other affidavits relating to
such title policy as the Escrow Agent may reasonably request;
(g) An updated Rent Roll (including a list if all delinquent and
prepaid rents) certified by the Seller as true and correct as of the
Closing Date;
(h) Such other instruments as Buyer or the Escrow Agent may
reasonably request to effectuate the transactions contemplated by this
Agreement;
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(i) A duly executed counterpart original of the closing statement
setting forth the Purchase Price, the closing adjustments and the
application of the Purchase Price as adjusted;
(j) Evidence or documents as may reasonably be required by the
Escrow Agent evidencing the status and capacity of Seller to sell the
Property and the authority of the person or persons executing the various
documents on behalf of Seller in connection with the sale of the Property;
(k) Originals, or where unavailable, copies of all Property
Contracts, Leases (with all amendments and modifications thereto),
operating information, permits, warranties and financial information about
the Property in Seller's possession or control relating to the Property;
(l) All keys to all locks on the Property and similar items, to the
extent in Seller's possession;
(m) All documents reasonably required to effect the assignment and
assumption of the Existing Loan, in form and substance reasonably
acceptable to the parties and acceptable to Lender;
(n) To the extent required, documents for the transfer of telephone,
electric, water and sewer, and gas utilities, as may be required by the
utility;
(o) A satisfactory and valid written termination of the management
agreement executed by the existing management and rental agent for the
Property; and
(p) The form attached hereto as Exhibit G (Disclosure of Information
on Lead-Based Paint and/or Lead-Based Paint Hazards duly executed by
Seller.
7.5 Buyer's Deliveries. On the Closing Date, Buyer shall deliver or cause
to be delivered at its expense each of the following to Seller:
(a) The Purchase Price for the Property, as such Purchase Price may
have been adjusted pursuant to the provisions of this Agreement and
credited for any portion of the Escrowed Amount paid to Seller, in the
manner provided for in Article 3;
(b) Evidence in form and substance reasonably satisfactory to Escrow
Agent and Seller of Buyer's authority to purchase the Property and to
assume the Existing Loan;
(c) The Assignment of Leases;
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(d) The Assignment of Contracts;
(e) Such other instruments as Seller or Escrow Agent may reasonably
request to effectuate the transactions contemplated by this Agreement;
(f) A duly executed counterpart original of the closing statement
setting forth the Purchase Price, the closing adjustments and the
application of such amounts;
(g) Such evidence or documents as may reasonably be required by the
Escrow Agent evidencing the status and capacity of Buyer and the authority
of the person or persons who are executing the various documents on behalf
of Buyer in connection with the purchase of the Property;
(h) Acknowledgment by Buyer of Buyer's receipt from Seller of the
Tenant Deposits;
(i) All documents reasonably required to effect the assignment and
assumption of the Existing Loan in form and substance reasonably
acceptable to the parties and to Lender;
(j) Executed counterparts of any other documents listed in Section
7.4 required to be signed by Buyer; and
(k) The form attached hereto as Exhibit G (Disclosure of Information
on Lead-Based Paint and/or Lead-Based Paint Hazards duly executed by Buyer
and Broker (Buyer acknowledges and agrees that the diligence period
provided under Section 5.2 hereof shall be the mutually-agreed upon period
for Buyer to conduct a risk assessment or inspection of the Property for
the presence of lead-based paint and/or lead-based paint hazards).
7.6 Possession. Possession of the Property shall be delivered to Buyer by
Seller at the Closing, subject only to those items listed in Section 6.2 of this
Agreement and rights arising under any Property Contracts not terminated by
Buyer pursuant to Section 4.3. Seller and Buyer covenant and agree to execute,
at Closing, a written notice of the acquisition of the Property by Buyer, for
duplication and transmittal to all tenants affected by the sale and purchase of
the Property (or otherwise in such manner as will comply with applicable law
respecting notification of tenants). Such notice shall be prepared by Buyer and
approved by Seller, shall notify the tenants of the sale and transfer and shall
contain appropriate instructions relating to the payment of future rentals, the
giving of future notices, and other matters reasonably required by Buyer or
required by law. Unless a different procedure is required by applicable law, in
which event such laws shall be controlling, Buyer agrees to transmit or
otherwise deliver such letters to the tenants promptly after the Closing.
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ARTICLE 8
CASUALTY AND CONDEMNATION
8.1 Casualty. If the Improvements are materially damaged by fire or any
other casualty and are not substantially restored to the condition immediately
prior to such casualty before the Closing Date, Buyer shall have the following
elections:
(a) to purchase the Property in its then condition and pay the
Purchase Price, in which event Seller shall pay over or assign to Buyer as
the case may be, on the Closing Date, (i) any deductible, (ii) rent loss
insurance proceeds and (iii) amounts recovered or recoverable by Seller on
account of any insurance as a result of such casualty up to the amount of
the Purchase Price, less any amounts reasonably expended by Seller for
partial restoration; or
(b) if any portion of the Improvements suffers damage in excess of
$350,000.00 from fire or any other casualty which Seller, in its sole
option, elects not to repair, to terminate this Agreement by giving notice
of termination to Seller on or before that date which is thirty (30) days
after the occurrence of the fire or other casualty or on the Closing Date,
whichever occurs first, in which event the Escrow Agent shall return the
Escrowed Amount to Buyer, this Agreement shall terminate and neither
Seller nor Buyer shall have any recourse against the other (except to the
extent such recourse arises in connection with a provision of this
Agreement which is intended to survive termination).
8.2 Condemnation. If any substantial portion of or interest in the
Property shall be taken or is in the process of being taken by exercise of the
power of eminent domain or if any governmental authority notifies Seller prior
to the Closing Date of its intent to take or acquire any portion of or interest
in the Property (each an "EMINENT DOMAIN TAKING"), Seller shall give notice
promptly to Buyer of such event and Buyer shall have the option to terminate
this Agreement by providing notice to Seller to such effect on or before the
date which is ten (10) days from Seller's notice to Buyer of such Eminent Domain
Taking or on the Closing Date, whichever occurs first, in which event the Escrow
Agent shall return the Escrowed Amount to Buyer, this Agreement shall terminate,
and neither Seller nor Buyer shall have any recourse against the other (except
to the extent such recourse arises in connection with a provision of this
Agreement which is intended to survive termination). If Buyer does not timely
notify Seller of its election to terminate this Agreement, Buyer shall purchase
the Property and pay the Purchase Price, and Seller shall pay over or assign to
Buyer on delivery of the Deed awards recovered or recoverable by Seller on
account of such Eminent Domain Taking up to the amount of the Purchase Price,
less any amounts reasonably expended by Seller in obtaining such award.
"Substantial portion or interest" shall mean (i) a portion of the Property
valued in excess of $350,000.00 or (ii) a portion of the parking area such that
the Property is no longer in compliance with zoning requirements.
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ARTICLE 9
BROKERAGE COMMISSIONS
Seller and Buyer each mutually represent and warrant to the other that
they have not dealt with, and are not obligated to pay, any fees or commissions
to any broker in connection with the transaction contemplated by this Agreement
other than Gables Residence (the "Broker"). Buyer agrees to pay all commissions,
payments and fees due to the Broker at the Closing. Buyer agrees to indemnify,
defend and hold Seller harmless from and against all loss, liabilities, costs,
damages and expenses (including reasonable attorneys' fees) arising from any
claims for brokerage or finder's fees, commissions or other similar fees,
including any claim made by the Broker, in connection with the transaction
covered by this Agreement insofar as such claims shall be based upon alleged
arrangements or agreements made by Buyer or on Buyer's behalf. Seller hereby
agrees to indemnify, defend and hold Buyer harmless from and against all loss,
liabilities, costs, damages and expenses (including reasonable attorneys' fees)
arising from any claims for brokerage or finders' fees, commissions or other
similar fees in connection with the transaction covered by this Agreement as
such claims shall be based upon alleged arrangements or agreements made by
Seller or on Seller's behalf. The covenants and agreements contained in this
Article shall survive the termination of this Agreement or the Closing of the
transaction contemplated hereunder.
ARTICLE 10
DEFAULT, TERMINATION AND REMEDIES
10.1 Seller's Default. In the event that Seller shall have failed in any
material respect adverse to Buyer as of the Closing Date to have performed any
of the covenants and agreements contained in this Agreement which are to be
performed by Seller on or before the Closing Date or Seller defaults in its
obligation to close hereunder, Buyer shall have the right to terminate this
Agreement and receive (a) the Escrowed Amount and (b) reimbursement for actual
costs incurred by Buyer in conducting its due diligence pursuant to this
Agreement in a total amount not to exceed $35,000.00, whereupon this Agreement
shall terminate without further recourse. Buyer hereby waives and relinquishes
any right to sue Seller for any reason whatsoever, and agrees that Seller shall
not be liable to Buyer for any actual, punitive, speculative, consequential or
other damages for breach by Seller prior to the Closing, except for payment of
the Escrowed Amount. IN NO EVENT SHALL SELLER, ITS DIRECT OR INDIRECT PARTNERS,
SHAREHOLDERS, OWNERS OR AFFILIATES, ANY OFFICER, DIRECTOR, EMPLOYEE OR AGENT OF
THE FOREGOING, OR ANY AFFILIATE OR CONTROLLING PERSON THEREOF, HAVE ANY
LIABILITY BEYOND ITS INTEREST IN THE PROPERTY FOR ANY CLAIM, CAUSE OF ACTION OR
OTHER LIABILITY ARISING OUT OF OR
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RELATING TO THIS AGREEMENT OR THE PROPERTY, WHETHER BASED ON COMMON LAW,
CONTRACT, STATUTE, EQUITY OR OTHERWISE.
10.2 Buyer's Default. In the event that Buyer shall have failed in any
material respect adverse to Seller as of the Closing Date to have performed any
of the covenants and agreements contained in this Agreement which are to be
performed by Buyer on or before the Closing Date, or if Buyer defaults in its
obligation to close hereunder, Seller shall be entitled to receive the Escrowed
Amount as liquidated damages, in lieu of all other remedies available to Seller
at law or in equity for such default, and the Escrow Agent shall release the
Escrowed Amount to Seller. Seller and Buyer agree that the damages resulting to
Seller as a result of such default by Buyer as of the date of this Agreement are
difficult or impossible to ascertain and the liquidated damages set forth in the
preceding sentence constitute Buyer's and Seller's reasonable estimate of such
damages.
ARTICLE 11
REPRESENTATIONS AND WARRANTIES
11.1 Buyer's Representations and Warranties. Buyer represents and
warrants to Seller that:
(a) Buyer is a corporation, duly organized and in good standing
under the laws of the Commonwealth of Virginia, is qualified to do
business in the Commonwealth of Virginia and has the power and authority
to enter into this Agreement and to execute and deliver this Agreement and
to perform all duties and obligations imposed upon it hereunder. As of the
date of this Agreement, Buyer has obtained all necessary corporate,
partnership or other organizational authorizations required in connection
with the execution and delivery of this Agreement. Each of the individuals
executing this Agreement on Buyer's behalf is authorized to do so. Buyer
has the financial ability to pay the Purchase Price by (i) tendering the
Cash Balance and (ii) assuming the Existing Loan, and to perform the other
covenants of Buyer set forth in this Agreement.
(b) Neither the execution nor the delivery of this Agreement, nor
the consummation of the purchase and sale transaction contemplated hereby,
nor the fulfillment of or compliance with the terms and conditions of this
Agreement conflict with or will result in the breach of any of the terms,
conditions or provisions of any agreement or instrument to which Buyer is
a party or by which Buyer or any of Buyer's assets is bound;
(c) Buyer is not in any way affiliated with Seller;
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(d) No approval, consent, order or authorization of, or designation,
registration or declaration with, any of the United States, the
Commonwealth of Virginia, any department, board, agency, office,
commission or other subdivisions thereof, or any official thereof or any
third party is required in connection with the valid execution and
delivery of, and performance of the covenants of, this Agreement by Buyer.
(e) There are no actions, suits or proceedings pending or, to the
knowledge of Buyer, threatened, against or affecting Buyer which, if
determined adversely to Buyer, would adversely affect its ability to
perform its obligations hereunder.
As a condition precedent to Seller's obligation to close the purchase and
sale transaction contemplated in this Agreement, Buyer's representations and
warranties contained herein must remain and be true and correct as of the
Closing Date. Prior to the Closing Date, Buyer shall notify Seller in writing of
any facts, conditions or circumstances which render any of the representations
and warranties set forth in this Section 11.1 in any way inaccurate, incomplete,
incorrect or misleading.
11.2 Seller's Representations and Warranties.
(a) Seller is a limited partnership existing under the laws of the
State of Texas. Seller has full right, power and authority and is duly
authorized to enter into this Agreement, to perform each of the covenants
on its part to be performed hereunder and to execute and deliver, and to
perform its obligations under all documents required to be executed and
delivered by it pursuant to this Agreement and this Agreement constitutes
the valid and binding obligation of Seller enforceable in accordance with
its terms.
(b) Seller has directed its manager to deliver or to make available
to Buyer (i) complete copies of all Leases and (ii) the Rent Roll.
(c) Seller has caused its property manager to deliver or to make
available copies of all Property Contracts.
(d) To Seller's knowledge, Seller has not been served with notice of
any actions, suits, or proceedings against or affecting the Seller or the
Property that either (i) are not covered by applicable insurance or (ii)
if determined adversely to Seller would materially affect the ownership or
operation of the Property or Seller's ability to perform its obligations
under this Agreement.
Seller reserves the right to update the representations and warranties
made by it herein. All of Seller's representations and warranties shall be
deemed to be updated by information disclosed to or obtained by Purchaser in
connection with its due diligence investigations.
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11.3 Seller; Seller's Knowledge. Whenever a representation is made to
"Seller's knowledge", or a term of similar import, the accuracy of such
representation shall be based solely on the actual knowledge of Celia R. Deluga
("Deluga") and Christine Holder ("Holder"), without independent investigation or
inquiry except for inquiry of Seller's property manager for the Property. Deluga
is an officer of an affiliate of a general partner of Seller who has had primary
responsibility for the sale of the Property to Buyer. Holder is a regional
manager of Gables Residential Services, Seller's property manager.
Notwithstanding the foregoing, if, prior to the Closing, Buyer obtains actual
knowledge that any representation or warranty of Seller is inaccurate and Buyer
nonetheless proceeds with the Closing, Seller shall have no liability for any
such matter regarding which Buyer had actual knowledge prior to Closing.
11.4 Property Conveyed "AS IS".
(A) NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, IT IS
UNDERSTOOD AND AGREED THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN, SELLER
AND ITS PARTNERS AND SELLER'S PROPERTY MANAGER HAVE NOT MADE AND ARE NOT
NOW MAKING, AND THEY SPECIFICALLY DISCLAIM, ANY OTHER WARRANTIES,
REPRESENTATIONS OR GUARANTIES OF ANY KIND OR CHARACTER, EXPRESS OR
IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, WITH RESPECT TO THE
PROPERTY, INCLUDING, BUT NOT LIMITED TO, WARRANTIES, REPRESENTATIONS OR
GUARANTIES AS TO (I) MATTERS OF TITLE, (II) ENVIRONMENTAL MATTERS RELATING
TO THE PROPERTY OR ANY PORTION THEREOF, (III) GEOLOGICAL CONDITIONS,
INCLUDING, WITHOUT LIMITATION, SUBSIDENCE, SUBSURFACE CONDITIONS, WATER
TABLE, UNDERGROUND WATER RESERVOIRS, LIMITATIONS REGARDING THE WITHDRAWAL
OF WATER, AND EARTHQUAKE FAULTS AND THE RESULTING DAMAGE OF PAST AND/OR
FUTURE EARTHQUAKES, (IV) WHETHER, AND TO THE EXTENT TO WHICH THE PROPERTY
OR ANY PORTION THEREOF IS AFFECTED BY ANY STREAM (SURFACE OR UNDERGROUND),
BODY OF WATER, FLOOD PRONE AREA, FLOOD PLAIN, FLOODWAY OR SPECIAL FLOOD
HAZARD, (V) DRAINAGE, (VI) SOIL CONDITIONS, INCLUDING THE EXISTENCE OF
INSTABILITY, PAST SOLID REPAIRS, SOIL ADDITIONS OR CONDITIONS OF SOIL
FILL, OR SUSCEPTIBILITY TO LANDSLIDES, OR THE SUFFICIENCY OF ANY
UNDERSHORING, (VII) ZONING TO WHICH THE PROPERTY OR ANY PORTION THEREOF
MAY BE SUBJECT, (VIII) THE AVAILABILITY OF ANY UTILITIES TO THE PROPERTY
OR ANY PORTION THEREOF INCLUDING, WITHOUT LIMITATION, WATER, SEWAGE, GAS
AND ELECTRIC, (IX) USAGES OF ADJOINING PROPERTY, (X) ACCESS TO THE
PROPERTY OR ANY PORTION THEREOF, (XI) THE VALUE, COMPLIANCE WITH THE PLANS
AND SPECIFICATIONS, SIZE, LOCATION, AGE, USE,
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DESIGN, QUALITY, DESCRIPTION, SUITABILITY, STRUCTURAL INTEGRITY,
OPERATION, TITLE TO, OR PHYSICAL OR FINANCIAL CONDITION OF THE PROPERTY OR
ANY PORTION THEREOF, OR ANY INCOME, EXPENSES, CHARGES, LIENS,
ENCUMBRANCES, RIGHTS OR CLAIMS ON OR AFFECTING OR PERTAINING TO THE
PROPERTY OR ANY PART THEREOF, OR ANY INCOME, EXPENSES, CHARGES, LIENS,
ENCUMBRANCES, RIGHTS OR CLAIMS ON OR AFFECTING OR PERTAINING TO THE
PROPERTY OR ANY PART THEREOF, (XII) THE PRESENCE OF HAZARDOUS SUBSTANCES
IN OR ON, UNDER OR IN THE VICINITY OF THE PROPERTY, (XIII) THE CONDITION
OR USE OF THE PROPERTY OR COMPLIANCE OF THE PROPERTY WITH ANY OR ALL PAST,
PRESENT OR FUTURE FEDERAL, STATE OR LOCAL ORDINANCES, RULES, REGULATIONS
OR LAWS, BUILDING, FIRE OR ZONING ORDINANCES, CODES OR OTHER SIMILAR LAWS,
(XIV) THE EXISTENCE OR NONEXISTENCE OF UNDERGROUND STORAGE TANKS, (XV) ANY
OTHER MATTER AFFECTING THE STABILITY OR INTEGRITY OF THE REAL PROPERTY,
(XVI) THE POTENTIAL FOR FURTHER DEVELOPMENT OF THE PROPERTY, (XVII) THE
EXISTENCE OR VESTING OF LAND USE, ZONING OR BUILDING ENTITLEMENTS
AFFECTING THE PROPERTY, (XVIII) THE MERCHANTABILITY OF THE PROPERTY OR
FITNESS OF THE PROPERTY FOR ANY PARTICULAR PURPOSE (BUYER AFFIRMING THAT
BUYER HAS NOT RELIED ON SELLER'S, SELLER'S PARTNERS OR SELLER'S PROPERTY
MANAGER'S SKILL OR JUDGMENT TO SELECT OR FURNISH THE PROPERTY FOR ANY
PARTICULAR PURPOSE, AND THAT SELLER MAKES NO WARRANTY THAT THE PROPERTY IS
FIT FOR ANY PARTICULAR PURPOSE), OR (XIX) TAX CONSEQUENCES.
(B) BUYER HAS NOT RELIED UPON AND WILL NOT RELY UPON, EITHER
DIRECTLY OR INDIRECTLY, ANY REPRESENTATION OR WARRANTY OF SELLER OR ITS
PARTNERS OR SELLER'S PROPERTY MANAGER OR ANY OF THEIR RESPECTIVE AGENTS,
EXPECT AS EXPRESSLY SET FORTH HEREIN, AND ACKNOWLEDGES THAT NO OTHER SUCH
REPRESENTATIONS HAVE BEEN MADE. BUYER REPRESENTS THAT IT IS A
KNOWLEDGEABLE, EXPERIENCED AND SOPHISTICATED BUYER OF REAL ESTATE AND THAT
IT IS RELYING SOLELY ON ITS OWN EXPERTISE AND THAT OF BUYER'S CONSULTANTS
IN PURCHASING THE PROPERTY. BUYER WILL CONDUCT SUCH INSPECTIONS AND
INVESTIGATIONS OF THE PROPERTY AS BUYER DEEMS NECESSARY, INCLUDING, BUT
NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AND
SHALL RELY SOLELY UPON SAME. UPON CLOSING, BUYER SHALL ASSUME THE RISK
THAT ADVERSE MATTERS, INCLUDING, BUT NOT LIMITED TO, ADVERSE
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PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY
BUYER'S INSPECTIONS AND INVESTIGATIONS. BUYER ACKNOWLEDGES AND AGREED THAT
UPON CLOSING, SELLER SHALL SELL AND CONVEY TO BUYER AND BUYER SHALL ACCEPT
THE PROPERTY "AS IS, WHERE IS", WITH ALL FAULTS. BUYER FURTHER
ACKNOWLEDGES AND AGREES THAT THERE ARE NO ORAL AGREEMENTS, WARRANTIES OR
REPRESENTATIONS, COLLATERAL TO OR AFFECTING THE PROPERTY BY SELLER, IT'S
PARTNERS OR SELLER'S PROPERTY MANAGER OR ANY AGENT OF ANY OF THEM. THE
TERMS AND CONDITIONS OF THIS SECTION 11.4(B) SHALL EXPRESSLY SURVIVE THE
CLOSING, NOT MERGE WITH THE PROVISIONS OF ANY CLOSING DOCUMENTS AND SHALL
BE INCORPORATED INTO THE DEED. SELLER IS NOT LIABLE OR BOUND IN ANY MANNER
BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS, OR INFORMATION
PERTAINING TO THE PROPERTY FURNISHED BY ANY REAL ESTATE BROKER, AGENT,
EMPLOYEE, SERVANT OR OTHER PERSON. BUYER ACKNOWLEDGES THAT THE PURCHASE
PRICE REFLECTS THE "AS IS" NATURE OF THIS SALE AND ANY FAULTS,
LIABILITIES, DEFECTS OR OTHER ADVERSE MATTERS THAT MAY BE ASSOCIATED WITH
THE PROPERTY. BUYER HAS FULLY REVIEWED THE DISCLAIMERS AND WAIVERS SET
FORTH IN THE THIS AGREEMENT WITH ITS COUNSEL AND UNDERSTANDS THE
SIGNIFICANCE AND EFFECT THEREOF.
/s/ GGR
--------------
Buyer's Initials
ARTICLE 12
MISCELLANEOUS
12.1 Successors and Assigns. Without the prior written consent of Seller,
Buyer shall not, directly or indirectly, assign this Agreement or any of its
rights hereunder. Any attempted assignment in violation hereof shall, at the
election of Seller in its sole discretion, be of no force or effect and shall
constitute a default by Buyer. Notwithstanding the foregoing, Buyer may elect to
have Apple Residential Income Trust, Inc. ("Apple") or another nominee entity
accept title to the Property at Closing, provided that any such nominee must be
an affiliated entity controlled by or under common control with Buyer or Apple,
and Buyer shall give written notice of such nominee to Seller, together with any
reasonable evidence of affiliation requested by Seller, a minimum of fifteen
(15) days prior to Closing. No designation of a nominee to receive title shall
release Buyer from its obligations under this Agreement.
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12.2 Notices. Except as otherwise specifically provided herein, any notice
required or permitted to be delivered under this Agreement shall be in writing
and shall be deemed given (i) when delivered or refused if sent by hand during
regular business hours, (ii) three (3) days after being sent by United States
Postal Service, registered or certified mail, postage prepaid, return receipt
requested, or (iii) on the next business day when sent by a reputable overnight
express mail service that provides tracing and proof of receipt or refusal of
items mailed, addressed to Seller or Buyer, as the case may be, at the address
or addresses set forth below or such other addresses as the parties may
designate in a notice similarly sent. Any notice given by a party to Escrow
Agent shall be simultaneously given to the other party. Any notice given by a
party to the other party relating to its entitlement to the Escrowed Amount
shall be simultaneously given to the Escrow Agent.
(1) If to Seller:
c/o Paine Webber Properties Incorporated
265 Franklin Street - 15th Floor
Boston, MA 02110
Attn: Ms. Celia R. Deluga, Vice President
with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Andrew C. Sucoff, Esq.
(2) If to Buyer:
Cornerstone Realty Group, Inc.
306 East Main Street
Richmond, VA 23219
Attn: Mr. Gus G. Remppies
with a copy to:
Harry S. Taubenfeld, Esq.
Zuckerbrod & Taubenfeld
575 Chestnut Street
Cedarhurst, NY 11516
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and to:
Robert Morrison, Esq.
Brown McCarroll & Oaks Hartline
300 Crescent Court - Suite 1400
Dallas, TX 75201-6929
(3) If to the Escrow Agent:
Lawyers Title Insurance Corporation
4311 Oak Lawn, Suite 600
Dallas, TX 75209
Attention: David Long
12.3 Construction. Words of any gender used in this Agreement shall be
held and construed to include any other gender, and words of a singular number
shall be held to include the plural and vice versa, unless the context requires
otherwise.
12.4 Captions. The captions used in connection with the Articles of this
Agreement are for convenience only and shall not be deemed to extend, limit or
otherwise define or construe the meaning of the language of this Agreement.
12.5 No Other Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement; provided that persons named as the beneficiary of any waiver,
release or indemnity in this Agreement are intended third-party beneficiaries
under this Agreement as to such provisions and may enforce such provisions as if
they are parties to this Agreement.
12.6 Amendments. This Agreement may be amended only by a written
instrument executed by Seller and Buyer (or Buyer's assignee or transferee).
12.7 Severability. If any provision of this Agreement or application to
any party or circumstance shall be determined by any court of competent
jurisdiction to be invalid and unenforceable to any extent, the remainder of
this Agreement or the application of such provision to such person or
circumstances, other than those as to which it is so determined invalid or
unenforceable, shall not be affected thereby, and each provision hereof shall be
valid and shall be enforced to the fullest extent permitted by law.
12.8 Applicable Law. This Agreement shall be construed under and in
accordance with the laws of state in which the Property is located.
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12.9 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be an original but such counterparts together
shall constitute one and the same instrument notwithstanding that both Buyer and
Seller are not signatory to the same counterpart.
12.10 Time of the Essence. Time is expressly declared to be of the essence
of this Agreement, provided, however that in the event any date hereunder falls
on a Saturday, Sunday or legal holiday, the date applicable shall be the next
business day.
12.11 No Personal Liability. The obligations of Seller hereunder shall be
binding only on the Property and neither Buyer nor anyone claiming by, through
or under Buyer shall be entitled to obtain any judgment extending liability
beyond the Property or creating personal liability on the part of the partners
of the Seller or of the officers, directors, shareholders, advisors or agents of
Seller or Seller's partners or any of their successors. Under no circumstances
is any person other than Seller liable for Seller's obligations under this
Agreement or in respect of the transaction contemplated by this Agreement, and
Buyer hereby waives any right that it otherwise might have to pursue any partner
of Seller, any other person who might be liable for Seller's obligations because
of the direct or indirect ownership interest in Seller, or any officer,
director, agent, advisor or affiliate of any such partner or other person.
12.12 No Recordation. Without the prior written consent of Seller, there
shall be no recordation of either this Agreement or any memorandum hereof, or
any affidavit pertaining hereto, and any such recordation of this Agreement or
memorandum hereto by Purchaser without the prior written consent of Seller shall
constitute a default hereunder by Buyer, whereupon this Agreement shall, at the
option of Seller, terminate and be of no further force and effect. Upon
termination, the Escrowed Amount shall be immediately delivered to Seller,
whereupon the parties shall have no further duties or obligations to one another
except as otherwise specifically provided herein.
12.13 Waiver. The excuse or waiver of the performance by a party of any
obligation of the other party under this Agreement shall only be effective if
evidenced by a written statement signed by the party so excusing or waiving. No
delay in exercising any right or remedy shall constitute a waiver thereof, and
no waiver by Seller or Buyer of the breach of any covenant of this Agreement
shall be construed as a waiver of any preceding or succeeding breach of the same
or any other covenant or condition of this Agreement.
12.14 Binding On Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
12.15 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the transactions contemplated herein,
and it supersedes all prior discussions, understandings or agreements between
the parties. All Exhibits and Schedules attached hereto are a part of this
Agreement and are incorporated herein by reference.
30
<PAGE>
12.16 Construction of Agreement. This Agreement shall not be construed
more strictly against one party than against the other merely by virtue of the
fact that it may have been prepared primarily by counsel for one of the parties,
it being recognized that both Buyer and Seller have contributed substantially
and materially to the preparation of this Agreement.
12.17 Further Instruments. Each party, promptly upon the request of the
other, shall execute and have acknowledged and delivered to the other or to
Escrow Agent, as may be appropriate, any and all further instruments reasonably
requested or appropriate to evidence or give effect to the provisions of this
Agreement and which are consistent with the provisions of this Agreement.
12.18 Buyer Represented by Counsel. Buyer hereby represents and warrants
to Seller that (i) Buyer is not in a significantly disparate bargaining position
in relation to Seller, (ii) Buyer is represented by legal counsel in connection
with the transaction contemplated by this Agreement, and (iii) Buyer is buying
the Property for business, commercial, investment or other similar purpose and
not for use as Buyer's residence.
12.19 Preparation of Documents. All of the documents to be executed at the
Closing shall be in the form prepared to the reasonable satisfaction of Seller's
and Buyer's counsel and delivered to Buyer on or before five (5) days prior to
the Closing Date, provided that the failure to timely deliver such documents
shall not constitute a default by Seller hereunder.
12.20 Public Entity. Seller acknowledges that Buyer is a public entity and
that it is required to furnish financial statements to the Securities and
Exchange Commission in connection with this acquisition. To the extent available
and in Seller's possession, Seller agrees, from the date of this Agreement and
for a period of ninety (90) days following the Closing Date, to make the
information available for Purchaser to audit the last 12 months of operation of
the Property so that a report can be generated that is in compliance with
accounting Regulation S-X of the Securities and Exchange Commission. In
addition, Seller agrees to submit the form of letter attached hereto as EXHIBIT
K to the property manager for signature.
12.21 When Agreement Becomes Binding. The submission of this document for
examination and negotiation does not constitute an offer to sell, or a
reservation of, or option for, the Property, and this document shall become
effective and binding only upon the execution and delivery hereof by both Seller
and Buyer.
31
<PAGE>
ARTICLE 13
IRS FORM 1099-S DESIGNATION
In order to comply with information reporting requirements of Section
6045(e) of the Internal Revenue Code of 1986, as amended, and the Treasury
Regulations thereunder, the parties agree (1) to execute an IRS Form 1099-S
Designation Agreement in the form attached hereto as Exhibit J at or prior to
the Closing to designate the Escrow Agent (the "DESIGNEE") as the party who
shall be responsible for reporting the contemplated sale of the Property to the
Internal Revenue Service (the "IRS") on IRS Form 1099-S; (2) to provide the
Designee with the information necessary to complete Form 1099-S; (3) that the
Designee shall not be liable for the actions taken under this Article 13, or for
the consequences of those actions, except as they may be the result of gross
negligence or willful misconduct on the part of the Designee; and (4) that the
Designee shall be indemnified by the parties for any costs or expenses incurred
as a result of the actions taken hereunder, except as they may be the result of
gross negligence or willful misconduct on the part of the Designee. The Designee
shall provide all parties to this transaction with copies of the IRS Forms
1099-S filed with the IRS and with any other documents used to complete IRS Form
1099-S.
ARTICLE 14
CONSENT REQUIREMENT AND SELLER'S RIGHT TO TERMINATE
Buyer acknowledges that (i) Buyer has negotiated this Agreement and the
transactions contemplated hereby with Realty Southwest Investment Group III
("RSIG III"), a general partner of Seller, (ii) RSIG III does not have the right
or authority to sell the Property to Buyer on behalf of Seller without the
consent (the "Consent") of Chasewood Partners-Grapevine I, Ltd. ("Chasewood"),
one of Seller's general partners, and (iii) all of Seller's obligations pursuant
to this Agreement are expressly contingent upon receipt by Seller of such
Consent. Seller agrees to promptly seek the Consent of Chasewood for the sale of
the Property to Buyer, but Buyer acknowledges that such Consent may not be
received. In the event that the Consent is not received by Seller on or prior to
the date that is sixty (60) days from the date hereof, Seller shall have the
sole and absolute right to terminate this Agreement by giving written notice of
such termination to Buyer. If Seller so terminates this Agreement, Seller shall
direct the Escrow Agent to immediately return the Escrowed Amount to Buyer and
this Agreement shall be null and void without recourse to either party hereto
(except to the extent such recourse arises in connection with a provision of
this Agreement which is intended to survive termination).
[Signatures on next Page]
32
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first set forth above.
SELLER:
GRAPEVINE I PARTNERS, LTD., a Texas limited
partnership
By: CHASEWOOD PARTNERS-GRAPEVINE I,
LTD., a Texas limited partnership, its General
Partner
By: /s/ Trammel S. Crow
----------------------
Name: Trammel S. Crow
Title: General Partner
By: REALTY SOUTHWEST INVESTMENT
GROUP III, a Texas general partnership, its
General Partner
By: Realty Southwest Investment Group III,
Inc., a Delaware corporation, a General
Partner
By: /s/ Walter V. Arnold
-----------------------
Name: Walter V. Arnold
Title: SVP & CFO
33
<PAGE>
BUYER:
CORNERSTONE REALTY GROUP, INC., a Virginia
corporation
By: /s/ Gus G. Remppies
-----------------------
Name: Gus G. Remppies
Title: Vice President
34
<PAGE>
ESCROW AGENT:
LAWYER'S TITLE INSURANCE CORPORATION
By: /s/ Stewart B. Hoge
-----------------------
Name: Stewart B. Hoge
Title: Approved Attorney
35
<PAGE>
JOINDER BY TITLE COMPANY
LAWYER'S TITLE INSURANCE CORPORATION, referred to in this Agreement as the
Escrow Agent, hereby acknowledges that it received this Agreement executed by
Seller and Buyer as of the 9th day of November, 1998, and accepts the
obligations of the Escrow Agent as set forth herein. It further acknowledges
that it received the Deposit on the ___ day of November, 1998. The Escrow Agent
agrees to deposit the Deposit and to distribute the Escrowed Amount in
accordance with the terms and provisions of this Agreement.
ESCROW AGENT:
LAWYER'S TITLE INSURANCE CORPORATION
By:
---------------------------------
Name:
Title:
Date:
36
<PAGE>
ACKNOWLEDGMENT BY BROKER
The undersigned Broker signs below to evidence that such Broker (i) knows
of no other brokers, salespersons or other parties entitled to any compensation
for brokerage services arising out of this transaction other than those whose
names appear in this Agreement, (ii) has not made any of the representations or
warranties specifically disclaimed by Seller in Section 11.4(a), and (iii) is a
duly licensed broker in the State of Texas and is currently permitted to conduct
business in the State of Texas and be paid a real estate commission.
BROKER:
GABLES RESIDENCE
By: /s/ Collen Paxton Ramsey
---------------------------
Name: Collen Paxton Ramsey
Title: Vice President
License No: 0462673
Tax Id. No.: 75-2517913
Date: 12/1/98
37
EXHIBIT 10.2
PROPERTY MANAGEMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of February,
1999 by and between Apple REIT VII Limited Partnership, a Virginia limited
partnership (hereinafter referred to as "Owner"), and Apple Residential
Management Group, Inc., a Virginia corporation (hereinafter referred to as
"Manager").
W I T N E S S E T H :
WHEREAS, Owner is the owner of Grayson Square Apartments (hereinafter
referred to as the "Property"); and
WHEREAS, Owner and Manager desire to enter into this Agreement for the
purposes herein contained.
NOW, THEREFORE, in consideration of the promises herein contained, and for
other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Designation of Manager as Manager for the Property. Owner hereby
engages Manager as sole and exclusive manager to rent, manage and operate the
Property, upon the conditions and for the term and compensation herein set
forth. All or a portion of the services being performed by Manager may be
contracted or subcontracted to another property management company, provided
that such company agrees to be bound by the terms of this Agreement.
2. Term of Agreement; Renewal. This Agreement shall be valid for an
initial term of two (2) years. In the event Owner sells its interest in the
Property, this Agreement will terminate upon the date of such sale. Unless
either party by written notice sent to the other party at least sixty (60) days
before the end of any two-year term hereof elects not to renew this Agreement,
this Agreement shall renew automatically for successive terms of two (2) years
on the same terms as contained herein.
3. Acceptance of Engagement. Manager hereby accepts its engagement as the
manager of the Property and agrees to perform all services necessary for the
care, protection, maintenance and operation of the Property, including the
following:
a. The collection of all rents and other income from the Property,
provided that nothing herein contained shall constitute a guarantee by Manager
of the payment of rent by tenants;
b. The purchase, at the expense of Owner, of all equipment, tools,
appliances, materials, supplies and uniforms necessary for the maintenance or
operation of the Property;
<PAGE>
c. The contracting on behalf of Owner for water, gas, electricity
and other services necessary for the operation and maintenance of the Property;
d. The advertising for the rental of space in the Property, the cost
of which shall be paid or by Owner;
e. The use of all reasonable efforts to keep the Property rented by
procuring tenants for the Property and negotiating and executing on behalf of
Owner all leases for space in the Property;
f. The employment, discharge and payment of all employees or
contractors necessary to be employed in the management and operation of the
Property. Owner agrees that all wages (and federal and state unemployment
insurance and other required charges) of such employees, and all compensation of
such employees and contractors, shall be paid from Owner's funds;
g. The preparation and filing of all returns and other documents
(other than promissory notes, mortgages, deeds of trust or other documents or
instruments which would encumber the Property) required under the Federal
Insurance Contributions Act and the Federal Unemployment Tax Act, or any similar
federal or state legislation. Manager shall also file returns and reports, and
pay from Owner's funds, all sums as may from time to time be required by the
state or locality in which the Property is located;
h. The maintenance of full books of account with correct entries of
all receipts and expenditures, which books of account shall be the property of
Owner and shall at all times be open to the inspection of Owner or any of its
employees or duly authorized agents;
i. The furnishing to Owner of all lenders' annual property
inspection letters regarding repairs necessary to avoid mortgage loan defaults.
The furnishing monthly of a detailed statement of all receipts and disbursements
for that month, such statement to be furnished on or before the 20th day of each
month for the preceding month. Such statement shall show the status of
collections and shall be supported by cancelled checks, vouchers, duplicate
invoices and similar documentation covering all items of income and expense,
which shall be kept in Manager's office and shall be available for inspection by
Owner's representatives at all times. Manager shall also furnish a monthly
operating statement showing the income and expense for the month, and year to
date, and for the same month of the preceding year. The cost of performing the
accounting functions outlined in paragraphs h and I shall be paid for by Owner
pursuant to the terms of this Agreement;
j. The furnishing of annual reports to Owner which shall contain a
composite financial report of the monthly statements provided in accordance with
paragraph I, plus a statement by Manager as to the operations of the Property
during the previous year and recommendations, if any, as to necessary policy
changes or improvements which should be
<PAGE>
implemented in the forthcoming year, which recommendations shall be accompanied
by an estimated budget for such items;
k. The furnishing from time to time, at least semi-annually, of a
tentative budget of expenses;
l. The furnishing from time to time, at least annually, of the
following schedules: (1) forecast of rental and occupancy changes; (2) review of
lease negotiations; (3) annual analysis of leases; and (4) schedule of capital
improvements and method of financing such improvements;
m. The furnishing, on a regular basis, of all forms necessary to
operate and lease the Property and manage the personnel including, but not
limited to, form leases, contracts and management policies; and
n. During the initial term of this Agreement, supervising the
transition from former ownership of the Property and implementing new management
systems with respect to operation of the Property.
4. Deposits of Rent and Other Income. All sums received from rents, tenant
security deposits or other deposits on space in the Property, deposits on keys
and other income from the Property, shall be deposited from time to time as
collected by Manager to the credit of Owner in such bank or banks as may from
time to time be designated by Owner. Such funds shall be disbursed only in
accordance with the terms of each individual lease and in accordance with any
applicable federal, state or local laws, regulations or ordinances.
5. Insurance. Owner shall place all insurance policies with respect to the
Property and its operation. Manager shall be included as an insured in the
policies covering general liability, public liability and workers' compensation
insurance. In the event Manager is authorized by Owner to place insurance
policies, the companies, the general agents, the amounts of coverage and the
risks insured shall be subject to the approval of Owner.
6. Indemnification. Owner hereby agrees to indemnify and hold harmless
Manager against and in respect of any loss, cost or expense (including
reasonable investigative expenses and attorneys' fees), judgment, award, amount
paid in settlement, fine, penalty and liability of any and every kind incurred
by or asserted against Manager by reason of or in connection with the employment
of Manager hereunder, the performance by Manager of the services described
herein or the occurrence or existence of any event or circumstance which results
or is alleged to have resulted in death or injury to any person or destruction
of or damage to any property and any suit, action or proceeding (whether
threatened, initiated or completed) by reason of the foregoing; provided,
however, that no such indemnification of Manager shall be made, and Manager
shall indemnify and hold Owner harmless against, and to the extent of, any loss
that a court of competent jurisdiction shall, by final adjudication, determine
to have resulted from willful misconduct, gross negligence or fraud by or on the
part of Manager.
<PAGE>
7. Compensation of Manager for Managing the Property. Owner shall pay to
Manager a "Property Management Fee" for management of the Property pursuant to
this Agreement in an amount equal to five percent (5%) of the monthly gross
revenues from the Property. The Property Management Fee shall be paid to Manager
on or before the 10th day of each month and shall be based upon the income
received by Owner (for such month) which has been obtained by such date. If
additional gross revenues are received by Owner after the day Manager is paid,
the sum due to Manager on account of such additional income shall be paid to
Manager when Manager is paid its fees for the next succeeding month.
8. Reimbursement of Expenses. Owner shall reimburse Manager for Manager's
expenses, including salaries and related overhead expenses, associated with
bookkeeping, accounting and financial reporting services pertaining to the
Property.
9. Reserves for Capital Items. Owner acknowledges that the budget prepared
by Manager, pursuant to paragraph 3(k), will contain a category labeled "Reserve
for Capital Items." Owner agrees to place rents and other income in a bank
account, or to permit Manager to transfer Owner's funds to such account, in
sufficient amounts to meet the needs reflected in such budget. Such funds shall
be placed in the account on a monthly basis as reflected in the budget.
10. Cash Flow. Owner acknowledges that the budget prepared by Manager,
pursuant to paragraph 3(k), will contain a category labeled "Cash Flow." Owner
agrees, in the event that the budgeted cash flow for the Property is "negative"
in any month covered by the budget, to place sufficient funds in a bank account,
or to permit Manager to transfer Owner's funds to such account, to make up the
budgeted operating deficit. These funds must be placed in such account at least
forty-five (45) days before the budgeted deficit is to occur.
11. Power of Attorney. Owner hereby makes, constitutes and appoints
Manager its true and lawful attorney-in-fact, for it and in its name, place and
stead and for its use and benefit to sign, acknowledge and file all documents
and agreements (other than promissory notes, mortgages, deeds of trust or other
documents or instruments which would encumber the Property) necessary to perform
or effect the duties and obligations of Manager under the terms of this
Agreement. The foregoing power of attorney is a special power of attorney
coupled with an interest. It may only be terminated by cancelling this Agreement
as provided herein.
12. Relationship of Parties. The parties agree and acknowledge that
Manager is and shall operate as an independent contractor in performing its
duties under this Agreement, and shall not be deemed an employee or agent of
Owner.
13. Entire Agreement. This Agreement represents the entire understanding
between the parties hereto with regard to the transactions described herein and
may only be amended by a written instrument signed by the party against whom
enforcement is sought.
14. Governing Law. This Agreement shall be construed in accordance with
and be governed by the laws of the Commonwealth of Virginia.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
OWNER:
APPLE REIT VII LIMITED PARTNERSHIP,
a Virginia limited partnership
By: Apple General, Inc., general partner
By: /s/ S. J. Olander
--------------------------------------
Title: Vice President
-----------------------------------
<PAGE>
MANAGER:
APPLE RESIDENTIAL MANAGEMENT GROUP, INC.
By: /s/ S. J. Olander
--------------------------------------
Title: Secretary
-----------------------------------
EXHIBIT 10.3
Property Management Agreement Subcontract
This Property Management Agreement Subcontract (the "Agreement") is made as
of February 1, 1999 by and among Apple REIT VII Limited Partnership, a Virginia
limited partnership trading as Grayson Square Apartments ("Apple"), Apple
Residential Management Group, Inc., a Virginia corporation ("ARMG"), and
Cornerstone Realty Income Trust, Inc., a Virginia corporation ("Cornerstone")
and provides:
RECITALS
A. As of the date of this Agreement, Apple and ARMG are parties to a Property
Management Agreement more particularly described on Exhibit A hereto
pursuant to which ARMG has agreed to provide certain property management
services to Apple, as more particularly described in such agreement (the
"Property Management Agreement").
B. ARMG desires to delegate and assign to Cornerstone, and Cornerstone desires
to accept the delegation and assignment from ARMG of, all of ARMG's duties,
obligations, rights, powers and benefits under the Property Management
Agreement attributable to the period beginning on the date of this
Agreement, and Apple is willing to consent to such delegation and
assignment, as more particularly set forth below.
NOW THEREFORE, in consideration of the foregoing, of the mutual covenants
and agreements contained herein, and other good and valuable consideration, the
parties agree as follows:
1. ARMG does hereby delegate and assign to Cornerstone all of ARMG's duties,
obligations, rights, powers and benefits under the Property Management
Agreement (including any renewal or extension thereof) attributable to the
period beginning on the date of this Agreement. Cornerstone accepts such
delegation and assignment. The intent of such delegation and assignment is
to impose upon Cornerstone all duties and obligations of ARMG under the
terms of the Property Management Agreement attributable to the period
beginning on the date of this Agreement, and to confer upon Cornerstone all
of the correlative rights, powers and benefits (including without
limitation, the right to receive all fees and expense reimbursements)
conferred by or provided for in the Property Management Agreement, and this
Agreement shall be interpreted and construed consistently with such intent.
For so long as this Agreement remains in effect, the term "Manager," as
used in the Property Management Agreement as to which the delegation and
assignment described herein is effective shall be deemed to refer to
Cornerstone, unless the context clearly requires otherwise.
2. Apple consents to the delegation and assignment referred to in Section 1.
3. Cornerstone may, by written notice delivered to ARMG and Apple at 306 East
Main Street, Richmond, Virginia 23219, Attention: Glade M. Knight,
terminate the delegation and assignment described herein as to the Property
Management Agreement.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date first written above.
APPLE REIT VII LIMITED PARTNERSHIP,
a Virginia limited partnership
By: Apple General, Inc., General Partner
By: /s/ S. J. Olander
-----------------------------------
Title: Vice President
----------------------------------
APPLE RESIDENTIAL MANAGEMENT
GROUP, INC., a Virginia corporation
By: /s/ S. J. Olander
-----------------------------------
Title: Secretary
-----------------------------------
CORNERSTONE REALTY INCOME TRUST,
INC., a Virginia corporation
By: /s/ S. J. Olander
----------------------------------
Title: Chief Financial Officer
----------------------------------
2
<PAGE>
Exhibit A
Description of Property Management Agreement
between Apple and ARMG
Property Management Agreement dated as of February 1, 1999 pertaining to Grayson
Square Apartments.
3
EXHIBIT 10.4
CERTIFICATE OF LIMITED PARTNERSHIP
OF
APPLE REIT VII LIMITED PARTNERSHIP
Apple General, Inc. (a Virginia corporation), is the general partner of
Apple REIT VII Limited Partnership (the "Partnership").
The General Partner submits this Certificate of Limited Partnership for
filing in the office of the Virginia State Corporation Commission in accordance
with ss. 50-73.11 of the Virginia Revised Uniform Limited Partnership Act (the
"Act"):
1. The name of the Partnership is Apple REIT VII Limited Partnership.
2. (a) The post office and street address of the office of the Partnership
at which the records of the Partnership required to be maintained by ss. 50-73.8
of the Act shall be kept is as follows:
306 East Main Street
Richmond, Virginia 23219
(City of Richmond, Virginia)
(b) The registered agent of the Partnership is James W. C. Canup, who
is a resident of Virginia and a member of the Virginia State Bar. The post
office address of the registered agent is c/o McGuire, Woods, Battle & Boothe
LLP, One James Center, 901 East Cary Street, Richmond, Virginia 23219. This
address is in the City of Richmond, Virginia.
3. The name and post office address of the General Partner is as follows:
Apple General, Inc.
(a Virginia corporation)
306 East Main Street
Richmond, Virginia 23219
4. The Partnership shall be dissolved and its affairs wound up on December
31, 2100 or at such earlier time as is required by law or the agreement of
limited partnership of the Partnership.
1
<PAGE>
IN WITNESS WHEREOF, the General Partner has executed this Certificate of
Limited Partnership as of October 26, 1998.
APPLE GENERAL, INC.
By: /s/ Stanley J. Olander
--------------------------
Name: Stanley J. Olander
Title: Vice President
2
EXHIBIT 10.5
LIMITED PARTNERSHIP AGREEMENT
OF
APPLE REIT VII LIMITED PARTNERSHIP
This LIMITED PARTNERSHIP AGREEMENT (the "Partnership Agreement") is made
as of November 1, 1998, by and between Apple General, Inc., a Virginia
corporation, the general partner ("General Partner"), and Apple Limited, Inc., a
Virginia corporation, the limited partner ("Limited Partner" and together with
the General Partner, the "Partners").
INTRODUCTION
A. The General Partner and the Limited Partner have agreed to form a
limited partnership (the "Partnership") pursuant to the provisions of the
"Virginia Revised Uniform Limited Partnership Act" (the "Act"). The existence of
the Partnership shall commence upon the filing of a certificate of limited
partnership with the Virginia State Corporation Commission (the "Commission").
B. The rights, duties and obligations of the Partners shall be governed by
the Act except as otherwise provided in this Partnership Agreement. The term
"Person," as used herein, means an individual or an entity.
ARTICLE I
ORGANIZATIONAL MATTERS
1.1 Name. The name of the Partnership is Apple REIT VII Limited
Partnership. The Partnership may trade or transact business under the name
Grayson Square Apartments or such other name as shall be selected by the General
Partner.
1.2 Purpose. The Partnership is formed to acquire, hold, operate and in
all respects act as owner of the Grayson Square Apartments in Grapevine, Texas
(located on the property more specifically described on Exhibit A) and to engage
in any and all activities related or incidental thereto or agreed to by the
Partners from time to time provided, however, such activities shall be limited
to and conducted in such a manner as to permit Apple Residential Income Trust,
Inc. (the "Apple REIT") at all times to qualify as a real estate investment
trust ("REIT") under sections 856 through 860 of the Internal Revenue Code of
1986, as amended (the "Code").
1.3 Filings.
(a) The Partnership has filed with the Commission a certificate of
limited partnership (the "Certificate") pursuant to Va Code ss. 50-73.11.
(b) The Certificate designates 306 East Main Street, Richmond,
Virginia 23219 as the principal office (the "Principal Office") of the
Partnership. It designates c/o McGuire, Woods, Battle & Boothe LLP, One James
Center, 901 East Cary Street, Richmond, Virginia 23219 as its registered office
(the "Registered Office") and James W. C. Canup, Esq., at that address, as its
registered agent (the "Registered Agent").
-1-
<PAGE>
ARTICLE II
MANAGEMENT
2.1 The General Partner. The General Partner shall have the sole and
exclusive right, duty and power to manage the business of the Partnership,
including, without limitation, the right and power to:
(i) acquire, hold, sell, maintain, encumber, improve, develop or lease
Partnership property, real or personal, and any interest therein on such
terms and conditions as the General Partner deems advisable;
(ii) borrow money on behalf of the Partnership, secure any such
borrowings with Partnership assets, and repay the same at any time or from
time to time;
(iii) establish investment accounts for the Partnership and deposit
and withdraw funds in or from such accounts;
(iv) assign, compromise or release any claim of, or debt due, the
Partnership;
(v) institute and defend actions at law or in equity on behalf of the
Partnership and consent to arbitrate any disputes or controversies of the
Partnership;
(vi) engage and retain accountants, lawyers and other professional
persons to perform services for the Partnership, and purchase such goods
and other services as may be required to conduct the business of the
Partnership; and
(vii) enter into such contracts and perform such other acts as may be
necessary to further the business of the Partnership.
2.2 Limitations on Power and Authority. Notwithstanding anything to the
contrary in this Partnership Agreement, the General Partner's rights, authority
and power are subject to and limited by certain provisions of the Bylaws of the
Apple REIT (including Article XIII therein) and actions described in such Bylaws
(including such Article) may only be undertaken in compliance with the
provisions thereof, including the obtaining of any consents referred to therein.
-2-
<PAGE>
ARTICLE III
LIMITED PARTNERS
3.1 Participation in Management. The Limited Partner shall not participate
in the management or control of the business of the Partnership, and shall have
no power to sign for or bind the Partnership.
ARTICLE IV
CAPITAL; PROFITS AND LOSSES; COMPENSATION; DISTRIBUTIONS
4.1 Capital Contributions. Each of the Partners has contributed to the
capital of the Partnership the property set forth on Schedule A. The Partners
shall not be required to make any additional capital contributions except as
required by law, but the Partners may make such additional contributions of cash
or property as they may mutually agree. No Partner shall have any right to
require the return of all or any part of its capital, or to receive interest
with respect thereto.
4.2 Capital Accounts. A separate capital account ("Capital Account") shall
be maintained for each Partner. The value of each Capital Account shall be the
sum of the cash contributions to the account, the agreed upon value of
contributions of property to the account and the share of Partnership profits
allocated to the account, less all distributions made from the account and the
share of Partnership losses allocated to the account.
4.3 Profits and Losses. The net profits and net losses of the Partnership
for any period (except for the profits and losses upon dissolution) shall be
credited or charged to the Capital Accounts of the Partners in the percentages
set forth on Schedule A under the heading "Partners' Percentages" (as the same
may be amended from time to time, the "Partners' Percentages").
4.4 Distributions. Any cash which, in the opinion of the General Partner,
is not reasonably required for the operation of the business of the Partnership
or for Partnership reserves (other than amounts distributed upon dissolution)
shall be distributed to the Partners in accordance with the Partners'
Percentages not less frequently than each calendar quarter. Other distributions
of assets may be made from time to time in the same manner.
4.5 REIT Distributions. Notwithstanding anything to the contrary in this
Agreement, the General Partner shall cause the Partnership to distribute amounts
sufficient to enable the Apple REIT to pay its shareholders dividends that will
allow the Apple REIT to (i) meet the distribution requirement for qualification
as a REIT as set forth in Section 857(a)(1) of the Code and (ii) avoid any
federal income or excise tax liability imposed by the Code.
4.6 Loans. A loan by a Partner to the Partnership shall not be considered
a capital contribution and shall be repaid as debt of the Partnership.
-3-
<PAGE>
ARTICLE V
INDEMNIFICATION
5.1 Indemnification.
(a) The Partnership shall indemnify each Partner (and each director
and officer of a Partner) who was, is or is threatened to be made a party to any
action, suit or proceeding, whether civil, criminal, administrative, arbitrative
or investigative, and whether formal or informal (a "Proceeding"), (i) solely by
reason of being or having been a Partner or a director or officer of a Partner
or (ii) as a result of having served at the request of the Partnership as a
fiduciary for an employee benefit or other plan related to the business of the
Partnership, against any liability and reasonable expenses (including reasonable
attorney's fees), incurred as a result of such Proceeding, except such
liabilities and expenses which are incurred as a result of a breach of this
Partnership Agreement, willful misconduct or a knowing violation of the law.
(b) The Partnership shall promptly make advances or reimbursements for
reasonable expenses (including attorney's fees) incurred by any Partner or a
director or officer of a Partner claiming indemnification under this Article
unless it has been determined that such Partner, director or officer is not
entitled to indemnification. Advances or reimbursements made in advance of any
such determination shall be conditioned upon receipt from the Partner, director
or officer claiming indemnification of a written undertaking to repay the amount
of such advances or reimbursements if it is ultimately determined that such
Partner, director or officer is not entitled to indemnification.
ARTICLE VI
EVENTS OF DISSOLUTION
6.1 Events of Dissolution. The Partnership shall only be dissolved:
(i) upon the election of the General Partner;
(ii) at such time as there is no General Partner serving unless,
within 90 days, the Limited Partner consents to continue the business of
the Partnership and appoints one or more General Partners;
(iii) upon automatic cancellation of the certificate of limited
partnership for failure to pay annual registration fees, unless steps to
obtain reinstatement are promptly taken; or
(iv) by judicial decree.
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ARTICLE VII
DISSOLUTION, WINDING UP AND TERMINATION
7.1 General. Upon dissolution without continuation, the business of the
Partnership shall be wound up by the General Partner or, if there is no General
Partner, by a representative designated by the Limited Partner (either of which
or whom is hereinafter referred to as the "Liquidating Representative"). The
Liquidating Representative shall proceed with reasonable promptness to liquidate
the business and assets of the Partnership and may determine whether and to
which Partners properties should be distributed in kind. Partnership assets
shall be distributed in the following order:
(i) to creditors of the Partnership, including Partners who are
creditors, in the order of priority provided by law;
(ii) to the creation of such reserves for contingencies as the
Liquidating Representative may deem necessary or advisable;
(iii) to the Limited Partner to the extent of its contribution to
capital;
(iv) to the General Partner to the extent of its contribution to
capital;
(v) to the Partners, General and Limited, according to their Capital
Account balances, after all adjustments.
ARTICLE VIII
MISCELLANEOUS
8.1 Books of Account and Records. The Partnership shall keep complete
books of account at the Principal Office which shall be open to examination by
the Partners, the Apple REIT and their authorized representatives during normal
business hours. The books shall be kept on a cash or accrual basis, as
determined by the General Partner.
8.2 Tax Compliance. Notwithstanding anything to the contrary contained in
this Partnership Agreement, all actions taken in the conduct of the business of
the Partnership, or on its dissolution, shall comply with the provisions of
Section 704 of the Code and the Regulations thereunder. The General Partner
shall be the "Tax Matters Partner" required by the Code.
8.3 Power of Attorney. The Limited Partner hereby appoints the General
Partner its attorney-in-fact, or agent, to execute, acknowledge, deliver and
file in its name any document required by law to be filed by the Partnership or
such Partner with any governmental body or agency. Any such appointment is a
special power, coupled with an interest, and shall remain in effect as long as
the Partner granting it has any interest in the Partnership or remains
responsible for any obligations under this Partnership Agreement.
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8.4 Counterparts. This Partnership Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.5 Amendments. This Partnership Agreement may be amended only with the
consent of the General Partner and the Limited Partner.
8.6 Third Parties; Successors and Assigns. The agreements contained herein
are for the benefit of the parties hereto and their permitted successors and
assigns and are not for the benefit of any third parties, including, without
limitation, creditors of the Partnership.
8.7 Headings. The section headings herein are for convenience only and
shall not affect the interpretation of this Partnership Agreement.
8.8 Interpretation. This Partnership Agreement is executed and delivered
in the Commonwealth of Virginia and shall be construed and enforced in
accordance with the laws of such state without giving effect to its choice of
law rules.
WITNESS the following signatures.
GENERAL PARTNER
Apple General, Inc.
By: /s/ S. J. Olander
---------------------------
Name: S. J. Olander
Title: Secretary
LIMITED PARTNER:
Apple Limited, Inc.
By: /s/ S. J. Olander
---------------------------
Name: S. J. Olander
Title: Secretary
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SCHEDULE A
GENERAL PARTNER
Name and Capital Partners'
Business Address Contribution Percentages
- ---------------- ------------ -----------
Apple General, Inc. $ 1.00 1%
306 East Main Street
Richmond, Virginia 23219
LIMITED PARTNER
Name and
Business Address
Apple Limited, Inc. $99.00 99%
306 East Main Street
Richmond, Virginia 23219
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