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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM __________ TO __________ .
COMMISSION FILE NUMBER: 0-22569 (IRVINE APARTMENT COMMUNITIES, L.P.)
1-13721 (IAC CAPITAL TRUST)
IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST
(EXACT NAME OF REGISTRANTS AS SPECIFIED IN ITS CHARTER)
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DELAWARE 33-0587829
DELAWARE 91-6452946
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
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550 NEWPORT CENTER DRIVE, SUITE 300, NEWPORT BEACH, CALIFORNIA 92660
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANTS' TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 720-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
SERIES A PREFERRED SECURITIES NEW YORK STOCK EXCHANGE, INC.
(IAC CAPITAL TRUST)
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NUMBER OF SECURITIES OUTSTANDING AS OF DECEMBER 31, 1999: 6,000,000
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS:
UNITS OF GENERAL PARTNERSHIP INTEREST
(IRVINE APARTMENT COMMUNITIES, L.P.)
NUMBER OF UNITS OUTSTANDING AS OF DECEMBER 31, 1999: 20,175,892
Indicate by check mark whether the registrants have (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter time as required), and
(2) has been subject to such filing requirements for the past 90 days:
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Irvine Apartment Communities, L.P. Yes [X] No [
]
IAC Capital Trust Yes [X] No [
]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Irvine Apartment Communities LLC, the sole general partner of Irvine
Apartment Communities, L.P., owns all of the outstanding units of general
partnership interest of Irvine Apartment Communities, L.P. Certain affiliates of
Irvine Apartment Communities LLC collectively own all of the outstanding common
limited partnership units of Irvine Apartment Communities, L.P.
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IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST
TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business.................................................... 3
2. Properties.................................................. 12
3. Legal Proceedings........................................... 15
4. Submission of Matters to a Vote of Security Holders......... 15
PART II
Market for Registrants' Common Equity and Related
5. Stockholder Matters......................................... 16
6. Selected Financial Data..................................... 17
Management's Discussion and Analysis of Financial Condition
7. and Results of Operations................................... 18
Quantitative and Qualitative Disclosures About Market
7A. Risk........................................................ 23
8. Financial Statements and Supplementary Data................. 23
Changes in and Disagreements with Accountants on Accounting
9. and Financial Disclosure.................................... 23
PART III
10. Directors and Executive Officers of the Registrants......... 24
11. Executive Compensation...................................... 25
Security Ownership of Certain Beneficial Owners and
12. Management.................................................. 26
13. Certain Relationships and Related Transactions.............. 26
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form
14. 8-K......................................................... 27
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PART I
ITEM 1. BUSINESS
ORGANIZATION AND GENERAL BUSINESS DESCRIPTION
Irvine Apartment Communities, L.P. (the "Partnership"), a Delaware limited
partnership, was formed on November 15, 1993. In connection with an initial
public offering of common shares on December 8, 1993, Irvine Apartment
Communities, Inc. ("IAC, Inc.") obtained a general partnership interest in and
became the sole managing general partner of the Partnership. On June 7, 1999,
IAC, Inc. was merged with and into TIC Acquisition LLC (the "Acquiror"), a
Delaware limited liability company indirectly wholly owned by The Irvine Company
(the "Merger"), with the Acquiror remaining as the surviving entity and renamed
Irvine Apartment Communities LLC ("IACLLC"). As a result of the Merger and a
related transaction in which The Irvine Company acquired an additional 74,523
common limited partnership units, The Irvine Company and certain of its
affiliates beneficially own and control all of the outstanding common
partnership units in the Partnership and IACLLC became the sole general partner
of the Partnership. At December 31, 1999, IACLLC had a 44.6% general partnership
interest and The Irvine Company and certain of its affiliates had a 55.4% common
limited partnership interest in the Partnership.
The Partnership owns, operates and develops apartment communities in Orange
County, California and, since 1997, other locations in California. The
Partnership has created market positions in Northern California, San Diego
County and Santa Monica which possess rental demographic and economic growth
prospects similar to those on the Irvine Ranch. As of December 31, 1999, the
Partnership owned 65 properties containing 17,362 operating apartment units and
2,119 units under construction or development (collectively, the "Properties").
IAC Capital Trust, a Delaware business trust (the "Trust") was formed on
October 31, 1997. The Trust is a limited purpose financing vehicle established
by the Partnership. The Trust exists for the sole purpose of issuing its
preferred securities and investing the proceeds thereof in preferred limited
partner units of the Partnership. In January 1998, the Trust issued 6.0 million
of 8 1/4% Series A Preferred Securities resulting in gross proceeds of $150
million.
In March 1998, the Partnership and Western National Property Management
("WNPM") entered into a strategic alliance that, in April 1998, assumed all
property management responsibilities for the Partnership's Southern California
portfolio. Effective January 1, 1999, the property management responsibilities
of the new entity, Irvine Apartment Management Company ("IAMC"), were expanded
to include the Partnership's entire portfolio. The Partnership believes that
this strategic alliance creates greater efficiencies and enhances service to
customers. As of December 31, 1999, IAMC was owned 51% by the Partnership and
49% by WNPM. On January 1, 2000, the partnership agreement of IAMC was amended
and restated whereby IAMC is owned 75% by the Partnership and 25% by WNPM.
The address of the Partnership is 550 Newport Center Drive, Suite 300,
Newport Beach, California 92660. Its telephone number is (949) 720-5500.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Partnership operates in one business segment, that of owning, operating
and developing apartment communities in California. See the consolidated
financial statements and notes thereto included in Item 8 of this Annual Report
on Form 10-K for financial information about the industry segment.
DESCRIPTION OF BUSINESS
As of December 31, 1999, the Partnership owned and operated 58 stabilized
properties containing 16,849 units (the "Stabilized Communities"). Together with
the units under construction, development or lease-up (the "Communities Under
Development"), the Partnership owns a total of 19,481 units.
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The majority of the Partnership's apartment communities are located on the
Irvine Ranch. The Irvine Ranch is located in central Orange County, California,
between San Diego and Los Angeles. The western boundary of the Irvine Ranch
borders approximately six miles of the Pacific Ocean. Today, the portion of the
Irvine Ranch which is still owned by The Irvine Company covers approximately 90
square miles and includes more than 50,000 undeveloped acres. The developed
portion of the Irvine Ranch, which includes significant parts of the cities of
Irvine, Newport Beach and Tustin, is part of an urban master-planned community.
The Irvine Ranch has been developed over the past 30 years in accordance with an
original master plan (the "Master Plan") which, over time, has been refined to
accord with locally approved general plans. The Irvine Ranch is one of the major
commercial, retail and residential centers in Southern California.
In 1997, the Partnership commenced operations in Northern California's
Silicon Valley and the northern coastal markets of San Diego County. In 1998,
the Partnership purchased a property in Los Angeles County. As of December 31,
1999, the Partnership had units in operation or under development at eight
properties located off the Irvine Ranch. The Partnership has created these new
market positions in California which possess rental demographics and economic
growth prospects similar to those on the Irvine Ranch. See "Business
Strategy -- Off-Ranch Expansion."
For the year ended December 31, 1999, the average physical occupancy
(number of units occupied divided by the total number of units) of the
Stabilized Communities was 94.8% and the average monthly rent per unit was
$1,283. The Communities Under Development are expected to include a total of
approximately 2,632 apartment units and are expected to have an aggregate
estimated cost of approximately $587 million. As of December 31, 1999, 513 units
were completed with 384 units occupied and generating rental revenue in
Communities Under Development.
The information set forth in this Annual Report on Form 10-K relating to
the expansion program, the timing of future commencement and completion of
construction, the commencement of leasing activity and initial stabilized
occupancy, and the estimated costs of apartment communities that are in
development are forward-looking statements. Actual results will depend on
numerous factors, many of which are beyond the control of the Partnership. These
include the extent and timing of economic growth in the Partnership's rental
markets; future trends in the pricing of construction materials and labor;
product design changes; entitlement decisions by local government authorities;
weather patterns; changes in interest rate levels; other changes in capital
markets; and unanticipated regulatory delays. No assurance can be given that the
timing or estimates will not vary substantially from actual results.
BUSINESS STRATEGY
Operating Strategies
- Provide an exceptional living environment for residents. The Properties
are located in selected markets of California with historically strong
economies and highly educated, relatively affluent renters. The
Properties are conceived, designed, constructed, maintained and operated
to appeal to this renter base. Property sites are often chosen based on
their proximity to employment centers, schools, retail centers and
recreational facilities, and are usually situated amid parks, hiking
trails and other open space. Community amenities often include swimming
pools and spas, fitness centers, business centers with self-service
computer and telecommunications services, and other, property-specific
recreation facilities. The Properties are managed to deliver a high
standard of customer service to all residents, with on-site staff
compensation based, in part, on the annual achievement of specific
customer service goals.
- Enhance efficiency of operations. The Partnership had historically
subcontracted on-site staffing, personnel management and accounting
functions to three independent property management firms. In March 1998,
the Partnership and WNPM entered into a strategic alliance that, in April
1998, assumed all property management responsibilities for the
Partnership's Southern California portfolio and, in January 1999, assumed
responsibility for the Partnership's entire portfolio. By centralizing
all property management functions into one entity, the strategic alliance
provides greater efficiencies, reduces property management fees and
property management costs, improves training of on-site employees and
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enhances service to customers. Through December 31, 1999, WNPM was the
managing member of IAMC and was responsible for its day to day
operations, but the Partnership, through its control of a majority of the
board of directors of IAMC, had significant control over IAMC including
approval of business plans and budgets, compensation, and the employment
of the executive officers of IAMC. In addition, the Partnership paid IAMC
a property management fee which was adjusted to reflect the actual
operating performance of the Properties, thereby more closely aligning
the interests of IAMC and the Partnership. On January 1, 2000, the
partnership agreement for IAMC was amended and restated whereby the
Partnership purchased a 24% partnership interest in IAMC from WNPM,
resulting in the Partnership owning a 75% partnership interest in IAMC
and WNPM owning a 25% partnership interest. As a result, the Partnership
is now the managing member of IAMC and responsible for its day to day
operations. The Partnership paid $356,000 in settlement of options
granted to certain executives of WNPM.
- Capitalize on strong brand identity within Orange County to enhance
marketing efforts and extend that identity to the Partnership's other
markets in California. The Partnership designs and implements marketing
programs within its targeted markets to capitalize on its brand name
awareness among renters in Orange County, and to broaden that recognition
to potential renters in all locations where it operates. Management
believes that a strong brand identity, and associated characteristics of
quality and standards of service, provides the Properties with a
competitive advantage in the attraction and retention of new residents.
The Partnership's marketing programs share common visual and textual
themes that reinforce brand identity. These programs include a website
and single-source 800 telephone number to provide information on the
Properties and a targeted advertising campaign promoting the
Partnership's portfolio and its attractive quality of life
characteristics. Additionally, there is an evolving program to utilize
regional shopping centers on the Irvine Ranch to disseminate information
on the large number of apartment communities located on the Irvine Ranch.
Development Strategies
- Complete development of the Communities Under Development to complement
and expand the Partnership's existing rental market base. The broad
employment and renter base on the Irvine Ranch allows development of a
variety of apartment property types and amenity levels, including
projects designed for the family, luxury and senior markets, and the
area's large population of young professionals. The Partnership's
development program through market segmentation, has identified target
markets and, supported by consumer research and focus group studies,
market segmentation decisions have been made at the earliest planning
stages, when new residential villages for the Irvine Ranch were conceived
and the villages' largest and most important amenities were selected.
Location of schools, recreational facilities, retail centers, open space
and views were all important considerations. Individual development
decisions -- including site location, product design, amenities and
marketing programs -- have also been geared to appeal to the needs and
desires of the target rental market. However, after completion of the
Communities Under Development, the Partnership has no plans for future
development.
- Utilize experienced management to create high-quality, well-built
properties designed to sustain their value. The Partnership brings
considerable management expertise to all aspects of the development,
construction and leasing process. Senior management is actively involved
in new project development from the inception of a new apartment
community and is responsible for target market identification; design of
site plans, building plans, and floor plans; project and unit amenity
selection; and site-specific governmental approvals. The Partnership
engages experienced independent general contractors to act as
intermediaries with subcontractors and to manage on-site activities under
the close supervision of the Partnership's internal construction group.
The Partnership builds properties using high-quality construction
materials and techniques, and believes that this higher initial
investment in quality enhances long-term value creation by sustaining
high community rental income levels and reducing long-term expense
levels.
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"Off-Ranch" Expansion
While the Partnership's principal focus has been on the development of
apartment communities on the Irvine Ranch, in 1997 the Partnership commenced an
"off-Ranch" expansion program. The Partnership's strategic growth plan was
designed to create meaningful market positions off the Irvine Ranch in some of
California's most promising growth centers by developing or acquiring apartment
communities in areas that possess rental demographics and economic growth
prospects similar to those on the Irvine Ranch.
The Partnership's "off-Ranch" expansion program was centered in Northern
California's Silicon Valley and the northern coastal markets of San Diego
County. In 1997, the Partnership acquired a 923-unit apartment community (The
Villas of Renaissance) located in the La Jolla region of Northern San Diego
County. In 1998, the Partnership completed construction of a 342-unit apartment
community (The Hamptons at Cupertino) in the Silicon Valley and began
development and construction on three additional apartment communities (with a
total of approximately 660 units) in the Silicon Valley and two additional
apartment communities (with a total of approximately 560 units) in Northern San
Diego County. Also in 1998, the Partnership purchased a 120-unit, high-rise
apartment building under renovation located in Santa Monica (1221 Ocean Avenue).
During 1999, an apartment community in Northern San Diego County (Arcadia
at Stonecrest) was completed and achieved stabilization. In addition, the
renovations at 1221 Ocean Avenue were completed and the apartment building was
in lease-up at December 31, 1999. However, the Partnership has no plans to
expand its off-Ranch portfolio beyond these eight properties.
Irvine Ranch Master Plan
The Irvine Company is a real estate investment and community development
firm engaged in the long-term development of the Irvine Ranch. The urbanization
of the Irvine Ranch began in the 1960s with the adoption of the pioneering
comprehensive Master Plan for future community development which originally
constituted a large map of the Irvine Ranch and a series of supporting maps
detailing land uses. Subsequently, The Irvine Company worked closely with the
various local jurisdictions which govern the Irvine Ranch to adopt general plans
for the future development of their jurisdictions. The Irvine Company's overall
Master Plan was refined to accord with the approved general plans and the
residential, commercial, industrial, environmental and aesthetic balance desired
by each jurisdiction. As a result, today the Irvine Ranch Master Plan is a
compilation of the various interlocking general plans described above. The
Irvine Company continuously engages in planning activities and the Master Plan
refinement process is ongoing. The Irvine Company works closely with local
government representatives, community residents and other civic and
environmental groups to obtain the necessary local support and entitlements for
its developments. The goal of the Master Plan was and remains to create
innovative urban and suburban environments through the well-planned, coordinated
development of residential communities and employment centers (which include
major business and retail centers, and research and development and industrial
parks) as well as civic, cultural, recreational, educational and other
supportive facilities, all with an emphasis on improving the quality of life and
achieving long-term balanced regional economic growth.
The success of the Irvine Ranch as a master-planned development is, in
large part, attributable to the early creation of a broad employment base. The
Irvine Company has emphasized the promotion of job creation on the Irvine Ranch
and has been involved in creating four major employment centers on the Irvine
Ranch, each easily accessible by apartment residents and the surrounding area.
The Irvine Company has been the sole developer of the Irvine Spectrum, a
5,000-acre research, technology and employment center which houses more than
2,500 companies and approximately 50,000 employees and includes 26 million
square feet of retail, manufacturing, research and development and office space.
The Irvine Business Complex, which surrounds the John Wayne airport, houses over
100,000 employees and includes more than 24 million square feet of office and
other commercial space and over 14 million square feet of industrial space.
Newport Center contains over 2.5 million square feet of general purpose office
space, a 1.3 million square-foot regional mall (Fashion Island), a tennis club
and two country clubs. In addition, The Irvine Company donated land to the
University of California at Irvine, a 1,470-acre campus which currently has more
than 19,200 students and
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8,300 employees. The proximity of the Irvine Ranch Properties to these
employment centers makes them attractive residential locations.
Market Segmentation and the Village Concept
The Irvine Company's land use planning emphasizes market segmentation in
order to ensure adequate and appropriate allocation of land uses which support
sustained growth for the long term. Through careful planning, design and
marketing, The Irvine Company also promotes compatibility and synergy among
properties of the same type in order to maximize the likelihood of success of
new projects, to preserve and build value for existing projects and to build
sustainable long-term market value for homeowners, local merchants and
employers. In accordance with the Master Plan, The Irvine Company has created
twelve villages which are used as micro-planning areas in an effort to
facilitate the desired segmentation of products.
Each village across the Irvine Ranch has a thematic identity which
characterizes the primary features and attributes of the village and helps to
identify the target market for the Partnership's product. For example, Tustin
Ranch, in the City of Tustin, is a family-oriented village featuring an 18-hole
championship golf course, athletic fields, jogging, hiking and equestrian
trails. Along the ocean is the village of Newport Coast, an upscale community
featuring ocean views and million-dollar custom built homes. The Village of
Westpark, in Irvine, caters to young professionals with growing families and
offers the highly renowned public school system and recreational facilities of
the City of Irvine.
Within each village, the Partnership's target market is further defined.
The primary factor which determines the appropriate target for the product is
location. For example, the conventional product which is targeted towards young
professionals is typically located near major business centers and in close
proximity to entertainment, retail establishments and major transportation
corridors. The student product, on the other hand, is located within walking
distance of a college or university, student-oriented retail centers, and public
transportation.
Finally, the Partnership specifically designs its products to appeal to a
target market. The Partnership's luxury product is typically in a unique
location with ocean and golf course views. The family product offers spacious
play areas and tot lots, a children's multi-purpose room with an activities
coordinator, individual garages and in-unit washers and dryers.
Financing Strategies
The Partnership intends to obtain additional debt financing to fund the
capital requirements of its remaining development projects. See "Capital
Expenditures -- Capital Investments in New Development." Construction costs not
yet funded for these development projects total approximately $300 million. The
Partnership anticipates utilizing fixed rate mortgage financing to fund these
construction costs, consistent with the Partnership's strategy of maintaining a
fairly low tolerance to interest rate fluctuation risk. However, based on
financial market conditions at the time such financing is secured, the
Partnership may utilize other debt and/or interest rate structures if it deems
it prudent to do so.
The Partnership completed three financing transactions in 1999. In
September, the Partnership completed a $32 million offering of tax-exempt
mortgage bond financings. The bonds bear interest at a weekly-remarketed
tax-exempt rate and are due September 2029. As of December 31, 1999, the
Partnership had received proceeds of $8.3 million which were used to fund the
construction of two apartment buildings comprising of 201 units in a community
located in Irvine, California. The remaining $23.7 million of proceeds is held
by a trustee and will be funded for construction of this community as costs are
incurred. Also in September, the Partnership obtained $115 million of
conventional mortgage financing at a fixed rate of 7.37% maturing in September
2010. Proceeds from the financing were used to repay the advances from affiliate
and to fund the construction of new apartment communities. In October, the
Partnership obtained $70 million of conventional mortgage financing at a fixed
rate of 7.15% maturing in October 2009. The proceeds from the financing were
used to repay the unsecured term loan and to fund the construction of new
apartment communities. All of these transactions are more fully discussed in
Management's Discussion and Analysis included in this Annual Report on Form
10-K.
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COMPETITION
The Properties are located in developed areas. There are numerous other
rental apartment properties within and around the market area of each property.
The number of competitive rental properties in the area could have a material
effect on the Partnership's ability to rent apartments and increase rents.
EMPLOYEES
Neither the Partnership nor the Trust has any employees. The Partnership is
managed by IACLLC. The business and policy making functions of the Partnership
are carried out by the directors, officers and employees of IACLLC. As of
February 25, 2000, IACLLC had 59 employees. None of IACLLC's employees are
subject to a collective bargaining agreement and IACLLC has experienced no
labor-related work stoppages. IACLLC considers its relations with its personnel
to be good.
CYCLICALITY
The Partnership's business, and the residential housing industry in
general, are cyclical. The Partnership's operations and markets are affected by
local and regional factors such as local economies, demographic demand for
housing, population growth, property taxes, energy costs, and by national
factors such as short and long-term interest rates, federal mortgage financing
programs, federal income tax provisions and general economic trends. Occupancy
varies only slightly on a seasonal basis, with the lowest occupancy typically
occurring in the summer months.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances and regulations, an
owner of real property may be held liable for the costs of removal or
remediation of certain hazardous or toxic substances located on or in the
property. These laws often impose such liability without regard to whether the
owner knew of, or was responsible for, the presence of the hazardous or toxic
substances. The costs of any required remediation or removal of such substances
may be substantial. In addition, the owner's liability as to any property is
generally not limited under such laws, ordinances and regulations and could
exceed the value of the property and/or the aggregate assets of the owner. The
presence of such substances, or the failure to remediate such substances
properly, may also adversely affect the owner's ability to sell or rent the
property or to borrow using the property as collateral. Under such laws,
ordinances and regulations, an owner or any entity who arranges for the disposal
of hazardous or toxic substances, such as asbestos, at a disposal facility may
also be liable for the costs of any required remediation or removal of the
hazardous or toxic substances at the facility, whether or not the facility is
owned or operated by such owner or entity. In connection with the ownership of
the Properties or the disposal of hazardous or toxic substances, the Partnership
may be liable for such costs.
The groundwater underlying portions of the City of Irvine generally
contains elevated levels of certain inorganic compounds. In addition, two United
States Marine Corps air bases where soil and groundwater contamination have been
discovered are located adjacent to the Irvine Ranch. Although the Partnership
believes, based on a site assessment report prepared for the U.S. Marine Corps,
that contamination at one of these bases is localized, there can be no
assurances that it has not migrated onto any of the Irvine Ranch properties. The
other base is listed on the National Priorities List and activities from this
base have resulted in groundwater contamination in the vicinity of this base.
The Partnership has knowledge, based on information provided by the Orange
County Water District, that contamination from this base has migrated into the
groundwater underlying one of the Irvine Ranch Properties (containing 60 units).
The Partnership believes that most of the groundwater is located at a
substantial depth under the land surface. The Orange County Water District and
the Irvine Ranch Water District, together with the Department of Defense, are
currently conducting and will continue to conduct remediation activities at this
base and in the area, including under the Partnership's property, to stabilize
and ultimately remediate the contamination in the area, including the
Partnership's property. Based on current information, the Partnership believes
that it will not incur any remediation costs in connection with the groundwater
contamination.
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Other federal, state and local laws may impose liability for release of
asbestos containing materials (ACMs) into the air or require the removal of
damaged ACMs in the event of remodeling or renovation. There are ACMs at 11 of
the Properties, primarily in floor coverings and acoustical ceiling materials.
The Partnership believes that the ACMs at these properties are generally in good
condition. Comprehensive operations and maintenance plans have been implemented
for properties where ACMs are present. In addition, property custodial and
maintenance workers are trained to deal effectively with the maintenance of
existing ACMs. The Partnership believes it is in compliance in all material
respects with all federal, state, and local laws relating to ACMs and that there
are no regulatory requirements that currently require the removal of these ACMs;
however, if the Partnership were required to remove all ACMs present in its
properties over a short time frame, the cost of such removal would have a
material adverse effect on its financial condition and results of operations.
The Partnership also believes that ACMs are not present in the remaining
Properties. The Irvine Ranch Water District, a municipal corporation, owns and
maintains underground cement water pipes which contain asbestos and which are
serving a number of the Properties. Since these pipes are owned and maintained
by the Irvine Ranch Water District, the Partnership believes that any potential
environmental liabilities associated with these pipes will be incurred by the
Irvine Ranch Water District.
The Partnership has not been notified by any governmental authority of any
material noncompliance, liability, or other claim in connection with any of the
Properties. In addition, environmental assessments (which involve physical
inspections without soil or groundwater analyses and generally without radon
testing) were obtained on all Properties in 1993 or later except for two which
were obtained more than six years ago. The Partnership is not aware of any
environmental liability relating to the Properties that it believes would have a
material adverse effect on its business, assets or results of operations.
Nevertheless, it is possible that the environmental assessments did not reveal
all environmental liabilities with respect to the Properties, that environmental
liabilities have developed with respect to the Properties since the
environmental assessments were prepared or that there are material environmental
liabilities of which the Partnership is unaware with respect to the Properties.
Moreover, no assurance can be given that future laws, ordinances or regulations
will not impose material environmental liabilities or that the current
environmental condition of the Properties will not be affected by residents and
occupants of the Properties or by the uses or condition of properties in the
vicinity of the Properties, such as leaking underground storage tanks, or by
third parties unrelated to the Partnership.
REGULATION
Apartment community properties are subject to various laws, ordinances and
regulations, including regulations relating to recreational facilities such as
swimming pools, activity centers and other common areas. The Partnership
believes that each property has all material permits and approvals to operate
its business. Rent control laws currently are not applicable to any of the
Properties except 1221 Ocean Avenue. However, there can be no assurance that
rent control requirements will not be initiated on additional communities in the
future.
The Properties must comply with Title II of the Americans with Disabilities
Act (the "ADA") to the extent that such properties are "public accommodations"
and/or "commercial facilities" as defined by the ADA. Compliance with the ADA
requires removal of structural barriers to handicapped access in certain public
areas of the Properties where such removal is "readily achievable." The ADA does
not, however, consider residential properties, such as apartment communities, to
be public accommodations or commercial facilities, except to the extent portions
of such facilities, such as a leasing office, are open to the public. The
Partnership believes that the Properties comply in all material respects with
all present requirements under the ADA and applicable state laws. Noncompliance
with the ADA could result in imposition of fines or an award of damages to
private litigants.
The Fair Housing Act (the "FHA") requires, as part of the Fair Housing
Amendments Act of 1988, apartment communities first occupied after March 13,
1990 to be accessible to the handicapped. Noncompliance with the FHA could
result in the imposition of fines or an award of damages to private litigants.
The Partnership believes that the Properties that are subject to the FHA are in
compliance with such law.
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Approximately 3,000 units in portions of 35 of the Partnership's Stabilized
Communities are currently subject to resident income limitations which generally
restrict rental of the affected units to low or moderate income residents and
which, in most instances, also limit the amount of rent that may be charged for
a particular unit. A brief summary of the basis and effect of these resident
income and other limitations follows:
The development of 23 of the Stabilized Communities was financed with the
proceeds of tax-exempt multifamily housing revenue bonds issued by various local
municipalities. These bonds were refunded in May 1995 and consolidated under one
issuer, California Statewide Communities Development Authority. Regulatory
agreements applicable to such financings (a) require that a specified percentage
of the units be set aside for residents whose incomes do not exceed a specified
percentage of the area median income and (b) in most instances, limit the rent
which can be charged to a percentage of the maximum qualifying resident income
level for the affected unit. These bonds were refinanced in June 1998 by the
same issuer. Most of the income restrictions on the new bonds will terminate
upon the maturity date of the new bonds. Additionally, in October 1998, the
Partnership purchased a 216-unit apartment community (One Park Place) for $28
million of which $18 million was the assumption of tax-exempt multifamily
housing revenue bonds. In September 1999, the Partnership issued an additional
$32 million of tax-exempt multifamily housing revenue bonds to finance the
construction of two apartment buildings comprising of 201 units in a community
adjacent to the One Park Place property.
In addition to the rental restrictions imposed by the bond regulatory
agreements, many of the 24 stabilized properties and six additional properties
are also subject to resident income and rent limitations by virtue of
development and other agreements entered into with local municipalities and
private and quasi-public interest groups. These restrictions are similar in
scope and substance but differ as to expiration dates from the other
restrictions discussed above.
Five of the Stabilized Communities were developed with the assistance of
U.S. Department of Housing and Urban Development ("HUD") administered programs
which provided mortgage insurance to the project lender. Certain regulatory and
other agreements with HUD applicable to such financings (a) impose resident
income restrictions similar to those imposed by the bond financing agreements,
and (b) generally require the Partnership to operate the Properties in
accordance with HUD's standards. With respect to one of the properties (The
Parklands), a regulatory agreement additionally (a) limits the distribution of
income from the property to 10% of the HUD imputed equity in the property and
(b) requires that any income in excess of such 10% limit be deposited into a
residual receipts account. Amounts paid into such residual receipts account have
historically been used for capital improvements to the property, subject to
HUD's consent. At the expiration of the applicable regulatory or other
agreement, any amount remaining in such residual receipts account belongs to
HUD.
Under Section 8 of the United States Housing Act of 1937, HUD currently
provides rental assistance payments to each of these five HUD properties
pursuant to certain Housing Assistance Payments ("HAP") contracts. Under the HAP
contracts, so long as the units are rented to residents whose income levels do
not exceed specified HUD guidelines, each qualifying resident is required to pay
only 30% of their adjusted monthly income as rent and HUD pays the difference
between the 30% payment and the unit's market rents as established by HUD. The
above-mentioned restrictions and limitations will continue for the remainder of
each HAP contract term. Each HAP contract has an initial term of 20 years with
four 5-year renewal options exercisable at the owners option. At December 31,
1999, the average remaining term of the HAP contracts was approximately 3 years.
Each of the resident and income restricted units within the Partnership's
portfolio has been subject to one or more of the foregoing restrictions either
since their initial occupancy or as a result of subsequent agreements with the
applicable governmental authority or other private or quasi-public interest
groups. Accordingly, the effect of these restrictions on rental income from the
Properties has been reflected in the historical financial results of the
Partnership.
The Partnership believes that it is in material compliance with all of the
foregoing requirements. The failure of the Partnership to comply with the terms
of any of the foregoing could adversely affect the Partnership's operations.
10
<PAGE> 11
FACTORS RELATING TO REAL ESTATE OPERATIONS AND DEVELOPMENT
General: Real property investments are subject to varying degrees of risk.
The investment returns available from equity investments in real estate depend
in large part on the amount of income earned and capital appreciation generated
by the related properties as well as the expenses incurred. If the Properties do
not generate revenue sufficient to meet operating expenses, including debt
service and capital expenditures, the Partnership's income and ability to
service its debt and other obligations and to make distributions to its
partners/preferred security holders will be adversely affected. In addition, the
Properties consist primarily of rental apartment communities geographically
concentrated in Orange County. Income from and the performance of the Irvine
Ranch Properties may therefore be adversely affected by the general economic
climate in Orange County, including unemployment rates and local conditions such
as the supply of and demand for apartments in the area, the attractiveness of
the Irvine Ranch Properties to residents, zoning or other regulatory
restrictions, competition from other available apartments and alternative forms
of housing, the affordability of single family homes, the ability of the
Partnership to provide adequate maintenance and insurance and the potential of
increased operating costs (including real estate taxes). Certain significant
expenditures associated with an investment in real estate (such as mortgage and
other debt payments, real estate taxes and maintenance costs) generally are not
reduced when circumstances cause a reduction in revenue from the investment. In
addition, income from properties and real estate values are also affected by a
variety of other factors, such as governmental regulations and applicable laws
(including real estate, zoning and tax laws), interest rate levels and the
availability of financing. The Irvine Ranch Properties in the aggregate
historically have generated positive cash flow from operations; however, no
assurance can be given that such will be the case in the future.
The Partnership's "off-Ranch" expansion program was centered in Northern
California's Silicon Valley and the northern coastal markets of San Diego
County. In 1997, the Partnership acquired a 923-unit apartment community (The
Villas of Renaissance) located in the La Jolla region of Northern San Diego
County. In 1998, the Partnership completed construction of a 342-unit apartment
community (The Hamptons at Cupertino) in the Silicon Valley and began
development and construction on three additional apartment communities (with a
total of approximately 660 units) in the Silicon Valley and two additional
apartment communities (with a total of approximately 560 units) in Northern San
Diego County. Also in 1998, the Partnership purchased a 120-unit, high-rise
apartment building under renovation located in Santa Monica (1221 Ocean Avenue).
During 1999, an apartment community in Northern San Diego County (Arcadia at
Stonecrest) was completed and achieved stabilization. In addition, the
renovations at 1221 Ocean Avenue were completed and the apartment building was
in lease-up at December 31, 1999. However, the Partnership has no plans to
expand its off-Ranch portfolio beyond these eight properties. The development,
construction and operation of rental apartment communities in such new markets
may present risks different than or in addition to the risks discussed above
related to the Irvine Ranch Properties which are located entirely in Orange
County. For jurisdictions off the Irvine Ranch, local jurisdiction approvals
with respect to entitlements may impose requirements and conditions different
from those applicable to the Irvine Ranch. No assurance can be given that any of
the "off-Ranch" apartment communities will be successful.
Equity real estate investments, such as the investments made by the
Partnership in the Properties, are relatively illiquid. Such illiquidity limits
the ability of the Partnership to vary its portfolio in response to changes in
economic or other conditions.
The Properties are subject to all operating risks common to apartment
ownership in general. Such risks include: the Partnership's ability to rent
units at the Properties, including the 2,632 units in the Communities Under
Development; competition from other apartment communities; excessive building of
comparable properties which might adversely affect apartment occupancy or rental
rates; increases in operating costs due to inflation and other factors which may
not necessarily be offset by increased rents; increased affordable housing
requirements that might adversely affect rental rates; inability or
unwillingness of residents to pay rent increases; and future enactment of rent
control laws or other laws regulating apartment housing, including present and
possible future laws relating to access by disabled persons. If operating
expenses increase, the local rental market may limit the extent to which rents
may be increased to meet increased expenses without decreasing occupancy rates.
If any of the above occurred, the Partnership's ability to meet its debt service
and
11
<PAGE> 12
other obligations and to make distributions with respect to its
partners/preferred security holders could be adversely affected.
Real Estate Development: A primary focus of the Partnership is the
development of the Communities Under Development. The real estate development
business involves significant risks in addition to those involved in the
ownership and operation of established apartment communities, including the
risks that specific project approvals may take more time and resources to obtain
than expected, that construction may not be completed on schedule or budget and
that the properties may not achieve anticipated rent or occupancy levels. In
addition, if long-term debt is not available on acceptable terms to finance such
development, cash available for debt service and other obligations might be
adversely affected.
Insurance: The Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of the Properties, with policy
specifications and insured limits which the Partnership believes are adequate
and appropriate under the circumstances. In addition, The Irvine Company has a
limited earthquake insurance policy covering all of its properties, including
the Properties of the Partnership. There are, however, certain types of losses
that are not generally insured because they are either uninsurable or not
economically insurable. Should an uninsured loss or a loss in excess of insured
limits occur, the Partnership could lose its capital invested in the property,
as well as the anticipated future revenues from the property, and, in the case
of debt which is recourse to the Partnership, would remain obligated for any
mortgage debt or other financial obligations related to the property. Any such
loss would adversely affect the Partnership. The Partnership believes that the
Properties are adequately insured. In addition, in light of the California
earthquake risk, California building codes since the early 1970's have
established construction standards for all newly built and renovated buildings,
including apartment buildings. A major code change was adopted in 1984,
implementing the most strict construction standards established to date.
Thirty-nine of the existing 58 Stabilized Communities (representing
approximately 72% of the units U.S. in the Stabilized Communities) have been
completed and occupied since January 1, 1985, and the Partnership believes that
all of the Stabilized Communities were constructed in full compliance with the
applicable standards existing at the time of construction. In 1999, there was
another major code change and more rigorous construction standards were adopted.
The Partnership is currently constructing the Communities Under Development in
full compliance with these stricter standards. While earthquakes have occurred
from time to time in California, the Partnership has not experienced any
material losses as a result of earthquakes. No assurance can be given that this
will be the case in the future.
ITEM 2. PROPERTIES
The Partnership owns Stabilized Communities containing 16,849 apartment
units and had seven Communities Under Development. Below is 1999 operating
information for the Stabilized Communities:
<TABLE>
<CAPTION>
1999 AVERAGE MONTHLY
RENTAL RATES 1999
AVERAGE --------------------- AVERAGE
YEAR NUMBER UNIT SIZE PER SQUARE PHYSICAL
PROPERTY COMPLETED OF UNITS (SQUARE FEET) PER UNIT FOOT OCCUPANCY
-------- ---------- ----------- ------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
PROPERTIES STABILIZED BEFORE 1999
Irvine, CA (38 Properties)
Amherst Court................. 1991 162 724 $1,116 $1.54 94.9%
Berkeley Court................ 1986 152 877 1,206 1.38 92.6%
Cedar Creek................... 1985 176 811 1,070 1.32 96.2%
Columbia Court................ 1984 58 852 1,104 1.30 96.9%
Cornell Court................. 1984 109 894 1,257 1.41 95.9%
Cross Creek................... 1985 136 935 1,139 1.22 96.4%
Dartmouth Court............... 1986 294 896 1,204 1.34 95.8%
Deerfield..................... 1975/83 192/96 847 1,033 1.22 95.5%
Harvard Court................. 1986 112 826 1,133 1.37 94.7%
Northwood Park................ 1985 168 944 1.079 1.14 94.6%
Northwood Place............... 1986 604 954 1,078 1.13 94.0%
One Park Place................ 1995 216 922 996 1.08 95.9%
Orchard Park.................. 1982 60 971 1,017 1.05 99.7%
Park West..................... 1970/71/72 256/276/348 1,004 1,103 1.10 91.4%
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
1999 AVERAGE MONTHLY
RENTAL RATES 1999
AVERAGE --------------------- AVERAGE
YEAR NUMBER UNIT SIZE PER SQUARE PHYSICAL
PROPERTY COMPLETED OF UNITS (SQUARE FEET) PER UNIT FOOT OCCUPANCY
-------- ---------- ----------- ------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Parkwood...................... 1974 296 883 1,074 1.22 93.7%
Rancho San Joaquin............ 1976 368 896 1,170 1.31 91.9%
San Carlo..................... 1989 354 1,074 1,350 1.26 95.4%
San Leon...................... 1987 248 951 1,170 1.23 94.4%
San Marco..................... 1988 426 923 1,115 1.21 94.7%
San Marino.................... 1986 200 927 1,149 1.24 94.3%
San Mateo..................... 1990 283 720 1,085 1.51 94.6%
San Paulo..................... 1993 382 1,001 1,071 1.07 93.4%
San Remo...................... 1986/88 136/112 966 1,134 1.17 95.5%
Santa Clara................... 1996 378 967 1,340 1.39 95.0%
Santa Maria................... 1997 227 1,125 1,542 1.37 94.9%
Santa Rosa.................... 1996 368 895 1,281 1.43 95.0%
Santa Rosa II................. 1998 207 1,233 1,729 1.40 94.8%
Stanford Court................ 1985 320 799 1,133 1.42 95.8%
The Parklands................. 1983 121 794 1,135 1.43 99.9%
Turtle Rock Canyon............ 1991 217 1,024 1,426 1.39 94.8%
Turtle Rock Vista............. 1976/77 112/140 1,155 1,391 1.20 93.1%
Villa Coronado................ 1996 513 929 1,321 1.42 95.9%
Windwood Glen................. 1985 196 878 1,107 1.26 96.0%
Windwood Knoll................ 1983 248 903 1,020 1.13 95.5%
Woodbridge Oaks............... 1983 120 976 1,073 1.10 99.9%
Woodbridge Pines.............. 1976 220 872 1,083 1.24 94.9%
Woodbridge Villas............. 1982 258 871 1,026 1.18 95.8%
Woodbridge Willows............ 1984 200 894 1,092 1.22 95.7%
----------- ----- ------ ----- ----
Subtotal................. 10,065 935 1,175 1.26 94.7%
----------- ----- ------ ----- ----
Newport Beach, CA (9 Properties)
Baypointe..................... 1997 300 1,037 1,569 1.51 95.1%
Bayport....................... 1971 104 867 1,173 1.35 95.0%
Bayview....................... 1971 64 1,154 1,412 1.22 92.8%
Baywood....................... 1973/84 320/68 1,074 1,294 1.21 95.1%
Mariner Square................ 1969 114 1,104 1,281 1.16 97.3%
Newport North................. 1986 570 947 1,207 1.27 94.4%
Newport Ridge................. 1996 512 957 1,569 1.64 95.0%
Promontory Point.............. 1974 520 1,056 1,911 1.81 94.7%
The Colony at Fashion
Island...................... 1998 245 1,326 2,429 1.83 94.8%
----------- ----- ------ ----- ----
Subtotal................. 2,817 1,037 1,566 1.51 94.9%
----------- ----- ------ ----- ----
Tustin, CA (7 Properties)
Rancho Alisal................. 1988/91 344/12 967 1,146 1.19 95.4%
Rancho Maderas................ 1989 266 939 1,178 1.26 96.5%
Rancho Mariposa............... 1992 238 856 1,127 1.32 95.4%
Rancho Monterey............... 1996 436 932 1,319 1.42 94.9%
Rancho Santa Fe............... 1998 316 1,120 1,581 1.41 95.0%
Rancho Tierra................. 1989 252 1,031 1,238 1.20 95.3%
Sierra Vista.................. 1992 306 852 1,194 1.40 94.7%
----------- ----- ------ ----- ----
Subtotal................. 2,170 958 1,263 1.32 95.3%
----------- ----- ------ ----- ----
Subtotal (54 Properties)........ 15,052 957 1,261 1.32 94.8%
----------- ----- ------ ----- ----
La Jolla, CA (1 Property)
Villas of Renaissance......... 1992 923 957 1,358 1.42 93.5%
----------- ----- ------ ----- ----
Properties Stabilized Before 1999
(55 Properties)................... 15,975 955 1,267 1.33 94.7%
----------- ----- ------ ----- ----
Properties Stabilized During
1999(1).........................
----------- ----- ------ ----- ----
The Hamptons at Cupertino
(Cupertino)................... 1998 342 945 1,840 1.95 96.1%
Sonoma (Irvine)................. 1999 196 1,160 1,597 1.38 97.0%
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
1999 AVERAGE MONTHLY
RENTAL RATES 1999
AVERAGE --------------------- AVERAGE
YEAR NUMBER UNIT SIZE PER SQUARE PHYSICAL
PROPERTY COMPLETED OF UNITS (SQUARE FEET) PER UNIT FOOT OCCUPANCY
-------- ---------- ----------- ------------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arcadia at Stonecrest (San
Diego)........................ 1999 336 951 1,336 1.41 95.4%
----------- ----- ------ ----- ----
Subtotal................. 874 996 1,592 1.60 96.0%
----------- ----- ------ ----- ----
Total Portfolio (58
Properties)............ 16,849 959 $1,283 $1.34 94.8%
=========== ===== ====== ===== ====
</TABLE>
- ---------------
(1) Represents amounts from initial stabilization date.
The Properties are located within the following jurisdictions in
California:
<TABLE>
<CAPTION>
COMMUNITIES
STABILIZED COMMUNITIES UNDER DEVELOPMENT TOTAL
----------------------- ----------------------- ----------------------
NUMBER OF NUMBER OF NUMBER OF NUMBER OF NUMBER OF PERCENT
LOCATION PROPERTIES UNITS PROPERTIES UNITS PROPERTIES OF TOTAL
-------- ---------- --------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ORANGE COUNTY
Irvine................... 39 10,261 2 1,619 41 61%
Newport Beach............ 8 2,305 8 12%
Tustin................... 7 2,170 7 11%
Newport Coast............ 1 512 1 2%
SAN FRANCISCO BAY AREA
Cupertino................ 1 342 1 2%
Redwood City............. 2 361 2 2%
Sunnyvale................ 1 300 1 1%
NORTHERN SAN DIEGO
COUNTY................... 2 1,259 1 232 3 8%
LOS ANGELES COUNTY
Santa Monica............. 1 120 1 1%
-- ------ -- ----- -- ---
Totals........... 58 16,849 7 2,632 65 100%
== ====== == ===== == ===
</TABLE>
The unit mix of the Properties is as follows:
<TABLE>
<CAPTION>
STABILIZED COMMUNITIES
COMMUNITIES UNDER DEVELOPMENT TOTAL NUMBER PERCENT OF
UNIT TYPE NUMBER OF UNITS NUMBER OF UNITS OF UNITS TOTAL UNITS
--------- --------------- ----------------- --------------- -----------
<S> <C> <C> <C> <C>
Studio/Junior.................... 468 85 553 3%
One Bedroom...................... 4,401 1,028 5,429 28%
Two Bedroom...................... 10,355 1,445 11,800 60%
Three Bedrooms or More........... 1,625 74 1,699 9%
------ ----- ------ ---
Total.................. 16,849 2,632 19,481 100%
====== ===== ====== ===
</TABLE>
The consolidated real estate and accumulated depreciation schedule of the
Partnership is included on pages F-17 through F-19 of this Annual Report on Form
10-K.
The Partnership believes that the Properties are well maintained and have
no material deferred maintenance requirements or current need for major
renovations. The average age of the Stabilized Communities is approximately 12
years. The oldest of the Stabilized Communities was completed in 1969, and 39 of
the 58 Stabilized Communities, totaling 12,181 units or approximately 72% of the
Stabilized Communities, have been completed since January 1, 1985. The number of
units per property ranges from 58 units to 923 units, with an average of
approximately 291 units.
The Partnership seeks to assure that the Properties remain attractive
dwellings for apartment residents and desired locations for prospective
apartment residents. Maintenance, custodial and groundskeeping personnel perform
regular maintenance and upkeep on the Properties to preserve and enhance
physical and aesthetic attributes. The physical appearance of and apartment
residents' satisfaction with the Properties and with the performance of the
local property managers is monitored and evaluated on an on-going basis by the
Partnership's senior management.
14
<PAGE> 15
All of the Stabilized Communities provide, and the Communities Under
Development will provide, residents with numerous amenities and include
extensive landscaping. Approximately 88% of the 58 Stabilized Communities
contain swimming pools, spas, air conditioning and covered parking. Additional
amenities may include a fitness center, business center, recreational room,
sauna and tennis courts. Each apartment unit includes a patio, porch or balcony.
Many apartment units offer one or more of certain additional features, such as
fireplaces, enclosed garages, refrigerators, washers and dryers, and microwave
ovens. The Communities Under Development contain most of these amenities.
ITEM 3. LEGAL PROCEEDINGS
Shortly after the public announcement of TIC Acquisition LLC's offer to
acquire the outstanding publicly held shares of IAC, Inc., certain lawsuits were
initiated by shareholders of IAC, Inc. against The Irvine Company, TIC
Acquisition LLC, IAC, Inc. and IAC, Inc.'s Directors (including Donald Bren)
(collectively, the "Defendants") alleging, among other things, that the price of
$32.50 per share offered by TIC Acquisition LLC for the shares held by the
public shareholders of IAC, Inc. was inadequate, that the Directors failed to
take adequate steps to obtain the highest possible price for the public
shareholders of IAC, Inc. and that negotiations were not conducted at
arm's-length. A total of four class actions were filed in the Superior Court of
California, Orange County, on behalf of plaintiff shareholders and a purported
class of all nonaffiliated shareholders. Subsequently, a consolidated class
action (combining the four prior purported class actions relating to the
acquisition offer) was served. The consolidated class action complaint made
general allegations similar to those made in the four prior actions, in addition
to the added allegations that advisors working for IAC, Inc., TIC Acquisition
LLC and The Irvine Company were not sufficiently independent because of their
other relationships with interested parties. After negotiations, The Irvine
Company agreed to improve the terms of the offer whereby all public shareholders
would receive a price of $34.00 per share (the "Settlement"). In December 1999,
a final hearing was held whereby the Settlement was approved by the court and
the consolidated class action was dismissed. All payments under the Settlement,
including the payment of the plaintiff's attorneys' fees and expenses, have been
paid.
Neither the Partnership nor the Trust or the Properties is subject to any
other material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
IRVINE APARTMENT COMMUNITIES, L.P.
There is no established public trading market for the Partnership's common
partnership interests. As of February 25, 2000, there were nine holders of
common partnership interests.
The Partnership made aggregate distributions of $49,804,000 during 1999 on
its common partnership interests.
There were no issuances of common partnership interests in the Partnership
during the fourth quarter of 1999.
IAC CAPITAL TRUST
There were no issuances of securities of the Trust during the fourth
quarter of 1999.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data and other operating
information of the Partnership and the Trust. The selected financial data in the
table are derived from the consolidated financial statements of the Partnership
and the Trust. The data should be read in conjunction with the consolidated
financial statements, related notes, and other financial information included
herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES, PER UNIT
AND PROPERTY INFORMATION)
<S> <C> <C> <C> <C> <C>
IRVINE APARTMENT COMMUNITIES, L.P.
SELECTED OPERATING INFORMATION
Total revenues.......................... $ 253,415 $ 220,837 $ 186,945 $158,698 $136,168
Income before extraordinary item and
redeemable preferred interests........ $ 85,651 $ 73,549 $ 58,583 $ 41,192 $ 25,056
Net income.............................. $ 68,901 $ 18,781 $ 58,583 $ 41,192 $ 1,629
Cash distributions per unit............. $ 1.10 $ 1.52 $ 1.48 $ 1.44 $ 1.39
Total apartment units (at end of
period)............................... 17,362 16,439 15,136 13,656 12,776
SELECTED STABILIZED PROPERTY
INFORMATION(1)
Total properties (at end of period)..... 58 55 51 48 43
Average physical occupancy(2)........... 94.8% 94.1% 94.5% 94.9% 94.6%
Average monthly rent per unit(3)........ $ 1,283 $ 1,213 $ 1,116 $ 1,025 $ 996
SELECTED BALANCE SHEET INFORMATION AT
DECEMBER 31,
Total assets............................ $2,026,524 $1,374,624 $1,163,677 $900,998 $853,230
Total long-term debt.................... $ 864,602 $ 751,818 $ 704,063 $553,064 $563,286
Redeemable preferred interests.......... $ 192,849 $ 192,789
Partners' capital....................... $ 912,921 $ 381,679 $ 421,227 $320,344 $264,566
IAC CAPITAL TRUST
SELECTED OPERATING INFORMATION
Income from investment in subsidiary.... $ 12,375 $ 11,722
Net income.............................. $ -- $ --
SELECTED BALANCE SHEET INFORMATION AT
DECEMBER 31,
Total assets............................ $ 150,005 $ 150,005
Redeemable preferred interest........... $ 150,000 $ 150,000
Equity.................................. $ 5 $ 5
</TABLE>
- ---------------
(1) A property is considered stabilized at the earlier of one year after
completion of construction or when it achieves 95% occupancy.
(2) Average physical occupancy is calculated by dividing the total occupied
units in the stabilized properties on a weekly basis by the total units in
the stabilized properties on a weekly basis.
(3) Average monthly rent per unit is calculated by dividing average rental
revenue per unit by average economic occupancy.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data, the Consolidated Financial Statements of the Partnership and the
Trust and the Notes thereto.
RESULTS OF OPERATIONS
The Partnership's income before extraordinary item and redeemable preferred
interests was $85.7 million in 1999, up from $73.5 million in 1998, and $58.6
million in 1997. The Partnership's financial results improved in 1999 due to the
contribution of newly delivered rental units from its development program,
properties that stabilized during 1999 and 1998 and an acquisition in 1998, as
well as an increase in rental rates and physical occupancy within its stabilized
portfolio. In 1998, financial results improved due to the contribution of newly
delivered rental units from its development program, properties that stabilized
during 1997, an acquisition in 1998 and an increase in rental rates within its
stabilized portfolio, partially offset by a slight decrease in physical
occupancy.
REVENUE AND EXPENSE DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Number of stabilized communities................... 58 55 51
Number of operating units at end of period......... 17,362 16,439 15,136
Consolidated Information:
Operating revenues............................... $251,001 $219,373 $186,105
Property expenses................................ $ 54,218 $ 49,398 $ 44,556
Real estate taxes................................ $ 19,544 $ 17,209 $ 15,013
</TABLE>
Operating revenues (rental and other income) increased by 14.4% to $251.0
million in 1999, up from $219.4 million in 1998. Operating revenues in 1998 had
increased by 17.9% from $186.1 million in 1997. Operating revenues rose in 1999
because of higher rental rates, physical occupancy, and a larger average number
of rental units in service, primarily as a result of new development and an
acquisition in 1998. Operating revenues rose in 1998 because of higher rental
rates and a larger average number of rental units in service as a result of new
development.
Property expenses increased by 9.8% to $54.2 million in 1999 from $49.4
million in 1998, which had increased from $44.6 million in 1997. The 1999
increase reflects incremental expenses from newly delivered and acquired rental
units and communities stabilized during 1999 and 1998. To improve operating
efficiency and reduce operating costs, the Partnership formed IAMC to manage the
Partnership's properties in April 1998. Accordingly, the personnel and office
costs of IAMC are included in 1999 and 1998 property expenses. For comparative
purposes, prior period management fees have been included in property expenses.
The 1998 increase primarily reflects the added expenses from the newly delivered
and acquired rental units and communities stabilized during 1998 and 1997.
Real estate taxes totaled $19.5 million in 1999, $17.2 million in 1998 and
$15.0 million in 1997. Real estate taxes increased in 1999 and 1998 primarily
due to the addition of new rental units through development and acquisition.
Net interest expense increased to $33.8 million in 1999 from $27.8 million
in 1998, which had decreased from $30.4 million in 1997. Total interest incurred
was $48.2 million in 1999 compared with $40.1 million in 1998 and $36.1 million
in 1997. The increase in interest incurred in 1999 was primarily due to the
conventional mortgage financings and the unsecured term loan that was
outstanding for almost the entire year. The increase in interest incurred in
1998 was primarily due to unsecured notes payable that were outstanding for the
entire period, partially offset by lower interest rates in 1998. Net interest
expense increased in 1999 due to a decreased level of development, resulting in
a lower level of capitalized interest, in proportion to the increase in interest
incurred. Net interest expense declined in 1998 because the Partnership's
increased level of
18
<PAGE> 19
development resulted in a higher level of capitalized interest. The Partnership
capitalizes interest on projects actively under development using qualifying
asset balances and applicable weighted average interest rates. Capitalized
interest totaled $14.4 million in 1999, $12.3 million in 1998 and $5.7 million
in 1997.
Interest income totaled $2.4 million in 1999, $1.5 million in 1998 and $0.8
million in 1997. The changes in interest income reflect changes in the
Partnership's average cash balances.
Amortization of deferred financing costs remained consistent at $1.9
million in 1999 and 1998 but both years decreased from $2.4 million in 1997. The
$0.5 million decrease in 1998 was due to the full amortization of certain loan
costs during the prior year and a lower level of deferred financing costs
associated with the unsecured tax-exempt bond financings.
Depreciation and amortization expense increased to $44.4 million in 1999,
up from $33.8 million in 1998. These expenses had increased in 1998 from $29.3
million in 1997. The increases in both years reflect the completion and delivery
of newly developed rental units. In addition, the 1999 amount reflects seven
months of depreciation related to the step-up in basis recorded in conjunction
with the Merger and the 1998 amount reflects three months of depreciation from
One Park Place, a community acquired in 1998.
General and administrative expense increased to $13.9 million in 1999, up
from $9.4 million in 1998 and $6.7 million in 1997. The increase in 1999 was the
result of payments of vested stock options in conjunction with the Merger,
increased salary expenses due to personnel changes and the write-off of certain
abandoned costs. The increase in 1998 was largely the result of costs related to
The Irvine Company's acquisition offer, increased salary expenses due to a new
chief executive officer, project abandonment expenses and increased staff levels
necessitated by the Partnership's growth.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership believes that cash provided by operations will be adequate
to meet both operating requirements and payment of distributions by the
Partnership to the preferred limited partners in both the short and long term.
Liquidity: The Partnership expects to meet its short-term and long-term
liquidity requirements, such as construction costs and scheduled debt
maturities, through the refinancing of long-term debt or borrowings from
financial institutions. The Partnership's unsecured revolving credit facility
and $100 million unsecured term loan were amended in June 1999. The unsecured
revolving credit facility and unsecured term loan were amended and restated to
accommodate the Merger and to allow The Irvine Company and certain of its
affiliates to beneficially own and control all of the outstanding common
partnership units in the Partnership and IACLLC to become the sole general
partner of the Partnership. The Partnership's amended $125 million unsecured
revolving credit facility currently bears interest at LIBOR plus 0.65% or prime
and matures in June 2001. The interest rates under the credit facility are
adjusted up or down based on the credit ratings on the Partnership's senior
unsecured long-term indebtedness. The Partnership may also enter into letters of
credit under the facility which reduce the remaining amount available under the
line of credit. Availability under the credit facility was $61.5 million at
December 31, 1999.
Shelf Registration Statements: On May 14, 1997, the Partnership filed a
shelf registration statement with the Securities and Exchange Commission
providing for the issuance from time to time of up to $350 million of debt
securities. On October 1, 1997, the Partnership issued $100 million aggregate
principal amount of 7% senior unsecured notes pursuant to its shelf registration
statement. In June 1999, the Partnership cancelled the remaining availability of
$250 million under the shelf registration statement, including the Prospectus
Supplement dated April 9, 1998 filed for the future issuance of Medium-Term
Notes. The Partnership no longer plans to issue additional securities under the
shelf registration statement.
Preferred Interests: In January 1998, the Trust issued 6.0 million of its
8 1/4% Series A Preferred Securities. The proceeds of $150 million were used to
purchase an equivalent amount of 8 1/4% Series A Preferred Limited Partner Units
in the Partnership. The Partnership used the $150 million of proceeds, net of
costs and expenses, all of which were paid by the Partnership, to repay
outstanding borrowings under the credit facility and to fund development and an
acquisition. In November 1998, the Partnership issued 2.0 million of
19
<PAGE> 20
8 3/4% Series B Preferred Limited Partner Units. The Partnership used the net
proceeds to reduce the outstanding balance on its unsecured line of credit.
Debt: The Partnership's conventional debt bears interest at fixed interest
rates. Interest rates on conventional mortgage debt were reduced to then-current
market rates at the time of IAC, Inc.'s December 1993 initial public offering
through interest rate buy-down agreements that are scheduled to expire at
various dates prior to loan maturity that range from 2000 to 2008. The weighted
average effective interest rate on the Partnership's debt, including the
non-cash charges of amortization of deferred financing costs, was 6.35% at
December 31, 1999. In September 1999, the Partnership completed a $32 million
offering of tax-exempt mortgage bond financings. The bonds bear interest at a
weekly-remarketed tax-exempt rate and are due September 2029. As of December 31,
1999, the Partnership had received proceeds of $8.3 million which was used to
fund the construction of two apartment buildings comprising of 201 units in a
community adjacent to the One Park Place property. The remaining $23.7 million
of proceeds is held by a trustee and will be funded for construction as costs
are incurred. Also in September 1999, the Partnership obtained $115 million of
conventional mortgage financing at a fixed rate of 7.37% maturing in September
2010. Proceeds from the financing were used to repay the advances from affiliate
and to fund the construction of new apartment communities. In October 1999, the
Partnership obtained $70 million of conventional mortgage financing at a fixed
rate of 7.15% maturing in October 2009. The proceeds from the financing were
used to repay the unsecured term loan and to fund the construction of new
apartment communities. In November 1999, the Partnership's unsecured term loan
matured and was repaid.
DEBT STRUCTURE
<TABLE>
<CAPTION>
BALANCE AT WEIGHTED
DECEMBER 31, AVERAGE
1999 INTEREST RATE
------------ -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Fixed rate debt
Conventional mortgage financings......................... $311.3 7.22%
Mortgage notes payable to The Irvine Company............. 48.6 5.75%
Tax-exempt assessment district debt...................... 5.3 6.29%
Unsecured tax-exempt bond financings..................... 334.2 4.93%
Unsecured notes payable.................................. 99.3 7.10%
------ ----
Total fixed rate debt............................ $798.7 6.15%
====== ====
Variable rate debt
Tax-exempt mortgage bond financings...................... $ 50.0 6.18%
Tax-exempt assessment district debt...................... 15.9 5.05%
------ ----
Total variable rate debt......................... 65.9 5.91%
------ ----
Total debt....................................... $864.6 6.13%
====== ====
</TABLE>
Operating Activities: Cash provided by operating activities was $140.8
million, $83.8 million and $94.7 million for 1999, 1998 and 1997, respectively.
Cash provided by operating activities increased in 1999 compared to 1998 due to
an extraordinary item related to debt extinguishment in 1998, higher revenues
from newly delivered rental units from the Partnership's development program and
properties stabilized during 1999, as well as an increase in rental rates and
physical occupancy within its stabilized portfolio.
Investing Activities: Cash used in investing activities was $152.9 million,
$231.7 million and $249.6 million in 1999, 1998 and 1997, respectively. Changes
in the amount of cash used in investing activities in each year reflect changing
levels of real estate development and acquisitions in 1999, 1998 and 1997. Real
estate development and acquisitions are typically funded by mortgage financing
or by the line of credit until long-term financing is obtained (see "Financing
Activities" and "Capital Expenditures").
Financing Activities: Cash provided by financing activities was $21.0
million, $148.2 million and $156.3 million in 1999, 1998 and 1997, respectively.
The Partnership received $8.3 million during 1999 from
20
<PAGE> 21
the tax-exempt mortgage bond financing, $115 million in September 1999 from a
conventional mortgage financing and $70 million in October 1999 from a
conventional mortgage financing. The proceeds from these financings were used to
fund construction of new apartment communities, to repay the advances from
affiliate and to repay the unsecured term loan, which was repaid in November
1999. The Partnership received net proceeds of $192.7 million from the sale of
preferred limited partner units in January and November of 1998, a portion of
which was used to pay down the Partnership's line of credit. Additionally, the
Partnership received a $100 million unsecured term loan in 1998 with which it
paid down the line of credit. The Partnership received $66 million from the
issuance of partnership units in 1997. These proceeds were used to pay down
borrowings under the line of credit. In June 1997, $118 million was borrowed
under the line of credit to fund the acquisition of The Villas of Renaissance.
In October 1997, the Partnership received net proceeds of $97.9 million from the
issuance of the 7% Notes. These proceeds were used to repay outstanding
borrowings under the line of credit. Additionally, the Partnership paid $66.6
million in distributions to partners and redeemable preferred interest holders
in 1999 compared to $80.7 million in 1998 and $64.1 million in 1997.
CAPITAL EXPENDITURES
Capital expenditures consist of capital improvements and investments in
real estate assets. Capital improvements to operating real estate assets totaled
$6.5 million, $5.9 million and $5.0 million in 1999, 1998 and 1997,
respectively. Capital investments in real estate assets totaled $146 million,
$226 million and $245 million in 1999, 1998 and 1997, respectively, and
consisted of capital investments in new developments, nonrecurring capital
replacements, acquisitions of apartment communities and land purchases.
Recurring Capital Improvements Within All Stabilized Communities: The
following table details expenditures for recurring capital improvements for all
communities for 1999.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Carpet replacements......................................... $2,303
Exterior building enhancements, siding and stucco........... 898
Upgrades, renovations and major building items.............. 374
Appliances, water heaters and air conditioning.............. 385
Roofing, concrete and pavement.............................. 1,126
Equipment and other......................................... 1,409
------
Total............................................. $6,495
======
</TABLE>
The Partnership has a policy of capitalizing expenditures related to new
assets, acquisitions, the material enhancement of the value of an existing
asset, or the substantial extension of an existing asset's useful life.
Nonrecurring Capital Replacements: Nonrecurring capital replacements
consist of special programs to upgrade and enhance a community to achieve higher
rental rates. Expenditures for nonrecurring capital replacements totaled $5.7
million in 1999. These expenditures were made at six properties: Promontory
Point, Turtle Rock Vista, Cornell Court, Rancho San Joaquin, Park West and
Woodbridge Willows.
Capital Investments in New Development: The major cash requirements in 2000
are expected to be for the construction of the Communities Under Development.
The Partnership has five apartment communities under development or construction
that are expected to require total expenditures of approximately $454 million,
of which $159 million had been incurred at December 31, 1999. Funding for these
developments is expected to come from borrowings from financial institutions,
including the Partnership's $125 million unsecured revolving credit facility (of
which $61.5 million was available as of December 31, 1999), and refinancing of
long-term debt. (See Item 13 and Note 7 of the Notes to Consolidated Financial
Statements).
21
<PAGE> 22
CONSTRUCTION INFORMATION
<TABLE>
<CAPTION>
TOTAL
ESTIMATED
COMMENCEMENT COSTS
APARTMENT COMMUNITY LOCATION UNITS OF CONSTRUCTION (IN MILLIONS)
------------------- ------------ ----- --------------- -------------
<S> <C> <C> <C> <C>
On Irvine Ranch:
Villa Siena (Park Place)............... Irvine 1,226 2/99 $254
Off Irvine Ranch:
La Jolla Palms......................... La Jolla 232 5/98 51
The Villas at Bair Island Marina(1).... Redwood City 155 6/98 42
Franklin Street........................ Redwood City 206 49
Cherry Orchard Apartments.............. Sunnyvale 300 9/99 58
----- ----
893 200
----- ----
Total.......................... 2,119 $454
===== ====
</TABLE>
- ---------------
(1) The Villas at Bair Island Marina commenced leasing activity in January 2000.
The timing of future commencement and completion of construction, the
commencement of leasing activity and initial stabilized occupancy and estimated
costs of apartment communities that are in development are only estimates.
Actual results will depend on numerous factors, many of which are beyond the
control of the Partnership. These include the extent and timing of economic
growth in the Partnership's rental markets; future trends in the pricing of
construction materials and labor; product design changes; entitlement decisions
by local government authorities; weather patterns; changes in interest rate
levels; and other changes in capital markets. No assurance can be given that the
timing or estimates set forth in the foregoing table will not vary substantially
from actual results.
YEAR 2000
Although the Partnership believed that a failure of its computer and
microprocessor-based systems would not materially adversely affect its business,
results of operations or financial condition, the Partnership began assessing
its systems in 1998 for Year 2000 compliance and has since remedied its systems
as necessary. The Partnership believes it has completed all of the activities
within its control to ensure that its systems are Year 2000 compliant.
The Partnership has incurred less than $50,000 in connection with its Year
2000 remediation efforts. The Partnership estimates that future costs to be
incurred related to its Year 2000 remediation efforts to be less than $50,000.
Overall, the Partnership does not expect its future Year 2000 expenditures to be
material to its business, results of operations or financial condition.
To date, the Partnership has not experienced any Year 2000 issues. The
Partnership will continue to monitor its systems for any Year 2000 problems.
The Partnership's assessment of its risks, and its assessment of Year 2000
compliance, are forward-looking statements.
IMPACT OF INFLATION
The Partnership's business is affected by general economic conditions,
including the impact of inflation and interest rates. Substantially all of the
Partnership's leases allow, at time of renewal, for adjustments in the rent
payable thereunder, and thus may enable the Partnership to seek increases in
rents. Substantially all leases are for a period of one year or less. The
short-term nature of these leases generally serves to minimize the risk to the
Partnership of the adverse effects of inflation. For construction, the
Partnership has entered into various contracts for the development and
construction of new apartment communities. These are fixed-fee contracts and
thus partially insulate the Partnership from inflationary risk.
22
<PAGE> 23
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership's exposure to market risk for changes in interest rates
relates primarily to the Partnership's current and future debt obligations. The
Partnership's philosophy is to maintain a fairly low tolerance to interest rate
fluctuation risk. The Partnership is still vulnerable, however, to significant
fluctuations of interest rates on its variable rate debt, repricing on its fixed
rate debt at various points in the future and future debt.
The Partnership has managed and will continue to manage interest rate risk
by maintaining a ratio of fixed rate long-term debt to total debt such that
variable rate exposure is kept at an acceptable level and taking advantage of
favorable market conditions for long-term debt.
The following table provides information about the Partnership's financial
instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted-
average interest rates by expected maturity dates.
INTEREST RATE SENSITIVITY
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY
<TABLE>
<CAPTION>
FAIR VALUE
2000 2001 2002 2003 2004 THEREAFTER TOTAL 12/31/99
------- ------ ------ ------- ------ ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
Tax-exempt mortgage bond
financings..................... $ 50,038 $ 50,038 $ 50,038
Average interest rate(1).......
Conventional mortgage
financings..................... $38,834 $5,087 $5,489 $16,603 $8,382 236,873 311,268 300,172
Average interest rate.......... 6.73% 6.90% 6.95% 7.03% 6.99% 8.29%
Mortgage notes payable to The
Irvine Company................. 986 1,044 1,106 1,171 1,308 42,971 48,586 38,968
Average interest rate.......... 5.75% 5.75% 5.75% 5.75% 5.75% 5.75%
Tax-exempt assessment district
debt........................... 522 583 642 668 737 18,026 21,178 21,178
Average interest rate(2)
Unsecured tax-exempt bond
financings..................... 334,190 334,190 329,376
Average interest rate.......... 5.23%
Unsecured notes payable.......... 99,342 99,342 94,381
Average interest rate.......... 7.10%
</TABLE>
- ---------------
(1) The average interest rate is a weekly remarketed tax-exempt based rate. The
weighted average interest rate as of December 31, 1999 was 6.18%.
(2) $5,268 of debt is fixed at 6.29% and $15,910 is variable at the daily
remarketed tax-exempt based rate. The weighted average variable interest
rate was 5.05% as of December 31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related reports of independent auditors listed
in the accompanying index are filed as part of this report. See "Index to
Financial Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
23
<PAGE> 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
The Partnership does not have any directors or officers. The Partnership is
managed by its sole general partner, IACLLC. The business and policy making
functions are carried out through the directors of IACLLC and through those
employees at IACLLC listed below under the caption "Executive Officers of Irvine
Apartment Communities, L.P."
BOARD OF DIRECTORS OF IRVINE APARTMENT COMMUNITIES LLC
The following sets forth certain information regarding the Board of
Directors of IACLLC as of February 25, 2000:
Donald Bren, 67. Mr. Bren has been Chairman of the Board of IACLLC since
its formation. Mr. Bren has been Chairman of the Board of The Irvine Company
since 1983. Mr. Bren is a member of the Board of Overseers of the University of
California, Irvine, and is a member of the Board of Trustees of the California
Institute of Technology, the Los Angeles County Museum of Art and the Orange
County Museum of Art.
Gary H. Hunt, 51. Mr. Hunt has been a Director of IACLLC since its
formation. Mr. Hunt has been Executive Vice President, Corporate Affairs of The
Irvine Company since 1992. Mr. Hunt has been a member of the Board of Directors
of The Irvine Company since 1993. Mr. Hunt is also a member of the Board of
Directors of Glenair Corporation, the Orange County Business Council and the
Irvine Health Foundation.
Michael D. McKee, 54. Mr. McKee has been a Director of IACLLC since its
formation. Mr. McKee is Vice Chairman and Chief Financial Officer of The Irvine
Company. Previously, Mr. McKee was Executive Vice President, Chief Financial
Officer and Secretary of The Irvine Company since January 1997 and was Executive
Vice President, Chief Legal Officer and Secretary of The Irvine Company from
April 1994 to December 1996. Prior to joining The Irvine Company, Mr. McKee was
the managing partner of the Orange County office of Latham & Watkins, an
international law firm with which he was associated since 1979. Mr. McKee is a
member of the Board of Directors of Mandalay Resort Group, Health Care Property
Investors, Inc. and Realty Income Corporation.
Richard G. Sim, 63. Mr. Sim has been a Director of IACLLC since its
formation. Mr. Sim has been Executive Vice President, Investment Properties
Group for The Irvine Company since 1992. Mr. Sim has been a member of the Board
of Directors of The Irvine Company since 1993. Mr. Sim is a member of the Board
of Directors of the UCI (University of California, Irvine) Foundation and is
Chairman of UCI's CEO Roundtable.
Raymond L. Watson, 73. Mr. Watson has been a Director of IACLLC since its
formation. Mr. Watson has been Vice Chairman of the Board of The Irvine Company
since 1986. From 1973 to 1977, Mr. Watson was President and Chief Executive
Officer of The Irvine Company and he has been a member of the Executive
Committee of the Board of Directors of The Irvine Company since 1983. Mr. Watson
is a member of the Board of Directors of The Walt Disney Company, where he is
also Chairman of the Executive Committee.
24
<PAGE> 25
EXECUTIVE OFFICERS OF IRVINE APARTMENT COMMUNITIES, L.P.
The Partnership is managed by its sole general partner, IACLLC. The
executive officers of IACLLC listed below perform policy making functions for
the Partnership. The following sets forth certain information regarding such
individuals as of February 25, 2000 and other positions held by them over the
last five years:
<TABLE>
<CAPTION>
YEARS
NAME AGE PRESENT AND PRIOR POSITIONS HELD POSITIONS HELD
---- --- -------------------------------- --------------
<S> <C> <C> <C>
Clarence W. 51 President and Chief Operating Officer of IACLLC 1999 - Present
Barker..........
President, Irvine Industrial Company, a division of 1996 - 1999
The Irvine Company
President, Irvine Office and Industrial Company, a 1995 - 1996
division of The Irvine Company
President, Irvine Office Company, a division of The 1993 - 1995
Irvine Company
David A. Patty.... 49 Executive Vice President and Chief Administrative 1999 - Present
Officer of IACLLC
Senior Vice President and Chief Investment Officer, 1996 - 1999
The Irvine Company
Senior Vice President, Investment Properties Group, a 1995 - 1996
division of The Irvine Company
Vice President, Investment Properties Group, a 1994 - 1995
division of The Irvine Company
Max L. Gardner.... 48 Executive Vice President, Operations of IACLLC 1999 - Present
Senior Vice President, Western Region, AvalonBay 1998 - 1999
Communities Inc.
Executive Vice President and Chief Operating Officer, 1995 - 1998
Bay Apartment Communities, Inc.
President and Chief Executive Officer, West RS, Inc. 1988 - 1995
(d/b/a Trammell Crow Residential Services)
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
IRVINE APARTMENT COMMUNITIES, L.P.
The Partnership does not have any employees. The Partnership is managed by
its sole general partner, IACLLC. The executive officers of IACLLC who perform
policy making functions for the Partnership are compensated for such services as
employees of IACLLC.
COMPENSATION OF DIRECTORS
Neither IACLLC nor the Partnership pays any of the members of the Board for
their services as directors.
IAC CAPITAL TRUST
The Trust does not have any directors or officers. The Trust is managed by
IACLLC. Information with respect to the Trust required under Part III (Items 10,
11, 12 and 13) is included as described in this Part III. All of such
information is equally applicable to the Trust as to the Partnership.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Trust's Regular Trustee and beneficial owners of
more than 10% of the Series A Preferred Securities of the Trust, to file initial
reports of ownership and reports of changes in ownership with the SEC and the
NYSE. Such persons are required by SEC regulations to furnish the Trust with
copies of all Section 16(a) forms they file. Based solely on a review of the
copies of such forms furnished to the Trust, the Trust noted that no individual
who, at any time during 1999, was a Regular Trustee or beneficial owner of more
than 10% of the Series A Preferred Securities of the Trust failed to file the
reports required by Section 16(a) of the Exchange
25
<PAGE> 26
Act on a timely basis, except that a Form 3 was filed late with respect to the
appointment of David A. Patty as Regular Trustee.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
IACLLC, the sole general partner of the Partnership, owns all of the
outstanding units of general partnership interest of the Partnership. Certain
affiliates of IACLLC collectively own all of the outstanding common limited
partnership units of the Partnership.
Mr. Bren is the sole shareholder and Chairman of the Board of Directors of
The Irvine Company, which indirectly owns all of the outstanding membership
interests in IACLLC, and therefore may be deemed to have beneficial ownership of
the general and limited partnership units of the Partnership owned by IACLLC or
its affiliates. Mr. Bren disclaims such beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH THE IRVINE COMPANY
On June 7, 1999, IAC, Inc. was merged with and into TIC Acquisition LLC
(the "Acquiror"), a Delaware limited liability company indirectly wholly owned
by The Irvine Company (the "Merger"), with the Acquiror remaining as the
surviving entity and renamed Irvine Apartment Communities LLC ("IACLLC"). As a
result of the Merger and a related transaction in which The Irvine Company
acquired an additional 74,523 common limited partnership units, The Irvine
Company and certain of its affiliates beneficially own and control all of the
outstanding common partnership units in the Partnership and IACLLC became the
sole general partner of the Partnership. At December 31, 1999, IACLLC had a
44.6% general partnership interest and The Irvine Company and certain of its
affiliates had a 55.4% common limited partnership interest in the Partnership.
In conjunction with the Merger, IAC, Inc. and the Partnership entered into
a separate agreement whereby IAC, Inc. agreed to reimburse the Partnership for
all costs of the Merger incurred on IAC, Inc.'s behalf during 1999. In June
1999, the Partnership was reimbursed for $6.6 million of Merger costs, of which
$2.6 million had been incurred and expensed during the first quarter of 1999 and
$4.0 million was incurred during the second quarter of 1999. Additionally, the
Partnership agreed to pay in cash the difference between $34 per share and the
exercise price of the vested stock options of IAC, Inc. which were outstanding
at the time of the Merger. During the second quarter of 1999, the Partnership's
cash payments related to vested stock options totaled $4.1 million, of which
$1.8 million was capitalized to real estate under development and $2.3 million
was charged to operations as general and administrative expenses.
Also in conjunction with the Merger, the Partnership and The Irvine Company
entered into a separate agreement whereby The Irvine Company agreed to fund
certain construction cost overruns and net operating income shortfalls of the
Partnership in connection with the development and operation of nine apartment
projects which were under development at the time of the Merger. The Irvine
Company is obligated to contribute to the Partnership an amount equal to the
difference between the total costs incurred by the Partnership to complete the
construction of the respective apartment project and the amount of the approved
budget for such construction. There were no contributions for construction cost
overruns made during 1999. In addition, The Irvine Company is obligated to
contribute to the Partnership an amount equal to the difference between the
approved budgeted pro forma stabilized net operating income of the respective
apartment project and the net operating income earned by the Partnership from
the operation of such property. There were no contributions for net operating
income shortfalls made during 1999.
Included in general and administrative expenses are charges from The Irvine
Company pursuant to an administrative service agreement covering services for
risk management, income taxes, human resources and other services totaling
$99,000 for the year ended December 31, 1999. The Irvine Company and the
Partnership jointly purchase employee health care insurance and property and
casualty insurance. In addition, the Partnership incurred rent totaling $556,000
for the year ended December 31, 1999 related to leases with
26
<PAGE> 27
The Irvine Company that expire in 2003. IAMC incurred rent totaling $203,000 for
the year ended December 31, 1999 related to a lease with The Irvine Company.
The Partnership reimburses IACLLC for substantially all of its costs
incurred in operating the Partnership, including the compensation of each of the
employees of IACLLC who perform services for the Partnership. The aggregate
amount paid by the Partnership to IACLLC for such costs was $6.6 million in
1999.
Subsequent to the Merger, all preacquisition project costs which had been
incurred by the Partnership related to future development sites were transferred
at book value to The Irvine Company for the development and eventual operation
of the sites. As of December 31, 1999, The Irvine Company has reimbursed the
Partnership for all of the costs incurred to date totaling approximately $21.7
million.
Included in accounts payable and accrued liabilities at December 31, 1999
is $854,000 due to The Irvine Company. The amount represents a payable to The
Irvine Company for the reimbursement by The Irvine Company of development costs
in excess of the amount incurred by the Partnership, net of amounts owed to the
Partnership for general and administrative costs and other expenses incurred by
the Partnership on behalf of The Irvine Company.
In June 1999, The Irvine Company advanced the Partnership $46 million for
the repayment of the outstanding balance on the Partnership's unsecured line of
credit. The advance accrued interest at 4.87%. During the third quarter of 1999,
an additional $25.7 million was advanced to the Partnership by The Irvine
Company. In September 1999, the Partnership repaid the advance from The Irvine
Company totaling $71.7 million using the proceeds from the $115 million
conventional mortgage financing. For the year ended December 31, 1999, the
Partnership incurred approximately $775,000 of interest costs related to the
advance.
Two of the Partnership's apartment communities are financed by mortgage
notes payable to The Irvine Company. These mortgage notes totaled $48,586,000 at
December 31, 1999. The mortgage notes are collateralized by all-inclusive trust
deeds on each of the apartment communities financed. They bore fixed interest
rates of 5.75% at December 31, 1999, are fully amortizing and mature in 2015 and
2024. Interest incurred on the mortgage notes payable to The Irvine Company
totaled $2,818,000 for the year ended December 31, 1999. The mortgage notes
payable to The Irvine Company "wrap around" secured first trust deed notes
payable to third-party financial institutions. The secured first trust deed
notes totaled $49,076,000 as of December 31, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1 and 2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The financial statements and financial statement schedules listed in the
Index to Financial Statements on Page F-1 of this report are filed as part of
this report.
(a)(3) EXHIBITS
The Exhibit Index is included on pages 28 and 29 of this report.
27
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.2 Purchase and Sale Agreement and Joint Escrow Instructions
dated April 18, 1997 by and between Aoki Construction (CA)
Co., Ltd. and the Partnership (incorporated by reference to
Exhibit 2.1 of the Current Report on Form 8-K of the
Partnership filed on August 6, 1997).
3.1 Third Amended and Restated Agreement of Limited Partnership
of Irvine Apartment Communities, L.P. dated June 9, 1999
(incorporated by reference to Exhibit 3.1 of the Quarterly
Report on Form 10-Q of the Partnership for the quarter ended
September 30, 1999 (the "1999 Third Quarter Form 10-Q")
3.2 Designation Instrument dated January 20, 1998, relating to
the Series A Preferred L.P. Units of the Partnership
(incorporated by reference to Exhibit 3.6 of the Annual
Report on Form 10-K of the Partnership for the year ended
December 31, 1997 (the "1997 Form 10-K")).
3.2.1 Designation Instrument dated November 12, 1998, relating to
the Series B Preferred L.P. Units of the Partnership
(incorporated by reference to Exhibit 3.6.1 of the Annual
Report on Form 10-K of the Partnership for the year ended
December 31, 1998 (the "1998 Form 10-K")).
4.1 Indenture dated as of October 1, 1997 between the
Partnership and First Trust of California, National
Association, as Trustee (the "Trustee") (incorporated by
reference to Exhibit 4.1 of the Current Report on Form 8-K
of the Partnership filed on October 1, 1997 (the "October
1997 Form 8-K").
4.2 Supplemental Indenture No. 1 dated as of October 1, 1997,
relating to the Partnership's 7% Notes due 2007, between the
Partnership and the Trustee (incorporated by reference to
Exhibit 4.2 of the October 1997 Form 8-K).
4.3 Form of Series A Trust Preferred Security (included in
Exhibit 4.5).
4.4 Amended and Restated Declaration of Trust dated January 20,
1998 of IAC Capital Trust (incorporated by reference to
Exhibit 4.4 of the 1997 Form 10-K).
4.5 Certificate of Terms dated January 20, 1998 Relating to
Series A Preferred Securities of IAC Capital Trust
(incorporated by reference to Exhibit 4.5 of the 1997 Form
10-K).
10.1 Purchase and Sale Agreement and Joint Escrow Instructions
dated April 18, 1997 by and between Aoki Construction (CA)
Co., Ltd. and the Partnership (see Exhibit 2.2).
10.2 Lease Agreement (incorporated by reference to Exhibit 10.2
of the Annual Report on Form 10-K of the Partnership for the
year ended December 31, 1993 (the "1993 Form 10-K").
10.3 Administrative Services Agreement (incorporated by reference
to Exhibit 10.5 of the 1993 Form 10-K).
10.3.1 Amendment and Extension to the Administrative Services
Agreement (incorporated by reference to Exhibit 10.5.1 of
the Annual Report on Form 10-K of the Company for the year
ended December 31, 1994).
10.3.2 Amendment No. 4 to the Administrative Services Agreement
(incorporated by reference to Exhibit 10.5.4 of the
Quarterly Report on Form 10-Q of the Partnership and the
Trust for the quarter ended June 30, 1998 (the "1998 Second
Quarter Form 10-Q").
10.4 Contribution Agreement and Escrow Instructions Agreement
(incorporated by reference to Exhibit 10.7 of the 1993 Form
10-K).
10.5 Irrevocable Trust Agreement (incorporated by reference to
Exhibit 10.10 of the 1993 Form 10-K).
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.6 First Amended and Restated Revolving Credit Agreement dated
as of June 7, 1999 (incorporated by reference to Exhibit
10.1 of the Quarterly Report on Form 10-Q of the Partnership
for the quarter ended June 30, 1999 (the "1999 Second
Quarter Form 10-Q").
10.7 Amended and Restated Partnership Agreement of Irvine
Apartment Management Company dated January 1, 2000 by and
between Apartment Management Company, LLC and Western
National Securities d/b/a Western National Property
Management ("WNPM").
10.8 Amended and Restated Management Agreement dated as of
January 1, 2000 by and between the Partnership and Irvine
Apartment Management Company.
10.9 Guaranty dated as of March 12, 1998 by the Partnership in
favor of WNPM and the WNPM Indemnities (as defined in
Exhibit 10.17 hereto) (incorporated by reference to Exhibit
10.19 of the Quarterly Report on Form 10-Q of the
Partnership for the quarter ended March 31, 1998 (the "1998
First Quarter Form 10-Q")).
10.10 Purchase and Sale Agreement dated as of January 1, 2000 by
and between WNPM and Apartment Management Company, LLC.
10.11 Amended and Restated Unsecured Loan Agreement dated as of
June 7, 1999 by and among the Partnership, the Banks listed
therein, Wells Fargo Bank, N.A., as Co-Arranger and
Administrative Agent, and U.S. Bank National Association, as
Co-Arranger (incorporated by reference to Exhibit 10.2 of
the 1999 Second Quarter Form 10-Q).
10.12 Loan Agreement by and between California Statewide
Communities Development Authority and the Partnership dated
as of May 15, 1998 (incorporated by reference to Exhibit
10.24 of the 1998 Form 10-K).
10.13 Indenture of Trust by and between California Statewide
Communities Development Authority and U.S. Bank Trust
National Association, as Trustee dated as of May 15, 1998
securing $334,190,000 California Statewide Communities
Development Authority Apartment Development Revenue
Refunding Bonds, Series 1998A (Irvine Apartment Communities,
L.P.) (incorporated by reference to Exhibit 10.25 of the
1998 Form 10-K).
10.14 First Supplemental Indenture of Trust by and between
California Statewide Communities Development Authority and
U.S. Bank Trust National Association, as Trustee dated as of
June 11, 1998 ($334,190,000 California Statewide Communities
Development Authority Apartment Development Revenue
Refunding Bonds, Series 1995A) (incorporated by reference to
Exhibit 10.26 of the 1998 Form 10-K).
10.15 Registration Rights Agreement dated as of November 12, 1998
by and among the Partnership and the Trust and Greene Street
1998 Exchange Fund, L.P. (incorporated by reference to
Exhibit 10.27 of the 1998 Form 10-K).
10.16 Letter dated June 8, 1999 regarding the Funding Agreement
between The Irvine Company and the Partnership.
21.1 Subsidiaries of the Partnership (incorporated by reference
to Exhibit 21.2 of the 1997 Form 10-K).
21.2 Subsidiaries of the Trust (none).
24 Power of Attorney (included in signature page of this
Report)
27.1 Financial Data Schedule for the Partnership (only included
in electronically-filed document).
27.2 Financial Data Schedule for IAC Capital Trust (only included
in electronically-filed document).
</TABLE>
(b) REPORTS ON FORM 8-K
The Partnership did not file any reports on Form 8-K during the fourth
quarter of 1999.
The Trust did not file any reports on Form 8-K during the fourth quarter of
1999.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrants have duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
The undersigned hereby constitute and appoint Michael D. McKee and David A.
Patty, and each of them, their true and lawful attorneys-in-fact and agents,
with full powers of substitution and resubstitution, for them and in their
names, places and steads, in any and all capacities, to sign the Annual Report
on Form 10-K of Irvine Apartment Communities, L.P. and of IAC Capital Trust for
the fiscal year ending December 31, 1999 and all amendments to such Annual
Report on Form 10-K, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform to all intents and purposes as they might or
could do in person, hereby ratifying all that said attorneys-in-fact and agents,
each acting alone, or their substitutes, may lawfully do or cause to be done by
virtue thereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CLARENCE W. BARKER President and Chief Operating Officer March 28, 2000
- ------------------------------------- of IACLLC (Principal Executive
Clarence W. Barker Officer)
/s/ DAVID A. PATTY Executive Vice President and Chief March 28, 2000
- ------------------------------------- Administrative Officer of IACLLC
David A. Patty (Principal Financial Officer and
Principal Accounting Officer)
/s/ MAX L. GARDNER Executive Vice President, March 28, 2000
- ------------------------------------- Operations of IACLLC
Max L. Gardner
/s/ DONALD BREN Director of IACLLC March 28, 2000
- -------------------------------------
Donald Bren
/s/ GARY H. HUNT Director of IACLLC March 28, 2000
- -------------------------------------
Gary H. Hunt
/s/ MICHAEL D. MCKEE Director of IACLLC March 28, 2000
- -------------------------------------
Michael D. McKee
/s/ RICHARD G. SIM Director of IACLLC March 28, 2000
- -------------------------------------
Richard G. Sim
/s/ RAYMOND L. WATSON Director of IACLLC March 28, 2000
- -------------------------------------
Raymond L. Watson
</TABLE>
IRVINE APARTMENT COMMUNITIES, L.P.
By: Irvine Apartment Communities LLC
its sole general partner
Date: March 28, 2000 By: /s/ MICHAEL D. MCKEE
------------------------------------
Michael D. McKee
Vice Chairman, Chief Financial
Officer
and Secretary
IAC CAPITAL TRUST
Date: March 28, 2000 By: /s/ DAVID A. PATTY
------------------------------------
David A. Patty
Regular Trustee
30
<PAGE> 31
IRVINE APARTMENT COMMUNITIES, L.P.
IAC CAPITAL TRUST
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
IRVINE APARTMENT COMMUNITIES, L.P.
Consolidated Balance Sheets............................... F-2
Consolidated Statements of Operations..................... F-3
Consolidated Statements of Changes in Partners' Capital... F-4
Consolidated Statements of Cash Flows..................... F-5
Notes to Consolidated Financial Statements................ F-6
Schedule III -- Consolidated Real Estate and Accumulated
Depreciation........................................... F-17
Report of Independent Auditors............................ F-20
IAC CAPITAL TRUST
Balance Sheets............................................ F-21
Statements of Operations and Equity....................... F-22
Statements of Cash Flows.................................. F-23
Notes to Financial Statements............................. F-24
Report of Independent Auditors............................ F-25
</TABLE>
F-1
<PAGE> 32
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Real estate assets, at cost
Land...................................................... $ 417,196 $ 248,105
Buildings and improvements................................ 1,709,377 1,172,877
---------- ----------
2,126,573 1,420,982
Accumulated depreciation.................................. (325,229) (281,449)
---------- ----------
1,801,344 1,139,533
Under development, including land......................... 161,435 205,371
---------- ----------
1,962,779 1,344,904
Cash and cash equivalents................................... 13,834 4,888
Restricted cash............................................. 1,944 1,653
Deferred financing costs, net of accumulated amortization of
$10,693 and $8,814 at December 31, 1999 and 1998,
respectively.............................................. 11,732 12,159
Other assets................................................ 36,235 11,020
---------- ----------
$2,026,524 $1,374,624
========== ==========
LIABILITIES
Mortgages and notes payable................................. $ 864,602 $ 751,818
Accounts payable and accrued liabilities.................... 45,554 38,871
Security deposits........................................... 10,598 9,467
---------- ----------
920,754 800,156
REDEEMABLE PREFERRED INTERESTS
Redeemable Series A preferred limited partner units, 6,000
preferred partnership units outstanding at December 31,
1999 and 1998............................................. 144,149 144,097
Redeemable Series B preferred limited partner units, 2,000
preferred partnership units outstanding at December 31,
1999 and 1998............................................. 48,700 48,692
---------- ----------
192,849 192,789
---------- ----------
PARTNERS' CAPITAL
General Partner, 20,176 and 20,164 common partnership units
outstanding at December 31, 1999 and 1998, respectively... 682,315 195,858
Common Limited Partners, 25,027 common partnership units
outstanding at December 31, 1999 and 1998................. 230,606 185,821
---------- ----------
912,921 381,679
---------- ----------
$2,026,524 $1,374,624
========== ==========
</TABLE>
See accompanying notes.
F-2
<PAGE> 33
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Rental income............................................... $243,890 $213,296 $181,902
Other income................................................ 7,111 6,077 4,203
Interest income............................................. 2,414 1,464 840
-------- -------- --------
253,415 220,837 186,945
-------- -------- --------
EXPENSES
Property expenses........................................... 54,218 49,398 44,556
Real estate taxes........................................... 19,544 17,209 15,013
Interest expense, net....................................... 33,807 27,822 30,368
Amortization of deferred financing costs.................... 1,879 1,942 2,369
Depreciation and amortization............................... 44,441 33,802 29,309
General and administrative.................................. 13,875 9,352 6,747
Loss on settlement of unused treasury locks................. 7,763
-------- -------- --------
167,764 147,288 128,362
-------- -------- --------
Income before extraordinary item and redeemable preferred
interests................................................. 85,651 73,549 58,583
Extraordinary item related to debt extinguishment........... (42,451)
-------- -------- --------
Income before redeemable preferred interests................ 85,651 31,098 58,583
Redeemable preferred interests.............................. 16,750 12,317
-------- -------- --------
NET INCOME.................................................. $ 68,901 $ 18,781 $ 58,583
======== ======== ========
ALLOCATION OF NET INCOME
General Partner............................................. $ 30,752 $ 8,356 $ 26,404
Common Limited Partners..................................... $ 38,149 $ 10,425 $ 32,179
</TABLE>
See accompanying notes.
F-3
<PAGE> 34
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF CHANGES
IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
IRVINE APARTMENT IRVINE APARTMENT
COMMUNITIES COMMUNITIES, INC.
LLC (PREDECESSOR) LIMITED PARTNERS TOTAL
----------------- ----------------- ---------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
PARTNERS' CAPITAL
Balance at January 1, 1997....... $ 180,017 $140,327 $320,344
Net Income..................... 26,404 32,179 58,583
Contributions.................. 33,384 73,004 106,388
Distributions.................. (28,885) (35,203) (64,088)
--------- -------- --------
Balance at December 31, 1997..... $ 210,920 $210,307 $421,227
========= ======== ========
Net Income..................... $ 8,356 $ 10,425 $ 18,781
Contributions.................. 7,011 3,047 10,058
Distributions.................. (30,429) (37,958) (68,387)
--------- -------- --------
Balance at December 31, 1998..... $ 195,858 $185,821 $381,679
========= ======== ========
Net Income..................... $ 16,595 $ 14,157 $ 38,149 $ 68,901
Contributions.................. 394 394
Distributions.................. (14,462) (7,768) (27,574) (49,804)
Merger Transaction (Note 7).... 680,182 (202,641) 34,210 511,751
-------- --------- -------- --------
Balance at December 31, 1999..... $682,315 $ -- $230,606 $912,921
======== ========= ======== ========
COMMON PARTNERSHIP UNITS
OUTSTANDING
Balance at January 1, 1997....... 18,556 22,292 40,848
Additional common partnership
units issued................ 1,345 2,627 3,972
--------- -------- --------
Balance at December 31, 1997..... 19,901 24,919 44,820
========= ======== ========
Additional common partnership
units issued................ 263 108 371
--------- -------- --------
Balance at December 31, 1998..... 20,164 25,027 45,191
========= ======== ========
Additional common partnership
units issued................ 12 12
Merger Transaction (Note 7).... 20,176 (20,176)
-------- --------- -------- --------
Balance at December 31, 1999..... 20,176 -- 25,027 45,203
======== ========= ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 35
IRVINE APARTMENT COMMUNITIES, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 68,901 $ 18,781 $ 58,583
Adjustments to reconcile net income to net cash provided
by operating activities:
Write-off of deferred financing costs................. 8,314
Amortization of deferred financing costs.............. 1,879 1,942 2,369
Depreciation and amortization......................... 44,441 33,802 29,309
Redeemable preferred interests........................ 16,750 12,317
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Restricted cash.................................... (291) (189) (88)
Other assets....................................... (2,070) 2,330 (3,042)
Accounts payable and accrued liabilities........... 10,096 4,725 5,972
Security deposits.................................. 1,131 1,769 1,604
--------- --------- ---------
Net Cash Provided by Operating Activities..... 140,837 83,791 94,707
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital improvements to operating real estate assets.... (6,495) (5,883) (5,041)
Capital investments in real estate assets............... (146,367) (225,844) (244,517)
--------- --------- ---------
Net Cash Used in Investing Activities......... (152,862) (231,727) (249,558)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from mortgages and notes payable............... 193,293 584,190 301,208
Payments on mortgages and notes payable................. (104,316) (554,493) (150,224)
Advances from affiliate................................. 71,700
Payment to affiliate.................................... (71,700)
Additions to deferred financing costs................... (1,452) (3,336) (1,261)
Net proceeds from issuance of redeemable preferred
limited partner units................................. 192,725
Distributions to redeemable preferred limited partner
unit holders.......................................... (16,750) (12,317)
Contributions from partners............................. 9,818 70,635
Distributions to partners............................... (49,804) (68,387) (64,088)
--------- --------- ---------
Net Cash Provided by Financing Activities..... 20,971 148,200 156,270
--------- --------- ---------
Net Increase In Cash and Cash Equivalents............... 8,946 264 1,419
Cash and Cash Equivalents at Beginning of Period........ 4,888 4,624 3,205
--------- --------- ---------
Cash and Cash Equivalents at End of Period.............. $ 13,834 $ 4,888 $ 4,624
========= ========= =========
Supplemental Disclosure of Cash Flow Information
Interest paid, net of amounts capitalized............. $ 33,183 $ 26,950 $ 28,309
Tax-exempt debt assumed............................... $ 18,000
</TABLE>
See accompanying notes.
F-5
<PAGE> 36
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
Irvine Apartment Communities, L.P., a Delaware limited partnership (the
"Partnership"), was formed on November 15, 1993. In connection with an initial
public offering of common shares on December 8, 1993, Irvine Apartment
Communities, Inc. ("IAC, Inc.") obtained a general partnership interest in and
became the sole managing general partner of the Partnership. The Irvine Company
transferred 42 apartment communities and a 99% interest in a limited partnership
which owns one apartment community to the Partnership. On June 7, 1999, IAC,
Inc. was merged with and into TIC Acquisition LLC (the "Acquiror"), a Delaware
limited liability company indirectly wholly owned by The Irvine Company (the
"Merger"), with the Acquiror remaining as the surviving entity and renamed
Irvine Apartment Communities LLC ("IACLLC"). As a result of the Merger and a
related transaction in which The Irvine Company acquired an additional 74,523
common limited partnership units, The Irvine Company and certain of its
affiliates beneficially own and control all of the outstanding common
partnership units in the Partnership and IACLLC became the sole general partner
of the Partnership. The Partnership's management and operating decisions are
under the unilateral control of IACLLC. All management powers over the business
and affairs of the Partnership are vested exclusively in IACLLC. At December 31,
1999, IACLLC had a 44.6% general partnership interest in the Partnership and The
Irvine Company and certain of its affiliates had a 55.4% common limited
partnership interest in the Partnership.
The Partnership owns, operates and develops apartment communities in Orange
County, California and, since 1997, other locations in California. As of
December 31, 1999, the Partnership owned 65 apartment communities representing
17,362 operating apartment units and 2,119 apartment units under construction or
development (collectively, the "Properties"). In March 1998, the Partnership and
Western National Property Management ("WNPM") announced the formation of a
strategic alliance that, in April 1998, assumed all property management
responsibilities for the Partnership's Southern California portfolio. Effective
January 1, 1999, the property management responsibilities of the new entity,
Irvine Apartment Management Company ("IAMC"), were expanded to include the
Partnership's entire portfolio. As of December 31, 1999, IAMC was owned 51% by
the Partnership and 49% by WNPM. On January 1, 2000, the partnership agreement
of IAMC was amended and restated whereby IAMC is owned 75% by the Partnership
and 25% by WNPM.
IAC Capital Trust, a Delaware business trust (the "Trust"), was formed on
October 31, 1997. The Trust is a limited purpose financing vehicle established
by the Partnership. The Trust exists for the sole purpose of issuing redeemable
preferred securities and investing the proceeds thereof in preferred limited
partner units of the Partnership.
Profits and losses of the Partnership are generally allocated to the
general partner and to the common limited partners based on their respective
ownership interests in the Partnership. The holders of the Series A redeemable
preferred limited partner units and redeemable preferred securities are entitled
to distributions/ dividends at an annual rate of 8 1/4% of the stated value per
unit/security. The stated value of each unit/security is $25. The holders of the
Series B redeemable preferred limited partner units are entitled to
distributions at an annual rate of 8 3/4% of the stated value per unit. The
stated value of each unit is $25.
The accompanying financial statements include the consolidated accounts of
the Partnership and its financially controlled subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
Prior to the Merger, all costs incurred by IAC, Inc. relating to the
ownership of interests in and operation of the Partnership, including the
compensation of its officers and employees, stock incentive plans, director fees
and the costs and expenses of being a public company, were reimbursed by the
Partnership.
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts
F-6
<PAGE> 37
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
of assets and liabilities as of December 31, 1999 and 1998, and the revenues and
expenses for the three years ended December 31, 1999. Actual results could
differ from those estimates.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Real Estate Assets and Depreciation: Real estate assets, which are held as
long-term investments, are stated at cost less accumulated depreciation.
Impairment losses on long-lived assets used in operations are recorded when
events and circumstances indicate that the assets, on a property-by-property
basis, are impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts. As of December 31, 1999, no
impairment losses have been recorded. Land and infrastructure costs are
allocated to properties based on relative fair value. Costs related to the
development and construction of properties are capitalized as incurred. Interest
and property taxes are capitalized to apartment communities which are under
active development. When a building within a community under construction is
completed and held available for occupancy, the related costs are expensed.
Repair and maintenance expenditures are expensed as incurred. Major
replacements and betterments are capitalized and depreciated over their useful
lives. Depreciation is computed on a straight-line basis over the useful lives
of the properties (principally forty years for buildings; twenty years for
siding, roofs and balconies; fifteen years for plumbing and air conditioning
equipment; ten years for pools, tennis courts, parking lots and driveways; and
five to ten years for furniture and fixtures).
Cash and Cash Equivalents: The Partnership considers all highly liquid
investments with a remaining original maturity when purchased of three months or
less to be cash equivalents.
Restricted Cash: Restricted cash is comprised of reserve accounts for
capital replacements, property taxes and insurance. These restricted funds are
subject to supervision and approval by a lender or a government agency. The
terms of the contract with the government agency contain certain restrictions
concerning operating policies, rental charges, operating expenditures,
distributions to owners and other matters.
Deferred Financing Costs: Costs incurred in obtaining long-term financing
or costs to buy down or hedge interest costs are deferred and amortized over the
term of the related debt agreements using the effective interest method.
Revenue Recognition: The Partnership leases apartment units to a diverse
resident base for terms of one year or less. Credit investigations are performed
for all prospective residents and security deposits are also obtained. Resident
receivables are evaluated for collectibility each month. Rental revenue is
recognized on an accrual basis as it is earned over the life of the lease.
Interest income is recorded as earned.
Interest Expense: Interest rates are substantially fixed for specified
periods through interest rate swaps and buy-down agreements for certain debt
instruments. These financial instruments are entered into as a hedge against the
interest exposure from variable rate debt. The differences paid or received on
swaps and related agreements are included in interest expense as yield
adjustments.
Income Taxes: The Partnership's taxable income is reportable by its
partners. Accordingly, no provision has been made for federal income taxes in
the accompanying statements of operations.
Descriptive Information About Reportable Segments: During the fourth
quarter of 1998, the Partnership adopted the Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 131, Disclosures About
Segments of an Enterprise and Related Information ("Statement No. 131"). The
adoption of Statement No. 131 did not affect the results of operations or
financial position of the Partnership.
F-7
<PAGE> 38
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
The Partnership operates and develops apartment communities in California
which generate rental and other income through the leasing of apartment units to
a diverse base of renters. The Partnership separately evaluates the performance
of each of its apartment communities. However, because each of the apartment
communities have similar economic characteristics, facilities, services and
tenants, the apartment communities have been aggregated into a single dominant
apartment communities segment.
The Partnership evaluates performance and allocates resources primarily
based on the net operating income ("NOI") of individual apartment communities.
NOI is defined by the Partnership as rental and other income less property
expenses and real estate taxes. Accordingly, NOI excludes certain expenses
included in the determination of net income. NOI from apartment communities
totaled $177,239, $152,766 and $126,536 for the years ended December 31, 1999,
1998 and 1997, respectively. All other segment measurements are disclosed in the
Partnership's consolidated financial statements.
All revenues are from external customers and there are no revenues from
transactions with other segments. There are no tenants which contributed 10% or
more of the total revenues during 1999, 1998 or 1997. Interest expense on debt
is not allocated to individual apartment communities, even if such debt is
secured by the apartment communities. There is no provision for income taxes as
the Partnership's taxable income is reported by each of its partners.
Reclassifications: Certain amounts in the 1998 and 1997 financial
statements have been reclassified to conform with financial statement
presentations in 1999.
NOTE 3 -- MORTGAGES AND NOTES PAYABLE
The Partnership's unsecured revolving credit facility and $100 million
unsecured term loan were amended in June 1999. The unsecured revolving credit
facility and unsecured term loan were amended and restated to accommodate the
Merger and to allow The Irvine Company and certain of its affiliates to
beneficially own and control all of the outstanding common partnership units in
the Partnership and IACLLC to become the sole general partner of the
Partnership.
Tax-Exempt Mortgage Bond Financings: In October 1998, the Partnership
assumed $18 million in tax-exempt mortgage bond financings associated with the
purchase of a 216-unit apartment community ("One Park Place"). The tax-exempt
financings represent loans payable that are collateralized by One Park Place.
Monthly interest payments are made to a trustee, which in turn pays the
bondholders when interest is due. The bonds bear interest at a weekly remarketed
tax-exempt rate and are due April 2025.
In September 1999, the Partnership completed a $32 million offering of
tax-exempt mortgage bond financings (the "Bonds") for the construction of two
apartment buildings comprising of 201 units (the "Project") at the Partnership's
Villa Siena property. The Bonds represent loans payable that are collateralized
by a deed of trust granting a security interest in the Project. Payment of
principal and interest on the Bonds is secured by an irrevocable letter of
credit issued by Bank of America, National Association. As a result, the Bonds
were assigned the ratings of AA-/A1+, Aa1/P1 and AA/F1+ from Standard & Poor's,
Moody's and Fitch IBCA, respectively. Monthly principal and interest payments
are made to a trustee, which in turn pays the bondholders when interest is due.
The Bonds bear interest at a weekly-remarketed tax-exempt rate and are due
September 2029. The Bonds had an average floating interest rate inclusive of
fees of 6.19% in December 1999. As of December 31, 1999, the Partnership has
received proceeds of $8.3 million that represents land, transaction and
development costs related to the Project. The remaining $23.7 million of
proceeds (included as a receivable in other assets) is held by a trustee and
will be funded for construction of the Project as costs are incurred.
Conventional Mortgage Financings: Conventional mortgages are collateralized
by apartment communities having a net book value of $414,800 as of December 31,
1999. The mortgages are generally due in monthly
F-8
<PAGE> 39
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
installments and mature at various dates through 2018. Prior to the initial
public offering (the "Offering") of IAC, Inc. in 1993, interest rates on eleven
of the conventional mortgages were fixed at rates which ranged from 7.75% to
9.63%, with a weighted average rate of 8.69%. In connection with the Offering,
the interest rates on these mortgages were adjusted to market rates for
specified periods of time and currently range from 6.31% to 8.30%. The interest
reduction periods expire prior to or at the loan maturity dates and range from
2000 to 2008.
In September 1999, the Partnership obtained $115 million of conventional
mortgage financing from a financial institution. The mortgage financing is
secured by three of the Partnership's apartment communities. The financing is
due in monthly installments, bears interest at a fixed rate of 7.37% and matures
in September 2010. Proceeds from the financing were used to repay the advances
from affiliate (see Note 8) and for general construction purposes.
In October 1999, the Partnership obtained $70 million of conventional
mortgage financing from a financial institution. The mortgage financing is
secured by three of the Partnership's apartment communities. The financing is
due in monthly installments, bears interest at a fixed rate of 7.15% and matures
in October 2009. Proceeds from the financing were used to repay the unsecured
term loan and for general construction purposes.
As of December 31, 1999, the weighted average interest rate for all the
conventional mortgages was 7.22%. Including the amortization of deferred
financing costs, the all-in interest rate was 7.70%.
Mortgage Notes Payable to The Irvine Company: Two of the Partnership's
apartment communities are financed by mortgage notes payable to The Irvine
Company. These mortgage notes totaled $48,586 and $49,517 at December 31, 1999
and 1998, respectively. The mortgage notes are collateralized by all-inclusive
trust deeds on each of the apartment communities financed. They bore fixed
interest rates of 5.75% at December 31, 1999, are fully amortizing and mature in
2015 and 2024. Interest incurred on the mortgage notes payable to The Irvine
Company totaled $2,818, $2,871 and $2,920 for the years ended December 31, 1999,
1998 and 1997, respectively. The mortgage notes payable to The Irvine Company
"wrap around" secured first trust deed notes payable to third-party financial
institutions. The secured first trust deed notes totaled $49,076 and $49,890 as
of December 31, 1999 and 1998, respectively.
Tax-Exempt Assessment District Debt: In connection with the Offering, the
Partnership assumed certain tax-exempt assessment district debt of the
predecessor entity. In conjunction with the purchase of land, the Partnership
assumed $2,771 in 1996 in tax-exempt assessment district debt. Tax-exempt
assessment district debt represents debt issued by municipal government
authorities to finance the construction of infrastructure and improvements. The
debt obligations are repaid by the Partnership through assessments.
Unsecured Tax-Exempt Bond Financings: In June 1998, the Partnership
completed a $334 million offering of unsecured tax-exempt debt at an average
interest rate of 4.93% in three tranches ranging from 10 to 15 years. Proceeds
from the offering were used to repay the Partnership's existing tax-exempt
mortgage debt and to pay costs associated with prepayment penalties and the
unwinding of certain swap agreements. The Partnership recorded an extraordinary
item related to debt extinguishment of $42.5 million in June 1998.
Unsecured Term Loan: In November 1998, the Partnership placed a $100
million unsecured term loan with two banks. The term loan was interest-only and
bore interest at LIBOR plus 1.5%. The floating rate had been fixed through an
interest rate swap agreement. The term loan matured in November 1999 and was
repaid.
Unsecured Notes Payable: In May 1997, the Partnership filed a shelf
registration statement with the Securities and Exchange Commission providing for
the issuance from time to time of up to $350 million of debt securities. In
October 1997, the Partnership issued $100 million aggregate principal amount of
7% senior
F-9
<PAGE> 40
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
unsecured notes pursuant to its shelf registration statement. The notes are due
on October 1, 2007. Net proceeds from the offering of $97.9 million were used to
repay indebtedness under the Partnership's line of credit. The Partnership was
in compliance with all covenant requirements at December 31, 1999. In June 1999,
the Partnership cancelled the remaining availability of $250 million under the
shelf registration statement, including the Prospectus Supplement dated April 9,
1998 filed for the future issuance of Medium-Term Notes. The Partnership no
longer plans to issue additional securities under the shelf registration
statement.
Unsecured Line of Credit: The Partnership has a $125 million unsecured
revolving credit facility that was amended in June 1999. The amended credit
facility currently bears interest at LIBOR plus 0.65% or prime and matures in
June 2001. The interest rates under the credit facility are adjusted up or down
based on credit ratings on the Partnership's senior unsecured long-term
indebtedness. Under the credit facility, the Partnership is able to borrow funds
from the participating banks through a competitive bid process to obtain a lower
interest rate. The Partnership may also enter into letters of credit under the
facility. Borrowings under the credit facility, which are guaranteed by the
general partner, are available to finance the Partnership's ongoing rental
property development and for general working capital needs. The general partner
and the Partnership must comply with certain affirmative and negative covenants,
including limitations on distributions, and the maintenance of certain net
worth, cash flow and financial ratios. At December 31, 1999, the general partner
and the Partnership were in compliance with all of these covenants. At December
31, 1999, the general partner entered into letters of credit under the facility
totaling $63.5 million related to land and building purchases. The letters of
credit reduced the remaining amount available under the line of credit. As of
December 31, 1999, there were no outstanding amounts under the line of credit
and $61.5 million was available under the credit facility.
Interest Rate Swap Agreement: The Partnership used an interest rate swap
agreement to effectively convert its floating rate unsecured term loan to a
fixed-rate basis, thus reducing the impact of fluctuations in interest rates.
The swap agreement terminated in 1999. Additionally, the Partnership
restructured several interest rate swaps related to the retired tax-exempt bonds
in May 1995. These transactions reduce the interest expense on unsecured
tax-exempt bond financings by approximately 30 basis points per year through
2001.
Treasury Rate Lock Agreements: The Partnership entered into treasury lock
agreements to hedge a planned debt offering of $100 million and lock into a
treasury rate of 5.67%. In November 1998, the Partnership terminated all of its
outstanding treasury rate lock agreements because management determined that the
planned debt offering would not occur. The cost of terminating these agreements
was $7.8 million.
Capitalized Interest: The Partnership capitalizes interest on projects
actively under development using qualifying asset balances and applicable
weighted average interest rates. The average qualifying asset balance for
projects under development was approximately $182.7 million, $156.4 million and
$76.6 million for the years ended December 31, 1999, 1998 and 1997,
respectively. Interest capitalized was $14,419, $12,280 and $5,704 in 1999, 1998
and 1997, respectively. Interest incurred totaled $48,226, $40,102 and $36,072
for the years ended December 31, 1999, 1998 and 1997, respectively.
Other Matters: Mortgages and notes payable totaling $378,937 are subject to
prepayment penalties at December 31, 1999.
F-10
<PAGE> 41
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
MORTGAGES AND NOTES PAYABLE AT DECEMBER 31, 1999
<TABLE>
<CAPTION>
EXPIRATION OF
OUTSTANDING EFFECTIVE INTEREST RATE INTEREST RATE
PRINCIPAL INTEREST REDUCTION AFTER MATURITY
TYPE OF DEBT BALANCE RATE PERIOD STEP-UP DATE
------------ ----------- --------- ------------- ------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Tax-exempt mortgage bond financings........ $ 50,038 6.18% 1/28
Conventional mortgage financings:
Amherst Court............................ 11,251 7.15% 11/09
Bayport.................................. 4,617 6.91% 7/08 9.25% 7/18
Bayview.................................. 3,332 6.91% 7/08 9.25% 7/18
Baywood.................................. 19,913 6.91% 7/08 9.25% 7/18
Deerfield Phase I........................ 7,069 6.57% 7/02 8.90% 7/08
Mariner Square........................... 5,327 6.32% 9/00 8.50% 8/08
Newport Ridge............................ 63,653 7.37% 10/10
The Parklands............................ 5,202 6.15% 4/04
Parkwood................................. 11,941 6.31% 8/00 8.50% 7/08
Promontory Point......................... 34,276 8.30% 8/00
Rancho Mariposa.......................... 12,054 7.75% 6/03
San Carlo................................ 33,535 7.15% 11/09
San Mateo................................ 22,665 7.37% 10/10
San Paulo................................ 1,458 4.00% 1/13
San Paulo................................ 637 3.00% 1/08
Santa Maria.............................. 25,130 7.15% 11/09
Sierra Vista............................. 28,506 7.37% 10/10
Turtle Rock Vista........................ 12,662 6.31% 8/00 8.50% 7/08
Woodbridge Pines......................... 8,040 6.91% 9/08 9.25% 8/18
--------
311,268 7.22% 8/09
--------
Mortgage notes payable to The Irvine
Company:
Park West................................ 32,840 5.75% 7/24
Rancho San Joaquin....................... 15,746 5.75% 1/15
--------
48,586 5.75% 5/21
--------
Tax-exempt assessment district debt:
Fixed rate............................... 5,268 6.29% 7/17
Variable rate............................ 15,910 5.05% 9/18
--------
21,178 5.36% 5/18
--------
Unsecured tax-exempt bond financings....... 334,190 4.93% 11/09
--------
Unsecured notes payable.................... 99,342 7.10% 10/07
--------
Total/weighted average........... $864,602 6.13% 5/11
========
</TABLE>
F-11
<PAGE> 42
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
SCHEDULED PRINCIPAL AMORTIZATION: MORTGAGES AND NOTES PAYABLE AT DECEMBER 31,
1999
<TABLE>
<CAPTION>
YEAR OF MATURITY
----------------------------------------------------------
TYPE OF DEBT 2000 2001 2002 2003 2004 THEREAFTER TOTAL
------------ ------- ------ ------ ------- ------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Tax-exempt mortgage bond
financings.................... $ 50,038 $ 50,038
Conventional mortgage
financings.................... $38,834 $5,087 $5,489 $16,603 $ 8,382 236,873 311,268
Mortgage notes payable to The
Irvine Company................ 986 1,044 1,106 1,171 1,308 42,971 48,586
Tax-exempt assessment district
debt.......................... 522 583 642 668 737 18,026 21,178
Unsecured tax-exempt bond
financings.................... 334,190 334,190
Unsecured notes payable......... 99,342 99,342
------- ------ ------ ------- ------- -------- --------
Totals................ $40,342 $6,714 $7,237 $18,442 $10,427 $781,440 $864,602
======= ====== ====== ======= ======= ======== ========
Percentage of debt.............. 4.7% 0.8% 0.8% 2.1% 1.2% 90.4% 100.0%
======= ====== ====== ======= ======= ======== ========
</TABLE>
NOTE 4 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for financial
instruments approximate their fair value except as discussed below. The fair
values of the conventional mortgage financings and the mortgage notes payable to
The Irvine Company are estimated using discounted cash flow analyses and the
Partnership's current estimated borrowing rates for similar types of borrowing
arrangements. The interest rate used in the fair value calculation ranges from
8.0% to 8.3% based on the terms of the loan. As of December 31, 1999, the fair
values of the conventional mortgage financings and the mortgage notes payable to
The Irvine Company were $300,172 and $38,968, respectively. The fair values of
the unsecured notes payable and unsecured tax-exempt bond financings based on
prevailing interest rates at December 31, 1999 were $94,381 and $329,376,
respectively.
NOTE 5 -- REDEEMABLE PREFERRED INTERESTS
In January 1998, IAC Capital Trust issued 6.0 million of 8 1/4% Series A
Preferred Securities. The proceeds of $150 million were used to purchase an
equivalent amount of 8 1/4% Series A Preferred Limited Partner Units in the
Partnership. The Partnership used the $150 million of proceeds, net of costs and
offering expenses, all of which were paid by the Partnership, to repay the
outstanding balance on the Partnership's credit facility and to fund
development.
In November 1998, the Partnership issued 2.0 million of 8 3/4% Series B
Preferred Limited Partner Units. The Partnership used the net proceeds to reduce
the outstanding balance on its unsecured line of credit.
F-12
<PAGE> 43
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
NOTE 6 -- PARTNERS' CAPITAL
RECONCILIATION OF COMMON PARTNERSHIP UNITS OUTSTANDING
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1999 FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------------------- ----------------------------------------
THE IRVINE THE IRVINE
COMPANY COMPANY
AND CERTAIN AND CERTAIN
OF ITS OF ITS
IACLLC IAC, INC. AFFILIATES OTHER TOTAL IAC, INC. AFFILIATES OTHER TOTAL
------- --------- ----------- ----- ------ --------- ----------- ----- ------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period........................ 20,164 24,952 75 45,191 19,901 24,844 75 44,820
Stock options exercised and
awards issued................. 12 12 38 38
Dividend reinvestment plan and
additional cash investment
plan.......................... 225 108 333
Merger Transaction (Note 7)..... 20,176 (20,176) 75 (75)
------ ------- ------ --- ------ ------ ------ --- ------
Balance at end of period........ 20,176 25,027 45,203 20,164 24,952 75 45,191
------ ------- ------ --- ------ ------ ------ --- ------
Ownership interest at end of
period........................ 44.6% 55.4% 100% 44.6% 55.2% 0.2% 100%
====== ======= ====== === ====== ====== ====== === ======
</TABLE>
NET INCOME ALLOCATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Limited Partners:
Income allocated to The Irvine Company and certain
of its affiliates based on their ownership
interest......................................... $38,096 $10,394 $32,088
Income allocated to others based on their ownership
interest......................................... 53 31 91
------- ------- -------
38,149 10,425 32,179
------- ------- -------
General Partner:
Income allocated to IAC, Inc. based on its ownership
interest......................................... 14,157 8,356 26,404
Income allocated to IACLLC based on its ownership
interest......................................... 16,595
------- ------- -------
30,752 8,356 26,404
------- ------- -------
Net Income............................................ $68,901 $18,781 $58,583
======= ======= =======
</TABLE>
NOTE 7 -- MERGER BETWEEN IAC, INC. AND ACQUIROR
On June 7, 1999, pursuant to the Merger, each outstanding share of IAC,
Inc.'s common stock was converted into the right to receive $34 in cash. The
Merger and related transactions were accounted for using the purchase method of
accounting in accordance with GAAP. Accordingly, the assets and liabilities of
the Partnership were adjusted to fair value. The step-up in basis related to
IACLLC's and The Irvine Company's investment in the Partnership of $511.8
million approximates the fair value of the net assets acquired and was allocated
to the assets of the Partnership using push-down accounting based on the excess
of their estimated fair value over their historical carrying amount.
Accordingly, $131.9 million of the step-up in basis was allocated to land and
$379.9 million was allocated to buildings and improvements.
In conjunction with the Merger, IAC, Inc. and the Partnership entered into
a separate agreement whereby IAC, Inc. agreed to reimburse the Partnership for
all costs of the Merger incurred on IAC, Inc.'s behalf during 1999. In June
1999, the Partnership was reimbursed for $6.6 million of Merger costs, of which
F-13
<PAGE> 44
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
$2.6 million had been incurred and expensed during the first quarter of 1999 and
$4.0 million was incurred during the second quarter of 1999. Additionally, the
Partnership agreed to pay in cash the difference between $34 per share and the
exercise price of the vested stock options of IAC, Inc. which were outstanding
at the time of the Merger. During the second quarter of 1999, the Partnership's
cash payments related to vested stock options totaled $4.1 million, of which
$1.8 million was capitalized to real estate under development and $2.3 million
was charged to operations as general and administrative expenses.
Also in conjunction with the Merger, the Partnership and The Irvine Company
entered into a separate agreement whereby The Irvine Company agreed to fund
certain construction cost overruns and net operating income shortfalls of the
Partnership in connection with the development and operation of nine apartment
projects which were under development at the time of the Merger. The Irvine
Company is obligated to contribute to the Partnership an amount equal to the
difference between the total costs incurred by the Partnership to complete the
construction of the respective apartment project and the amount of the approved
budget for such construction. There were no contributions for construction cost
overruns made during 1999. In addition, The Irvine Company is obligated to
contribute to the Partnership an amount equal to the difference between the
approved budgeted pro forma stabilized net operating income of the respective
apartment project and the net operating income earned by the Partnership from
the operation of such property. There were no contributions for net operating
income shortfalls made during 1999.
NOTE 8 -- CERTAIN TRANSACTIONS WITH RELATED PARTIES
Included in general and administrative expenses are charges from The Irvine
Company pursuant to an administrative service agreement covering services for
risk management, income taxes, human resources and other services totaling $99
for the year ended December 31, 1999. The amounts for the corresponding periods
in 1998 and 1997 were $185 and $132, respectively. The Irvine Company and the
Partnership jointly purchase employee health care insurance and property and
casualty insurance. In addition, the Partnership incurred rent totaling $556,
$447 and $384 for the years ended December 31, 1999, 1998 and 1997,
respectively, related to leases with The Irvine Company that expire in 2003.
IAMC incurred rent totaling $203 and $156 for the years ended December 31, 1999
and 1998, respectively, related to a lease with The Irvine Company. For the
years ended December 31, 1998 and 1997, The Irvine Company contributed $3,763
and $766, respectively, in connection with stock issuances under the dividend
reinvestment and additional cash investment plan. The Irvine Company made no
contributions under the dividend reinvestment and additional cash investment
plan in 1999.
The Partnership reimburses IACLLC for substantially all of its costs
incurred in operating the Partnership, including the compensation of each of the
employees of IACLLC who perform services for the Partnership. The aggregate
amount paid by the Partnership to IACLLC for such costs was $6.6 million in
1999.
In February 1997, the Partnership acquired a development site known as
Rancho Santa Fe for $8.4 million from The Irvine Company for the development of
316 rental units pursuant to the Land Rights Agreement between the Partnership
and The Irvine Company. IAC, Inc.'s board committee of independent directors
approved the purchase in accordance with the Land Rights Agreement. The purchase
price was paid through the issuance of 313,439 additional common limited
partnership units in the Partnership to The Irvine Company.
Concurrent with IAC, Inc.'s common stock offering in February 1997, The
Irvine Company, pursuant to its rights under the partnership agreement,
purchased 1.39 million common limited partnership units at a price of $26.06 per
unit (which is equal to the public offering price of the common stock less an
amount equivalent to the underwriting discount) or a total of $36.2 million.
F-14
<PAGE> 45
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
In October 1997, the Partnership acquired a development site known as
Sonoma for $5.7 million from The Irvine Company for the development of 196
rental units pursuant to the Land Rights Agreement between the Partnership and
The Irvine Company. IAC, Inc.'s board committee of independent directors
approved the purchase in accordance with the Land Rights Agreement. The purchase
price was paid through the issuance of 179,433 additional common limited
partnership units in the Partnership to The Irvine Company.
In December 1997, the Partnership acquired a development site known as
Arcadia at Stonecrest, located in San Diego County, for $9.5 million from an
affiliate of The Irvine Company for the development of 336 rental units. IAC,
Inc.'s board committee of independent directors approved the purchase. The
purchase price was paid through the issuance of 305,707 additional common
limited partnership units in the Partnership to an affiliate of The Irvine
Company.
In December 1997, the Partnership acquired a development site known as
Brittany for $10.3 million from The Irvine Company for the development of 393
rental units pursuant to the Land Rights Agreement between the Partnership and
The Irvine Company. IAC, Inc.'s board committee of independent directors
approved the purchase in accordance with the Land Rights Agreement. The purchase
price was paid through the issuance of 332,060 additional common limited
partnership units in the Partnership to The Irvine Company.
Subsequent to the Merger, all preacquisition project costs which had been
incurred by the Partnership related to future development sites were transferred
at book value to The Irvine Company for the development and eventual operation
of the sites. As of December 31, 1999, The Irvine Company has reimbursed the
Partnership for all of the costs incurred to date totaling approximately $21.7
million.
Included in accounts payable and accrued liabilities at December 31, 1999
is $854 due to The Irvine Company. The amount represents a payable to The Irvine
Company for the reimbursement by The Irvine Company of development costs in
excess of the amount incurred by the Partnership, net of amounts owed to the
Partnership for general and administrative costs and other expenses incurred by
the Partnership on behalf of The Irvine Company.
In June 1999, The Irvine Company advanced the Partnership $46 million for
the repayment of the outstanding balance on the Partnership's unsecured line of
credit. The advance accrued interest at 4.87%. During the third quarter of 1999,
an additional $25.7 million was advanced to the Partnership by The Irvine
Company. In September 1999, the Partnership repaid the advance from The Irvine
Company totaling $71.7 million using the proceeds from the $115 million
conventional mortgage financing. For the year ended December 31, 1999, the
Partnership incurred approximately $775 of interest costs related to the
advance.
Prior to the Merger, one of IAC, Inc.'s directors was president and chief
executive officer of a bank which participates in the Partnership's credit
facility and acts as trustee for the unsecured notes payable. Based on the
bank's percentage participation in the credit facility, the amount of interest
and fees paid to the bank totaled $122, $364 and $279 in 1999, 1998 and 1997,
respectively.
NOTE 9 -- SAVINGS PLAN
Effective January 1, 1994, IAC, Inc. implemented a defined contribution
401(k) benefit plan covering substantially all employees who have satisfied
minimum age and service requirements. Upon the Merger, this plan was transferred
to, and is currently maintained by, IACLLC. The Partnership pays for these costs
as they relate to IACLLC employees providing services on the Partnership's
behalf. The Partnership matches employee contributions up to 50%, within certain
limits, which are accrued as incurred. The Partnership also makes contributions
to this plan for each participant generally equal to 3% of the participant's
base salary. The aggregate cost of these contributions by the Partnership was
$197, $178 and $125 in 1999, 1998 and 1997, respectively.
F-15
<PAGE> 46
IRVINE APARTMENT COMMUNITIES, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
NOTE 10 -- AGREEMENTS, COMMITMENTS AND CONTINGENCIES
Management Agreement: The Partnership has a management agreement with IAMC
whereby IAMC has the exclusive right to manage all of the Partnership's
properties. The agreement expires in March 2001.
Litigation: The Partnership is party to various legal actions which are
incidental to its business. Management believes that these actions will not have
a material adverse effect on the Partnership's consolidated financial
statements.
Assessment Districts: In some of the local jurisdictions within Orange
County, assessment districts were formed by local governments to finance major
infrastructure improvements. At December 31, 1999, the Partnership had $38.2
million of assessment district debt, of which $21.2 million was reflected in the
balance sheet.
Rent Restrictions: As of December 31, 1999, 17.5% of the apartment units
within the Partnership's stabilized portfolio were required to be set aside for
residents within certain income levels and had limitations on the rent that
could be charged to such tenants. The rental revenue from five of these projects
includes governmental rent subsidy payments of $3,815, $3,921 and $3,903 for the
years ended December 31, 1999, 1998 and 1997, respectively.
NOTE 11 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
1999 QUARTERS ENDED
Revenues.................................... $59,778 $ 61,781 $64,699 $67,157
Expenses.................................... $37,907 $ 40,599 $42,391 $46,867
Net income.................................. $17,683 $ 16,995 $18,120 $16,103
1998 QUARTERS ENDED
Revenues.................................... $51,569 $ 53,309 $56,537 $59,422
Expenses.................................... $33,790 $ 33,278 $34,968 $45,252
Extraordinary item.......................... $(42,451)
Net income (loss)........................... $15,338 $(25,513) $18,475 $10,481
</TABLE>
F-16
<PAGE> 47
IRVINE APARTMENT COMMUNITIES, L.P.
SCHEDULE III -- CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT DECEMBER 31, 1999(A)(B)
-------------------------------------
CITY, STATE NUMBER BUILDINGS AND ACCUMULATED
APARTMENT COMMUNITY NAME OF UNITS ENCUMBRANCES(C) LAND(E) IMPROVEMENTS TOTAL DEPRECIATION
------------------------ -------- --------------- -------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
PROPERTIES STABILIZED FOR ALL OF 1999:
IRVINE, CALIFORNIA
Amherst Court......................... 162 $ 11,251 $ 2,646 $ 14,314 $ 16,960 $ 3,419
Berkeley Court........................ 152 2,456 12,354 14,810 3,538
Cedar Creek........................... 176 2,471 13,279 15,750 3,864
Columbia Court........................ 58 949 4,177 5,126 1,144
Cornell Court......................... 109 2,017 8,907 10,924 2,141
Cross Creek........................... 136 2,032 11,024 13,056 3,270
Dartmouth Court....................... 294 5,493 24,810 30,303 7,101
Deerfield............................. 288 7,069 6,614 17,418 24,032 5,588
Harvard Court......................... 112 2,148 8,598 10,746 2,487
Northwood Park........................ 168 2,923 12,099 15,022 3,857
Northwood Place....................... 604 10,150 46,587 56,737 14,132
One Park Place........................ 216 18,000 4,751 20,745 25,496 695
Orchard Park.......................... 60 1,721 3,361 5,082 1,044
Park West............................. 880 32,840 25,963 70,720 96,683 32,187
Parkwood.............................. 296 11,941 9,963 17,725 27,688 6,177
Rancho San Joaquin.................... 368 15,746 10,677 36,997 47,674 15,231
San Carlo............................. 354 33,535 5,979 36,137 42,116 8,256
San Leon.............................. 248 4,200 20,712 24,912 5,731
San Marco............................. 426 6,934 33,698 40,632 8,452
San Marino............................ 200 3,350 16,095 19,445 4,790
San Mateo............................. 283 22,665 3,783 23,973 27,756 5,473
San Paulo............................. 382 2,095 4,602 33,271 37,873 5,141
San Remo.............................. 248 4,148 19,665 23,813 5,704
Santa Clara........................... 378 6,541 40,989 47,530 4,653
Santa Maria........................... 227 25,130 5,091 26,863 31,954 2,193
Santa Rosa............................ 368 5,983 36,195 42,178 4,351
Santa Rosa II......................... 207 7,301 27,164 34,465 1,249
Stanford Court........................ 320 5,783 23,333 29,116 6,498
The Parklands......................... 121 5,202 1,344 10,962 12,306 3,267
Turtle Rock Canyon.................... 217 3,696 27,413 31,109 5,555
Turtle Rock Vista..................... 252 12,662 8,759 22,487 31,246 6,602
Villa Coronado........................ 513 9,939 52,702 62,641 6,089
Windwood Glen......................... 196 3,284 14,319 17,603 4,082
Windwood Knoll........................ 248 3,655 17,049 20,704 4,904
Woodbridge Oaks....................... 120 1,974 9,428 11,402 2,853
Woodbridge Pines...................... 220 8,040 7,375 14,060 21,435 5,105
Woodbridge Villas..................... 258 6,828 14,263 21,091 4,624
Woodbridge Willows.................... 200 3,503 16,770 20,273 5,767
------ -------- -------- ---------- ---------- --------
10,065 206,176 207,026 860,663 1,067,689 217,214
------ -------- -------- ---------- ---------- --------
NEWPORT BEACH, CALIFORNIA
Baypointe............................. 300 6,824 38,226 45,050 2,881
Bayport............................... 104 4,617 4,280 6,462 10,742 2,127
Bayview............................... 64 3,332 3,074 4,862 7,936 1,514
Baywood............................... 388 19,913 15,044 30,574 45,618 9,568
Mariner Square........................ 114 5,327 2,238 8,783 11,021 3,946
Newport North......................... 570 15,586 46,438 62,024 12,741
Newport Ridge......................... 512 63,653 14,235 61,343 75,578 6,510
Promontory Point...................... 520 34,276 24,928 71,341 96,269 20,534
The Colony at Fashion Island.......... 245 5,014 49,835 54,849 2,528
------ -------- -------- ---------- ---------- --------
2,817 131,118 91,223 317,864 409,087 62,349
------ -------- -------- ---------- ---------- --------
TUSTIN, CALIFORNIA
Rancho Alisal......................... 356 6,114 30,292 36,406 7,744
Rancho Maderas........................ 266 3,047 24,013 27,060 5,222
Rancho Mariposa....................... 238 12,054 2,224 22,734 24,958 4,184
Rancho Monterey....................... 436 9,150 46,218 55,368 4,901
<CAPTION>
CITY, STATE DATE OF DEPRECIABLE
APARTMENT COMMUNITY NAME COMPLETION LIFE(D)
------------------------ ---------- -----------
<S> <C> <C>
PROPERTIES STABILIZED FOR ALL OF 1999:
IRVINE, CALIFORNIA
Amherst Court......................... 1991 5-40 years
Berkeley Court........................ 1986 5-40 years
Cedar Creek........................... 1985 5-40 years
Columbia Court........................ 1984 5-40 years
Cornell Court......................... 1984 5-40 years
Cross Creek........................... 1985 5-40 years
Dartmouth Court....................... 1986 5-40 years
Deerfield............................. 1975/83 5-40 years
Harvard Court......................... 1986 5-40 years
Northwood Park........................ 1985 5-40 years
Northwood Place....................... 1986 5-40 years
One Park Place........................ 1995 5-40 years
Orchard Park.......................... 1982 5-40 years
Park West............................. 1970/71/72 5-40 years
Parkwood.............................. 1974 5-40 years
Rancho San Joaquin.................... 1976 5-40 years
San Carlo............................. 1989 5-40 years
San Leon.............................. 1987 5-40 years
San Marco............................. 1988 5-40 years
San Marino............................ 1986 5-40 years
San Mateo............................. 1990 5-40 years
San Paulo............................. 1993 5-40 years
San Remo.............................. 1986/88 5-40 years
Santa Clara........................... 1996 5-40 years
Santa Maria........................... 1997 5-40 years
Santa Rosa............................ 1996 5-40 years
Santa Rosa II......................... 1998 5-40 years
Stanford Court........................ 1985 5-40 years
The Parklands......................... 1983 5-40 years
Turtle Rock Canyon.................... 1991 5-40 years
Turtle Rock Vista..................... 1976/77 5-40 years
Villa Coronado........................ 1996 5-40 years
Windwood Glen......................... 1985 5-40 years
Windwood Knoll........................ 1983 5-40 years
Woodbridge Oaks....................... 1983 5-40 years
Woodbridge Pines...................... 1976 5-40 years
Woodbridge Villas..................... 1982 5-40 years
Woodbridge Willows.................... 1984 5-40 years
NEWPORT BEACH, CALIFORNIA
Baypointe............................. 1997 5-40 years
Bayport............................... 1971 5-40 years
Bayview............................... 1971 5-40 years
Baywood............................... 1973/84 5-40 years
Mariner Square........................ 1969 5-40 years
Newport North......................... 1986 5-40 years
Newport Ridge......................... 1996 5-40 years
Promontory Point...................... 1974 5-40 years
The Colony at Fashion Island.......... 1998 5-40 years
TUSTIN, CALIFORNIA
Rancho Alisal......................... 1988/91 5-40 years
Rancho Maderas........................ 1989 5-40 years
Rancho Mariposa....................... 1992 5-40 years
Rancho Monterey....................... 1996 5-40 years
</TABLE>
F-17
<PAGE> 48
IRVINE APARTMENT COMMUNITIES, L.P.
SCHEDULE III -- CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
(CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT DECEMBER 31, 1999(A)(B)
-------------------------------------
CITY, STATE NUMBER BUILDINGS AND ACCUMULATED
APARTMENT COMMUNITY NAME OF UNITS ENCUMBRANCES(C) LAND(E) IMPROVEMENTS TOTAL DEPRECIATION
------------------------ -------- --------------- -------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
TUSTIN (CONTINUED)
Rancho Santa Fe....................... 316 $ 9,670 $ 37,026 $ 46,696 $ 1,692
Rancho Tierra......................... 252 2,996 24,090 27,086 5,405
Sierra Vista.......................... 306 $ 28,506 4,092 30,619 34,711 5,663
------ -------- -------- ---------- ---------- --------
2,170 40,560 37,293 214,992 252,285 34,811
------ -------- -------- ---------- ---------- --------
LA JOLLA, CALIFORNIA
Villas of Renaissance................. 923 23,948 115,726 139,674 7,253
------ -------- -------- ---------- ---------- --------
TOTAL PROPERTIES STABILIZED FOR
ALL OF 1999..................... 15,975 377,854 359,490 1,509,245 1,868,735 321,627
------ -------- -------- ---------- ---------- --------
PROPERTIES STABILIZED DURING 1999:
Arcadia at Stonecrest (San Diego)....... 336 9,475 33,647 43,122 385
Sonoma (Irvine)......................... 196 5,697 19,063 24,760 647
The Hamptons at Cupertino (Cupertino)... 342 17,209 45,247 62,456 1,575
------ -------- -------- ---------- ---------- --------
TOTAL PROPERTIES STABILIZED DURING
1999............................ 874 32,381 97,957 130,338 2,607
------ -------- -------- ---------- ---------- --------
Total Stabilized Portfolio........ 16,849 $377,854 $391,871 $1,607,202 $1,999,073 $324,234
------ -------- -------- ---------- ---------- --------
DELIVERED UNITS IN PROJECTS UNDER
DEVELOPMENT
Brittany (Irvine)....................... 393 10,325 34,085 44,410 595
1221 Ocean Avenue (Santa Monica)........ 120 15,000 68,035 83,035 321
Other................................... 55 55 79
------ -------- -------- ---------- ---------- --------
TOTAL DELIVERED UNITS............. 513 25,325 102,175 127,500 995
------ -------- -------- ---------- ---------- --------
Total Stabilized and Delivered.... 17,362 377,854 417,196 1,709,377 2,126,573 325,229
------ -------- -------- ---------- ---------- --------
UNITS UNDER DEVELOPMENT
Villa Siena (Irvine).................... 1,226 32,038 40,000 29,778 69,778
La Jolla Palms (La Jolla)............... 232 7,950 27,492 35,442
The Villas at Bair Island Marina
(Redwood City)........................ 155 3,900 32,764 36,664
Franklin Street (Redwood City).......... 206 4,600 3,801 8,401
Cherry Orchard Apartments (Sunnyvale)... 300 8,959 8,959
Other................................... 2,191 2,191
------ -------- -------- ---------- ---------- --------
TOTAL UNITS UNDER DEVELOPMENT..... 2,119 32,038 56,450 104,985 161,435
------ -------- -------- ---------- ---------- --------
Total............................. 19,481 $409,892 $473,646 $1,814,362 $2,288,008 $325,229
====== ======== ======== ========== ========== ========
<CAPTION>
CITY, STATE DATE OF DEPRECIABLE
APARTMENT COMMUNITY NAME COMPLETION LIFE(D)
------------------------ ---------- -----------
<S> <C> <C>
TUSTIN (CONTINUED)
Rancho Santa Fe....................... 1998 5-40 years
Rancho Tierra......................... 1989 5-40 years
Sierra Vista.......................... 1992 5-40 years
LA JOLLA, CALIFORNIA
Villas of Renaissance................. 1992 5-40 years
TOTAL PROPERTIES STABILIZED FOR
ALL OF 1999.....................
PROPERTIES STABILIZED DURING 1999:
Arcadia at Stonecrest (San Diego)....... 1999 5-40 years
Sonoma (Irvine)......................... 1999 5-40 years
The Hamptons at Cupertino (Cupertino)... 1998 5-40 years
TOTAL PROPERTIES STABILIZED DURING
1999............................
Total Stabilized Portfolio........
DELIVERED UNITS IN PROJECTS UNDER
DEVELOPMENT
Brittany (Irvine)....................... 1999 5-40 years
1221 Ocean Avenue (Santa Monica)........ 1999 5-40 years
Other...................................
TOTAL DELIVERED UNITS.............
Total Stabilized and Delivered....
UNITS UNDER DEVELOPMENT
Villa Siena (Irvine)....................
La Jolla Palms (La Jolla)...............
The Villas at Bair Island Marina
(Redwood City)........................
Franklin Street (Redwood City)..........
Cherry Orchard Apartments (Sunnyvale)...
Other...................................
TOTAL UNITS UNDER DEVELOPMENT.....
Total.............................
</TABLE>
- ---------------
Notes:
(a) The aggregate cost of land and buildings for federal income tax purposes is
approximately $1,878,465 (unaudited).
(b) The gross amount at which buildings and improvements are carried represent
historical cost amounts incurred in the development of the projects and
capital improvements incurred subsequent to the completion of construction.
Prior to IAC, Inc.'s December 1993 initial public offering, the gross land
and improvements amounts represent The Irvine Company's historical cost
basis. In conjunction with the Merger, the historical cost of land includes
a $131.9 million step-up and the historical cost of buildings and
improvements includes a $379.9 million step-up.
(c) Encumbrances represent debt secured by deeds of trust.
(d) Estimated useful lives are five to seven years for furniture and fixtures,
five to twenty years for improvements and forty years for buildings.
(e) Land acquired from The Irvine Company is recorded at cost based on the
purchase price.
F-18
<PAGE> 49
IRVINE APARTMENT COMMUNITIES, L.P.
SCHEDULE III -- CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
(CONTINUED)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
A summary of activity of real estate and accumulated depreciation is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
REAL ESTATE 1999 1998 1997
----------- ---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year................... $1,626,353 $1,372,807 $1,084,234
Additions:
Through cash expenditures.................... 149,904 235,546 252,668
Through assumption of tax-exempt debt........ 18,000
Through issuance of Partnership units........ 35,905
Through step-up in basis due to Merger....... 511,751
---------- ---------- ----------
Balance at end of year......................... $2,288,008 $1,626,353 $1,372,807
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
ACCUMULATED DEPRECIATION 1999 1998 1997
------------------------ -------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year....................... $281,449 $248,245 $219,193
Charges to depreciation expense.................... 43,780 33,204 29,052
-------- -------- --------
Balance at end of year............................. $325,229 $281,449 $248,245
======== ======== ========
</TABLE>
F-19
<PAGE> 50
IRVINE APARTMENT COMMUNITIES, L.P.
REPORT OF INDEPENDENT AUDITORS
To The Partners
Irvine Apartment Communities, L.P.
We have audited the accompanying consolidated balance sheets of Irvine
Apartment Communities, L.P., a Delaware limited partnership, as of December 31,
1999 and 1998, and the related consolidated statements of operations, changes in
partners' capital and cash flows for each of the three years in the period ended
December 31, 1999. Our audits also included the financial statement schedule on
pages F-17 through F-19. These financial statements and schedule are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Irvine
Apartment Communities, L.P. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
ERNST & YOUNG LLP
Newport Beach, California
March 3, 2000
F-20
<PAGE> 51
IAC CAPITAL TRUST
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT SECURITIES)
<S> <C> <C>
Cash........................................................ $ 5 $ 5
Investment in Subsidiary.................................... 150,000 150,000
-------- --------
$150,005 $150,005
======== ========
LIABILITIES AND EQUITY
Redeemable Preferred Securities, 25,000,000 securities
authorized, redeemable Series A Preferred Securities,
6,900,000 securities authorized, 6,000,000 securities
issued and outstanding.................................... $150,000 $150,000
Equity
Common Securities, 20,000 securities authorized, 200
securities issued and outstanding...................... 5 5
-------- --------
$150,005 $150,005
======== ========
</TABLE>
See accompanying notes.
F-21
<PAGE> 52
IAC CAPITAL TRUST
STATEMENTS OF OPERATIONS AND EQUITY
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 20, 1998
FOR THE YEAR (COMMENCEMENT
ENDED OF OPERATIONS)
DECEMBER 31, TO DECEMBER 31,
1999 1998
------------ ----------------
(IN THOUSANDS)
<S> <C> <C>
REVENUE
Income from investment in subsidiary........................ $12,375 $11,722
------- -------
Income Before Redeemable Preferred Interest................. 12,375 11,722
Redeemable preferred interest............................... 12,375 11,722
------- -------
NET INCOME.................................................. $ -- $ --
======= =======
Equity -- beginning of period............................... $ 5 $ --
Issuance of common securities............................... -- 5
Net income.................................................. -- --
------- -------
EQUITY -- END OF PERIOD..................................... $ 5 $ 5
======= =======
</TABLE>
See accompanying notes.
F-22
<PAGE> 53
IAC CAPITAL TRUST
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 20, 1998
FOR THE YEAR (COMMENCEMENT
ENDED OF OPERATIONS)
DECEMBER 31, TO DECEMBER 31,
1999 1998
------------ ----------------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ -- $ --
Adjustments to reconcile net income to net cash provided by
operating activities:
Redeemable preferred interest............................... 12,375 11,722
-------- ---------
Net Cash Provided by Operating Activities......... 12,375 11,722
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary.................................... -- (150,000)
-------- ---------
Net Cash Used in Investing Activities............. -- (150,000)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common securities................. 5
Proceeds from issuance of redeemable preferred securities... 150,000
Distributions to preferred securities holders............... (12,375) (11,722)
-------- ---------
Net Cash (Used in) Provided by Financing
Activities...................................... (12,375) 138,283
-------- ---------
Net Increase in Cash........................................ -- 5
Cash at beginning of period................................. 5 --
-------- ---------
Cash at End of Period....................................... $ 5 $ 5
======== =========
</TABLE>
See accompanying notes.
F-23
<PAGE> 54
IAC CAPITAL TRUST
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION
IAC Capital Trust (the "Trust") is a business trust formed on October 31,
1997 under the Delaware Business Trust Act. The Trust commenced operations on
January 20, 1998 with the issuance of its redeemable preferred securities.
Irvine Apartment Communities LLC ("IACLLC") and certain members of management of
IACLLC acquired all of the common securities of the Trust, representing common
undivided beneficial interests in all of the assets of the Trust, for an
aggregate consideration of $5,000.
The Trust is a limited purpose financing vehicle established by Irvine
Apartment Communities, L.P. (the "Partnership") and exists for the sole purpose
of issuing redeemable preferred securities and investing the proceeds thereof in
redeemable preferred limited partner units of the Partnership. The redeemable
preferred securities have no voting rights except in limited circumstances. The
Trust's declaration does not permit the incurrence by the Trust of any
indebtedness for borrowed money or the making of any investment other than in
the redeemable preferred limited partner units of the Partnership.
The Partnership pays all obligations (other than with respect to the Trust
securities) and all costs and expenses of the Trust, including the fees and
expenses of the trustees and any income taxes, duties and other governmental
charges.
NOTE 2 -- REDEEMABLE PREFERRED INTEREST
There are 6.0 million redeemable preferred securities outstanding that bear
an annual cash distribution rate of 8 1/4% which is paid quarterly. The
redeemable preferred securities have a stated maturity of December 31, 2092.
NOTE 3 -- INVESTMENT IN IRVINE APARTMENT COMMUNITIES, L.P.
The proceeds from the issuance of redeemable preferred securities were
invested in redeemable preferred limited partner units of the Partnership which
bear an annual cash distribution rate of 8 1/4% which is paid quarterly. The
Trust accounts for its investment in the Partnership using the equity method of
accounting.
NOTE 4 -- INCOME TAXES
The Trust has elected to be taxed as a REIT and, as such, will generally
not be subject to federal and state income taxation at the corporate level. To
maintain its REIT status, the Trust is required to distribute annually at least
95% of its REIT taxable income to its shareholders and to satisfy certain other
requirements. Accordingly, no provision has been made for federal income taxes
in the accompanying statements of operations.
F-24
<PAGE> 55
IAC CAPITAL TRUST
REPORT OF INDEPENDENT AUDITORS
To the Trustees
IAC Capital Trust
We have audited the accompanying balance sheets of IAC Capital Trust, a
Delaware Business Trust, as of December 31, 1999 and 1998 and the related
statements of operations and equity and cash flows for the year ended December
31, 1999 and for the period January 20, 1998 (commencement of operations)
through December 31, 1998. These financial statements are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IAC Capital Trust at
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the year ended December 31, 1999 and the period January 20, 1998
(commencement) through December 31, 1998, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
Newport Beach, California
March 3, 2000
F-25
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.2 Purchase and Sale Agreement and Joint Escrow Instructions
dated April 18, 1997 by and between Aoki Construction (CA)
Co., Ltd. and the Partnership (incorporated by reference to
Exhibit 2.1 of the Current Report on Form 8-K of the
Partnership filed on August 6, 1997).
3.1 Third Amended and Restated Agreement of Limited Partnership
of Irvine Apartment Communities, L.P. dated June 9, 1999
(incorporated by reference to Exhibit 3.1 of the Quarterly
Report on Form 10-Q of the Partnership for the quarter ended
September 30, 1999 (the "1999 Third Quarter Form 10-Q")
3.2 Designation Instrument dated January 20, 1998, relating to
the Series A Preferred L.P. Units of the Partnership
(incorporated by reference to Exhibit 3.6 of the Annual
Report on Form 10-K of the Partnership for the year ended
December 31, 1997 (the "1997 Form 10-K")).
3.2.1 Designation Instrument dated November 12, 1998, relating to
the Series B Preferred L.P. Units of the Partnership
(incorporated by reference to Exhibit 3.6.1 of the Annual
Report on Form 10-K of the Partnership for the year ended
December 31, 1998 (the "1998 Form 10-K")).
4.1 Indenture dated as of October 1, 1997 between the
Partnership and First Trust of California, National
Association, as Trustee (the "Trustee") (incorporated by
reference to Exhibit 4.1 of the Current Report on Form 8-K
of the Partnership filed on October 1, 1997 (the "October
1997 Form 8-K").
4.2 Supplemental Indenture No. 1 dated as of October 1, 1997,
relating to the Partnership's 7% Notes due 2007, between the
Partnership and the Trustee (incorporated by reference to
Exhibit 4.2 of the October 1997 Form 8-K).
4.3 Form of Series A Trust Preferred Security (included in
Exhibit 4.5).
4.4 Amended and Restated Declaration of Trust dated January 20,
1998 of IAC Capital Trust (incorporated by reference to
Exhibit 4.4 of the 1997 Form 10-K).
4.5 Certificate of Terms dated January 20, 1998 Relating to
Series A Preferred Securities of IAC Capital Trust
(incorporated by reference to Exhibit 4.5 of the 1997 Form
10-K).
10.1 Purchase and Sale Agreement and Joint Escrow Instructions
dated April 18, 1997 by and between Aoki Construction (CA)
Co., Ltd. and the Partnership (see Exhibit 2.2).
10.2 Lease Agreement (incorporated by reference to Exhibit 10.2
of the Annual Report on Form 10-K of the Partnership for the
year ended December 31, 1993 (the "1993 Form 10-K").
10.3 Administrative Services Agreement (incorporated by reference
to Exhibit 10.5 of the 1993 Form 10-K).
10.3.1 Amendment and Extension to the Administrative Services
Agreement (incorporated by reference to Exhibit 10.5.1 of
the Annual Report on Form 10-K of the Company for the year
ended December 31, 1994).
10.3.2 Amendment No. 4 to the Administrative Services Agreement
(incorporated by reference to Exhibit 10.5.4 of the
Quarterly Report on Form 10-Q of the Partnership and the
Trust for the quarter ended June 30, 1998 (the "1998 Second
Quarter Form 10-Q").
10.4 Contribution Agreement and Escrow Instructions Agreement
(incorporated by reference to Exhibit 10.7 of the 1993 Form
10-K).
10.5 Irrevocable Trust Agreement (incorporated by reference to
Exhibit 10.10 of the 1993 Form 10-K).
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.6 First Amended and Restated Revolving Credit Agreement dated
as of June 7, 1999 (incorporated by reference to Exhibit
10.1 of the Quarterly Report on Form 10-Q of the Partnership
for the quarter ended June 30, 1999 (the "1999 Second
Quarter Form 10-Q").
10.7 Amended and Restated Partnership Agreement of Irvine
Apartment Management Company dated January 1, 2000 by and
between Apartment Management Company, LLC and Western
National Securities d/b/a Western National Property
Management ("WNPM").
10.8 Amended and Restated Management Agreement dated as of
January 1, 2000 by and between the Partnership and Irvine
Apartment Management Company.
10.9 Guaranty dated as of March 12, 1998 by the Partnership in
favor of WNPM and the WNPM Indemnities (as defined in
Exhibit 10.17 hereto) (incorporated by reference to Exhibit
10.19 of the Quarterly Report on Form 10-Q of the
Partnership for the quarter ended March 31, 1998 (the "1998
First Quarter Form 10-Q")).
10.10 Purchase and Sale Agreement dated as of January 1, 2000 by
and between WNPM and Apartment Management Company, LLC.
10.11 Amended and Restated Unsecured Loan Agreement dated as of
June 7, 1999 by and among the Partnership, the Banks listed
therein, Wells Fargo Bank, N.A., as Co-Arranger and
Administrative Agent, and U.S. Bank National Association, as
Co-Arranger (incorporated by reference to Exhibit 10.2 of
the 1999 Second Quarter Form 10-Q).
10.12 Loan Agreement by and between California Statewide
Communities Development Authority and the Partnership dated
as of May 15, 1998 (incorporated by reference to Exhibit
10.24 of the 1998 Form 10-K).
10.13 Indenture of Trust by and between California Statewide
Communities Development Authority and U.S. Bank Trust
National Association, as Trustee dated as of May 15, 1998
securing $334,190,000 California Statewide Communities
Development Authority Apartment Development Revenue
Refunding Bonds, Series 1998A (Irvine Apartment Communities,
L.P.) (incorporated by reference to Exhibit 10.25 of the
1998 Form 10-K).
10.14 First Supplemental Indenture of Trust by and between
California Statewide Communities Development Authority and
U.S. Bank Trust National Association, as Trustee dated as of
June 11, 1998 ($334,190,000 California Statewide Communities
Development Authority Apartment Development Revenue
Refunding Bonds, Series 1995A) (incorporated by reference to
Exhibit 10.26 of the 1998 Form 10-K).
10.15 Registration Rights Agreement dated as of November 12, 1998
by and among the Partnership and the Trust and Greene Street
1998 Exchange Fund, L.P. (incorporated by reference to
Exhibit 10.27 of the 1998 Form 10-K).
10.16 Letter dated June 8, 1999 regarding the Funding Agreement
between The Irvine Company and the Partnership.
21.1 Subsidiaries of the Partnership (incorporated by reference
to Exhibit 21.2 of the 1997 Form 10-K).
21.2 Subsidiaries of the Trust (none).
24 Power of Attorney (included in signature page of this
Report)
27.1 Financial Data Schedule for the Partnership (only included
in electronically-filed document).
27.2 Financial Data Schedule for IAC Capital Trust (only included
in electronically-filed document).
</TABLE>
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EXHIBIT 10.7
AMENDED AND RESTATED
IRVINE APARTMENT MANAGEMENT COMPANY
PARTNERSHIP AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
FORMATION OF PARTNERSHIP
<TABLE>
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PAGE
<S> <C> <C>
1.1 Defined Terms...........................................................1
1.2 Formation and Effective Date of Agreement...............................5
1.3 Name and Principal Place of Business....................................5
1.4 Agreement...............................................................5
1.5 Business................................................................5
1.6 Term....................................................................6
ARTICLE II
PARTNERS
2.1 Limited Liability.......................................................6
2.2 Initial Partners........................................................6
2.3 Admission of Substitute Partners........................................6
2.4 Resignation or Withdrawal of a Partner..................................6
2.5 Transactions with the Partnership.......................................6
2.6 Partners Are Not Agents; No Management Authority........................6
ARTICLE III
CONTRIBUTIONS TO CAPITAL
3.1 Capital Contributions...................................................7
3.2 Additional Contributions................................................7
3.3 AMC Loan................................................................7
3.4 Third Party Financing...................................................7
3.5 Interest................................................................7
ARTICLE IV
MANAGEMENT OF THE PARTNERSHIP
4.1 Board of Directors......................................................7
4.2 Certain Actions Requiring Supermajority Approval of the Board of
Directors...............................................................8
4.3 Board of Directors' Procedures..........................................9
4.4 Delegation to Managing General Partner..................................9
4.5 No Compensation........................................................10
4.6 Amendment of Filings...................................................10
4.7 Annual Business Plan and Annual Budget.................................10
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
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ARTICLE V
NOTICES
<S> <C> <C>
5.1 Notices................................................................10
5.2 Waiver of Notice.......................................................10
ARTICLE VI
ACCOUNTING AND RECORDS
6.1 Financial and Tax Reporting............................................11
6.2 Supervision; Inspection of Books.......................................11
6.3 Reliance on Records and Books of Account...............................11
6.4 Tax Returns............................................................12
6.5 Bank Accounts..........................................................12
6.6 Accounting Decisions and Reliance on Others............................12
6.7 Tax Matters for the Partnership Handled by Tax Matters Partner.........12
ARTICLE VII
ALLOCATIONS
7.1 Allocation of Net Income or Net Loss...................................12
7.2 Special Tax Provisions.................................................12
ARTICLE VIII
DISTRIBUTIONS
8.1 Distributions..........................................................13
8.2 Distributions in Kind..................................................14
8.3 Restriction on Distributions and Withdrawals...........................14
8.4 No Other Withdrawals...................................................14
ARTICLE IX
TRANSFER OF PARTNERSHIP INTERESTS
9.1 Transfer...............................................................15
9.2 Rights of Assignees....................................................15
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
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ARTICLE X
INDEMNIFICATION AND LIMITATION OF LIABILITY
<S> <C> <C>
10.1 Indemnification........................................................15
10.2 Limitation of Liability................................................16
ARTICLE XI
TERMINATION; DEFAULT
11.1 Termination............................................................17
11.2 Authority to Wind Up...................................................17
11.3 Winding Up and Certificate of Dissolution..............................17
11.4 Distribution of Assets.................................................17
11.5 Deficit Capital Account................................................18
11.6 Default................................................................18
11.7 No Action for Dissolution..............................................19
ARTICLE XII
INTENTIONALLY DELETED
ARTICLE XIII
MISCELLANEOUS
13.1 Amendment..............................................................19
13.2 Withholding Taxes......................................................19
13.3 Further Assurances.....................................................19
13.4 Binding Effect.........................................................20
13.5 Governing Law..........................................................20
13.6 Entire Agreement.......................................................20
13.7 Counterparts...........................................................20
13.8 Parties in Interest....................................................20
13.9 Pronouns; Statutory References.........................................20
13.10 Headings...............................................................20
13.11 Interpretation.........................................................20
13.12 References to this Agreement...........................................20
13.13 Exhibits...............................................................20
13.14 Severability...........................................................20
13.15 Attorney Fees..........................................................21
13.16 Time is of the Essence.................................................21
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TABLE OF CONTENTS
(CONTINUED)
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13.17 Remedies Cumulative....................................................21
13.18 Confidentiality and Publicity..........................................21
13.19 Broker's License.......................................................21
</TABLE>
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<PAGE> 6
AMENDED AND RESTATED PARTNERSHIP AGREEMENT OF
IRVINE APARTMENT MANAGEMENT COMPANY
THIS AMENDED AND RESTATED PARTNERSHIP AGREEMENT (this
"AGREEMENT") is entered into effective as of January 1, 2000, by and between
APARTMENT MANAGEMENT COMPANY, LLC, a Delaware limited liability company ("AMC"),
and WESTERN NATIONAL SECURITIES D/B/A WESTERN NATIONAL PROPERTY MANAGEMENT, a
California corporation ("WNPM").
R E C I T A L S
WHEREAS, AMC and WNPM are parties to that certain Partnership
Agreement of Irvine Apartment Management Company dated as of March 12, 1998, as
amended by that certain First Amendment to Partnership Agreement of Irvine
Apartment Management Company dated as of June 21, 1999 between AMC and WNPM (as
amended, the "ORIGINAL PARTNERSHIP AGREEMENT").
WHEREAS, pursuant to that certain Purchase and Sale Agreement for
Partnership Interest dated as of January 1, 2000, AMC shall purchase on the
Effective Date (as hereafter defined) a twenty-four percent (24%) Partnership
Interest (as hereafter defined) in the Partnership (as hereafter defined) from
WNPM.
WHEREAS, AMC and WNPM desire to amend and restate the Original
Partnership Agreement in its entirety to provide for the governance, management
and operation of the Partnership from and after the date of this Agreement, and
to provide for certain other matters, all as more particularly described in this
Agreement, which amendment and restatement will be effective as of January 1,
2000 (the "EFFECTIVE DATE").
NOW, THEREFORE, with reference to and in reliance on the
foregoing Recitals, which Recitals are hereby incorporated into this Agreement,
and in consideration of the respective covenants and agreements of the parties
set forth herein, the parties hereby amend and restate in its entirety the
Original Partnership Agreement as of the Effective Date and, from and after the
Effective Date, the Partnership shall be governed by the following provisions:
ARTICLE I
FORMATION OF PARTNERSHIP
1.1 DEFINED TERMS: When used in this Agreement, the following
terms have the meanings set forth below:
"ACT" means the general partnership laws of the State of
California, as amended from time to time.
"ACCOUNTING PERIOD" means the period beginning on the 1st of
January and ending on the 31st of December; provided, however, the first
Accounting Period will commence on the Effective Date and will end on December
31, 2000; and provided, further, a new
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Accounting Period will commence on any date on which an additional or Substitute
Partner is admitted to the Partnership or a Partner ceases to be a Partner for
any reason.
"AFFILIATE" means any Person directly or indirectly controlling,
controlled by, or under common control with another Person. The term "control,"
as used in the immediately preceding sentence, means, with respect to a
corporation or limited liability company the right to exercise, directly or
indirectly, fifty percent (50%) or more of the voting rights attributable to the
controlled corporation or limited liability company, and, with respect to any
other Person, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled entity
whether by contract or otherwise.
"AGREEMENT" means this Amended and Restated Partnership
Agreement, as the same may be amended from time to time.
"AMC REPRESENTATIVES" means the three (3) representatives
designated by AMC, from time to time, to serve on the Board of Directors.
"ASSETS" means all apartment projects owned by IAC or TIC during
the term of the Property Management Agreements and located in California, and,
at the respective election of IAC or TIC, in each's sole and absolute discretion
and without any obligation to do so, any other apartment projects owned by IAC
or TIC during the term of the Property Management Agreements. WNPM acknowledges
that in connection with any projects not included in the "Assets" as of the
Effective Date, IAC or TIC (as applicable) has the absolute right to appoint
another Person to act as property manager of such projects.
"ASSIGNEE" means a transferee of all or any portion of a
Partner's Partnership Interest who has not been admitted as a Substitute
Partner.
"BANKRUPTCY" means with respect to any Person: (a) the filing of
an application by a Partner for, or such Partner's consent to, the appointment
of a trustee, receiver, or custodian of such Partner's other assets; (b) the
entry of an order for relief with respect to a Partner in proceedings under the
United States Bankruptcy Code, as amended or superseded from time to time; (c)
the making by a Partner of a general assignment for the benefit of creditors;
(d) the entry of an order, judgment, or decree by any court of competent
jurisdiction appointing a trustee, receiver, or custodian of the assets of a
Partner unless the proceedings and the person appointed are dismissed within
ninety (90) days; or (e) the failure by a Partner generally to pay such
Partner's debts as the debts become due within the meaning of Section 303(h)(1)
of the United States Bankruptcy Code, as determined by a bankruptcy court, or
the admission in writing of such Partner's inability to pay its debts as they
become due.
"BOARD OF DIRECTORS" means a committee composed of the AMC
Representatives and the WNPM Representatives.
"BUDGET" means an operating budget for the Partnership prepared
by the officers of the Partnership and approved by the Board of Directors, and
any revisions thereto approved by the Board of Directors.
2
<PAGE> 8
"BUSINESS PLAN" means the annual business plan for the
Partnership prepared by Managing General Partner and approved by the Board of
Directors, and any revisions thereto approved by such Board of Directors.
"CAPITAL ACCOUNT" means a capital account for each Partner which
is equal to the:
(i) the amount of such Partner's capital contributions
as of the Effective Date; increased by
(ii) the aggregate capital contributions made, or deemed
to be made, by such Partner after the Effective Date; increased by
(iii) all items of income and gain allocated to such
Partner; decreased by
(iv) the amount of cash (or agreed value of property) of
cash or property distributions made, or deemed to be made, to such
Partner; and decreased by
(v) all items of deduction or loss allocated to such
Partner.
"CERTIFICATE" means the Statement of Partnership recorded as
Instrument No. 19980152318 in the Official Records of Orange County, California
and as Instrument No. 1998-6752629 in the Official Records of San Diego County,
California, as amended by that certain First Amendment to Certificate of
Partnership (Orange County) and by that certain First Amendment to Certificate
of Partnership (San Diego), each recorded respectively in the Official Records
of Orange and San Diego Counties, and as amended from time to time.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
"FISCAL YEAR" means the period from July 1st to June 30th of each
year, or as otherwise required by law, provided, however, the first Fiscal Year
will commence on the Effective Date and will end on June 30, 2000.
"IAC" means Irvine Apartment Communities, L.P., a Delaware
limited partnership.
"MANAGING GENERAL PARTNER" means AMC, or any successor appointed
by the Board of Directors in accordance with the terms of this Agreement.
"NET CASH FLOW FROM OPERATIONS" means, for any period, the gross
revenue actually received by the Partnership during such period, minus (1) all
costs of operation of the Partnership actually incurred during such period, (2)
such reserves as the Board of Directors determines are necessary to meet future
obligations, including, without limitation, contingent obligations, and (3)
amounts then due and payable with respect to any loans made to the Partnership
by third Persons.
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<PAGE> 9
"NET INCOME OR NET LOSS" means for any Accounting Period the
amount computed on an accrual basis as of the last day thereof of the net income
or loss computed under federal income tax principles and as adjusted pursuant to
the Treasury Regulations promulgated under Section 704(b) of the Code.
"PARTNER" means each Person who (a) is an initial signatory to
this Agreement, has been admitted to the Partnership as a Partner in accordance
with the Certificate or this Agreement or is a Substitute Partner and (b) has
not resigned, withdrawn, been expelled or dissolved.
"PARTNERSHIP" means the California general partnership formed by
the Original Partnership Agreement.
"PARTNERSHIP INTEREST" means the rights of a Partner in the
Partnership, including the Partner's economic interest, any right to vote or
participate in management, and any right to information concerning the business
and affairs of the Partnership. All Partnership Interests are personal property.
"PARTNERSHIP PERCENTAGE" means the percentage ownership of a
Partner in the Partnership. As of the Effective Date, the Partnership Percentage
of AMC is seventy-five percent (75%) and the Partnership Percentage of WNPM is
twenty-five percent (25%).
"PERSON" means a natural person, partnership (whether general or
limited), limited liability company, trust, estate, association, corporation,
custodian, nominee or any other individual or entity in its own or
representative capacity.
"PRIME RATE" means a rate of interest equal to the "prime rate"
announced, from time to time, by Bank of America NT & SA. For purpose of
calculating interest under this Agreement, the Prime Rate will change when and
as Bank of America announces a change in its prime rate.
"PROPERTY MANAGEMENT AGREEMENTS" means collectively, (i) that
certain Amended and Restated Property Management Agreement between IAC and the
Partnership providing for the management and operation of the Assets owned by
IAC, as amended from time to time, and (ii) that certain Property Management
Agreement between TIC and the Partnership providing for the management and
operation of the Assets owned by TIC, as amended from time to time.
"SUBSTITUTE PARTNER" means an Assignee who has been admitted to
all the rights of membership pursuant to this Agreement.
"TAX MATTERS PARTNER" is AMC or any successor appointed by the
Board of Directors in accordance with the terms of this Agreement.
"TIC" means The Irvine Company, a Delaware corporation., and any
of its Affiliates.
"TREASURY REGULATIONS" means regulations issued pursuant to the
Code.
4
<PAGE> 10
"WNPM REPRESENTATIVES" means the two (2) representatives
designated by WNPM, from time to time, to serve on the Board of Directors.
1.2 FORMATION AND EFFECTIVE DATE OF AGREEMENT. The Partners have
formed a general partnership pursuant to the provisions of the Act. The Partners
agree to execute all documents and to undertake all other acts, as reasonably
may be deemed necessary by any Partner, in order to comply with the requirements
of the laws of the State of California (and all other applicable jurisdictions)
for the formation, continuation, registration, qualification and operation of a
partnership in accordance with and subject to the terms of this Agreement. The
rights and liabilities of the Partners will be determined pursuant to the Act
and this Agreement. To the extent the rights or obligations of any Partner are
different by reason of any provision of this Agreement than they would be in the
absence of such provision, this Agreement will control to the extent permitted
by the Act. The relationship of the parties under this Agreement shall commence
on the effective date hereof, and the Partnership shall dissolve and terminate
in accordance with the provisions of this Agreement.
1.3 NAME AND PRINCIPAL PLACE OF BUSINESS. Unless and until
amended in accordance with this Agreement and the Act, the name of the
Partnership is "IRVINE APARTMENT MANAGEMENT COMPANY" The business of the
Partnership may be conducted under that name or, upon compliance with applicable
laws, any other name that the Board of Directors deems appropriate or advisable.
The principal place of business of the Partnership in California is 43
Discovery, Irvine, California 92718, or in such other place or places as the
Board of Directors from time to time determines. Upon the effective date of the
Original Partnership Agreement, the Partners signed, filed and published in the
appropriate manner a Certificate of Fictitious Name as required by Sections
17900 and 17930 of the California Business and Professions Code, and signed,
acknowledged and recorded a Certificate of Partnership in the Official Records
of Orange County, San Diego County and in every other County in which the
Partnership does business. The Managing General Partner shall file any other
filings, and any amendments thereto, that the Board of Directors considers
appropriate or advisable.
1.4 AGREEMENT. For and in consideration of the mutual covenants
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Partners executing this
Agreement hereby agree to the terms and conditions of this Agreement, as it may
from time to time be amended. It is the express intention of the parties hereto
that this Agreement be the sole statement of agreement between or among them
with respect to the Partnership from and after the Effective Date. The Original
Partnership Agreement shall govern the rights, obligations and liabilities of
the Partners for the period prior to the Effective Date, and any
indemnifications provided for in the Original Partnership Agreement (and any
guaranties thereof) with respect to claims that accrued prior to the Effective
Date shall survive the amendment and restatement of the Original Partnership
Agreement.
1.5 BUSINESS. The sole purpose of the Partnership is to manage,
operate and lease the Assets for the benefit of IAC and TIC, as the owners of
the Assets, pursuant to the terms of the Property Management Agreements, and to
do any and all acts and things necessary, appropriate, proper, advisable,
incidental to or convenient for the furtherance and accomplishment of the
business, objectives, and purposes herein set forth. The Partnership shall
5
<PAGE> 11
conduct no other business unless the Board of Directors otherwise directs in
accordance with Section 4.2.
1.6 TERM. The Partnership was formed on March 12, 1998. Unless
the Partners otherwise agree and absent a termination by a Partner upon the
occurrence of an Event of Default, the term of the Partnership will continue
until the expiration or earlier termination of the term of the Property
Management Agreements and for so long thereafter as the Board of Directors may
determine, in its reasonable discretion, is in the best interests of the
Partnership and its Partners, but in no event beyond December 31, 2018, unless
all of the Partners otherwise agree.
ARTICLE II
PARTNERS
2.1 LIMITED LIABILITY. Except as required under the Act or as
expressly set forth in this Agreement, no Partner is personally liable for any
debt, obligation, or liability of the Partnership, whether that liability or
obligation arises in contract, tort, or otherwise.
2.2 INITIAL PARTNERS. The Initial Partners of the Partnership are
AMC and WNPM, each of which was admitted to the Partnership as a Partner as of
March 12, 1998.
2.3 ADMISSION OF SUBSTITUTE PARTNERS. Notwithstanding any other
provision of this Agreement, no Assignee of a Partnership Interest may be
admitted as a Substitute Partner without the prior written consent of at least
three (3) members of the Board of Directors (unless, at the relevant time, there
are fewer than five (5) members of the Board of Directors, then, by a majority
of the members of the Board of Directors in accordance with Section 4.2). If so
admitted, the Substitute Partner will have all the rights and powers and will be
subject to all the restrictions and liabilities of the Partner which originally
assigned the Partnership Interest. The admission of a Substitute Partner does
not release any Partner from liability to the Partnership that may have existed
prior to such substitution.
2.4 RESIGNATION OR WITHDRAWAL OF A PARTNER. Except as otherwise
specifically required by the Act or this Agreement, and subject to the
provisions for transfer contained in Article X, no Partner may resign or
withdraw from membership in the Partnership or withdraw its interest in the
capital of the Partnership.
2.5 TRANSACTIONS WITH THE PARTNERSHIP. A Partner may not lend
money to or transact business with the Partnership except in accordance with the
terms of this Agreement. Subject to any limitations set forth in this Agreement
and with the prior written approval of the Board of Directors after full
disclosure of the Partner's involvement, a Partner may lend money to and
transact other business with the Partnership pursuant to agreements approved by
the Board of Directors between such Partner and the Partnership. Subject to
other applicable law, such Partner has the same rights and obligations with
respect thereto as a Person who is not a Partner. This Section 2.5 does not
apply to the making of an AMC Loan.
2.6 PARTNERS ARE NOT AGENTS; NO MANAGEMENT AUTHORITY. Pursuant to
this Agreement and the Certificate, the sole and exclusive right and authority
to manage the business
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and affairs of the Partnership is vested in the Board of Directors. The
day-to-day management of the Partnership is vested in the Managing General
Partner, subject at all times to the control, policies and direction of the
Board of Directors. Except as expressly authorized by the Board of Directors or
this Agreement or expressly required by the Act, no Partner shall be an agent of
the Partnership nor shall any Partner have the power or authority to bind or
execute any instrument on behalf of the Partnership. The Partners have no power
to participate in the management of the Partnership except as expressly
authorized by this Agreement or the Certificate and except as expressly required
by the Act.
ARTICLE III
CONTRIBUTIONS TO CAPITAL
3.1 CAPITAL CONTRIBUTIONS. As of the Effective Date, AMC's
Capital Contributions total Seventy-Five Thousand Dollars ($75,000) and WNPM's
Capital Contributions total Twenty-Five Thousand Dollars ($25,000).
3.2 ADDITIONAL CONTRIBUTIONS. No Partner is required to
contribute or loan additional capital to the Partnership. In no event is WNPM
entitled to make a loan to the Partnership or to make any additional capital
contributions to the Partnership. No third party shall have the right under any
circumstances to require a Partner to make any additional capital contributions
to the Partnership.
3.3 AMC LOAN. If the Board of Directors determines, in its sole
and absolute discretion, that additional capital is needed in order to enable
the Partnership to meet its existing or anticipated obligations, AMC may elect,
in its sole and absolute discretion and without any obligation to do so, to make
a loan (an "AMC LOAN") to the Partnership on such terms and conditions as are
reasonably acceptable to the Board of Directors and AMC. Each AMC Loan must be
repaid prior to any distributions to the Partners pursuant to this Agreement.
3.4 THIRD PARTY FINANCING. If AMC elects not to make an AMC Loan,
subject to the provisions of Section 4.2, the Board of Directors may obtain
third party financing on such terms and conditions as are acceptable to the
Board of Directors.
3.5 INTEREST. Except as provided in this Article III, no Partner
is entitled to any interest with respect to any contributions to the
Partnership.
ARTICLE IV
MANAGEMENT OF THE PARTNERSHIP
4.1 BOARD OF DIRECTORS. The Board of Directors has the sole and exclusive power,
authority and control to be exercised by a vote of no less than three (3)
members of the Board of Directors, of all management powers relating to the
operations of the Partnership. No member of the Board of Directors is entitled
to receive any salary or other remuneration or expense reimbursement from the
Partnership solely for his or her service as a member of the Board of Directors.
Except as otherwise expressly provided to the contrary in this Agreement, the
Board of Directors shall act by vote of no less than three (3) of its members.
Without in any
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way limiting the foregoing and for purposes of illustration and not limitation,
the Board of Directors has the sole power and authority to authorize and approve
the following matters:
(a) The organizational structure of the Partnership, including,
without limitation, the number of staff positions and general job descriptions
for each position.
(b) Hiring and firing of the president or any vice president of
the Partnership;
(c) Compensation (including annual bonuses, if any) for the
president and any vice president or any area manager of the Partnership and
payroll schedules reflecting a range of compensation for all other positions;
(d) Any subcontract with a Partner or an Affiliate of a Partner
entered into pursuant to the Property Management Agreements and any annual
renewal of any such subcontract;
(e) Any determination to accept an AMC Loan;
(f) Any Business Plan;
(g) Intentionally Deleted;
(h) Adjusting, settling or compromising any claim against the
Partnership;
(i) The sale, transfer or other conveyance of any Partnership
property unless contemplated in the then current Business Plan;
(j) The incurrence, directly or indirectly, of any nonrecourse
debt;
(k) Entering into any contracts other than the Property
Management Agreements and contracts contemplated in the current Budget or
Business Plan;
(l) Instituting any litigation other than as contemplated in the
Property Management Agreements;
(m) Filing Bankruptcy or otherwise seeking relief under any
insolvency laws;
(n) The termination and liquidation of the Partnership following
a termination or expiration of the Property Management Agreements; and
(o) Appointment of any successor to AMC as Managing General
Partner.
Notwithstanding the foregoing, the Board of Directors may establish committees
as they see fit, and delegate to such committees, the Managing General Partner
and other Persons such power and authority as the Board of Directors determine
from time to time is appropriate. Any committee or Person acting within the
scope of its authority will have the power and authority of the Board of
Directors.
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4.2 CERTAIN ACTIONS REQUIRING SUPERMAJORITY APPROVAL OF THE BOARD
OF DIRECTORS. Notwithstanding the provisions of Section 4.1, the Board of
Directors may not take any of the following actions without the approval of at
least 4 of the members of the Board of Directors (or if there are fewer than 5
members of the Board of Directors, by a majority of the members of the Board of
Directors).
(a) The incurrence, directly or indirectly, of any recourse debt;
(b) The admission of new Partners and Substitute Partners;
(c) Any Budget or the taking of any action that would result in a
material deviation from the Budget;
(d) The termination and liquidation of the Partnership prior to
March 31, 2001 following a termination or expiration of the Property Management
Agreements; and
(e) A change in the business purpose of the Partnership as set
forth in Section 1.6 or ceasing to do business prior to the expiration of the
Property Management Agreements.
(f) Any determination to accept an AMC Loan.
Unless all of the WNPM Representatives have been removed from the Board of
Directors in accordance with the terms of this Agreement, at least one (1) WNPM
Representative must be among the members of the Board of Directors approving an
action described in this Section 4.2.
4.3 BOARD OF DIRECTORS' PROCEDURES. The procedures governing the
meetings and actions of the Board of Directors are set forth in the bylaws
attached hereto as Exhibit A, as adopted and amended by the Board of Directors
from time to time.
4.4 DELEGATION TO MANAGING GENERAL PARTNER. Without limiting the
generality of Section 4.1, but subject to the express limitations set forth
elsewhere in this Agreement, the business and affairs of the Partnership will be
managed by, and all partnership power will be exercised under the direction of,
the Board of Directors. As of the Effective Date, the Board of Directors has
delegated all of the powers described in Section 4.1(a), (b), (l), and (n) to
the Managing General Partner and such powers shall remain so delegated until
such delegation is rescinded by the Board of Directors in writing. The Board of
Directors has delegated the powers described in Sections 4.1(c), (d), (g), (h)
and (k) and the management of the day-to-day operations of the business of the
Partnership to the officers of the Partnership. The officers shall carry out the
day-to-day operation of the Partnership's business in a manner consistent with
the Board of Directors' policies and procedures, the Budget, the Business Plan
and any other directive given by the Board of Directors. The Managing General
Partner and officers shall perform their duties in good faith, in a manner
reasonably believed to be in the best interests of the Partnership and its
Partners, and with such care, including reasonable inquiry, as an ordinarily
prudent person in a like position would use under similar circumstances. In
carrying out of its obligations hereunder, Managing General Partner shall devote
such time to the affairs and operations of the Partnership as is reasonably
necessary for the beneficial carrying on of the business of the Partnership.
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4.5 NO COMPENSATION. Unless the Board of Directors otherwise
approves, no Partner, including, without limitation, the Managing General
Partner, is entitled to any compensation or overhead in connection with any
services provided to the Partnership by such Partner.
4.6 AMENDMENT OF FILINGS. The Managing General Partner has the
duty and authority to amend all filings of the Partnership as and to the extent
necessary to reflect any and all changes or corrections necessary or appropriate
as a result of any action taken by the Board of Directors in accordance with the
terms of this Agreement.
4.7 ANNUAL BUSINESS PLAN AND ANNUAL BUDGET. At least sixty (60)
days before the beginning of each Fiscal Year, Managing General Partner shall
prepare and submit to the Board of Directors for its review and approval a
proposed draft Business Plan and the officers shall prepare and submit to the
Board of Directors for its review and approval a proposed draft operating
Budget. The draft Budgets must be consistent with the proposed Business Plan
submitted by the Managing General Partner and must be in such detail and be
accompanied by such supporting material as any Board of Directors' member
reasonably requires. The Business Plan must be in the form and detail and must
be accompanied by such supporting material as any Board of Directors' member
reasonably requires. No modification of any item in or aspect of a Budget may be
made without the prior written approval of the Board of Directors. If for
whatever reason the Board of Directors has not, by the beginning of a Fiscal
Year, approved a Budget for such Fiscal Year, then, in the absence of the Board
of Directors' action to the contrary, the officers of the Partnership shall
continue the operation of the Partnership in the ordinary course pending
approval of a Budget for the then current Fiscal Year. For this purpose, the
"ordinary course" means taking such actions and making such necessary
expenditures as, in the good faith judgment of such officers, are necessary in
order to preserve and protect the Partnership's assets and honor existing
commitments of the Partnership.
ARTICLE V
NOTICES
5.1 NOTICES. Whenever, under the provisions of the Act or this
Agreement, notice is required to be given to any Partner, such notice shall be
given in writing addressed to the Partner at its address as it appears on the
records of the Partnership, and will be deemed effectively given upon personal
delivery, confirmation of receipt of delivery by facsimile, or three (3) days
after deposit in the United States mail, by registered or certified mail, return
receipt requested.
5.2 WAIVER OF NOTICE. Whenever any notice is required to be given
under the provisions of the Act or this Agreement, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, will be deemed equivalent thereto.
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ARTICLE VI
ACCOUNTING AND RECORDS
6.1 FINANCIAL AND TAX REPORTING. The Managing General Partner
shall prepare financial statements in accordance with generally accepted
accounting principles as from time to time in effect and shall prepare the
Partnership's income tax information returns using such methods of accounting
and tax year as Managing General Partner and Tax Matters Partner deem necessary
or appropriate under the Code and Treasury Regulations. Managing General Partner
shall submit for the review and approval by AMC (and Tax Matters Partner if
other than AMC) a draft of the Partnership's income tax information returns no
later than February 15th of each year and a final version of the Partnership's
income tax information returns incorporating any comments that AMC (and Tax
Matters Partner, if other than AMC) may have no later than February 28th of each
year.
6.2 SUPERVISION; INSPECTION OF BOOKS.
(a) Proper and complete books of account and records of the
business of the Partnership shall be kept under the supervision of the Managing
General Partner at the Partnership's principal office and at such other place as
designated by the Managing General Partner. The Managing General Partner shall
give notice to each Partner of any changes in the location of such books and
records. Such books and records must be open to inspection, audit and copying by
any Partner, or its designated representative, upon reasonable notice at any
time during business hours for any purpose reasonably related to the Partner's
Partnership Interest in the Partnership. Any information so obtained or copied
must be kept and maintained in strictest confidence except as required by law.
(b) Upon reasonable notice to the Managing General Partner given
within 90 days after the end of each calendar quarter, the other Partner, at its
sole cost and expense, or its representatives may perform such audit procedures
on the books and records of the Partnership as deemed appropriate by such other
Partner in its reasonable discretion. Managing General Partner shall cooperate
to the fullest extent possible and in a timely manner with any such audit, and
Managing General Partner shall not interfere with the performance of any audit
procedure. In no event may any such audit be performed more than four times in
each calendar year.
6.3 RELIANCE ON RECORDS AND BOOKS OF ACCOUNT. Any Partner may
rely in good faith upon the records and books of account of the Partnership and
upon such information, opinions, reports or statements presented to the
Partnership by its the Board of Directors, Managing General Partner, any of its
Partners, officers, employees or committees, or by any other person, as to
matters the Partner reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Partnership, including information, opinions, reports or
statements as to the value and amount of the assets, liabilities, profits or
losses of the Partnership or any other facts pertinent to the existence and
amount of assets from which distributions to Partners might properly be paid.
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6.4 TAX RETURNS. Managing General Partner shall, within sixty
(60) days after the end of each Fiscal Year, file a federal income tax
information return and transmit to each Partner a schedule showing such
Partner's distributive share of the Partnership's income, deductions and
credits, and all other information necessary for such Partners timely to file
their respective federal income tax returns. Managing General Partner similarly
shall file, and provide information to the Partners regarding, all appropriate
state and local income tax returns.
6.5 BANK ACCOUNTS. The Managing General Partner shall maintain
the funds of the Partnership in one or more separate bank accounts in the name
of the Partnership, and shall not permit the funds of the Partnership to be
commingled in any fashion with the funds of any other Person. The authorized
signatories thereto shall be established from time to time by resolution of the
Board of Directors.
6.6 ACCOUNTING DECISIONS AND RELIANCE ON OTHERS. Managing General
Partner shall make decisions as to accounting matters, except as otherwise
specifically set forth herein. The Managing General Partner may rely upon the
advice of the Partnership's accountants as to whether such decisions are in
accordance with accounting methods followed for federal income tax purposes.
6.7 TAX MATTERS FOR THE PARTNERSHIP HANDLED BY TAX MATTERS
PARTNER. The Tax Matters Partner shall from time to time cause the Partnership
to make such tax elections as it deems to be in the best interests of the
Partnership and the Partners. The Tax Matters Partner, as defined in Code
Section 6231, shall represent the Partnership (at the Partnership's expense) in
connection with all examinations of the Partnership's affairs by tax
authorities, including resulting judicial and administrative proceedings, and
shall expend the Partnership funds for professional services and costs
associated therewith. Each Partner shall cooperate with the Tax Matters Partner
and agrees to do or refrain from doing anything reasonably requested by the Tax
Matters member with respect to any such proceedings. The Tax Matters Partner
shall oversee the Partnership's tax affairs in the overall best interests of the
Partnership. If for any reason the Tax Matters Partner can no longer serve in
that capacity or is no longer a Partner, the Board of Directors may designate
another Partner to be the Tax Matters Partner.
ARTICLE VII
ALLOCATIONS
7.1 ALLOCATION OF NET INCOME OR NET LOSS. For each Accounting
Period, Net Income and Net Loss shall be allocated to the Partners in proportion
to the amounts distributed to such Partners pursuant to Section 8.1.
7.2 SPECIAL TAX PROVISIONS.
(a) Treatment as Partnership. The Partners expect and intend that
the Partnership be treated as a partnership for all federal income tax purposes.
Each Partner agrees that it (i) will not, on any federal, state, local or other
tax return, take a position inconsistent with such expectation and intent; (ii)
otherwise assert a position inconsistent with such expectation
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and intent; or (iii) do any act or thing which could cause the Partnership to be
treated as other than a partnership for federal income tax purposes.
(b) Tax Allocations. Except as otherwise provided in this Article
VII, items of income, gain, loss or deduction recognized for income tax purposes
will be allocated in the same manner that the corresponding items entering into
the calculation of Net Income and Net Loss are allocated pursuant to this
Agreement.
(c) Section 704(c) Adjustments. In accordance with Code Section
704(c) and the Treasury Regulations thereunder, items of income, gain, loss and
deduction with respect to an asset, if any, contributed to the capital of the
Partnership shall, solely for tax purposes, be allocated among the Partners so
as to take account of any variation between the adjusted basis of such property
to the Partnership for federal income tax purposes and its value upon
contribution to the Partnership.
(d) Section 754 Election. A Code Section 754 election may be made
for the Partnership at the sole and absolute discretion of the Tax Matters
Partner. If an adjustment to the adjusted tax basis of any Partnership asset is
required under Code Section 734(b) or Code Section 743(b) pursuant to a Code
Section 754 election by the Partnership, subsequent allocations of tax items
shall reflect such adjustment consistent with the Treasury Regulations
promulgated under Sections 704, 734 and 743 of the Code.
(e) Allocations upon Transfers of Partnership Interests. If,
during an Accounting Period, a Partner transfers all or a portion of its
Partnership Interest to another Person in compliance with this Agreement, items
of Net Income and Net Loss, together with corresponding tax items, that
otherwise would have been allocated to the transferring Partner with regard to
such Accounting Period will be allocated between the transferring Partner and
the Substitute Partner in accordance with their respective Partnership
Percentages during the Accounting Period using any method permitted by Section
706 of the Code and selected by the Tax Matters Partner.
ARTICLE VIII
DISTRIBUTIONS
8.1 DISTRIBUTIONS. Net Cash Flow from Operations shall be
distributed, at such reasonable intervals (not less frequently than quarterly)
as are determined by the Board of Directors, in the following order of priority:
(a) First, to AMC with respect to any unpaid AMC Loan until all
principal and accrued interest on such AMC Loan is paid in full. If, at the time
any distribution is made pursuant to this Section 8.1(a), there is more than one
AMC Loan outstanding, payments of interest on, and the principal amount of an
AMC Loan shall be made in the reverse order in which the AMC Loans were made.
For example, the accrued but unpaid interest on the outstanding AMC Loans at any
time shall be paid first on the AMC Loan made most recently to the date of the
payment. Payments in connection with an AMC Loan shall be made first, to pay
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all accrued but unpaid interest on such AMC Loan and second, to
pay the outstanding principal balances of such AMC Loan.
(b) Second, to WNPM, until WNPM has received One Hundred Fifty
Thousand Dollars ($150,000) for each calendar year (an "ANNUAL PREFERRED
DISTRIBUTION").
(c) Third, to AMC, until AMC has received Four Hundred Fifty
Thousand Dollars ($450,000) for each calendar year.
(d) Fourth, to each Partner, pro rata in accordance with such
Partner's Partnership Percentage.
If there is insufficient Net Cash Flow from Operations in any calendar quarter
to distribute to WNPM one-fourth of the Annual Preferred Distribution, the
unpaid portion of such quarter of the Annual Preferred Distribution (the
"DEFERRED DISTRIBUTION AMOUNT") shall accrue and be payable the following
calendar quarter, as and when the Board of Directors determines there is
sufficient Net Cash Flow from Operations to make such distribution (and to the
extent that the Board of Directors determines that there is insufficient Net
Cash Flow from Operations to make such distribution, such unpaid portion of the
Annual Preferred Distribution shall continue to accrue and shall be paid as soon
as the Board of Directors determines there is sufficient Net Cash Flow from
Operations to make such distribution). The Deferred Distribution Amount shall
accrue interest at a rate of 8% and be paid subsequent to any distribution made
to AMC pursuant to Section 8.1(a) and prior to any distribution made to WNPM
pursuant to Section 8.1(b).
8.2 DISTRIBUTIONS IN KIND. All distributions shall be made in
cash or cash equivalents unless the Board of Directors has approved a
distribution of assets in kind.
8.3 RESTRICTION ON DISTRIBUTIONS AND WITHDRAWALS.
(a) Restriction on Distributions. The Partnership shall not make
any distribution to the Partners unless, immediately after giving effect to the
distribution, all liabilities of the Partnership, other than liabilities to
Partners on account of their interests in the Partnership and liabilities as to
which recourse of creditors is limited to specified property of the Partnership,
do not exceed the fair value of the Partnership assets. For purposes of the
preceding sentence, the fair value of any property that is subject to a
liability as to which recourse of creditors is so limited shall be included in
the Partnership assets only to the extent the fair value of the property exceeds
such liability.
(b) Restriction on Withdrawals. No Partner will be liable to the
Partnership for the amount of a distribution received if, at the time of the
distribution, such Partner did not know that the distribution was in violation
of this Section 8.3. A Partner that receives a distribution in violation of this
Section 8.3, and that knew at the time of the distribution that the distribution
violated such condition, will be liable to the Partnership for the amount of the
distribution.
8.4 NO OTHER WITHDRAWALS. Except as provided in this Article
VIII, no withdrawals or distributions are required or permitted.
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ARTICLE IX
TRANSFER OF PARTNERSHIP INTERESTS
9.1 TRANSFER. Except as expressly provided to the contrary in
this Article IX, no Partner may transfer, sell, encumber, mortgage, assign or
otherwise dispose of all or any portion of its Partnership Interest
(hereinafter, a "TRANSFER") without the prior written consent of the other
Partner, which consent may be withheld in such Partner's sole and absolute
discretion. Notwithstanding the foregoing sentence, AMC may transfer its
Partnership Interest to an Affiliate of AMC without the prior written consent of
WNPM (or any other Partner) (and upon such transfer, shall provide written
notice thereof to the other Partner). Any purported transfer of all or any
portion of a Partner's Partnership Interest in contravention of this Article IX
is void and of no effect to, on or against the Partnership, any Partner, any
creditor of the Partnership or any claimant against the Partnership.
9.2 RIGHTS OF ASSIGNEES. The Assignee of a Partnership Interest
has no right to vote or to participate in the management of the business and
affairs of the Partnership or to become a Partner. The Assignee is only entitled
to receive distributions and to be allocated the Net Profits and Net Losses
attributable to the Partnership Interest transferred to the Assignee.
ARTICLE X
INDEMNIFICATION AND LIMITATION OF LIABILITY
10.1 INDEMNIFICATION.
(a) Partners. To the fullest extent permitted by the Act and by
applicable law, the Partners and the partners, members, shareholders,
controlling Persons, officers, directors and employees of the Partners (herein
referred to as "INDEMNITEES") shall, in accordance with this Section 10.1 be
indemnified and held harmless by the Partnership from and against any and all
loss, claims, damages, liabilities, expenses, judgments, fines, settlements and
other amounts arising from any and all claims (including reasonable attorneys'
fees and expenses), demands, actions, suits or proceedings (civil, criminal,
administrative or investigative) (collectively, "CLAIMS") in which they may be
involved, as a party or otherwise, by reason of their management of, or
involvement in, the affairs of the Partnership, or rendering of advice or
consultation with respect thereto, or which relate to the Partnership, its
properties, business or affairs (including, without limitation, any claims,
demands, actions, suits or proceedings arising out of any noncompliance with the
Department of Real Estate's ("DRE") rules and regulations, except to the extent
arising out of the gross negligence or wilful misconduct of WNPM or any WNPM
Indemnitee (as hereafter defined)), if such Indemnitee acted in good faith and
in a manner such Indemnitee reasonably believed to be in, or not opposed to, the
best interests of the Partnership, and, with respect to any criminal proceeding,
had no reasonable cause to believe the conduct of such Indemnitee was unlawful.
The termination of a proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere, or its equivalent, shall not, of itself, create
a presumption that the Indemnitee did not act in good faith and in a manner
which the
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Indemnitee reasonably believed to be in, or not opposed to, the best interests
of the Partnership or that the Indemnitee had reasonable cause to believe that
the Indemnitee's conduct was unlawful (unless there has been a final
adjudication in the proceeding that the Indemnitee did not act in good faith and
in a manner which the Indemnitee reasonably believed to be in or not opposed to
the best interests of the Partnership; or that the Indemnitee did have
reasonable cause to believe that the Indemnitee's conduct was unlawful).
(b) Persons. The Partnership may also indemnify any Person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action by or in the right of the Partnership to procure a
judgment in its favor by reason of the fact that such Person is or was an
officer, employee or agent of the Partnership, against expenses actually or
reasonably incurred by such Person in connection with the defense or settlement
of such action, if such Person acted in good faith and in a manner such Person
reasonably believed to be in, or not opposed to, the best interests of the
Partnership, except that indemnification shall be made in respect of any claim,
issue or matter as to which such Person has been adjudged to be liable for
misconduct in the performance of the Person's duty to the Partnership only to
the extent the court in which such action or suit was brought, or another court
of appropriate jurisdiction, determines upon application that, despite the
adjudication of liability, but in view of all circumstances of the case, such
Person is fairly and reasonably entitled to indemnity for such expenses which
such court shall deem proper. To the extent the Person has been successful on
the merits or otherwise in defense of any proceedings referred to herein, or in
defense of any claim, issue or matter therein, the Person shall be indemnified
by the Partnership against expenses actually and reasonably incurred by the
Person in connection therewith. Notwithstanding the foregoing, no Person is
entitled to indemnification hereunder for any conduct arising from the gross
negligence or willful misconduct of such Person or reckless disregard in the
performance of its duties hereunder.
(c) Expenses. Expenses (including reasonable attorneys' fees and
expenses) incurred in defending any proceeding under Sections 10.1(a) or (b) may
be paid by the Partnership in advance of the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of the Indemnitee to
repay such amount if it is ultimately determined that the Indemnitee is not
entitled to be indemnified by the Partnership as authorized hereunder.
(d) Exclusive Right. The indemnification provided by this Section
10.1 shall not be deemed to be exclusive of any other rights to which any Person
may be entitled under any agreement, or as a matter of law, or otherwise, both
as to action in a Person's official capacity and to action in another capacity.
(e) Insurance. The Board of Directors may purchase and maintain
insurance on behalf of the Partnership, any employees or agents of the
Partnership and any other Indemnitees at the expense of the Partnership, against
any liability asserted against or incurred by them in any such capacity whether
or not the Partnership would have the power to indemnify such Persons against
such liability under the provisions of this Agreement.
(f) AMC Indemnification. AMC hereby indemnifies, defends and hold
harmless WNPM, its partners, controlling Persons, shareholders, officers,
directors and employees (the "WNPM INDEMNITEES") from and against all Claims
arising out of the
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Partnership's reliance on WNPM's brokers license pursuant to Section 13.19 and
out of any noncompliance by the Partnership with the DRE's rules and
regulations, except to the except arising out of WNPM or any WNPM Indemnitee's
gross negligence or intentional misconduct.
10.2 LIMITATION OF LIABILITY. Except as expressly required to the
contrary by the Act or other applicable law, (a) notwithstanding anything to the
contrary herein contained, the debts, obligations and liabilities of the
Partnership shall be solely the debts, obligations and liabilities of the
Partnership and (b) no Partners will be obligated personally for any such debt,
obligation or liability of the Partnership solely by reason of being a Partner
of the Partnership. Neither Partner has any obligation to make any capital
contribution to the Partnership in order to fund any indemnification obligation
described in Section 10.1.
ARTICLE XI
TERMINATION; DEFAULT
11.1 TERMINATION. The Partnership will be dissolved, its assets
disposed of and its affairs wound up upon the first to occur of the following:
(a) Expiration. The expiration of its stated term;
(b) Vote. The vote of the Board of Directors;
(c) Judicial Dissolution. The entry of a decree of judicial
dissolution under the Act.
(d) Default. A nondefaulting Partner's election to terminate the
Agreement pursuant to Section 11.6 of the Agreement.
(e) Property Management Agreements. At AMC's election, upon
termination of the Property Management Agreements.
(f) Guaranty. At WNPM's election, in the event , as of the end of
any calendar quarter, IAC's net worth is less than Thirty Million Dollars
($30,000,000).
11.2 AUTHORITY TO WIND UP. Upon the occurrence of any event
specified in Section 11.1, the Partnership will continue solely for the purpose
of winding up its affairs in an orderly manner, liquidating its assets, and
satisfying the claims of its creditors. The Board of Directors has all necessary
power and authority required to marshall the assets of the Partnership, to pay
its creditors, to distribute assets and otherwise wind up the business and
affairs of the Partnership. In particular, the Board of Directors has the
authority to continue to conduct the business and affairs of the Partnership
insofar as such continued operation remains consistent, in the judgment of the
Board of Directors, with the orderly winding up of the Partnership.
11.3 WINDING UP AND CERTIFICATE OF DISSOLUTION. The winding up of
the Partnership will be completed when all debts, liabilities and obligations of
the Partnership have been paid and discharged or reasonably adequate provision
therefore has been made, and all of the remaining property and assets of the
Partnership have been distributed by the Board of
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Directors Upon the completion of winding up of the Partnership, the Board of
Directors shall make all filings necessary to terminate the existence of the
Partnership.
11.4 DISTRIBUTION OF ASSETS. Upon dissolution and winding up of
the Partnership, the affairs of the Partnership shall be wound up and the
Partnership liquidated by the Board of Directors. The assets of the Partnership
shall be distributed as follows in accordance with the Act:
(a) To third party creditors of the Partnership in the order of
priority provided by law; and
(b) To WNPM, until WNPM, together with any amounts distributed to
WNPM pursuant to Section 8.1, has received the product of (i) $12,500 (i.e.,
1/12th of the Preferred Distribution Amount), and (ii) the number of months (or
portions thereof) from January 1st of the calendar year in which such
dissolution and winding up occurs through the date of dissolution. In the event
of a dissolution pursuant to Section 11.1(f) prior to March 31, 2001, the date
of dissolution for purposes of calculating the amounts due WNPM pursuant to
Section 11.4(b), shall be deemed to be March 31, 2001;
(c) To each Partner, pro rata in accordance with such Partner's
Partnership Percentage until each Partner's Capital Contribution has been
returned; and
(d) To AMC.
By way of example and not of limitation, if dissolution occurs on March 31, 2001
and WNPM has received the sum of $10,000 pursuant to Section 8.1 for the
calendar year 2001, the amount required to be distributed to WNPM pursuant to
this Section 11.4(b) is $27,500.
11.5 DEFICIT CAPITAL ACCOUNT. Upon liquidation of the
Partnership, each Partner shall look solely to the assets of the Partnership for
the return of such Partner's capital in the Partnership. Except as expressly
required to the contrary by the Act, no Partner is personally liable, either to
the other Partner or to any third Person, for a deficit capital account balance
of such Partner, it being expressly understood that the payment of the
Partnership's debts and the distribution of liquidation proceeds shall be made
solely from existing Partnership assets.
11.6 DEFAULT. The following each constitute an "EVENT OF DEFAULT"
under this Agreement.
(a) A material breach of a Partner's obligation under the
Agreement which continues for thirty (30) days after delivery of written notice;
or
(b) (i) Bankruptcy of a Partner; or
(ii) The entry of any order against any Partner decreeing
the dissolution of such Partner, which order is not vacated or
otherwise terminated within thirty (30) days;
(c) Fraud or willful misconduct by a Partner;
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(d) Any attempted dissolution of the Partnership in violation of
Section 11.7;
(e) Any attempted withdrawal from the Partnership in violation of
this Agreement;
(f) WNPM's failure to maintain a valid California real estate
broker's license in good standing and full force and effect throughout the term
of this Agreement as required by Section 13.19, provided, however, such failure
will not be deemed to be an Event of Default by WNPM under this Agreement if
such failure is the result of AMC's gross negligence, intentional misconduct or
default of its obligations under this Agreement;
(g) The transfer of fifty percent (50%) or more of the voting
rights or equity interests in WNPM or the failure of Michael Hayde to control
the day to day operation and management of WNPM, which Event of Default shall be
an Event of Default of WNPM.
Upon the occurrence of an Event of Default, the nondefaulting Partner may elect
to either (1) purchase the defaulting Partner's Partnership Interest, for a
price equal to the lesser of such Partner's initial Capital Account balance or
then Capital Account balance, or (ii) to terminate the Agreement and liquidate
the Partnership, in the manner set forth in this Article XI. If the
nondefaulting Partner elects to purchase the defaulting Partner's Partnership
Interest, the nondefaulting Partner shall pay the price described in the
preceding sentence no later than ninety (90) days after delivery of a notice of
default. If the Event of Default is the result of the act or omission of the
Managing General Partner, such Managing General Partner shall be deemed to be
immediately removed from such position.
11.7 NO ACTION FOR DISSOLUTION. Except as expressly permitted in
this Agreement, a Partner shall not take any voluntary action that directly
causes a dissolution of the Partnership. The Partners acknowledge that
irreparable damage would be done to the goodwill and reputation of the
Partnership if any Partner should bring an action in court to dissolve the
Partnership under circumstances where dissolution is not required by Section
11.1. This Agreement has been drawn carefully to provide fair treatment of all
parties and equitable payment in liquidation of the Partnership Interests.
Accordingly, except where the Board of Directors has failed to liquidate the
Partnership as required by this Article XI, each Partner hereby waives and
renounces its right to initiate legal action to seek the appointment of a
receiver or trustee to liquidate the Partnership or to seek a decree of judicial
dissolution of the Partnership on the ground that (a) it is not reasonably
practicable to carry on the business of the Partnership in conformity with the
Certificate or this Agreement, or (b) dissolution is reasonably necessary for
the protection of the rights or interests of the complaining Partner. Damages
for breach of this Section 11.7 are monetary damages only (and not specific
performance), and the damages may be offset against distributions by the
Partnership to which such Partner would otherwise be entitled. Each Partner
hereby irrevocably waives any right which it may have to maintain any action for
partition with respect to the property of the Partnership during the term of the
Partnership.
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ARTICLE XII
INTENTIONALLY DELETED
ARTICLE XIII
MISCELLANEOUS
13.1 AMENDMENT. This Agreement may be amended only with the prior
written consent of both of the Partners.
13.2 WITHHOLDING TAXES. If the Partnership is obligated to
withhold and pay any taxes with respect to any Partner, any tax required to be
withheld may be withheld from any distribution otherwise payable to such
Partner, or in lieu thereof upon remittance to the appropriate tax authority may
be charged to that Partner's Capital Account as if the amount of such tax had
been distributed to such Partner.
13.3 FURTHER ASSURANCES. The Partners shall execute and deliver
any further instruments or documents and perform any additional acts which are
or may become necessary to effectuate and carry on the Partnership created by
this Agreement.
13.4 BINDING EFFECT. Subject to the restrictions on transfer set
forth in Article X, this Agreement is binding on and inures to the benefit of
the Partners and their respective permitted transferees, successors, assigns and
legal representatives.
13.5 GOVERNING LAW. The laws of the State of California,
including, without limitation, the Act, govern the organization and internal
affairs of the Partnership and the liability of the Partners of the Partnership.
13.6 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties with respect to the subject matter herein.
13.7 COUNTERPARTS. This Agreement may be executed in one (1) or
more counterparts with the same force and effect as if each of the signatories
had executed the same instrument.
13.8 PARTIES IN INTEREST. Except as expressly provided in the
Act, nothing in this Agreement confers any rights or remedies under or by reason
of this Agreement on any Persons other than the Partners and their respective
permitted successors and assigns, nor does anything in this Agreement relieve or
discharge the obligation or liability of any third Person to any party to this
Agreement, nor does any provision give any third Person any right of subrogation
or action over or against any party to this Agreement.
13.9 PRONOUNS; STATUTORY REFERENCES. All pronouns and all
variations thereof are deemed to refer to the masculine, feminine, or neuter,
singular or plural, as the context in which they are used may require. Any
reference to the Code, the Regulations, the Act, or other statutes or laws
includes all amendments, modifications, or replacements of the specific sections
and provisions concerned.
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13.10 HEADINGS. All headings herein are inserted only for
convenience and ease of reference and are not to be considered in the
construction or interpretation of any provision of this Agreement.
13.11 INTERPRETATION. If any claim is made by any Partner
relating to any conflict, omission or ambiguity in this Agreement, no
presumption or burden of proof or persuasion shall be implied because this
Agreement was prepared by or at the request of a particular Partner or its
counsel.
13.12 REFERENCES TO THIS AGREEMENT. Numbered or lettered
articles, sections and subsections herein contained refer to articles, sections
and subsections of this Agreement unless otherwise expressly stated.
13.13 EXHIBITS. All Exhibits attached to this Agreement are
incorporated and shall be treated as if set forth herein.
13.14 SEVERABILITY. If any provision of this Agreement or the
application of such provision to any person or circumstance is held invalid, the
remainder of this Agreement or the application of such provision to persons or
circumstances other than those to which it is held invalid will not be affected
thereby.
13.15 ATTORNEY FEES. If any dispute between the Partnership and
the Partners or among the Partners should result in litigation or arbitration,
the prevailing party in such dispute is entitled to recover from the other party
all reasonable fees, costs and expenses of enforcing any right of the prevailing
party, including, without limitation, reasonable attorneys' fees and expenses
and expert witness fees.
13.16 TIME IS OF THE ESSENCE. All dates and times in this
Agreement are of the essence.
13.17 REMEDIES CUMULATIVE. The remedies under this Agreement are
cumulative and shall not exclude any other remedies to which any person may be
entitled at law or in equity.
13.18 CONFIDENTIALITY AND PUBLICITY. The parties agree to keep
this transaction, this Agreement and any documents received from each other in
connection herewith confidential, except to the extent necessary to comply with
applicable law and regulations, or in order to carry out the obligations set
forth in this Agreement. No press release or other public disclosure may be made
by either party or any of its agents concerning this transaction without the
prior written consent of the other parties.
13.19 BROKER'S LICENSE.
(a) Throughout the term of this Agreement, the Partnership and
each of the Partners shall take all necessary acts to assure that all activities
governed by the DRE are conducted through properly licensed entities and persons
and in accordance with all DRE requirements.
21
<PAGE> 27
(b) Throughout the term of this Agreement, until the dissolution
of the Partnership under the terms of Paragraph 13.19(c) below: (i) WNPM shall
maintain in full force and effect, and in good standing, a corporate real estate
brokers license with the DRE; (ii) the broker of record for WNPM may be changed
from time to time by WNPM, subject to AMC's approval which shall not be
unreasonably withheld (with such broker with whom WNPM's corporate license is
held known as the "BROKER OF RECORD"); (iii) each person performing activities
for the Partnership for which DRE licensing is required (each a "LICENSED
Person") shall be properly licensed either as a salesperson or as a broker with
the Broker of Record, and each such salesperson may have such salesperson's
license affiliated only with the Broker of Record; (iv) WNPM and the Broker of
Record may impose such rules, procedures and regulations as either WNPM or the
Broker of Record may elect from time to time in order to ensure that each such
Licensed Person and all activities for which a DRE license is required are in
full compliance with all applicable DRE rules and regulations; (v) WNPM and the
Broker of Record shall be responsible for the supervision and management of all
activities of the Partnership for which a DRE license is required and shall
assure that all such activities are conducted consistently with the DRE rules
and regulations; (vi) the Partnership and each of the Partners shall cooperate
fully in the development and implementation of policies and procedures, the
preparation of reports, the conduct of meetings and other activities as may be
reasonably requested by WNPM or the Broker of Record to permit the Broker of
Record to properly monitor and supervise all activities for which DRE licensing
is required and to assure compliance with the DRE rules and regulations; and
(viii) no less often than annually, the Partnership and each of the Partners, at
the Partnership's expense, shall cause a DRE compliance audit to be conducted of
all activities of the Partnership for which a license is required, which
compliance audit shall be conducted by a firm reasonably selected by WNPM.
(c) If, and at such time as, the California statutes and
regulations relating to licensing by the DRE permit limited liability companies
to be licensed real estate brokers for the purpose of property management and
the leasing of real property on behalf of third parties, the Partners agree to
use best efforts to form a Delaware limited liability company on substantially
the same terms and conditions set forth in this Agreement, to obtain proper DRE
licensure for that entity as a real estate broker, to transfer the business of
this Partnership to the new entity, and to dissolve the Partnership, so long as
the Partners can do so with no material adverse income tax consequences to
either Partner
22
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
APARTMENT MANAGEMENT COMPANY, LLC,
a Delaware limited liability company
By: Irvine Apartment Communities, L.P.,
a Delaware limited partnership
By: Irvine Apartment Communities, LLC
a Delaware limited liability company
its general partner
By:
----------------------------------------------------
Max Gardner
Its Executive Vice President
By:
----------------------------------------------------
Clarence Barker
Its President
WESTERN NATIONAL SECURITIES, d/b/a WESTERN NATIONAL PROPERTY MANAGEMENT,
a California corporation
By:
------------------------------------
Michael Hayde
Chief Executive Officer
23
<PAGE> 29
EXHIBIT A
BYLAWS OF THE PARTNERSHIP
A-I BOARD OF DIRECTORS' MEETINGS.
A-1.1 DATE, TIME AND PLACE OF MEETINGS OF THE BOARD OF DIRECTORS;
SECRETARY. The Board of Directors shall meet from time to time, no less
frequently than quarterly, but as often as necessary or desirable to carry out
its management functions. The Board of Directors shall meet by telephone
conference or by other means of communications acceptable to the Board of
Directors, or at the principal office of the Partnership or elsewhere in Orange
County as the Board of Directors may agree. At any Board of Directors' meeting,
the members of the Board of Directors (the "Members") shall appoint a person to
preside at the meeting and a person to act as secretary of the meeting. The
secretary of the meeting shall prepare minutes of the meeting, which shall be
placed in the minute books of the Partnership.
A-1.2 POWER TO CALL MEETINGS. Unless otherwise prescribed by the
Act or by the Certificate, meetings of the Board of Directors may be called by
any Member for the purpose of addressing any matters on which the Board of
Directors may vote.
A-(a) NOTICE OF MEETING. Written notice of a meeting of the Board
of Directors shall be sent or otherwise given to each Member in accordance with
Section A-1.3 not less than three (3) business days nor more than thirty (30)
business days before the date of the meeting. The notice shall specify the
place, date and hour of the meeting and the general nature of the business to be
transacted. No other business may be transacted at this meeting unless otherwise
agreed by the Members.
A-1.3 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Notice of any
meeting of the Board of Directors shall be given either personally or by
first-class mail or telegraphic or other written communication, charges prepaid,
addressed to the Member at the address of that Member appearing on the books of
the Partnership or given by the Member to the Partnership for the purpose of
notice. If no such address appears on the Partnership's books or is given,
notice shall be deemed to have been given if sent to that Member by first-class
mail or telegraphic or other written communication to the Partnership's
principal executive office. Notice will be deemed effectively given upon
personal delivery, confirmation of receipt of delivery by facsimile, or three
(3) days after deposit in the United States mail, by registered or certified
mail, return receipt requested. If any notice addressed to a Member at the
address of that Member appearing on the books of the Partnership is returned to
the Partnership by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the Member at
that address, all future notices or reports shall be deemed to have been duly
given without further mailing if these shall be available to the Member on
written demand of the Member at the principal executive office of the
Partnership for a period of one year from the date of the giving of the notice.
An affidavit of the mailing or other means of giving any notice of any meeting
shall be executed by the Member or any secretary or any agent of the Managing
General Partner giving the notice, and shall be filed and maintained in the
minute book of the Partnership.
A-1
<PAGE> 30
A-1.4 VALIDITY OF ACTION. Any action approved at a meeting, other
than by unanimous approval of those entitled to vote, shall be valid only if the
general nature of the proposal so approved was stated in the notice of meeting
or in any written waiver of notice.
A-1.5 QUORUM. The presence in person or by proxy of at least
three (3) Members of the Board of Directors shall constitute a quorum at a
meeting of the Board of Directors. The Members present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the loss of a quorum, if any action taken after
loss of a quorum (other than adjournment) is approved by at least two (2)
Members.
A-1.6 ADJOURNED MEETING; NOTICE. Any Board of Directors meeting,
whether or not a quorum is present, may be adjourned from time to time by the
vote of the majority of the Members at that meeting, either in person or by
proxy, but in the absence of a quorum, no other business may be transacted at
that meeting, except as provided in Section A-1.5. When any meeting of the Board
of Directors is adjourned to another time or place, notice need not be given of
the adjourned meeting if the time and place are announced at a meeting at which
the adjournment is taken, unless a new record date for the adjourned meeting is
subsequently fixed, or unless the adjournment is for more than thirty (30) days
after the date set for the original meeting, in which case the Members shall set
a new record date. At any adjourned meeting, the Partnership may transact any
business that might have been transacted at the original meeting.
A-1.7 WAIVER OF NOTICE OR CONSENT. Subject to the terms and
conditions of the Agreement, the actions taken at any meeting of the Board of
Directors however called and noticed, and wherever held, have the same validity
as if taken at a meeting duly held after regular call and notice, if a quorum
(or if required by the Agreement, a supermajority) is present either in person
or by proxy. All such waivers, consents or approvals shall be filed with the
Partnership's records and made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of
notice of that meeting, except when the Member objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
of the meeting if that objection is expressly made at the meeting. Neither the
business to be transacted nor the purpose of any meeting of the Board of
Directors need be specified in any written waiver of notice except as provided
in Section A-1.4.
A-1.8 ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action
that may be taken at a meeting of the Board of Directors may be taken without a
meeting, if a consent in writing setting forth the action so taken, is signed
and delivered to the Partnership by the appropriate number of Members required
for such action. All such consents shall be filed with the Members or the
secretary, if any, of the Partnership and shall be maintained in the Partnership
records. Any Member giving a written consent, or the Member's proxy holders, may
revoke the consent by a writing received by the Members or secretary, if any, of
the Partnership before written consents of the number of votes required to
authorize the proposed action have been filed.
A-2
<PAGE> 31
A-1.9 TELEPHONIC PARTICIPATION BY MEMBER AT MEETINGS. Members may
participate in any Board of Directors meeting through the use of any means of
conference telephones or similar communications equipment as long as all Members
participating can hear one another. A Member so participating is deemed to be
present in person at the meeting.
A-1.10 PROXIES. Every Member entitled to vote on any matter has
the right to do so either in person or by one or more agents authorized by a
written proxy signed by the Member and filed with the Board of Directors or
secretary, if any, of the Partnership. A proxy shall be deemed signed if the
Member's name is placed on the proxy (whether by manual signature, typewriting,
telegraphic transmission, electronic transmission or otherwise) by the Member or
the Member's attorney-in-fact. A proxy may be transmitted by an oral telephonic
transmission if it is submitted with information from which it may be determined
that the proxy was authorized by the Member or the Member's attorney-in-fact. A
validly executed proxy that does not state that it is irrevocable shall continue
in full force and effect unless (a) revoked by the Member executing it, before
the vote pursuant to that proxy, by a writing delivered to the Partnership
stating that the proxy is revoked, or by a subsequent proxy executed by, or
attendance at the meeting and voting in person by, the person executing the
proxy; or (b) written notice of the death or incapacity of the maker of that
proxy is received by the Partnership before the vote pursuant to that proxy is
counted; provided, however, no proxy shall be valid after the expiration of
eleven (11) months from the date of the proxy, unless otherwise provided in the
proxy.
A-II OFFICERS.
A-2.1 APPOINTMENT OF OFFICERS. The officers of the Partnership,
if deemed necessary by the Board of Directors, may include a president, vice
president, secretary, assistant secretary and controller, and any other officers
the Board of Directors deems appropriate. The officers shall serve at the
pleasure of the Board of Directors, subject to all rights, if any, of an officer
under any contract of employment. Any individual may hold any number of offices.
The officers shall exercise such powers and perform such duties as specified in
this Agreement and as shall be determined from time to time by the Board of
Directors.
A-2.2 REMOVAL, RESIGNATION AND FILLING OF VACANCY OF OFFICERS.
Subject to the rights, if any, of an officer under a contract of employment, any
officer may be removed, either with or without cause, by the Board of Directors
at any time. Any officer may resign at any time by giving written notice to the
Board of Directors. Any resignation shall take effect at the date of the receipt
of that notice or at any later time specified in that notice. Unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Partnership under any contract to which the officer is a
party. A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
this Agreement for regular appointments to that office.
A-2.4 DUTIES AND POWERS OF PRESIDENT. The president shall be the
chief executive officer of the Partnership, and shall, subject to the control of
the Board of Directors, have general management of the business of the
Partnership and shall see that all orders and resolutions of the Board of
Directors and Managing General Partner are carried into effect. The President
shall have the general powers and duties of management usually vested in the
office of
A-3
<PAGE> 32
president of a corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors.
A-2.5 DUTIES AND POWERS OF VICE-PRESIDENT. The vice-president, or
if there shall be more than one, the vice-presidents in the order determined by
a resolution of the Board of Directors, shall, in the absence or disability of
the president, perform the duties and exercise the powers of the president and
shall perform such other duties and have such other powers as may be prescribed
by the Board of Directors.
A-2.6 DUTIES AND POWERS OF SECRETARY. The secretary shall attend
all meetings of the Board of Directors, unless directed not to do so by a
majority of the Members and shall record all the proceedings of the meetings in
a book to be kept for that purpose, and shall perform like duties for the
standing committees when required. The secretary shall keep, or cause to be
kept, at the principal executive office, a register, or a duplicate register,
showing the names of all Members, Partners, their addresses, and their
Partnership Interests. The secretary shall have the general duties, powers and
responsibilities of a secretary of a corporation. The secretary shall give, or
cause to be given, notice of all meetings of the Board of Directors and shall
perform such other duties as may be prescribed by the Board of Directors.
A-2.7 DUTIES AND POWERS OF CONTROLLER. The controller shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
Partnership, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, and Partnership Interests. The books of
account shall at all reasonable times be open to inspection by any Partner.
The controller shall have the custody of the funds and securities
of the Partnership, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Partnership, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
Partnership in such depositories as may be designated by the Members.
The controller shall disburse the funds of the Partnership as may
be ordered by the Board of Directors and Managing General Partner in accordance
with the terms of the Agreement, taking proper vouchers for such disbursements,
and shall render to the president and the Members, at their regular meetings, or
when Board of Directors so require, at a meeting of the Board of Directors an
account of all its transactions and of the financial condition of the
Partnership.
The controller shall perform such other duties and shall have
such other responsibility and authority as may be prescribed from time to time
by the Board of Directors. The controller shall have the general duties, powers
and responsibility of a controller of a corporation, and shall be the chief
financial and accounting officer of the Partnership.
A-2.8 ACTS OF OFFICERS AS CONCLUSIVE EVIDENCE OF AUTHORITY. Any
note, mortgage, evidence of indebtedness, contract, certificate, statement,
conveyance, or other instrument in writing, and any assignment or endorsement
thereof, executed or entered into between the Partnership and any other Person,
when signed by the president or any vice president, and any secretary, or the
controller, is not invalidated as to the Partnership by any lack
A-4
<PAGE> 33
of authority of the signing officers in the absence of actual knowledge on the
part of the other Person that the signing officers had no authority to execute
the same.
A-2.9 SIGNING AUTHORITY OF OFFICERS. Subject to any restrictions
imposed by the Partners, any officer, acting alone, is authorized to endorse
checks, drafts, and other evidences of indebtedness made payable to the order of
the Partnership, but only for the purpose of deposit into the Partnership's
accounts. All checks, drafts, and other instruments obligating the Partnership
to pay money in any amount must be signed on behalf of the Partnership by any
two (2) officers acting together. Any two (2) officers acting together, shall be
authorized to sign contracts and obligations on behalf of the Partnership. The
foregoing restrictions may be modified by resolution of the Board of Directors.
A-5
<PAGE> 1
EXHIBIT 10.8
AMENDED AND RESTATED MANAGEMENT AGREEMENT
BY AND BETWEEN
IRVINE APARTMENT COMMUNITIES, L.P.
A DELAWARE LIMITED PARTNERSHIP
AS "OWNER"
AND
IRVINE APARTMENT MANAGEMENT COMPANY,
A CALIFORNIA GENERAL PARTNERSHIP
AS "MANAGER"
DATED AS OF JANUARY 1, 2000
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
EXCLUSIVE AGENCY
ARTICLE II
TERM OF AGREEMENT
ARTICLE III
TERMINATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
3.1 Termination With Notice For Cause............................................2
3.2 Termination Without Notice For Cause.........................................2
3.3 Termination Following Sale of the Project; Dissolution or
Liquidation of Owner.........................................................3
3.4 Final Accounting.............................................................3
3.5 Continued Obligations of Owner...............................................4
ARTICLE IV
BUDGETS, ACCOUNTING AND REPORTING
4.1 Budget.......................................................................4
4.2 Operation in Accordance With Budget..........................................5
4.3 Books of Account.............................................................6
4.4 Financial Reports............................................................7
4.5 Supporting Documentation.....................................................7
4.6 Changes in Manager's Operations Manual.......................................7
ARTICLE V
OWNER'S RIGHT TO AUDIT
5.1 Owner's Right to Audit.......................................................7
ARTICLE VI
LEASING ACTIVITIES
6.1 Manager's Leasing Obligations................................................8
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
ARTICLE VII
MANAGEMENT OF PROJECT
<S> <C> <C>
7.1 Duties of Manager; Standards.................................................9
ARTICLE VIII
BANK ACCOUNTS
8.1 Revenue Account.............................................................13
8.2 Operating Account...........................................................13
8.3 Security Deposit Account....................................................14
8.4 Change of Banks.............................................................14
8.5 Maintaining Project Funds in Insured Accounts...............................14
ARTICLE IX
INSURANCE AND INDEMNIFICATION
9.1 Insurance Types.............................................................14
9.2 Evidence of Insurance.......................................................15
9.3 Damages.....................................................................15
9.4 Workers' Compensation Insurance.............................................15
9.5 Comprehensive or Commercial General Liability Insurance.....................16
9.6 Automobile Liability Insurance..............................................16
9.7 Comprehensive Crime Insurance...............................................16
9.8 All Risk Insurance..........................................................16
9.9 Manager's Obligations.......................................................17
9.10 Waiver of Subrogation.......................................................17
9.11 Claims Procedures...........................................................17
9.12 Insurance Audit; Refunds....................................................17
9.13 Owner's Election to Insure..................................................17
ARTICLE X
COMPENSATION OF MANAGER
10.1 Management Fee..............................................................18
</TABLE>
-ii-
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
ARTICLE XI
PAYMENT OF EXPENSES
PAGE
<S> <C> <C>
11.1 Costs Eligible for Payment from Operating Account...........................18
11.2 Non-Reimbursable Costs......................................................20
ARTICLE XII
GENERAL PROVISIONS
12.1 Independent Contractor......................................................21
12.2 Notices.....................................................................21
12.3 Brokers.....................................................................21
12.4 Attorneys' Fees.............................................................21
12.5 Assignment..................................................................21
12.6 Amendments..................................................................22
12.7 Licensing...................................................................22
12.8 Entire Agreement............................................................22
12.9 Counterparts................................................................22
12.10 Governing Law...............................................................22
12.11 Third-Party Disputes........................................................22
12.12 Fiduciary Relationship......................................................22
12.13 Gifts.......................................................................23
12.14 Confidentiality.............................................................23
12.15 Subordination to Mortgages..................................................23
12.16 Hazardous Wastes............................................................23
12.17 Regulatory Compliance.......................................................26
12.18 Approvals...................................................................26
12.19 Proposition 65 Compliance...................................................26
12.20 Indemnifications............................................................27
</TABLE>
-iii-
<PAGE> 5
EXHIBIT A - DESCRIPTION OF THE PROJECT
EXHIBIT B - MINIMUM INSURANCE REQUIREMENTS FOR OUTSIDE
CONTRACTORS NOT CLASSIFIED AS CLASS I
EXHIBIT C - MINIMUM INSURANCE REQUIREMENTS FOR CLASS I
OUTSIDE CONTRACTORS
EXHIBIT D - CLASS I CONTRACTORS
<PAGE> 6
SCHEDULE OF DEFINED TERMS
The terms listed below are defined in the Sections of this Agreement referenced
below.
<TABLE>
<CAPTION>
<S> <C>
"Affiliate"...................................................Section 3.1
"Anti-Discrimination Policy"...............................Section 7.1(o)
"Approved Budget"..........................................Section 4.1(c)
"Budget Year"..............................................Section 4.1(d)
"Claim"......................................................Section 9.11
"Class I Contractors"......................................Section 9.1(a)
"Class I Work".............................................Section 9.1(a)
"Commencement Date".............................................Article 2
"Contractors"..............................................Section 9.1(a)
"Contracts"............................................Section 7.1(d)(ii)
"Control".....................................................Section 3.1
"Covered Personnel"........................................Section 7.1(o)
"Deposit Account".............................................Section 8.3
"Designated Units ...........................................Section 10.1
"Gift"......................................................Section 12.13
"Hazardous Wastes"........................................Section 12.16.2
"HMCP"....................................................Section 12.16.1
"Losses"....................................................Section 12.20
"Management Fee".............................................Section 10.1
"On Site Personnel"...........................................Section 9.4
"Operating Account"...........................................Section 8.2
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
<S> <C>
"Original Management Agreement".................................Recital B
"Pro Rata Amount" ...........................................Section 10.1
"Project".......................................................Recital A
"Proposition 65"............................................Section 12.19
"Public Official"...........................................Section 12.13
"Regulatory Agreement"......................................Section 12.17
"Revenue Account".............................................Section 8.1
"Term"..........................................................Article 2
</TABLE>
<PAGE> 8
AMENDED AND RESTATED MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT (the "AGREEMENT")
is made and entered into as of January 1, 2000, by and between IRVINE APARTMENT
COMMUNITIES, L.P., a Delaware limited partnership ("OWNER") and IRVINE APARTMENT
MANAGEMENT COMPANY, a California general partnership ("MANAGER").
RECITAL
WHEREAS, Owner and Manager are parties to that certain Management
Agreement dated as of April 1, 1998 (the "ORIGINAL MANAGEMENT AGREEMENT").
WHEREAS, pursuant to the Original Management Agreement, IAC
appointed Manager as its agent to lease, manage and operate the Projects (as
hereafter defined).
WHEREAS, IAC and Manager desire to amend and restate the Original
Management Agreement in its entirety, to provide for the leasing, management and
operation of the Projects from and after the date of this Agreement, and to
provide for certain other matters, all as more particularly described in this
Agreement, which amendment and restatement will be effective as of January 1,
2000 (the "EFFECTIVE DATE").
NOW, THEREFORE, with reference to and in reliance on the
foregoing Recitals, which Recitals are hereby incorporated into this Agreement,
and in consideration of the respective covenants and agreements of the parties
set forth herein, the parties hereby amend and restate in its entirety the
Original Management Agreement effective as of the Effective Date:
ARTICLE I
EXCLUSIVE AGENCY
Owner hereby grants to Manager the sole and exclusive right to
lease, rent and manage (i) all of the projects described in Exhibit A attached
hereto; and (ii) at Owner's election to be exercised in its sole and absolute
discretion, any other apartment project hereafter acquired, completed or
constructed by Owner during the term of this Agreement (individually, a
"PROJECT" and collectively, the "PROJECTS"). Exhibit A shall be amended from
time to time to reflect any Project hereafter covered by this Agreement pursuant
to clause (ii). Manager acknowledges that other than with respect to the
Projects listed on Exhibit A, Owner may appoint another Person to act as
property manager of any apartment project now or hereafter owned by Owner.
Manager hereby accepts such appointment, upon the terms set forth herein. The
Original Management Agreement shall govern the rights, obligations and
liabilities of the parties prior to the Effective Date.
<PAGE> 9
ARTICLE II
TERM OF AGREEMENT
The term (the "TERM") of this Agreement shall commence on January
1, 2000 (the "COMMENCEMENT DATE") and shall terminate on March 31, 2001, unless
sooner terminated as provided in ARTICLE 3 below.
ARTICLE III
TERMINATION
3.1 TERMINATION WITH NOTICE FOR CAUSE. Owner may terminate this
Agreement "FOR CAUSE" (as defined below) by the delivery of written notice of
such termination to Manager. The acts or omissions of Manager which shall
entitle Owner to terminate this Agreement "FOR CAUSE" shall include: (a) failure
to operate or lease the Projects in an independent manner in the best interest
of Owner without favoritism to any other property in which Manager or any
Affiliate (as defined below) of Manager has any direct or indirect interest; (b)
failure to operate or lease a Project in accordance with the standards presently
in effect with respect to the operation and leasing of such Project; (c) failure
to operate or lease a Project at a level of quality at least equal to any other
property of a type similar to such Project located in Orange County or San Diego
County, California (as applicable) in which Owner or any of Owner's subsidiary
or affiliated companies has any direct or indirect interest; (d) failure to
provide accurate and timely reporting of financial and other information as
required by this Agreement; or (e) failure to cure any other breach of this
Agreement by Manager within the time period specified herein. Any termination
pursuant to this SECTION 3.1 shall be effective upon the expiration of ten (10)
days following the giving of such notice of termination to Manager, unless
Manager cures the specified failure within such ten (10) day period, or,
alternatively, if such failure is not capable of cure within ten (10) days,
unless Manager, within ten (10) days following the giving of such notice, shall
have initiated all necessary and appropriate action to cure such failure and
continues such action diligently to completion; provided, however, that in no
event shall such cure period exceed a total of sixty (60) consecutive days. For
purposes of this Agreement, "AFFILIATE" shall mean (i) any general partner of
Manager and any person or entity (other than Owner, The Irvine Company and their
subsidiary or affiliated companies) which directly, or indirectly through one or
more intermediaries, Controls, is Controlled by or is under common Control (as
such terms are defined below) with a general partner of Manager; (ii) any
director or executive officer of Manager or a general partner of Manager; or
(iii) any person or entity holding an ownership interest in Manager or a general
partner of Manager. For purposes of this Agreement, the term "Control" shall
mean either (a) ownership of fifty percent (50%) or more of the beneficial
interest or the voting power of the appropriate entity, or (b) the power to
direct or cause the direction of the management policies of such entity, by
contract or otherwise.
3.2 TERMINATION WITHOUT NOTICE FOR CAUSE.
(a) In addition to Owner's rights set forth in SECTION 3.1, Owner
may terminate this Agreement, without notice, upon the occurrence of any of the
following: (i) dissolution or
2
<PAGE> 10
termination of Manager or any managing general partner of Manager by merger,
consolidation or otherwise; (ii) the sale, pledge or other disposition or
transfer of more than forty percent (40%) of the interests of any managing
general partner of Manager to persons or entities other than the current owners
thereof; (iii) the termination or suspension of Manager's real estate brokerage
license, if such license is legally required as a condition to manage or lease
the Project in accordance with the terms hereof; (iv) the cessation on the part
of Manager or on the part of any managing general partner of Manager to continue
to do business; (v) the failure of Manager to deal properly with and account for
trust funds or the bank accounts established hereunder; (vi) the commission of
any fraud, misrepresentation, breach of fiduciary duty or willful misconduct in
connection with the performance of Manager's duties under this Agreement; or
(vii) the bankruptcy, insolvency, reorganization or reconstitution of Manager or
any managing general partner of Manager or any assignment for the benefit of the
creditors of Manager or any managing general partner of Manager.
3.3 TERMINATION FOLLOWING SALE OF THE PROJECT; DISSOLUTION OR
LIQUIDATION OF OWNER. In the event Owner sells, conveys, effects a tax-deferred
exchange of or otherwise transfers any or all of the Projects or Owner dissolves
or liquidates, Owner may elect, but shall have no obligation, to terminate this
Agreement with respect to the Project or Projects to be transferred (or with
respect to all of the Projects in the event of a dissolution or liquidation) by
written notice to Manager, with such termination to be effective concurrently
with such event.
3.4 FINAL ACCOUNTING. Upon termination or expiration of this
Agreement for any reason, Manager shall deliver to Owner with respect to each
Project as to which the termination is effective, the following:
(a) a final accounting, setting forth the balance of income and
expenses of such Project as of the date of termination, to be delivered within
sixty (60) days after such termination, and an interim accounting, in the form
set forth in SECTION 4.4, for the thirty (30) day period immediately following
the date of termination;
(b) any balance of funds of Owner or tenant security deposits
applicable to such Project, to be delivered immediately;
(c) all records, contracts, leases, receipts for deposits, unpaid
bills, keys, paid invoices, tenant correspondence files and other papers or
documents which pertain to such Project, to be delivered immediately. Manager
may, at its expense, retain copies of any of the foregoing documents (excluding
keys) for its records;
(d) copies of all policies of insurance required to be maintained
in accordance with ARTICLE 9 hereof; and
(e) whenever received by Manager, all refunds or return of
deposits attributable to Workers' Compensation Insurance paid for by Owner
pursuant to the terms of this Agreement.
Manager's obligations under this SECTION 3.4 shall survive the termination or
expiration of this Agreement.
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3.5 CONTINUED OBLIGATIONS OF OWNER.
(a) Upon the termination or expiration of this Agreement for any
reason, Owner shall, subject to the limitations contained in this Agreement,
remain obligated to Manager for any unpaid Management Fee (as defined below)
earned by Manager pursuant to SECTION 10.1 through the date of termination and
for all reimbursements due to Manager pursuant to this Agreement (offset,
however, by (i) the amount of any damages incurred by Owner as the result of any
defaults by Manager under this Agreement, including, without limitation, the
reasonable expenses of Owner incurred in curing such default, and (ii) any other
amounts due to Owner from Manager). Owner agrees to defend, indemnify and hold
Manager free and harmless against any and all Losses (as defined below) arising
from the acts of Owner or any successor to Manager under the Contracts (as
defined below) following the date of termination as provided in SECTION 7.1(m)
of this Agreement.
(b) In the event Owner terminates this Agreement (i) by reason of
a sale or other conveyance of any or all of the Projects; or (ii) by reason of a
dissolution or liquidation of Owner as described in SECTION 3.3, Owner shall pay
to Manager any unpaid portion of the Management Fee earned with respect to each
Project for which a Notice of Termination is given as of the date of
termination, as well as any other expenses payable to Manager hereunder as of
such date, and no further sums shall be due Manager from Owner.
(c) If Manager is entitled to a Management Fee or any sums
following a termination of this Agreement, Owner shall pay to Manager, within
twenty (20) days after the effective date of such termination, an amount equal
to the Management Fee due Manager, pro-rated to the date of termination, less
any amounts which may be due Owner from Manager and the amount of any damages
incurred by Owner as the result of any defaults by Manager under this Agreement
including, without limitation, the reasonable expenses of Owner incurred in
curing such default.
Owner's obligations under this SECTION 3.5 shall survive termination and
expiration of this Agreement.
ARTICLE IV
BUDGETS, ACCOUNTING AND REPORTING
4.1 BUDGET.
(a) An Approved Budget (as hereafter defined) has been developed
for each of the Projects for the first Budget Year (as hereafter defined).
Beginning with the Budget Year commencing July 1, 2000, Manager shall prepare
and submit to Owner, for Owner's approval, a proposed budget for each Project,
in form reasonably acceptable to Owner, for the promotion, operation, repair and
maintenance of the Project for each forthcoming Budget Year. Manager shall use
its best efforts to minimize the cost to Owner of goods and services supplied to
all Projects (including the utilization of competitive bids, where possible)
without adversely affecting the physical condition, standards of maintenance or
operations of the Projects, taken individually and as a whole. Owner
acknowledges, however, that certain line items to be
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included in the proposed budget (e.g., property taxes and charges imposed by
public utility companies) are beyond Manager's control. Each proposed budget
shall be delivered to Owner no later than one hundred twenty (120) days prior to
the end of the Budget Year preceding the Budget Year for which the proposed
budget is to be effective or as otherwise instructed in writing by Owner,
provided that for the Budget Year ending June 30, 2000, the Approved Budgets
previously approved by Owner under the terms of the Original Management
Agreement shall be used. Notwithstanding the foregoing, Owner shall have the
right, from time to time, upon written notice to Manager, to reasonably modify
Manager's duties under this SECTION 4.1(a).
(b) Such proposed budget shall include a proposed marketing and
staffing plan, leasing parameters and an estimated capital budget, with all line
items classified in accordance with a chart of accounts approved by Owner. Each
proposed budget shall include a current year forecast of operating revenues and
expenses for the Project for which the proposed budget has been prepared.
(c) For each Project, Owner shall approve, or specify an
alternative to, the proposed budget or any individual line item set forth
therein in its sole and absolute discretion. Owner shall, on or before the
commencement of each Budget Year, at its option, either give written notice of
its approval of the proposed budget or give written notice of an alternative
budget. Each budget, as approved or otherwise specified by Owner in writing,
shall be referred to herein as the "APPROVED BUDGET." Notwithstanding the
foregoing, Owner shall have the right, from time to time, upon written notice to
Manager, to modify any Approved Budget for any Budget Year.
(d) As used herein, "BUDGET YEAR" shall mean the twelve (12)
month period elected by Owner from time to time in its discretion. Until
otherwise elected by Owner, on behalf of Owner, "BUDGET YEAR" shall mean the
fiscal year beginning on July 1st and ending on the following June 30th. In the
event Owner elects to change the Budget Year at any time during the Term,
Manager shall revise the Approved Budget for each affected Project in accordance
with the provisions of this SECTION 4.1 to reflect such change, and Manager
shall cooperate with Owner as necessary to accommodate the change in the Budget
Year.
4.2 OPERATION IN ACCORDANCE WITH BUDGET. Manager shall use its
best efforts to insure that the actual costs of maintaining and operating each
Project do not exceed the amounts agreed upon in the Approved Budget with
respect to such Project, either in total or with respect to any individual line
item. Any change to an Approved Budget shall be subject to the prior written
approval of Owner which approval may be withheld in Owner's sole discretion. All
expenses must be charged to the proper account on the Approved Budget and no
expense may be classified or reclassified for the purpose of avoiding an excess
in the annual budgeted amount of any accounting category. If Manager advances
for Owner's account any amount for the payment of any expenses of Manager, that
Owner shall reimburse Manager therefor only if: (a) such expenses are for items
on the Approved Budget and (b) Manager has submitted appropriate details of such
expenses, including, without limitation, paid invoices without Manager's markup.
During any Budget Year, Manager shall not, without the prior written approval of
Owner: (a) disburse any amounts attributable to items not reflected in the
Approved Budget which exceed, in the aggregate, Five Thousand Dollars ($5,000),
except in the case of an emergency
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situation threatening imminent injury to persons, damage to property or
interruption of essential services to tenants, or (b) make any expenditure which
in Manager's reasonable judgment will cause, on an annual basis, either the
total Approved Budget to be exceeded or the amounts allocated to the following
categories: Payroll and Related Expenditures, General and Administrative
Expense, Advertising and Promotion, Turnover, Maintenance Buildings, Maintenance
Grounds, Maintenance Non-Recurring, Utilities and Capital Expenses
(collectively, the "MAJOR CATEGORIES") to be exceeded; provided, however,
Manager shall be entitled to make expenditures which exceed individual line
items included within the Major Categories by an amount not to exceed the
greater of (i) ten percent (10%) of the budgeted amount for such line item, or
(ii) Ten Thousand Dollars, so long as neither the total budgeted amount for the
applicable Major Category nor the total Approved Budget is exceeded.
4.3 BOOKS OF ACCOUNT. Manager shall maintain adequate and
separate books and records for each Project with entries supported by supporting
documentation sufficient to allow Owner or its agents to ascertain their
accuracy. Such books and records shall be made available to Owner and its agents
in connection with independent financial audits of Owner, as well as audits by
any governmental authority, including, without limitation, the Internal Revenue
Service, the Franchise Tax Board and the appropriate County Assessor's
Office(s). Manager shall maintain and safeguard such books and records at
Manager's office or at such other location as may be agreed upon in writing.
Manager shall ensure such control over accounting and financial transactions as
is reasonably necessary to protect Owner's assets from theft, error or
fraudulent activity by Manager's employees. Unless any losses arising from any
such occurrences are covered by any of the insurance policies required to be
maintained hereunder, Manager shall bear all monetary losses arising from such
occurrences, including, without limitation, the following:
(a) Theft of assets by Manager's principals, officers, employees
or Affiliates;
(b) Late charges, penalties or interest due to delay in payment
of invoices, bills or other like charges, for any reason other than the failure
of Owner to deposit funds in the Operating Account (as defined below) in a
timely manner. Such late charges, penalties or interest shall be borne by
Manager and paid directly by Manager;
(c) Overpayment or duplicate payment of invoices arising from
either fraud or negligence;
(d) Overpayment of labor costs arising from either fraud or
negligence;
(e) A sum equal to the value of any form of payment or property
from suppliers to Manager's employees arising from the purchase of goods or
services for the Project(s), excluding, however, gifts of nominal value received
in the ordinary course of business and in compliance with SECTION 12.13;
(f) Unauthorized use of facilities in any Project by Manager's
employees; and
(g) Amounts paid to Affiliates of Manager in excess of amounts
determined by competitive bids unless the contracts or payments to the
Affiliates of Manager were approved by Owner.
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4.4 FINANCIAL REPORTS. No later than the third (3rd) business day
of each calendar month, Manager shall furnish to Owner with respect to each
Project, in such form as Owner may require, a report of all transactions
occurring during the preceding month. Manager shall deliver to Owner no later
than the tenth (10th) day of each calendar month, in such form as Owner may
require, a statement of income and expenses for each Project for the preceding
month and a balance sheet for each such Project, each prepared on a cash and
accrual basis according to generally accepted accounting principles and
accompanied by supporting summaries of adjusting journal entities, bank
reconciliations applicable to the most recent statements prepared by the banks
handling Project funds, an analysis of prepaid rent (if any), a schedule of all
expenses and amounts billed by Manager to Owner and all amounts reimbursed by
Owner to Manager, and such other financial statements or reports as Owner may
require. Manager shall notify Owner, in writing, on a monthly basis, of all
rental arrearages that in its judgment are properly written off as
uncollectible.
4.5 SUPPORTING DOCUMENTATION. As additional supporting
documentation for the monthly financial statements required under SECTION 4.4,
unless otherwise directed by Owner, Manager shall make available, at Manager's
office, the following:
(a) all bank statements and bank deposit slips;
(b) detailed cash receipts and disbursement records;
(c) detailed trial balance for receivables and payables and
billed and unbilled revenue items;
(d) paid invoices;
(e) supporting documentation for payroll, payroll taxes and
employee benefits;
(f) appropriate details of accrued expenses and property records;
and
(g) information necessary for preparation of Owner's tax returns,
including a description of and a statement of amounts expended in connection
with repairs, capital improvements, taxes, lease summaries and professional
fees.
4.6 CHANGES IN MANAGER'S OPERATIONS MANUAL. Within thirty days
following the end of each calendar quarter, Manager shall deliver to Owner
copies of any changes which have been made in Manager's Operations Manual during
the last preceding calendar quarter.
ARTICLE V
OWNER'S RIGHT TO AUDIT
5.1 OWNER'S RIGHT TO AUDIT. At Owner's request, Manager shall
engage a certified public accountant to audit all books, records and files
maintained by Manager for Owner with respect to the Projects in accordance with
the audit guidelines previously or hereafter delivered by Owner within ninety
(90) days after the end of the fiscal year, which audit
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will be certified to Owner and Manager. Compensation for such auditor's services
will be paid out of the Operating Account as an expense of the Projects (and
shall be reasonably allocated by Manager among the Projects). Owner shall have
the right to revise such audit guidelines from time to time upon written notice
to Manager. Should the certified public accountant discover either weaknesses in
internal control or errors in recordkeeping, Manager shall correct such
discrepancies either upon discovery or within a reasonable period of time
thereafter. Manager shall inform Owner in writing of the action taken to correct
any audit discrepancies.
ARTICLE VI
LEASING ACTIVITIES
6.1 MANAGER'S LEASING OBLIGATIONS. Subject to the direction of
Owner, Manager shall use its best efforts to lease the Projects in accordance
with the Approved Budgets and rental rates, shall act in a fiduciary capacity
with respect to Owner and shall deal at arm's length with all third parties,
including, without limitation, Affiliates. Without limiting the generality of
the foregoing, Manager's leasing obligations shall include the following:
(a) Manager shall diligently undertake the rental of all
residential units within the Projects which are or may become vacant during the
Term. Manager shall establish controls so that ample time is available to renew
leases or obtain new tenants and shall use its best efforts to avoid vacancies
and loss of income.
(b) In leasing any portion of a Project, Manager shall utilize
only a standard lease form approved by Owner, with no modifications thereto.
Manager shall require each prospective tenant to submit financial information
sufficient to allow Manager to verify the ability of such prospective tenant to
perform its obligations under its lease.
(c) Manager is hereby authorized, during the Term as agent for
Owner, to execute residential lease agreements in the form of the then approved
standard lease form, provided that Manager shall comply with all terms and
provisions hereof, including, without limitation, the leasing guidelines
previously or hereafter delivered by Owner (the "LEASING GUIDELINES"). Owner
shall have the right to revise such Leasing Guidelines from time to time upon
written notice to Manager. In no event shall any lease executed by Manager
provide for a lease term in excess of twelve (12) months, without Owner's prior
written consent. The rental rates established or approved by Owner shall
hereinafter be referred to as the "RENTAL SCHEDULE."
(d) Manager shall schedule monthly meetings with Owner in order
to review all advertising and promotional materials for each Project, which
materials shall be subject to Owner's approval and shall comply with all
applicable laws, ordinances and regulations, including, without limitation, any
policies or procedures which may be established by Owner and communicated in
writing to Manager. The cost of all advertising and promotional procedures and
advertising campaigns shall be within the limits set forth for such expenses in
the Approved Budget for the related Project or as otherwise approved by Owner in
writing from time to time.
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ARTICLE VII
MANAGEMENT OF PROJECT
7.1 DUTIES OF MANAGER; STANDARDS. Manager shall manage, operate
and maintain each Project in accordance with the general standards set forth in
this ARTICLE 7, the guidelines, policies and procedures issued by Owner from
time to time (including, without limitation, the HMCP, as defined below) and
Manager's Operations Manual for such Project, in the form delivered to Owner
from time to time. Owner will provide Manager with any additional documentation
reasonably necessary to establish Manager's authority to act as required
hereunder. Without limiting the generality of the foregoing, Manager's functions
hereunder shall include the following:
(a) Manager shall manage each Project in an efficient and
businesslike manner consistent with the standards currently in effect for such
Project, having due regard for the age and physical condition of such Project.
In addition, Manager shall operate each Project so as to maintain the good name
and reputation of Owner in the community in which such Project is located.
Manager shall perform all services in a diligent and professional manner in
accordance with recognized standards of the property management industry and in
compliance with such standards and practices as are prevalent in the geographic
area where the Project is located. Manager shall act in a fiduciary capacity
with respect to the proper protection of and accounting for Owner's assets, in
an independent manner with all third parties and in the best interests of Owner
at all times.
(b) Manager shall use its best efforts to collect all rents and
other charges which may become due at any time from any tenant of a Project, or
from others for services provided in connection with or for the use of a Project
or any portion thereof. Manager shall collect and identify any income due Owner
from miscellaneous services provided to tenants or the public, including,
without limitation, parking income, tenant storage, and coin-operated washers,
dryers and other machines of all types. All funds received by Manager for or on
behalf of Owner shall be deposited in a bank designated by Owner in the Revenue
Account (as defined below).
(c) Manager shall, at Owner's expense, maintain and make or cause
to be made such ordinary repairs as Manager may deem advisable or necessary,
subject to and within the limitations of the Approved Budget for each Project
and of this Agreement.
(d) Manager shall, at Owner's expense and at Owner's direction,
make or cause to be made such capital improvements to a Project pursuant to
plans and specifications approved by Owner, as are included in the Approved
Budget for such Project or are otherwise approved by Owner, as well as all
remodeling and refurbishing of tenant premises as approved by Owner in
connection with the requirements of tenant leases. Manager shall make
recommendations, select contractors and follow such bid procedures as are
required by Owner in writing from time to time and shall supervise all such work
to obtain compliance with contract requirements and applicable law.
(i) Manager shall, at Owner's expense, contract for those
utilities and provide, or cause to be provided, other building
operation, landscaping and
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maintenance services Manager or Owner shall deem advisable,
subject to and within the limitations of the Approved
Budget for each Project and this Agreement. Manager shall not
enter into any contracts with any Affiliate without the prior
written consent of Owner. In the event Manager or an Affiliate is
then managing other projects similar to the Projects, whether or
not any of such other projects are owned in whole or in part by
Owner, Manager shall, if possible and subject to the provisions
of this SUBSECTION 7.1(d)(ii), use its best efforts to utilize
the same individuals or entities under such service contracts as
are performing similar services for Manager or an Affiliate in
connection with such other projects, if such a procedure would
result in cost savings to Owner. All contractors performing work
on a Project shall comply with, and shall have incorporated in
its contracts, the provisions for OSHA Compliance and Safety and
Fire Requirements previously or hereafter delivered to Manager by
Owner. Manager shall use all reasonable diligence in evaluating,
selecting and supervising all contractors retained by Manager to
perform the services set forth herein. Subject to the provisions
of ARTICLE 4, Manager hereby agrees that it shall use its best
efforts to utilize any group or bulk purchasing opportunities
made available to Manager by Owner. Subject to the provisions of
ARTICLE 4, Manager shall, at Owner's expense, purchase and keep
the Projects furnished with all necessary supplies. The cost of
such supplies shall be charged to Owner at net cost and Owner
shall be credited with all rebates, refunds, allowances and
discounts allowed to Manager.
(ii) All contracts entered into by Manager with respect to a
Project pursuant to this SECTION 7.1(d) (collectively, the
"CONTRACTS") shall, unless Owner otherwise consents in writing,
be on a standard form approved by Owner in writing and shall
include a provision for early termination in the event of a sale,
conveyance or exchange of such Project by Owner or the
dissolution or liquidation of Owner (as described in SECTION 3.3
hereof) if Owner or the transferee elects to terminate such
Contract, a provision for early termination in the event this
Agreement is terminated by Owner pursuant to SECTION 3.2(h), and
a provision obligating the other contracting party to continue to
perform under its Contract in the event (a) this Agreement is
terminated for any reason and Owner elects to take an assignment
of such Contract and require the other contracting party to
continue its performance thereunder directly on behalf of Owner,
or (b) of a sale, conveyance or exchange of such Project by Owner
or of the dissolution or liquidation of Owner if, in any case,
the transferee elects to take an assignment of such Contract and
require the other contracting party to continue its performance
thereunder directly on behalf of such transferee. Subject to this
SUBSECTION 7.1(d)(iii), Manager shall be responsible for the
negotiation of all such Contracts and all such Contracts shall be
executed by Manager on its own behalf and not as agent for Owner;
provided, however, that as between Owner and Manager, Owner shall
be responsible for all expenses associated with any such
Contract, so long as such expenses are incurred in compliance
with the Approved Budget and the terms of this Agreement. Manager
shall not enter into any Contract which would cause, on an annual
basis, either the total Approved Budget or the amounts allocated
to Major Categories to exceed the limits set forth in SECTION 4.2
hereof.
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Promptly upon the execution thereof, Manager shall deliver to
Owner one fully executed original of any Contract.
(e) Intentionally deleted.
(f) Manager shall operate, in accordance with a budget approved
by Owner, Owner's Information Center and Owner's corporate housing program.
(g) If requested by Owner in writing, which request shall specify
the applicable amounts due and payable, Manager shall pay from the Operating
Account all bills for payments due under mortgages and ground leases with
respect to the Projects, all real estate, personal property and improvement
taxes and assessments due with respect to the Projects and insurance premiums
for insurance coverage carried by Owner with respect to the Projects. In such
event, all such expenses shall be included in the Approved Budget for the
related Project. Owner shall be responsible for prosecuting the appeal of any
property tax assessment for each Project and the payment of all costs incurred
in connection therewith.
(h) Subject to the other provisions of this Agreement, at Owner's
expense, Manager shall be responsible for compliance with all federal, state and
municipal laws, ordinances, regulations and orders related to the leasing, use,
operation, repair and maintenance of each Project, including, without
limitation, compliance with all state or federal fair housing laws, rules and
regulations, with the rules, regulations or orders of the local Board of Fire
Underwriters or other similar body and with the Americans with Disabilities Act.
Manager shall promptly notify Owner of any violation of any such law, ordinance,
rule, regulation or order, and, with the approval of Owner, promptly remedy any
such violation which comes to its attention, at Owner's expense. Expenses
incurred in so complying and in correcting any such violation shall be included
in the Approved Budget for such Project or otherwise approved in advance by
Owner in writing, except in the case of an emergency threatening imminent
personal injury or property damage or a situation which, in the absence of
immediate action, could subject Owner to civil or criminal penalties, in which
event Manager shall use its best efforts to notify Owner of such violation and
corrective action so taken. Manager shall familiarize itself with the terms of
and be responsible for avoiding any violations of the requirements of Owner set
forth in any development agreement, ground lease, tenant lease, mortgage, deed
of trust or other instrument affecting each Project and delivered to Manager by
Owner, including, without limitation, subject to the provisions of SECTION 12.17
hereof, any regulatory agreement, declaration of covenants, conditions and
restrictions or similar document affecting a Project that imposes any
requirements regarding permitted income levels of Project tenants or other
restrictions imposed by applicable governmental agencies in connection with any
revenue bond or similar financing applicable to such Project, and shall
otherwise comply with any written instructions of Owner with respect thereto.
Manager shall furnish to Owner, upon receipt by Manager, each notice or order
affecting any Project, including, without limitation, any notice from any taxing
or other governmental authority and notice of violation of any requirement or
order issued by any Board of Fire Underwriters or other similar body against
such Project or Owner, any notice of default or otherwise from the holder of any
mortgage or deed of trust or any notice of renewal, termination or cancellation
of any insurance policy. Manager, however, shall not take any action under this
SECTION 7.1(f) in the event Owner notifies Manager, in writing, that Owner is
contesting or intends to contest such notice, order or requirement,
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provided that Manager shall be subject to no liability resulting from Manager's
failure to take such action during the pendency of such contest. Notwithstanding
the foregoing, however, Manager's responsibilities under this SECTION 7.1(f)
shall not extend to matters requiring the expenditure of Owner's funds but
disapproved in writing by Owner.
(i) Manager shall, at Owner's expense, arrange for the obtaining
and renewal of all business licenses affecting each Project; provided, however,
that the cost of obtaining or renewing any broker's or similar business license
required to be obtained by Manager in order to fulfill its obligations under
this Agreement shall be borne solely by Manager.
(j) Manager shall, at Owner's expense, engage counsel and cause
such legal proceedings to be instituted and prosecuted in an expeditious manner
as may be necessary to enforce payment of rent and compliance with leases or to
dispossess tenants. Manager shall use legal counsel approved by Owner to
institute such actions and all settlement negotiations involving claims in
excess of Three Thousand Five Hundred Dollars ($3,500) shall be subject to the
prior approval of Owner. Attorneys' fees and costs so incurred shall be borne by
Owner and shall be submitted to Owner for approval prior to payment, unless the
cost is already reflected in the Approved Budget for the applicable Project or
unless payment is due under a contract previously approved by Owner.
(k) Manager shall employ at all times a sufficient number of
capable employees to enable it to manage, operate and maintain the Projects
properly, adequately, safely and economically. Except as expressly provided in
SECTION 7.1 to the contrary, all matters pertaining to the employment,
supervision, compensation, promotion and discharge of such employees shall be
the responsibility of Manager. Manager will negotiate with any union lawfully
entitled to represent such employees and shall execute in its own name, and not
as agent for Owner, collective bargaining agreements or labor contracts
resulting therefrom. At least once per year Manager shall train its employees in
the compliance with the HMCP, all state or federal fair housing laws, rules and
regulations and in the reduction of general liability risks. Owner shall not
have any liability with respect to any employment arrangements with employees
employed in connection with the management of any Project, and all employment
arrangements shall expressly so provide. Manager shall comply with the Americans
With Disabilities Act and all applicable governmental requirements relating to
workers' compensation, social security, unemployment insurance, hours of labor,
wages, working conditions, equal employment laws and regulations and other
employer-employee related matters.
(l) If requested by Owner in connection with the submission of
any proposed Budget, Manager shall notify Owner of the identities, job titles
and salaries of the on-site employees to be responsible for the direct
management of each Project. Manager shall notify Owner in advance of any
staffing changes relating to the on-site employees responsible for the direct
management of each Project or the off-site employees responsible for the
handling of the relationship between Owner and Manager and Manager shall
cooperate with Owner in addressing Owner's concerns in connection with such
staffing changes. Manager shall require coverage of all employees by fidelity
bond or coverage under Manager's comprehensive crime insurance policy, each in
amounts required by Owner. Manager shall identify to Owner the job description
of employees whose salaries Manager will initially charge to a Project for
direct
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services rendered to such Project. All employee salaries and positions shall be
consistent with the Approved Budget for the related Project.
(m) Manager shall be responsible for administering the
enforcement of all Project parking rules and regulations established by Owner
and furnished in writing to Manager.
(n) Manager hereby agrees to cooperate with any financial
institution or other lender designated by Owner to provide financing for any
Project and consents to the assignment by Owner, individually and as agent for
Owner, of this Agreement as security for any loan to Owner from such lender.
Manager further agrees to cooperate with brokers and prospective purchasers
designated by Owner in connection with the sale, conveyance or exchange of any
Project.
(o) Manager has delivered a copy of the Anti-Discrimination
Policy (as defined below) to all Covered Personnel and has obtained a written
acknowledgment from each such employee, in form and substance acceptable to
Owner, certifying that they have read and understand the Anti-Discrimination
Policy and agree to abide by its terms. For any new Covered Personnel after the
date hereof, Manager shall deliver a copy of the Anti-Discrimination Policy to
such new Covered Personnel and obtain the written acknowledgement described in
the preceding sentence for each such new employee. Manager shall maintain and
safeguard the Anti-Discrimination Policy and the original written
acknowledgments relating thereto with the books and records for each Project as
provided in this Agreement. As used herein, the term "COVERED PERSONNEL" shall
mean (i) all of Manager's personnel now or hereafter involved in the leasing of
a Project, whether such employees are on- or off-site personnel, and (ii) all of
Manager's personnel now or hereafter employed on-site at a Project. As used
herein, the term "ANTI-DISCRIMINATION POLICY" shall mean a written
anti-discrimination policy prepared by Manager and approved by Owner.
(p) Manager shall maintain frequently and update on a periodic
basis but in no event less than once per year, a complete inventory of all of
Owner's personal property located at each Project site. Manager shall deliver a
copy of such inventory to Owner prior to the commencement of each Budget Year or
more frequently as requested by Owner.
ARTICLE VIII
BANK ACCOUNTS
8.1 REVENUE ACCOUNT. Manager shall deposit all funds collected
from the operation of each Project, from whatever source, in a special account
in a bank approved by Owner (interest bearing, if possible) (individually the
"REVENUE ACCOUNT" and collectively the "REVENUE ACCOUNTS") for such Project in
the name of Owner or as Owner may designate. Manager shall have no authority to
withdraw funds from the Revenue Account. Manager shall instruct the bank to hold
such funds in trust for Owner.
8.2 OPERATING ACCOUNT. Owner shall establish one or more bank
accounts, including, without limitation a principal account for the projects
(the "OPERATING ACCOUNT") which shall be used for the payment of all costs and
expenses to be borne by Owner hereunder.
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Manager shall have the authority to withdraw funds from the Operating Account to
fulfill its obligations under this Agreement, but shall otherwise have no right,
title or interest in such funds. Manager shall in no event allow any funds
withdrawn from the Operating Account to be commingled with any other funds or
bank accounts of Manager. Following written notification from Manager of
projected cash requirements for the Project, which notices shall be delivered to
Owner not more often than once per week, Owner shall maintain in the Operating
Account an amount sufficient to pay all budgeted expenses for the Projects for
each month in a timely manner. Manager shall pay from the Operating Account the
operating expenses of the Projects and any other required payments applicable to
the Projects, as set forth in this Agreement.
8.3 SECURITY DEPOSIT ACCOUNT. If applicable law requires a
segregated account for tenant security deposits, Manager will open a separate
interest bearing account (the "DEPOSIT ACCOUNT") for each Project in Owner's
name at a bank approved by Owner, and shall instruct the bank to hold the funds
in trust for Owner. Manager shall maintain the Deposit Account, if required, in
accordance with applicable law and shall otherwise comply in all respects with
CALIFORNIA CIVIL CODE SECTION 1950.5. Manager shall use the Deposit Account only
to maintain security deposits for the related Project. Manager shall maintain
detailed records of all security deposits and allow Owner or its designees
access to such records.
8.4 CHANGE OF BANKS. Owner may direct Manager, in writing, to
change a depository bank or any depository arrangements, provided that any costs
or expenses associated with such change shall be paid by Owner.
8.5 MAINTAINING PROJECT FUNDS IN INSURED ACCOUNTS. Accounts
holding project funds (up to or exceeding $100,000) must be in institutions
under the control of, and whose deposits are reinsured by, the Federal Deposit
Insurance Corporation, National Credit Union Association, or other U.S.
government insurance corporations. Manager shall determine that the financial
institution has a rating consistent at all times with current minimally
acceptable ratings as established and published by Government National Mortgage
Association (GNMA). The Manager shall monitor the institution's ratings no less
than on a quarterly basis, and change institutions when necessary. The Manager
must document the ratings of the institution where the funds are deposited and
maintain the documentation in the administrative record for three years,
including the current year.
ARTICLE IX
INSURANCE AND INDEMNIFICATION
9.1 INSURANCE TYPES.
(a) Manager shall not commence any work under this Agreement
until it obtains all insurance required to be obtained by Manager hereunder.
Manager will not permit any other party with whom it may contract to perform
services on a Project site (hereinafter the "CONTRACTORS") to commence work
under the applicable Contract until the insurance requirements and
indemnification provisions for Contractors who are not Class I Contractors (as
defined below) described in EXHIBIT B attached hereto and by this reference
incorporated herein, or the insurance requirements and indemnification
provisions for Class I Contractors described in
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EXHIBIT C attached hereto, as applicable, have been complied with by the
applicable Contractor and incorporated into the applicable Contract. As used
herein, "CLASS I CONTRACTORS" shall mean the Contractors performing any of the
work or services (the "CLASS I WORK") described in EXHIBIT D attached hereto and
such other Contractors as may be designated as Class I Contractors by Owner from
time to time. In the event any Contractor is performing work or services which
are both Class I Work and work or services which would not be considered Class I
Work, such Contractor shall be deemed to be a Class I Contractor with respect to
all of the work or services which it performs.
(b) All insurance described under this ARTICLE 9 which is to be
carried by Manager will be maintained by Manager with insurance carriers
licensed and approved to do business in California, having a general
policyholders' rating of not less than an "A" and a financial rating of not less
than "X" in the most current Best's Key Rating Guide. In no event shall such
insurance be terminated or otherwise allowed to lapse prior to termination of
this Agreement or such longer period as may be specified herein, unless such
terminated or lapsed insurance is immediately replaced by substitute insurance
meeting the requirements of this ARTICLE 9. Manager may provide the insurance
described in this ARTICLE 9, in whole or in part, through a policy or policies
covering other liabilities and projects of Manager.
9.2 EVIDENCE OF INSURANCE. As evidence of Manager's specified
insurance coverage, Owner shall accept certificates and endorsements issued by
Manager's insurance carrier acceptable to Owner showing such policies in force
for the specified period. Owner retains the right to review the actual insurance
policies upon its request. Such evidence shall be delivered to Owner prior to
commencement of work. Each policy and certificate shall be subject to approval
by Owner (such approval not to be unreasonably withheld), and shall provide that
such policy shall not be subject to material alteration or cancellation without
thirty (30) days' notice in writing to be delivered by registered mail to Owner.
Should any policy expire or be cancelled prior to the expiration or earlier
termination of this Agreement, and Manager fails immediately to procure other
insurance as specified herein, Owner reserve the right, but shall have no
obligation, to procure such insurance and to deduct the cost thereof from any
sum due Manager under the terms of this Agreement. Manager shall permit Owner to
inspect such evidence of insurance as Manager obtains from its Contractors.
9.3 DAMAGES. Nothing contained in this ARTICLE 9 is to be
construed as limiting the extent of Manager's responsibility for the payment of
damages resulting from Manager's operations under this Agreement nor shall
anything contained herein be deemed to place any responsibility on Owner for
ensuring that the insurance required hereunder is sufficient for the conduct of
Manager's business.
9.4 WORKERS' COMPENSATION INSURANCE. Manager shall obtain and
maintain full Workers' Compensation Insurance, including Employer's Liability,
at a minimum limit of One Million Dollars ($1,000,000) or current limit carried,
whichever is greater, for all personnel whom it employs in carrying out
Manager's obligations under this Agreement, including an endorsement evidencing
waiver of subrogation by the insurance carrier with respect to Owner. Such
insurance shall be in substantial accordance with the requirements of the most
current and applicable State Workers' Compensation Insurance Laws in effect from
time to time. Owner shall bear the cost of such insurance attributable to and
covering Manager's On-Site Personnel
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(as defined below) and Manager shall bear the cost of such insurance
attributable to and covering any other personnel who perform services in
connection with any of the Projects but who are not On-Site Personnel. The cost
of such insurance attributable to On- Site Personnel shall not exceed the amount
set forth in the applicable Approved Budget, as such amount may be increased as
a result of any audit by the insurer. For the purposes of this Agreement, the
term "ON-SITE PERSONNEL" shall be deemed to include only those employees of
Manager who are located on a Project site on a full time basis or who are
located on a Project site on a part-time basis but who provide direct services
to a Project, such as landscaping, maintenance and the like. In no event shall
"ON-SITE PERSONNEL" include Manager's general administrative or supervisory
employees who provide services to more than one project.
9.5 COMPREHENSIVE OR COMMERCIAL GENERAL LIABILITY INSURANCE.
Manager shall, at Owner's expense, obtain and maintain Comprehensive or
Commercial General Liability Insurance on an "occurrence" basis, with acceptable
deductibles and with a combined single limit for bodily injury and property
damage of Five Million Dollars ($5,000,000), covering Operations, Independent
Contractors, Products and Completed Operations, Contractual Liability, Broad
Form Property Damage (including completed operations), claims and lawsuits by
one insured against another insured, Personal Injury and Explosion, Collapse and
Underground Hazards (X,C,U), which insurance shall name Manager as an additional
insured. The limits of liability of the insurance coverage specified in this
SECTION 9.5 may be provided by any combination of primary and excess liability
insurance policies. If excess risks are involved, greater limits of liability
may be required by Owner.
9.6 AUTOMOBILE LIABILITY INSURANCE. Manager shall obtain and
maintain owned, hired and non-owned automobile liability insurance covering all
use of all automobiles, trucks and other motor vehicles utilized by Manager in
connection with the performance of its obligations hereunder, with a combined
single limit for bodily injury and property damage of Five Million Dollars
($5,000,000) or current limit carried, whichever is greater. Owner shall bear
the cost of such insurance attributable to and covering Manager's On-Site
Personnel and Manager shall bear the cost of such insurance attributable to and
covering any other personnel of Manager who perform services in connection with
the Project but who are not On-Site Personnel. The cost of such insurance
attributable to On-Site Personnel shall not exceed the amount set forth in the
applicable Approved Budget.
9.7 COMPREHENSIVE CRIME INSURANCE. Manager shall, at Manager's
expense, obtain and maintain either a policy of comprehensive crime insurance or
a fidelity bond, at Manager's option, in an amount not less than Two Hundred
Fifty Thousand Dollars ($250,000) per occurrence for any of Manager's employees
who may handle funds or property in connection with a Project and to provide
coverage to protect Owner.
9.8 ALL RISK INSURANCE. Owner shall, at Owner's expense, obtain
and maintain "All Risk" Insurance covering loss or damage to each Project, with
such deductibles as Owner shall determine in its sole discretion. Owner shall
also maintain Comprehensive or Commercial General Liability Insurance, with such
deductibles or self insured retention as Owner shall determine in its sole
discretion, with a combined single limit for bodily injury and property damage
of Five Million Dollars ($5,000,000), and which insurance shall name Manager as
an additional insured. Owner shall, at Manager's written request to be made not
more than
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annually, deliver to Manager a certificate issued by Owner's insurance carrier
showing such Comprehensive or Commercial General Liability Insurance to be in
force.
9.9 MANAGER'S OBLIGATIONS. Manager shall:
(a) Comply with Owner's accident reporting procedures, which may
be modified from time to time upon written notice to Manager;
(b) Notify Owner immediately upon learning of any material loss,
damage or injury occurring on a Project;
(c) Not take any action (such as an admission of liability) which
might bar Owner from obtaining any protection afforded by any insurance policy
of Owner or which might prejudice Owner in defending a claim based on any loss,
damage or injury; and
(d) Cooperate with Owner in the disposition of claims, including
furnishing all available information to Owner and Owner's insurers.
Owner shall have the exclusive right, at its option, to conduct the defense of
any claim, demand or suit within limits prescribed by the policy or policies of
insurance.
9.10 WAIVER OF SUBROGATION. Owner and Manager hereby waive all
rights against each other for damages caused by fire and other perils and risks
to the extent covered by Manager's policies of insurance or Owner's "All Risk"
Insurance.
9.11 CLAIMS PROCEDURES. In the event an incident occurs or any
legal action or other claim (a "CLAIM") is asserted by a third party against
Owner and/or Manager, as the result of an alleged injury or loss sustained
within a Project during the Term, Manager shall, promptly after receipt of
actual knowledge of such Claim, submit a report to Owner in accordance with
Owner's incident reporting procedures. Upon receipt of such information,
together with any filed pleadings, Owner shall submit such information to its
insurer and/or claims adjusting firm for the purpose of initiating investigation
and disposition of the Claim. All costs of the foregoing investigation,
settlement and defense, and any judgments and other costs related to any such
Claim, shall be allocated between Owner and Manager in accordance with the
indemnification provisions contained in Section 12.20.
9.12 INSURANCE AUDIT; REFUNDS. Any insurance charges, including,
without limitation, Workers' Compensation Insurance, which are submitted to
Owner by Manager shall be subject to audit by Owner. Any insurance dividends
earned or returned premiums applicable to the policies required to be carried
hereunder at Owner's expense, including, without limitation, Workers'
Compensation Insurance, shall be refunded by Manager to Owner immediately upon
receipt thereof, and any such refunds shall be accompanied by supporting
documentation evidencing the refunded amounts.
9.13 OWNER'S ELECTION TO INSURE. Owner reserves the right, but
shall have no obligation, to procure the insurance, or any portion thereof, for
which Manager is herein responsible and which is described in this ARTICLE 9.
Owner shall notify Manager if Owner
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exercises its right, whereupon Manager's responsibility to carry such
duplicative insurance shall cease and the sums paid by Owner to Manager
hereunder shall be equitably adjusted by the parties to reflect any resulting
cost saving to Manager. Owner further reserves the right at any time, with
thirty (30) days' prior notice to Manager, to require that Manager resume the
maintenance of any insurance for which Owner has elected to become responsible
pursuant to this SECTION 9.13; and in such event, the sums paid to Manager by
Owner shall increase to the extent of any previously agreed and implemented
reduction as aforesaid attributable to Owner's prior assumption of the
particular insurance coverage.
ARTICLE X
COMPENSATION OF MANAGER
10.1 MANAGEMENT FEE. As compensation for the performance of its
obligations hereunder, Manager shall be paid a monthly management fee
("MANAGEMENT FEE") equal to Thirty Dollars ($30) multiplied by the number of
"DESIGNATED UNITS" (as defined below) subject to this Agreement during the
applicable calendar month, plus a "PRO RATA AMOUNT" (as defined below) for each
Designated Unit that is subject to this Agreement during a portion of such
calendar month. As used herein: (a) the term "DESIGNATED UNITS" means the units
in the Projects listed on EXHIBIT A, as EXHIBIT A may be amended from time to
time by Owner's delivery of written notice to Manager specifying additional
units that will be subject to this Agreement, such notice to be delivered no
later than fifteen (15) buisness days prior to the date (as specified in Owner's
notice) on which Manager is to begin management of such units and (b) the term
"PRO RATA AMOUNT" means Thirty Dollars ($30) multiplied by a fraction, the
denominator of which is 30 and the numerator of which is the number of days in
any partial calendar month that the applicable Designated Unit was subject to
this Agreement.
ARTICLE XI
PAYMENT OF EXPENSES
11.1 COSTS ELIGIBLE FOR PAYMENT FROM OPERATING ACCOUNT. Manager
shall pay all expenses incurred in connection with the operation, maintenance
and repair of each Project, to the extent, and only to the extent, included in
the Approved Budget for such Project directly from the Operating Account,
subject to the conditions set forth in Article 7, including the following:
(a) costs of the gross salary and wages or proportionate shares
thereof, payroll taxes, employee's health insurance, workers' compensation,
termination benefits payable pursuant to California law and other benefits of
Manager's employees who are located on-site, including temporary employees
performing on-site services in connection with such Project (and including,
without limitation, any accrued benefits owed by Manager to any On-site
Personnel upon termination of this Agreement), and are required to manage,
operate and maintain such Project properly, adequately, safely and economically,
in accordance with this Agreement,
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provided that such costs are provided for in the Approved Budget for such
Project. Manager shall not be entitled to pay such employees in advance;
(b) costs incurred to correct the violation of any governmental
requirement relating to the leasing, use, repair and maintenance of the Project,
or relating to the rules, regulations or orders of the local Board of Fire
Underwriters or other similar body, if such costs are not incurred as the result
of Manager's negligence or willful misconduct;
(c) actual and reasonable costs of all repairs, decorations and
alterations, if such cost is not the result of Manager's negligence or willful
misconduct;
(d) all costs incurred in connection with all service agreements
approved by Owner;
(e) all costs of collection of delinquent rents collected by a
collection agency approved in advance by Owner;
(f) all legal fees of attorneys approved (or designated as
provided in SECTION 7.1(j)) by Owner in advance of retention, if Owner has
approved the specific amount of such attorneys' fees in advance of payment;
(g) the cost of capital expenditures;
(h) with the prior written approval of Owner, the cost of cash
registers, adding machines and other equipment of such type and use (including
any and all electronic data processing equipment) located at the Project site
and owned or leased by Owner;
(i) the cost of utilities;
(j) the cost of advertising approved by Owner;
(k) the cost of the insurance policies required to be maintained
by Manager at Owner's expense pursuant to ARTICLE 9;
(l) the cost applicable to the items set forth in SECTION 7.1(g),
to the extent Owner has requested that Manager pay such items;
(m) if approved in advance by Owner, the cost of travel by
Manager's On-Site Personnel incurred in connection with the performance of
Manager's obligations hereunder, exclusive of daily commuting expenses to and
from the Project;
(n) the Management Fee;
(o) emergency expenses incurred pursuant to SECTION 4.2 hereof;
and
(p) such other amounts as may be approved in advance by Owner.
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11.2 NON-REIMBURSABLE COSTS. The following expenses or costs
incurred by or on behalf of Manager in connection with the management and
leasing of the Projects shall be at the sole cost and expense of Manager and
shall not be reimbursed by Owner:
(a) cost of gross salary and wages, payroll taxes, insurance,
workers' compensation and other benefits of Manager's office and other off-site
personnel (including any stock options granted to off-site personnel);
(b) general accounting and reporting services within the
reasonable scope of Manager's responsibility to Owner;
(c) the cost of printed checks for each bank account required to
be maintained hereunder;
(d) cost of printed forms, papers, ledgers and other supplies and
equipment not located at the Project sites;
(e) cost of electronic data processing hardware and software,
including repair and maintenance expenses related thereto, located at Manager's
office and used for preparation of reports, information and returns to be
prepared by Manager under the terms of this Agreement;
(f) cost of electronic data processing provided by computer
service companies for preparation of reports, information and returns to be
prepared by Manager under the terms of this Agreement;
(g) cost of daily commuting expenses incurred by Manager's
employees to and from the Projects;
(h) cost of transferring Manager's employees to the Project,
unless such cost is approved in advance by Owner;
(i) vacation and other benefits earned by Manager's employees
which are transferred to a Project, which benefits are earned by such employees
prior to the date of such transfer;
(j) costs charged by Manager to Owner unless such costs have been
approved in advance by Owner;
(k) costs charged by any Affiliate of Manager under any
subcontract unless such costs have been approved in advance by Owner;
(l) costs attributable to losses arising from negligence, fraud,
willful misconduct or misrepresentation on the part of Manager or Manager's
employees;
(m) cost of workers' compensation insurance with respect to
Manager's personnel performing services in connection with the Projects (other
than On-Site Personnel);
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(n) cost of the comprehensive crime insurance or fidelity bond
required pursuant to SECTION 9.7; and
(o) unless required by Owner, the cost of comprehensive crime
insurance or other fidelity bond or other insurance purchased by Manager for its
own account.
ARTICLE XII
GENERAL PROVISIONS
12.1 INDEPENDENT CONTRACTOR. It is expressly understood and
agreed that Manager will act as an independent contractor in the performance of
its duties and responsibilities set forth in this Agreement. No provisions
hereunder shall be intended to create a partnership or a joint venture between
Owner and Manager with respect to any Project or otherwise; and neither party
shall have the power to bind or obligate the other party, except as expressly
set forth in this Agreement.
12.2 NOTICES. All notices, demands and reports provided for in
this Agreement shall be in writing and shall be personally served or sent by
certified mail, postage prepaid and return receipt requested, to the parties at
its respective addresses for notice set forth following its signatures to this
Agreement or to such other address as either may provide to the other by written
notice. For purposes of this Agreement, notices shall be deemed to have been
"given" upon personal delivery thereof or two (2) business days after having
been deposited in the United States mail, postage prepaid and properly
addressed.
12.3 BROKERS. If Owner executes a listing agreement for the sale
of a Project, Manager shall cooperate with such broker to permit the broker to
exhibit such Project during reasonable business hours, provided that such broker
has secured Manager's permission in advance, and shall cooperate with
prospective purchasers of the Project. At Owner's request, Manager's duties
shall also include, but shall not be limited to, using diligent efforts to
obtain tenant estoppel certificates from tenants then leasing residential units
within the Project.
12.4 ATTORNEYS' FEES. In any judicial action between the parties
to enforce any of the provisions of this Agreement or any right of any party
under this Agreement, regardless of whether such action or proceeding is
prosecuted to judgment and in addition to any other remedy, the unsuccessful
party shall pay to the prevailing party all costs and expenses, including
reasonable attorneys' fees and expenses (including fees and charges attributable
to legal assistants or other non-attorney personnel performing services under
the supervision of an attorney), incurred by the prevailing party.
12.5 ASSIGNMENT. Manager may not voluntarily or involuntarily,
directly or indirectly, sell, assign, hypothecate, pledge or otherwise transfer
or dispose of all or any portion of its interest in this Agreement to any third
party without the prior written consent of Owner, which may be withheld in
Owner's sole and absolute discretion. Any such attempted sale, assignment,
hypothecation, pledge or other transfer without such consent shall be void.
Owner shall be entitled to assign or otherwise transfer or dispose of all or any
portion of its interest under this Agreement at any time without the consent of
Manager and upon any such assignment
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or transfer Owner shall be released from all obligations hereunder (other than
those obligations which have accrued as of the date of such assignment or
transfer), any obligations to be performed hereunder after the date of such
assignment or transfer and any continuing indemnification obligations hereunder.
In addition to the foregoing, Owner assign, pledge, hypothecate or otherwise
grant a security interest in and to all of its rights under this Agreement as
may from time to time be required by any lender as security for a loan by such
lender to Owner.
12.6 AMENDMENTS. Except as otherwise provided herein, all
amendments to this Agreement shall be in writing and executed by Owner and
Manager.
12.7 LICENSING. Manager represents and warrants that it is, and,
as necessary, its employees are, and Manager covenants and agrees that at all
times throughout the Term it and, as necessary, its employees shall be, fully
qualified and licensed, to the extent required by law, to manage real property
and perform all of the obligations of Manager hereunder. Manager agrees to take,
and to cause its employees to take, any and all action necessary to retain all
licenses required to carry out its duties hereunder and otherwise to comply with
all such laws now or hereafter in effect.
12.8 ENTIRE AGREEMENT. This Agreement and the Exhibits attached
hereto and made a part hereof comprise the entire agreement of the parties with
respect to the matters described in this Agreement and such Exhibits. The
Exhibits attached to this Agreement are incorporated into this Agreement as
though set forth herein in full.
12.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
12.10 GOVERNING LAW. This Agreement is executed and shall be
governed by and construed in accordance with the laws of the State of
California.
12.11 THIRD-PARTY DISPUTES. Should any claim, demand, action or
other legal proceeding arising out of matters covered by this Agreement be made
or instituted by any third party against a party to this Agreement, the other
party to this Agreement shall furnish such information and reasonable assistance
in defending such proceeding as may be reasonably requested by the party against
whom such proceeding is brought. The requesting party shall pay the reasonable
and customary expenses incurred by the other party in complying with any such
request.
12.12 FIDUCIARY RELATIONSHIP. Manager shall at all times act as a
fiduciary of Owner in connection with its duties, responsibilities and actions
pursuant to this Agreement. Without limiting the generality of the foregoing,
Manager shall disclose in advance any affiliation of Manager or an Affiliate
with any vendor rendering services or supplying materials to any Project. Any
contract with such a vendor shall be entered into on an arm's length basis and
for fair market value, and Manager shall receive prior written approval of any
such contract from Owner. Manager shall disclose to Owner any
conflict-of-interest which may arise in connection (a) with Manager's
negotiations with prospective tenants or vendors of a Project, or
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(b) as a result of Manager's or an Affiliate's management of other projects,
changes in Manager's or Affiliate's structure or as a result of other
potentially conflicting actions taken by Manager.
12.13 GIFTS. Manager agrees not to accept any "GIFT" from vendors
employed in connection with any Project, other than gratuities of nominal value
received in the ordinary course of business. Manager shall not, on Owner's or
Owner's behalf or in connection with the services being rendered under this
Agreement, provide any "GIFT" to or otherwise entertain any "PUBLIC OFFICIAL" or
any other person required under California law to file a Statement of Economic
Interest. The term "PUBLIC OFFICIAL" means every member, officer, employee or
consultant of a state or local agency. The term "GIFT", as used herein, includes
any service or merchandise of any kind, discounts on merchandise or services,
meals and other entertainment expenses and all other transfers of cash or any
other item of value. Under no circumstances shall Owner be deemed to have waived
the provisions of this Section as to a specific gift unless the waiver is in
writing and signed by two (2) authorized officers of Owner.
12.14 CONFIDENTIALITY. Except as provided in this SECTION 12.14
or unless otherwise approved by Owner in writing, Manager shall treat this
Agreement as confidential and shall not disclose the contents of this Agreement
to any party. Manager shall hold confidential any information which Manager
receives in connection with the performance of its obligations hereunder and
which concerns Owner or Owner's operations or business or the Projects and shall
not disclose all or any portion of such information to any third party, except
for such disclosures as are necessary to perform Manager's obligations
hereunder, as are approved by Owner in writing or as are required by law, any
governmental agency or any proposed lender or mortgagee of a Project.
12.15 SUBORDINATION TO MORTGAGES. Manager acknowledges and agrees
that (i) it has no right, title or interest in any of the Projects, and (ii) its
rights hereunder are expressly subordinate to the right, title and interest of
the holder of any mortgage or deed of trust encumbering each Project, whether
the lien of such mortgage or deed of trust attaches to such Project before or
after the execution or effectiveness of this Agreement. Manager agrees to
acknowledge any assignment by Owner of the income generated by any Project to
any lender as security for a loan by such lender to Owner. In the event that a
Project is transferred as a result of a foreclosure of any mortgage or deed of
trust covering such Project or pursuant to a deed in lieu of foreclosure,
Manager may, at its sole option, at any time thereafter, terminate this
Agreement with respect to such Project by written notice of termination to the
then owner of the Project.
12.16 HAZARDOUS WASTES.
12.16.1 Owner has developed a Hazardous Materials Compliance
Program ("HMCP") which outlines Manager's responsibilities with respect to
Hazardous Wastes (as defined below) at each Project. The HMCP is set forth in a
Manual that Owner will furnish to Manager. Manager shall take all steps
necessary or appropriate to carry out the HMCP, as it may be amended from time
to time. Such steps shall include the following:
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(a) surveying existing and prospective maintenance contractors
with respect to existing and intended uses of Hazardous Wastes on or about the
Project;
(b) ensuring that spills or dumping of Hazardous Wastes that
occur on the Project are reported to agencies and cleaned up in accordance with
applicable regulatory requirements;
(c) informing Owner: (i) immediately of any spills or dumping of
Hazardous Wastes that occur on the Project; and (ii) in regular monthly reports
of any other incidents involving Hazardous Wastes affecting the Project;
(d) providing tenants with notice and disclosure forms provided
by Owner with respect to Hazardous Wastes or asbestos affecting the Project;
(e) implementing any asbestos management program established by
Owner for the Project; and
(f) establishing and maintaining a recordkeeping system for
information concerning Hazardous Wastes on the Project.
12.16.2 Manager agrees that it shall not place or cause or permit
to be placed on any Project, other than in the ordinary course of performing its
obligations under this Agreement and in compliance with applicable law, any
hazardous or toxic wastes or substances, as such terms are defined during the
period up to and including the end of the Term by Federal, State or municipal
statutes or regulations promulgated thereunder (collectively, "HAZARDOUS
WASTES"). In the event Manager discovers the existence of any Hazardous Wastes
on any Project, Manager shall immediately notify Owner. If such Hazardous Wastes
were placed or permitted to be placed on a Project by Manager, Manager shall, at
its cost, diligently arrange for and complete the immediate removal thereof in
accordance with the terms of this Agreement. Except as expressly provided herein
to the contrary, Manager shall not be responsible for any Hazardous Wastes
present on any Project prior to the date hereof, unless deposited thereon by
Manager; provided, however, Manager shall immediately notify Owner of any notice
received by Manager from any governmental authority of any actual or threatened
violation of any applicable laws, regulations or ordinances governing the use,
storage or disposal of any Hazardous Wastes and shall cooperate with Owner in
responding to such notice and correcting or contesting any alleged violation.
12.16.3 Without limiting the generality of anything contained in
SECTION 12.16.2, if, as a result of any act or failure to act on a Project by
Manager or its employees, agents, representatives or consultants, the presence,
use or on-site or off-site disposal or transport of Hazardous Waste on, to,
under, from or about such Project results in any spills or releases, any injury
to any person or any injury or damage to such Project, or if Manager, Owner, or
any governmental entity reasonably suspects that any such spills, injury or
damage has occurred or is likely to occur, Manager shall promptly and at its
sole cost: (a) notify Owner; (b) if such spill, injury or damage has occurred,
obtain all permits and approvals necessary to remove such Hazardous Waste or
otherwise remedy any suspected problem; (c) if such spill, injury or damage has
occurred, remove such Hazardous Wastes and remedy any associated problems to the
reasonable satisfaction of Owner, in accordance with applicable legal
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requirements and good business practices; and (d) if such spill, injury or
damage is likely to occur, take all measures reasonably necessary to prevent
such spill, injury or damage.
12.16.4 If any Hazardous Waste comes to be located on a Project
during the Term as a result of illegal or unauthorized disposal or dumping by
any person, Manager shall promptly upon discovery of the Hazardous Waste: (a)
notify Owner; and (b) at Owner's cost, take all measures reasonably necessary to
secure the site to prevent further disposal or dumping.
12.16.5 If, as a result of work on a Project by Manager or its
employees, agents, representatives or consultants, the presence, use or on-site
or off-site disposal or transport of Hazardous Material on, to, under, from or
about such Project results in any spills or releases affecting persons or
property off-site, or any injury or damage to the environment or to any other
real or personal property wherever situated, or if Manager, Owner or any other
governmental entity reasonably suspects that any such spill, injury or damage
has occurred or is likely to occur, Manager shall promptly and at its sole cost:
(a) notify Owner if applicable; (b) obtain all permits and approvals necessary
to remove such Hazardous Waste or otherwise remedy any suspected problem; and
(c) remove such Hazardous Waste and remedy any associated problems to the
reasonable satisfaction of Owner, in accordance with applicable legal
requirements and good business practices.
12.16.6 Manager shall be responsible for providing its employees,
agents, consultants, governmental entities and the public with any notices or
disclosures concerning Hazardous Waste associated with each Project required to
be delivered by Manager under any applicable laws, including, without
limitation, any notices or disclosures concerning Hazardous Waste which Manager
has received from Owner. Owner shall have the right to review such notices and
disclosures prior to its distribution or submission by Manager and shall have
the right, but not the obligation, to prescribe the form and content of any such
notices or disclosures as long as the form and content prescribed by Owner
complies with all applicable laws relating to such notices or disclosures. Owner
shall provide Manager with any notices or disclosures concerning Hazardous Waste
associated with the Project required to be delivered by Owner under any
applicable laws.
12.16.7 Manager shall not, and shall ensure that all employees,
agents and consultants of Manager do not, cause or permit any
asbestos-containing material to be brought upon or incorporated into any
Project, unless: (a) such materials are specifically authorized and approved by
Owner; or (b) no substitute is available at a reasonable cost and Manager
obtains Owner's prior written approval.
12.16.8 Manager shall immediately notify Owner in writing of any
circumstances or incident known to Manager involving Hazardous Waste that may
affect any Project or that may give rise to liability on the part of Owner or
Manager. Promptly upon receipt or submission thereof, Manager shall provide
Owner with true, correct, complete and legible copies of all notices,
complaints, orders, reports, citations, listings, disclosure forms and
correspondence received or submitted by Manager with respect to any Hazardous
Waste associated with the Project.
25
<PAGE> 33
12.16.9 Manager shall ensure that all of its employees, agents
and consultants comply with all of the terms of this SECTION 12.16. Manager
shall monitor all such persons to ensure such compliance.
12.17 REGULATORY COMPLIANCE. In the event that a Project is
encumbered at any time during the Term by a local, state or federal regulatory
or other agreement or similar declaration of restrictions ("REGULATORY
AGREEMENT") containing any leasing or other restrictions related to any
tax-exempt revenue bonds or similar instruments issued in connection with the
financing of such Project or related to affordable housing requirements, Owner
shall deliver to Manager a copy of such Regulatory Agreement, together with any
documents related thereto, and a copy of Owner's Bond Compliance Manual. Owner
represents to Manager that: (a) the information in the Bond Compliance Manual
conforms, in all material respects, with the provisions of the Regulatory
Agreement and the provisions of other related documents which are summarized
therein, and (b) as of the date hereof, Owner has received no notices of default
or similar communications with respect to the Regulatory Agreement nor, to the
best of its knowledge, does there exist any occurrence which, with the giving of
notice or the passage of time, or both, would constitute an event of default
thereunder. Neither Owner makes warranty or representation whatsoever that the
Bond Compliance Manual reflects all terms and provisions of the Regulatory
Agreement and the documents relating thereto. Manager shall be responsible for
avoiding any violations of the terms of the Regulatory Agreement, including,
without limitation, restrictions governing the permitted income levels of such
Project's tenants and reporting requirements to applicable entities, including
the Internal Revenue Service; however, Manager shall not be responsible for any
violations of the provisions of the Regulatory Agreement as of the Commencement
Date and, in fulfilling its obligations hereunder, Manager shall be entitled to
rely upon the Monthly Summary of Income and Rent Restrictions delivered to
Manager by Owner from time to time, setting forth, among other things,
permissible tenant income levels. Owner agrees to cooperate with Manager in
interpreting the terms and conditions of the Regulatory Agreement and to respond
promptly to Manager's requests for clarification of any of the terms thereof or
additional information with respect thereto.
12.18 APPROVALS. All requests for approvals by Owner must be
directed by Manager to Owner.
12.19 PROPOSITION 65 COMPLIANCE. Manager shall, at all times and
at Owner's expense, comply with any program or policy of Owner relating to
compliance by Owner with the terms of SECTION 25249.5 ET SEQ. of the California
Health and Safety Code and all rules and regulations promulgated pursuant
thereto, as such statute, rules and regulations may hereafter be amended
(collectively, "PROPOSITION 65"). Owner shall indemnify, defend and hold Manager
harmless from and against any and all Losses incurred by Manager in connection
with Manager's compliance with any such program or policy of Owner. In addition,
and without limiting the generality of the foregoing, Manager shall, promptly
upon receipt of knowledge thereof, notify Owner of the existence on the Project
site of any "HAZARDOUS SUBSTANCE" (as defined under Proposition 65), notice of
the existence of which has not been given to tenants of the Project. Manager
shall, at all times, and at its sole cost and expense, comply with the
requirements of Proposition 65 which apply to Manager in its capacity as a
manager of real property and with which Manager would not otherwise be obligated
to comply pursuant to this SECTION 12.19.
26
<PAGE> 34
12.20 INDEMNIFICATIONS. Manager shall defend, indemnify and hold
Owner, and its officers, directors, agents, servants, employees, divisions,
subsidiaries, partners, shareholders, affiliated companies, successors and
assigns (the "OWNER INDEMNITEES") harmless from and against any and all loss,
claim, damage, fines, penalties, disbursements, actions, causes of action, cost,
expense, (including, without limitation, reasonable attorneys' fees and costs)
and every other liability whatsoever (collectively, "LOSSES") arising out of or
incurred directly or indirectly by reason of (1) Manager's failure or alleged
failure to perform its obligations under any Contract, unless such failure or
alleged failure directly arises from Owner's failure to maintain funds in the
Operating Account in accordance with SECTION 8.2 hereof or otherwise arises
directly from Owner's or Owner's failure to perform its obligations hereunder;
(2) loss or damage to Owner's or Owner's property or any claim, suit or judgment
brought by or on behalf of any person or persons for damage, loss, liability or
expense due to, but not limited to, bodily injury or property damage sustained
by such person or persons, which arises out of, is occasioned by or is in any
way attributable to the negligence or willful misconduct of Manager or its
employees or otherwise attributable to Manager's negligence in selecting or
supervising any of its agents, any Contractor and/or any other person or entity
supplying service or performing work in connection with the operation of any
Project, or the breach of any of Manager's obligations hereunder, except to the
extent any such Loss is caused by the negligence or willful misconduct of Owner
Indemnitee; (3) the payment of any cost or expense from the Operating Account,
or the incurrence by Manager of any obligation to pay any cost or expense,
except in accordance with a current Approved Budget or otherwise in accordance
with SECTION 4.2 AND SECTION 11.1; (4) the investigation, preparation for,
service as a witness in or defense of any action or proceeding, whether actually
commenced or threatened, or in removal or remediation of any Hazardous Wastes
on, under, from or about a Project, to the extent arising out of or relating to,
directly or indirectly, Manager's breach of any of the terms of SECTION 12.16;
(5) any violation by Manager of any term, condition or restriction set forth in
any Regulatory Agreement applicable to a Project, unless such violation arises
out of Manager's reliance on a written interpretation or instruction from Owner;
or (6) Manager's fraud, gross negligence or willful misconduct or other failure
to perform its obligations hereunder. This indemnity shall survive expiration or
termination of this Agreement.
Owner shall defend, indemnify and hold Manager harmless from and
against any and all Losses arising out of, or incurred directly or indirectly as
a result of, (1) Owner's failure or alleged failure to perform, from and after
the date of assumption, its obligations under any Contract assumed by Owner on
the termination of this Agreement; (2) any claims asserted against Manager by
any of Owner's former employees prior to the initial formation of Manager
whether or not employed by Manager, to the extent such claim is alleged and
determined by a court of competent jurisdiction to result solely from Owner's
acts in terminating the employment of the employee bringing such action; (3) any
loss or damage to Manager's property or any claim, suit or judgment brought by
or on behalf of any person or persons for damage, loss, liability or expense due
to, but not limited to, bodily injury or property damage sustained by such
person or persons if and to the extent such Loss arises out of, is occasioned by
or is in any way attributable to the condition of any Project or otherwise
results from an occurrence beyond Manager's reasonable control not involving a
breach by Manager of any of its duties or obligations hereunder or the
negligence or willful misconduct of Manager or its employees; and (4)
investigation, preparation for, service as a witness in or defense of any action
or proceeding, whether actually commenced or threatened, or in removal or
remediation of any Hazardous
27
<PAGE> 35
Wastes on, under, from or about a Project, except to the extent arising out of
or relating to, directly or indirectly, to Manager's breach of any of the terms
of SECTION 12.16. This indemnity shall survive expiration or termination of this
Agreement.
28
<PAGE> 36
IN WITNESS WHEREOF, Owner and Manager have executed this
Management Agreement as of the day and year first above written.
MANAGER:
IRVINE APARTMENT MANAGEMENT COMPANY,
a California general partnership
By: APARTMENT MANAGEMENT COMPANY, LLC,
a Delaware limited liability company,
its general partner
By: IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership,
its sole member
By: Irvine Apartment Communities, LLC
a Delaware limited liability company
its general partner
By:
-------------------------------------------
Max Gardner
Its Executive Vice President
By:
-------------------------------------------
Clarence Barker
Its President
By: WESTERN NATIONAL SECURITIES, d/b/a WESTERN NATIONAL PROPERTY
MANAGEMENT,
a California corporation,
its managing general partner
By:
-------------------------------------------------
Michael Hayde
Chief Executive Officer
Address for Notice:
c/o Apartment Management Company, LLC
8 Executive Circle
Irvine, California 92614
29
<PAGE> 37
OWNER:
IRVINE APARTMENT COMMUNITIES, L.P.,
a Delaware limited partnership,
its general partner
By: Irvine Apartment Communities, LLC
a Delaware limited liability company
its general partner
By:
-------------------------------------------
David Patty
Its Executive Vice President
By:
-------------------------------------------
Daniel Hedigan
Its Assistant Secretary
Address for Notice:
Irvine Apartment Communities, LLC
550 Newport Center Drive, Third Floor
Newport Beach, CA 92660
Attn: Vice President
30
<PAGE> 38
EXHIBIT A
DESCRIPTION OF THE PROJECTS
Attached hereto
A-1
<PAGE> 39
IRVINE APARTMENT COMMUNITIES
PROJECT LIST AS OF JANUARY 1, 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DENSITY
-----------------
DATE # OF UNIT SQUARE TOTAL DU PER
PROJECT OPENED UNITS TYPE FOOTAGE ACRES ACRE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
AMHERST COURT 6/91 37 Studio A 476 17,612 6.35 25.5
100 Amherst Aisle 14 Studio B 542 7,588
Irvine, CA 92612 9 Studio C 559 5,031
(949) 854-5300 4 Studio D 595 2,380
(949) 854-7081 FAX 23 1/1 E 730 16,790
14 1/1 F 769 10,766
42 2/2 G 921 38,682
19 2/2 H 973 18,487
--- --- -------
Total 162 724 117,336
- ------------------------------------------------------------------------------------------------------------------------------------
ARCADIA AT STONECREST VILLAGE 1/1/99 42 1/1 Jr 670 28,140 13.50 24.9
2643 West Canyon Avenue 25 1/1 775 19,375
San Diego, CA 92123 20 1/1DA 827 16,540
(858) 503-0100 309 1/1 836 258,324
(858) 573-2767 FAX 28 1/1DA 857 23,996
15 1/1+Loft 886 13,290
45 2/2DM 1,002 45,090
8 2/2 DA 1,062 8,496
28 2/2 1,121 31,388
24 2/2 DM 1,140 27,360
16 2/2+Den 1,230 19,680
28 2/2+Loft 1,371 38,388
27 3/2 C/DA 1,487 40,149
--- ----- -------
Total 336 1,697 570,216
- ------------------------------------------------------------------------------------------------------------------------------------
BAIR ISLAND VILLAS AND MARINA Oct-99 39 1/1 775 30,225 12.20 12.7
700 Bair Island Road 10 1/1+Loft 887 8,870
Redwood City, CA 94063 52 2/2 1,070 55,640
(650) 261-1600 10 2/2+Loft 1,242 12,420
(650) 261-1648 FAX 10 2/2 TH 1,166 11,660
24 2/2+Den 1,283 30,792
10 2/2TH+Den 1,373 13,730
--- ----- -------
Total 155 1,054 163,337
- ------------------------------------------------------------------------------------------------------------------------------------
BAYPOINTE 10/96 46 1/1 777 35,742 17.3 17.3
2500 Baypointe Drive 26 1/1 834 21,684
Newport Beach, CA 92660 20 1/1 Loft 950 19,000
(949) 640-7171 26 2/2 1,236 32,136
(949) 640-7740 FAX 26 2/2 1,065 27,690
78 2/2 1,074 83,772
78 2/2 1,168 91,104
--- ----- -------
Total 300 1,037 311,128
- ------------------------------------------------------------------------------------------------------------------------------------
BAYPORT 8/71 72 1/1 775 55,800 4.90 21.2
2650 San Joaquin Hills Road 32 2/2 1,075 34,400
--- ----- -------
Corona del Mar, CA 92625
(949) 644-5555
(949) 644-7225 FAX
Total 104 867 90,200
- ------------------------------------------------------------------------------------------------------------------------------------
BAYVIEW 7/71 40 2/2 1,075 43,000 4.48 14.3
1650 Marguerite Avenue 24 3/2 1,285 30,840
--- ----- -------
Corona del Mar, CA 92625
(949) 644-5555
(949) 644-7225 FAX
Total 64 1,154 73,840
- ------------------------------------------------------------------------------------------------------------------------------------
BAYWOOD (Phase I) 4/73 80 1/1 790 63,200 28.22 13.7
1 Baywood Drive (Phase II) 6/84 244 2/2 1,095 267,180
Newport Beach, CA 92660 44 3/2 1,305 57,420
(949) 644-5555 10 2/2 1/2 TH 1,355 13,550
(949) 644-7225 FAX 10 3/2 1/2 TH 1,525 15,250
--- ----- -------
Total 388 1,074 416,600
- ------------------------------------------------------------------------------------------------------------------------------------
BERKELEY COURT Phase I 1/86 46 1/1 652 29,992 5.20 29.2
307 Berkeley Avenue Phase II 2/86 46 2/2 945 43,470
Irvine, CA 92604 60 2/2 TH 999 59,940
--- ----- -------
(949) 854-3656
(949) 854-1278 FAX
Total 152 878 133,402
- ------------------------------------------------------------------------------------------------------------------------------------
BRITTANY I AT OAKCREEK Phase I Nov-98 30 1/1 626 18,780 15.90 24.7
100 Saint Vincent 75 1/1 689 51,675
Irvine, CA 92618 3 1/1 697 2,091
(949) 387-7500 26 1/1 DA 793 20,618
(949) 387-7505 FAX 38 1/1 799 30,362
28 2/2 964 26,992
57 2/2 DM 962 54,834
50 2/2 1,067 53,350
40 2/2 DM 1,091 43,640
6 1/1+Loft 1,021 6,126
20 1/2+Den TH 1,178 23,560
10 2/2 TH 1,207 12,070
10 2/2 TH 1,233 12,330
--- ----- -------
Total 393 907 356,428
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-2
<PAGE> 40
IRVINE APARTMENT COMMUNITIES
PROJECT LIST AS OF JANUARY 1, 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DENSITY
-----------------
DATE # OF UNIT SQUARE TOTAL DU PER
PROJECT OPENED UNITS TYPE FOOTAGE ACRES ACRE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CEDAR CREEK 6/85 24 1/1 646 15,504 10.00 17.6
5051 Alton Parkway, #10 88 2/1 797 70,136
Irvine, CA 92604 64 2/2 891 57,024
--- ----- -------
(949) 733-0404
(949) 733-2326 FAX
Total 176 811 142,664
- ------------------------------------------------------------------------------------------------------------------------------------
COLUMBIA COURT 9/84 16 1/1 649 10,384 2.34 24.8
89-203 Exeter 22 2/2 Dual 927 20,394
Irvine, CA 92612 20 2/2 932 18,640
--- ----- -------
(949) 854-3656
(949) 854-1278 FAX
Total 58 852 49,418
- ------------------------------------------------------------------------------------------------------------------------------------
CORNELL COURT 10/84 32 1/1 649 20,768 5.10 21.4
105 Cornell 43 2/1 1/2 TH 926 39,818
Irvine, CA 92612 34 3/2 TH 1,083 36,822
--- ----- -------
(949) 854-4942
(949) 854-2169 FAX
Total 109 894 97,408
- ------------------------------------------------------------------------------------------------------------------------------------
CROSS CREEK 6/85 104 2/2 891 92,664 7.00 19.4
22 Creek Road, #1 32 3/2 1,080 34,560
--- ----- -------
Irvine, CA 92604
(949) 733-0414
(949) 733-0867 FAX
Total 136 935 127,224
- ------------------------------------------------------------------------------------------------------------------------------------
DARTMOUTH COURT 7/86 42 Junior 558 23,436 11.60 25.3
1100 Stanford 42 1/1 802 33,684
Irvine, CA 92612 42 2/2 C 977 41,034
(949) 854-2417 42 2/2 D 986 41,412
(949) 854-4977 FAX 126 2/2 E 984 123,984
--- ----- -------
Total 294 896 263,550
- ------------------------------------------------------------------------------------------------------------------------------------
DEERFIELD (Phase I) 3/75 48 Studio 570 27,360 15.19 19
3 Bearpaw (Phase II) 12/83 40 1/1 750 30,000
Irvine, CA 92606 16 1/1 800 12,800
(949) 559-5000 76 2/1 900 68,400
(949) 559-0228 FAX 76 2/2 925 70,300
7 2/2 1,100 7,700
25 3/2 1,115 27,875
--- ----- -------
Total 288 849 244,435
- ------------------------------------------------------------------------------------------------------------------------------------
HARVARD COURT 5/86 32 1/1 646 20,672 6.10 18.4
146 Berkeley Avenue 80 2/2 898 71,840
--- ----- -------
Irvine, CA 92612
(949) 854-4942
(949) 854-2169 FAX
Total 112 826 92,512
- ------------------------------------------------------------------------------------------------------------------------------------
THE HAMPTONS AT CUPERTINO 02/98 130 1/1 736 95,680 12.50 27.4
19500 Pruneridge Ave. 75 2/2 1,061 79,575
Cupertino, CA 95014 75 2/2 966 72,450
(408) 873-8800 15 3/2 1,275 19,125
(408) 873-8801 FAX 15 3/2 1,206 18,090
20 2/2 TH 1,116 22,320
12 3/2 TH 1,386 16,632
--- ----- -------
Total 342 947 323,872
- ------------------------------------------------------------------------------------------------------------------------------------
MARINER SQUARE 8/69 28 1/1 850 23,800 6.51 17.5
1244 Irvine Avenue 16 2/2 1,135 18,160
Newport Beach, CA 92660 14 2/2 1,150 16,100
(949) 645-0252 30 2/2 Den 1,160 34,800
(949) 645-1437 FAX 19 2/2 1/2 TH 1,265 24,035
7 2/2 1/2 TH 1,280 8,960
--- ----- -------
Total 114 1,104 125,855
- ------------------------------------------------------------------------------------------------------------------------------------
NEWPORT NORTH 12/86 62 1/1 (AI) 687 42,594 36.40 15.7
2 Milano 62 1/1 Loft 818 50,716
Newport Beach. CA 92660 24 1/1 (AIII) 687 16,488
(949) 720-8765 48 1/1 (B) 681 32,688
(949) 720-1598 FAX 80 2/2 (F) 926 74,080
136 2/2 Dual 1,091 148,376
114 2/2 1/2 TH 1,071 122,094
44 3/2 1/2 TH 1,203 52,932
--- ----- -------
Total 570 947 539,968
- ------------------------------------------------------------------------------------------------------------------------------------
NEWPORT RIDGE 5/95 99 1/1 1 747 73,953 24.37 21.0
1 White Cap Lane 54 1/1 2 800 43,200
Newport Beach, CA 92657 14 1/1 3 920 12,880
(949) 640-2800 36 2/2 4 994 35,784
(949) 640-4465 FAX 36 2/2 4A 1,043 37,548
72 2/2 5 1,092 78,624
36 2/2 5A 1,120 40,320
52 2/2 6 1,058 55,016
104 2/2 6A 1,077 112,008
9 2/2 7 1,091 9,819
--- ----- -------
Total 512 975 499,152
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 41
IRVINE APARTMENT COMMUNITIES
PROJECT LIST AS OF JANUARY 1, 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DENSITY
-----------------
DATE # OF UNIT SQUARE TOTAL DU PER
PROJECT OPENED UNITS TYPE FOOTAGE ACRES ACRE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTHWOOD PARK 3/85 32 1/1 668 21,376 10.70 15.7
146 Roosevelt 88 2/2 972 85,536
Irvine, CA 92620 32 2/2 D Mst 1,046 33,472
(949) 552-0177 16 3/2 1,135 18,160
--- ----- -------
(949) 552-0156 FAX
Total 168 944 158,544
- ------------------------------------------------------------------------------------------------------------------------------------
NORTHWOOD PLACE 6/86 64 1/1 (A) 740 47,360 37.10 16.3
1300 Hayes 80 1/1 (A-I 742 59,360
Irvine, CA 92620 40 1/1 (B) 757 30,280
(949) 857-4100 40 2/2 (C) 992 39,680
(949) 552-0156 FAX 16 2/2 (C-I) 994 15,904
48 2/2 (C-II) 1,025 49,200
120 2/2 (D) 998 119,760
72 2/2 (E) 993 71,496
16 2/2 (E-I) 1,042 16,672
108 3/2 1/2 TH (F) 1,173 126,684
--- ------ --------
Total 604 954 576,396
- ------------------------------------------------------------------------------------------------------------------------------------
ONE PARK PLACE 32 1/1 554 17,728 2.35 10.2
18600 Jamboree 28 1/1 765 21,420
Irvine, CA 92612 20 1/1 782 15,640
(949) 474-4422 16 1/1 829 13,264
(949) 474-0985 FAX 24 2/2 DM 1,015 24,360
76 2/2 DM 1,093 83,068
15 3/2 1,214 18,210
5 2/2 1,072 5,360
--- ----- -------
Total 216 922 199,050
- ------------------------------------------------------------------------------------------------------------------------------------
ORCHARD PARK 12/82 5 2/1 Hand 935 4,675 3.80 15.8
50 Tarocco, #301 43 2/1 1/2 TH 926 39,818
Irvine, CA 92620 6 3/1 1/2 TH 1,052 6,312
(949) 651-0200 6 4/2 1/2 TH 1,241 7,446
--- ----- -------
(949) 651-0457 FAX
Total 60 971 58,251
- ------------------------------------------------------------------------------------------------------------------------------------
PARK WEST (Phase I) 9/70 209 1/1 750 156,750 52.74 16.7
3883 Parkview Lane (Phase II) 11/71 100 2/1 A 975 97,500
Irvine, CA 92612 (Phase III) 10/72 140 2/1 D 1,000 140,000
(949) 786-9200 140 2/2 C 1,050 147,000
(949) 786-0043 FAX 125 2/2 B 1,075 134,375
166 3/2 1,250 207,500
--- ----- -------
Total 880 1,004 883,125
- ------------------------------------------------------------------------------------------------------------------------------------
THE PARKLANDS 11/83 20 1/1 671 13,420 7.09 17.1
1 Monroe, #11 42 2/1 774 32,508
Irvine, CA 92620 45 2/1 824 37,080
(949) 651-0468 6 2/1 Hand 801 4,806
(949) 651-1434 FAX 8 3/2 1,031 8,248
--- ----- -------
Total 121 794 96,062
- ------------------------------------------------------------------------------------------------------------------------------------
PARKWOOD 3/74 96 1/1 700 67,200 14.60 20.3
17560 Jordan Avenue 76 2/1 900 68,400
Irvine, CA 92612 80 2/2 950 76,000
(949) 786-0900 44 3/2 1,150 50,600
--- ----- -------
(949) 786-0817 FAX
Total 296 886 262,200
- ------------------------------------------------------------------------------------------------------------------------------------
PROMONTORY POINT VILLAS 7/74 106 1/1 750-940 (see pg. 9) 31.76 16.4
200 Promontory Drive West 84 1/1 Loft 70-1,050
Newport Beach, CA 92660 270 2/2 160-1,185
(949) 675-8000 60 2/2 Loft 125-1,490
(949) 675-1625 FAX
---
Total 520 1,056 549,320
- ------------------------------------------------------------------------------------------------------------------------------------
RANCHO ALISAL 10/87 36 1/1 777 27,972 19.10 18.6
13800 Parkcenter Ln., #100 Exp. 3/91 6 1/1 706 4,236
Tustin, CA 92680 90 2/2 Dual 925 83,250
(714) 838-8300 160 2/2 1,005 160,800
(714) 838-6338 FAX 64 3/2 1,063 68,032
--- ----- -------
Total 356 967 344,290
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-4
<PAGE> 42
IRVINE APARTMENT COMMUNITIES
PROJECT LIST AS OF JANUARY 1, 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DENSITY
-------------------
DATE # OF UNIT SQUARE TOTAL DU PER
PROJECT OPENED UNITS TYPE FOOTAGE ACRES ACRES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RANCHO MADERAS 5/89 24 Junior 585 14,040 14.60 18.2
13408 Heritage Way 24 1/1 718 17,232
Tustin, CA 92680 86 2/2 965 82,990
(714) 730-3700 132 2/2 1/2 TH 1,027 135,564
--- ----- -------
(714) 730-3959 FAX
Total 266 939 249,826
- ------------------------------------------------------------------------------------------------------------------------------------
RANCHO MARIPOSA 9/91 52 Studio A 550 28,600 10.00 23.8
13211 Myford Road 32 1/1 B 750 24,000
Tustin, CA 92680 11 1/1 C1 870 9,570
(714) 669-0600 22 1/1 C2 790 17,380
(714) 669-9206 FAX 55 2/2 D 990 54,450
66 2/2 E 1,058 69,828
--- ----- -------
Total 238 856 203,828
- ------------------------------------------------------------------------------------------------------------------------------------
RANCHO MONTEREY 3/95 90 1/1 1 700 63,000 18.02 24.2
100 Robinson Drive 30 1/1 1A 772 23,160
Tustin, CA 92680 26 1/1 2 733 19,058
(714) 540-2606 28 2/2 3 969 27,132
(714) 505-7187 FAX 28 2/2 3A 969 27,132
84 2/2 4 1,018 85,512
60 2/2 5 1,031 61,860
90 2/2 6 1,108 99,720
--- ----- -------
Total 436 933 406,574
- ------------------------------------------------------------------------------------------------------------------------------------
RANCHO SAN JOAQUIN 8/76 24 Junior 600 14,400 17.21 21.4
20 Pergola 132 1/1 750 99,000
Irvine, CA 92612 104 1/1 Den 945 98,280
(949) 786-1100 40 2/2 A 1,050 42,000
(949) 786-6062 FAX 44 2/2 G 1,052 46,288
24 2/2 Den 1,235 29,640
--- ----- -------
Total 368 896 329,608
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-5
<PAGE> 43
IRVINE APARTMENT COMMUNITIES
PROJECT LIST AS OF JANUARY 1, 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DENSITY
-------------------
DATE # OF UNIT SQUARE TOTAL DU PER
PROJECT OPENED UNITS TYPE FOOTAGE ACRES ACRES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
RANCHO SANTA FE 11/97 15 2/2 Flat A 985 14,775 18.50 17.1
2480 Irvine Blvd 26 2/2 Flat B 1,044 27,144
Tustin, CA 92782 9 2/2 Flat B1 1,012 9,108
(714) 505-8900 20 2/2 Flat B2 983 19,660
(714) 389-8905 FAX 30 2/2 Flat C 1,060 31,800
30 2/2 Flat D 1,082 32,460
55 3/2 Flat E 1,214 66,770
55 3/2 Flat F 1,242 68,310
19 2/2 Flat G 1,106 21,014
19 2/2 Flat H 1,072 20,368
19 2/2 TH J 1,190 22,610
19 2/2 Flat K 1,065 20,235
--- ------ -------
Total 316 1,121 354,254
- ------------------------------------------------------------------------------------------------------------------------------------
RANCHO TIERRA 4/89 72 2/2 935 67,320 15.50 16.3
13202 Myford Road, #101 144 2/2 Dual 1,035 149,040
Tustin, CA 92680 36 3/2 1/2 TH 1,205 43,380
--- ------ -------
(714) 730-5868
(714) 730-6369 FAX
Total 252 1,031 259,740
- ------------------------------------------------------------------------------------------------------------------------------------
SAN CARLO VILLA 6/89 90 2/2 A 967 87,030 21.40 16.5
15 Murica Aisle 132 2/2 Dual B 973 128,436
Irvine, CA 92614 66 2/2 1/2 TH C 1,191 78,606
(949) 833-7540 66 3/2 1/2 TH D 1,303 85,998
--- ------ -------
(949) 833-9471 FAX
Total 354 1,074 380,070
- ------------------------------------------------------------------------------------------------------------------------------------
SANTA MARIA 11/96 13 2/2 975 12,675 12.70 17.9
800 Santa Maria 54 2/2 1,000 54,000
Irvine, CA 92606 26 2/2 1,061 27,586
(949) 552-7075 26 2/2 1,073 27,898
(949) 552-7077 FAX 54 3/3 1,230 66,420
54 3/3 1,239 66,906
--- ------ -------
Total 227 1,125 255,485
- ------------------------------------------------------------------------------------------------------------------------------------
SAN LEON VILLA 2/87 32 1/1 697 22,304 13.20 18.8
1 San Leon 16 1/1 760 12,160
Irvine, CA 92606 16 1/1 Loft 888 14,208
(949) 863-7050 46 2/2 981 45,126
(949) 851-3949 52 2/2 Dual 922 47,944
46 2/2 Loft 1,129 51,934
40 3/2 1,054 42,160
--- ------ -------
Total 248 951 235,836
- ------------------------------------------------------------------------------------------------------------------------------------
SAN MARCO VILLA 8/88 68 1/1 676 45,968 24.00 17.8
101 Veneto 192 2/2 926 177,792
Irvine, CA 92614 112 2/2 Dual 953 106,736
(949) 975-1888 54 3/2 1/2 TH 1,161 62,694
--- ------ -------
(949) 975-0656 FAX
Total 426 923 393,190
- ------------------------------------------------------------------------------------------------------------------------------------
SAN MARINO VILLA 10/86 41 1/1 676 27,716 11.40 17.5
403 San Marino 44 2/2 937 41,228
Irvine, CA 92606 83 2/2 Dual 953 79,099
(949) 553-1662 32 3/2 1,161 37,152
--- ------ -------
(949) 553-8717 FAX
Total 200 926 185,195
- ------------------------------------------------------------------------------------------------------------------------------------
SAN MATEO VILLA 11/90 65 Studio A 476 30,940 11.40 24.8
100 Cantata 22 Studio B 537 11,814
Irvine, CA 92606 16 Studio C 595 9,520
(949) 250-3331 34 1/1 D 711 24,174
(949) 250-9228 FAX 23 1/1 E 724 16,652
19 1/1 F 747 14,193
69 2/2 G 904 62,376
35 2/2 H 973 34,055
--- ---- -------
Total 283 720 203,724
- ------------------------------------------------------------------------------------------------------------------------------------
SAN PAULO 5/93 44 1/1 A 660 29,040 15.10 25.3
100 Duranzo 84 1/1 B 690 57,960
Irvine, CA 92606 24 2/2 Dual C 1,040 24,960
(949) 756-0123 22 2/2 D 1,020 22,440
(949) 756-1238 FAX 48 2/2 Dual E 1,090 52,320
24 2/2 F 1,100 26,400
38 2/2 1/2 Dual TH I 1,180 44,840
38 2/2 1/2 TH II 1,155 43,890
30 3/2 1/2 TH III 1,315 39,450
30 3/2 1/2 TH IV 1,365 40,950
--- ------ -------
Total 382 1,001 382,250
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-6
<PAGE> 44
IRVINE APARTMENT COMMUNITIES
PROJECT LIST AS OF JANUARY 1, 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DENSITY
-------------------
DATE # OF UNIT SQUARE TOTAL DU PER
PROJECT OPENED UNITS TYPE FOOTAGE ACRES ACRES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SAN REMO VILLA (Phase I) 12/86 28 1/1 673 18,844 13.40 18.5
1011 San Remo (Phase II) 1/88 28 1/1 Loft 870 24,360
Irvine, CA 92606 112 2/2 983 110,096
(949) 474-5056 44 2/2 Dual 976 42,944
(949) 474-0928 36 2/2 Dm/Loft 1,180 42,480
--- ------ -------
Total 248 963 238,724
- ------------------------------------------------------------------------------------------------------------------------------------
SANTA CLARA 2/95 59 1/1 1 757 44,663 15.90 24.2
100 Santa Louisa 45 1/1 2 798 35,910
Irvine, CA 92606 16 1/1 3 950 15,200
(949) 552-6300 30 2/2 4 995 29,850
(949) 552-6393 FAX 30 2/2 4A 1,044 31,320
90 2/2 5 1,081 97,290
108 2/2 6 1,057 114,156
--- ------ --------
Total 378 975 368,389
- ------------------------------------------------------------------------------------------------------------------------------------
SANTA ROSA Phase I 2/95 79 1/1 1 655 51,745 14.70 25
500 CARDIFF 51 1/1 2 737 37,587
Irvine, CA 92606 51 2/2 3 933 47,583
(949) 552-4800 85 2/2 4 1,001 85,085
(949) 387-7448 FAX 102 2/2 5 1,053 107,406
--- ------ --------
Total 368 895 329,406
Phase II 10/97 47 2/2 Flat 1 1,059 49,773 12.10 17.1
44 2/2.5 TH 2 1,205 53,020
22 2/2 Flat 3A 1,110 24,420
22 2/2 Flat 3B 1,150 25,300
10 3/2.5 TH 4 1,377 13,770
62 3/2.5 TH 5 1,434 88,908
--- ------ -------
Total 207 1,233 255,191
Total Project 575
- ------------------------------------------------------------------------------------------------------------------------------------
SIERRA VISTA 12/91 34 Studio A 490 16,660 12.80 23.9
2955 Champion Way 34 Studio B 515 17,510
Tustin, CA 92680 34 1/1 C 640 21,760
(714) 573-0488 34 1/1 Den D 895 30,430
(714) 573-1065 34 1/1 Den E 930 31,620
68 2/2 Dual F 1,040 70,720
68 2/2 G 1,060 72,080
--- ------ -------
Total 306 852 260,780
- ------------------------------------------------------------------------------------------------------------------------------------
SONOMA AT OAKCREEK Aug-98 6 2/2 1,008 6,048 9.90 19.8
700 Sonoma 12 2/2 1,109 13,308
Irvine, CA 92618 12 2/2 1,066 12,792
(949) 387-7000 12 2/2 1,176 14,112
(949) 387-7005 FAX 20 2/2 1,106 22,120
20 2/2 1,187 23,740
20 2/2 1/2 1,193 23,860
20 2/2 1,155 23,100
20 2/2 1,073 21,460
10 2/2 1,164 11,640
22 3/2 1,223 26,906
12 3/2 1,337 16,044
10 3/2 1,227 12,270
--- ------ -------
Total 196 1,160 227,400
- ------------------------------------------------------------------------------------------------------------------------------------
STANFORD COURT 5/85 80 1/1 646 51,680 15.35 20.8
400 Stanford 104 2/1 797 82,888
Irvine, CA 92612 136 2/2 891 121,176
--- ---- --------
(949) 854-3288
(949) 854-2975 FAX
Total 320 799 255,744
- ------------------------------------------------------------------------------------------------------------------------------------
THE COLONY AT FASHION ISLAND Est. 8/97 12 1/1 1,008 12,096 6.40 38.3
5100 Colony Plaza 39 1/1 Den 1,087 42,393
Newport Beach, CA 92660 83 2/2 1,273 105,659
(949) 706-9696 41 2/2 1,358 55,678
(949) 706-9634 FAX 70 2/2 Den 1,539 107,730
--- ------ --------
Total 245 1,321 323,556
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-7
<PAGE> 45
IRVINE APARTMENT COMMUNITIES
PROJECT LIST AS OF JANUARY 1, 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DENSITY
-------------------
DATE # OF UNIT SQUARE TOTAL DU PER
PROJECT OPENED UNITS TYPE FOOTAGE ACRES ACRES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
TURTLE ROCK CANYON 2/91 30 1/1 E 776 23,280 15.70 13.8
100 Stonecliffe Aisle 51 2/2 A 965 49,215
Irvine, CA 92612 68 2/2 Dual B 1,017 69,156
(949) 854-8989 46 2/2 1/2 TH C 1,167 53,682
(949) 854-9753 FAX 22 3/2 1/2 TH D 1,223 26,906
--- ------ -------
Total 217 1,024 222,239
- ------------------------------------------------------------------------------------------------------------------------------------
TURTLE ROCK VISTA (Phase I) 2/76 12 1/1 760 9,120 15.55 16.2
3 Rockview Drive (Phase II) 8/77 24 1/1 798 19,152
Irvine, CA 92612 52 2/1 1,026 53,352
(949) 854-1818 60 2/2 1,120 67,200
(949) 854-0191 FAX 60 3/2 1,327 79,620
20 2/1 1/2 TH 1,383 27,660
24 2/2 1/2 TH 1,455 34,920
--- ------ -------
Total 252 1,155 291,024
- ------------------------------------------------------------------------------------------------------------------------------------
TWELVE TWENTY ONE OCEAN AVENUE Oct-99 29 1/2 +Den 2,282 66,178 N/A N/A
1221 Ocean Avenue 84 2/2 1,569 131,796
Santa Monica, CA 90401 5 2/2 1,763 8,815
(310) 255-1221 2 2/2+Den 1,915 3,830
- ------ ------
(310) 260-5031 FAX
Total 120 1,755 210,619
- ------------------------------------------------------------------------------------------------------------------------------------
VILLA CORONADO 12/94 105 1/1 1 700 73,500 20.80 24.7
100 Ambazar 35 1/1 1A 772 27,020
Irvine, CA 92614 33 1/1 2 733 24,189
(949) 251-1515 66 2/2 3 969 63,954
(949) 251-1125 FAX 99 2/2 4 1,018 100,782
70 2/2 5 1,031 72,170
105 2/2 6 1,108 116,340
--- ------ --------
Total 513 932 477,955
- ------------------------------------------------------------------------------------------------------------------------------------
VILLAS OF RENAISSANCE, THE Apr-91 50 Studio 493 24,650 14.00 65.9
5280 Fiore Terrace 85 1/1 717 60,945
San Diego, CA 92122 85 1/1 710 60,350
(858) 453-7368 85 1/1 758 64,430
(858) 453-7754 FAX 26 1/1 Den 942 24,492
16 1/1 725 11,600
86 2/2 957 82,302
104 2/2 1040 108,160
156 2/2 1060 165,360
42 2/2 Loft 1204 50,568
74 2/2 1146 84,804
50 2/2 Den 1200 60,000
64 3/2 1348 86,272
--- ---- -------
923 958 883,933
- ------------------------------------------------------------------------------------------------------------------------------------
WINDWOOD GLEN 1/85 24 1/1 (I) 649 15,576 10.39 18.9
97 Hearthstone 24 1/1 (II) 625 15,000
Irvine, CA 92606 44 2/2 (III) 927 40,788
(949) 551-1577 76 2/2 (IV) 932 70,832
(949) 551-0813 FAX 28 3/2 (V) 1,071 29,988
--- ------ -------
Total 196 878 172,184
- ------------------------------------------------------------------------------------------------------------------------------------
WINDWOOD KNOLL 12/83 80 1/1 747 59,760 13.90 17.8
2 Flagstone, #121 138 2/1 919 126,822
Irvine, CA 92606 6 3/2 Hand 1,139 6,834
(949) 551-3258 18 3/2 Loft 1,258 22,644
(949) 551-0464 FAX 6 4/3 TH 1,420 8,520
- ------ ------
Total 248 906 224,580
- ------------------------------------------------------------------------------------------------------------------------------------
WOODBRIDGE OAKS 10/83 48 2/1 868 41,664 7.30 16.4
1 Knollglen 48 2/1 1/2 TH 907 43,536
Irvine, CA 92614 12 3/2 1/2 TH 1,248 14,976
(949) 786-7154 12 3/2 1/2 TH 1,414 16,968
--- ------ -------
(949) 786-0651 FAX
Total 120 976 117,144
- ------------------------------------------------------------------------------------------------------------------------------------
WOODBRIDGE PINES 12/76 104 1/1 745 77,480 10.75 20.5
115 Pinestone 104 2/2 965 100,360
Irvine, CA 92604 12 3/2 1,175 14,100
--- ------ -------
(949) 552-0400
(949) 552-3324 FAX
Total 220 872 191,940
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-8
<PAGE> 46
IRVINE APARTMENT COMMUNITIES
PROJECT LIST AS OF JANUARY 1, 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DENSITY
-------------------
DATE # OF UNIT SQUARE TOTAL DU PER
PROJECT OPENED UNITS TYPE FOOTAGE ACRES ACRES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WOODBRIDGE VILLAS 7/82 88 1/1 705 62,040 12.48 20.7
10 Thunder Run, #30 90 2/1 853 76,770
Irvine, CA 92614 11 2/2 1,094 12,034
(949) 786-5110 36 2/1 1/2 TH 1,004 36,144
(949) 857-0269 FAX 12 3/1 1/2 TH 1,033 12,396
15 3/2 1,105 16,575
6 4/2 TH 1,275 7,650
--- ------ ------
Total 258 867 223,609
- ------------------------------------------------------------------------------------------------------------------------------------
WOODBRIDGE WILLOWS 11/84 72 1/1 783 56,376 11.70 17.1
344 Knollglen 72 2/1 900 64,800
Irvine, CA 92614 40 2/2 967 38,680
(949) 857-0383 16 3/2 1,181 18,896
--- ------ -------
(949) 857-1673 FAX
Total 200 894 178,752
- ------------------------------------------------------------------------------------------------------------------------------------
GRAND TOTAL: 17,944 17,158,532
====== ==========
AVERAGE SQUARE FEET: 956
===
</TABLE>
A-9
<PAGE> 47
THE IRVINE COMPANY
PROJECT LIST AS OF JANUARY 1, 2000
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DENSITY
-----------------------
DATE # OF UNIT SQUARE TOTAL DU PER
PROJECT OPENED UNITS TYPE FOOTAGE ACRES ACRES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NEWPORT BLUFFS Village II Nov-99 30 1/1 626 18,780
100 Vilaggio 60 1/1 689 41,340
Newport Beach, CA 92660 20 1/1 793 15,860
(949) 706-5500 30 1/1 799 23,970
(949) 706-5506 FAX 8 1/1+Loft 1,045 8,360
15 2/2 945 14,175
45 2/2 DM 957 43,065
40 2/2 1,067 42,680
45 2/2 DM 1,079 48,555
24 1/2+Den TH 1,152 27,648
10 2/2 TH 1,169 11,690
14 2/2 TH 1,193 16,702
10 2/2 TH 1,119 11,190
--- ----- -------
351 923 324,015
Village III Nov-99 32 2/2 1/2 TH DA 1,103 35,296
32 2/2 TH DA 1,233 39,456
50 3/2 1/2 TH DA 1,317 65,850
14 3/2 1/2 TH DA 1,386 19,404
14 3/2 1/2 TH DA 1,354 18,956
14 3/2 1/2 TH DA 1,474 20,636
14 2/2 1/2 TH DA 1,395 19,530
18 3/2 1/2 TH DA 1,395 25,110
--- ----- -------
188 1,299 244,238
Total Project 539 57.70 9.3
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-10
<PAGE> 48
EXHIBIT B
MINIMUM INSURANCE REQUIREMENTS
FOR
OUTSIDE CONTRACTORS
NOT CLASSIFIED AS CLASS I
1. Commencement of Work. No Contractor shall commence any work on
any Project site until it obtains all insurance required to be obtained by such
Contractor under this EXHIBIT B. No Contractor will permit any of its
subcontractors to commence work on the Project site under the applicable
subcontract until all insurance requirements specified in this EXHIBIT B have
been complied with by such subcontractors.
2. Maintenance of Insurance. All insurance described under this
EXHIBIT B shall be maintained by the applicable Contractor at its expense with
insurance carriers licensed and approved to do business in California and, in
the case of liability insurance, the carrier must be listed in Best's Key Rating
Guide. In no event shall such insurance be terminated or otherwise allowed to
lapse prior to termination or expiration of the applicable Contract.
3. Commercial General Liability Insurance. Unless Owner otherwise
agrees in writing, each Contractor shall maintain Commercial General Liability
insurance on an "occurrence" basis, without a deductible, with a combined single
limit for bodily injury and property damage of Three Hundred Thousand Dollars
($300,000) or current limit carried, whichever is greater.
4. Automobile Liability Insurance. Each Contractor shall maintain
automobile liability insurance covering all use of all automobiles, trucks and
other motor vehicles utilized by such Contractor in connection with the work
with a combined single limit for bodily injury and property damage of Three
Hundred Thousand Dollars ($300,000) or current limit carried, whichever is
greater.
5. Workers' Compensation Insurance. Each Contractor shall
maintain full Workers' Compensation Insurance for all persons whom it employs in
carrying out the work under the applicable Contract. Such insurance shall be in
strict accordance with the requirements of the most current and applicable
California State Workers' Compensation Laws.
6. Additional Insured. Owner, the respective officers, directors,
agents, servants, employees, divisions, subsidiaries, partners, shareholders and
affiliated companies and Manager and its officers, directors, agents, employees,
shareholders, subsidiaries and partners shall be included as additional insureds
on a primary basis under the coverage specified in SECTION 3 of this EXHIBIT B,
but only with respect to legal liability or claims caused by, arising out of or
resulting from the acts or omissions of the named insured or of others performed
on behalf of the named insured.
7. Evidence of Insurance. As evidence of specified insurance
coverage, Manager shall, in lieu of actual policies, be provided certificates
and/or endorsements showing such policies in force for the specified period.
Such evidence shall be delivered to Manager
B-1
<PAGE> 49
promptly following the execution of the applicable Contract or prior to
commencement of work on a Project site, whichever first occurs. Each policy and
certificate/endorsement shall be subject to approval by Manager and shall
provide that such policy shall not be subject to material alteration or
cancellation without thirty (30) days' notice in writing to be delivered to
Manager. Should any such policy expire or be canceled before termination or
expiration of the applicable Contract and the Contractor fails immediately to
procure other insurance as specified, Manager shall have the right, but not the
obligation, to procure such insurance and to deduct the cost thereof from any
sum due the Contractor under its Contract. Each Contractor shall permit Manager
to inspect such evidence of insurance as such Contractor obtains from its
subcontractors.
8. Damages. Nothing contained in these insurance requirements
shall be construed as limiting the extent of any Contractor's responsibility for
payment of damages resulting from its operations under its Contract, nor shall
anything contained herein be deemed to place any responsibility on Owner or
Manager for ensuring that the insurance required hereunder is sufficient for the
operation of any Contractor's business.
9. Indemnification. Each Contractor shall, to the fullest extent
permitted by law, indemnify, defend, protect and hold harmless Manager, Owner,
Irvine Apartment Communities LLC and The Irvine Company, and all of their
respective officers, directors, agents, employees, members, divisions,
subsidiaries, affiliated companies, partners and shareholders, and all of their
respective heirs, executors, administrators, successors and assigns
(collectively, the "Indemnified Parties") from and against each and all of the
following:
a. Any claims, demands, debts, causes of action, liabilities,
losses, damages, costs, expenses (including actual attorneys' fees),
awards, court costs, penalties, fines, judgments or administrative
orders (collectively, the "Claims"), resulting from or arising out of
(i) the performance of the work under the Contract (the "Work"), (ii)
breach of the obligations of Contractor under the Contract documents
including, but not limited to, defective work or violations of or a
failure to comply with any safety order, rule or regulation, (iii) any
and all liens, stop notices and charges of every type, nature, kind or
description that may at any time be filed or claimed against all or
any portion of the Project or the Indemnified Parties as a consequence
of acts or omissions of Contractor, Contractor's agents, servants,
employees, subcontractors, or any or all of them, and/or (iv) any
other act or omission with respect to the Work by Contractor, its
subcontractors, anyone directly or indirectly employed by any of them
or anyone for whose acts they may be liable, attributable to death,
bodily injury, sickness, disease or injury to or destruction of
tangible property, or loss of use thereof. Contractor shall be
obligated under this indemnity regardless of any active or passive
negligence or strict liability of any Indemnified Party, it being the
intention of the parties that Contractor is providing a "Type I"
indemnity under California Law; provided, however, Contractor shall
not be obligated to indemnify any Indemnified Party for any Claim
found by a court of competent jurisdiction to have been caused by the
sole negligence or willful misconduct of such Indemnified Party. Such
obligation shall not be construed as to negate, abridge or otherwise
reduce any other right or obligation of indemnity that would otherwise
exist under the Contract documents and/or under the law as to any
party described in this
B-2
<PAGE> 50
section. Payment of any claim by the applicable Indemnified Party
shall not be a condition precedent under this indemnity.
b. Any Claims arising out of or in connection with any claim by
or any act or omission of any employee of Contractor, any of its
subcontractors, or anyone employed directly or indirectly by any of
them or for whose acts they may be liable, including, without
limitation, any workers' compensation claims, equal employment
opportunity claims, withholding claims or social security claims.
The forgoing indemnification provisions shall survive the
termination or expiration of the Contract and shall not be limited in any way by
the amount or type of insurance obtained by the Indemnified Parties, Contractor
or any subcontractor of Contractor.
B-3
<PAGE> 51
EXHIBIT C
MINIMUM INSURANCE REQUIREMENTS
FOR
CLASS I OUTSIDE CONTRACTORS
1. Commencement of Work. No Contractor shall commence any work on
any Project site until it obtains all insurance required to be obtained by such
Contractor under this EXHIBIT C. No Contractor will permit any of its
subcontractors to commence work on the Project site under the applicable
subcontract until all insurance requirements specified in this EXHIBIT C have
been complied with by such subcontractors.
2. Maintenance of Insurance. All insurance described under this
EXHIBIT C shall be maintained by the applicable Contractor at its expense with
insurance carriers licensed and approved to do business in California and, in
the case of liability insurance, the carrier must have a rating level of not
less than "A-" and financial size rating of not less than "VI" in the most
current Best's Key Rating Guide (unless specifically waived in writing by
Owner). In no event shall such insurance be terminated or otherwise allowed to
lapse prior to termination or expiration of the applicable Contract or such
longer period as may be specified herein. Any Contractor may provide the
insurance described in this EXHIBIT C, in whole or in part, through a policy or
policies covering other liabilities and projects of such Contractor provided,
however, that any such policy or policies shall: (i) allocate to the Project the
full amount of insurance required hereunder, and (ii) contain, permit or
otherwise unconditionally authorize the waiver contained in SECTION 9 of this
EXHIBIT C.
3. Commercial General Liability Insurance. Unless Owner otherwise
agrees in writing, each Contractor shall maintain Commercial General Liability
insurance on an "occurrence" basis, with a maximum deductible of Ten Thousand
Dollars ($10,000), with a combined single limit for bodily injury and property
damage of One Million Dollars ($1,000,000) or current limit carried, whichever
is greater, covering Operations, Independent Contractors, Products and Completed
Operations, Contractual Liability specifically covering the indemnification
contained in SECTION 10 of this EXHIBIT C, Broad Form Property Damage, claims
and lawsuits by one insured against another insured, Personal Injury, and
Explosion, Collapse and Underground Hazards.
4. Automobile Liability Insurance. Each Contractor shall maintain
owned, hired and non-owned, automobile liability insurance covering all use of
all automobiles, trucks and other motor vehicles utilized by such Contractor in
connection with the work with a combined single limit for bodily injury and
property damage of One Million Dollars ($1,000,000) or current limit carried,
whichever is greater.
5. Workers' Compensation Insurance. Each Contractor shall
maintain full Workers' Compensation Insurance, including Employer's Liability
with a minimum limit of Five Hundred Thousand Dollars ($500,000), for all
persons whom it employs in carrying out the work
C-1
<PAGE> 52
under the applicable Contract, including a waiver of subrogation by the
insurance carrier with respect to Owner and Manager. Such insurance shall be in
strict accordance with the requirements of the most current and applicable
California State Workers' Compensation Laws.
6. Additional Insured. Owner, its officers, directors, agents,
servants, employees, divisions, subsidiaries, partners, shareholders and
affiliated companies, and Manager and its officers, directors, agents,
employees, shareholders, subsidiaries and partners shall be included as
additional insureds on a primary basis under the coverages specified in SECTIONS
3 and 4 of this EXHIBIT C, but only with respect to legal liability or claims
caused by, arising out of or resulting from the acts or omissions of the named
insured or of others performed on behalf of the named insured.
7. Evidence of Insurance. As evidence of specified insurance
coverage, Manager shall, in lieu of actual policies, be provided certificates
and/or endorsements showing such policies in force for the specified period.
Such evidence shall be delivered to Manager promptly following the execution of
the applicable Contract or prior to commencement of work on a Project site,
whichever first occurs. Each policy and certificate/endorsement shall be subject
to approval by Manager and shall provide that such policy shall not be subject
to material alteration or cancellation without thirty (30) days' notice in
writing to be delivered to Manager. Should any such policy expire or be canceled
before termination or expiration of the applicable Contract and the Contractor
fails immediately to procure other insurance as specified, Manager shall have
the right, but not the obligation, to procure such insurance and to deduct the
cost thereof from any sum due the Contractor under its Contract. Each Contractor
shall permit Manager to inspect such evidence of insurance as such Contractor
obtains from its subcontractors.
8. Damages. Nothing contained in these insurance requirements
shall be construed as limiting the extent of any Contractor's responsibility for
payment of damages resulting from its operations under its Contract, nor shall
anything contained herein be deemed to place any responsibility on Owner or
Manager for ensuring that the insurance required hereunder is sufficient for the
operation of any Contractor's business.
9. Waiver Of Subrogation. Each Contractor and each of its
subcontractors shall waive all rights against Owner and Manager, and each other
for any claims for damages or injuries to the extent covered by such
Contractor's and applicable subcontractor's policies of insurance.
10. Indemnification. Each Contractor shall, to the fullest extent
permitted by law, indemnify, defend, protect and hold harmless Manager, Owner,
Irvine Apartment Communities LLC and The Irvine Company, and all of their
respective officers, directors, agents, employees, members, divisions,
subsidiaries, affiliated companies, partners and shareholders, and all of their
respective heirs, executors, administrators, successors and assigns
(collectively, the "Indemnified Parties") from and against each and all of the
following:
C-2
<PAGE> 53
a. Any claims, demands, debts, causes of action, liabilities,
losses, damages, costs, expenses (including actual attorneys' fees),
awards, court costs, penalties, fines, judgments or administrative
orders (collectively, the "Claims"), resulting from or arising out of
(i) the performance of the work under the Contract (the "Work"), (ii)
breach of the obligations of Contractor under the Contract documents
including, but not limited to, defective work or violations of or a
failure to comply with any safety order, rule or regulation, (iii) any
and all liens, stop notices and charges of every type, nature, kind or
description that may at any time be filed or claimed against all or any
portion of the Project or the Indemnified Parties as a consequence of
acts or omissions of Contractor, Contractor's agents, servants,
employees, subcontractors, or any or all of them, and/or (iv) any other
act or omission with respect to the Work by Contractor, its
subcontractors, anyone directly or indirectly employed by any of them or
anyone for whose acts they may be liable, attributable to death, bodily
injury, sickness, disease or injury to or destruction of tangible
property, or loss of use thereof. Contractor shall be obligated under
this indemnity regardless of any active or passive negligence or strict
liability of any Indemnified Party, it being the intention of the
parties that Contractor is providing a "Type I" indemnity under
California Law; provided, however, Contractor shall not be obligated to
indemnify any Indemnified Party for any Claim found by a court of
competent jurisdiction to have been caused by the sole negligence or
willful misconduct of such Indemnified Party. Such obligation shall not
be construed as to negate, abridge or otherwise reduce any other right
or obligation of indemnity that would otherwise exist under the Contract
documents and/or under the law as to any party described in this
section. Payment of any claim by the applicable Indemnified Party shall
not be a condition precedent under this indemnity.
b. Any Claims arising out of or in connection with any claim by
or any act or omission of any employee of Contractor, any of its
subcontractors, or anyone employed directly or indirectly by any of them
or for whose acts they may be liable, including, without limitation, any
workers' compensation claims, equal employment opportunity claims,
withholding claims or social security claims.
The forgoing indemnification provisions shall survive the
termination or expiration of the Contract and shall not be limited in any way by
the amount or type of insurance obtained by the Indemnified Parties, Contractor
or any subcontractor of Contractor.
C-3
<PAGE> 54
EXHIBIT D
CLASS I CONTRACTORS
The term "Class I Contractor" shall be deemed to include the following
contractors performing work on a Project site and any other Contractor
designated by Owner in its reasonable discretion:
Exterior Painting
Hazardous Materials Contractors (contact Owner for special insurance
requirements)
Roofers
Tree Trimmers
D-1
<PAGE> 1
EXHIBIT 10.10
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
WESTERN NATIONAL SECURITIES
D/B/A WESTERN NATIONAL PROPERTY MANAGEMENT
A CALIFORNIA CORPORATION
AND
APARTMENT MANAGEMENT COMPANY,
A DELAWARE LIMITED LIABILITY COMPANY
DATED AS OF JANUARY 1, 2000
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS.........................................................................1
2. PURCHASE AND SALE; PAYMENT FOR REIT OPTIONS.........................................3
3. THE PURCHASE PRICE..................................................................3
4. SHARED EMPLOYEES....................................................................3
5. ALLOCATED RENT CHARGES..............................................................4
6. REPRESENTATIONS AND WARRANTIES OF WNPM..............................................4
7. REPRESENTATIONS AND WARRANTIES OF AMC...............................................5
8. CONDITIONS PRECEDENT TO CLOSING.....................................................6
9. WNPM'S CLOSING DELIVERIES...........................................................7
10. AMC'S CLOSING DELIVERIES............................................................7
11. CLOSING.............................................................................8
12. CLOSING COSTS; PARTNERSHIP DISTRIBUTION.............................................8
13. DEFAULT.............................................................................8
14. BROKERS.............................................................................8
15. MISCELLANEOUS.......................................................................9
</TABLE>
<PAGE> 3
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "AGREEMENT") is entered
into as of January 1, 2000 (the "EXECUTION DATE"), by and between WESTERN
NATIONAL SECURITIES D/B/A WESTERN NATIONAL PROPERTY MANAGEMENT, a California
corporation ("WNPM"), and APARTMENT MANAGEMENT COMPANY, LLC, a Delaware limited
liability company ("AMC"), with reference to the following Recitals:
R E C I T A L S:
- - - - - - - -
A. WNPM currently owns a 49% general partnership interest in
Irvine Apartment Management Company, a California general partnership (the
"PARTNERSHIP"). AMC currently owns a 51% general partnership interest in the
Partnership. The Partnership currently is governed by the Original Partnership
Agreement (as hereafter defined).
B. WNPM desires to sell and convey to AMC, and AMC desires to
purchase from WNPM, a 24% general partnership interest in the Partnership on the
terms and conditions set forth herein, so that as of the Closing Date (as
hereafter defined), AMC will own a 75% general partnership interest in the
Partnership, and WNPM will own a 25% general partnership interest in the
Partnership.
C. Concurrently with the Closing (as hereafter defined), WNPM and
AMC will amend and restate (i) the Original Partnership Agreement in its
entirety, on the terms and conditions set forth in that certain Amended and
Restated Partnership Agreement dated on or about the date hereof between WNPM
and AMC (the "AMENDED AND RESTATED PARTNERSHIP Agreement") and (ii) the
management agreement to which the Partnership is a party, on the terms and
conditions set forth in that certain Amended and Restated Management Agreement
between the Partnership and Irvine Apartment Communities, L.P. dated on or about
the date hereof and that certain Management Agreement dated on or about the date
hereof (collectively, the "AMENDED AND RESTATED MANAGEMENT AGREEMENT").
NOW, THEREFORE, in consideration of the foregoing Recitals, the
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, WNPM and AMC hereby
agree as follows:
1. DEFINITIONS As used in this Agreement, the following terms
shall have the corresponding meaning set forth below:
"ACQUIRED PARTNERSHIP INTEREST" means a 24% general partnership
interest in the Partnership, to be sold by WNPM and acquired by AMC at the
Closing pursuant to this Agreement.
"AGREEMENT" has the meaning given such term in the introductory
paragraph hereof.
"AMENDED AND RESTATED MANAGEMENT AGREEMENT" has the meaning given
such term in the Recitals.
<PAGE> 4
"AMENDED AND RESTATED PARTNERSHIP AGREEMENT" has the meaning
given such term in the Recitals.
"ASSIGNMENT AND ASSUMPTION AGREEMENT" means the Assignment and
Assumption Agreement to be executed and delivered on the Closing Date by WNPM
and AMC with respect to the Acquired Partnership Interest, in the form of
Exhibit A attached hereto.
"BUSINESS DAY" means any day that is not a Saturday, Sunday or
other day on which banks are required or authorized to be closed in Los Angeles,
California.
"CANCELLATION AGREEMENTS" means collectively, each of those
letter agreements dated as of January 22, 1999 with the Initial Optionees with
respect to the REIT Options.
"CLOSING" means the closing of the purchase and sale of the
Acquired Partnership Interest as contemplated by this Agreement.
"CLOSING DATE" means the date of the Closing, which shall be
January 31, 2000.
"EXECUTION DATE" has the meaning given such term in the
introductory paragraph of this Agreement.
"GOVERNMENTAL AUTHORITY" means any United States federal, state
or local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court or judicial body.
"INITIAL OPTIONEES" has the meaning given such term in the
Original Partnership Agreement.
"LAW" means any United States federal, state or local statute,
law, ordinance, regulation, rule, code, order, judgment or decree, and any other
requirement or rule of law.
"LOSSES" of a Person means any and all losses, liabilities,
damages, claims, fines, penalties, actions, causes of action, awards, judgments,
costs and expenses (including reasonable attorneys', consultants' and experts'
fees and court costs) actually suffered or incurred by such Person
"ORIGINAL PARTNERSHIP AGREEMENT" means that certain Partnership
Agreement of Irvine Apartment Management Company dated as of March 12, 1998, as
amended by that certain First Amendment to Partnership Agreement of Irvine
Apartment Management Company dated as of June 21, 1999 between WNPM and AMC.
"PARTNERSHIP" has the meaning given such term in the Recitals.
"PARTNERSHIP PURCHASE PRICE" has the meaning given such term in
Section 3.
"PERSON" means any individual, partnership, firm, corporation,
limited liability company or limited liability partnership, association, trust,
incorporated organization or other entity.
2
<PAGE> 5
"PROPERTY" means 8 Executive Circle, Irvine, California 92614.
"REIT OPTIONS" has the meaning given such term in Section 1.1 of
the Original Partnership Agreement.
"REIT OPTIONS PAYMENT" means the amount of $356,250, plus any
interest due and payable under the Cancellation Agreements.
"TRANSACTION" has the meaning given such term in the Cancellation
Agreement.
In addition to the foregoing, the terms "including" and "include"
mean "including without limitation" and the terms "hereof" and "herein" refer to
this Agreement as a whole rather than to a specific section or paragraph in this
Agreement.
2. PURCHASE AND SALE; PAYMENT FOR REIT OPTIONS.
(a) PURCHASE AND SALE. Subject to the terms and conditions set
forth in this Agreement, (i) WNPM hereby agrees to sell, assign and convey to
AMC, and AMC hereby agrees to purchase from WNPM, the Acquired Partnership
Interest.
(b) PAYMENT FOR REIT OPTIONS. Notwithstanding anything to the
contrary in the Cancellation Agreement, concurrently with the Closing, (i) AMC
shall cause to be paid to the Initial Optionees the REIT Options Payment, which
REIT Options Payment shall be allocated among the Initial Optionees in
accordance with Exhibit B attached hereto; and (ii) the Initial Optionees shall
release the Partnership, AMC and Irvine Apartment Communities, Inc. from all
claims, liabilities or obligations in connection with the REIT Options. The REIT
Options Payment will be deemed a Payment (as such term is defined in Section
12.5 of the Original Partnership Agreement) and the adjustments to AMC's Capital
Account (as such term is defined therein) shall be made in accordance with the
terms of Section 12.5 of the Original Partnership Agreement. Upon payment of the
REIT Options Payment and notwithstanding anything to the contrary in the
Cancellation Agreements or in the Award Agreements (as such term is defined in
the 1993 and 1996 Long-Term Stock Incentive Plans of Irvine Apartment
Communities, Inc.) with any Initial Optionee, the Initial Optionees shall have
no further right to the payment of any amounts on account of the REIT Options.
3. THE PURCHASE PRICE. The purchase price for the Acquired
Partnership Interest is $24,000 (the "PARTNERSHIP PURCHASE PRICE"). The
Partnership Purchase Price shall be paid by AMC in immediately available funds
at the Closing.
4. SHARED EMPLOYEES. Certain employees of WNPM will perform
services for the Partnership from and after the Closing Date until the date that
is the earlier of (i) thirty days after written notice is delivered by AMC, in
its capacity as managing general partner of the Partnership, that such
employee(s) services are no longer needed and (ii) July 15, 2000. Attached
hereto as Exhibit C is a list of such employees and the positions, percentage
allocations of time, and allocated costs to the Partnership for such employees
of WNPM (the "PAYROLL ALLOCATION") who will perform services for the Partnership
pursuant to this Section 4. WNPM shall cause such employees to spend not less
than the allocated percentage of time set forth in the Payroll Allocation in
providing services to the Partnership. WNPM and AMC acknowledge that
3
<PAGE> 6
the Payroll Allocations may need to be updated from time to time. AMC, in its
capacity as managing general partner of the Partnership, shall cause the
Partnership to pay the allocated costs for such WNPM Employees as set forth in
the Payroll Allocation (as the same may be amended from time to time) within ten
Business Days after demand. The Partnership's payment of such allocated costs
shall be the full extent of the Partnership's and AMC's obligations with respect
to the subject employees and, except for the Partnership's payment of such
allocated costs, WNPM shall be solely responsible for all obligations and
liabilities with respect to the subject employees, and shall have the sole
responsibility for determining employment policies and procedures. The
provisions of this Section 4 shall survive the Closing.
5. ALLOCATED RENT CHARGES. AMC will relocate the offices of the
Partnership from the Property to another location on or before June 15, 2000,
provided, however, AMC may extend such relocation date to a date on or before
July 15, 2000 upon prior written notice to WNPM. The Property is leased by WNPM
from The Irvine Company and the Partnership currently reimburses WNPM for a
portion of the rent, common area maintenance charges and maintenance charges
(collectively, the "PROPERTY EXPENSES") attributable to the Partnership's use of
the Property. From and after the Closing Date and continuing until AMC has
completed the relocation of the Partnership's offices from the Property to
another location (including the removal of all property as required by Section
15.3 of the lease relating to the Partnership's offices), AMC, in its capacity
as managing general partner of the Partnership, shall cause the Partnership to
continue to pay its share of Property Expenses within ten Business Days after
demand. In no event shall the Property Expenses include any amounts attributable
to any long term improvements in excess of $5,000 constructed by or on behalf of
WNPM at the Property. AMC shall deliver not less than thirty days' prior written
notice of the date that the Partnership's relocation from the Property will be
complete. The provisions of this Section 5 shall survive the Closing.
6. REPRESENTATIONS AND WARRANTIES OF WNPM. WNPM represents and
warrants to AMC that the following matters are true and correct as of the
Execution Date and will also be true and correct as of the Closing Date.
(a) REPRESENTATIONS REGARDING WNPM'S AUTHORITY.
(i) Formation. WNPM is a corporation, duly formed, validly
existing and in good standing under the laws of the State of
California.
(ii) Authority. WNPM has the requisite power and authority
to execute, deliver and perform this Agreement, WNPM has duly
authorized the execution, delivery and performance of this Agreement,
and WNPM has duly executed and delivered this Agreement. No further
action or authorization will be necessary on the part of WNPM to
consummate the transactions contemplated hereby. No consent from any
Governmental Authority or any other Person is required to be obtained
in connection with the execution, delivery and performance of this
Agreement by WNPM, except for consents obtained prior to the Execution
Date. This Agreement, assuming due authorization, execution and
delivery by AMC, constitutes the legal, valid, and binding obligations
of WNPM enforceable against WNPM in accordance with its terms (except
to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency,
4
<PAGE> 7
moratorium and other principles relating to or limiting the right of
contracting parties generally), and neither the execution, delivery,
performance nor consummation of the transactions contemplated hereby
violate the material provisions of any agreement, note, mortgage, deed
of trust, bond or indenture to which WNPM is a party or to which it or
its assets is subject.
(iii) Litigation. Except as disclosed by WNPM in writing to AMC
prior to the date hereof, (i) to WNPM's best knowledge, there are no
pending actions, suits or proceedings, before any judicial,
administrative or other Governmental Authority with respect to WNPM or
the Acquired Partnership Interest which would affect the ability of
WNPM to perform its obligations under this Agreement, and (ii) WNPM
has received no written notice threatening any such actions, suits or
proceedings.
(b) NO LIENS. WNPM owns its 49% general partnership interest in
the Partnership free and clear of any claims, pledges, security interests,
liens, rights of others or other encumbrances thereof. The Initial Optionees own
their REIT Options, free and clear of any claims, pledges, security interests,
liens, rights of others or other encumbrances thereof. There are no outstanding
options to purchase or other rights for another Person to purchase WNPM's 49%
general partnership interest or the REIT Options.
(c) SURVIVAL. The representations and warranties of WNPM set
forth in this Section 6 shall survive the Closing. WNPM shall indemnify, defend,
and hold AMC harmless from and against any Losses incurred by AMC by reason of
any breach or inaccuracy of the representations and warranties contained in this
Section 6.
7. REPRESENTATIONS AND WARRANTIES OF AMC. AMC represents and
warrants to WNPM that the following matters are true and correct as of the
Execution Date and will also be true and correct as of the Closing Date:
(a) REPRESENTATIONS REGARDING AMC'S AUTHORITY
(i) Formation. AMC is a limited liability company duly
formed, validly existing and in good standing under the laws of the State of
Delaware.
(ii) Due Execution. AMC has all requisite power and
authority to execute, deliver and perform this Agreement. AMC has obtained all
requisite authorization for the execution, delivery and performance of this
Agreement, and has duly executed and delivered this Agreement. No consent from
any Governmental Authority or any other Person is required to be obtained in
connection with the execution, delivery and performance of this Agreement by AMC
(except for consents obtained prior to the Execution Date). This Agreement,
assuming due authorization, execution and delivery by WNPM, constitutes the
legal, valid, and binding obligations of AMC enforceable against AMC in
accordance with its terms (except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium and other principles
relating to or limiting the right of contracting parties generally), and neither
the execution, delivery, performance nor consummation of the transactions
contemplated hereby violate the material provisions of any agreement, note,
mortgage, deed of trust, bond or indenture to which AMC is a party or to which
it is subject.
5
<PAGE> 8
(iii) Litigation. Except as disclosed by AMC in writing
to WNPM prior to the date hereof, (i) to AMC's best knowledge, there are no
pending actions, suits or proceedings, before any judicial, administrative or
other Governmental Authority with respect to AMC which would affect the ability
of AMC to perform its obligations under this Agreement, and (ii) AMC has
received no written notice threatening any such actions, suits or proceedings.
(b) Survival. The representations and warranties of AMC set forth
in this Section 7 shall survive the Closing. AMC shall indemnify, defend, and
hold WNPM harmless from and against any Losses incurred by WNPM by reason of any
breach or inaccuracy of the representations and warranties contained in this
Section 7.
8. CONDITIONS PRECEDENT TO CLOSING.
(a) AMC'S CONDITIONS PRECEDENT. The following shall be conditions
precedent to AMC's obligation to consummate the purchase and sale transaction
contemplated herein:
(i) WNPM's representations and warranties set forth in
Section 6 shall be true and correct in all material respects and all
material obligations of WNPM hereunder shall have been performed as of
the Closing.
(ii) The parties thereto shall have executed the Amended
and Restated Partnership Agreement and the Amended and Restated
Management Agreement.
(iii) WNPM shall have delivered to AMC the items described
in Section 9.
(iv) No suit, action or other proceeding shall be pending
or have been threatened which seeks to restrain or impose damages in
connection with the consummation of the transaction contemplated by this
Agreement.
The conditions set forth in this Section 8(a) are solely for the benefit of AMC
and may be waived only by AMC. AMC shall, at all times prior to the termination
of this Agreement, have the right to waive any of these conditions.
(b) WNPM'S CONDITIONS PRECEDENT. The following shall be
conditions precedent to WNPM's obligation to consummate the purchase and sale
transaction contemplated herein:
(i) AMC shall have delivered to WNPM the Partnership
Purchase Price.
(ii) AMC shall have delivered to the Initial Optionees the
REIT Options Payment.
(iii) AMC's representations and warranties set forth in
Section 7 shall be true and correct in all material respects and all
material obligations of AMC hereunder shall have been performed as of
the Closing.
6
<PAGE> 9
(iv) AMC shall have delivered to WNPM the items described
in Section 10.
(v) The parties thereto shall have executed the Amended
and Restated Partnership Agreement and the Amended and Restated
Management Agreement.
(vi) No suit, action or other proceeding shall be pending
or have been threatened which seeks to restrain or impose damages in
connection with the consummation of the transaction contemplated by this
Agreement.
The conditions set forth in this Section 8(b) are solely for the benefit of WNPM
and may be waived only by WNPM. WNPM shall, at all times prior to the
termination of this Agreement, have the right to waive any of these conditions.
9. WNPM'S CLOSING DELIVERIES. On or before the Closing Date, WNPM
shall deliver to AMC the following:
(a) ASSIGNMENT AND ASSUMPTION AGREEMENT. An Assignment and
Assumption Agreement for the Acquired Partnership Interest, executed by WNPM,
conveying the Acquired Partnership Interest to AMC, free and clear of all
claims, liens and encumbrances.
(b) CERTIFICATE. An officer's certificate of WNPM, dated as of
the Closing Date, certifying to (i) the resolutions of the board of directors of
WNPM authorizing its sale of the AMC Acquired Property and the other
transactions contemplated hereby, and (ii) the authority and incumbency of the
officer(s) signing on behalf of WNPM.
(c) REIT OPTION DOCUMENTS. Any documents, instruments or
agreements reasonably requested by AMC with respect to the cancellation of the
REIT Options, executed by the Initial Optionees.
(d) OTHER INSTRUMENTS. Any other documents, instruments or
agreements reasonably necessary to effectuate the transactions contemplated by
this Agreement.
10. AMC'S CLOSING DELIVERIES. On or before the Closing Date, AMC
shall deliver to WNPM the following:
(a) PURCHASE PRICE. The Partnership Purchase Price all in
immediately available funds.
(b) CERTIFICATE. An officer's certificate of AMC, dated as of the
Closing Date, certifying to (i) the resolutions of the board of directors of AMC
authorizing transactions contemplated hereby, and (i) the authority and
incumbency of the officer(s) signing on behalf of AMC.
(c) COUNTERPARTS. An executed counterpart of the Assignment and
Assumption Agreement, whereby AMC shall assume the obligations relating to the
matters set forth in such documents.
7
<PAGE> 10
(d) OTHER INSTRUMENTS. Any other documents, instruments or
agreements reasonably necessary to effectuate the transactions contemplated by
this Agreement.
11. CLOSING. Closing of the purchase and sale of the Acquired
Partnership Interest shall occur on the Closing Date. At the Closing, (i) the
Assignment and Assumption Agreement, the Amended and Restated Partnership
Agreement and the Amended and Restated Management Agreement shall be delivered
to each of WNPM and AMC; (ii) AMC shall pay the Partnership Purchase Price to
WNPM; (iii) AMC shall pay the REIT Options Cancellation Payment to the Initial
Optionees and any documents, instruments or agreements executed by the Initial
Optionees in connection therewith shall be delivered to AMC; and (iv) AMC shall
cause the retained earnings of the Partnership for the calendar year 1999 and
any prior years to be distributed to AMC and WNPM in accordance with the
distribution provisions of the Original Partnership Agreement (the "RETAINED
EARNINGS"), to the extent that AMC can determine the amount of such Retained
Earnings (and if the actual amount of such Retained Earnings can not be
determined as of such time, such distributions shall be based on AMC's
reasonable estimate of such Retained Earnings). To the extent that the
distribution of Retained Earnings made on the Closing Date is based on estimated
Retained Earnings, AMC shall cause the actual Retained Earnings to be calculated
and shall cause additional distributions to be made to AMC and WNPM on or before
March 31, 2000. The Closing shall occur at the offices of O'Melveny & Myers LLP,
Newport Beach, California, or at such other place mutually agreeable to the
parties.
12. CLOSING COSTS; PARTNERSHIP DISTRIBUTION. Each party shall
bear the expense of its own counsel in connection with the transactions
contemplated by this Agreement. The provisions of this Section 12 shall survive
the Closing.
13. DEFAULT. If either WNPM or AMC defaults in its obligation to
consummate the transactions contemplated by this Agreement, then the
non-defaulting party shall have all rights and remedies available at law and in
equity with respect to such default.
14. BROKERS.
(a) AMC REPRESENTATION. AMC represents and warrants to WNPM that
it has dealt with no broker or finder in connection with the transaction
contemplated by this Agreement, and that no brokerage commission, finder's fee
or other compensation is due or payable with respect to the transactions
contemplated herein arising from AMC's actions or omissions. AMC shall
indemnify, defend, and hold WNPM harmless from and against any Losses incurred
by WNPM by reason of any breach or inaccuracy of the representations and
warranties contained in this Section 14(a).
(b) WNPM REPRESENTATION. WNPM represents and warrants to AMC that
it has dealt with no broker or finder in connection with the transaction
contemplated by this Agreement, and that no brokerage commission, finder's fee
or other compensation is due or payable with respect to the transactions
contemplated herein arising from WNPM's actions or omissions. WNPM shall
indemnify, defend, and hold AMC harmless from and against any Losses incurred by
AMC by reason of any breach or inaccuracy of the representations and warranties
contained in this Section 14(b).
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<PAGE> 11
(c) SURVIVAL. The provisions of this Section 14 shall survive the
Closing.
15. MISCELLANEOUS.
(a) AUTHORITY. Each of AMC and WNPM hereby represents that the
individuals and entity(ies) executing this Agreement on behalf of AMC and WNPM,
respectively, has the capacity set forth on the signature pages hereof with full
power and authority to bind the party on whose behalf he, she or it is executing
this Agreement to the terms hereof.
(b) ENTIRE AGREEMENT. This Agreement (together with the documents
to be executed and delivered by the parties at the Closing) is the entire
agreement between the parties hereto with respect to the purchase and sale of
the Acquired Partnership Interest and supersedes all prior agreements and
understandings, whether oral or written, between the parties with respect to the
purchase and sale of such property.
(c) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument. The signature page
of any counterpart may be detached therefrom without impairing the legal effect
of the signature(s) thereon provided such signature page is attached to any
other counterpart identical thereto except having additional signature pages
executed by other parties to this Agreement attached thereto.
(d) TIME OF ESSENCE. Time is of the essence in the performance of
and compliance with each of the provisions and conditions of this Agreement. All
times provided in this Agreement for the performance of any act shall be
strictly construed.
(e) NOTICES. All notices provided for herein shall be in writing
and may be telecopied (with machine verification of receipt), sent by Federal
Express or other overnight courier service, personally delivered or mailed
registered or certified mail, return receipt requested. If a notice is sent by
telecopy, it shall be deemed given when transmission is complete if a
confirmation of successful transmission is contemporaneously printed by the
transmitting telecopy machine. If a notice is personally delivered, sent by
overnight courier service or sent by registered or certified mail, it shall be
deemed given upon receipt or refusal of delivery. The address to be used in
connection with notices are the addresses set forth in the records of the
Partnership.
(f) FURTHER ASSURANCES. The parties agree to do such further acts
as may be reasonably necessary to carry out the provisions of this Agreement.
(g) SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such a manner as to be valid under applicable
law, but, if any provision of this Agreement shall be invalid or prohibited
thereunder, such invalidity or prohibition shall be construed as if such invalid
or prohibited provision had not been inserted herein and shall not affect the
remainder of such provision or the remaining provisions of this Agreement.
(h) GOVERNING LAW; CONSTRUCTION. The interpretation and
enforcement of this Agreement shall be governed by the laws of the State of
California, without regard to the
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<PAGE> 12
conflict of laws principles of such state. The language in all parts of this
Agreement shall be in all cases construed simply according to its fair meaning
and not strictly for or against any of the parties hereto. Section headings of
this Agreement are solely for convenience of reference and shall not govern the
interpretation of any of the provisions of this Agreement. References to
"Sections" are to Sections of this Agreement, unless otherwise specifically
provided. Where the context so requires, the use of the singular shall include
the plural and vice versa.
(i) ATTORNEYS' FEES. If any action is brought by either party
against the other party for the enforcement of this Agreement or any document or
instrument delivered pursuant hereto, the prevailing party shall be entitled to
recover from the other party reasonable attorneys' fees, costs and expenses
incurred in connection with the prosecution or defense of such action or any
appeal thereof. For purposes of this Agreement, the term "ATTORNEYS' FEES" or
"ATTORNEYS' FEES AND COSTS" shall mean the fees and expenses of counsel to the
parties hereto, which may include expert witness fees, printing, duplicating and
other expenses, delivery charges, and fees billed for law clerks, paralegals and
other persons not admitted to the bar but performing services under the
supervision of an attorney.
(j) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of each of the parties hereto and to their respective
transferees, successors, and assigns; provided, however, neither this Agreement
nor any of the rights or obligations of WNPM or AMC hereunder shall be
transferred or assigned by WNPM or AMC without the prior written consent of the
non-assigning party (which may be granted or withheld in such party's sole
discretion).
(k) EXHIBITS. Exhibits A through C inclusive, are incorporated
herein by this reference.
(l) NO RECORDATION. Neither this Agreement nor any memorandum or
short form hereof shall be recorded or filed in the public land or other public
records of any jurisdiction by either party and any attempt to do so shall
constitute a breach of this Agreement.
(m) NO THIRD PARTY BENEFICIARIES. WNPM and AMC agree that it is
their specific intent that no broker or any other third party shall be a party
to or a third party beneficiary of this Agreement or the escrow; and further
that the consent of a broker or other third party shall not be necessary to any
agreement, amendment, or document with respect to the transaction contemplated
by this Agreement.
(n) NO WAIVER. No waiver hereunder by any party of any breach
hereunder shall be deemed a waiver of any other or subsequent breach.
(o) AMENDMENT. Any waiver, amendment, modification, consent or
acquiescence with respect to any provision of this Agreement shall be set forth
in writing and duly executed by the party to be bound thereby.
(p) EXPENSES. Except as expressly provided herein, each party
hereto shall pay its own expenses incurred in connection with this Agreement and
the transactions contemplated hereby.
10
<PAGE> 13
[SIGNATURES ON NEXT PAGE]
11
<PAGE> 14
IN WITNESS WHEREOF, WNPM and AMC have caused their duly
authorized representatives to execute this Agreement effective as of the
Execution Date.
AMC:
APARTMENT MANAGEMENT COMPANY, LLC,
a Delaware limited liability company
By: Irvine Apartment Communities, L.P.,
a Delaware limited partnership,
its sole member
By: Irvine Apartment Communities, LLC,
a Delaware limited liability company,
its general partner
By:
-------------------------------------------------
Max Gardner
Its Executive Vice President
By:
-------------------------------------------------
Clarence Barker
Its President
WNPM:
WESTERN NATIONAL SECURITIES, D/B/A WESTERN NATIONAL PROPERTY MANAGEMENT,
a California corporation
By:
------------------------------------------
Michael Hayde
Chief Executive Officer
S-1
<PAGE> 15
EXHIBIT A
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this "AGREEMENT") is
made as of January 1, 2000, between WESTERN NATIONAL SECURITIES D/B/A WESTERN
NATIONAL PROPERTY MANAGEMENT, a California corporation ("ASSIGNOR"), and
APARTMENT MANAGEMENT COMPANY, LLC, a Delaware limited liability company
("ASSIGNEE").
RECITALS
WHEREAS, Assignor and Assignee entered into a Purchase and Sale
Agreement dated as of January 1, 2000 (the "PURCHASE AGREEMENT");
WHEREAS, Assignor owns a 49% general partnership interest in
Irvine Apartment Management Company, a California general partnership (the
"PARTNERSHIP");
WHEREAS, pursuant to the Purchase Agreement, Assignor agreed to
sell, assign, convey and deliver to Assignee, and Assignee agreed to purchase
and assume, a 24% general partnership interest in the Partnership (the "ACQUIRED
INTEREST"); and
WHEREAS, the Purchase Agreement requires Assignor and Assignee to
execute and deliver this Agreement to effect the purchase, sale, assignment and
assumption of the Acquired Interest and the REIT Options.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and upon
the conditions contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are acknowledged, Assignor
and Assignee agree as follows:
1. Unless the context otherwise requires, all capitalized terms
used but not otherwise defined herein shall have the respective meanings
provided therefor in the Purchase Agreement.
2. Assignor hereby sells, assigns, transfers, conveys and
delivers to Assignee the Acquired Interest in the Partnership.
3. Assignee hereby accepts the sale, assignment, transfer,
conveyance and delivery of the Acquired Interest in the Partnership and assumes
and agrees to perform and be bound by all the terms, conditions and obligations
required to be performed by Assignor in connection therewith from and after the
date hereof.
4. Covenants, representations and warranties made in the Purchase
Agreement shall survive in accordance with the terms of the Purchase Agreement
and the Purchase Agreement shall not be merged into this Agreement. Except as
provided in the
A-1
<PAGE> 16
Purchase Agreement, Assignor makes no representations or warranties with respect
to the Acquired Interest or the Partnership, all of which are hereby disclaimed
and excluded.
5. This Agreement shall be binding on and inure to the benefit of
Assignor and Assignee and their respective successors in interest and assigns.
6. This Agreement and the legal relations of the parties hereto
shall be governed by and construed and enforced in accordance with the laws of
the State of California, without regard to its principles of conflicts of law.
7. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which shall constitute one
and the same Agreement.
[SIGNATURES ON NEXT PAGE]
A-2
<PAGE> 17
IN WITNESS WHEREOF, this Agreement was made and executed as of
the date first above written.
ASSIGNOR:
WESTERN NATIONAL SECURITIES, D/B/A WESTERN NATIONAL PROPERTY MANAGEMENT,
a California corporation
By:
---------------------------------------
Michael Hayde
Chief Executive Officer
ASSIGNEE:
APARTMENT MANAGEMENT COMPANY, LLC,
a Delaware limited liability company
By: Irvine Apartment Communities, L.P.,
a Delaware limited partnership,
its sole member
By: Irvine Apartment Communities, LLC,
a Delaware limited liability company,
its general partner
By:
-----------------------------------------------
Max Gardner
Its Executive Vice President
By:
-----------------------------------------------
Clarence Barker
Its President
A-3
<PAGE> 18
EXHIBIT B
ALLOCATION OF REIT OPTION CANCELLATION PAYMENT
B-1
<PAGE> 19
SUMMARY OF STOCK OPTIONS AND RESTRICTED STOCK AWARDS
WESTERN NATIONAL(a)
<TABLE>
<CAPTION>
STOCK OPTIONS
- -------------------------------------------------------------------------------------------------------------------
Number Value Remaining 1999
of Vested of Vested --------------------
In the Shares Shares Number Value
Grant Options Exercised Remaining Exercise Offer Money at Merger at Merger of Vested of Vested
Date Granted Options Options Price Price Per Share 6/7/99 6/7/99 Shares Shares
- ------- ------- --------- --------- -------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <S> <C>
3/12/98 100,000 - 100,000 $30.4375 $34.0000 3.5625 - - - -
------- -------- ------- --------- --------- --------- ---------
100,000 - 100,000 - $ -
======= ======== ======= ========= ========= ========= =========
<CAPTION>
STOCK OPTIONS
- ------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004
- -------------------- -------------------- -------------------- -------------------- --------------------
Number Value Number Value Number Value Number Value Number Value
of Vested of Vested of Vested of Vested of Vested of Vested of Vested of Vested of Vested of Vested
Shares Shares Shares Shares Shares Shares Shares Shares Shares Shares
- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- $ - - $ - 33,333 $118,749 33,333 $118,749 33,334 $118,752
- --------- --------- --------- --------- ------ -------- ------ -------- ------ --------
- $ - - $ - 33,333 $118,749 33,333 $118,749 33,334 $118,752
========= ========= ========= ========= ====== ======== ====== ======== ====== ========
<CAPTION>
Accelerated Payment
------------------------
Number Value
of Vested of Vested
Shares Shares
--------- -----------
<S> <C> <C> <C> <C> <C>
(a)= Atherton 2,000 3.5625 $ 7,125.00 2,000 $ 7,125.00
DeLong 3,000 3.5625 10,687.50 3,000 10,687.50
Donohue 5,000 3.5625 17,812.50 5,000 17,812.50
Glass 40,850 3.5625 145,528.13 40,850 145,528.13
Hayde 40,850 3.5625 145,528.13 40,850 145,528.13
Scott 4,000 3.5625 14,250.00 4,000 14,250.00
Stone 4,300 3.5625 15,318.75 4,300 15,318.75
------- ----------- ------- -----------
100,000 $356,250.00 100,000 $356,250.00
======= =========== ======= ===========
</TABLE>
<PAGE> 20
EXHIBIT C
PAYROLL ALLOCATION
[ATTACHED HERETO]
C-1
<PAGE> 21
<TABLE>
<CAPTION>
2000 2000
1999 BASE APPROX ALLOCATED
IAMC SHARED EMPLOYEES POSITION ALLOCATION COMP CAR BONUS PAYROLL
- ---------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Debbie Meute Controller 15% 90,000 6,000 15,000 16,650
Matt Stoehr MIS Director 50% 93,600 6,000 14,000 56,800
Jason Field Support Asst 48% 25,200 500 12,336
Steve Didenhover MIS Tech 5% 38,160 1,500 1,983
Chris Lhamon MIS Support 5% 31,800 1,000
Pam Tung A/P Manager 48% 48,000 5,000 25,440
Leticia Morales A/P Checks 38% 32,000 500 12,350
Judy Bates Payroll Manager 48% 62,928 6,500 33,325
Teena Oliver Payroll Asst Mgr 4% 40,020 1,500 1,661
Barbara Weaver HR Manager 56% 65,100 5,500 39,536
Pauline Silva HR Benefits Admin 48% 45,000 3,150 23,112
Nancy Alvarez HR Benefits Admin 48% 37,584 1,000 18,520
Delores Martinez HR Benefits Billing 53% 35,016 250 18,691
Nicole Newman HR Dept Asst 48% 31,500 500 15,360
Jim Gross Risk Manager 48% 55,440 3,600 5,000 30,739
Earl Gaugler Risk Mgmt-Hazardous 48% 27,996 500 13,678
Ruth Sigmon Risk Mgmt-Work Comp 57% 33,804 800 19,724
Birdie Ward Risk Mgmt Dept Asst 48% 27,504 300 13,346
Angela Brown Marketing-Comm 25% 33,000 1,500 8,625
Kris Perkins Marketing-Manager 25% 39,996 3,000 10,749
Gary Willison Marketing-Graphic Design 48% 46,200 2,000 23,136
John Selindh Training Director 48% 102,996 6,000 13,400 58,750
Shaunna Mata Training Assistant 48% 22,464 1,125 11,323
Lynn Rieber Facility Manager 32% 40,000 4,000 14,080
Sherry Beaudoin Receptionist 48% 27,228 750 13,429
Tina Parker General Office 48% 18,720 300 9,130
Ron Quillan General Office 32% 26,400 300 8,544
Angela McCleer Risk Mgmt-Vendor 48% 30,444 750 14,973
Joette Platenak Purchasing Manager 48% 59,520 5,000 30,970
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL ALLOCATED PAYROLL 1,267,620 21,600 94,625 556,961
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL PAYROLL 556,961
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.16
[THE IRVINE COMPANY LETTERHEAD]
June 8, 1999
Mr. David A. Patty
Irvine Apartment Communities, L.P.
550 Newport Center Drive
Newport Beach, California 92660
RE: FUNDING AGREEMENT
Dear Sir:
This letter will serve to confirm the agreement of The Irvine Company ("TIC")
to fund certain costs and shortfalls in net operating income incurred by Irvine
Apartment Communities, L.P. ("IAC") in connection with the development and
operation of the apartment projects listed on Exhibit A attached to this letter
(individually, a "Property" and collectively, the "Properties") on the
following terms and conditions:
1. Upon receipt of a written request for funds, accompanied by
the information set forth herein, TIC, in its capacity as a member of TIC
Acquisition LLC ("TICALLC"), the general partner of IAC, will contribute to
TICALLC and will cause TICALLC to contribute to IAC, such amounts as may be
necessary to pay all 'Construction Cost Overruns'. As used herein, the term
'Construction Cost Overruns' means an amount equal to (i) the total cost
actually incurred by IAC to complete the construction of apartment units and
related improvements on the Properties, minus (ii) the amount budgeted for such
construction as reflected on the applicable construction budgets approved by
either the Board of Directors of Irvine Apartment Communities, Inc.
(predecessor to TICALLC) ("IAC, Inc.") or the Board of Directors or Executive
Committee of the Board of Directors of TIC (individually, the "Budgeted Amount"
and collectively, the "Budgeted Amounts"). A request for funds may be made at
any time, and from time to time (but not more frequently than monthly), after
the costs actually incurred by IAC with respect to the development of a
Property exceeds the Budgeted Amount for such Property and shall be accompanied
by the construction budget for such Property as approved by the applicable
Board of Directors or Executive Committee, as the
<PAGE> 2
Irvine Apartment Communities, L.P.
June 8, 1999
Page 2
case may be, and a variance report, by line item, reflecting actual costs
incurred. An apartment project shall be deemed to be "complete" at the time a
final certificate of occupancy has been issued for all of the improvements to be
constructed on the Property. IAC will use the funds contributed by TICALLC
pursuant to this Paragraph 1 for the purposes of paying Construction Cost
Overruns and for no other purpose.
2. Upon receipt of a written request for funds, accompanied by the
information set forth herein, TIC, in its capacity as a member of TIC
Acquisition LLC ("TICALLC"), the general partner of IAC, will contribute to
TICALLC and will cause TICALLC to contribute to IAC, the 'Shortfall Amount'. As
used herein, the term 'Shortfall Amount' means, with respect to each Property, a
positive amount equal to (i) pro forma stabilized net operating income for the
applicable Property as reflected on the budget for the development of the
Property approved by the Board of Directors of IAC, Inc. or the Board of
Directors or Executive Committee of TIC, minus (ii) the net operating income
actually received by IAC from the operation of such Property. A request for
contribution of the Shortfall Amount may be made at any time, and from time to
time (but not more frequently than monthly), during the 'Stabilization Period'.
As used herein, the term 'Stabilization Period' means a period beginning on the
date a final certificate of occupancy has been used for all improvements to be
constructed on the applicable Property and ending on the date which is the
earlier of (a) 24 months after the date such final certificate of occupancy was
issued and (b) 12 months after the date on which the apartment units on the
applicable Property have been 95% occupied for 30 consecutive days. Any request
for funds made pursuant to this Paragraph 2 shall be accompanied by the pro
forma statement of stabilized net operating income as approved by the applicable
Board of Directors or Executive Committee, as the case may be, a statement of
net operating income actually received by IAC from the operation of the
applicable property during the period in which a shortfall in net operating
income is claimed and a calculation of the Shortfall Amount.
3. In return for TIC's agreement to provide funds as set forth herein,
IAC shall pay to TIC a funding commitment fee equal to $1000 per year/ per
Property for so long as this agreement may be in effect with respect to a
particular Property. This agreement shall expire with respect to a particular
Property at the end of the Stabilization Period for that Property.
<PAGE> 3
Irvine Apartment Communities, L.P.
June 8, 1999
Page 3
If the above is consistent with your understanding of our agreement, please so
indicate by signing the enclosed copy of this letter in the space provided.
THE IRVINE COMPANY
By: /s/ MICHAEL D. MCKEE
------------------------------
Its: Executive Vice President
By: /s/ RICHARD PIANIN
------------------------------
Its: Senior Vice President
ACCEPTED AND AGREED:
IRVINE APARTMENT COMMUNITIES, L.P.
By: TIC Acquisition LLC,
Its General Partner
By: The Irvine Company
By: /s/ DAVID A. PATTY
----------------------------
Its: Senior Vice President
By: /s/ THOMAS B. ROGERS
----------------------------
Its: Senior Vice President and
Treasurer
<PAGE> 4
EXHIBIT A
PROJECT LOCATION
- ------- --------
Sonoma at Oak Creek Irvine
Brittany at Oak Creek Irvine
Arcadia at Stonecrest San Diego
1221 Ocean Avenue West Los Angeles
Villas at Bair Island Marina Redwood City
The Colony at Aventine San Diego
Park Place Irvine
Olson Cherry Ranch Sunnyvale
Lonestar Redwood City
<TABLE> <S> <C>
<ARTICLE> 5 <LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS OF IRVINE APARTMENT COMMUNITIES, L.P. FOR THE
YEAR ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001038358
<NAME> IRVINE APARTMENT COMMUNITIES, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,834
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,834
<PP&E> 2,126,573
<DEPRECIATION> 325,229
<TOTAL-ASSETS> 2,026,524
<CURRENT-LIABILITIES> 45,554
<BONDS> 864,602
0
192,849
<COMMON> 0
<OTHER-SE> 912,921
<TOTAL-LIABILITY-AND-EQUITY> 2,026,524
<SALES> 0
<TOTAL-REVENUES> 253,415
<CGS> 0
<TOTAL-COSTS> 118,203
<OTHER-EXPENSES> 13,875
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,686
<INCOME-PRETAX> 85,651
<INCOME-TAX> 0
<INCOME-CONTINUING> 85,651
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,901
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS OF IAC CAPITAL TRUST FOR THE YEAR ENDED
DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001048922
<NAME> IAC CAPITAL TRUST
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 150,005
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
150,000
<COMMON> 5
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 150,005
<SALES> 0
<TOTAL-REVENUES> 12,375
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 12,375
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,375
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
