<PAGE>
As filed with the Securities and Exchange Commission on October 6, 1998
Registration No. 333-37161
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 6
to
Form S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
AMERICAN FAMILY HOLDINGS, INC.
4220 Von Karman Avenue, Suite 110
Newport Beach, California 92660
(Address of principal executive offices)
David G. Lasker, President
American Family Holdings, Inc.
4220 Von Karman Avenue, Suite 110
Newport Beach, California 92660
(Name and address of agent for service)
Copy to:
David R. Decker, Esq.
Arter & Hadden LLP
725 South Figueroa Street, 34th Floor
Los Angeles, California 90017
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<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Amount Maximum Offering Maximum Amount of
Securities Being Being Price Per Aggregate Registration
Registered Registered Share or Unit(1) Offering Price Fee(2)
----------------- ----------- ----------------- ---------------- --------------
<S> <C> <C> <C> <C>
Units(3) 2,783,372(4) $ 20.00 $ 55,667,440 $ 16,422
Common Stock 8,350,116(5) $ 16.00 $133,601,856 39,413
TOTAL 11,133,488 $189,269,296 $ 55,835(6)
</TABLE>
(1) $20 is an arbitrary amount chosen and is not intended to imply that the
Common Stock will trade at a price of $20 per share.
(2) The registration fee for the common stock and the units to be issued in
this offering has been calculated using the maximum number of shares and
Units that can be issued in this offering. The registration fee for the
common stock issuable upon exercise of the warrants has been calculated
pursuant to Rule 457(i) assuming that all of the warrants would be
exercised at a price equal to 80% of the offering price of the other common
stock issued in this offering.
(3) Units consist of one share of Common Stock and warrants to purchase three
shares of Common Stock at a per share price equal to 80% of the average
closing trading price for the 20 trading dates before exercise.
(4) Includes 1,403,321 units for issuance in the proposed Acquisition and
1,380,051 units to be available for contingent issuance to former
investors in one or more Programs where, after completion of the
proposed Acquisition and on or before December 31, 1999, the registrant
sells a property formerly owned by investors in one of the Programs and
receives cash proceeds (net of normal sales expenses and any interest or
deferred purchase payments) of the sale in an amount which exceeds the
March 1998 appraised value of the property.
(5) Issuable upon exercise of the warrants included in the Units.
(6) $8,488.00 paid with original S-4 filing. $47,347 net due.
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM OF FORM S-4 PROSPECTUS CAPTION OR LOCATION
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Cover
Page of Prospectus...................................... Cover of Registration Statement; Cross-Reference
Sheet; Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Page of
Prospectus............................................. Prospectus Summary; Reports to Shareholders
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information...................................... Prospectus Summary; Risk Factors; Business
and Properties; Background and Reasons for
the Acquisition
4. Terms of The Transaction............................... Prospectus Summary; Background and Reasons
for the Acquisition; Comparison of Tenancy-
in-Common Interests and Shares;
Comparisons of Programs and Company;
Description of Shares; Shares Eligible for
Future Sale; Federal Income Tax
Consequences; Appraisals and Fairness
Opinion
5. Pro Forma Financial Information........................ Prospectus Summary; Financial Statements
6. Material Contracts with the Company being Acquired..... Background and Reasons for the Acquisition;
Interests of Certain Persons in the
Acquisition
7. Additional Information Required for Reoffering by
Persons and Partied Deemed to be Underwriters.......... Not Applicable
8. Interests of Named Experts and Counsel................. Not Applicable
9. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities............................. Fiduciary Responsibility and Indemnification
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants............ Not Applicable
11. Incorporation of Certain Information by Reference...... Not Applicable
12. Information with Respect to S-2 or S-3 Registrants..... Not Applicable
13. Incorporation of Certain Information by Reference...... Not Applicable
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
CROSS-REFERENCE SHEET
(continued)
ITEM OF FORM S-4 PROSPECTUS CAPTION OR LOCATION
<S> <C>
14. Information with Respect to Registrants other than S-3
or S-2 Registrants...................................... Prospectus Summary; Business and
Properties; Selected Financial
Information; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3
Companies............................................... Not Applicable
16. Information with Respect to S-2 or
S-3 Companies........................................... Not Applicable
17. Information with Respect to
Companies other than S-3 or S-2
Companies............................................... Prospectus Summary; Business and
Properties; Background and Reasons
for the Acquisition; Selected
Financial Information; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations are
being Solicited ........................................ Prospectus Summary; Voting
Procedures; Interests of Certain
Persons in the Acquisition;
Principal Shareholders; Management
Following the Acquisition
19. Information if Proxies, Consents or
Authorizations are Not to be
Solicited or in an Exchange Offer ...................... Not Applicable
</TABLE>
<PAGE>
IF YOU ARE AN INVESTOR IN ANY OF THE FOLLOWING, YOUR VOTE IS VERY IMPORTANT
<TABLE>
<S> <C>
SACRAMENTO/DELTA GREENS "TRUDY PAT" PROGRAM CYPRESS LAKES "TRUDY PAT" PROGRAM
OCEANSIDE "TRUDY PAT" PROGRAM PALMDALE/JOSHUA RANCH "TRUDY PAT" PROGRAM
YOSEMITE/AHWAHNEE I "TRUDY PAT" PROGRAM ESPERANZA PROGRAM
YOSEMITE/AHWAHNEE II "TRUDY PAT" PROGRAM STACEY ROSE PROPERTIES A PROGRAM
MORI POINT "TRUDY PAT" PROGRAM STACEY ROSE PROPERTIES B PROGRAM
</TABLE>
AMERICAN FAMILY HOLDINGS, INC.
- - PROPOSED ACQUISITION OF PROGRAM PROPERTIES
American Family Holdings, Inc. (the "Company") is offering units
consisting of one share of its stock plus warrants to buy three additional
shares in exchange for the assets (including cash on hand), certain
liabilities and business activities owned by investors in seven former "Trudy
Pat" programs and three other programs managed by National Investors
Financial, Inc. ("National"). For this proposed acquisition, the Company will
pay $[28,066,419] in the form of [1,403,321] units arbitrarily valued at $20
per unit. [The shares included in the units will be listed for trading on the
________________________ under the symbol "_____." The warrants will [not]
be listed for trading.] The purpose of the transaction is to: consolidate
the operations of the programs, improve the ability to sell or obtain
financing for development of the programs' properties, eliminate the
assessment process, focus on revenue-generating potential, improve efficiency
of operation in order to reduce costs and increase profit potential, provide
the investors with liquidity for their investments and create greater
potential overall value than each of the programs have separately.
In each of the programs, the investors will vote on whether to approve
the acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED IN THE
SEVEN "TRUDY PAT" PROGRAMS MUST VOTE TO APPROVE THE ACQUISITION IN ORDER FOR
IT TO TAKE PLACE BUT THE OTHER THREE DO NOT. If the acquisition is approved
by the investors in all seven of the "Trudy Pat" programs, investors holding
a majority of the amount invested in each of the other three programs may
elect on a program-by-program basis whether to participate in the acquisition.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE
ACQUISITION.
This solicitation of votes started on _______, 1998 and expires at
5:00 p.m., pacific time, on __________, 1998 unless extended. Call
1-800-590-7772 with questions.
SPECIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will no longer have a
tenancy-in-common interest in your program's property. Instead, you will
hold shares in a publicly-traded real estate company and will not receive
liquidation proceeds when, or if, your program's property is sold. As an
investor in a publicly-traded company with many stockholders, you will have
relatively less voting power.
- - If a trading market develops, the initial trading price for the stock
will likely be substantially below the arbitrary value of $20 per unit
assigned for purposes of the acquisition. Thus, the value of the units you
receive may be less than you might receive if the property of your program
were sold for its current appraised value.
- - Principal stockholders of National and the executive officers of the
Company will hold approximately [16.35]% (6.23% if all the units are sold in
the concurrent offering and 4.66% if all the units are sold in the concurrent
offering and all warrants in units issued in the acquisition are
exercised) of the Company's stock for which they paid $0.01 per share and
will receive annual cash compensation aggregating $560,000 as officers and
employees of the Company. National will be relieved of its asset management
obligations and will no longer earn asset management fees of approximately
$885,000 annually. However, the Company will still owe National, its
principals and employees over $[1,800,000] of accrued but unpaid fees and
expenses.
- - No independent advisors represented you in structuring this transaction.
- - There can be no assurance that the transaction is not a taxable event. If
so, National believes a tax loss is the probable result for most of you.
- - The Company must have additional cash to fund its proposed operations.
If it cannot obtain such funding from the sale of certain of its properties,
the exercise of the warrants included in the units or the sale of
additional units, it may be no more successful than the programs have been
individually in achieving your objective.
YOU SHOULD STUDY THE "RISK FACTORS" BEGINNING ON PAGE __.
----------------
THE TRANSACTION AND SECURITIES HAVE NOT BEEN APPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR THE ATTORNEY GENERAL
OF THE STATE OF NEW YORK NONE OF THESE HAS DETERMINED THAT THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
The date of this Prospectus is _______________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
The Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Summary Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Exchange Value/Allocation of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Current Status of the Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Organization Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Alternatives to the Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Fairness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
National's Recommendation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Benefits to National and Company Founders. . . . . . . . . . . . . . . . . . . . . . . . 19
Summary of the New Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Comparison of the Programs and the Company . . . . . . . . . . . . . . . . . . . . . . . 22
Tax Consequences of Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Conflicts of Interest Related to the Acquisition . . . . . . . . . . . . . . . . . . . . 26
Conditions to Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consequences if Acquisition Not Approved . . . . . . . . . . . . . . . . . . . . . . . . 27
Delivery of Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Supplements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Consent Solicitation/Summary of Voting Procedures. . . . . . . . . . . . . . . . . . . . 28
No Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
No Right to Program Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . 29
Concurrent Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Summary Financial Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Risks of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
The nature of your investment will change. . . . . . . . . . . . . . . . . . . . . 32
The exchange value of the programs may not be the amount you would
net if the properties were sold in a cash sale transaction . . . . . . . . . . . 32
The shares included in the units may trade at prices substantially below
the arbitrarily determined exchange value of $20 per unit. . . . . . . . . . . . 33
There may be conflicts of interest in National's structuring the acquisition . . . 33
You did not have independent advisors representing you in structuring
this transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
The transaction may not be tax-free. . . . . . . . . . . . . . . . . . . . . . . . 34
The company may incur significant additional debt. . . . . . . . . . . . . . . . . 35
The Board of directors will have the ability to change investment, financing
and other policies of the company without shareholder consent. . . . . . . . . . 35
i
<PAGE>
You will have no dissenters' rights in connection with the acquisition . . . . . . 35
The company has no operating history . . . . . . . . . . . . . . . . . . . . . . . 36
Your voting rights will change . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Cash distribution policies will be changed . . . . . . . . . . . . . . . . . . . . 36
The method of management compensation will be changed. . . . . . . . . . . . . . . 36
Holders of a majority of tenancy-in-common interest bind a program . . . . . . . . 36
National's judgment regarding the differences in Yosemite/Ahwahnee appraisals
may be incorrect which means the exchange values for these properties
may be too low or too high . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Real Estate Risks Associated with All Properties. . . . . . . . . . . . . . . . . . . . 37
There are significant delinquent property taxes. . . . . . . . . . . . . . . . . . 37
Certain assets may have to be sold to raise working capital. . . . . . . . . . . . 37
Federal, state and local environmental and other laws may require
expensive hazardous substance clean-up or removal as well as expensive
public improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
If there is an uninsured loss, the company could lose its investment,
profits or cash flow from a property . . . . . . . . . . . . . . . . . . . . . . 37
The development of additional projects may occur . . . . . . . . . . . . . . . . . 38
The California economy has fluctuated broadly in the past few years. . . . . . . . 38
When the acquisition is completed, National and its principals will be
owed $1,818,684 by the company . . . . . . . . . . . . . . . . . . . . . . . . . 38
Real Estate Risks of Specific Properties. . . . . . . . . . . . . . . . . . . . . . . . 38
Sacramento/Delta Greens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Permits to develop the properties need to be obtained. . . . . . . . . . . . . 38
Holding an inventory of residential lots may cause the company to incur
substantial carrying costs until the lots can be sold . . . . . . . . . . . 38
Risks of residential development . . . . . . . . . . . . . . . . . . . . . . . 39
Additional specific risks. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Yosemite/Ahwahnee Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Permits to develop the condominium-type timeshare aspect of the resort
have not yet been obtained. . . . . . . . . . . . . . . . . . . . . . . . . 39
Risks affecting operation of a golf course . . . . . . . . . . . . . . . . . . 39
Resort development is unpredictable for a variety of reasons and could
result in losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Risks relating to timeshare operations . . . . . . . . . . . . . . . . . . . . 40
Risks relating to recreational vehicle park operations . . . . . . . . . . . . 40
Additional specific risks. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Mori Point Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Permits to develop the property have not yet been obtained . . . . . . . . . . 40
Hotel/conference center development is unpredictable for a variety of
reasons and could result in losses. . . . . . . . . . . . . . . . . . . . . 41
Additional specific risks. . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Cypress Lakes Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
The vested tentative map will expire in April 1999 unless renewed and
build the out of the property will be expensive. . . . . . . . . . . . . . .41
ii
<PAGE>
Risks affecting operation of a golf course . . . . . . . . . . . . . . . . . . 42
Risks of residential development . . . . . . . . . . . . . . . . . . . . . . . 42
Palmdale/Joshua Ranch Property . . . . . . . . . . . . . . . . . . . . . . . . . . 42
A final tract map must be recorded . . . . . . . . . . . . . . . . . . . . . . 42
Permits to develop the property need to be obtained. . . . . . . . . . . . . . 42
Holding an inventory of residential lots may cause the company to incur
substantial carrying costs until the lots can be sold . . . . . . . . . . . 42
Risks of residential development . . . . . . . . . . . . . . . . . . . . . . . 43
Additional specific risks. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Esperanza Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Risks of commercial development. . . . . . . . . . . . . . . . . . . . . . . . 43
Additional specific risks. . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Stacey Rose Properties A and B Property. . . . . . . . . . . . . . . . . . . . . . 43
Risks of residential development . . . . . . . . . . . . . . . . . . . . . . . 43
Additional specific risks. . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Anti-Takeover Provisions and Limitation of Director Liability. . . . . . . . . . . . . . 44
The Board's ability to issue preferred shares which could affect your voting
power and to issue additional shares to discourage or impede a merger
or other transaction that may be in your best or financial interest. . . . . . . 44
The Board is divided into three classes serving staggered three year terms . . . . 44
There are restrictions on certain business combinations with interested
parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Changes to the company's certificate of incorporation which cover anti-
takeover provisions require the approval of two-thirds of the company's
voting stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
The Delaware law, as well as the charter documents, limit the liability of
directors and officers to shareholders . . . . . . . . . . . . . . . . . . . . . 44
BACKGROUND AND REASONS FOR THE ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . 46
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Management of the Programs since Foreclosure . . . . . . . . . . . . . . . . . . . . . . 52
Efforts to Dispose of the Properties . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Alternatives to Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Comparison of Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Terms of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Calculation of Exchange Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Allocation of Units among the Programs . . . . . . . . . . . . . . . . . . . . . . . . . 73
Allocation of Units among Investors. . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Company Shares Held by Affiliates or Employees of National . . . . . . . . . . . . . . . 79
Historical Compensation for Servicing, Asset and Property Management/Effect
of Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Historical Cash Distributions to Investors . . . . . . . . . . . . . . . . . . . . . . . 82
Features of the Acquisition Considered by National . . . . . . . . . . . . . . . . . . . 83
Conditions to the Acquisition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Fairness in View of Conflicts of Interest. . . . . . . . . . . . . . . . . . . . . . . . 89
Consequences if the Acquisition is Not Approved. . . . . . . . . . . . . . . . . . . . . 90
iii
<PAGE>
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Appraisals and Fairness Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Experience of Independent Valuator . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
COMPARISON OF TENANCY-IN-COMMON INTERESTS AND SHARES . . . . . . . . . . . . . . . . . . . . 96
COMPARISONS OF PROGRAMS AND COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .102
VOTING PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Time of Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Record Date and Outstanding Votes. . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Approval Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Investor Ballot and Vote Required. . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Investor Representations on Ballot . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Revocability of Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Solicitation of Votes; Solicitation Expenses . . . . . . . . . . . . . . . . . . . . . 112
No Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
No Right to Program Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . 112
Issuance of Certificates for Acquisition Shares. . . . . . . . . . . . . . . . . . . . 112
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
AND CONFLICTS OF INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Benefits to National . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Company Shares Owned by National's Principals and Other Company Management . . . . . . 114
Other Benefits to Shareholders of National . . . . . . . . . . . . . . . . . . . . . . 114
Competition with the Company from Other Non-Participating Programs . . . . . . . . . . 115
Lack of Independent Representation of Investors. . . . . . . . . . . . . . . . . . . . 115
Features Discouraging Potential Takeovers. . . . . . . . . . . . . . . . . . . . . . . 116
Allocation of Services and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 116
Non-Arm's-Length Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 117
Fiduciary Responsibility of National . . . . . . . . . . . . . . . . . . . . . . . . . 117
Indemnification of Officers and Directors of the Company . . . . . . . . . . . . . . . 117
Officers and Directors Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
BUSINESS AND PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
Business of the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Consolidation of the Programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
iv
<PAGE>
The Residential Development Industry . . . . . . . . . . . . . . . . . . . . . . . . . 124
The Lodging and Recreation Industry. . . . . . . . . . . . . . . . . . . . . . . . . . 124
The Business Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
The Consolidated Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Priority of Projects and Estimated Timetable . . . . . . . . . . . . . . . . . . . . . 137
Types of Borrowing Required. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Impact of Interest Rates on the Company. . . . . . . . . . . . . . . . . . . . . . . . 139
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . 141
Investment Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Financing Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Miscellaneous Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Working Capital Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
SELECTED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Results of Operations - The Sacramento/Delta Greens Program. . . . . . . . . . . . . . 148
Results of Operations - The Oceanside Program. . . . . . . . . . . . . . . . . . . . . 149
Results of Operations - The Yosemite/Ahwahnee Programs . . . . . . . . . . . . . . . . 150
Results of Operations - The Mori Point Program . . . . . . . . . . . . . . . . . . . . 151
Results of Operations - The Cypress Lakes Program. . . . . . . . . . . . . . . . . . . 151
Results of Operations - The Palmdale/Joshua Ranch Program. . . . . . . . . . . . . . . 152
Results of Operations - The Esperanza Program. . . . . . . . . . . . . . . . . . . . . 153
Results of Operations - The Stacey Rose Properties A and B Programs. . . . . . . . . . 153
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Historical Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
New Accounting Pronouncements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
MANAGEMENT FOLLOWING THE ACQUISITION . . . . . . . . . . . . . . . . . . . . . . . . . . . 157
Executive Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 159
Directors and Executive Officers Compensation and Incentives . . . . . . . . . . . . . 162
Stock Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
401(k) Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Limitation of Liability and Indemnification. . . . . . . . . . . . . . . . . . . . . . 165
v
<PAGE>
PRIOR PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
PRIOR PERFORMANCE SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
SECONDARY MARKET FOR TENANCY-IN-COMMON INTERESTS . . . . . . . . . . . . . . . . . . . . . 177
PRINCIPAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Principal Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Director and Officer Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . 178
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
Warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Certain Shareholder Voting Requirements. . . . . . . . . . . . . . . . . . . . . . . . 180
Transfer Agent and Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
Offering of Acquisition Units. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181
Concurrent Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
APPRAISALS AND FAIRNESS OPINION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
Experience of Independent Appraisers . . . . . . . . . . . . . . . . . . . . . . . . . 184
May 1997 Appraisals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
The Mentor Appraisal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186
Conflicting Yosemite/Ahwahnee Properties' Appraisals . . . . . . . . . . . . . . . . . 187
On-Going Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
Updates/Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
Qualification of the Acquisition as a Qualifying Section 351 Transaction . . . . . . . 189
Federal Income Tax Consequences of the Acquisition . . . . . . . . . . . . . . . . . . 191
Federal Income Tax Consequences to Investors After the Effective Date. . . . . . . . . 193
REPORTS TO SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
FURTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C> <C>
APPENDICES
- ----------
Appendix 1 Fairness Opinion . . . . . . . . . . . . . . . . . . . . A-1
Appendix 2 Selected Additional Appraisal Information. . . . . . . . A-2
</TABLE>
ACCOMPANYING THE PROSPECTUS
- ---------------------------
- - PROGRAM SUPPLEMENT
- - OFFICIAL INVESTOR BALLOT
- - Instructions to Investors on How to Complete the Official Investor Ballot
vii
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARIZES MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
ELSEWHERE IN THIS PROSPECTUS.
THE PROPOSAL
From 1987 to 1993 National Investors Financial, Inc. ("National")
arranged loans secured by first trust deeds on real estate and sold
fractional, tenancy-in-common interests in such loans to investors. National
coined the term "Trudy Pat" as a shorthand description for the TRUST DEED
LOAN PARTICIPATION programs which were sold pursuant to permits issued by the
California Department of Corporations. Pursuant to servicing agreements with
each investor in each program, National has collected and distributed
interest and principal payments, if any, on the loans, acted to
take title on behalf of the investors where loans have gone into default, and
managed the properties after the defaults. While they are trust deed loan
participation programs, the Esperanza and Stacey Rose A and B programs were
not sold as "Trudy Pat" programs but as private placement offerings. Thus,
they are not referred to as "Trudy Pat" programs in this prospectus.
Since taking title to the properties for the benefit of investors,
National's objective has been to position the underlying properties so that
the maximum amount of investor capital can be recovered in the shortest
period of time. To the extent any offers to purchase any of the properties
have been received since the investors have taken ownership, these offers
have been substantially less than the invested amount and have not been
approved by applicable investors. Additionally, the current appraised value
for each of the properties is less than the original investment amount.
American Family Holdings, Inc., a Delaware corporation (the "company" or
"we"), was founded by the principals of National. It has offered to acquire
the properties and other assets including cash reserves of the seven "Trudy
Pat" programs and the other three non-"Trudy Pat" programs named on the cover
page of this prospectus for an aggregate exchange value of $[28,066,419] in
the form of [1,403,321] units arbitrarily valued at $20 per unit. The units
consist of one share of company common stock plus warrants to buy three
additional shares. Each warrant permits the holder to buy one share of the
company's common stock. [The warrants are exercisable for a 20-day period
commencing six months following the completion of the acquisition at a price
equal to 80% of the average closing prices of the company's common stock over
the 20 trading dates immediately preceding the first exercise date. The
warrants will be allowed to be separated from the units [60] days after
issuance.]
Each program has been assigned its own exchange value in order to
allocate the units. The exchange values assigned each program may not be the
price at which that program's property could be sold to a willing buyer.
However, it is reflective of National's estimate of the amount that would be
available after a current sale for distribution to that program's investors
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<PAGE>
after taking into account other program assets, as well as all outstanding
obligations of the program.
The various properties owned by the programs are geographically and
functionally diverse. The Sacramento/Delta Greens property is vacant land to
be developed for residential lots. The Yosemite/Ahwahnee properties consist
of some developed recreational vehicle spaces, some developed residential
lots and vacant land to be developed into additional recreational vehicle
spaces and timeshare units. The Oceanside property consists of the
Yosemite/Ahwahnee Golf Course and some surrounding land that is available for
future development. The Mori Point property is vacant land to be developed
into a hotel/conference center facility. The Cypress Lakes property is vacant
land to be developed into a golf course and residential lots. The
Palmdale/Joshua Ranch property is vacant land to be developed into large
residential lots and an equestrian community. The Esperanza property is
vacant land to be developed into a commercial project. The Stacey Rose A and
Stacey Rose B properties are contiguous vacant parcels of land that are to be
developed into residential lots, along with a third parcel acquired by
National for the benefit of the Stacey Rose investors.
By voting for the acquisition of your property in exchange for the
company's units, you will also be approving the transfer to the company of
cash reserves, if any, in your program, as well as the use of the cash
reserves by the company to further its overall business plan and not for
distributions. Cash reserves have been included in determining the exchange
value of your program.
SUMMARY RISK FACTORS
The following is a summary of the potential disadvantages, adverse
consequences and risks of the acquisition. This summary is qualified in its
entirety by the more detailed discussion in the section entitled "Risk
Factors" contained in this prospectus beginning on page __.
THERE WILL BE A FUNDAMENTAL CHANGE IN THE NATURE OF YOUR INVESTMENT. If
the acquisition is completed, there will be a change in the nature of the
investment of each investor from holding a tenancy-in-common interest in real
estate to holding shares (and the right to buy additional shares) in an
on-going company, the assets of which may be changed from time to time
without approval of investors. If the acquisition is completed, investors
will be able to liquidate their investments only by selling their shares on
the _____ or in private transactions, and they will not receive a
return of their investment in the form of liquidation proceeds through
property sales. If the acquisition is completed, investors will have an
investment as stockholders in an entity that is larger than each of the
programs and will thus lose relative voting power.
THE EXCHANGE VALUES OF THE PROGRAMS ARE NOT THE SAME AS THE POTENTIAL
SALES PRICE. Investors are subject to the risk that the exchange value of a
program does not reflect the price a program's assets might bring in a sale.
If the property of a program were to be sold, the net proceeds of the sale
and the amount finally distributed to an investor in that program may be more
or less than the exchange value. There is no assurance that the future value
of the shares and warrants received in the acquisition will be greater than
the most recent appraised value of the property. See footnote 5 to the table
in "Background and Reasons for the Acquisition --
2
<PAGE>
Calculation of Exchange Value" for an explanation of possible increase in the
number of units to be received if a property is sold for cash for more than
appraised value prior to December 31, 1999.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. Initially, shares may
trade at prices substantially below the arbitrarily determined exchange value
of $20 per unit or the historical book value of the company's assets. There
is no guaranty that a liquid trading market will develop for the shares, or
be sustained. If a trading market develops for the shares, the price of
shares after the acquisition will likely decrease below the exchange value
per share of $20 due to a potentially large number of shares that some
investors may sell immediately after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN STRUCTURING THE ACQUISITION. The
founders of the company, and specifically the principal shareholders of
National, as well as National itself, will be subject to conflicts of
interest. The principal shareholders and employees of National and the
company will hold approximately [16.35]% (6.23% if all the units are sold in
the concurrent offering and 4.66% if all the units are sold in the concurrent
offering and all warrants in units issued in the acquisition are exercised)
of the company's outstanding stock for which they paid $0.01 per share.
Other founding shareholders will hold approximately [2.3]% of the company's
outstanding stock (0.88% if all the units are sold in the concurrent offering
and 0.66% if all the units are sold in the concurrent offering and all warrants
issued in the acquisition are exercised) for which they also paid $0.01 per
share. Thus, the investors' total ownership interests in the programs'
properties will be diluted by the equity interest in the company held by the
founders of the company. The principal stockholders of National, and other
executive officers of the company, will receive annual cash compensation
aggregating $560,000 as officers and employees of the company. National will
be relieved of its asset management obligations and will no longer earn asset
management fees. However, despite the fact that National will have forgiven
over $3,800,000 of unpaid fees and expenses, the company will still owe
National and its principals and employees over $[1,800,000] of accrued but
unpaid fees and expenses.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not
favored by the board of directors. These provisions include a board of
directors with three classes serving staggered three year terms, the
inability to remove a particular director before the expiration of his or her
term without a two-thirds supermajority vote , and the inability to amend the
anti-takeover provisions of the charter documents without a similar vote.
Thus, if investors are unhappy with management's performance, it will be more
difficult to remove directors not favored by the investors.
NO INDEPENDENT PARTY WAS RETAINED BY NATIONAL TO NEGOTIATE THE
ACQUISITION ON BEHALF OF THE INVESTORS. Therefore, terms of the acquisition
may be less favorable to investors and more favorable to founders of the
company which included the principal shareholders of National than if the
acquisition had been subject to arm's-length negotiation. Had an independent
party negotiated on behalf of each program, the terms of the acquisition may
have been more favorable
3
<PAGE>
to certain or all of the programs and fewer shares and less favorable
employment contracts may have been received by the founders of the company.
THE ACQUISITION MAY NOT BE A TAX-FREE TRANSACTION TO INVESTORS. Due to
uncertainties in the facts of this transaction, tax counsel is unable to
opine conclusively on the tax consequences of the acquisition to investors.
The acquisition may be taxable, if at all, only with respect to the
investors' receipt of warrants. Alternatively, if the acquisition is a fully
taxable transaction, an investor would recognize gain or loss in 1998 equal
to the difference between the investor's tax basis in his interest in a
program property, and the number of units of the company received valued at
$20 per unit. If the acquisition is treated as fully taxable, National
believes most investors would recognize a tax loss.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the
acquisition, none of the properties will be subject to any liens other than
for property taxes. The board of directors could authorize borrowing by the
company. The debt service for the loans may adversely affect the company's
ability to make distributions to shareholders. The company may incur full
recourse debt which exposes all of the assets of the company to repayment
instead of limited recourse debt which generally exposes specific properties
for the repayment of debt.
THE BOARD OF DIRECTORS MAY UNILATERALLY CHANGE INVESTMENT, FINANCING AND
CERTAIN OTHER POLICIES WITHOUT SHAREHOLDER APPROVAL. Although the board of
directors of the company intends to implement the business plan set forth
herein, the board will have the ability to change investment, financing and
other policies of the company without the consent of shareholders.
THERE WILL BE NO APPRAISAL OR SIMILAR RIGHTS FOR NONCONSENTING
INVESTORS. If you vote against the acquisition, and it is approved, you will
not be able to object to the acquisition and receive the appraised value of
your tenancy-in-common interest in your program's assets. You will have no
choice other than to accept units for your interests.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed a little
over a year ago to take part in the acquisition of your property. It does
not have the benefit of operating for a long time. This means that shares in
the company are much riskier than ownership of shares of established
companies. If the company had been operating as if it owned the properties
which it desires to acquire, it would have experienced losses to date.
THERE WILL BE FUNDAMENTAL CHANGES IN THE BUSINESS PLAN IF THE
ACQUISITION TAKES PLACE. Rather than being focused on a single property, the
company will be an infinite life entity focused on the management of the
properties of the seven former "Trudy Pat" programs plus the property of
other programs which elect to participate in the acquisition. The effect of
this on investors is two-fold. First, poor performance of a particular
property may affect the company's operations as a whole regardless of the
performance of the other properties. Second, there will be no particular
time when an investor can expect that a sale of any of the properties will
result in cash distributions to him or her.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes
affecting, or sales of, a particular property. Those decisions will be made
by the board of directors or
4
<PAGE>
management. In addition, you will have an investment in an entity that is
larger than each of the programs and, thus, you will lose relative voting
power.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular principal and interest payments on
their original investments, because of the borrowers' defaults there have
been no distributions from any of the programs, other than the Oceanside
program, in the past three years. Future cash distributions will be based on
the company's earnings and the decision of the board of directors to pay
dividends. Therefore, even if a property in which you formerly held an
interest were to perform well, there is no assurance that there would be cash
distributions to you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. Prior to the
dates that title to the properties securing the original program loans was
taken, National was entitled to an annual loan servicing fee equal to one
percent of the original loan amounts. When title to the properties was taken
on behalf of the programs, even though the loans no longer existed, National
continued to charge the same rate as the servicing fee for the asset
management services it provided to investors. The investors in each of the
programs had become the beneficial tenant-in-common owners of real estate,
most of which was undeveloped. While it had no obligation to do so, in order
to assist the beneficial owners in protecting their real estate assets and
readying them for sale or development, National assumed the duties of an
asset manager after title was taken to the properties. In this capacity,
National obtained information from investors about their objectives in regard
to the development or sale of the properties and facilitated the assessment
of the investors to raise funds necessary to perform the activities required
to meet those objectives, including paying property taxes, insurance and
other costs of property ownership.
The annual fees payable to National are currently $50,000 for
Sacramento/Delta Greens; $241,500 for Oceanside; $61,068 for
Yosemite/Ahwahnee I; $133,646 for Yosemite/Ahwahnee II; $100,000 for Mori
Point; $140,000 for Cypress Lakes; $150,000 for Palmdale/Joshua Ranch; $5,000
for Esperanza; $3,153 for Stacey Rose A; and $850 for Stacey Rose B.
In addition to the one percent fee, compensation has been earned for
property management services provided to the Oceanside program ($896,000
accrued since the date of ownership (November 1993) through August 31, 1998;
$896,000 actually paid) and Yosemite/Ahwahnee properties ($594,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervision of: entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside and
5
<PAGE>
Yosemite/Ahwahnee projects; and contract negotiations and documentation. To
the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
In the future, compensation will be paid to officers of the company in
the form of salaries (aggregating $560,000 annually plus contractual bonus
opportunities and salary increases), stock options and other benefits. See
"Management Following the Acquisition -- Directors and Executive Officers
Compensation and Incentives" for details of stock options and other benefits.
These salaries and other forms of compensation will be payable to management
of the company even if one or more of the properties acquired in the
acquisition is subsequently sold.
HOLDERS OF MAJORITY OF TENANCY-IN-COMMON INTERESTS BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of outstanding
interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THE EXCHANGE VALUES FOR THESE
PROPERTIES MAY BE TOO LOW OR TOO HIGH. National reviewed the updated March
1998 appraisal of the Yosemite/Ahwahnee properties which reflected an
aggregate "as is" appraised value of $20,246,000 and the October 1996
appraisal which reflected an "as is" aggregate appraised value of $4,000,000.
The results of those appraisals clearly differed from each other, and, in
management's judgment, the difference could not be accounted for solely by
improving market conditions. Some of the parcels, including the golf course,
were subsequently sold, on June 5, 1998, to the Oceanside Program investors
to obtain working capital for the Yosemite/Ahwahnee Programs. Based on its
review of all appraisals, National concluded that the properties currently
owned by the Yosemite/Ahwahnee I and II Programs have values of $5,486,000
($1,782,950 and $3,703,050, respectively), and the parcels currently owned by
the Oceanside Program have a value of $5,080,000. National believes its
approach is reasonable.
THERE WILL BE SIGNIFICANT REAL ESTATE RISKS ASSOCIATED WITH THE
COMPLETION OF THE COMPANY'S PROPOSED BUSINESS PLAN. These risks exist for
the programs whether or not the acquisition is approved. These include
(i) the need to raise additional cash funds to pay delinquent
property taxes on each of the properties, as well as keeping those property
taxes current in the future (without needed cash, one or more properties may
be lost at a tax sale in the future at below market prices);
(ii) the need to pay for the costs associated with maintaining and
obtaining permits and government approvals to develop the properties (without
such permits and approvals, management believes the properties might be less
marketable, requiring months or even years to sell, because there are fewer
buyers at the early stage of development of certain projects);
(iii) the cost of holding land to be developed and built upon at
Sacramento/Delta Greens (presently approximately $10,000 per month) or Mori
Point (presently approximately $25,000 per month) or Cypress Lakes (presently
approximately $15,000 per month) or
6
<PAGE>
Palmdale/Joshua Ranch (presently approximately $25,000 per month) or
Esperanza and Stacey Rose A and B properties (presently approximately $5,000
per month together);
(iv) the cost of development, operation and maintenance on the various
aspects of the Yosemite/Ahwahnee project in order to increase revenue and
marketability could exceed funds available; and
(v) the payment of over $[1,800,000] accrued fees and expenses to
National and its principals. Additionally, there are particular risks
related to each of the programs' properties more specifically described in
"Risk Factors -- Real Estate Risks" commencing at page __.
IT WILL BE DIFFICULT TO CHANGE MANAGEMENT DUE TO CERTAIN ANTI-TAKEOVER
PROVISIONS IN THE COMPANY'S CHARTER DOCUMENTS AND IN THE DELAWARE LAW. These
risks of management entrenchment include:
(i) the ability of the board of directors to cause the company to issue
additional shares or classes of shares which could dilute your voting power;
(ii) the fact that only one-third of the board of directors is elected
each year making it difficult for shareholders to quickly cause changes in
management;
(iii) restrictions on business combinations with holders of more than
15% of the outstanding voting stock of the company imposed by Delaware law;
and
(iv) changes to the company's certificate of incorporation relating
to anti-takeover provisions requires a two-third approval vote.
For more details, see "Risk Factors -- Anti-Takeover Provisions and
Limitation of Director Liability" commencing at page __.
EXCHANGE VALUE/ALLOCATION OF SHARES
The programs' properties have been appraised by the independent
appraisers identified on page __. Those appraisals were either dated or
updated to reflect values as of March 31, 1998. The exchange value for a
program property is its appraised value adjusted by increasing the appraised
value by the program's cash reserves and other assets, and reducing it by
program liabilities. If, after the acquisition is complete, the company
completes the sale of any of the properties for more than the March 1998
appraised value, the company will pay to the former owners of such
property(ies) an additional number of units (valued at [$20] per unit
regardless of the then market value of the shares included in the units). The
number of additional units issuable will be determined as follows: cash
proceeds of such sale (net of brokers' commissions, closing costs and
interest on deferred purchase price payments) up to 200% of the March 1998
appraised values used to compute the exchange value of the property that are
received on or before December 31, 1999 less the appraised value used to
compute the exchange value of the property divided by $20. (For example, if
the March 1998 appraised value of a property was $1,750,000 and the net cash
sale proceeds received
7
<PAGE>
by December 31, 1999 from the sale were $3,600,000, then the maximum number
of additional units available for allocation among that property's former
owners would be $1,750,000 divided by $20 or 87,500 units. (NO ADDITIONAL
UNITS WOULD BE ISSUED FOR THE AMOUNT OF NET CASH PROCEEDS RECEIVED IN EXCESS
OF 200% OF THE MARCH 1998 APPRAISED VALUE USED TO COMPUTE THE PROPERTY'S
EXCHANGE VALUE.) All of the cash received would be retained by the company as
working capital. (Presently, only the Cypress Lakes property has received a
purchase proposal at substantially in excess of the March 1998 appraised
value. The company will pursue such offer if the acquisition is completed.)
There is no assurance that any of the other programs will benefit from this
provision in the future.
The exchange value of a program is not the price a program might receive
if it elected to sell its property now rather than participate in the
acquisition proposed by the company. Net proceeds from such a sale price
might be higher or lower than the exchange value amount the company is
willing to pay. When the exchange value for a property is less than its
appraised value, it is due primarily to accrued liabilities of the programs'
investors. See "Background and Reasons for the Acquisitions -- Calculation of
Exchange Value."
National and the company believe that the programs, when unified and
operated together, have financial advantages for each other which increase
their potential, and which are not available to the programs individually due
to the limitations of the current tenancy-in-common form of ownership of the
programs' properties.
The number of units to be assigned to each program was determined by
dividing the program's exchange value by the total exchange value of all the
properties and multiplying that fraction by the total number of units to be
paid by the company. Units will be distributed to you in accordance with
your pro rata investment in a program (including interest accrued to you
through the date you took beneficial ownership of the property and any
assessments paid subsequent to that time) after adjusting the amounts to
account for voluntary advances and interest thereon made by some investors.
The following table shows investors (i) each program's exchange value,
(ii) the number and percentage of units allocated to each program if the
acquisition is consummated, with all the programs, or with only the seven
"Trudy Pat" programs and (iii) the number of units to be received per $10,000
of investment in a particular program with all programs included in the
acquisition and with only the seven "Trudy Pat" programs included. The
information is as of August 31, 1998. [to be updated to the month end prior to
the final prospectus date]
8
<PAGE>
<TABLE>
<CAPTION>
% of Total No. of Units
% of Total Units to be per $10,000
Number of Units to be Outstanding No. of Units of Adjusted
Units Outstanding After the per $10,000 Outstanding
Number of Allocated if After the Acquisition of Adjusted Investment if
Units Only Seven Acquisition if Only Outstanding Only "Trudy
Allocated if "Trudy Pat" if All "Trudy Pat" Investment if Pat"
Exchange All Programs Programs Programs Programs All Programs Programs
Name of Program Value Participate(1) Participate(1) Participate(2) Participate(3) Participate Participate
--------------- ----- -------------- -------------- -------------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sacramento/Delta Greens $1,570,486 78,524 78,524 4.55 4.61 128 128
Oceanside 5,373,057 268,653 268,653 15.56 15.77 111 111
Yosemite/Ahwahnee I 2,210,036 110,502 110,502 6.40 6.49 122 122
Yosemite/Ahwahnee II 4,590,076 229,504 229,504 13.29 13.47 117 117
Mori Point 5,413,036 270,652 270,652 15.67 15.88 219 219
Cypress Lakes 5,824,928 291,246 291,246 16.86 17.09 153 153
Palmdale/Joshua Ranch 2,621,882 131,094 131,094 7.59 7.69 72 72
Esperanza 216,356 10,818 0.63 185 -
Stacey Rose A 52,345 2,617 0.15 229 -
Stacey Rose B 194,.217 9,711 0.56 228 -
----------- ------------- ------------- ------------- ------------ ----------- ---------
TOTAL $28,066,419 1,403,321 1,380,175 81.26%(4) 81.00% 1,564 922
----------- ------------- ------------- ------------- ------------ ----------- ---------
----------- ------------- ------------- ------------- ------------ ----------- ---------
</TABLE>
- -----------------
(1) A unit consists of one share of common stock plus warrants to buy three
additional shares at 80% of the closing price on the trading date
immediately prior to the date of exercise. See "Description of
Securities."
(2) Represents [5.60%], [19.14%], [7.87%], [16.35%], [19.29%], [20.75%],
[9.34%], [0.77%], [0.19%] and [0.69%], respectively, of the units to be
issued to investors in the acquisition.
(3) If none of the Esperanza, Stacey Rose A and Stacey Rose B programs
participate, these percentages would be 5.69%, 19.47%, 8.01%, 16.63%,
19.61%, 21.10% and 9.50%, respectively.
(4) This becomes 92.9% if all the units are sold in the concurrent offering
and 94.7% if all the units are sold in the concurrent offering and all the
warrants issued in the acquisition are exercised.
CURRENT STATUS OF THE PROGRAMS
Each of the programs began as tenancy-in-common, secured loan
arrangements. Each of the properties that secured the loans was independently
appraised at the time the loan was made. Due to the borrowers' defaults on
the loans, National undertook the activities necessary so that the investors
in each of the programs became the beneficial owners of the real estate that
secured the loans and acted as the manager of the programs' assets for the
benefit of investors after title was taken. Based on investors' stated
objectives, National has been directed to maximize the recovery of the
investors' principal. The significant decline in real estate values in
California during much of the 1990s (especially for undeveloped land) has
made attaining this objective unattainable for the properties under their
current independent structure.
The properties owe a significant amount of property taxes totalling over
$[1,000,000] as of August 31, 1998. This amount includes those taxes due
under payment plans that have been paid on a current basis. Under California
statute, property owners have the option of entering into a payment plan no
later than five years following June 30th of the first year a tax payment
becomes past due. Thus, the property owner may elect to accumulate up to five
years of
9
<PAGE>
taxes into the plan, along with any penalties and accrued interest. Payments
are then spread evenly over the next five years and are due each April 10th
along with accrued interest on the remaining balance. The plan remains in
effect, as long as all current property taxes and all past due plan payments
are made on time, until the balance is reduced to zero. In order to preserve
cash, National arranged for payment plans for past due taxes on behalf of
certain programs and anticipates placing others into such plans. The
following chart summarizes the status and amount paid and/or due for each
property on a cash basis. The financial statements herein account for these
taxes due on an accrual basis.
Property Taxes Paid in April 1998
<TABLE>
<CAPTION>
Payment Plan
Past Due Total Balance
Program Current Year Payment Plan Payments Remaining
------- ------------ ------------ -------- ------------
<S> <C> <C> <C> <C>
Sacramento/Delta Greens $ 16,545 $ 35,540 $ 52,085 $ 26,132
Mori Point 20,503 121,220 141,723 157,413
Palmdale/Joshua Ranch 9,461 53,200 62,661 69,092
------------- ------------- ------------ ------------
Total $ 46,509 $ 209,960 $ 256,469 $ 252,637
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
</TABLE>
Property Taxes Paid in June 1998
<TABLE>
<CAPTION>
Payment Plan
Past Due Total Balance
Program Current Year Payment Plan Payments Remaining
------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
Oceanside $ 53,690 $ 33,416 $ 87,106 $ 0
Yosemite/Ahwahnee 106,983 126,518 233,501 506,070
Stacey Rose Properties 4,843 7,523 12,366 29,670
----------- ------------- --------- ------------
Total $ 165,516 $ 167,457 $ 332,973 $ 535,740
----------- ------------- --------- ------------
----------- ------------- --------- ------------
</TABLE>
Estimated Property Taxes Scheduled for Payment in June 2000
<TABLE>
<CAPTION>
Payment Plan
Past Due Total Balance to be
Program Current Year Payment Plan Payments Remaining
------- ------------ ------------ -------- -------------
<S> <C> <C> <C> <C>
Cypress Lakes $ 34,300 $ 62,800 $ 97,100 $ 251,200
Esperanza 3,700 5,800 9,500 23,200
------------ ------------ ---------- ------------
Total $ 38,000 $ 68,600 $ 106,600 $ 274,400
------------ ------------ ---------- ------------
------------ ------------ ---------- ------------
</TABLE>
The Sacramento/Delta Greens Program is in the fourth year of its payment
plan and the Mori Point and Palmdale/Joshua Ranch Programs are in the third
year of their respective plans. As of July 1998, the Yosemite/Ahwahnee and
Stacey Rose Programs entered into the first year of their respective payment
plans. If not sold, then the Cypress Lakes and Esperanza Programs are
expected to enter into five-year payment plans in June 2000 if delinquent
taxes are not paid prior to that time.
In addition to property tax liabilities, working capital is needed in
order to position the properties for sale on terms that might be approved by
a majority of investors. Only the golf course owned by the Oceanside Program
and the recreational vehicle park portion of the Yosemite/Ahwahnee properties
have any operating cash flow and that is not enough to cover
10
<PAGE>
operating expenses much less provide working capital needed to complete
conceptual plans, comply with the governmental permitting requirements and
eventually construct other improvements on the land. The programs'
tenancy-in-common agreements contain provisions for voluntary advances and
mandatory assessments by investors. Investors have progressively
demonstrated a reluctance to provide adequate working capital through the
mandatory assessment process. This reluctance on the part of investors to
provide the necessary funding to maintain the properties, pay for minimal
expenses such as property taxes, and continue the predevelopment approval
process makes continuation of the status quo tenuous at best.
The remaining Oceanside property was sold on June 5, 1998 for a gross
amount of $6,672,099. This was significantly greater than its May 1997
appraisal of $2,850,000. As part of the approval process, Oceanside
investors directed that $3,000,000 of that amount be distributed back to them
and that $3,550,000 be used to purchase the Yosemite/Ahwahnee golf course and
certain additional land around the golf course that is being held for future
development. The golf course was leased back to the Yosemite/Ahwahnee
programs for five years on a fully net basis for $80,000 for the first year,
and $140,000, $250,000, $380,000 and $380,000 for the succeeding years. The
golf course currently has a negative cash flow of approximately $350,000 per
year which is the responsibility of the Yosemite/Ahwahnee Programs based on
this lease-back arrangement of that property from the Oceanside Program. The
Yosemite/Ahwahnee Programs will also have the responsibility for payment of
future property taxes during the term of the lease. A sale, if possible, at
either the recent purchase price or the exchange value would not generate
sufficient funds to return all of the Oceanside investors money.
The Sacramento/Delta Greens property may be sold for a cash price
approximating its March 1998 value but National believes that there will be
more potential buyers if the final engineering and permitting processes are
completed at a cost of approximately $175,000. Nevertheless, since the
amount that might be realized is substantially less than the outstanding
investment, the sale of this property at current prices will not yield all or
a substantial portion of the investors' money at this time.
Without an infusion of approximately $[3,000,000] of additional capital,
the Yosemite/Ahwahnee properties (some of which are now owned by Oceanside
investors) cannot reach a point where they are developed enough to be able to
eliminate losses from operations and break even on the lease obligations to
the Oceanside program investors for the golf course. The March 1998
appraisal was used for the estate lots and for the balance of the land to be
developed with timeshare units and additional recreational vehicle sites.
Although a buyer may be found at the assigned appraised value, this amount
would not generate sufficient funds to return all or a substantial portion of
the investors' money at this time.
At present, Mori Point is vacant land with a proposal to be developed
into a hotel/conference center. In order to continue the predevelopment
effort, approximately $500,000 of capital is needed to proceed with the real
estate permitting process and to establish a plan to protect the habitat of
two endangered species that are located on the property. Although a buyer
may be found at the March 1998 appraised value, it is the opinion of National
that any buyer will
11
<PAGE>
insist that completion of a habitat conservation plan be a condition of the
closing of the sale. Even a sale at the March 1998 appraised value would not
generate sufficient funds to return all of the investors' money at this time.
If the current proposed sale is not consummated, the Cypress Lakes
property must undergo some redesign in order to reduce the estimated
infrastructure costs, particularly those related to the construction of a
levee around it. It is estimated that this redesign and related engineering
and legal costs to change the map could cost approximately $400,000.
Without a significant increase in the demand for property from homebuilders
for additional lots in eastern Contra Costa County, the best short-term
strategy to maximize the return of capital may be to hold the property in
anticipation of being able to sell it in bulk when that demand does finally
develop. A bulk sale at the current appraised value would not result in
enough funds to return all of the investors capital at this time.
The Palmdale/Joshua Ranch property has some significant challenges in
regard to infrastructure costs, particularly for a main road and utilities.
These costs preclude any profitability of a build-out under current market
conditions. A vested tentative map was secured in early July 1998 on the
property by National on behalf of the investors. The vested tentative map
approval is a significant document that helps to insure that local government
intervention will not stop the development process and it helps to lock in
certain governmental fees at current rates subject to only Consumer Price
Index increases. Approximately $[140,000] of capital is needed to complete
final soils and grading studies which are needed to attract a potential buyer
or joint venture partner. Based on the net value of each lot in the current
market, management believes that it may be best to sell the property in bulk
unless some of the infrastructure costs can be reduced, eliminated or
financed on realistic terms. A bulk sale at the March 1998 appraised value at
this time would not generate sufficient funds to return the investors'
capital at this time.
The Esperanza property is zoned commercial. Unfortunately, the current
market demand in the area does not justify the build out of the site at this
time. In National's opinion, the property should be discounted and sold. It
cannot be sold for the original loan amount at this time.
The Stacey Rose A and Stacey Rose B properties are contiguous properties
that are zoned residential. Additionally, National owns a third contiguous
parcel on behalf of these two groups of investors. It is estimated that it
may cost $50,000 to finalize a tentative tract map on the parcels. The
property could contain up to 160 lots. The property could also be held for a
bulk sale without spending the capital to obtain the tentative map. However,
a bulk sale at the March 1998 appraised value would not generate sufficient
funds to return the investors' capital.
Attempts have been made to sell or develop on a joint venture basis all
or portions of each of the properties. However, the offers have been
rejected by investors (in the case of Sacramento/ Delta Greens in 1994 and
Mori Point in 1996) as inadequate or not forthcoming at all (in the case of
the Yosemite/Ahwahnee, Cypress Lakes, Palmdale/Joshua Ranch, Esperanza and
Stacey Rose programs). Prior to the recent sale of the remaining lots of the
Oceanside
12
<PAGE>
property, two offers had been received that were considered by National to be
inadequate. See "Background and Reasons for the Acquisition --Efforts to
Dispose of the Properties." The Sacramento/Delta Greens and the
Palmdale/Joshua Ranch properties have been presented to several local area
homebuilders in the last year without yielding any significant immediate
interest or negotiations toward a sale. National continues to explore the
possibility of selling all of these properties, but, to date, no brokers have
been hired. Even though National is a licensed real estate broker and, along
with its land development consultants, has the resources to identify
potential buyers for projects of this type and size, it has recently
requested proposals from several national real estate brokerage firms, as
well as some local ones that specialize in land transactions in the vicinity
of certain of the properties. The estate lots at the Yosemite/Ahwahnee
properties have been previously listed with a broker for sale, as have the
Mori Point, Cypress Lakes, Esperanza and Stacy Rose properties. National
also made efforts to interest two potential buyers or joint venture partners
in the Yosemite/Ahwahnee properties as a package immediately after the
foreclosure in 1995. However, the buyers could not perform and purchase
contracts were not consummated. Since then, the project has not been
packaged or listed for a bulk sale because National feels a better price can
be attained for some of the parcels independently or after further
development of the recreational vehicle spaces and planned timeshare program
is conducted. Joint venture partners willing to become associated with the
unwieldy tenancy-in-common ownership structure which requires so many persons
to approve any significant action have been difficult to locate. Currently,
the Yosemite/Ahwahnee properties experience a steady negative cash flow which
few, if any, buyers are willing to accept. Other than the sale of the golf
course and certain adjacent property to the Oceanside investors, only offers
for certain of the estate lots have been consummated. No offers that
resulted in purchase agreements have been received for the Yosemite/Ahwahnee
properties as a package. For a period of one year in 1992 to 1993, the Mori
Point property was listed with a reputable national commercial brokerage
firm. No offers were received. The brokerage contract was not renewed, and
no recent efforts have been made to sell it because the investors instructed
National to continue to pursue obtaining the necessary governmental permits
to develop a hotel/conference center on the property in order to achieve
their objectives of a greater return of their capital. During two separate
time frames in 1995 and 1996, the Cypress Lakes property was listed with two
separate real estate brokerage firms; however, no purchase agreements were
received. An offer to purchase the property for $11,550,000 ($5,550,000 in
excess of the March 1998 appraised value) was presented to the Cypress Lakes
investors in June 1998. Holders of a majority-in-interest of invested funds
have not approved the sale. National briefly listed the Esperanza property
with a local Victorville real estate broker in the early 90s but, after about
one year, took the property off the market when no offers were received that
were acceptable to investors. National did not renew the listing agreement
while waiting for the real estate market to improve.
The acquisition has been proposed because National and the company
believe that the properties, when combined and used or sold for their mutual
benefit instead of separately operated or sold, can be sold and/or developed
in a way that will increase the overall value available to investors. This
proposal provides an alternative way to achieve the investors' goal of
maximizing a return of their original principal. While there can be no
assurance that the company will achieve that goal for the investors through
its stock price, continuing to attempt to
13
<PAGE>
achieve the investors' goals for each property separately does not appear to
provide any likelihood of achieving that objective, because there is a
natural reticence among the investors to contribute adequate capital to pay
the property taxes or sustain the property-related holding costs any longer.
If the acquisition occurs, the properties and assets belonging to the
programs will all become assets of the company, and you will be shareholders
of the company. The value of the company will be reflected in the market
value of its shares. Thus, through the market value of the shares, you may
receive a higher percentage of your outstanding investment than you might
receive if the properties were operated or sold within their separate
programs. However, it is not known whether a market will develop or what the
market price for the shares will be and, therefore, it cannot be known
whether the value of the shares allocated to each program will ever exceed
the price that the properties might bring in a cash sale. See "Background
and Reasons for the Acquisition -- Comparison of Alternatives" at page __.
THE COMPANY
The company was formed on August 6, 1997 to conduct the acquisition.
The founding shareholders of the company are Yale Partnership for Growth and
Development, L.P. and J-Pat, L.P., family partnerships established by David
Lasker and James Orth, respectively, as well as other employees, consultants
of National, or the company. The company has no operating history. The
company's principal executive offices are located at 4220 Von Karman Avenue,
Suite 110, Newport Beach, California 92660, telephone number 1-800-590-7772.
ORGANIZATION CHART
After the acquisition, [81.26]% (92.9% of all units are sold in the
concurrent offering and 94.7% if all the units are sold in the concurrent
offering and all warrants issued in the acquisition are exercised) of the
company's outstanding shares will be owned by the investors and [18.74]%
(7.1% if all units are sold in the concurrent offering and 5.3% if all the
units are sold in the concurrent offering and all warrants issued in the
acquisition are exercised) will be owned by the founders of the company.
Management of the properties will be coordinated through a to-be-formed
wholly-owned subsidiary to be named American Family Communities, Inc. If all
programs participate in the acquisition, title to the properties will be held
by, and day-to-day operations will be conducted through seven separate
wholly-owned subsidiaries of American Family Communities, Inc. The ownership
and organization of the company after the acquisition will be as follows:
14
<PAGE>
<TABLE>
<S> <C> <C> <C>
Yale Partnership
for Growth and J-Pat, L.P. Consultants and
All Programs' Development, (controlled by other employees
Investors L.P. (controlled James Orth, a or former employees
by David Lasker, principal of of National or
a principal of National) Company
National)
[81.26]%(1) [6.88]%(1) [6.88]%(1) [4.98]%(1)
American Family Holdings, Inc.
100%
American Family
Communities, Inc.(2)
100%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Delta Yosemite Palmdale/ Victorville
Greens Woods Mori Point Cypress Joshua Esperanza Homes,
Homes, Family Destinations Lakes, Ranch, Land, Inc.(3) Inc.(3)
Inc.(3) Resort, Inc.(2) Inc.(3) Inc.(3)
Inc.(3)
</TABLE>
- -----------------
(1) These percentages will be 92.9%, 2.62%, 2.62% and 1.9%, respectively, if
all of the units are sold in the concurrent offering and 94.7%, 1.96%,
1.96% and 1.42%, respectively, if all of the warrants included in the
units to be issued in the acquisition are exercised.
(2) A subsidiary formed to coordinate the management and operation of the
properties. L.C. "Bob" Albertson, Jr. will be the Chief Executive
Officer and, as such, responsible for this entity and the wholly-owned
operating subsidiaries.
(3) Subsidiaries formed to hold title to the various properties and to conduct
the day-to-day operations.
ALTERNATIVES TO THE ACQUISITION
The alternatives to the acquisition that National considered were (a)
continuing the operations of each of the programs under their respective
separate business plans, (b) liquidation of each of the programs either
directly or through auctions or in the context of a bankruptcy, and (c) a
bankruptcy reorganization of the programs. Even though National continues to
seek buyers at prices in excess of the appraised values that would be
acceptable to investors, it concluded that alternative (a) is not feasible
and alternatives (b) and (c) would not be as beneficial to the investors as
the acquisition. See "Background and Reasons for the Acquisition --
Alternatives to the Acquisition" and "Comparison of Alternatives" at pages __
and __.
15
<PAGE>
FAIRNESS
From a financial and procedural point of view, the company and National
believe the terms of the acquisition are fair as a whole and to the investors
in each of the programs. This determination is based on consideration of
each of the following positive and negative factors:
- the units offer an opportunity for individual investor liquidity while
the tenancy-in-common interests do not, however, there is no assurance that the
shares will have any liquidity, or that any liquid market that develops will be
sustained;
- while the number of units to be issued to reflect the exchange value
of a program is arbitrary, the trading price of the shares contained in the
units initially is likely to be substantially below the $20 value arbitrarily
assigned to the units. In our opinion, the exchange values offered to investors
for their assets allow for an equitable allocation of the units among the
programs. The disparity between exchange values and appraised values results
from adding the value of program cash reserves and other assets, if any, to
appraised values and deducting program liabilities (principally accrued property
taxes and other fees);
- on completion of the acquisition the investors will hold over 80%
(over 94.7% if all units are sold in the concurrent offering and all of the
warrants included in the units to be issued in the acquisition are exercised)
of the outstanding stock of the company while the company's founders
(principals, employees, former employees, and consultants of National) will
hold less than 20% (7.1% if all units are sold in the concurrent unit
offering and 5.3% if all of the units are sold in the concurrent offering and
all of the warrants included in the acquisition units are exercised). Such
percentage will further decline if any of the warrants included in the units
being sold concurrently are exercised. Founders' stock was purchased for
$.01 per share. National and its principals will have forgiven over
$[3,800,000] of expenses and accrued fees of which a total of approximately
$[2,148,000] was earned under the servicing agreements after the loans
defaulted and until the acquisition actions were completed. The remainder of
the forgiven amount reflects expenses advanced to the programs on behalf of
investors by National. However, the amount of fees forgiven was not a
material factor in determining the number of shares of the company to be held
by its founders after the acquisition. See "Background and Reasons for the
Acquisition -- General -- Servicing and Asset Management Fees" for details of
the amounts earned, the amounts actually paid, and the recipients of such
post-foreclosure fees. National believes that the amount paid for the asset
and property management services is no less favorable than the amount that a
third party would charge;
- the valuation of the real estate assets of each of the programs by the
independent appraisers;
- the probability that the transaction will either be tax-free to
investors or most likely yield a tax loss. Either way, National believes there
will likely be no out-of-pocket tax cost to all, or the vast majority, of you;
- while conflicts of interest exist in the structuring of the
acquisition, the issuance of shares to the founders of the company and the
determination of management compensation
16
<PAGE>
and while you did not have independent representation in the structuring of
the acquisition, we believe they have been counterbalanced by your
opportunity to vote on the transaction and the Fairness Opinion;
- while the programs were originally formed to have a two to four
year finite life and the investors expected to receive a return of their
investment from the original borrower, the company is an infinite life entity
which will not return the program investors' original investment based on a
sale or refinancing of the properties underlying the original programs.
However, after the borrowers defaulted on the loans, the investors became
beneficial owners of the underlying properties with the financial obligations
of ownership, as well as the need to complete development, manage or
otherwise ready the properties for sale. Those endeavors had no fixed
timetable and, thus, the finite life aspect of their original investments was
significantly changed. Therefore, the infinite life aspect of the company is
not viewed by National to be a material change from the investors' CURRENT
situation particularly in light of the fact that individual investors may
have the opportunity for liquidation of all or part of their investment;
- the acquisition will cause fundamental changes in the individual
business plans of the programs. Rather than being focused on a single
property, the company will be focused on the management of at least seven
properties. Thus, the poor performance of a particular property may affect
the company's operations as a whole for better or for worse regardless of the
performance of the other properties.
- investors will not be able to vote on changes to or dispositions of a
particular property or borrowing secured by a particular property. Those
decisions will be made by the Board of Directors or management. Further, as
investors in a larger entity, relative voting power will be diluted;
- future cash distributions will be based on the company's earnings and
a decision of the Board of Directors to pay dividends rather than on the
performance or sale of a particular property;
- investors voting against the acquisition will have no alternative but
to accept units in the company if the acquisition is approved by holders of a
majority of the tenancy-in-common interests in each of the programs;
- the anti-takeover provisions of the company's charter documents
contain provisions that may have the effect of delaying or discouraging a change
in management which is not favored by the Board of Directors of the company; and
- the Fairness Opinion rendered by Houlihan Valuation Advisers, an
independent valuation firm which addresses the allocation of the units in the
acquisition in the context of a combination of all ten programs and in the
context of a contribution of only the seven Trudy Pat programs. See
"Background and Reasons for the Acquisition" at page __.
National reviewed the arbitrary value based on $20 per unit that you
will receive in connection with the acquisition and compared it with what you
might receive if (i) the programs'
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properties were operated "as is," (ii) the programs' properties were
liquidated directly, in auctions or in the context of a bankruptcy, or (iii)
the programs' properties were sold at the appraised values used to determine
the exchange values. Based on that review, and even acknowledging that,
initially, the company's shares contained in the units issued in the
acquisition would likely trade substantially below their arbitrary $20
issuance value, National believes that there is a higher probability of
realizing value from the programs' assets through the acquisition than
through any of the other alternatives. This belief is based on the
expectation that some financing opportunities other than investor assessments
will become available based on the form and structure of the entity while the
inherent discounting resulting from forced sales or liquidation because of
time pressure will be relieved. If additional financing opportunities become
available, such funds could be used to enhance the value of one or more
properties which, in turn, would enhance the aggregate value of the entire
remaining portfolio of properties. See "Background and Reasons for the
Acquisition -- Comparison to Alternatives" and "--Recommendation of National
and Fairness Determination" at pages __ and __. Based on this comparison,
National concluded that the acquisition is financially fair. In addition,
National believes that the acquisition is procedurally fair to investors
because of (i) the process of determining the exchange values involved
independent appraisals and (ii) the process of providing investors with
the information in this prospectus and obtaining their votes on the subject
of the acquisition. National's belief that the acquisition of any combination
of programs described in this prospectus is fair to investors is based
substantially, but not entirely, on the Fairness Opinion. National is aware
of no material uncertainties that relate to the conclusion in the Fairness
Opinion.
FAIRNESS OPINION
National hired Houlihan Valuation Advisers, an independent valuation
firm, to review the fairness of the acquisition. That firm's opinion (the
"Fairness Opinion") concludes that the allocation of the units in the
transaction (which includes allocation of units to the programs and shares to
the company's founders) is financially fair to you in the context of a
combination of all ten programs and a combination of just the seven Trudy Pat
programs. Given the small size of the Esperanza and Stacey Rose A and B
programs in relation to the seven Trudy Pat programs, and the conclusion that
the combination of all ten programs was fair, management of National (Messrs.
David Lasker and James Orth) determined for itself (and directed the
independent valuation firm) that the fairness of the combination of the seven
Trudy Pat programs would not be materially affected by the addition of any
combination of less than all of the three non-Trudy Pat programs and that the
addition of one of the three or any combination of two of the three would be
fair to whichever of those chose to participate. Thus, if the acquisition is
completed with a combination of programs not addressed in the fairness
opinion, no independent opinion concerning the fairness of the acquisition in
that combination will have been obtained. See "Background and Reasons for
the Acquisition -- Appraisals and Fairness Opinion" at page __.
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NATIONAL'S RECOMMENDATION
While the acquisition was not negotiated at arms-length and National and
the principals of National will receive substantial benefits from the
acquisition, NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE
ACQUISITION. See "Interests of Certain Persons in the Acquisition and Conflicts
of Interest" at page __, "Background and Reasons for the Acquisition" at page
__, and "Appraisals and Fairness Opinion" at page __.
BENEFITS TO NATIONAL AND COMPANY FOUNDERS
MANAGEMENT AND COMPANY FOUNDERS WILL OWN APPROXIMATELY [18.74]% (7.1% IF
ALL THE UNITS ARE SOLD IN THE CONCURRENT OFFERING AND 5.X% IF ALL THE UNITS
ARE SOLD IN THE CONCURRENT OFFERING AND ALL WARRANTS IN UNITS ISSUED IN THE
ACQUISITION ARE EXERCISED) OF THE COMPANY. These individuals paid $.01 per
share for their company shares. These shares were not received in exchange
for fees that National has forgiven or will forgive, which amount to over
$3,800,000. National and the Company's management believe that, in order to
provide adequate incentives, it is appropriate for the executive officers and
Company founders to control slightly less than 20% of the Company.
AFTER THE ACQUISITION, NATIONAL'S PRINCIPAL STOCKHOLDERS WILL CONTROL UP
TO APPROXIMATELY [13.76]% OF THE STOCK (APPROXIMATELY 5.2% IF ALL THE UNITS
ARE SOLD IN THE CONCURRENT OFFERING AND 3.9% IF ALL THE UNITS ARE SOLD IN
THE CONCURRENT OFFERING AND ALL WARRANTS IN UNITS ISSUED IN THE ACQUISITION
ARE EXERCISED) IN THE COMPANY AND WILL RECEIVE SALARIES AS OFFICERS OF THE
COMPANY. David Lasker and James Orth, the principal stockholders of
National, will be President and Chief Executive officer, respectively, of the
company and entities they control will each own [6.88]% (2.62% if all the
units are sold in the concurrent offering and 1.96% if all the units are sold
in the concurrent offering and all warrants in units issued in the
acquisition are exercised) of the company's outstanding shares. L.C. "Bob"
Albertson, Jr. will be Chief Executive Officer of the Company's operating
subsidiary, American Family Communities. He will own [2.59] (0.99% if all the
units are sold in the concurrent offering and 0.74% if all the units are sold
in the concurrent offering and all warrants in units issued in the
acquisition are exercised) of the Company's outstanding shares. All of these
shares are included in the shares described above as being owned by company
founders. Mr. Albertson will receive an annual salary of $200,000 plus stock
options and other benefits. Mr. Lasker and Mr. Orth also will receive annual
salaries of $180,000 plus stock options and other benefits. See "Management
Following the Acquisition -- Directors and Executive Officers Compensation
and Incentives" at page __ for additional information about executive
compensation for Messrs. Lasker and Orth.
AS A CONSEQUENCE OF THE ACQUISITION, THE INVESTORS WILL TERMINATE THE
SERVICING AGREEMENTS (ASSET MANAGEMENT ACTIVITIES) WITH NATIONAL FOR THE
PROGRAMS. Pursuant to these agreements, National provided loan servicing prior
to taking title to the properties on behalf of the investors and asset
management services after taking ownership on behalf of investors due to the
borrower's defaults. This will relieve National of its ongoing obligations
under such agreements
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even though National could have terminated those agreements unilaterally if
it elected to do so. See "Background and Reasons for the Acquisition --
General -- Servicing and Asset Management Fees" at page __ for details about
the various post-foreclosure services provided to investors by National.
THE COMPANY WILL OWE NATIONAL AND ITS PRINCIPALS AND EMPLOYEES
$[1,818,684] OF ACCRUED BUT UNPAID ASSET MANAGEMENT AND PROPERTY MANAGEMENT
FEES AND EXPENSES DUE FROM THE PROGRAMS AFTER THE ACQUISITION. If the
company is successful, National will have the opportunity to receive the
portion of its accrued but unpaid fees and expenses which it has not
forgiven. Prior to the dates that title to the properties securing the
original program loans was taken, National was entitled to an annual loan
servicing fee equal to one percent of the original loan amounts. When title
to the properties was taken on behalf of the programs even though the loans
no longer existed, National charged an asset management fee at the same 1%
annual rate that it earned for previously servicing the loans. While it had
no obligation to do so, in order to assist the beneficial owners in
protecting their real estate assets and readying them for sale or
development, National acted as an asset manager after title was taken to the
properties. In this capacity, National obtained information from investors
about their preferences and objectives in regard to development or sale of
the properties and facilitated the assessment of the investors to raise
funds necessary to perform the activities required to meet those objectives
and to pay property taxes, insurance and other costs of property. The annual
fees payable to National are currently $50,000 for Sacramento/Delta Greens;
$241,500 for Oceanside; $61,068 for Yosemite/Ahwahnee I; $133,646 for
Yosemite/Ahwahnee II; $100,000 for Mori Point; $140,000 for Cypress Lakes;
$150,000 for Palmdale/Joshua Ranch; $5,000 for Esperanza; $3,153 for Stacey
Rose A; and $850 for Stacey Rose B. In addition to the one percent fee,
compensation has been accrued for property management services provided to
the Oceanside ($896,000 accrued since the date of ownership (November 1993);
$896,000 actually paid) and Yosemite/Ahwahnee properties ($600,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervisions of entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside
and Yosemite/Ahwahnee projects; and contract negotiations and documentation.
To the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and operationally intense.
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SUMMARY OF THE NEW BUSINESS PLAN
Our objective is to preserve as much of the investors' original principal
as is possible and improve the value, performance and marketability of the
properties currently held by the programs in the following ways:
- By developing selected properties for their highest and best use,
particularly the Yosemite/Ahwahnee property for timeshare and recreational
vehicle memberships;
- By increasing the current cash flow from the operating assets;
- By maximizing the potential profit margins of for-sale products like
lots and/or parcels;
- By raising funds for the company's operations through the sale of
selected real estate assets acquired from the programs to outside buyers, the
sale of some additional units in the concurrent offering, and through the
exercise of warrants; and
- By acquiring other projects or assets which are consistent with our
objectives and business plan, particularly those that can be timeshare oriented.
RESIDENTIAL DEVELOPMENTS. The Company will sell certain assets or programs
in bulk to raise operating funds that can be applied to more potentially
profitable areas of the company's business. Cash flow from the sale of parcels
for single-family homes and lots would continue our growth and build value.
We plan to continue to investigate the most feasible, profitable and
cost-effective ways to finalize the entitlements and provide for the
necessary infrastructure for the Sacramento/Delta Greens, Cypress Lakes,
Palmdale/Joshua Ranch, Esperanza and Stacey Rose properties while seeking
bulk buyers at acceptable prices and/or joint venture partners on reasonable
financial terms.
RESORT DEVELOPMENTS. We will enhance the value of Yosemite/Ahwahnee by
continuing to develop the project. While the project itself presently has
limited cash available for capital improvements, we believe the highest
potential rewards in terms of revenues, profitability and increased share
value lie in this segment of the company's asset base. By using the
remaining funds available from the sale of the golf course and additional
surrounding land to the Oceanside investors, from the sale of certain assets
of other programs, or from the sale of units offered concurrently herewith, we
will aggressively continue to develop vacation villa timeshare units and
recreational vehicle sites. We will also continue to process the necessary
approvals for the Mori Point property which we believe has the potential to
attract hotel and conference center industry-oriented joint venture partners
or purchasers. In the future, we may also target additional resort or
over-night-stay projects for potential acquisition or joint venture. See
"Business and Properties -- Properties" at page __ and "-- Consolidation of
the Programs" at page __ for further details regarding all of the properties.
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MANAGEMENT. The Board of Directors will oversee the management of the
company. After the acquisition all directors will be elected by the
shareholders. The Board will consist of six directors, including three
directors who are independent of the company. For background on management of
the company and their compensation, see "Management Following the Acquisition"
at page __.
COMPARISON OF THE PROGRAMS AND THE COMPANY
The summary information below highlights a number of significant
differences between the programs and the company. See "Comparison of the
Programs and the Company" at page __.
FORM OF ORGANIZATION. The programs began as tenancy-in-common investments
in loans secured by first liens against real estate. The company is a
corporation which offers to investors certain benefits such as limited liability
and professional management which may not be present to the same degree in the
present ownership structure.
LENGTH OF INVESTMENT. When you invested in the loans, you expected to
receive interest payments and repayment of the principal amount of your loan in
two to four years. After the acquisition, the company will have no time limit
to dispose of any assets, and you will not receive net asset sales proceeds.
Instead, sales proceeds will be reinvested in the company. Your publicly-traded
shares will replace the process of liquidating program assets as your way to
receive a future return of your capital and any profits.
DIVERSIFICATION. Each of the programs has real estate assets in a single
location. By contrast, the company will hold the real estate assets of at least
seven programs and will be more diversified both geographically and by type of
property. By owning shares, you will be invested in an on-going, diversified,
real estate operating company.
ADDITIONAL EQUITY. None of the programs are currently authorized to raise
additional funds under their current tenancy-in-common structure, except through
mandatory assessments. On the other hand, the company will have more
flexibility to raise capital to finance its business. We may issue additional
stock to raise money or to make new real estate investments. These are
traditional methods of acquiring capital, but this would dilute your interests.
Such stock could have priority in dividends distributions and liquidation
proceeds.
BORROWING POLICIES. Borrowing is difficult under the present program
structure. The company will be able to borrow to improve or expand its asset
base. However, borrowing may also increase the company's risk from leveraged
investments.
COMPENSATION, FEES AND DISTRIBUTIONS. National will stop charging fees
under the program agreements in the aggregate amount of approximately $885,000
per year. As of August 31, 1998, the programs have accrued fees and advances
due to National and its principals and employees of $[2,128,376],which will be
assumed and paid in the general course of the company's business. An
additional amount of accrued fees of $261,273 and $124,250 that are due
National from the Oceanside and Yosemite/Ahwahnee II programs, respectively,
will be forgiven upon the acquisition of the programs by the Company. In
addition, National
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also has represented that it was owed fees and made advances to the
programs totalling $[2,843,308] which it forgave prior to 1995. Since these
fees and advances were incurred and forgiven prior to 1995, they have not been
accrued on the historical balance sheets of the programs presented in this
prospectus. National's principals will own interests in the company and will
also receive salaries as officers of the company.
National, itself, will receive units in exchange for its interests held as
an investor in each of the programs in the same manner and at the same exchange
value as all other investors. National, however, will not exercise any of the
warrants it receives with the units.
MANAGEMENT CONTROL AND RESPONSIBILITIES. Currently, under the servicing
agreements, National serves as your agent in managing the properties. Under its
contract, it cannot be removed except by a majority vote by investors in a
particular program, and then only if it receives certain indemnifications and
the payment of its accrued fees. Therefore, National's removal would be an
extraordinary event. You will have greater control over the management of the
company than you had over the programs. You will be able to vote for certain
members of your Board of Directors every year. In the beginning, founders of
the company will control a maximum of [18.74]% 6.1% if all the units are sold
in the concurrent offering and 5.3% if all the units are sold in the
concurrent offering and all warrants in units issued in the acquisition are
exercised) of the voting shares.
MANAGEMENT LIABILITY AND INDEMNIFICATION. The directors and officers of
the company will be entitled to potentially stronger indemnification from the
company for their actions than is presently the case for National in the program
agreements.
VOTING RIGHTS. Presently, you only have voting rights in the particular
program in which you are an investor. You can vote on matters involving
collection, servicing and administration of your investment as well as
termination of the servicing agreement. As a shareholder, you will have the
right to vote for directors and other matters according to applicable law or the
company's charter documents. When voting as a shareholder, your vote will
affect all of the businesses and properties owned by the company, which will
include the assets owned by at least seven of the ten programs. However, your
relative voting power will be reduced.
LIQUIDITY. The tenancy-in-common interests in the programs constitute
illiquid investments which are very difficult to sell. The shares are expected
to be [listed on the _____ and be] freely tradable.
TAX TREATMENT. The company will be taxed as a corporation. Currently, the
programs themselves are not taxpayers and file no program tax returns. Prior to
taking title to the properties, when income was allocated to a program investor
that was interest, National, as servicing agent, reported such income to the IRS
and the investors on Form 1099-INT. As tenancy-in-common owners of the
properties, the investors no longer receive Forms-1099 from National, but are
responsible for their pro rata share of any income, gain, loss or deductions
attributable to their program's properties. If the company makes distributions
to shareholders, it will report the distributions on Form 1099-DIV whether or
not they are taxable entities.
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OVERHEAD AND EXPENSES. Overhead and expenses of the programs are the
responsibility of the investors to the extent the applicable program does not
generate sufficient cash flow to cover them. They are billed individually to
investors in the form of assessments. To date, only the Oceanside program has
been completely self-funding. Investors will have no direct responsibility for
company overhead and expenses. Initially, overhead and expenses of the company
will be derived from cash on hand, proceeds of the sale of units in the
concurrent offering, the exercise of warrants, and the sale of one or more of
the company's assets. Future overhead and expenses will be funded from cash
flow from operations.
DILUTION. Investors in each program have voting power based on their
percentage of the funds contributed to the program. Since ten programs will be
consolidated into the company, each investor's voting power will be
substantially reduced.
BUSINESS PLANS. Each of the programs has a separate business plan as
follows:
Sacramento/Delta Greens Finish permitting process and obtain city and
other governmental approvals of the project's
tentative map and design. Approximately $25,000
of capital needed to complete the engineering,
environmental and other wetlands activities to
finalize the tentative tract map process.
Oceanside Continue to hold the Yosemite/Ahwahnee golf course
and surrounding land for lease and potential
ultimate sale back to the Yosemite/Ahwahnee
Program.
Yosemite/Ahwahnee I & II Continue to operate the golf course, expand
the recreational vehicle membership park, build a
new public overnight stay park, construct timeshare
units, and market these products and services.
Approximately $3,000,000 of additional capital
needed.
Mori Point Proceed with hotel/conference center entitlement
process which will require the preparation of a
mitigation plan to protect the habitat of an
endangered species. Approximately $500,000
capital needed.
Cypress Lakes Proceed with providing the due diligence
documentation required by the current potential
buyer. Consummate the transaction if possible.
If for some reason the buyer backs out, then
approximately $400,000 of capital will be needed
for the management, engineering and legal expenses
to redesign the project to minimize infrastructure
costs and to renew the tentative map.
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Palmdale/Joshua Ranch Approximately $140,000 of capital will be needed
to proceed with finalizing the engineering,
grading studies, soil analysis and other cost
estimates to determine the feasibility for
infrastructure financing. (A vested tentative map
was secured on the property in early July 1998.)
Pursue a bulk sale at adequate prices and attempt
to attract a joint venture partner.
Esperanza Pursue a bulk sale that is reasonable under the
current economic conditions, preferably before
delinquent property taxes become due in 2000.
Stacey Rose A & B Pursue the approval of a tentative tract map from
the City of Victorville. It is estimated that the
cost will exceed $50,000 and will require about
nine months. At that point, management believes
the property would be of greater interest to
prospective buyers.
The business plan of the company is to consolidate the programs' plans,
raise some or all of the capital necessary to accomplish some of those plans
through the sale of units in the concurrent offering, the exercise of
warrants and the sale of one or more of the properties to direct funds to the
most profitable areas of the Company's business, most likely timeshares,
recreational vehicle membership sales and acquisitions of other properties
conducive to such business. The total capital needed is approximately
$[4,565,000]. This can also be provided from debt financing, if available,
or joint venture partners. The company believes the Yosemite/Ahwahnee
properties have the greatest profit potential. So, if working capital or
debt financing were in short supply, the company will prioritize and
concentrate its efforts on the Yosemite/Ahwahnee properties.
DISTRIBUTIONS AND DIVIDENDS. As interest and principal was paid by the
borrowers, investors in the programs were entitled to distributions. If the
underlying properties of the programs had been sold since their ownership was
taken over by National on behalf of investors, on the default of the borrowers,
investors in the programs would have been entitled to distributions of sale
proceeds from programs in which they invested. The company has no present
plans to pay dividends to shareholders whether from earnings or for the sale of
properties. Dividends will be paid only when declared by the board of
directors.
TAX CONSEQUENCES OF ACQUISITION
The income tax consequences of the acquisition will depend primarily on
whether the acquisition qualifies under Section 351 of the Internal Revenue
Code. Arter & Hadden LLP, tax counsel to the company, CANNOT PROVIDE CERTAINTY
THAT THE ACQUISITION WILL QUALIFY UNDER SECTION 351.
Tax counsel is of the opinion that the acquisition will qualify under
Section 351 if (i) the company is not an investment company (tax counsel is of
the opinion that the company is not)
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and (ii) collectively, the investors in the programs control at least 80% of
the outstanding shares of the company immediately after the acquisition (the
facts do not provide tax counsel with a basis upon which to opine that the
80% test is or is not met).
The determination of whether the 80% test is met depends on whether
investors who subsequently dispose of shares acquired in the acquisition are
treated as not being holders "immediately after the acquisition." Neither the
company nor tax counsel is in a position to determine whether investors who will
acquire more than 80% but who later sell some of those shares will or will not
be deemed by the taxing authorities to have held those shares "immediately after
the acquisition." See "Federal Income Tax Consequences -- Qualification of the
Acquisition as a Qualifying Section 351 Transaction" at page __ for an in-depth
analysis of the tax issues and the reasons tax counsel is unable to provide a
definitive opinion on this aspect of the transaction.
If the acquisition qualifies under Section 351, tax counsel is of the
opinion that no gain or loss will be recognized by the company or, generally, by
the investors as a result of the acquisition, except with respect to gain, if
any, with respect to their receipt of warrants. If the acquisition does not
qualify under Section 351, tax counsel is of the opinion that the company will
recognize no gain or loss in the acquisition, but an investor will recognize
gain or loss upon receipt of shares and warrants. That gain or loss will be
equal to the difference between the tax basis of the investor's interest in the
property transferred and the fair market value of the shares received plus his
or her share of any nondeductible liabilities to which the properties are
subject.
After the effective date, tax counsel is of the opinion that, as a
separate taxable entity, the company's taxable income will not flow through
to the investors for purposes of determining the investors' tax liabilities.
Distributions by the company to its shareholders will be taxable as a
dividend if the company has earnings and profits. Otherwise, distributions
will constitute non-taxable returns of capital to the extent of an investor's
tax basis in the shares and will be taxable gain to the extent the
distribution exceeds the tax basis.
CONFLICTS OF INTEREST RELATED TO THE ACQUISITION
National and the company will be subject to conflicts of interest
relating to the acquisition and the on-going operation of the properties.
These include
- if the acquisition is completed, David Lasker and James Orth, the
principal stockholders of National, will receive some or all of the following
benefits: stock ownership in the company (up to 6.88% each (2.62% if all the
units are sold in the concurrent offering and 1.96% if all the units are sold
in the concurrent offering and all warrants in units issued in the acquisition
are exercised)), cash compensation in the form of salaries ($180,000 per year
each) subject to annual increases and potential bonuses, stock options,
potential incentive compensation, and the right to participate in company-wide
employee benefit programs;
- you did not have independent advisers representing you in
structuring the acquisition;
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- neither the acquisition itself nor the employment agreements for
the officers of the company were negotiated at arm's-length;
- certain provisions of the company's certificate of incorporation
and bylaws, as well as Delaware law, could be used by management of the
company to discourage or defeat efforts of third parties to take control of
the company; and
For a complete discussion of these conflicts, see "Interests of Certain
Persons in the Acquisition and Conflicts of Interest" at page __ and
"Management Following the Acquisition" at page __.
CONDITIONS TO ACQUISITION
The principal non-waivable conditions to the acquisition are
- approval of the acquisition by all seven of the "Trudy Pat"
programs through a vote of the investors holding a majority-in-interest in
each (if all seven approve, a vote of investors holding a
majority-in-interest of any or all of the three other programs will permit
such programs to participate in the acquisition),
- receipt of a final Fairness Opinion from the independent valuator
regarding the actual allocation of units,
[- approval of the shares for [listing][designation] upon notice of
issuance on the _______________, and]
- the issuance to the company of policies of title insurance on each
of the properties.
CONSEQUENCES IF ACQUISITION NOT APPROVED
If the acquisition is not approved, National must immediately assess
investors in each property in order to provide for the minimal necessary
expenses of the project, like property taxes, while arranging for a quick
discounted sale of the assets of each program. After the outstanding obligations
of the investors in the programs, including fees due National and others, are
paid, then any net proceeds of the sale will be distributed to the program's
investors. If no sale acceptable to investors in a particular program can be
arranged, and if investors in that program do not provide sufficient additional
funds in a timely manner to pay property taxes and cover necessary expenses of
continuing to hold the properties, as well as National's current and accrued
fees for asset and property management services, then, as permitted by the
servicing agreements, National will consider resigning. It will be necessary
for National to immediately determine whether bankruptcy protection and
liquidation may be in the best interest of investors of a particular program.
Under California law, National is the investors' agent and has certain fiduciary
duties. The duties require National (i) to use reasonable care and diligence in
managing the programs, (ii) not to compete with investors without full
disclosure and consent, and (iii) not to obtain an adverse interest to the
investors without full
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disclosure and consent. National does not believe that any of the
foregoing actions would breach its fiduciary duties to investors. No sale
can take place without the approval of holders of a majority of the interests
in any particular program. If no acceptable sale is arranged and if the
investors in a program fail to make sufficient payments to keep the program
financially viable, National will have done all it can do to protect the
interests of that program's investors.
DELIVERY OF UNITS
The company will mail your units to you shortly after the acquisition
becomes effective.
SUPPLEMENTS
Included with this prospectus is a supplement designed to focus solely
on your program, and the impact of this proposed acquisition on investors in
your program. Please review it prior to completing your ballot.
CONSENT SOLICITATION/SUMMARY OF VOTING PROCEDURES
RECEIPT OF CONSENTS. We must receive your ballot by 11:59 p.m., Pacific
Time, on ____________, 1998 (unless extended by the company) to be counted in
the vote on the acquisition.
VOTING. You are entitled to vote based on the amount you have invested
in a program, on the record date, ___________, 1998. Only investors on the
record date are entitled to vote. Voting will be on a program-by-program
basis.
VOTES/OUTSTANDING INVESTMENT. On the record date, the following amounts
of outstanding investment, which correspond to votes, exist for each of the
programs:
<TABLE>
<CAPTION>
Outstanding Investment;
Name of Program Number of Votes
--------------- ---------------
[8/31/98]
<S> <C>
Sacramento/Delta Greens 6,131,638
Oceanside 24,150,000
Yosemite/Ahwahnee I 9,063,163
Yosemite/Ahwahnee II 19,565,333
Mori Point 12,342,259
Cypress Lakes 18,971,767
Palmdale/Joshua Ranch 18,107,814
Esperanza 584,653
Stacey Rose A 114,098
Stacey Rose B 425,188
</TABLE>
VOTE REQUIRED. In order for the acquisition to be approved, investors
holding a majority of the outstanding investment/votes in EACH of the
programs, other than Esperanza, Stacey Rose
28
<PAGE>
A and Stacey Rose B, must approve the acquisition. Based on amounts of
tenancy-in-common interests purchased in each program, National has the
following votes in each of the programs: 3,118 Sacramento/Delta Greens;
2,300 Oceanside; 2,373 Yosemite/Ahwahnee I; 69,384 Yosemite/Ahwahnee II;
5,279 in Mori Point; Cypress Lakes 3,200; and Palmdale/Joshua Ranch 2,395;
Esperanza -0-; Stacey Rose A 4,247 and Stacey Rose B $15,753. It will cast
all of its votes in favor of the acquisition.
You may vote YES or NO or ABSTAIN on the acquisition. If you do not
submit a ballot or you send a ballot marked ABSTAIN, you will be counted as
having voted AGAINST the acquisition.
You may vote only using the ballot provided, and only during the
solicitation period, which ends __________, 1998 or at a later date the
company may announce. You must return the completed ballot to National
before the solicitation period expires. If we receive your ballot signed but
unmarked, it will be counted as a vote FOR the acquisition.
You may withdraw or change your ballot before the solicitation period
expires. You will need to complete and mail a substitute ballot, AND a
letter stating that you are revoking your previous vote.
INVESTOR'S REPRESENTATIONS. When you vote, you will be confirming to
the company that (i) you have received and reviewed the prospectus and the
applicable supplement, (ii) you understand that you will become a shareholder
in the company if the acquisition is completed, (iii) you have the power and
authority to vote as an investor, (iv) you understand that if you sign and
send in the ballot but do not indicate a vote, the ballot will be deemed to
have been voted IN FAVOR of the acquisition, and (v) if the acquisition is
completed, to the best of your knowledge, the company will acquire title to
your interest in the program's property free and clear of all liens and
adverse claims other than property taxes. By voting in favor of the
acquisition, you are also voting to terminate the tenancy-in-common
agreement with other investors in your program and the servicing agreement
with National. Termination of the servicing agreement relieves National of
any future liabilities or responsibilities to the program, but all amounts
owing to National under the servicing agreement after the acquisition will be
assumed by the company.
NO DISSENTERS' RIGHTS
If you vote "NO" on the acquisition, and the acquisition is approved,
you will have no choice other than to take shares in the company. You will
not be entitled to object to the transaction and receive a cash payment for
your interest under the tenancy-in-common agreements governing the programs
or applicable law. See "Voting Procedures -- No Dissenters' Rights" at
page __.
NO RIGHT TO PROGRAM BOOKS AND RECORDS
You have no rights under your program's tenancy-in-common agreement or
your servicing agreement, or under federal or state law, to obtain a list of
the names and addresses of the other investors in your program or to inspect
other books and records of your program. If
29
<PAGE>
you wish to communicate with the other investors in your program, upon
receipt of the material you wish mailed together with the amount of postage
necessary to make such mailing and an opinion of experienced counsel
reasonably acceptable to National that the proposed communication does not
violate applicable federal or state securities laws or regulations or state
real estate laws nor will assisting in the dissemination of such material
subject National to liability for violation of such laws and rules, National
will promptly mail such communications to your program's investors.
CONCURRENT OFFERING
In addition to the Consent Solicitation, the Company is simultaneously
offering up to 125,000 units at $20 per unit to be issued exclusively to
existing program investors. The offering is a "best efforts" offering with no
minimum number of units which must be sold. There is no assurance that any
proceeds will be received. No sales can be completed unless the acquisition
is approved. Each unit consists of one share and three 1998 Warrants to
purchase additional shares. Each unit offered concurrently will be identical
to the units issued in the acquisition. NASD broker-dealers will receive an
aggregate of $1.40 per unit commission from the company for any units sold
with their help.
If any funds are raised by the offering, they would be used to pay
offering expenses, acquisition expenses, property taxes due, and for working
capital, as detailed in the company's business plan. Any funds raised on
exercise of warrants would be used for working capital.
FOR ADDITIONAL INFORMATION ABOUT THE CONCURRENT OFFERING, SEE THE
PROSPECTUS WHICH ACCOMPANIES THIS CONSENT SOLICITATION STATEMENT AS A
SEPARATE DOCUMENT.
SUMMARY FINANCIAL INFORMATION
We are providing the following summary financial information to aid you
in your analysis of the financial aspects of the acquisition. This
information was derived from our pro forma and historical financial
statements (and related notes) found later in this prospectus and should be
read in conjunction with that information. See "Financial Statements"
beginning on page F-1. The historical financial statements for the full year
were audited; those showing pro forma information were not audited. The
unaudited financial information reflects all adjustments (consisting only of
normal recurring accruals) which are considered necessary to present fairly
the financial information for the periods. The results of any interim period
are not necessarily indicative of results for a full year, and historical and
pro forma results do not predict future results.
30
<PAGE>
<TABLE>
<CAPTION>
Company Pro Forma The Acquisition Historical
------------------------------------ ----------------------------------------------------
Six Months Ended Year Ended
June 30, December 31,
1998 1997
---------------- ------------ Years Ended December 31
The The -----------------------------------------------------
Acquisition Acquisition 1997 1996 1995
---------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 324,654 $ 5,193,012 $ 5,193,012 $ 6,213,299 $ 6,333,143
Cost of sales 121,187 4,081,530 4,081,530 5,224,186 5,346,735
---------------- ------------ ------------- ------------- -------------
Gross profit 203,467 1,111,482 1,111,482 989,113 986,408
Expenses:
Selling, general and
administrative 2,413,683 5,676,067 4,357,059 4,029,618 2,486,099
Land write-down 255,000 1,299,651 1,299,651 845,000 16,167,424
Management fees - 0 949,003 949,003 949,003
---------------- ------------ ------------- ------------- -------------
Total expenses $2,668,683 $ 6,975,091 $ 6,605,713 $ 5,823,621 $ 19,602,526
Net interest income
(expense) (1,117) 31,345 31,345 73,205 1,222,008
---------------- ------------ ------------- ------------- -------------
Gain on sale of property 1,871,279 - - - -
Net loss $ (595,054) $(5,832,886) $(5,462,886) $(4,761,303) $(17,394,110)
---------------- ------------ ------------- ------------- -------------
---------------- ------------ ------------- ------------- -------------
Net loss per share (0.34) (3.38) N/A N/A N/A
---------------- ------------
---------------- ------------
Average number of shares
outstanding 1,726,617 [1,726,617] N/A N/A N/A
---------------- ------------
---------------- ------------
Balance Sheet Data:
Cash and cash
equivalents 2,809,752 N/A 540,909 1,065,715 N/A
Total real estate 27,601,000 N/A 27,427,617 28,444,055 N/A
Total assets 32,059,053 N/A 32,065,559 34,561,602 N/A
Total debt 313,083 N/A 324,920 424,767 N/A
Total liabilities 5,844,634 N/A 6,938,267 4,782,370 N/A
Stockholders'/
owners' equity 26,214,419 N/A 25,127,292 29,779,232 N/A
Other Data:
Cash used in operating
activities (2,525,042) N/A (2,015,894) (1,658,879) (68,615)
Cash provided by (used
in) investing
activities 6,988,374 N/A (163,264) (186,211) (436,545)
Cash provided by (used
in) financing
activities (2,067,345) N/A 1,523,975 1,168,817 674,403
</TABLE>
[Note that the average number of shares outstanding will change as we
recalculate exchange values until we go effective. That's why they are
bracketed.]
31
<PAGE>
RISK FACTORS
THE ACQUISITION INVOLVES CERTAIN RISKS. YOU COULD LOSE ALL, OR A
SIGNIFICANT AMOUNT OF THE REMAINING VALUE, OF YOUR INVESTMENT IF THE COMPANY
IS NOT SUCCESSFUL, IF THE STOCK MARKET DECLINES OR IF REAL ESTATE VALUES IN
CALIFORNIA DECLINE AGAIN. YOU SHOULD READ THIS ENTIRE PROSPECTUS, INCLUDING
THE SUPPLEMENT FOR YOUR PROGRAM. BEFORE COMPLETING THE ACCOMPANYING BALLOT,
YOU SHOULD ALSO CAREFULLY CONSIDER THE FOLLOWING RISKS, WHICH APPLY TO ALL
PROGRAMS AND THEIR INVESTORS.
IN THE FOLLOWING RISK FACTORS, AND ELSEWHERE IN THIS PROSPECTUS,
NATIONAL AND THE COMPANY OR THEIR REPRESENTATIVES HAVE MADE FORWARD-LOOKING
STATEMENTS REGARDING VARIOUS BUSINESS PLANS, TYPES OF INVESTMENTS TO BE MADE
AND HYPOTHETICAL RESULTS OF OPERATIONS OR SALES OF PROGRAM PROPERTIES. THE
STATEMENTS ARE QUALIFIED BY THE "RISK FACTORS" DISCUSSED BELOW. THESE
FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE DISCUSSED.
YOU SHOULD NOT RELY ON THE COMPANY'S STATEMENTS OR PLANS AS A PREDICTION OF
ACTUAL RESULTS.
RISKS OF THE ACQUISITION
THE NATURE OF YOUR INVESTMENT WILL CHANGE. If the acquisition is
completed, your investment will no longer be a tenancy-in-common interest in
a particular program's property. March 1998 appraised or updated values for
the properties were: Sacramento/Delta Greens - $1,745,000; Oceanside -
$5,080,000; Yosemite/ Ahwahnee I - $1,782,950; Yosemite/Ahwahnee II -
$3,703,050; Mori Point - $6,000,000; Cypress Lakes - $6,000,000;
Palmdale/Joshua Ranch - $2,700,000; Esperanza - $270,000; Stacey Rose A and B
properties and the adjacent parcel combined - $320,000) for a total of
$27,601,000. Instead, you will hold shares in an on-going, publicly-traded
real estate company whose assets may be changed by the company's management
without your approval. At $20 per unit, the arbitrary value assigned to the
company's units to be delivered in the acquisition is $[28,066,419] even
though the shares included in the units to be delivered to you in the
acquisition will likely trade initially at prices substantially below $20 per
share. You will be able to liquidate your investment only by selling your
shares in whatever market develops, and only if a trading market exists, or
in private transactions. If the market value of the shares does not reflect
the fair market value of the company's assets, you may not realize the full
value of your investment. You will not receive the cash liquidation proceeds
if individual program properties are sold. As an investor in the larger
company with more assets, rather than any individual program, you will have
less relative voting power.
THE EXCHANGE VALUE OF THE PROGRAMS MAY NOT BE THE AMOUNT YOU WOULD NET
IF THE PROPERTIES WERE SOLD IN A CASH SALE TRANSACTION. Appraisals reflect
conditions in March 1998, and do not reflect subsequent events. Exchange
values reflect adjustments to appraised values described in "Background and
Reasons for the Acquisition -- Calculation of Exchange Value" at page __.
Since the shares included in the units you receive as a result of this
transaction may initially trade at prices substantially below the arbitrarily
determined exchange value of $20 per unit, you could wind up with less money
reflected in the value of your units than if your program's property was sold
for cash. Except for the Yosemite/Ahwahnee I and II programs and the
Oceanside program, the exchange value of the units the owners of the
32
<PAGE>
properties will receive will be less than the appraised values of the
properties used to calculate exchange values because of adjustments for
liabilities for each program. At any point in time, the value of those
shares might not exceed the appraised values of the properties used to
calculate exchange values at any particular time in the future.
THE SHARES INCLUDED IN THE UNITS MAY TRADE INITIALLY AT PRICES
SUBSTANTIALLY BELOW THE ARBITRARILY DETERMINED EXCHANGE VALUE OF $20 PER
UNIT. The shares have never been sold in a public securities market. There
is no guaranty that a liquid trading market will develop, or be sustained,
for the shares. If the shares trade, the initial trading price is likely to
be substantially less than the arbitrary $20 issuance price of the units or
the book value of the company's assets. The market price of the shares
included in the units will likely be less than $20 per share after the
acquisition, particularly if investors decide to sell a large number of their
shares shortly after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN NATIONAL'S STRUCTURING THE
ACQUISITION. The programs are not partnerships and, thus, National does not
have the fiduciary duties or the arbitrary powers of a general partner.
However, as servicing agent, and later as asset manager for each of the
programs, National has had its specific duties to investors set forth in the
various servicing agreements. In addition, under California law, as an
agent, National is under a fiduciary duty to investors (i) to use reasonable
care, diligence and skill in its work, (ii) not to compete with the
investors' interests without full disclosure to, and agreement from, the
investors, and (iii) not to obtain an interest adverse to the investors
without full disclosure to, and consent from, the investors.
After the acquisition, the executive officers of the company, which
include among others the principal shareholders of National, will hold
approximately [16.35]% (6.23% if all the units are sold in the concurrent
offering and 4.66% if all the units are sold in the concurrent offering and
all warrants in units issued in the acquisition are exercised) of the
company's stock for which they paid $0.01 per share. Other company founders
will hold approximately [2.33]% of the outstanding shares (0.88% if all the
units are sold in the concurrent offering and 0.66% if all the units are
sold in the concurrent offering and all warrants in units issued in the
acquisition are exercised) of the company for which they also paid $0.01 per
share. Therefore, the investors' total ownership interests in the programs'
properties will be diluted by the equity interest in the company to be held
by the founders of the company. The executive officers of the company will
receive annual cash compensation aggregating $560,000. National will be
relieved of its asset management obligations (and cease to earn associated
fees of approximately $885,000 per year), the company will still owe National
and its affiliates over $[1,800,000] of accrued but unpaid fees and expenses.
In addition, the founders of the company may not always have the ability to
make decisions for the company without thinking of the consequences to
themselves.
Completion of the acquisition will relieve National from its duties,
including fiduciary duties, and related costs as asset manager for each of
the programs. These duties will be assumed by the company. As a
consequence, investors of a particular program that may be unhappy with
33
<PAGE>
the manner in which the company manages the property that was in their
program will not be able to vote to change management without the agreement
of investors from the other programs.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not
favored by the board of directors. These provisions include, among others, a
classified board of directors where only one-third of the directors are
elected in any given year and directors serve three year terms; directors may
only be removed for cause and only by the affirmative vote of holders of not
less than two-thirds of the voting power of all outstanding shares; and
amendments to the anti-takeover provisions of the charter documents may only
be effected by the affirmative vote of holders of not less than two-thirds of
the voting power of all outstanding shares. This means that, if a group of
investors are unhappy with management's performance, it will take several
years to change the board of directors or it will require them to obtain the
support of a significant number of additional shareholders in order to be
able to meet the two-thirds test to change the anti-takeover provisions of
the charter documents.
For additional information concerning the potential conflicts between
National, its principals and the investors and the procedures adopted to
mitigate the impact of these conflicts on the acquisition, see "Interests of
Certain Persons in the Acquisition and Conflicts of Interest" at page __,
"Background and Reasons for the Acquisition - Recommendation of National and
Fairness Determination" at page __, and "--Terms of the Acquisition" at page
__.
Despite the potential conflicts of interest, none of National, the
company or their controlling persons, believe that such conflicts had any
material affect on their recommendation to investors on the acquisition
because the alternatives, in their opinion, are less desirable or not feasible.
YOU DID NOT HAVE INDEPENDENT ADVISORS REPRESENTING YOU IN STRUCTURING
THIS TRANSACTION. The terms of the acquisition were not negotiated at
arm's-length and, therefore, may be less favorable to you and more favorable
to National and its principals. If the acquisition had been negotiated by
independent parties at arm's length, the principals of National and the
company might have been allocated fewer shares. Additionally, the allocation
of units might have been more favorable to one program than another.
National did not retain an unaffiliated representative to act on your behalf
because it, as your agent, has attempted to take action to protect your
interests in the property. Neither National nor the programs had additional
excess funds to hire a separate representative for you. However, a Fairness
Opinion was obtained by National about the transaction for your benefit.
THE TRANSACTION MAY NOT BE TAX-FREE. The Federal income tax
consequences of the acquisition will depend primarily on whether the
acquisition qualifies as a Section 351 transaction under the Internal Revenue
Code of 1986, as amended. If the acquisition qualifies under Section 351,
generally no gain or loss will be recognized by the investors upon the
receipt of shares in exchange their interest in the properties but investors
may recognize realized gain, if any, with respect to their receipt of
warrants. If the acquisition does not qualify under Section 351, investors
generally will recognize gain or loss. See "Federal Income Tax Consequences"
at
34
<PAGE>
page __. Among other requirements to qualify the acquisition under Section
351, investors must be treated as owning 80% or more of the outstanding
shares of the company "immediately after the exchange." As discussed in
"Federal Income Tax Consequences - Qualification of the Acquisition as a
Section 351 Transaction - 1. General Rules," this determination depends on
whether investors who subsequently dispose of shares are subject to the "step
transaction doctrine" with respect to such dispositions and their initial
acquisition of the shares.
Neither the company nor counsel to the company is in a position to make
a determination as to whether investors who will acquire more than 80% of the
outstanding shares of the company will or will not be subject to the step
transaction doctrine. Consequently, counsel to the company is unable to
opine as to whether the acquisition qualifies under Section 351. However,
because (i) investors will acquire 80% or more of the shares in the
acquisition, and (ii) the company is not aware of any facts which lead it to
believe that any subsequent disposition of shares by one or more investors
may be subject to the step transaction doctrine, the company intends to take
the position that the acquisition qualifies under Section 351. There can be
no assurance, however, that the IRS will not take a contrary position.
Investors should recognize that if a relatively small number of
investors subsequently dispose of their shares in transactions subject to the
step transaction doctrine, the acquisition will not qualify under Section 351.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the
acquisition, the properties will not be subject to any liens other than
possible mechanics' liens and liens imposed as a result of an aggregate of
approximately $[1,000,000] in past due property taxes owed as of August 31,
1998 and which are not paid when due in future years. However, the Board of
Directors could allow the company to borrow using the company's real estate
assets as security. The more debt a company has, the more of its cash flow
is necessary to be used to pay down such debt. If cash flow cannot cover
debt repayment, the company could lose those assets to creditors. If
potential lenders or providers of equity believe that the company has too
much debt, further financing may become unavailable or prohibitively
expensive. There is no limitation on the amount of debt the company may
incur. See "Policies with Respect to Certain Activities -Financing Policies"
at page __.
THE BOARD OF DIRECTORS WILL HAVE THE ABILITY TO CHANGE INVESTMENT,
FINANCING AND OTHER POLICIES OF THE COMPANY WITHOUT SHAREHOLDER CONSENT.
The Board will determine major acquisition, financing, debt and distribution
policies of the company. The Board may amend or revise these policies as
well as the business plan without shareholder approval. You will have no
direct control over these changes. See "Business and Properties" at page __
and "Policies with Respect to Certain Activities" at page __.
YOU WILL HAVE NO DISSENTERS' RIGHTS IN CONNECTION WITH THE ACQUISITION.
If the acquisition is approved, investors in any of the programs who vote
against the acquisition will not be entitled to dissenters' or appraisal
rights under the tenancy-in-common agreement or the Delaware or California
law. Thus, investors who do not approve of the acquisition have no choice
other than to accept shares in the company if the acquisition is approved by
holders of a majority of the
35
<PAGE>
tenancy-in-common interests in each of the programs. See "Voting Procedures
- -- No Dissenter's Rights" at page __.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed over one
year ago to take part in the acquisition of your property. It does not have
the benefit of operating for a long time. This means that shares in the
company are much riskier than ownership of shares of established companies.
If the company had been operating as if it owned the properties which it
desires to acquire, it would have experienced losses to date.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes
or dispositions of a particular property. Those decisions will be made by
the board of directors or management. In addition, you will have an
investment in an entity that is larger than each of the programs and, thus,
you will lose relative voting power even though you will be a shareholder of
a company with a more diverse asset base.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular interest payments on their original
investments and their principal returned in a pre-determined time frame,
there have been no distributions from any of the programs, other than the
Oceanside program, in the past three years due to the original borrowers'
defaults. Future cash distributions will be based on the company's earnings
and the decision of the board of directors to pay dividends. Therefore, even
if a particular property were to perform well, there is no assurance that
there would be cash distributions to you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. National
rendered asset management and property management services to the programs
subsequent to the time when the original borrowers defaulted and the
investors became beneficial owners of the property. In the future,
compensation will, instead, be paid to officers of the company in the form of
salaries, stock options and other benefits. These salaries and other forms
of compensation will be payable to management of the company even if one or
more of the properties acquired in the acquisition is subsequently sold.
HOLDERS OF A MAJORITY OF TENANCY-IN-COMMON INTEREST BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of the
outstanding interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THE EXCHANGE VALUES FOR THESE
PROPERTIES MAY BE TOO LOW OR TOO HIGH. As discussed in "Background and
Reasons for the Acquisition -- Calculation of Exchange Values" at page __,
National reviewed the updated March 1998 appraisal of the Yosemite/Ahwahnee
properties which reflected an aggregate "as is" appraised value of $20,246,000
and the October 1996 appraisal which reflected an "as is" aggregate appraised
value of $4,000,000. The results of those appraisals clearly differed from
each other, and, in management's judgment, the difference could not be
accounted for solely by improving market conditions. Some of the parcels,
including the golf course, were subsequently sold, on June 5, 1998, to the
Oceanside Program investors to obtain working capital. Based on its review
of all appraisals, National concluded that the properties currently owned by
the
36
<PAGE>
Yosemite/Ahwahnee I and II Programs have values of $5,486,000 ($1,782,950 and
$3,703,050, respectively), and the parcels currently owned by the Oceanside
Program have a value of $5,080,000. National believes its approach is
reasonable.
REAL ESTATE RISKS ASSOCIATED WITH ALL PROPERTIES
ALL OF THESE FACTORS CAN AFFECT OUR REVENUES, PROFITS AND DIVIDEND
DISTRIBUTIONS, IF ANY, AND THE VALUE OF YOUR INVESTMENT.
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent property
taxes are not timely paid, the company could lose one or more of the
properties to tax sales. Current annual property taxes are due one-half in
November and one-half in February. Delinquent taxes that are on payment plans
are due in April of each year until fully paid. Each of the programs'
properties is subject to the following delinquent property taxes as of August
31, 1998: Sacramento/Delta Greens - approximately $27,000; Yosemite/Ahwahnee
(combined) - approximately $500,000; Mori Point - approximately $165,000;
Cypress Lakes - approximately $204,000; Palmdale/Joshua Ranch - approximately
$63,000; Esperanza - approximately $20,000; and Stacey Rose (combined) -
approximately $30,000. Annual payments required for all the properties for
current taxes (including amounts currently due on five-year payment plans)
total approximately $549,000. In the case of Sacramento/Delta Greens,
Yosemite/Ahwahnee, Mori Point, Palmdale/Joshua Ranch and Stacey Rose
properties, National has entered into statutorily authorized five-year
payment plans with the applicable taxing authorities.
CERTAIN ASSETS MAY HAVE TO BE SOLD TO RAISE WORKING CAPITAL. Unless a
minimum of approximately $4,565,000 from the sale of certain assets of the
programs or the sale of units in the concurrent offering or the exercise of
warrants become available, the company will not be able to proceed with its
entire business plan. The company will also need financing from other
sources to complete its plan. Financing sources are not predictable and
interest rates or other costs of financing may be prohibitive. Neither the
programs nor the company have received any commitment from any sources for
financing at this time. In their current tenancy-in-common structure, the
programs cannot obtain traditional bank financing.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL AND OTHER LAWS MAY REQUIRE
EXPENSIVE HAZARDOUS SUBSTANCE CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC
IMPROVEMENTS. We have not conducted any environmental audits on the
properties. As a result, there may be environmental liability to the company.
Local governments have required residential developers to pay assessments
for streets, schools and parks which increase the cost of development.
Increased costs can have a negative affect on the company's sale of
residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as
earthquakes and floods may be uninsurable or too expensive to insure. The
company does not plan to carry earthquake or flood insurance. If an
uninsured loss occurs, the company could lose capital as well as revenues,
and would still owe other debts related to the property affected, if any.
37
<PAGE>
THE DEVELOPMENT OF ADDITIONAL PROJECTS MAY OCCUR. We may develop
additional projects in the future, although we have no immediate plans to do
so. See "Business and Properties - Investments in Real Estate or Interests in
Real Estate" at page __. Real estate development involves more risks than
there are in the ownership and operation of established projects. Financing
may not be available on favorable terms for development projects;
construction may not be completed on schedule or budget; construction
financing may not be available; long-term financing may not be available on
completion of construction; and sites may not be sold on profitable terms.
THE CALIFORNIA ECONOMY HAS FLUCTUATED BROADLY IN THE PAST FEW YEARS.
Initially, we will conduct all of our business in California. Our markets
have been affected by substantial fluctuations in local economic conditions,
interest rates, inflation, employment levels and regulations. California has
also experienced draught conditions, resulting in water conservation measures
and rationing in some areas of the State. In the past, these conditions have
caused local governments to restrict residential development. California's
climate and geology present risks of natural disaster such as earthquakes and
floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE
OWED $1,818,684 BY THE COMPANY. This represents accrued fees and expenses
from the programs which National has not cancelled. This amount is due and
payable and the company intends to start paying it after the Acquisition, but
only from operating revenues, proceeds from the sale of assets, or from the
exercise of warrants, and not from proceeds available from the sale of units
in the concurrent offering.
REAL ESTATE RISKS OF SPECIFIC PROPERTIES
ALL OF THESE FACTORS CAN AFFECT OUR REVENUES, PROFITS AND DIVIDEND
DISTRIBUTIONS, IF ANY, AND THE VALUE OF YOUR INVESTMENT.
SACRAMENTO/DELTA GREENS
PERMITS TO DEVELOP THE PROPERTIES NEED TO BE OBTAINED. Construction of
the Sacramento/Delta Greens property will require approval of a new tentative
map, the filing of a final map and obtaining building permits from the city.
The tentative tract map process for the Sacramento/Delta Greens property
required that studies be conducted to identify any endangered species'
habitat which may exist on the property. Since some were identified, such as
burrowing owls and fairy shrimp, changes to the tentative development plans
have been made that will reduce or eliminate any damage to the habitat. A
new tentative map needs to be approved by the City. The longer this process
takes, the longer it will be before any of the property is ready for any
construction, further development activity or sale.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Changing market
conditions may increase the difficulty of selling the lots. If the company
chooses to build homes on the lots, delays in construction, the lack of
reasonably priced construction or mortgage financing, and the general
California economy could lengthen the holding period for the lots. This
would mean a delay in
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realizing cash from the business operations. The average carrying costs,
including property taxes, predevelopment activities and asset management fees
for this property have averaged approximately $10,000 per month over the past
three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, our properties may be sold at a loss. The location of the company's
lots, the presence of other competition, customer acceptance and pricing are
all factors affecting success. Competitors may have better financial,
managerial and other resources, affecting our ability to successfully compete.
Sacramento/Delta Greens represents over 5% of the assets of the company.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay the engineering costs required to mitigate endangered
species issues and pay for the planning and design expenses for the city to
approve a new tentative tract map (estimated by management to cost
approximately $25,000). Another risk is whether the lots to be developed
will appeal to builders and whether home financing will be available. Finally,
there is a risk that the development and sale of lots or homes will not be
profitable.
YOSEMITE/AHWAHNEE PROPERTIES (including the golf course and surrounding
land, which is owned by the Oceanside program investors)
PERMITS TO DEVELOP THE CONDOMINIUM-TYPE TIMESHARE ASPECT OF THE RESORT
HAVE NOT YET BEEN OBTAINED. The Yosemite/Ahwahnee property has a final map
on 32 remaining single family estate lots and a use permit for a 600 space
recreational vehicle park. Planning and development are currently underway
for 100 additional recreational vehicle membership sites, as well as for
vacation villa timeshare units. Additional planned usage such as traditional,
attached timeshare units will require extensive county and state approvals.
RISKS AFFECTING OPERATION OF A GOLF COURSE. Increased competition,
seasonality, weather and course conditions will affect the operations of the
company. While no new golf courses have opened near the Ahwahnee Golf
Course, new courses could increase the competition and reduce the rounds
played. Seasonal variations may require the company to supplement revenue at
the golf course to meet operating expenses. Weather can negatively affect
the turf grass and reduce the number of rounds played. Inflationary costs
may not be offset by increased dues. Also, golf's success depends on
discretionary spending by consumers, which may be vulnerable to regional and
economic conditions, as well as to pleasure or destination travel preferences
by visitors and tourists. All of these factors could reduce the amount of
money earned by the company.
The Yosemite/Ahwahnee golf course can be an important amenity which may
attract potential timeshare purchasers in the future. At this time, the
project does not rely on the golf course for its revenue. National estimates
that the value of the golf course will be less than 20% of the assets of the
company.
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RESORT DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF REASONS AND COULD
RESULT IN LOSSES. In addition to normal real estate risks, financing is hard
to obtain, and the lodging industry can be unpredictable, seasonal and very
competitive. Without additional financing or capital, the company will not
be able to completely develop its timeshare resort projects as part of its
growth strategy. Economic conditions, changes in travel patterns, extreme
weather conditions, labor and other variable costs can all affect revenues
and profits. For example, Spring through Fall at the Yosemite/Ahwahnee
property are the periods of highest occupancy. Seasonality can be expected
to cause quarterly fluctuations in the company's revenues.
RISKS RELATING TO TIMESHARE OPERATIONS. Certain factors affecting
timeshare operations could result in losses. Negative press surrounding the
remarketing of timeshares might negatively impact sales and operations. Also,
marketing costs are high relative to selling price which can reduce or
eliminate profits from the sale of timeshare interests.
In addition, according to the American Resort Development Association,
there is a tendency for timeshare owners to default more often on their
timeshare loans then homebuyers who borrow to buy a home. If a buyer
defaults, we would incur costs in remarketing the timeshare.
The timeshare industry is extremely competitive and we may not be able
to secure development financing on acceptable terms.
Since the project is not yet permitted for traditional attached
timeshare units, there has been no allocation of assets. Should attached
timeshare units be approved, the company anticipates that a significant
portion of the revenue of the company will be derived from sales of these
timeshare units.
RISKS RELATING TO RECREATIONAL VEHICLE PARK OPERATIONS. Risks relating
to recreational vehicle parks are substantially the same as those described
above for timeshare projects.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to (i) make up for the current cash drain from operations and
maintenance of the golf course, clubhouse and current recreational vehicle
facilities (estimated by management at approximately $350,000) annually and
(ii) complete the construction of additional recreational vehicle sites and
obtain approvals for and construction of the first group of vacation villa
timeshare units (estimated by management to cost approximately $3,000,000).
There is also a risk that the operation of recreational vehicle sites,
timeshares and a golf course may not be profitable.
MORI POINT PROPERTY
PERMITS TO DEVELOP THE PROPERTY HAVE NOT YET BEEN OBTAINED. If needed
permits for development for the Mori Point property are not obtained or
reissued, the business plan for the company will have to be revised.
Additionally, the presence of two endangered species on the Mori Point
property increases the risks that necessary approvals may not be received if
an acceptable habitat mitigation plan cannot be developed. The permitting
process with the
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California Coastal Commission and the City of Pacifica is expensive and time
consuming. Mori Point had a specific plan and tentative map approvals to
build a hotel/conference center which expired in 1991. These approvals must
be obtained or reinstated prior to construction on the property. Mori Point
will represent approximately 20% of the assets of the company.
HOTEL/CONFERENCE CENTER DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF
REASONS AND COULD RESULT IN LOSSES. In addition to normal real estate risks,
financing is hard to obtain, and the lodging industry can be unpredictable,
seasonal and very competitive. Without additional financing or capital, the
company will not be able to develop the hotel/conference center project as
part of its growth strategy. Economic conditions, changes in travel
patterns, extreme weather conditions, labor and other variable costs can all
affect revenues and profits. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues. At the hotel/conference center
property at Mori Point, we may be competing against well-known chains and
extended-stay inns.
ADDITIONAL SPECIFIC RISKS. There is a risk that the city government
will not approve the property for its intended use. Capital to conduct
engineering and environmental studies in order to apply for and obtain
approvals for its use from the City is estimated to be approximately
$500,000. Financing will also be necessary for roads, utilities and other
infrastructure costs prior to construction. Finally, there is a risk that
the proposed hotel/conference center may not be profitable.
CYPRESS LAKES PROPERTY
THE VESTED TENTATIVE MAP WILL EXPIRE IN APRIL 1999 UNLESS RENEWED AND
THE BUILD OUT OF THE PROPERTY WILL BE EXPENSIVE. Due to being located in a
100-year flood plain, the property requires a levee to be constructed around
its perimeter which is very expensive. Preliminary engineering estimates
indicate these costs to be more than $9,000,000. It may be desirable to
change the vesting tentative map if the costs can be reduced significantly.
While mere extension of the expiration date of the existing vested tentative
map is not expected to be controversial, any changes in the existing plan
could subject the project to public hearings which might result in additional
costs being placed on the project. This could further increase the high
front-end financial requirements. Additionally, such modifications might not
be approved by the County.
Cypress Lakes is a proposed master-planned community and represents more
than 20% of the assets of the company. If the current proposed sale of the
Property is not consummated, and if a bulk sale cannot be achieved, joint
venture partners would have to be brought in by the company to help with the
significant up-front capital requirements of such a large project in order to
develop it. It may be difficult to find substantial builder/developers who
have the financial ability to purchase or develop the project. Changing
market conditions may increase the difficulty in selling lots.
Should the company determine to build out the project, delays in
construction, reasonably priced mortgage and construction financing and the
local and general California
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economy could lengthen the holding period for the lots. This would mean
delays in realizing cash from the business operations.
RISKS AFFECTING OPERATION OF A GOLF COURSE. When, and if, the golf
course is developed, it will face competition from the 15 golf courses within
the immediate market area (an approximate 25-mile radius). Seasonality,
weather and course conditions will affect the operations of the company.
Inflationary costs may not be offset by increased dues. Also, golf's success
depends on discretionary spending by consumers, which may be vulnerable to
regional and economic conditions, as well as to pleasure or destination
travel preferences by visitors and tourists. All of these factors could
reduce the amount of money earned by the company if the golf course is
constructed.
RISKS OF RESIDENTIAL DEVELOPMENT. Totaling 1,330 lots when built out, a
large supply of lots would be available and, due to the cyclical nature of
the housing industry, demand may fluctuate differently than supply. This
could result in needing to sell lots at a loss. Due to the size of the
project, it could take between six and ten years to complete, which would
subject it to new competitors entering the marketplace during the sales
period. An environmental impact report was obtained on the property. Any and
all environmental concerns will be mitigated as required in the vested
tentative map conditions of approval. No evidence of endangered species that
would limit or preclude development of the project have been found.
PALMDALE/JOSHUA RANCH PROPERTY
A FINAL TRACT MAP MUST BE RECORDED. After several years of effort by
National, the vested tentative map was approved by the City of Palmdale at a
hearing before the planning commission in early July 1998. A final recorded
map must be secured by National or a buyer in order to build on the property.
Final engineering, soils, utility and various improvement studies will need
to be conducted in order to record the final map.
PERMITS TO DEVELOP THE PROPERTY NEED TO BE OBTAINED. A final recorded
map, which could take nine to twelve months after starting the process, will
be required prior to construction. Due to the size of this project which
encompasses some 739.6 acres and is currently planned for 539 lots,
additional grading studies, soils investigation and utility planning needs to
be done which could negatively impact the cost of this large-scale
development.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Finding
builder/developers that have the financial strength to handle this size
project is difficult. Changing market conditions, the lack of
reasonably-priced construction or mortgage financing and the general or local
market conditions could lengthen the holding period for lots. This would
mean a delay in realizing cash from business operations. The average
carrying costs, including property taxes, predevelopment and asset management
services for this property have averaged approximately $16,300 per month over
the past three years.
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RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, the property may be sold at a loss. The location of the lots, the
presence of other competition, customer acceptance and pricing are all
factors affecting success. Competitors may have better financial, managerial
and other resources affecting the company's ability to successfully compete.
Any and all environmental concerns will be mitigated as required in the
vested tentative map conditions of approval. No evidence of endangered
species that would limit or preclude development of the project have been
found.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay for or finance (i) engineering, soils and utility studies
which is estimated to cost approximately $140,000, and (ii) another risk is
whether the lots to be developed may appeal to project builders so that the
property can be sold in whole or by parcel. Palmdale/Joshua Ranch is a
proposed residential development and represents about 10% of the assets of
the company.
ESPERANZA PROPERTY
RISKS OF COMMERCIAL DEVELOPMENT. The material risks associated with the
development of the Esperanza Property are (i) as of August 31, 1998,
approximately $23,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the property for delinquent property
taxes; and (ii) despite a strong economy, rents and values for many retail
properties are expected to remain soft in 1998. Pressure on rents brought
about by over building, weakness in demand for space and store closures
caused by lagging profits are the forces causing a soft market. No
environmental or endangered species reports have been prepared for the
property.
ADDITIONAL SPECIFIC RISKS. Within the City of Victorville there are
approximately 3,250 acres zoned for commercial use, of which 60% remains
available for development. Victorville is home to the largest enclosed
regional shopping center between San Bernardino and Las Vegas, which is known
as The Mall of Victor Valley. These commercial sites represent significant
competition to the Esperanza project. There are more than 5,400 acres within
the city limits of Victorville zoned for light and heavy industrial use.
Nearly nine percent of this 5,400 acres of land is vacant and is available in
parcels ranging in size from one-half to five hundred acres.
STACEY ROSE PROPERTIES
RISKS OF RESIDENTIAL DEVELOPMENT. The material risks associated with
the development of the Stacey Rose Properties are (i) as of August 31, 1998,
approximately $30,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the Properties for delinquent property
taxes; (ii) it is estimated that it may cost about $50,000 to finalize a
tentative tract map on the parcels; (iii) a substantial, and potentially
expensive, sales and marketing effort will be necessary to sell homes
constructed on the properties if a bulk sale of the lots is not made; (iv)
the properties are located in a lower income residential area; and (v)
increasing government fees and assessments for streets, schools, parks and
other infrastructure requirements could increase the
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cost of lots to the company, thereby increasing the sales price of the lots
which will delay market absorption. No environmental or endangered species
reports have been prepared for the property.
ADDITIONAL SPECIFIC RISKS. There is a risk that (i) adequate funds will
not be available to finalize a tentative tract map on the parcels
(approximately $50,000); (ii) the project will not appeal to project
builders; and (iii) home financing at reasonable costs may not be available.
There is also a risk that the development and sale of lots or homes may not
be profitable.
ANTI-TAKEOVER PROVISIONS AND LIMITATION OF DIRECTOR LIABILITY
Certain provisions of the charter documents may restrict changes in
control of the company's management. These provisions may make it more
difficult or expensive for another party to acquire and exercise control of
the company or to change its management, even if that change would be
beneficial to you. These provisions include:
ADDITIONAL CLASSES OF SHARES. Under the company's certificate of
incorporation, subject to the receipt of fair value, the Board of Directors
may issue shares in other classes or series and fix the rights, powers and
limitations associated with such shares. Although the Board of Directors has
no present intention of doing so, it could issue a class or series that
could, depending on its terms, impede a merger, tender offer or other
transaction that you might believe is in your best interest or in which you
might receive a premium for your shares over the then current market price.
The issuance of such shares could also dilute your voting power. See
"Description of Shares" at page __.
STAGGERED BOARD. The Board of Directors is divided into three classes
serving staggered three year terms. This arrangement may affect your ability
to change control of the company, even if you believe such a change is in
your best interests. See "Comparisons of Programs and Company --
Anti-Takeover Provisions" at page __.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The company's
certificate of incorporation, as well as Delaware law, prohibits certain
business combinations with owners of more than 15% of the outstanding voting
stock of the company ("interested stockholders") within the three year period
immediately prior to the date on which the interested stockholder became an
interested stockholder. These restrictions on certain business combinations
may deter potential purchasers who seek control of the company. See
"Comparison of Programs and Company -- Restrictions on Related Party
Transactions and Business Combinations" at page __.
SUPERMAJORITY VOTES. Changes to the company's certificate of
incorporation which cover anti-takeover provisions require the approval of
two-thirds of the company's voting stock. This restriction also may deter
potential purchasers who seek control of the company. See "Comparisons of
the Programs and the Company -- Anti-Takeover Provisions" at page __.
IN ADDITION TO THE ANTI-TAKEOVER PROVISIONS, THE DELAWARE LAW, AS WELL
AS THE CHARTER DOCUMENTS, LIMIT THE LIABILITY OF DIRECTORS AND OFFICERS TO
SHAREHOLDERS. This limitation of liability may exceed the protections
National enjoys under the programs' servicing agreements
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and limit shareholders' claims against management. See "Fiduciary
Responsibility and Indemnification -- Limitation on Liability of Directors and
Officers of the Company" at page __.
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CAPITALIZED TERMS USED THROUGHOUT THE REST OF THIS PROSPECTUS AND IN THE
ACCOMPANYING SUPPLEMENT ARE DEFINED IN THE GLOSSARY LOCATED AT THE END
OF THE PROSPECTUS, JUST BEFORE THE FINANCIAL STATEMENTS.
BACKGROUND AND REASONS FOR THE ACQUISITION
GENERAL
National is a California corporation that was formed in 1986. National
is a licensed real estate broker in the State of California. Pursuant to a
series of permits issued by the California Department of Corporations,
National offered fractionalized interests in loans secured by deeds of trusts
to investors who satisfied the suitability standards set forth in the
applicable offering materials and who could invest a minimum of $2,000. The
fractionalized interests offered pursuant to the permits were commonly
referred to as trust deed participation or "Trudy Pat" investments. In
addition, National also sold through private placements fractionalized
interests in loans secured by deeds of trust. Since those interests were not
sold pursuant to permits from the California Department of Corporations,
National did not refer to them as "Trudy Pat" programs.
From 1988 through 1993, National arranged a number of loans for various
builders and land developers. In return, these borrowers offered promissory
notes and the security of a first deed of trust on their real estate
project(s) as collateral for a loan, normally at 50% or less loan-to-value
ratio (the ratio of the cumulative amount of the notes divided by the value
of the property as appraised by an independent qualified real estate
appraiser) for unimproved property and up to 85% loan-to-value of the
completed property (determined by independent appraisers) for property under
construction. The notes generally were short-term (two years), often with
extensions for one or two years at the option of the borrower and provided
interest to investors which was significantly higher than yields of other
types of investments available at the time. Pursuant to each servicing
agreement executed by each Investor, National was to receive a loan servicing
fee of one-twelfth of one percent of the initial amount of the note amount
per month.
Each Program has served as a separate investment vehicle for Investors.
Underwriting of a loan was based on an appraisal by an independent real
estate appraiser. In the case of each of the Programs described in this
document, the borrowers have defaulted on their loans and National has
obtained title to the real property securing the loans as the agent of and
for the benefit of the Investors in each of the Programs. The interests
which each of the Investors held in the real estate loans have been converted
through the foreclosure process into tenant-in-common interests in the
underlying real estate that formerly secured the loans. (For purposes of
this discussion, the term "foreclosure" includes, but is not limited to,
taking title to real estate constituting security for the applicable loans
through exercise of a power of sale under a deed of trust or through
accepting a deed from the applicable borrower or purchase from a bankruptcy
trustee.)
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SERVICING AND ASSET MANAGEMENT FEES. Pursuant to the servicing
agreements, National was entitled to an annual loan servicing fee of one
percent of the unpaid principal amount of the loan. For this fee, National
was to collect interest and principal payments, remit them to the Investors
net of National's fee and other Program expenses, generally monitor the
performance of the loans and keep the Investors informed.
After title was taken to the Properties through the acquisition process
after borrowers' defaults, National's servicing fee-related activities were
no longer necessary. It was disclosed to the Investors in each Program that,
in order to assist them in protecting the value of their real estate assets
and avoiding the confusion of tenancy-in-common ownership of real estate by,
in most cases, several hundred Investors or more, National had converted its
role to that of an asset manager. Thereafter, National continued to manage
the assets of the Programs and charged the same one percent fee, even though
the asset management activities were much more intensive and costly than
servicing-related activities. Given the complexity of the tenancy-in-common
relationships involved in each Program, and the amount of work involved in
keeping Investors up-to-date and in planning for the financing and
development of the Properties, National believed the fee was at least as
reasonable as would be charged by third parties. The asset management
services are investor-related and include, but are not limited to,
identifying Investor objectives; maintaining compliance with Investor
assessment procedures set forth in the tenancy-in-common agreements;
processing ownership transfers for Investors; communicating with Investors in
writing, by telephone and, occasionally, in person; planning, coordinating
and executing Investors' directives indicated by majority vote (including the
development and implementation of a plan to obtain liquidity for, and enhance
the value of, Investors' interests in the Programs' real estate); and
selecting, monitoring and supervising third party providers of services to the
Programs.
After the Oceanside and Yosemite/Ahwahnee foreclosures, in addition to
the one percent asset management fee earned by National, officers of National
(principally David Lasker and James Orth) also performed property management
services for those programs in their capacities as officers of the two
operating companies established by National for the benefit of Oceanside and
Yosemite/Ahwahnee I and II Investors, Oceanside Development, Inc. ("ODI") and
Ahwahnee Golf Course and Resort, Inc. ("AGCRI"). The property management
services and activities are property-specific and include, without
limitation, solicitation and engagement of entitlement and permit processing,
environmental, engineering, planning, architectural, construction, marketing,
appraisal, legal, accounting and other experts as needed for each project;
due diligence on potential service providers; assistance in presentations and
applications for approvals to governmental agencies; packaging and
documenting the status of a project for potential financing, sale or joint
venture; supervising and managing the operational activities for
construction, maintenance and development on the Oceanside and
Yosemite/Ahwahnee projects; and contract negotiations and documentation. To
the extent similar property specific services were provided to the other
Programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
The following table sets forth for each of the Programs the asset
management fees National is entitled to receive for post-Ownership Date
services:
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<TABLE>
<CAPTION>
Unpaid Principal Annual Monthly
Program Amount Fee (1%) Fee (1/12 of 1%)
------- ---------------- ------- ----------------
<S> <C> <C> <C>
Sacramento/Delta Greens $5,000,000 $50,000 $4,167
Oceanside 24,150,000 241,500 20,125
Yosemite/Ahwahnee I 6,106,759 61,068 5,089
Yosemite/Ahwahnee II 13,364,557 133,646 11,137
Mori Point 10,000,000 100,000 8,333
Cypress Lakes 14,000,000 140,000 11,667
Palmdale/Joshua Ranch 15,000,000 150,000 12,500
Esperanza 500,000 5,000 417
Stacey Rose A 315,300 3,153 263
Stacey Rose B 85,000 850 71
</TABLE>
The following table sets forth [as of August 31, 1998] for each of the
Programs the unpaid aggregate amount of asset management and property
management fees accrued by National and officers and employees of ODI and
AGCRI after title to the Properties was taken, loans to the Programs by
National since that time, allocated office expense of National during that
time, and the remaining fees to be owed to National and officers and
employees of ODI and AGCRI after the Acquisition:
<TABLE>
<CAPTION>
Allocated Total
Ownership Asset Property Loans to Office Amounts
Date Management(1)(2) Management(2)(3) Programs(4) Expense(5) Due(6)
--------- ---------------- ---------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sacramento/Delta Greens 3/93 $181,178 $ - $ 18,500 $ - $199,678
Oceanside 11/93 261,273 20,000(7) - - 281,273
Yosemite/Ahwahnee I 9/95 37,916 198,178(7) - 55,000 291,094
Yosemite/Ahwahnee II 9/95 124,250 396,357(7) - 110,000 630,607
Mori Point 8/92 537,885 - 43,655 - 581,540
Cypress Lakes 7/95 - - 47,046 - 47,046
Palmdale/Joshua Ranch 10/93 100 - 7,220 - 7,320
Esperanza 12/90 41,250 - - - 41,250
Stacey Rose A 10/92 7,066 - 3,247 - 10,313
Stacey Rose B 10/92 26,210 - 12,045 - 38,255
---------------- ---------------- ----------- ---------- ----------
Total $1,217,128 $ 614,535 $131,713 $165,000 $2,128,376
---------------- ---------------- ----------- ---------- ----------
---------------- ---------------- ----------- ---------- ----------
</TABLE>
- ----------
(1) For Investor-related services as described above; payable to National.
(2) See "Historical Compensation for Servicing, Asset Management and Property
Management/Effect of Acquisition" at page __ for amounts which have
actually been paid.
(3) For property-related services as described above. These amounts are
payable to officers and employees of ODI and AGCRI.
(4) Loans were made by National to cover operating needs which assessments paid
by Investors did not cover. These represent net amounts remaining owing to
National as of August 31, 1998.
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(5) Despite the fact that a significant amount of work was conducted in
National's facilities for these Properties, National allocated less than
ten percent of its office overhead to the Yosemite/Ahwahnee Programs in the
aggregate.
(6) For services performed prior to 1995, National was owed an aggregate of
$[2,843,308] of unpaid fees and advances made: $500,000 to Sacramento/Delta
Greens, $72,158 to Yosemite/Ahwahnee I, $1,157,867 to Yosemite/Ahwahnee II,
$461,589 to Mori Point, $468,000 to Cypress Lakes, $102,134 to Esperanza,
$64,293 to Stacey Rose A, and $17,267 to Stacey Rose B. Subsequent
servicing-related fees for the Oceanside and Yosemite/Ahwahnee Programs
of $261,273 and $124,250, respectively, due for National's contractual
portion of lot release fees and percentages of sales, will also be
cancelled upon the Acquisition of these Programs by the Company.
(7) Owed to officers and employees of AGCRI.
ORIGINAL DISCLOSURE AND SALES EFFORTS. Each "Trudy Pat" offering, as
well as the Esperanza and Stacey Rose A and B offerings, was independent of
another and extensive disclosure documents were provided to each Investor.
The disclosure documents provided investors with specific details of the
investment opportunity including: the nature of the investment as a
tenancy-in-common interest, a description of the property used as security
for the loan, type of property, value as appraised by an independent
qualified appraiser at the time of the initial funding of the loan, terms of
the loan, loan amount, loan-to-value ratio, interest rate, borrower resume
and experience, borrower financial statements, other appraisal information,
as well as a full disclosure of the risks involved with the investment.
"Trudy Pat" and other interests were sold exclusively through
participating NASD member broker-dealers. At the time of purchase through
their broker, all Investors executed documents which included an
acknowledgment of receipt of the offering circular, a servicing agreement and
a tenancy-in-common agreement, as well as representations of their
suitability as participants according to the standards set forth in the
offering documents and an acknowledgment, confirmed by their broker, of their
understanding of the pertinent facts relating to the liquidity and
marketability of their interests. The servicing agreement provided for
National to collect payments from the borrower on behalf of the Investors and
distribute the proceeds of the collection net of National's servicing fees.
The servicing agreements also authorized National to take various remedial
actions on behalf of Investors in the event of a borrower default, subject to
broad discretionary powers and authorities. Pursuant to these provisions,
National has undertaken an asset management function on behalf of Investors
for those loans that experienced borrower defaults as described herein. The
tenancy-in-common agreement explained the relationship among the Investors
and provided, among other things, that Investors would be bound by certain
decisions made by holders of a majority of the interests.
AMOUNTS FUNDED. In 1989, National completed the funding of a real
estate loan for the Sacramento/Delta Greens Program in an aggregate amount of
$5,000,000 by selling undivided tenant-in-common interests in such loan to
332 Investors. National completed the funding of similar real estate loans
for the Yosemite/Ahwahnee I Program (1989) in an aggregate amount of
$6,500,000 with 426 Investors; for the Mori Point Program (1990) in an
aggregate amount of
49
<PAGE>
$10,000,000 with 486 Investors; for the Yosemite/Ahwahnee II Program (1992)
in an aggregate amount of $13,500,000 with 837 Investors; for the Oceanside
Program (1993) in an aggregate amount of $30,000,000 with 1,755 Investors;
for the Cypress Lakes Program (1993) in an aggregate amount of $14,000,000
with 832 Investors; for the Palmdale/Joshua Ranch Program (1992) in an
aggregate amount of $15,000,000 with 1,011 Investors; for the Esperanza
Program (1988) in an aggregate amount of $500,000 with 42 Investors; for the
Stacey Rose A Program (1988) in an aggregate amount of $85,000 with two
Investors; and for the Stacey Rose B Program (1988) in an aggregate amount of
$315,300 with 28 Investors. All of such offerings, with the exception of the
Esperanza and Stacey Rose Programs which were exempt, were sold pursuant to
permits issued by the California Department of Corporations and interests
were sold only to persons who were residents of the State of California. All
of such offerings were completed prior to the applicable loan defaults.
ORIGINAL APPRAISAL INFORMATION. At the time the loans were made, the
Properties were appraised by independent appraisers. The loans did not
exceed 50% of the then current appraised value for undeveloped land with the
exception of the original Oceanside Property which was a construction loan
funded at 85% of completed appraised value. The following table sets forth
the dates of the loan appraisals, the appraised values and the amount of the
loan.
<TABLE>
<CAPTION>
Date of Appraised
Program Appraisal Value Loan Amount Original Appraiser
------- --------- ---------------- ----------- ------------------
<S> <C> <C> <C> <C>
Sacramento/Delta Greens 9/10/88 $ 10,530,000(1) $ 5,000,000 The Ashley Organization
Oceanside 8/26/91 and 11/22/91 74,643,750(2) 30,000,000 Boznanski & Company
Yosemite/Ahwahnee I 3/22/89 13,080,000(1) 6,500,000 Arnold & Associates
Yosemite/Ahwahnee II(3) 3/25/90 15,460,000(1) 7,000.000 Arnold & Associates
Yosemite/Ahwahnee II(3) 1/23/92 17,335,000(1) 4,265,000 Arnold & Associates
Yosemite/Ahwahnee II(3) 9/24/92 17,335,000(1) 2,235,000 Arnold & Associates
Mori Point 5/18/88 16,800,000(1) -- Robert J. Holmes, MAI
Mori Point 4/9/90 22,100,000(1) 10,000,000(4) Pacific Property Concepts
Cypress Lakes 10/8/90 39,000,000(1) 14,000,000 Triad Appraisal Group
Palmdale/Joshua Ranch 2/1/90 40,400,000(1) 15,000,000 Jos. J. Blake & Assoc.
Esperanza 10/20/86 1,266,500(1) 500,000 Richard V. Speck & Assoc.
Stacey Rose A 4/11/88 335,000(1) 85,000 Robert J. Holmes, MAI
Stacey Rose B 4/11/88 710,000(1) 315,300 Robert J. Holmes, MAI
</TABLE>
- ----------
(1) Undeveloped land.
(2) Construction loans. Appraised at completed value. Two separate parcels.
(3) Funded in three tranches.
(4) Maximum initial funding was $8,400,000. Increased to $10,000,000 with
April 1990 appraisal.
The differences between the appraised values at the time the loans were
made in the late 1980s and early 1990s and the appraised values as of March
1998 which were used to determine Exchange Values are due to market
conditions, local economy, competition, interest rates, costs of
construction, comparable prices and other factors taken into account by
appraisers. According to the Urban Land Institute, the Building Industry
Association, the Federal Savings and Loan
50
<PAGE>
Insurance Corporation and the Federal Deposit Insurance Corporation, the
significant recession in the California economy during most of the 1990s was
the primary cause of reduction in real estate values throughout the State of
California. Thus, market conditions caused the decrease in appraised values
between the time of the loan appraisals and the appraisals used to determine
Exchange Values.
APPRAISED VALUE AT OWNERSHIP DATES. Defaults occurred in each of the
above loans and National took title to the Properties for the benefit of the
applicable Investor group. The following table sets forth for each of the
Programs the date title was obtained on behalf of Investors to the underlying
real estate ("Ownership Date"), the amount of unpaid principal at the
Ownership Date, the amount of unpaid interest at the Ownership Date, the
appraised value of such real estate at the Ownership Date, and the appraised
value of the Property used for purposes of calculating Exchange Values:
<TABLE>
<CAPTION>
As of Ownership Date
--------------------------------------------------- Current Appraised
Unpaid Unpaid Value for
Ownership Principal Accrued Appraised Exchange Value
Program Date Balance(2) Interest(1) Value Calculations(4)
------- --------- ------------ ------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Sacramento/Delta Greens 3/93 $ 5,000,000 $ 425,000 $ 3,075,000(4) $1,745,000
Oceanside 11/93 24,150,000 0(3) 6,484,000(4) 5,080,000(6)
Yosemite/Ahwahnee I 9/95 6,106,759 1,867,470 9,325,000(4) 1,782,950
Yosemite/Ahwahnee II 9/95 13,364,551 4,067,007 10,816,000(4) 3,703,050
Mori Point 8/92 10,000,000 1,570,834 4,100,000(4) 6,000,000
Cypress Lakes 7/95 14,000,000 3,550,264 5,200,000(5) 6,000,000
Palmdale/Joshua Ranch 10/93 15,000,000 1,073,125 5,390,000(5) 2,700,000
Esperanza 12/90 500,000 49,653 530,000(5) 270,000
Stacey Rose A 11/92 85,000 29,098 1,600,000(5)(8) 67,936(7)
Stacey Rose B 11/92 315,300 107,938 252,064(7)
</TABLE>
- ----------
(1) As of the Ownership Date.
(2) With the exception of Yosemite/Ahwahnee I and Yosemite/Ahwahnee II, at
Ownership Date no principal had been paid on these loans as they were
structured to be interest only with a "balloon" payment at maturity.
Subsequent to the Ownership Date, $5,850,000 of principal has been repaid
to Oceanside Investors.
(3) No delinquent interest at Ownership Date.
(4) Each Property's appraisal was updated as of March 31, 1998.
(5) Appraised in March 1998 to determine its value as of March 31 and as of the
Ownership Date.
(6) Represents appraised value of the outlots and golf course portions of the
Yosemite/Ahwahnee properties purchased by the Oceanside Program Investors
from the Yosemite/Ahwahnee Program Investors on June 5, 1998.
(7) Represents pro rata share of March 1998 appraisal.
(8) Consolidated for Stacey Rose A and B together.
In the case of each of the Programs, current appraisals indicate that
the value of the Properties is significantly lower than the unpaid principal
and interest on the loans due
51
<PAGE>
principally to the deteriorating market conditions for real estate which
occurred throughout California. Despite the limited additional funding
available from Investors or otherwise, in order to make them more marketable
at higher prices, National has attempted to maximize the value of the real
estate assets while seeking ways to convert them to distributable cash for
Investors. See "-- Management of Programs Since Foreclosure."
----------
Since taking title to the Properties, based on Investors' stated
preferences, National's objective has been to maximize the recovery of the
Investors' principal in the shortest period of time. See "-- Management of
the Programs since Foreclosure" and "-- Efforts to Dispose of the
Properties." After reviewing various alternatives (see "-- Alternative to the
Acquisition" and "-- Comparison of Alternatives"), National initiated and
structured the Acquisition. The proposed Acquisition involves the purchase
by the Company of the real estate assets of each of the Programs, the other
assets of each of the Programs including cash reserves and the assumption of
certain liabilities of each of the Programs. The Company proposes to use its
Common Stock arbitrarily valued at $20 per share. See "-- Calculation of
Exchange Value" and "Allocation of Shares Among the Programs."
Except as described in this Prospectus, no contacts have been received
from any third parties regarding an acquisition of the assets of any of the
Programs, or a combination or merger of any of the Programs.
MANAGEMENT OF THE PROGRAMS SINCE FORECLOSURE
SACRAMENTO/DELTA GREENS PROGRAM. As the agent of and on behalf of the
Sacramento/Delta Greens Program Investors, National took title to the
Property of the Sacramento/Delta Greens (formerly "North Shores") Program in
March 1993. An appraisal of the Property's value was not obtained at the time
title was taken; however, in May 1997, National obtained appraisals to
determine the Property's value as of May 1997 and as of the date title to the
Property was taken. The May 1997 appraisal was updated as of March 1998.
The Property is located in Sacramento, California, and is held for the
benefit of the Sacramento/Delta Greens Investors by National Investors Land
Holding Trust IV. Subsequent to the foreclosure, on behalf of the
Sacramento/Delta Greens Investors, National hired consultants and engineers
to determine the economic, political and environmental issues surrounding the
Property in order to determine how to maximize its marketability. The City
had previously approved a tentative map for detached and duplex residential
units, but it was determined by National that there was considerable
market and political resistance to any duplex housing. So the project was
redesigned to be developed in multiple phases as a single-family detached,
entry-level housing product. This reduced the number of lots from 596 to 534,
which was then accepted by the City subject to mitigation of endangered
species. That mitigation, which required several months of effort and the
expertise of specialized consultants and engineers, resulted in the further
reduction of the number of lots available to approximately 465. The City has
recently advised National to submit a new tentative map application for
approval. Attempts have been made to find joint venture partners to assist in
the financial requirements for processing the final tract
52
<PAGE>
map, as well as to provide capital for infrastructure. In 1994, a proposed
joint venture was considered and approved by Investors with a real estate
developer located in Sacramento. The agreement provided for payment of $6,400
per lot for each of the 596 lots planned at that time and to be paid when
each lot was built on and sold (or a total of $3,814,400) plus 50% of the
profits derived from home sales. It was estimated that this would have been
an approximate five year process. The transaction was never consummated
because of the developer's failure to fulfill its initial financial
obligations under the agreement. The agreement was terminated in 1995. No
brokers were used in this transaction. Because of the prevailing market
conditions through 1996, most builders in the area were attracted to real
estate projects that already had finished lots, unlike the Sacramento/Delta
Green project which still faced considerable infrastructure costs prior to
attaining finished lot status. National has not sought financing from third
party sources for the pre-construction costs, as such a loan, if available at
all to a tenant-in-common group, was too premature and would have exposed the
Investors to loss of the Property unless a builder could be found to become
financially involved in the Property's development. National believes that
the Sacramento market for entry-level single-family residential housing has
improved and it is anticipated that, subject to the availability of
financing, the Property can be developed in parcels and homes can be
constructed in successive phases by several different builders. See "--
Efforts to Dispose of the Properties" and "-- Alternatives to Acquisition"
for a discussion of alternatives considered for this Program by National.
Since foreclosure, National has considered continuing development of the
Property to enhance its value and marketability (and, indeed, has developed
and planned for the operation of the Property prior to the proposed
Acquisition) in order to sell the property for an amount sufficient to repay
the investors. In addition, due to diminishing available capital, National
continues to consider, but has made no recommendations with respect to,
prompt liquidation or bankruptcy reorganization of the Program. National has
viewed a discounted liquidation or bankruptcy as alternatives of last resort
because it believes that those alternatives have not been in the best
interest of Investors. As long as there were minimal funds available to
maintain and manage the project-related activities, National has sought to
optimize its value and marketability for an orderly sale on behalf of the
Investors.
OCEANSIDE PROGRAM. This was a construction loan for in excess of 300
single-family detached homes in Oceanside, California. Funding for the
Oceanside Program was completed in stages commencing in November 1991. The
final stage of funding (amounting to approximately $6,374,000) was completed
in April 1993. After an investigation by National, in November 1993, a
technical default on the loan was caused by the borrower's admission that
funds that were to be used to pay subcontractors had been diverted to
corporate overhead. In order to avoid prolonged litigation that could have
been detrimental to the Property, National succeeded in obtaining the
borrower's agreement to grant the ownership of the Oceanside Properties to
Oceanside Development, Inc. ("ODI"), a corporation formed to hold title to,
and manage, the Oceanside Property on behalf of the Oceanside Investors. An
appraisal of the Property's value was not obtained at the time title was
taken; however, in May 1997, National obtained appraisals to determine the
Property's value as of May 1997 and as of the date title to the Property was
taken for the Investors. An experienced and reputable homebuilder was hired
and, through 1997, a total of 114 homes in the Encore tract, one of two
parcels of the project, were built and sold
53
<PAGE>
for a total of approximately $18,000,000, net of selling expenses. Initially
84 homes were built from Program funds without the need for construction
financing. Because of the decreasing sales volume and prices, in order to
complete the construction of the remaining 30 homes, it was necessary for the
builder to obtain traditional construction loans from a bank. An additional
23 lots were sold at the end of 1997 to that homebuilder for approximately
$593,000 net of selling expenses plus a $50,000 unsecured note due in October
1998. These funds were utilized for project-related expenses and some of the
costs to prepare the Program for the Acquisition by the Company. Principal
and interest in the aggregate amount of over $10,000,000 have been returned
to Investors through August 31, 1998.
At the end of 1997, there remained an additional 111 lots in the
Symphony tract (the second parcel) available to be finished and built on. An
estimated $700,000 of equity was needed to qualify for the construction loan
needed to complete the buildout and sale of homes on these lots. National
did not believe that equity would be available from the Investors, so it
began to attempt to sell the Symphony tract to homebuilders in the area. By
the second quarter of 1998, there were three different homebuilders competing
to buy the lots. A selling price of $6,672,099 was negotiated and sale was
consummated by National on behalf of the Oceanside Investors on June 5, 1998
pursuant to approval of holders of a majority of the investments in the
Oceanside Program. Even if National had continued to manage the build-out of
the lots for Investors, they were not likely to receive a full return of
their investment from the completion of the construction and sales of homes
on those remaining lots. Since the original projections by the borrower were
based on the construction of a number of homes which exceeded the number of
lots initially acquired with loan proceeds, the Program had anticipated that
more lots would be acquired so that a sufficient number of homes could be
constructed and sold to provide for an acceptable monetary return to
Investors. Investors subsequently voted against this. However, the investors
also indicated their preference by majority vote to be able to potentially
obtain a greater return of their original funds by continuing to own real
estate assets that could attract buyers at increasing values, including a
transaction similar to that proposed by the Company. The Yosemite/Ahwahnee
golf course and additional land surrounding it was offered as an asset for
such a purpose as described below by vote of the Yosemite/Ahwahnee investors
and recommended by National. See "-- Efforts to Dispose of the Properties"
and "-- Alternatives to Acquisition" for a discussion of alternatives
considered for this Program by National.
Concurrently with the sale of the Symphony tract, the Oceanside
investors were offered the alternative of applying $3,550,000 of the sale
proceeds to the purchase of the golf course ($1,800,000) and surrounding land
($1,750,000) from the Yosemite/Ahwahnee Programs. The purchase of such land
was designed to provide the Yosemite/Ahwahnee Programs with needed funds to
operate and to further the development of the timeshare and recreational
vehicle portions of the Properties, while providing the Oceanside Investors
with (i) an additional potential revenue source through a lease of the golf
course back to the Yosemite/Ahwahnee Programs and (ii) a possibility of
capital appreciation in excess of the price paid. The purchase prices were
determined and recommended by National. The golf course price was based on a
discount from the March 1998 appraisal of the golf course property due to
continued negative cash flow from operations, the lack of achievement of
54
<PAGE>
the projected rounds of play, and the Yosemite/Ahwahnee Programs' need for
working capital. The price for the surrounding land was based on the lesser
October 1996 appraised value for vacant land. Such sale was approved by
holders of a majority-in-interest of the Oceanside and Yosemite/Ahwahnee
Programs' Investors. The balance of the sale price for the Symphony tract
($3,000,000) was remitted to the Oceanside Investors.
YOSEMITE/AHWAHNEE PROGRAMS. Title to the Yosemite/Ahwahnee Programs'
Properties was obtained in September 1995. An appraisal of the Property's
value was not obtained at the time title was taken; however, in May 1997,
National obtained appraisals to determine the Property's value as of May 1997
and as of the date title to the Property was taken. The May 1997 appraisal
was updated in March 1998. An appraisal for planning purposes was previously
conducted in October 1996. The properties are located in Madera County,
California, approximately 46 miles northeast of Fresno and 15 miles south of
Yosemite National Park. They included an operating 18-hole golf course,
swimming pool and tennis courts, along with approximately 47 finished estate
lots and an existing 54 site recreational vehicle park, permitting for up to
600 sites in total.
Upon completion of funding of the Yosemite/Ahwahnee II loan, the
Yosemite/ Ahwahnee I Investors were secured by a first deed of trust on the
660-acre portion of the property and by a second deed of trust on the
990-acre portion. The Yosemite/Ahwahnee II Investors were secured by a first
deed of trust on the 990-acre portion and a second deed of trust on the
660-acre portion of the property. After the borrower's default, National
foreclosed on the second deeds of trust as the agent of and on behalf of the
Investors in each Program. The first deeds of trust were left in place to
protect the Investors against subsequent creditors. These will be
"extinguished" as a part of the Acquisition.
Since taking over the operation of these Properties, National has
operated them as the agent of and for the benefit of the Investors through a
corporation known as Ahwahnee Golf Course and Resort, Inc. Approximately
$3,000,000 has been funded by Investors' assessments in these Programs to
provide working capital to maintain, improve and further develop the project,
and to fund the negative cash flow from operations. In order to achieve the
Investors' objectives, National has sought to maintain the status of the
project and keep it from any deterioration while enhancing its value. To
obtain the needed financing to further improve the property, National has
attempted to seek conventional financing for the project without success due
to the fact that no title company would provide a lender's policy of title
insurance for the loan because of the tenancy-in-common relationship among
the Investors holding beneficial ownership of the Property. National has
also explored the possibility of a sale of the entire project; however, no
offers have been forthcoming. National has continued its efforts to enhance
the marketability and value through revenue production from the golf course,
club house and restaurant facilities, to market and develop recreation
vehicle sites, to develop vacation villa timeshare units and to pursue
additional entitlements required to develop the remainder of the project.
The project is expected to experience negative cash flow until and unless
additional recreational vehicle sites are constructed or until timeshare
sales can commence. See "-- Efforts to Dispose of the Properties" and
"--Alternatives to Acquisition" for a discussion of alternatives considered
for this Program by National.
55
<PAGE>
As described above, in June 1998, pursuant to a majority vote of
Investors, in order to raise badly needed cash, the golf course and outlots
to be used for future development were sold to the Oceanside Investors for an
aggregate of $3,550,000. This cash infusion was allocated to pay property
taxes (approximately $235,000), to develop the timeshare and recreational
vehicle portions of the project (approximately $1,000,000), to pay a portion
of the expenses of the Acquisition (approximately $350,000), to maintain
current operational expenses and pay some delinquent accounts payable.
Since taking title to the property, National has considered continuing
operation of the Properties in order to maintain their value and marketability
(and, indeed, has operated, or planned for the operation of, the Properties
prior to the proposed Acquisition) and sale of the Properties for amounts
sufficient to repay the Investors. In addition, based on diminishing
available capital, National considered, but has made no recommendations with
respect to, prompt liquidation or bankruptcy reorganization of the Programs.
National views a discounted liquidation or bankruptcy as alternatives of last
resort and not in the best interest of Investors as long as there continues
to be adequate funds to manage, operate and develop the Properties in order
to optimize their values and marketability for an orderly sale on behalf of
the Investors.
MORI POINT PROGRAM. The Mori Point Program Property was foreclosed on
in August 1992 after National, on behalf of the Investors, obtained relief
from the borrower's bankruptcy stay from the Bankruptcy Court. An appraisal
of the Property's value was not obtained at the time title was taken;
however, in May 1997, National obtained appraisals to determine the
Property's value as of May 1997 and as of the date title to the Property was
taken. The May 1997 appraisal was updated in March 1998. Title is held by
National Investors Land Holding Trust as the agent of and for the benefit of
the Investors. The Property was originally to be developed into a
hotel/conference center in Pacifica, California, which is approximately 15
miles southwest of San Francisco on the coast. National endeavored to
negotiate alternative uses for the Property which would be supported by the
local community and be more economically feasible than a hotel/conference
center. However, improvements in economic conditions in the Bay Area have
recently revived the potential for and are encouraging to segments of the
hotel industry. Reinstating the approved specific plan and tentative tract
map that expired under the original borrower's ownership will require
approximately $500,000 in order to conduct the necessary environmental
studies and mitigation of habitats for two endangered species, as well as to
complete the required land planning, engineering and preliminary
architectural plans. Such funds are not currently available and would have
to come from additional capital submitted by the Program's Investor group or
by an industry joint venture partner. Since funds are not available to
further define the ultimate use and design of the Property, National has not
attempted to obtain pre-construction financing because no title company would
provide title insurance under the current tenancy-in-common form of
ownership. However, even assuming such financing would be available under the
present tenant-in-common structure, there would be no potential source for
repayment of such loan other than from the Investors. An offer from a
potential joint venture partner was received in early October 1996, but such
offer was rejected by Investors holding a majority of the interests. See
"--Efforts to Dispose of the Properties" and "--
56
<PAGE>
Alternatives to Acquisition" for a discussion of alternatives considered for
this Program by National.
Since foreclosure, National has considered continuing operation of the
Property to maintain its value and marketability (and, indeed, has operated,
or planned for the operation of, the Property prior to the proposed
Acquisition) in order to sell the Property for an amount that might be
accepted by Investors. In addition, due to diminishing available capital,
National continues to consider, but has made no recommendations with respect
to, prompt liquidation or bankruptcy reorganization of the Program. National
has viewed a discounted liquidation or bankruptcy as alternatives of last
resort unless funds are not available to maintain and further the development
of the Property in order to optimize its value and marketability for an
orderly sale on behalf of the Investors.
CYPRESS LAKES PROGRAM. The Cypress Lakes Program Property, which is
located in eastern Contra Costa County, California, was foreclosed on in July
1995 after the borrower had defaulted on interest payments due. Title is
held by the National Investors Land Holding Trust VII for the benefit of the
Cypress Lakes Investors. In early 1996, National retained the services
of a major, publicly-held real estate company to determine the status of and
recommend a strategy to liquidate the Property in the most expeditious way,
as well as to maximize the return of capital for Investors. Economic,
environmental and political issues and their impact on the project were
investigated and analyzed. The vesting tentative tract map which provided
for an 18-hole golf course with various amenities along with 1,330 dwelling
units on 686 acres, was due to expire in September 1997 and was renewed for a
two year period. In addition, two engineering firms were hired to determine
the infrastructure cost requirement. Various market studies were conducted
to determine the long-term economic feasibility of lot and home sales, as
well as other uses for the Property including a design exclusively for the
"age restricted" segment of the population. It was concluded that the
infrastructure expenses, particularly those pertinent to the requirement to
structure a levee around the Property (estimated to be approximately
$9,000,000) may necessitate a redesign of the map to potentially reduce the
cost. During this process, attempts were made to gather enough data so a
potential joint venture partner could be approached, both in the sense of the
overall development, as well as for the golf course portion exclusively. In
1996, Investors voted to offer the golf course portion of the property to
certain qualified developers in exchange for their commitment to the
construction of the course and clubhouse facilities. Any constructed
amenities such as this would reduce many of the infrastructure costs and
create greater demand for the property. That strategy did not result in any
specific offers. In May 1998, National obtained appraisals of the Property's
value as of the Ownership Date and as of March 31, 1998. The real estate
market for large residential land development projects in the East Bay,
Contra Costa County, area has been in a recessionary situation for several
years, although single-family homes have been selling well further west.
National believes that the market for this type of project was improving
enough for a well capitalized real estate development company to be attracted
to it for the purpose of land banking it for future completion. In other
words, it is still premature to develop the property into several parcels of
land that could each be further developed into residential lots, particularly
in light of current values and the costs of the infrastructure. But for a
company or entity with capital and
57
<PAGE>
time available to wait for more attractive profitability, the timing could
be right. That perception led to National's negotiation of a potential sale
on behalf of the investors.
Since foreclosure, National has considered continuing operation of the
Property in order to maintain its value and marketability (and, indeed, has
operated, or planned for the operation of, the Property prior to the proposed
Acquisition) in order to sell the Property for amounts that might be accepted
by Investors. In addition, due to diminishing available capital, National
continues to consider, but has made no recommendations with respect to,
prompt liquidation or bankruptcy reorganization of the Program. National has
viewed a discounted liquidation sale or bankruptcy as alternatives of last
resort. As long as there were adequate funds to manage, operate and develop
the Property, National has sought to optimize its values and marketability
for an orderly sale on behalf of the Investors.
PALMDALE/JOSHUA RANCH PROGRAM. Final funding for the loan to the
developer occurred in February 1992. National foreclosed on behalf of the
investors in September 1993 after the borrower had defaulted on interest
payments due. Subsequent to the investors gaining ownership of the project,
which is held on their behalf in the National Investors Financial Land
Holding Trust V, National hired a firm that specialized in entitlement and
land development to assess the economic, environmental and political
situation regarding the Property. The Palmdale market has typically been
dependent on the aerospace industry, as well as the commuter base from other
areas of Los Angeles County. The original borrower had projected from 1,200
to 2,000 units in density for the project. However, there has been a
considerable supply of traditional middle-market single-family lot and home
inventories over the past few years. One significantly large development
tract failed with the developer defaulting on its bond obligations. The
Property is unique in that its 700+ acres sit mostly on a ridge that
overlooks the valley and the City of Palmdale, so National's consultants
conducted market studies indicating that lots of a larger and equestrian type
of appeal would be more feasible both economically and politically. The City
planning department had severely downsized the quantity of lots that could be
approved for a tentative map from the time that the original developer was
involved which dramatically decreased its value. These factors caused
National to hire engineers and land planners to redesign the project
accordingly in order to submit a tentative map that would be approved.
National was advised that the Property would be much more marketable with a
tentative map approved for a particular development rather than without a map
but with just the zoning. After approximately three years of significant
engineering and planning efforts, the vested tentative map for 539 10,000 to
20,000 square foot lots was approved in July 1998. National obtained
appraisals for the Property as of the date of foreclosure and March 1998.
Both indicated a deterioration in the market below the amount invested
originally. While the appraiser indicated that obtaining the vested tentative
map would have little or no impact on the current valuation, National
believes the value may have been slightly increased by obtaining the vested
tentative map.
Since foreclosure, National has considered continuing operation of the
Property in order to maintain its value and marketability (and, indeed, has
operated, or planned for the operation of, the Property prior to the proposed
Acquisition) in order to sell the Property for an amount sufficient to repay
the Investors. In addition, due to diminishing available capital, National
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continues to consider, but has made no recommendations with respect to,
prompt liquidation or bankruptcy reorganization of the Program. National has
viewed a discounted liquidation or bankruptcy as alternatives of last resort
and not in the best interest of Investors. As long as there were adequate
funds to manage, operate and develop the Property, National sought to
optimize its value and marketability for an orderly sale on behalf of the
Investors.
ESPERANZA PROGRAM. The funding for the Esperanza project was finalized
for the developer in March 1988. The developer defaulted on the interest
payments for the loan in March 1990 and National initiated foreclosure
proceedings on behalf of Investors. However, the borrower filed a bankruptcy
action to preclude foreclosure so National had to file a request for relief
from the stay in the Bankruptcy Court. In December 1990, that stay was
granted and National obtained ownership on behalf of Investors. National had
the Property listed for sale by two local Victorville, California, brokerage
firms during 1991 and 1992. There was one offer received in November 1991
that was rejected by Investors. When the listing agreement expired, National
determined that it was in the best interest of the Investors to market the
project on a non-listed basis until the economy dictated better economic
feasibility for the Victorville area, and particularly for the location and
commercial zoning represented by the project. To date, the market has not
reflected any activity or turnaround that has resulted in a price being
offered that will allow for the recovery of the initial investment by
Investors.
Since foreclosure, National has considered continuing operation of the
Property in order to maintain its value and marketability (and, indeed, has
operated, or planned for the operation of, the Property prior to the proposed
Acquisition) in order to sell the Property for an amount sufficient to repay
the Investors. In addition, due to diminishing available capital, National
continues to consider, but has made no recommendations with respect to,
prompt liquidation or bankruptcy reorganization of the Program. National
views a discounted liquidation sale or bankruptcy as alternatives of last
resort.
STACEY ROSE PROGRAMS. The Stacey Rose Properties represent three
adjacent parcels zoned for single-family residential use. Parcel A and B
secured two separate Investor loans. In March 1990, due to borrower default
in interest payments, National began foreclosure action on behalf of
Investors which was delayed by the borrower's bankruptcy filings and was not
concluded until July 1992. An offer was made to the bankruptcy trustee which
was accepted and the parcels A and B were purchased for the amount of debt
owed plus $20,000. The purchase also included an additional parcel that is
larger, adjacent and integral to the value of the Stacey Rose A and Stacey
Rose B parcels. These parcels are estimated to require approximately $50,000
in order to obtain a tentative tract map from the City for a certain design
for approximately 160 residential lots. Due to lack of funds, this process
has not been started. Without a tentative tract map, coupled with the
recessionary effects of the real estate market, it was determined that the
Property could not have been sold for even a fraction of the original
investment. In May 1998, National obtained appraisals for the Property as of
the date of foreclosure and March 1998. Both indicated a deterioration in
the market below the amount invested originally.
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Since foreclosure, National has considered continuing operation of the
Property in order to maintain its value and marketability (and, indeed, has
operated, or planned for the operation of, the Property prior to the proposed
Acquisition) in order to sell the Property for an amount sufficient to repay
the Investors. In addition, due to the lack of capital, National continues to
consider, but has made no recommendations with respect to, prompt liquidation
or bankruptcy reorganization of the Program. National views a discounted
liquidation sale or bankruptcy as alternatives of last resort.
EFFORTS TO DISPOSE OF THE PROPERTIES
SACRAMENTO/DELTA GREENS PROGRAM. Subsequent to foreclosure on the
Property in 1993, the project manager, which was hired, managed and
supervised by National, presented the Property to several small and medium
sized builders in the Sacramento area. No significant interest was shown by
such builders at that time. However, in early 1994, National negotiated for
and received a purchase offer and joint venture proposal from a real estate
company located in San Mateo, California, both of which were rejected by the
Investors because the net amount to them of approximately $3,000,000 was
considered too low and the five year time period over which the consideration
was to be paid was considered too long. No brokers were engaged. Subsequent
to that, in late 1994, another joint venture proposal was obtained from a
local Sacramento builder. It was considered and approved by investors;
however, the transaction and agreement were terminated because the builder
failed to fulfill his initial financial obligations. Then, in 1996, National
negotiated another joint venture with a builder from Davis, California, that
was not finalized because the builder was unable to obtain an infrastructure
and development loan. More recently, since 1997 National has been informally
presenting the Property to several large homebuilders with presence in the
Sacramento area. While more interest was shown than before, again no
significant steps were taken by any of such builders to enter negotiations to
acquire the Property.
OCEANSIDE PROGRAM. In the second quarter of 1997, on behalf of the
Oceanside Program, National began the process of marketing the 111 Symphony
tract lots. No brokers were used in the marketing effort as National has
adequate knowledge of the builders in the area likely to be interested.
Through National, those efforts resulted in a preliminary offer from a major
homebuilder to buy the Symphony tract in bulk for approximately $41,000 per
lot, subject to due diligence. A sale escrow was opened but the details of
the offer were not submitted to the Oceanside Investors pending completion of
the buyer's due diligence. A sale at that price would not have yielded an
amount sufficient to return the Investors' capital. After conducting due
diligence, the potential buyer asserted that the cost to finish the lots
would be about $42,000 per lot instead of its original estimate of
approximately $26,000 per lot for such costs. The buyer then attempted to
negotiate the price down to approximately $25,500 per lot, $15,000 less than
the preliminary offer. Before selling expenses and closing costs, that price
per lot would have yielded $2,830,500, approximately $20,200 less than the
May 1997 appraised value. Based on advice from consultants, National
believed the potential buyer's estimate of costs to finish the lots was too
high. Thereafter, the sale escrow was cancelled. In early 1998, National
resumed its efforts to sell the Symphony lots. After an extensive
competitive situation involving three different builders, Investors approved
the proposed sale, as well as the use of $3,550,000 of the
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proceeds to acquire the golf course and surrounding property from the
Yosemite/Ahwahnee Programs. On June 5, 1998, the Symphony parcel was sold
for $6,672,099.
YOSEMITE/AHWAHNEE I AND II PROGRAMS. The foreclosures took place in
September 1995. At that time, the Programs' Properties also included 47
finished estate lots of 1-3 acres available for sale. Two of those lots were
sold in mid-1996 for approximately $50,000 per lot to current owners of
contiguous homes. For working capital purposes, in February 1998, National
negotiated the sale of twelve of the estate lots to the independent project
manager for the Yosemite/Ahwahnee Properties for $255,100 ($21,250 per lot)
before closing costs. The Programs have the option to repurchase the lots
prior to January 1, 2001 for an aggregate of $300,000 for which a monthly
option payment of approximately $4,100 is required. The disparity in lot
prices between the 1996 sales and the 1998 sales is based on the value placed
on contiguous lots by existing homeowners for the 1996 sales and the fact
that the 1998 transaction was a bulk sale designed to provide working capital
for the Programs. An additional lot was sold in February 1998 for $52,500 to
an independent buyer. Although the remaining estate lots were listed with
local brokers during two separate six-month time periods since the
foreclosures, no further offers were forthcoming and the listings have been
allowed to expire. After the foreclosure, National contacted several of the
former borrowers' potential joint venture partners and possible purchasers of
the Properties, but no offers were forthcoming. In the first quarter of
1996, National had received two letters of intent, one from a potential buyer
of the entire project and one from a potential buyer of the golf course.
Neither could perform financially and no formal purchase offer was obtained.
In mid-1996, National received another letter of intent from a nearby
Kampgrounds of America ("KOA") campground owner for the 50-site recreational
vehicle membership area and ten additional acres for $200,000. National
informed the potential buyer that his offer was significantly less than the
property was worth. No purchase agreement was forthcoming. In December 1996,
National received another letter of intent for the golf course which was
contingent upon financing for a down payment and that the investors carry
back a seven-year note. There was no final purchase agreement because the
financing could not be arranged. The golf course was sold in June 1998, along
with additional land surrounding it, to the Oceanside Program for $3,550,000
to obtain working capital for timeshare and recreational vehicle site
development. The golf course has been subsequently leased back for the
benefit of the Yosemite/Ahwahnee Programs.
MORI POINT PROGRAM. After foreclosing, in 1993, the Property was listed
for sale with a national commercial brokerage firm for approximately six
months to no avail. During 1994 and 1995, National solicited two large land
trusts that, with both federal and state funds, purchase and hold tracts of
land for open space. Although both expressed an interest in the Mori Point
property, a purchase offer was not generated. In January 1996, the Investors
were offered a joint venture opportunity with an Orange County-based property
developer. Holders of a majority of the tenancy-in-common interests voted to
turn down the proposal because they did not want to risk losing the Property
which the developer had proposed be put up as collateral for a loan to
further develop the Property. There have been no recent efforts to sell the
Property because of the entitlement work that needs to be done before a value
acceptable to
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Investors could be realized through an orderly sale process. National
continues to seek possible joint venture development arrangements for the
Property but no proposals have been received.
CYPRESS LAKES. After the borrower's default in 1994 but prior to the
foreclosure in 1995, National allowed the borrower to package the project for
presentation of the golf course portion to golf course developers in such a way
as to attract the capital necessary to begin the infrastructure on the project.
National also solicited the Investors and they indicated their support to
research the potential of an acquisition by or an exchange of the Property
for shares of a public company. The proposal from the borrower was to provide
the golf course property to a developer in exchange for that developer
building the golf course. The proposal was presented to several golf course
developers without serious subsequent negotiations. In the interim, a
developer gave National a proposal to either develop the Property on a fee
basis or purchase it after the final map was obtained. National rejected the
offer to develop the Property on a fee basis because the $20,000 per month
proposal had no time definition and was not provided for by Investors. In
1996, the Property was listed for six months with a nationally known real
estate brokerage company which did not result in any sales. Subsequently, a
broker that represented foreign interests, particularly one from Japan that
had golf course holdings, presented the property to them. That process also
did not generate any sale agreements. National also retained the
expertise of a knowledgeable real estate development company to assist in
providing engineering and environmental cost analyses, as well as a rapport
with the County's Planning Department to maintain the current vesting
tentative map. In October 1995, National solicited and entered into a 90-day
exclusive negotiating agreement regarding the potential purchase of the
Property with a large, publicly-traded national homebuilder. It did not
result in a purchase offer because the potential buyer decided to acquire
property in other geographic areas that were more conducive to the immediate
construction of homes for sale.
In the second quarter of 1998, an offer was received from a reputable
real estate company to purchase the Cypress Lakes Property for a total
purchase price of $11,550,000, including third party brokerage commissions,
payable $100,000 upon completion of its due diligence, an additional
$2,100,000 upon the closing of escrow, and a promissory note secured by a
first trust deed on the property for $9,350,000 bearing a market rate of
interest at the closing of escrow. The note was to be due and payable on or
before December 15, 1999. Investors in the Cypress Lakes Program were advised
of the offer. Although, by its servicing agreement, National may sell the
property without the approval of the Investors, it determined that Investor
votes would be solicited to confirm the sale. The sale has not been confirmed
by Investors holding a majority-in-interest. However, National has continued
to negotiate with the potential buyer and, if finalized, the agreement will
be treated as an asset of the Cypress Lakes Program and transferred to the
Company if the Acquisition is approved. If (i) a definitive agreement is
reached, (ii) the Acquisition is approved, and (iii) the buyer pays the
balance due on the note by the end of December 1999, the Cypress Lakes
Investors will receive a contingent payment of Units (valued at $20 per Unit)
equal to the difference in the net cash purchase price (exclusive of broker
commissions, closing costs and interest) received for the Property and the
March 1998 appraised value used to compute the Exchange Value assigned to the
Property for
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purposes of the Acquisition. Based on $20 per Unit, the approximate
additional value of these Units would be $5,000,000.
PALMDALE/JOSHUA RANCH: After the borrower's default and subsequent
foreclosure, National retained the expertise of a land development consulting
firm on behalf of Investors in order to further the approval status of the
Property with the City of Palmdale in order to make it more marketable.
After several hearings and studies, it was determined that the project's
marketability hinged on obtaining a vested tentative tract map and the
activities to obtain it along with the expenses were authorized by Investors.
The density proposed by the original borrower for approximately 2,000 units
initially was altered to less than 1,200 units in order to conform to the
more current economic and political environment. The owners and developers
of two large tracts of land in the City had recently abandoned their plans
due to seriously deteriorating market conditions. One had defaulted on
City-backed bonds for infrastructure improvements. National then engaged two
different market studies and, under the direction of its consulting firm,
coupled with the cooperation of the City Planning Department to tend to
approve a larger-lot, equestrian-oriented site, the density was downsized to
accommodate significantly larger, but purportedly more marketable, lots. The
approval process for the tentative map has included the continuous
involvement of engineers and various consultants to obtain a complex easement
from the State for access, negotiate for the exchange of land from adjacent
property owners, design utilities and water systems that would be
cost-effective, as well as most conducive to approval by the City Council.
The final hearing for approval occurred in July 1998. In addition to
assisting National in the tentative map approval process, the land
development consultant presented the project on a preliminary basis to
several developers in 1996. They indicated future interest on a joint
venture basis in the future when approval for the tentative map was obtained
from the City and when potential infrastructure financing could be obtained.
None indicated interest in an outright purchase at prices approximating the
Investors' capital nor did they express any interest in committing any funds
to infrastructure improvements on a joint venture basis. National initiated
preliminary meetings with a municipal bond underwriting company to introduce
them to the project's needs. They also indicated an interest upon finalizing
tentative map approvals.
ESPERANZA: The Property is commercially zoned and is located within one
and one-half blocks from the residentially zoned Stacey Rose Program discussed
below. The Esperanza Property was listed for sale by two different local
Victorville real estate brokerage companies, one for approximately six months in
1991 and the other from the end of 1992 through 1993. One offer was received in
November 1991, but was determined to be unsatisfactory and rejected by a
majority vote of Investors. Market conditions must improve considerably in
order to justify development of the Property or a sale that would recover the
Investors' capital.
STACEY ROSE PROGRAMS: Subsequent to the initiation of the foreclosure
action in 1990, the borrower filed for bankruptcy. National's efforts in the
bankruptcy court on behalf of the Program resulted in relief from the
bankruptcy stay and the foreclosure was finalized in 1992. National arranged
for the purchase of the two parcels subject to the Investors' loans in the
Stacey Rose Programs, along with an adjacent parcel from the bankruptcy
court. This parcel is being held by National for the benefit of the Programs
and the Investors. The borrower subsequently filed an action against National
and the Program alleging collusion to illegally
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possess his property. After a series of court proceedings, the suit was
dismissed in 1994. In 1993, National began the negotiations with a builder
to finalize the approvals and improve the parcels so that they could be
subdivided into single-family residential lots for construction. After
studying the cost and marketing feasibility, the developer and National
determined that the lack of demand for homes and the cost of development
dictated that the Property must be held for future development or until
market conditions improved. National has maintained regular communications
with brokers, developers and builders that are familiar with and active in
the Victorville and Antelope Valley market and has been advised as recently
as the last quarter of 1997 that market conditions in the area of the
Properties are not yet attractive to builders, nor can the Properties be sold
for enough to recover the initial capital. In 1996, Investors approved the
deferral of the payment of property taxes until five years of delinquency
made it necessary to arrange a payment plan in 1998. Due to lack of funds
from Investors, National recently advanced funds on behalf of the Program in
the amount of approximately $12,000 for payment of the current taxes and the
first payment of a five year plan for those that are past due.
--------------------
Except as described above for the Oceanside, Yosemite/Ahwahnee and
Cypress Lakes Programs, and despite National's continued efforts to solicit
buyers, joint venture partners and qualified brokers, there have been no
offers during the last 18 months for the merger, consolidation, or
combination of any of the programs or for an acquisition of any of the
Programs' assets at prices even as high as the March 1998 appraised value.
Recently, National requested several well-qualified real estate brokerage
firms to submit proposals for listing the Properties for both an orderly
sales process, as well as for one that can be consummated on a more immediate
basis. This is expected to confirm National's determination that none of the
Properties belonging to the Investors of any of the Programs may be sold in
the current real estate market in their respective present conditions for an
amount sufficient to return the investment to any of the Programs' Investors.
National is aware of no alternative which would yield such a return.
Furthermore, the selling process at even a distressed price may require at
least 90 days which may cause some of the Properties to be in jeopardy to be
lost to tax sales if Investors are still not willing to provide sufficient
funds to pay property taxes. While some Investors in one or more of the
Programs may be willing to sell at a substantial loss, based on National's
contacts with the Investors in each of a Programs, National believes that a
majority of such Investors are not willing to sell at a substantial loss.
National believes that the Oceanside investors were willing to sell the
Symphony lots at a substantial loss relative to their initial investment in
the entire project because of the opportunity that was available to sell them
at an extremely attractive price in today's market. The proceeds enabled
them to obtain a distribution of ten percent of their initial investment and
acquire a portion of the Yosemite/Ahwahnee property which had some growth and
cash flow potential, as well as the capability to convert this ownership to
shares at a later date.
National has determined that, if the assets of the Programs are
consolidated, the funds that can be generated from the sale of one or more of
the Properties, and perhaps the sale of units or exercise of warrants, can be
used to finance the continued development and expansion of the Company.
National believes the Company can be operated in such a way as to permit the
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possibility of a greater return to all of the Investors in the various
Programs in terms of an increased value of their shares and warrants than
they could receive on liquidation at the present time. Cash from the sale of
some of the Company's assets may also be utilized to acquire other assets
that are suitable for the Company's plans for growth and increased value.
ALTERNATIVES TO ACQUISITION
Before deciding to recommend the Acquisition, National considered
alternatives in an effort to achieve the most favorable cash flow distribution
and the maximum Investor return. These alternatives were (i) continued
operation of each of the Programs under their respective business plans under
the existing tenancy-in-common structure, (ii) liquidation of each of the
Programs in an orderly manner either directly or through an auction process or
in a bankruptcy liquidation, and (iii) a reorganization of the Programs in a
bankruptcy proceeding. In the context of analyzing a continuation of each
Program, National considered the difficulties involved in selling the Properties
described above in "-- Efforts to Dispose of the Properties," and the
difficulties in obtaining outside financing described above in "-- Management of
the Properties Since Foreclosure."
Set forth below is the discussion of the alternatives to the Acquisition
considered by National. In addition to the alternatives described below, in the
course of managing the Properties, prior to determining that the Acquisition
should be proposed to Investors, National reviewed and, where sufficiently
specific, placed before applicable Program Investors for a vote, opportunities
to sell certain of the Properties, opportunities for certain of the Programs to
enter joint venture arrangements, and financing alternatives for the Properties.
These are discussed earlier under the captions "-- Management of the Programs
since foreclosure" and "-- Efforts to Dispose of the Properties." Neither
National nor the Company is aware of any factors not discussed in this
Prospectus that materially and adversely affect the value of the Shares to be
received in the Acquisition for purposes of comparisons to the alternatives.
CONTINUATION OF THE PROGRAMS. An alternative to the Acquisition would be
to continue the Programs. The Programs would remain separate groups of
tenancy-in-common investors, with their own assets and liabilities, governed by
their existing servicing agreement and tenancy-in-common agreement. Although
National would still be entitled to asset management fees on an on-going basis,
as well as accrued fees and expenses, National could discern no advantages to
Investors in achieving their objectives from the continued operation of the
Programs under their respective existing business plans. Even if the Programs
continued in their present state while seeking a buyer or waiting for values
to improve, Investors would be responsible for property taxes and other costs
of property ownership. National has rejected this alternative because it was
concluded that maintaining the Programs separately would likely have the
following negative results when compared with the benefits that National
perceived may be derived from the Acquisition: (i) a lack of or less
efficient and cost effective exit strategy for Investors wishing to liquidate
their investment; (ii) inability of individual Investors to control the
timing of the tax impact of the liquidation of their particular investment
when and if the property is sold or liquidated in bulk; (iii) illiquidity of
individual investments on a current basis due to the lack of any established
secondary market; (iv) difficulty in valuing the individual
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investments due to the virtual non-existence of a secondary market for the
interests; (v) less flexibility and control in actively managing the real
estate underlying each of the Programs; (vi) access to capital for the
Programs limited primarily to Investor assessments which has become
inadequate of late; (vii) without further infusions of funds from Investors,
each of the Properties could be lost in tax sales for delinquent property
taxes, or their current values could deteriorate due to lack of maintenance of
the current approvals with the local government; and (viii) obtaining
majority vote approval for certain actions is cumbersome and impractical.
The capital needed to finalize the mitigation engineering costs, obtain
tentative map and final map approvals in order to begin to finish the lots
and provide for the infrastructure is necessary for the Sacramento/Delta
Greens Program if it is to be developed in order to achieve a greater return
to Investors. The golf course and surrounding land that were recently
acquired from the Yosemite/Ahwahnee Programs by the Oceanside Program are
being leased back to the Yosemite/Ahwahnee Programs (in the case of the golf
course for a five year period) or held by Oceanside for future development or
sale (in the case of the additional land). With respect to the remaining
parcels owned by Yosemite/Ahwahnee, the business plan for those Programs
assumes that there will be an infusion of additional capital to support the
expansion of the recreational vehicle park, construction of timeshare units
and very aggressive marketing of these and other products. The Mori Point
project needs funds to continue with the habitat mitigation process in order
to maintain its marketability. Cypress Lakes, Palmdale/Joshua Ranch,
Esperanza and Stacey Rose projects need funds to continue the entitlement and
development process to maintain their value while being marketed.
Unfortunately, there are virtually no sources of outside capital to fund the
financial demands of any of these business plans independently because of the
tenancy-in-common structure of the Programs. Absent the Acquisition which
may provide the Company with more traditional financing alternatives and
which, through the sale of certain portions of some of the real estate
assets, sale of units in the concurrent unit offering and exercise of the
warrants, could generate internal capital, THE MOST LIKELY SOURCES OF CAPITAL
TO COMPLETE THE BUSINESS PLANS OF THE RESPECTIVE PROGRAMS ARE MANDATORY
ASSESSMENTS AND VOLUNTARY ADVANCES FROM CURRENT INVESTORS. ANY DELAY ON THE
PART OF INVESTORS IN PROVIDING ENOUGH OF SUCH CAPITAL WOULD HAVE A
SIGNIFICANT NEGATIVE EFFECT ON THE SUCCESS OF ANY OF SUCH BUSINESS PLANS, AND
COULD RESULT IN THE DETERIORATION IN VALUE AND THE LOSS OF SOME OF THE
PROPERTIES IN TAX SALES FOR DELINQUENT PROPERTY TAXES.
LIQUIDATION OF THE PROGRAMS. Another alternative available to National is
to proceed with a liquidation of each of the Programs and distribute the net
liquidation proceeds to the Investors. National concluded that there would be
several disadvantages to using this strategy. A complete liquidation of the
Programs would deprive those Investors who do not desire to liquidate their
investment from participating in the benefits of future performance and possible
property value improvements. In the case of each of the Programs, a sale in
bulk or individually in the immediate future of the applicable Properties
would yield a significant loss to each of the Investors. Nevertheless,
National continues to seek buyers and/or joint venture partners for the
Properties and is considering broker proposals to conduct certain marketing
activities to sell the Properties.
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The following table sets forth the appraised values used to calculate
Exchange Values, estimated liabilities and closing costs at ten percent of
appraised values, net cash from a sale of appraised values, unpaid principal and
unrepaid assessments and advances (out-of-pocket cash), and the cash loss that
would result from a sale at appraised values.
<TABLE>
<CAPTION>
Appraised Value Estimated Unpaid Principal
Used to Calculate Liabilities and Net Cash Plus Assessments Cash Loss
Name of Program Exchange Value(1) - Closing Costs(2) = from Sale Paid(4) from Sale
- --------------- -------------- ------------- --------- ---- ---------
<S> <C> <C> <C> <C> <C>
Sacramento/Delta Greens $ 1,745,000 $ 349,190 $1,395,810 $ 5,706,638 $ 4,310,828
Oceanside 5,080,000 214,943 4,865,057 24,150,000 19,284,943
Yosemite/Ahwahnee I(5) 1,782,950 (248,791)(3) 2,031,741 7,195,693 5,163,952
Yosemite/Ahwahnee II(5) 3,703,050 (516,721)(3) 4,219,771 15,498,325 11,278,554
Mori Point 6,000,000 1,186,964 4,813,036 10,771,425 5,958,389
Cypress Lakes(6) 6,000,000 775,072 5,224,928 15,421,503 10,196,575
Palmdale/Joshua Ranch 2,700,000 348,118 2,351,882 17,034,689 14,682,807
Esperanza 270,000 80,644 189,356 535,000 345,644
Stacey Rose A(5) 67,936 22,385 45,551 85,000 39,449
Stacey Rose B(5) 252,064 83,053 169,011 317,250 148,239
</TABLE>
- ---------------
(1) Each property was appraised in May 1997 or March 1998. The appraisals for
May 1997 were updated in March 1998. However, an appraisal of the
Yosemite/Ahwahnee Properties was also conducted in October 1996, the
results of which differed from the May 1997 and March 1998 appraisals.
(2) Net of book assets. Includes estimated brokerage commissions, estimated
escrow, title policy, legal and other closing costs at 10% of sale price;
plus amounts due to National, affiliates of National and other service
providers for unpaid servicing and property management fees and/or expenses
advanced.
(3) Net other assets minus liabilities and closing costs results in a positive
balance because of cash on hand.
(4) Reflects unpaid principal at Ownership Date plus assessments and advances
paid through August 31, 1998.
(5) Represents pro rata share of appraised value based on original investment
amount.
(6) A purchase agreement for $11,550,000 is currently being negotiated by
National. If finalized, there will be no compensation, typically
brokerage fees, due to National if the purchase is consummated after the
Acquisition. See "Background and Reasons for the Acquisition -- Efforts
to Dispose of the Properties -- Cypress Lakes" for information regarding
additional units to be allocated to Cypress Lakes Investors if the sale
is consummated.
A sale at such discounts would be contrary to National's and the
Investors' objectives to maximize the return of the Investors' principal
compared to their original investment. However, National continues to seek
potential buyers and proposals from brokers on behalf of investors.
While a liquidation might also be accomplished in a bankruptcy proceeding, the
complexities involved due to the tenancy-in-common format of the Programs, as
well as the administrative and other costs, have made bankruptcy liquidation
particularly unattractive. In addition, other liquidation alternatives
through sales of the Programs' Properties (whether discounted through an
auction process or sold in an orderly fashion) do not have certain other
benefits of the Acquisition, including (i) permitting Investors to hold
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their investment until the time when liquidation is appropriate for their
individual investment and tax strategy, (ii) the opportunity to participate
in acquisition and financing opportunities existing in the real estate market
that may add value to their investment through equity ownership in the
Company, (iii) the transaction costs and time associated with the Acquisition
are expected to be significantly less than those which would be incurred in
either a discounted or an orderly liquidation of the Programs' assets, and
(iv) the complete liquidation of the Programs would assure the recognition of
capital gains or losses by Investors depending on whether the selling price
of the Properties is more or less than their tax basis. See "-- Expected
Benefits of Acquisition -- Control of Timing of Liquidation" for the
estimated total capital loss that would be recognized for each of the
Programs if their respective Properties were sold in bulk for their appraised
value.
BANKRUPTCY REORGANIZATION. In addition to a liquidation in a bankruptcy
proceeding, National also considered attempting to use the bankruptcy laws to
reorganize the Programs to accomplish the consolidation goals of the Acquisition
subject to approval of the Bankruptcy Court. This approach was not selected
because (i) there was some question as to whether the Programs, individually or
collectively, met the conditions precedent to a successful reorganization in a
bankruptcy proceeding, and (ii) National determined that the administrative
costs and further delays would not be as beneficial to the Investors as the
Acquisition. Based on these determinations, National made no effort to further
quantify the advantages and disadvantages of a reorganization proceeding under
the Bankruptcy Laws.
COMPARISON OF ALTERNATIVES
To assist the Investors in evaluating the Acquisition, National compared
consideration to be received by Investors in each of the Programs in the
Acquisition per $10,000 of Adjusted Outstanding Investment to (i) value to
Investors if the Programs are operated "as is," (ii) sale of the Properties at
appraised values used in determining the Exchange Values and distributing sale
proceeds net of outstanding Program Investors' obligations, (iii) liquidation of
the applicable Program's assets outside of bankruptcy and (iv) recognizing that,
initially, the Shares would likely trade substantially below the arbitrarily
determined $20 per share assigned to the Shares for purposes of the Acquisition,
a range of market values for the Shares, assuming completion of the Acquisition,
based on 75% and 50% of the Company's valuation of its Shares for purposes of
the Acquisition. A bankruptcy liquidation or reorganization was not included in
National's final comparison of alternatives because of National's belief that,
due to the costs of bankruptcy administration, such a liquidation or
reorganization would be more expensive if supervised by a Bankruptcy Court than
if not. Since the value of the consideration for alternatives to the
Acquisition is dependent upon varying market conditions, no assurance can be
given that the range of estimated values indicated establishes the highest or
lowest possible values. However, National believes that it analyzed the
alternatives in good faith and that such analysis establishes a reasonable
framework for comparison.
The results of this comparative analysis are summarized in the table set
forth below. No assurance can be given that estimated values would be
realized through any of the designated alternatives. These estimated values
are based on certain assumptions that relate, among other
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<PAGE>
things, to (i) securities market conditions and factors affecting the value
of securities of real estate companies, (ii) National's estimate of the value
of the Properties if they continue to be operated "as is," (iii) National's
estimates of the selling price of each of the Program's Properties, assuming
a liquidation sale, that is, a sale in three months or less, and (iv) selling
costs in such a liquidation. Actual results may vary from those set forth
below based on numerous factors, including those listed above, as well as
interest rate fluctuations, general conditions in securities or real estate
markets, tax law changes, supply and demand for properties similar to those
owned by the Programs, the manner in which the Properties might be sold and
changes in availability of capital to finance acquisition of real property.
National continues to seek potential buyers and/or joint venture partners for
the Properties, as well as review proposals from qualified brokers who may
wish to market some of the Properties. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ESTIMATED IN THE FOLLOWING TABLE AS A RESULT OF
A VARIETY OF FACTORS, INCLUDING THOSE DISCUSSED IN "RISK FACTORS."
<TABLE>
<CAPTION>
Sale at
Appraised Market Value of Shares Included in
Values Net Units Received in Acquisition per
Exchange of Program Liquidation Operated $10,000 of Adjusted Outstanding
Value per Debts per Value per "As Is" Value Investment Assuming Shares Trade at
$10,000 of $10,000 of $10,000 of per $10,000 of -----------------------------------
Adjusted Adjusted Adjusted Adjusted 75% of 50% of
Outstanding Outstanding Outstanding Outstanding Exchange Exchange
Program Investment(1) Investment(2) Investment(3) Investment(4) Value(5) Value (5)
------- ---------- ---------- ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Sacramento/Delta Greens $ 2,558 $ 2,273 $ 995 $ 995 $1,918 $1,279
Oceanside 2,225 2,015 1,068 1,068 1,669 1,112
Yosemite/Ahwahnee I 2,435 2,239 1,355 1,355 1,826 1,218
Yosemite/Ahwahnee II 2,344 2,155 1,304 1,304 1,758 1,172
Mori Point 4,384 3,898 1,711 1,711 3,288 2,192
Cypress Lakes(6) 3,062 2,746 1,327 1,327 2,296 1,531
Palmdale/Joshua Ranch 1,446 1,297 627 627 1,084 723
Esperanza 3,701 3,239 1,161 1,161 2,775 1,850
Stacey Rose A 4,589 3,993 1,313 1,313 3,441 2,294
Stacey Rose B 4,568 3.975 1,307 1,307 3,426 2,284
</TABLE>
- ---------------
(1) Exchange Value is the Company's value assigned to each of the Programs. It
takes into account other Program assets, as well as obligations of the
Program Investors, which would have to be paid out of sale proceeds. Such
other assets and obligations were not taken into account in the
appraisals. Exchange Value is represented by Company Units arbitrarily
valued at $20 per Unit for purposes of the Acquisition.
(2) The amount set forth in this column reflects the amount an Investor would
receive per $10,000 of their Adjusted Outstanding Investment if the
Property were sold at the appraised value after deducting from sale
proceeds, closing costs and commissions of ten percent, accrued but unpaid
property taxes and other Program net liabilities at August 31, 1998.
(3) For this purpose, National assumed that the Properties could be sold within
three months at a value equal to 50% of the appraised value used to compute
Exchange Values, then deducting all the same costs and net liabilities.
Notwithstanding the generally improving real estate market in California,
National believed it would take that sort of discount from the appraised
values to potentially attract a buyer in three months without having to
undergo the traditional four to six months due diligence process.
(4) Since the Investors in each of the Programs appear to National to be
unwilling to provide sufficient capital to complete the proposed
development of the Programs' Properties, the
69
<PAGE>
Properties cannot be developed according to the original business plans
in order to liquidate them at their maximum value. Thus, the Operated
"As Is" value assumes that Investors in each Program would put up only
sufficient additional funds to avoid losing the Property for property
tax delinquencies. Since none of the Properties has positive cash flow,
National believes that the Operated "As Is" value for a Property does
not exceed its liquidation value. Thus, for purposes of the comparison,
National assumed that the Operated "As Is" value and liquidation value
were the same for all Properties.
(5) There are no real estate companies which are publicly-traded with an asset
base similar to that which the Company will have if the Acquisition is
completed. Thus, there is no comparable market information from which to
extrapolate a possible market value for the Company's stock at any period
after the completion of the Acquisition. Therefore, solely for purposes of
the comparison, National arbitrarily assumed that, for a period of six
months after the Acquisition, the Company's stock would trade at 75% to
Exchange Value (or $15.00 per Share) and at 50% of Exchange Value (or
$10.00 per Share).
(6) If the purchase proposal currently being negotiated is consummated,
based on the additional shares that would be allocated to the Cypress
Lakes Investors, the Exchange Value per $10,000 investment and the sale
of appraisal value net of program debts would be $[_______] and $[______],
respectively.
TERMS OF THE ACQUISITION
STRUCTURE OF THE ACQUISITION. If the Acquisition is approved, it will take
the form of a purchase of the Properties and assets of each of the Programs by
the Company from the Investors using the Units of the Company as consideration
for the purchase. As a part of the Acquisition, remaining encumbrances on any
of the Properties will be released by Investors so that the Company, through
subsidiaries, will own the Properties free and clear of all mortgage liens.
Each purchase is proposed to be effected pursuant to a purchase agreement
with each Program (acting through National as the agent) and the Company.
Pursuant to the purchase agreements, the Properties will be purchased "as is."
The Company will receive a deed to each of the Properties and new policies of
title insurance will be included with each transfer.
The transactions described below will have occurred or will take place
simultaneously with, or shortly after, the closing of the Acquisition.
- The Company was formed as a Delaware corporation with family
partnerships of the principals of National (David Lasker and James Orth), along
with certain affiliates, consultants and employees of National and the Company,
as the founders. American Family Communities, Inc. will be formed as a
wholly-owned subsidiary of the Company to oversee all of the Programs'
Properties. Also, Delta Greens Homes, Inc., Yosemite Woods Family Resort, Inc.,
Mori Point Destinations, Inc., Cypress Lakes, Inc., Palmdale/Joshua Ranch, Inc.,
Esperanza, Inc., and Victorville Homes, Inc. will be formed as second-tier
subsidiary corporations of the Company to hold the Properties of each of the
Programs with the two Yosemite/Ahwahnee Programs being combined into one
subsidiary. Upon completion of the Acquisition, the founders will hold [18.74]%
(7.1% if all the units are sold in the concurrent offering and 5.3% if all
70
<PAGE>
the units are sold in the concurrent offering and all warrants in units
issued in the acquisition are exercised) of the Company's outstanding Shares.
See "Appraisals and Fairness Opinion" for a discussion of the fairness of
the transaction.
- The Shares of the Company issued pursuant to the Acquisition
will have been approved for listing, upon notice of issuance, by the
____________.
- Certificates for the Shares and warrants included in the units will be
mailed to Investors after the Acquisition is completed.
As a result of the Acquisition, the Investors will cease to own interests
in the Properties of the respective Programs in which they have invested. After
the Acquisition, through subsidiaries, the Company will at least own five of the
Properties, as well as the business and operations, owned by the Programs prior
to the Acquisition.
National may decide not to pursue the Acquisition at any time before it
becomes effective, whether before or after approval by the Investors.
EFFECTIVE TIME. If approved, the Acquisition is expected to be completed
(with title to the real estate being transferred to the applicable subsidiary)
on __________, 1998 (approximately five business days after the planned date for
tabulation of the votes of Investors in each Program (the "Effective Time").
CALCULATION OF EXCHANGE VALUE
Units in the Company will be allocated among the Programs pro rata in
accordance with Exchange Values. The Exchange Value of a Program is its
appraised value plus the book value of other assets at [August 31, 1998]
minus liabilities at [August 31, 1998] in the form of Company Units
arbitrarily valued at $20 per Unit. For purposes of each of the Properties,
the appraised value is at March 31, 1998.
National also considered allocating the Shares among the Programs in
accordance with adjusted March 31, 1998 appraised values, the need for, and
availability of, working capital to accomplish the business plans of the
Programs, and the expected resistance of Investors in the various Programs to
assessments to provide working capital that could not be borrowed. The adjusted
appraised value system was discarded as being too subjective and too difficult
to explain to Investors. Further, it did not produce results materially
different from the method selected.
Exchange Values were determined as of [August 31, 1998]. [ULTIMATELY, AS
OF A DATE WITHIN 30 DAYS OF THE PROSPECTUS DATE.] The Exchange Values of the
Programs do not necessarily reflect the aggregate price at which Company
Units received in the Acquisition may be sold, nor are they based solely on
the appraised value of the real estate assets of each Program. See "Risk
Factors." The number of Units to be issued to each Program upon consummation
of the Acquisition will equal the Exchange Value of the Program divided by
$20, an arbitrary amount chosen for the sole purpose of allocating Units AND
WHICH IS NOT INTENDED TO IMPLY THAT THE UNITS OR THE SHARES INCLUDED IN THE
UNITS WILL TRADE AT A PRICE OF $20.
71
<PAGE>
The following table summarizes the calculation of the Exchange Value of
each of the Programs:
<TABLE>
<CAPTION>
Appraised Value of Net Other Assets and
Name of Program Real Estate(1) + Liabilities(3) = Exchange Value(4)(5)
--------------- ----------- ----------- --------------
<S> <C> <C> <C>
Sacramento/Delta Greens $1,745,000 $(174,514) $1,570,486
Oceanside 5,080,000 293,057 5,373,057
Yosemite/Ahwahnee I(2) 1,782,950 427,086 2,210,036
Yosemite/Ahwahnee II(2) 3,703,050 887,026 4,590,076
Mori Point 6,000,000 (586,964) 5,413,036
Cypress Lakes 6,000,000 (175,012) 5,824,928
Palmdale/Joshua Ranch 2,700,000 (78,118) 2,621,882
Esperanza 270,000 (53,644) 216,356
Stacey Rose A(2) 67,936 (15,591) 52,345
Stacey Rose B(2) 252,064 (57,847) 194,217
----------- --------- -----------
TOTAL $27,601,000 $ 465,419 $28,066,419
----------- --------- -----------
----------- --------- -----------
</TABLE>
- ---------------
(1) Reflects independent appraisals or updates of previous appraisals as of
March 1998. However, appraisals of the Yosemite/ Ahwahnee Properties were
also conducted in May 1997 and October 1996. The results of the October
1996 appraisal differ from those from the appraiser who provided the other
two appraisals. See "Appraisals and Fairness Opinion--Conflicting
Yosemite/Ahwahnee Properties' Appraisals" for the methodology used by
National to determine the appraised real estate values for these
Properties.
(2) Represents pro rata share of appraised value based on original investment
amount.
(3) The following table quantifies the asset and liabilities adjustments to
appraised values made in determining a Property's Exchange Value as of
June 30, 1998.
<TABLE>
<CAPTION>
Book
Book Assets Liabilities Net Other Assets
Name of Program (6/30/98)* - (6/30/98)* = and Liabilities
--------------- ---------- ---------- ---------------
<S> <C> <C> <C>
Sacramento/Delta Greens $ 126,316 $ (300,830) $ (174,514)
Oceanside 809,933 (516,876) 293,057
Yosemite/Ahwahnee I 1,536,802 (1,109,716) 427,086
Yosemite/Ahwahnee II 3,191,820 (2,304,794) 887,026
Mori Point 261,140 (848,104) (586,964)
Cypress Lakes 195,878 (370,950) (175,072)
Palmdale/Joshua Ranch 132,572 (210,690) (78,118)
Esperanza 28,523 (81,897) (53,644)
Stacey Rose A 5,804 (21,395) (15,591)
Stacey Rose B 21,535 (79,382) (57,847)
</TABLE>
* See balance sheets of each Program in the accompanying financial
statements for details of book assets and book liabilities. There is
no mortgage debt on the Properties of the Sacramento/Delta Greens,
Oceanside, Mori Point, Cypress Lakes, Palmdale/Joshua Ranch, Esperanza
and Stacey Rose Programs, and, after the Acquisition, there will be
no mortgage debt on the Yosemite/Ahwahnee Programs' Properties.
(4) As set forth in the table under "-- Alternatives to Acquisition --
Liquidation of the Programs" the potential cash returns to Investors if the
Properties could be sold for the appraised values used to calculate the
Exchange Value are as follows: Sacramento/Delta Greens, $1,395,811;
72
<PAGE>
Oceanside, $4,865,057; Yosemite/Ahwahnee I, $2,031,080; Yosemite/Ahwahnee
II, $4,219,771; Mori Point, $4,813,036; Cypress Lakes, $5,224,928;
Palmdale/Joshua Ranch, $2,351,882; Esperanza, $189,626; Stacey Rose A,
$45,551; and Stacey Rose B, $169,011.
(5) If the cash sale proceeds, net of any interest on seller financing,
received by the Company on or before December 31, 1999, from the sale of
any of the Properties acquired in the Acquisition exceeds the March 1998
appraised value for such Property or, in the case of the
Yosemite/Ahwahnee I and II and Oceanside Properties, the appraised values
determined by National, the Company will issue pro rata to the former
Investors in such property additional Units (valued at $20 per Unit
regardless of the then trading price of the Company's stock). The
number of additional units issuable will be determined as follows: cash
proceeds of such sale (net of brokers' commissions, closing costs and
interest on deferred purchase price payments) up to 200% of the March
1998 appraised values used to compute the exchange value of the property
which cash proceeds are received on or before December 31, 1999 less
appraised value used to compute the exchange value of the property
divided by $20. (For example, if the March 1998 appraised value of a
Property was $1,750,000 and the cash sale proceeds received by December
31, 1999 from the sale were $3,600,000, then the maximum number of
additional units available for allocation among that Property's former
Investors would be $1,750,000 (not $1,800,000) divided by $20 or 87,500
units. NO ADDITIONAL UNITS WOULD BE ISSUED FOR THE AMOUNT OF NET CASH
PROCEEDS RECEIVED BY DECEMBER 31, 1999 IN EXCESS OF 200% OF THE MARCH
1998 APPRAISED VALUE USED TO COMPUTE THE PROPERTY'S EXCHANGE VALUE. All
of the cash received from the sale would be retained by the Company as
working capital.)
As of the date of this Prospectus, neither National nor the Company
knows of any material change in the prospects or financial performance of
any of the Programs which will materially affect the value of the Shares
to be received by Investors in the Acquisition, the values assigned to
the Programs for purposes of comparison to the alternatives, or the
fairness of the Acquisition to the Investors. National continues to
solicit potential buyers or joint venture partners for the Programs, as
well as consider qualified brokers who propose to market and sell the
Properties.
No fractional Units will be issued by the Company in connection with the
Acquisition. Each Investor who would otherwise be entitled to a fractional
Units will receive one Unit for each fractional Unit of 0.5 or greater. No Unit
will be issued for fractional Unit of less than 0.5.
ALLOCATION OF UNITS AMONG THE PROGRAMS
The total number of Units issued in the Acquisition will be equal to the
aggregate Exchange Value of the Programs divided by the arbitrary price of $20.
The number of Units allocable to each Program will be determined by multiplying
the number of Units allocable among all of the Programs by a fraction, the
numerator of which is the Exchange Value of the Program and the denominator of
which is the total Exchange Value of all of the Programs.
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<PAGE>
As of August 31, 1998, the following table shows Investors (i) the Amount
Owed Plus Assessments which is the aggregate amount of the unpaid balance of the
loan owed to a Program by the original borrower plus accrued but unpaid interest
on such balance as of the Ownership Date of a Property plus all amounts paid by
Investors pursuant to mandatory assessments plus voluntary advances, (ii)
appraised real estate values, (iii) Exchange Values and (iv) the number and
percentage of Shares allocated to each Program are:
74
<PAGE>
<TABLE>
<CAPTION>
Number of
Adjustments to Units
Amount Real Estate Real Estate Allocated if
Owed plus Appraised Appraised Exchange All Programs
Name of Program Assessments(1) Value(2) Value(3) Value Participate(4)
--------------- ----------- ----- ----- ----- -----------
<S> <C> <C> <C> <C> <C>
Sacramento/Delta Greens $ 6,131,638 $ 1,745,000 $(174,514) $ 1,570,486 78,524
Oceanside 24,150,000 5,080,000 293,057 5,373,057 268,653
Yosemite/Ahwahnee I 9,063,163 1,782,950 427,086 2,210,036 110,502
Yosemite/Ahwahnee II 19,565,333 3,703,050 887,026 4,590,076 229,504
Mori Point 12,342,259 6,000,000 (586,964) 5,413,036 270,652
Cypress Lakes 18,971,767 6,000,000 (175,072) 5,824,928 291,246
Palmdale/Joshua Ranch 18,107,814 2,700,000 (78,118) 2,621,882 131,094
Esperanza 584,653 270,000 (53,644) 216,356 10,818
Stacey Rose A 114,098 67,936 (15,591) 52,345 2,617
Stacey Rose B 425,188 252,064 (57,847) 194,217 9,711
------------ ----------- -------- ----------- ---------
TOTAL $109,458,813 $27,601,000 $ 465,419 $28,066,419 1,403,321
------------ ----------- -------- ----------- ---------
------------ ----------- -------- ----------- ---------
<CAPTION>
No. of Units
per $10,000 of
Number of No. of Units Adjusted
Units per $10,000 of Outstanding
Allocated if Adjusted Investment if
Only Seven Outstanding Only "Trudy
"Trudy Pat" Investment if Pat"
Programs All Programs Programs
Participate(5) Participate Participate
----------- ----------- -----------
<S> <C> <C> <C>
Sacramento/Delta Greens 78,524 128 128
Oceanside 268,653 111 111
Yosemite/Ahwahnee I 110,502 122 122
Yosemite/Ahwahnee II 229,504 117 117
Mori Point 270,652 219 219
Cypress Lakes 291,246 153 153
Palmdale/Joshua Ranch 131,094 72 72
Esperanza 185 -
Stacey Rose A 229 -
Stacey Rose B 228 -
--------- ----- ---
TOTAL 1,380,175 1,564 922
--------- ----- ---
--------- ----- ---
</TABLE>
75
<PAGE>
- ---------------
(1) The tenancy-in-common agreements for each of the Programs provide that the
servicing agent for the loan (National) may make mandatory assessments on
the Investors to cover the operational costs of the Program. Investors may
also make voluntary advances under the tenancy-in-common agreements to make
up for mandatory assessments which have not been paid by other Investors.
As of [August 31, 1998], the following mandatory assessments and voluntary
advances have been paid to the Programs and are included in Amount Owed
Plus Assessments.
<TABLE>
<CAPTION>
Mandatory Voluntary
Name of Program Assessments Advances
- --------------- ----------- --------
<S> <C> <C>
Sacramento/Delta Greens 582,350 86,990
Oceanside -0- -0-
Yosemite/Ahwahnee I 972,716 121,099
Yosemite/Ahwahnee II 2,008,113 156,036
Mori Point 643,552 58,515
Cypress Lakes 820,845 543,629
Palmdale/Joshua Ranch 1,656,270 248,103
Esperanza 35,000 -0-
Stacey Rose A and B 1,950 -0-
</TABLE>
- ---------------
(2) Appraisals were conducted and updated in March 1998. However, an appraisal
of the Yosemite/Ahwahnee Properties was also conducted in October 1996, the
results of which differed substantially from a May 1997 appraisal updated
by the same appraiser for March 31, 1998. See "Appraisals and Fairness
Opinion -- Conflicting Yosemite/Ahwahnee Properties' Appraisals."
(3) The adjustments were made by the Company to add back to the real estate
appraised values the book value of other program assets at [August 31,
1998] and to reduce that number by program liabilities at [August 31,
1998]. See "-- Calculation of Exchange Value" at page __ for details as
to the adjustments.
(4) A unit consists of one share of common stock plus warrants to buy three
additional shares at 80% of the closing price on the trading date
immediately prior to the date of exercise.
(5) Represents [5.60%], [19.14%], [7.87%], [16.35%], [19.29%], [20.75%],
[9.34%], [0.77%], [0.19%] and [0.69%], respectively, of the units to be
issued to investors in the acquisition.
(6) If none of the Esperanza, Stacey Rose A and B programs participate, these
percentages would be 5.69%, 19.47%, 8.01%, 16.63%, 19.61%, 21.10% and
9.50%, respectively.
(7) The Company was formed, and shares were purchased by the founders, prior to
making the Acquisition proposed. From the inception of planning for the
Acquisition, management believed that the founders should retain less than
20% of the total outstanding shares. The founders of the Company include
members of Company management, as well as certain employees of National and
consultants to the Company and the Programs. This was determined after
considering previous fees due to and expenses advanced by National on
behalf of Investors that were cancelled, the additional value being brought
to the Investors through the Acquisition and as incentives for future
performance. This position was
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<PAGE>
validated by the Fairness Opinion. A total of approximately [323,000]
shares of Company common stock has been issued prior to the date of this
Prospectus at $0.01 per share. National will pay the same price as
investors for their units in the Company. See "Dilution" at page __ of the
Prospectus. If the Acquisition is completed, the following table sets
forth the fees which National and its principals have cancelled, or will
cancel:
<TABLE>
<CAPTION>
Previously To Be
Name of Program Cancelled Cancelled
--------- ---------
<S> <C> <C>
Sacramento/Delta Greens(a) $ 500,000 $ -0-
Oceanside(a) 601,125 261,273
Yosemite/Ahwahnee I(a) 72,158 -0-
Yosemite/Ahwahnee II(a) 1,157,867 124,250
Mori Point(a) 461,589 -0-
Cypress Lakes 468,000 -0-
Palmdale/Joshua Ranch -0- -0-
Esperanza 102,134 -0-
Stacey Rose A 64,293 -0-
Stacey Rose B 17,267 -0-
----------- --------
TOTAL $ 3,444,433 $385,523
----------- --------
----------- --------
</TABLE>
- ---------------
(a) The shares to be retained by the founders were not allocated to the
founders based on cancelled fees. However, if they had been so allocated
from the Programs based on cancelled or to be cancelled fees,
(i) 13% (13.7% if only the seven "Trudy Pat" Programs participate) of
the total shares to be owned by the founders after the Acquisition
([42,111] shares if all Programs participate and 44,378 shares if
only the seven "Trudy Pat" Programs participate) would have been
deemed allocated from the Sacramento/Delta Greens Program.
(ii) 22.5% (23.7% if only the seven "Trudy Pat" Programs participate) of
the total shares to be owned by the founders after the Acquisition
(72,873 shares if all Programs participate and 76,544 shares if only
the seven "Trudy Pay" Programs participate) would have been deemed
allocated from the Oceanside Program.
(iii) 1.8% (2% if only the seven "Trudy Pat" Programs participate) of
the total shares to be owned by the founders after the Acquisition
([6,097] shares if all Programs participate and 6,405 shares if
only the seven "Trudy Pat" Programs participate) would have been
deemed allocated from the Yosemite/Ahwahnee I Program.
(iv) 33.5% (35.2% if only the seven "Trudy Pat" Programs participate) of
the total shares to be owned by the founders after the Acquisition
([108,416] shares if all Programs participate and 108,339 shares if
only the seven "Trudy Pat" Programs participate) would have been
deemed allocated from the Yosemite/Ahwahnee II Program.
(v) 12% (12.7% if only the seven "Trudy Pat" Programs participate) of
the total shares to be owned by the founders after the Acquisition
([39,004] shares if all Programs participate and 40,969 shares if
only the seven "Trudy Pat" Programs participate) would have been
deemed allocated from the Mori Point Program.
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<PAGE>
(vi) 16.5% (12.8% if only the seven "Trudy Pat" Programs participate) of
the total shares to be owned by the founders after the Acquisition
([53,269] shares if all Programs participate and 41,538 shares if
only the seven "Trudy Pat" Programs participate) would have been
deemed allocated from the Cypress Lakes Program.
(vii) None.
(viii) 2.7% of the total shares to be owned by the founders after the
Acquisition ([8,630] shares if all Programs participate) would have
been deemed allocated from the Esperanza Program.
(ix) 1.7% of the total shares to be owned by the founders after the
Acquisition ([5,433] shares if all Programs participate) would have
been deemed allocated from the Stacey Rose A Program.
(x) 0.45% of the total shares to be owned by the founders after the
Acquisition ([1,459] shares if all Programs participate) would have
been deemed allocated from the Stacey Rose B Program.
ALLOCATION OF UNITS AMONG INVESTORS
The method utilized to allocate Units to the Investors will involve two
steps. The Units will first be allocated among the participating Programs based
upon the Exchange Value of each of the Programs relative to the aggregate
Exchange Value of all of the Programs. National believes that the Exchange
Values of the Programs constitute the most reasonable and fair basis for
allocating the Units among all of the Programs.
Next, the Units allocable to a particular Program will be allocated
among the Investors pro rata in relation to each Investor's Adjusted
Outstanding Investment in a particular Program. An Investor's Adjusted
Outstanding Investment is calculated by adding the unpaid principal balance
of the Investor's share of the original loan plus his or her share of the
accrued but unpaid interest on the unpaid principal balance owed by the
defaulting borrower up to the Ownership Date, mandatory assessments paid by
the Investor, voluntary advances made by the Investor, plus interest through
the Record Date on voluntary advances made and for certain Programs, interest
on mandatory assessments paid as called for in the applicable
tenancy-in-common agreements. The basis for such adjustments is found in
Section 2.3 of each of the Programs' tenancy-in-common agreements.
Once each Investor's Adjusted Outstanding Investment has been calculated,
that amount is divided by the aggregate Adjusted Outstanding Investment for all
Investors, and the resulting fraction is multiplied by the number of Units
allocated the Program to determine the number of shares allocated to each
Investor.
All Units allocated to Investors will be exactly equal to each other.
Other than the potential sale of the Cypress Lakes Property, as of the date
of this Prospectus, neither National nor the Company knows of any material
change in the prospects or financial performance of any of the Programs which
will materially affect the value of the Units to be received by investors in
the Acquisition, the values assigned to the Programs for purposes of
comparison to the alternatives, or the fairness of the Acquisition to the
Investors.
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<PAGE>
COMPANY SHARES HELD BY AFFILIATES OR EMPLOYEES OF NATIONAL
None of the Acquisition Shares or units described in this Prospectus are
allocable to National or any of its shareholders except to the extent of any
of National's investments in the Programs. Acquisition units will be
allocated to National on the same basis as they are allocated to investors.
None of the Company's founders hold interests in any of the Programs'
Properties. At August 31, 1998, National's investments were $3,118 in the
Sacramento/Delta Greens Program; $2,300 in the Oceanside Program; $2,373 in
the Yosemite/Ahwahnee I Program; $69,384 in the Yosemite/Ahwahnee II Program;
$5,279 in the Mori Point Program; $3,200 in the Cypress Lakes Program; $2,395
in the Palmdale/Joshua Ranch Program; $0 in the Esperanza Program; $4,247 in
the Stacey Rose A Program; $15,753 in the Stacey Rose B Program (which
investment was allocated pro rata between the two Programs, based on a
percentage of total funds invested as to National's $20,000 investment for
the benefit of Stacey Rose A and B Investors). In the Acquisition, National
will receive an aggregate of [1,547] Units, reflecting [40] Units, [26]
Units, [29] Units, [813] Units, [116] Units, [49] Units, [17] Units, [-0-]
Units, [97]Units, and [360] Units, respectively, for its investments in the
Sacramento/Delta Greens Program, Oceanside Program, Yosemite/Ahwahnee I
Program, Yosemite/Ahwahnee II Program, Mori Point Program, Cypress Lakes
Program, Palmdale/Joshua Ranch Program, Esperanza Program and Stacey Rose A
and B Programs. National will not exercise any of the warrants it received
as part of the Units. As described in "Terms of the Acquisition" above, the
principal founders of the Company were the family partnerships of David
Lasker and James Orth, the principals of National. Upon completion of the
Acquisition, they will retain, in the aggregate, [237,628] Shares, or 13.76%
(approximately 3.92% if all of the units offered concurrently are sold and if
all the warrants included in the units to be issued in the Acquisition are
exercised) of the outstanding Shares of the Company. National and the
management of the Company believe that this is a fair allocation of the
outstanding Shares of the Company after the Acquisition because it fairly
reflects the management efforts that have been brought to bear to accomplish
the Acquisition and that will be brought to bear in the future in managing
the Company so as to achieve increased value for its Shareholders. The
fairness of the allocation of shares to the founders of the Company is
included in the Fairness Opinion described later in this Prospectus.
HISTORICAL COMPENSATION FOR SERVICING, ASSET AND PROPERTY MANAGEMENT/EFFECT OF
ACQUISITION
The following table sets forth the servicing fees, asset management and
property management fees accrued by National and officers and employees, as well
as actually paid, during the years ended December 31, 1997, 1996, 1995 and 1994.
See the second table under "-- General -- Servicing and Asset Management Fees"
at page __ for information about the fees earned by National and officers and
employees of ODI and AGCRI AFTER the date title to the Programs' Properties was
taken for the benefit of Investors. In the case of the Oceanside Program,
compensation was paid for salaries payable to the officers and employees of ODI.
In the case of the Yosemite/Ahwahnee I and II Programs, compensation to National
would have been from servicing fees through September 1995, and asset management
fees thereafter, as well
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as salaries payable to the officers and employees of AGCRI, as well as for a
portion of its general and administrative overhead costs.
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<TABLE>
<CAPTION>
Actually
Actually Actually Actually Actually Incurred Paid in
Incurred Paid in Incurred Paid in Incurred Paid in Incurred Paid in for Six Six
for Year Year for Year Year for Year Year for Year Year Months Months
Ended Ended Ended Ended Ended Ended Ended Ended Ended Ended
Name of Program 12/31/94 12/31/94 12/31/95 12/31/95 12/31/96 12/31/96 12/31/97 12/31/97 6/30/98 6/30/98
- --------------- -------- -------- -------- -------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sacramento/Delta Greens $ 50,000 $ -0- $ 50,000 $ -0- $ 50,000 $ -0- $ 50,000 $ 8,267 $ 25,000 $ 32,166
Oceanside 524,000 300,000 492,000 300,000 492,000 300,000 492,000 300,000 246,000 1,026,000
Yosemite/Ahwahnee I 65,000 10,000 84,051 -0- 150,800 101,626 148,439 60,700 75,333 30,392
Yosemite/Ahwahnee II 135,000 -0- 174,569 -0- 313,200 211,069 248,157 123,998 150,667 55,667
Mori Point 100,000 -0- 100,000 -0- 100,000 -0- 100,000 27,333 50,000 10,000
Cypress Lakes 140,000 140,000 140,000 140,000 140,000 140,000 140,000 140,000 70,000 70,000
Palmdale/Joshua Ranch 150,000 88,750 150,000 248,750 150,000 150,000 150,000 150,000 75,000 75,000
Esperanza 5,000 -0- 5,000 -0- 5,000 -0- 5,000 -0- 2,500 -0-
Stacey Rose A 850 -0- 850 -0- 850 -0- 850 -0- 426 -0-
Stacey Rose B 3.153 -0- 3,153 -0- 3,153 -0- 3,153 -0- 1,576 -0-
</TABLE>
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If the Acquisition had been completed during the above periods, National
would not have been entitled to receive any further servicing, asset or
property management fees and officers and employees of ODI and AGCRI would
not have been entitled to any separate compensation from that which they
would have received from the Company. The only compensation any of
National's affiliates would have been entitled to receive would have been
from salaries payable to officers and employees of the Company. No cash
would have been available to pay bonuses or dividends.
Based on original loan amounts, the following table sets forth the
compensation, including employees of ODI and AGCRI, that would have been
allocable to the Programs had the Acquisition been completed during the four
years ended December 31, 1994, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
Original
Name of Program Loan 1994 1995 1996 1997
--------------- Amount ---- ---- ---- ----
------
<S> <C> <C> <C> <C> <C>
Sacramento/Delta Greens $ 5,000,000 $ 62,886 $ 62,886 $ 62,886 $ 62,886
Oceanside 30,000,000 377,315 377,315 377,315 377,315
Yosemite/Ahwahnee I 6,500,000 81,752 81,752 81,752 81,752
Yosemite/Ahwahnee II 13,500,000 169,792 169,792 169,792 169,792
Mori Point 10,000,000 125,772 125,772 125,772 125,772
Cypress Lakes 14,000,000 176,080 176,080 176,080 176,080
Palmdale/Joshua Ranch 15,000,000 188,658 188,658 188,658 188,658
Esperanza 500,000 6,289 6,289 6,289 6,289
Stacey Rose A 85,000 1,069 1,069 1,069 1,069
Stacey Rose B 315,300 3,953 3,953 3,953 3,953
----------- ---------- ---------- ----------- ----------
TOTAL $94,900,300 $1,193,566 $1,193,566 $ 1,193,566 $1,193,566
----------- ---------- ---------- ----------- ----------
----------- ---------- ---------- ----------- ----------
</TABLE>
HISTORICAL CASH DISTRIBUTIONS TO INVESTORS
The following table sets forth the cash distributions made to Investors
during each of the years ended December 31, 1992, 1993, 1994, 1995 and 1996 and
during the Year ended December 31, 1997:
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<TABLE>
<CAPTION>
Prior to
Name of Program 1992 1992 1993 1994 1995 1996 1997 Total
--------------- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sacramento/Delta Greens
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest $ 1,654,013 $ 343,750 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,997,763
Oceanside*
Principal $ 0 $ 0 $ 0 $ 375,000 $ 900,000 $ 900,000 $ 675,000 $ 2,850,000*
Interest $ 0 $ 1,080,804 $ 3,145,869 $ 393,750 $ 0 $ 0 $ 0 $ 4,620,423
Yosemite/Ahwahnee I
Principal $ 45,000 $ 135,000 $ 103,085 $ 0 $ 0 $ 0 $ 0 $ 283,085
Interest $ 1,903,306 $ 920,794 $ 335,557 $ 4,756 $ 0 $ 0 $ 0 $ 3,164,413
Yosemite/Ahwahnee II
Principal $ 20,000 $ 60,000 $ 68,264 $ 0 $ 0 $ 0 $ 0 $ 148,264
Interest $ 592,498 $ 1,153,352 $ 688,303 $ 10,273 $ 0 $ 0 $ 0 $ 2,444,426
Mori Point
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest $ 1,354,708 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,354,708
Cypress Lakes
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest $ 621,198 $ 1,781,251 $ 1,337,101 $ 62,706 $ 0 $ 0 $ 0 $ 3,802,256
Palmdale/Joshua Ranch
Principal $ 0 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
Interest $ 1,523,775 $ 1,885,526 $ 478,127 $ 0 $ 0 $ 0 $ 0 $ 3,887,428
Esperanza
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest $ 130,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 130,000
Stacey Rose A and B
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest $ 84,237 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 84,237
</TABLE>
- -------------
* An additional $3,000,000 in principal was distributed to the Oceanside
Program Investors in June 1998 subsequent to the sale of the remaining
lots, as approved by the Oceanside Investors.
FEATURES OF THE ACQUISITION CONSIDERED BY NATIONAL
National believes that the Acquisition is the best way to obtain a maximum
recovery of their capital by Investors in each of the Programs. In reaching
this conclusion, National considered the following positive and negative
factors:
[LIQUIDITY THROUGH FREELY TRADEABLE [AND LISTING OF] SHARES. The
Company's Shares issued in the Acquisition will be freely tradeable. [The
Company has applied for listing of the shares on the ______________. Listing
the shares is a condition to the acquisition.] Thus, the Acquisition offers
potential liquidity to the Investors for all or some of their Shares if a
trading market develops. There is no guaranty that a liquid trading market
will develop for the shares or that it will be sustained. Although the
Acquisition is not the only means by which Investors could achieve liquidity
in their investments in the Programs, National believes that the Acquisition
is preferable to the alternatives (described below in "-- Alternatives to
Acquisition")
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even though an indefinite period of time may be required before
the value of the Shares is stabilized and there is an adequate demand from
buyers for the Shares. National believes that a sale of the Properties in
the current market would result in unnecessary losses to Investors.
Investors should be aware, however, that initially the Shares are
likely to trade at prices substantially below the arbitrary $20 per Unit
assigned for purposes of the Acquisition.
CONTROL OF TIMING OF LIQUIDATION. By creating freely tradable equity
securities in the Company, the Acquisition permits Investors to liquidate all or
a portion of their Shares when such liquidation best serves such Investors. In
addition, by controlling the timing of the liquidation of their investments,
Investors will have better control of the timing of the tax impact of the
liquidation. Furthermore, the Programs will not be forced to sell their
Properties currently and recognize the losses that would be generated by such
sales. If the Programs could be liquidated by selling off the Properties at the
appraised values used to calculate Exchange Values, such sales would result in
substantial cash losses to the Investors in each of the Programs. See table at
"-- Alternatives to Acquisition; Liquidation of the Programs." However, no
particular group of Investors will have the ability to control the timing of the
sale of a particular property as they do under the current program structure.
Instead, all Investors will be required to rely on the decisions of management
regarding the sale of a Property. Management's and the Board of Director's
decisions regarding dividends will affect cash available for distribution.
BENEFITS TO THE COMPANY OF LISTED SHARES. In addition to the flexibility
Investors will have to liquidate their interests at a time that best suits their
respective individual needs, [National believes that having the shares of the
Company listed for trading on the _______________] will provide benefits to the
Company itself which could enhance Investor value. The Company may have access
to outside capital in the form of debt or equity through the capital markets
that the individual Programs do not have. For example, it is possible that
the Company may be able to take advantage of its size in order to access the
capital markets for additional debt or equity from investors or traditional
institutional sources to provide expansion or completion of development and
construction funding for the various projects. The growth of the Company will
be a capital-intensive process. The Company, however, will need to be
successful or show potential for success in order to induce capital sources,
if available, to enter into transactions with it. Even in such cases, the
cost of such capital may be high.
DIVERSITY OF INVESTMENT. The Acquisition will allow Investors to
participate in a consolidated investment portfolio of five to seven
Properties rather than one. These Properties are in diverse geographic
locations in California and have different development orientation. The
diversity of the Company's portfolio spreads the risk of an investment in the
Company over a broader group of assets and reduces the dependence of the
investment upon the performance of any particular asset. It also reduces the
pressure to sell a particular asset in an untimely way. However, the poor
performance of a particular Property may, nevertheless, negatively affect the
performance of the Company even if all the other Properties are performing
well. Historically, all of the Properties have operated at a loss. Only the
Oceanside and Yosemite/Ahwahnee Properties have produced any revenues. In
order for the company to be
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successful, it must obtain external financing or sell certain of its assets
to raise cash for operations.
MODEST INCREASE IN MANAGEMENT COMPENSATION. National considered that
the total of salaries to be payable to the Company's officers and other
employees exceeds the total payable to National and its affiliates for
servicing and property management services ($1,181,000 as opposed to $885,000
both of which include the payroll for the Yosemite/Ahwahnee golf course,
clubhouse and recreational vehicle facilities). The increase was not viewed
as significant since the original servicing fees were based on loan servicing
and, later, asset management fees were earned, both of which are less
labor-intensive than property development, construction, acquisition and
property management, which activities the Company will conduct.
ELIMINATION OF MANDATORY ASSESSMENTS. Completion of the Acquisition will
result in the cancellation of the servicing agreement and the tenancy-in-common
agreement for each of the Programs and National will no longer be an asset
manager for the Investors. There will be no further assessments of Investors of
any kind pursuant to those or any other agreements. However the Company will be
required to obtain additional financing from other sources in order for its
business plan to be successful.
LIMITATION OF INVESTOR LIABILITY. As beneficial owners of the assets and
businesses of the Programs, Investors currently may not be effectively insulated
from personal liability based on the operation of those assets. Thus, if an
accident occurred, the damages of which were not wholly covered by insurance,
the individual Investors could be liable for the balance of the damages. As
shareholders of a corporation, there will be no such risk of liability.
NO CONTROL OVER TIMING OF SALE OF A PARTICULAR PROPERTY. No particular
group of Investors will have the ability to control the timing of the sale of a
particular property as they do under the current program structure. Instead,
all Investors will be required to rely on the decisions of management regarding
the sale of a Property. The Board of Directors' decisions regarding
dividends will affect cash available for distribution.
POTENTIAL INCREASE IN UNITS IF A PROPERTY SOLD BEFORE DECEMBER 31,
1999. If the net cash sale proceeds, net of any interest on seller financing,
received by the Company on or before December 31, 1999, from the sale of any of
the Properties acquired in the Acquisition exceeds the March 1998 appraised
value for such Property or, in the case of the Yosemite/Ahwahnee I and II and
Oceanside Properties, the appraised values determined by National, the Company
will issue pro rata to the former Investors in such property a number of
additional Units (valued at $20 per Unit regardless of the then trading price of
the Company's stock up to a maximum value of two times the appraised value used
to compute the Exchange Value) equal to the difference between the net cash
proceeds received by December 31, 1999 and the exchange value of the Property
for purposes of the Acquisition.
PROCEEDS FROM SALE OF PROPERTIES. If a Property is sold or refinanced, the
proceeds will be used by the Company to further the business plan of the
Company. There would be no
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commissions paid to the Company for any such sale. Presently, if a Program
Property is sold in its entirety, the net proceeds after costs and accrued
liabilities would ordinarily go to applicable Investors directly as a return
of their investment.
ACQUISITION COULD TRIGGER TAXATION OF INVESTORS. Participation in the
Acquisition may be a taxable event for Investors. However, National intends to
treat the transaction as a tax-free transaction. To the extent that the
Acquisition is determined to be taxable, National believes most Investors would
be required to report tax losses. On the other hand, there generally would be
no taxable event to Investors as the Programs are currently structured until the
Program Property was sold. At such time, the amount returned to Investors would
result in either a tax loss or gain depending upon how much of the original
investment was returned.
CASH DISTRIBUTIONS. Currently, if a Property was sold, an Investor would
be entitled to a distribution of the proceeds of such sale net of costs of sale
and accrued liabilities. After the Acquisition, an Investor's distributions
will be dependent upon the earnings of the Company and a decision of the board
of directors to make distributions in the form of dividends. An Investor will
not automatically receive distributions upon the sale of any particular
Property.
CONDITIONS TO THE ACQUISITION
The principal conditions to the Acquisition are: (i) approval of the
Acquisition by at least the holders of a majority of the tenancy-in-common
interests in each of the "Trudy Pat" Programs; (ii) commitment of a reputable
title company to issue to the Company an extended coverage policy of title
insurance on each of the parcels of real property owned by each of the
Programs; (iii) receipt of the Fairness Opinion from the Independent Valuator
regarding the allocation of the Shares among the Programs; and (iv) approval
of the Shares for listing on the _______________. No federal or state
regulatory requirements must be complied with or approval obtained in
connection with the Acquisition. These conditions may not be waived.
National may decide not to pursue the Acquisition at any time before it
becomes effective, whether before or after approval by the Investors.
RECOMMENDATION OF NATIONAL AND FAIRNESS DETERMINATION
While the Acquisition was not negotiated at arm's-length and National and
its principals will receive substantial benefits from it, National believes the
Acquisition to be procedurally and financially fair to, and in the best
interests of, each of the Programs and the Investors therein. Without
significant additional assessments, there is no further capital to continue
to operate or hold any of the Properties except for the Oceanside and
Yosemite/Ahawahee Programs. National recommends that the Investors approve
the Acquisition as the most likely alternative to achieve the greatest return
on Investors' Outstanding Investments.
There can be no assurance that the market value of the Shares will
ultimately be higher than the expected proceeds from liquidation. It is likely
that the Shares will trade substantially below the arbitrary value of $20 per
Unit assigned to them in the foreseeable future. Also, if many Investors were
to sell the Shares immediately after the Acquisition was completed, the price of
the Shares could drop even more significantly. In proposing the Acquisition,
National
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examined the alternatives discussed in "-- Alternatives to Acquisition."
Maintaining the current structure of each of the Programs, as well as a
prompt liquidation of each of the Programs, was outweighed by (i) the
Company's potential to provide improved liquidity to the Investors through
ownership of the Company's Shares; (ii) potential for growth; (iii) the
possibility of increasing the value of the Company to permit the Investors
who elect not to sell their Shares promptly a chance to obtain a better
return than a liquidation of their Property would yield today; and (iv) the
fact that obtaining adequate capital for necessary project expenses from
Investor assessments is unlikely.
Based on its analysis of the Acquisition, National believes that (i) the
terms of the Acquisition when considered as a whole are fair to the Investors;
(ii) the Units offered to the Investors constitute fair consideration for the
Properties and other assets held in tenancy-in-common by the Investors; and
(iii) after comparing the potential benefits and detriments of the Acquisition
with those of the earlier described alternatives, the Acquisition is the most
viable to the Investors than such alternatives. These beliefs are based
upon National's analysis of the terms of the Acquisition, an assessment of its
potential economic impact upon the Investors, a consideration of the amount of
the equity of the Company which will be held by consultants and employees of
National, the Company and the Programs, a comparison of the potential benefits
and detriments of the Acquisition and alternatives to the Acquisition, a review
of the financial condition and performance of the Programs and the terms of the
servicing agreements and the tenancy-in-common agreements for each of the
Programs.
More specifically, National's determination of overall fairness
(financial and procedural) was based on a consideration of the following
positive and negative factors:
- the Shares included in the Units offer an opportunity for individual
Investor liquidity while the tenancy-in-common interests do not, however, there
is no assurance that the Shares will have any liquidity, or that any liquid
market that develops will be sustained;
- while the number of Units to be issued to reflect the Exchange Value
of a Program is arbitrary, the trading price of the shares included in the Units
initially is likely to be substantially below the $20 value arbitrarily assigned
to the Units. In National's opinion, the Exchange Values offered to Investors
for their assets allow for the most equitable allocation of the Units among the
Programs.
- on completion of the Acquisition the Investors will hold over 80%
(92.9% if all the units are sold in the concurrent offering and 94.7% if all
the units are sold in the concurrent offering and all warrants in units
issued in the acquisition are exercised) of the outstanding stock of the
Company while the Company's founders (principals, employees, and consultants
of National) will hold less than 20% (7.1% if all the units are sold in the
concurrent offering and 5.3% if all the units are sold in the concurrent
offering and all warrants in units issued in the acquisition are exercised).
Founders' shares were purchased for $.01 per share. National and its
principals will have forgiven over $2,800,000 of expenses and accrued servicing
fees of which a total of $2,148,000 was earned after loans defaulted and
before the Ownership Dates of the Properties. The remainder reflects
expenses advanced to the
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Programs on behalf of Investors by National. In addition, National will
forgive and cancel an additional $385,523 of earned fees when the Acquisition
occurs. See "-- Background and Reasons for the Acquisition -- ____________"
for detailed information about fees to be paid to National. National
believes that the amount paid for the services is no greater than the amount
that a third party would charge. The number of Shares of the Company
retained by the founders was not determined based on fees forgiven by
National or its affiliates. Prior to receiving the Fairness Opinion,
National believed that the Company's founders should hold slightly less than
20% of the Shares after the Acquisition in order to properly incentivize such
persons with a significant, but not controlling, interest in the Company;
- the valuation of the real estate assets of each of the Programs by the
independent appraisers;
- the probability that the transaction will either be tax-free to
Investors or, at most, yield a tax loss. Either way, National believes there
will likely be no out-of-pocket tax cost to all, or the vast majority, of
Investors;
- while conflicts of interest exist in the structuring of the
Acquisition, the issuance of Shares to the founders of the Company and the
determination of management compensation and while Investors did not have
independent representation in the structuring of the Acquisition, National
believes they have been counterbalanced by the Investors' opportunity to vote on
the transaction and the Fairness Opinion;
- while the Programs were originally formed to have a two to four
year finite life and the Investors expected to receive a return of their
investment from the original borrower, the Company is an infinite life entity
which will not return the Program Investors' original investment based on
sale or refinancing of the properties underlying the original Programs. Any
return on the Investors' original investment will have to be derived from the
sale of shares or warrants or by receiving dividends, if any are declared by
the Company. After the borrowers defaulted on the loan, the Investors became
beneficial owners of the underlying properties with the need to complete
development, manage or otherwise ready the properties for sale. That
significantly changed the finite life aspect of their original investments.
Therefore, the infinite life aspect of the Company is not viewed by National
to be a material change from the Investors' current situation relative to the
potential liquidity represented by owning shares;
- the Acquisition will cause fundamental changes in the individual
business plans of the Programs. Rather than being focused on a single Property,
the Company will be focused on the management of at least seven Properties.
Thus, the poor performance of a particular Property may affect the Company's
operations as a whole regardless of the performance of the other Properties.
Some of the properties can be sold to obtain working capital for the benefit
of the Company as a whole. Further, until a trading market develops, there
will be no particular time when an Investor can expect its interest to be
automatically liquidated;
- Investors' voting rights will change. Investors will not be able to
vote on changes to or dispositions of a particular Property or any available
financing or borrowing secured by a
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particular Property. Those decisions will be made by the Board of
Directors or management. In addition, due to the number of Investors in the
Company, a particular Investor's relative voting power will decline;
- Cash distribution policies will be changed. There have been no
distributions from any of the Programs, other than the Oceanside Program, in the
past three years due to the original borrower's defaults. Future cash
distributions will be based on the Company's earnings and the decision of the
board of Directors to pay dividends. Even if a particular Property were to
perform well, there is no assurance that there will be cash distributions;
- Holders of the majority of tenancy-in-common interests in a
particular Program can bind the Program, and Investors that vote against the
Acquisition will not be able to object to the Acquisition if a majority of the
Investors in all of the Programs approve the Acquisition; and
- National hired Houlihan Valuation Advisers, an independent valuation
firm, to review the fairness of the acquisition. That firm's opinion (the
"Fairness Opinion") concludes that the allocation of the units in the
transaction (which includes allocation of units to the programs and shares to
the company's founders) is financially fair to you in the context of a
combination of all ten programs and a combination of just the seven Trudy Pat
programs. Given the small size of the Esperanza and Stacey Rose A and B programs
in relation to the seven Trudy Pat programs, and the conclusion that the
combination of all ten programs was fair, management of National (Messrs. David
Lasker and James Orth) determined for itself (and directed the independent
valuation firm) that the fairness of the combination of the seven Trudy Pat
programs would not be materially affected by the addition of any combination of
less than all of the three non-Trudy Pat programs and that the addition of one
of the three or any combination of two of the three would be fair to whichever
of those chose to participate. Thus, if the acquisition is completed with a
combination of programs not addressed in the fairness opinion, no independent
opinion concerning the fairness of the acquisition in that combination will have
been obtained. See "Background and Reasons for the Acquisition -- Appraisals and
Fairness Opinion" at page __.
All of the above factors were used as support for National's belief that
the Acquisition is fair, substantively and procedurally. No special emphasis
was assigned to any of the factors.
National believes that there are no material differences in the fairness
analysis for any particular Program in comparison with any other.
FAIRNESS IN VIEW OF CONFLICTS OF INTEREST
Although National reasonably believes the terms of the Acquisition are fair
to the Investors, the principals of National have conflicts of interest with
respect to the Acquisition. These conflicts include, among others, (i) the
determination not to retain independent parties to act on behalf of the
Investors or the Programs (see "Risk Factors -- Risks of the Acquisition"), (ii)
the principal shareholders of National may realize substantial economic benefits
upon completion of the Acquisition (see "Management Following the Acquisition --
Directors and
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Executive Officers Compensation and Incentive"), and (iii) National's relief
from on-going obligations under the servicing agreements with respect to each
of the Programs (such relief is not susceptible to meaningful quantification
except to the extent that National may be able to reduce its overhead
allocated to the asset management for the Programs). It should be noted
that, prior to 1995, National forgave $[2,843,308] of fees and advances and,
upon the Acquisition, will forgive an additional $385,523 it earned in its
role as servicing agent and asset manager. It should be further noted that,
while the number of Shares to be retained by the founders was not based on
the amount of fees forgiven, at $20 per Share, the amount of fees cancelled
by National and its principals would be equal to [191,498] Shares.
Additionally, National will not be entitled to any further fees with respect
to the Properties which amounts, in the aggregate, to $885,000 annually. To
help mitigate the potential conflicts, National obtained the independent
appraisals and the Fairness Opinion. For a further discussion of the
conflicts of interest and potential benefits of the Acquisition to National
and its principal shareholders, see "Interests of Certain Persons in the
Acquisition and Conflicts of Interest -- Substantial Benefits to Affiliates
of National."
CONSEQUENCES IF THE ACQUISITION IS NOT APPROVED
If the Acquisition is not consummated for any reason, National will be
unable to continue to manage the Programs without receiving contracted-for fees
and expenses. In fact, there will be no working capital sufficient for the
holding and operational expenses for any of the Programs. Thus, if, in the
unlikely event that it has the time and financial reserves, National will sell
each of the Programs' Properties for the highest amount then available and
distribute the proceeds, net of selling expenses and fees and expenses due to
National and others, to the Investors in the respective Programs. Because of the
lack of capital, if the Acquisition is not approved, National will likely resign
as asset manager for each of the Programs and seek whatever protection may be
available for the Investors in a bankruptcy liquidation. With the exception of
National's continued efforts to solicit buyers and brokers, no other transaction
is currently being actively considered as an alternative to the Acquisition. The
Programs will, however, have paid for the expenses of pursuing the Acquisition,
even if it is not approved.
ACCOUNTING TREATMENT
The transaction will be accounted for as a purchase by the accounting
acquiror, the Company, of all of the investment programs. As such, the assets
and liabilities of the investment programs being acquired will be recorded at
their fair values, while the assets and liabilities of the Company will remain
at their historical costs. The Company has been treated as the accounting
acquiror due to its shareholder group holding a greater interest in the Company,
subsequent to the Acquisition, than any other shareholder group involved in the
Acquisition
COSTS AND EXPENSES
Costs and expenses incurred in connection with the Acquisition will be
allocated to the Programs on a pro rata basis in accordance with their relative
Exchange Values, whether or not the Acquisition is consummated. If the
Acquisition fails, to the extent any are unpaid, such
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<PAGE>
liabilities will remain owing for ultimate repayment at the sale of the
applicable Property. The following is a statement of ESTIMATED costs and
expenses that have been or are likely to be incurred by the Programs and the
Company in connection with the Acquisition.
[COST ALLOCATION PENDING FINAL EXCHANGE VALUE CALCULATION. TOTAL COSTS ARE
ESTIMATED TO APPROXIMATELY $1,024,000.]
<TABLE>
<CAPTION>
Sacramento/ Yosemite/ Yosemite/
Delta Greens Oceanside Ahwahnee I Ahwahnee II Mori Point
------------ --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Accounting $ $ $ $ $
Audit
Appraisal
Legal
Fairness opinion
Exchange fees
SEC filing fees
Printing
Mailing/copying
Investment banking/
consulting
Meeting and travel
Solicitation fees
Miscellaneous
-------- --------- ---------- --------- ---------
Total $ $ $ $ $
-------- --------- ---------- --------- ---------
-------- --------- ---------- --------- ---------
<CAPTION>
Palmdale/
Cypress Joshua Stacey Stacey
Lakes Ranch Esperanza Rose A Rose B Total
----- ----- --------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Accounting $ $ $ $ $ $
Audit
Appraisal
Legal
Fairness opinion
Exchange fees
SEC filing fees
Printing
Mailing/copying
Investment banking/
consulting
Meeting and travel
Solicitation fees
Miscellaneous
-------- --------- ---------- --------- --------- --------
Total $ $ $ $ $ $
-------- --------- ---------- --------- --------- --------
-------- --------- ---------- --------- --------- --------
</TABLE>
91
<PAGE>
APPRAISALS AND FAIRNESS OPINION
APPRAISALS. National engaged separate independent real estate appraisal
firms named at page __ to provide independent appraisals of the value of the
real estate in each Program. The appraisers were selected for their
knowledge of the real estate conditions in the seven areas in which the
Programs' Properties are located, as well as for their experience and
credentials. See "Appraisals and Fairness Opinion" for information about the
appraisers and the appraisals. Although National received independent
appraisals, it used its own judgment as to various portions of the appraisals
that differed on the Yosemite/Ahwahnee I and II Properties in order to
determine the most appropriate current appraised value for those Properties.
The disparity between Exchange Values and appraised values results from
adding Program cash reserves to appraised values and deducting Program
accrued property taxes and other accrued obligations net of fees to be
forgiven by National.
FAIRNESS OPINION
GENERAL. National also engaged Houlihan Valuation Advisers, a
well-known and reputable independent valuation company (the "Independent
Valuator"), to determine the fairness of the allocation of shares in
connection with the Acquisition. The Independent Valuator did not pass upon
the procedures used by National and the Company to determine the fairness of
the Acquisition. However, the Independent Valuator has rendered a Fairness
Opinion (attached as Appendix 1 to this Prospectus) to the effect that the
transaction, including the allocation of Shares among the Programs, as well
as the number of Shares to be held by management and founders of the Company,
is fair to Investors from a financial point of view. See "Appraisals and
Fairness Opinion -- Fairness Opinion."
The Independent Valuator was engaged by National to analyze certain
aspects of the Acquisition and has delivered its written determination, based
on the review, analysis, scope and limitations described therein, as to the
fairness of the allocation of Shares pursuant to the Acquisition, from a
financial point of view, to the Investors in each of the Programs (the
"Fairness Opinion"). The full text of the Fairness Opinion is set forth in
Appendix A and should be read in its entirety. A development of a fairness
opinion is a complex analytical process. It is not easily susceptible to
partial analysis or summary description.
Neither National nor the Company imposed any conditions or limitations on
the scope of the Independent Valuator's investigation or methods and procedures
to be used in rendering the Fairness Opinion. The Company has agreed to
indemnify the Independent Valuator against certain liabilities arising out of
the Independent Valuator's engagement.
EXPERIENCE OF INDEPENDENT VALUATOR. The Independent Valuator is
regularly engaged in the valuation of businesses and their securities in
connection with a variety of business combination transactions and for
estate, tax, corporate and other purposes. The founding principals of the
Independent Valuator have been regularly engaged in business valuations for
more than 20 years. Its staff includes certified public accountants,
chartered financial analysts, accredited senior appraisers and certified
general appraisers. National selected the Independent Valuator because of
its experience and reputation in
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<PAGE>
connection with the valuation of business combination transactions. Neither
National nor the Company has any prior relationship with the Independent
Valuator and neither has present plans to retain the Independent Valuator in
the future.
MATERIALS REVIEWED. In preparing the Fairness Opinion, the Independent
Valuator reviewed and analyzed the following: (i) this Consent Solicitation
Statement/Prospectus; (ii) real estate appraisals with respect to each of the
Properties prepared by independent real estate appraisers; (iii) feasibility
studies with respect to the Yosemite/Ahwahnee Properties and the
Sacramento/Delta Green Property; (iv) audited financial statements for each
of the Sacramento/Delta Greens Property, the Mori Point Property, the
Oceanside Property, the Yosemite/Ahwahnee I and II Properties, the Cypress
Lakes Property, the Palmdale/Joshua Ranch Property, the Esperanza Property
and the Stacey Rose Properties, as well as unaudited pro forma consolidated
financial statements for the Company for the years ended December 31, 1996
and 1997; (v) the original offering circular for each of the "Trudy Pat" and
other loans on the Properties. In addition, the Independent Valuator met with
members of management of the Company and National regarding matters pertinent
to its analysis, conducted site visits to each of the Properties, met with
the general manager of the Yosemite/Ahwahnee I and II Properties, and
conducted such other studies, analyses and inquiries as it deemed appropriate.
The Independent Valuator did not independently verify the accuracy or
completeness of the information supplied to it with respect to the Company or
the Properties and does not assume any responsibility with respect to that
information.
ANALYSIS AND CONCLUSIONS. On behalf of the Investors in each of the
Programs, National requested that the Independent Valuator opine as to the
fairness, from a financial point of view, of the allocation of Shares
pursuant to the Acquisition, inclusive of Shares to be held or controlled by
principals of National, employees of National and the Company, as well as
consultants to certain of the Properties and National.
The Independent Valuator's analysis began with a determination of the
enterprise value of each of the Programs on a stand alone basis. The
enterprise value of most entities whose primary business purpose is owning
real estate is determined based on the adjusted book value (or net asset
value) approach. We deemed this to be a reasonable methodology for
determining the enterprise value of each of the Oceanside, Mori Point,
Yosemite/Ahwahnee I and II, Delta Greens, Cypress Lakes, Palmdale/Joshua
Ranch, Esperanza and Stacey Rose A and B programs. In the adjusted book
value approach, the estimated current market value of individual assets and
liabilities are substituted for their carrying value on the programs'
financial statements (or book value). The enterprise value is the resulting
value of the equity after subtracting liabilities from the market value of
assets.
To determine the current net asset value of each of the Programs, the
Independent Valuator relied on the Appraisals, without independent analysis
or verification, to represent the current fair market value of the respective
Properties. In the case of the properties sold to Oceanside by
Yosemite/Ahwahnee I and II programs in June 1998, we relied upon the
Company's representation that these sales were not arm's length negotiated
transactions and that
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<PAGE>
the Company's reconciliation of value utilizing a combination of the Arnold
and Mentor Appraisals represents the best current indication of the fair
market value of those Properties. In the case of the property remaining in
the Yosemite/Ahwahnee I and II programs, the Company represents that the
value according to the Arnold Appraisal is representative of its current fair
market value (after being reduced to reflect lot sales since the date of the
Appraisal). In the case of the Cypress Lakes property (which has an
appraised value of $6,000,000), there is a possibility that in the near
future the Company will enter into a purchase agreement with a potential
buyer for a purchase price of $11,550,000, payable in a combination of cash
and a promissory note. However, the purchase agreement would give the buyer
the ability to cancel the sale without penalty for any reason within a 120
day due diligence period. During a subsequent 60 day period, the buyer could
cancel with forfeiture of a $100,000 deposit. Because of the terms of the
agreement, the Company believes that there is considerable uncertainty
regarding whether the property will be sold for that amount, if at all.
Therefore, our net asset value calculation is based on the $6,000,000
appraised value subject to the condition that if the sale is consummated and
the net proceeds are greater than the appraised value, the Investors in
Cypress Lakes will receive an additional number of units (valued at $20)
equal to the difference in the purchase price (exclusive of interest) and the
appraised value. In determining net asset value, the Independent Valuator
used the book value as of [August 31], 1998 for most of the non-real estate
assets. This was considered reasonable because the majority of these assets
consist of cash, restricted cash, accounts receivable, notes receivable or
amounts due from affiliates, which are relatively liquid and worth
approximately their book value. With respect to property and equipment
(excluding real estate), no appraisals were provided to the Independent
Valuator. Management believes the book value of property and equipment to be
reasonably indicative of its market value. Deferred membership selling
expense and deferred revenues which appear on the balance sheet of the
Yosemite/Ahwahnee II Program as of [August 30], 1998 were included in the net
asset value calculation at book value even though they are intangible assets
and liabilities in order to reflect the on-going assets and liabilities
associated with operating the recreational vehicle park. Real property held
for sale on the Oceanside program's balance sheet as of [August 31], 1998 was
not included because it was subsequently sold and the proceeds were
distributed to investors. Liabilities were subtracted out at book value.
Using the aforementioned methodology, the resulting net asset values as of
[August 31], 1998 were as follows (rounded to the nearest $000): $5,356,000
for Oceanside (or 19.10 percent of the combined net asset value); $2,210,000
for Yosemite/Ahwahnee I (or 7.88 percent of the combined net asset value);
$4,590,000 for Yosemite/Ahwahnee II (or 16.36 percent of the combined net
asset value); $5,413,000 for Mori Point (or 19.30 percent of the combined net
asset value); $1,570,000 for Sacramento/Delta Greens (or 5.60 percent of the
combined net asset value); $5,825,000 for Cypress Lakes (or 20.77 percent of
the combined net asset value); $2,622,000 for Palmdale/Joshua Ranch (or 9.35
percent of the combined net asset value); $216,000 for Esperanza (or 0.77
percent of the combined net asset value); $52,000 for Stacey Rose A Program
(or 0.90 percent of the combined net asset value); and $247,000 for Stacey
Rose (or 0.69 percent of the combined net asset value).
With respect to the 323,631 Founders Shares, the Independent Valuator
was primarily concerned with the 237,806 shares to be issued to the family
limited partnerships under the control of David Lasker and James Orth. For
our purposes, we considered a certain number of
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<PAGE>
those shares to represent consideration to Messrs. Lasker and Orth in
connection with their responsibilities as officers of the Company. The
Independent Valuator assumed this number of shares would be 89,370 shares (or
44,685 each for Messrs. Lasker and Orth), which is based on the number of
shares to be issued to Mr. Albertson on the basis of arm's length
negotiations. The remaining 148,436 shares, or 8.60% of the total shares
expected to be outstanding upon consummation of the Transaction, represents
consideration for the role of Messrs. Lasker and Orth in structuring and
completing the Acquisition, which is reasonable given the fact that the
Acquisition they have structured should, among other things, enhance the
Investors' liquidity more than enough to offset the dilution resulting from
the issuance of the shares. Even though there is no guarantee that an active
market will develop for the Company's Shares, when compared with likely
discounts for lack of marketability in excess of 30 percent for their current
ownership interests (based on historical studies), the Investors' liquidity
should be expected to be increased significantly.
ASSUMPTIONS. The Independent Valuator assumed that the financial
statements provided to it correctly reflect the financial results and condition
of the Company (on a pro forma basis) and the Properties for the time periods
covered in accordance with generally accepted accounting principles consistently
applied. The Independent Valuator further assumed that there has been no
material change in the financial results and condition of the Company (on a pro
forma basis) or the Properties since the date of the most recent financial
statements made available to it.
LIMITATIONS AND QUALIFICATIONS. The Independent Valuator was not asked
to and therefore did not solicit third party indications of interest in
acquiring all or any of the Properties. Furthermore, the Independent
Valuator did not negotiate the Acquisition or advise National or the Company
with respect to alternatives to the Acquisition, or select the method of
determining the allocation of the Shares or establish the allocations.
Further, the Independent Valuator expressed no opinion as to (a) the
fairness of the Acquisition (other than the fairness of the allocations) as
described above or the amounts or allocations of Acquisition Expenses; (b)
the prices at which the Shares may trade following the Acquisition or the
trading value of the Shares as compared with the current market value of the
Programs' Properties if liquidated in current real estate markets; and (c)
alternatives to the Acquisition.
In connection with preparing the Fairness Opinion, the Independent Valuator
was not engaged to, and consequently did not, prepare any written report or
compendium of its analysis for internal or external use beyond the analysis set
forth in Appendix 1. The Independent Valuator did not deliver any additional
written summary of its analysis.
COMPENSATION. The Independent Valuator has been paid a fee of $[______]
for preparing the Fairness Opinion. In addition, the Independent Valuator
will be reimbursed for all reasonable out-of-pocket expenses, including legal
fees up to a maximum of $750, and indemnified against certain liabilities,
including certain liabilities under the federal securities laws. The fee was
negotiated between National and the Independent Valuator. Payment of the fee
is not dependent
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<PAGE>
upon completion of the Acquisition. The Independent Valuator has rendered no
services to either National or the Company, or their Affiliates, in the past.
DIVIDEND POLICY
The Company has no plans to pay dividends in the foreseeable future.
Funds otherwise available for dividends will be utilized to potentially
increase Share value through acquisition and development. The effect of this
policy will be that, as Company real estate assets are sold, unlike in the
Programs, no cash distributions will be made to Investors.
COMPARISON OF TENANCY-IN-COMMON INTERESTS AND SHARES
The following summary compares a number of differences between the
ownership of tenancy-in-common interests in the Programs and Shares of the
Company and the effect relating thereto.
<TABLE>
<CAPTION>
Differing Factor Tenancy-in-Common Interests Shares
- ----------------- ----------------------------- --------------------------
<S> <C> <C>
GENERAL BUSINESS Each of the Programs The business of at least
commenced as opportunities to seven of the Programs will
participate in a loan secured be consolidated into the
by to-be-improved real Company. The Company has
property. The Programs are broader investment
not seeking to make objectives to increase share
additional loans or purchase value which will include the
new properties. sale or development of the
projects originally
undertaken by the developers
which borrowed from Investors
of the Programs, as well as
possibly expanding into
other real estate ventures.
The current plans of the
Company may be recast at the
discretion of the Board of
Directors without the
consent of the Shareholders.
DURATION The Programs were originally The Company will have
structured to have the loans perpetual life. It intends
repaid over two to four to operate indefinitely and
years. it has no plans to liquidate
assets to make returns of
capital to Investors.
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<PAGE>
DISTRIBUTIONS AND The Programs were initially The initial policy of the
DIVIDENDS designed to yield regular Company will be to preserve
interest payments to the its cash resources for
Investors and to have the growth and internal
principal of the various development and, thus, the
loans repaid in accordance Company does not plan to
with their respective terms, make dividend distributions
usually two to four years. in the foreseeable future.
The Board of Directors has
the discretion to determine
whether or not and when to
declare and pay dividends
and the amount thereof.
TAXATION The Programs are not tax The Company will be taxed as
payers and file no tax a corporation and file
returns. Prior to the corporate income tax
Ownership Date, interest returns. Distributions to
income distributed to shareholders will be
Investors was reported to the reported to the IRS and
IRS and applicable state applicable state taxing
taxing authorities on Form authorities on Form 1099-DIV
1099-INT. As tenancy-in- whether or not such
common owners of the distributions are taxable.
Properties, the Investors no
longer receive Form-1099 from
National, but are responsible
for their pro rata share of
any income, gain, loss or
deductions attributable to
their Program's Properties.
OVERHEAD AND Overhead and expenses of the Investors will have no
EXPENSES Programs are the responsibility for company
responsibility of the overhead and expenses.
Investors to the extent the Initially, overhead and
applicable Program does not expenses of the Company will
generate sufficient cash flow be derived from proceeds of
to cover them. They are the sale of one or more of
billed individually to the Company's assets, sale
investors in the form of of Units offered
assessments. To date, only concurrently, and the
the Oceanside program has exercise of Company warrants.
been self-funding. Future overhead and expenses
cash will be funded from flow
from operations.
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<PAGE>
MANAGEMENT The business and affairs of The business and affairs of
each of the Programs are the Company are managed by
managed by National pursuant the officers of the Company
to the applicable servicing under the direction of the
agreement. Pursuant to the Board of Directors. The
terms of the applicable Board of Directors will
servicing agreement, ultimately be divided into
National may be three classes serving
terminated as the servicing staggered three year terms.
agent/asset manager One-third of the Board of
by the vote of holders Directors will be elected
of a majority of the annually by holders of the
interests of a particular Shares to serve for three
Program if all earned and year terms. Directors can
accrued fees are paid and be removed from office by
there are no additional the affirmative vote of the
future liabilities to holders of at least a
National. majority of the then-
outstanding Shares.
FIDUCIARY DUTIES None of the Programs are Officers and Directors of
partnerships and, thus, the Company are subject to
National does not have the the Delaware common law
common law fiduciary duties which imposes fiduciary
that it would have if it were duties of care, loyalty,
the general partner of a good faith and fair dealing
partnership. However, as an on the officers and
agent, National has directors of the Company.
fiduciary-like duties to
Investors to use reasonable
care, skill and diligence in
its work, not to compete with
Investors' interests without
consent, and not to take
adverse interests to
Investors without consent.
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<PAGE>
VOTING RIGHTS Under the tenancy-in-common Under the Charter Documents
agreements of each of the of the Company, the
Programs, the Investors have Shareholders have voting
voting rights with respect to rights with respect to (i)
collection, servicing and election of Directors; (ii)
administration of the the sale or disposition of
Outstanding Investment of the all or substantially all of
Programs, as well as the assets of the Company at
termination of the applicable any one time; (iii) the
servicing agreement. Each merger or consolidation of
holder of a tenancy-in-common the Company; (iv) the
interest is entitled to vote dissolution of the Company;
on each matter presented to and (v) certain anti-
the Investors of a takeover provisions.
particular Program. Each Share entitles its
Approval of any matter holder to cast one vote on
submitted to the Investors each matter presented to
in a particular Program holders of Shares.
requires approval of Approval of any matter
holders of a majority of submitted to holders of
the tenancy-in-common Shares generally requires
interests of that Program. the affirmative vote of
holders of a majority of the
outstanding shares, however,
amendments to the anti-
takeover provisions of the
Certificate of Incorporation
of the Company require a
two-thirds vote.
SPECIAL MEETINGS None A special meeting of
Shareholders may by called
by the Board of Directors of
the Company, a Chairman of
the Board or the President
only.
REDEMPTION The tenancy-in-common The Shares are not
interests are not redeemable. redeemable. The Shares can
Investors in a particular be sold on the
Program may only receive a ________________ if an
return of their investment active trading market
upon the repayment of the exists.
applicable note or other
liquidation of all or part of
the assets of the Program.
VOTING DILUTION Investors in each Program Since seven to ten programs
have voting power based on will be consolidated into
their percentage of the funds the Company, each investor's
contributed to the Program. voting power will be
substantially reduced.
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<PAGE>
LIQUIDATION In the event of the Upon liquidation of the
RIGHTS liquidation of a particular Company, the Shareholders
Program, the assets of the will be entitled to share
Program remaining after ratably in any assets
satisfaction of all debts and remaining after the
liabilities of the Program, satisfaction of obligations
the satisfaction of expenses to creditors and any
of liquidation of the assets liquidation preferences on
of the Program and the any Preferred Stock that may
establishment of a reasonable be then outstanding.
reserve in connection
therewith are distributed to
the Investors pro rata in
accordance with their
respective percentage
interests in the applicable
Program.
RIGHT TO COMPEL Holders of a majority of the The vote of Shareholders
DISSOLUTION tenancy-in-common interests owning at least a majority
in a particular Program may of the outstanding voting
vote to direct the sale of shares in the Company is
the Program's assets if an sufficient to cause the
offer for them is presented, dissolution of the Company.
with the result that the
Program will be dissolved.
LIMITED LIABILITY As tenancy-in-common owners Shareholders are not
of the assets of the generally liable for
Programs, the Investors are obligations of the Company.
NOT effectively insulated
from personal liability based
on operation of those assets.
LIQUIDITY AND There is no organized The Shares will be freely
MARKETABILITY secondary market for the transferable [and it is a
tenancy-in-common interests condition to the
held by Investors. Thus, consummation of the
trading in the tenancy-in- Acquisition that the Shares
common interests is sporadic be approved for listing on
and occurs solely through the ________________].
private transactions subject
to the approval of the
California Department of
Corporations.
RESTRICTIONS ON There are certain None.
TRANSFER restrictions on transfer of
the tenancy-in-common
interests.
CONTINUITY OF None of the Programs are As a corporation, the Charter
EXISTENCE designed to have perpetual Documents provide for
existence. perpetual existence.
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<PAGE>
FINANCIAL REPORTS None of the Programs are The Company will be subject
subject to the reporting to the reporting
requirements of the Exchange requirements of the Exchange
Act. However, National, Act and will file annual and
without obligation to do so, quarterly reports. The
has endeavored to provide the Company currently intends to
Investors in each of the provide annual and quarterly
Programs with regular reports reports to its Shareholders.
about such Programs'
respective activities.
PAYMENTS TO National is entitled to fees While National and its
NATIONAL AND ITS and reimbursement of expenses Affiliates will hold Shares
AFFILIATES for services it renders to of the Company, the only
each of the Programs pursuant form of compensation paid to
to the servicing agreements. some of such persons will be
pursuant to their employment
agreements or otherwise.
ONLY $1,818,684 OF THE PAST
DUE FEES AND EXPENSES DUE TO
NATIONAL AND ITS PRINCIPALS
WILL REMAIN AS LIABILITIES
OF THE COMPANY.
CERTAIN LEGAL Holders of a majority of the Delaware law affords
RIGHTS Outstanding Investment in a shareholders rights to bring
Program must vote to derivative actions when the
terminate the servicing officers or Directors of the
agreement between National Company have failed to
and the Program Investors. institute an action to
However, if the majority recover damages and class
interest of Investors vote actions to recover damages.
to terminate the servicing Shareholders may also have
agreement, they must assume rights to bring actions in
the responsibilities of the federal court to enforce
servicing agreement federal rights.
themselves, or obtain the
services of a qualified
entity to do so. National's
accrued fees must be paid
in full and the termination
must be procedurally
authorized and must not
expose National or the
Investors to liability or
create risk to the
Investor's assets.
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<PAGE>
INSPECTION OF Holders of tenancy-in-common Under Delaware law, each
BOOKS AND RECORDS interests in a Program have Shareholder has the right,
no contractual right to subject to certain
inspect books and records reasonable standards, to
maintained by National with obtain from the Company from
regard to a Program. time to time upon reasonable
However, as the servicing written demand for any
agent for the Investors, purpose reasonably related
National permits them to to the Shareholder's
review such books and records interest as a Shareholder of
on reasonable notice. the Company, certain
information regarding the
status of the business,
affairs and financial
condition of the Company.
Pursuant to Rule 14a-7 under
the Exchange Act, the
Shareholders will have the
right to obtain a list of
Shareholders from the
Company whenever the Company
solicits proxies or
consents.
</TABLE>
COMPARISONS OF PROGRAMS AND COMPANY
The information below highlights a number of the significant
differences between the Programs and the Company relating to, among other
things, forms of organization, investment objectives, policies and
restrictions, asset diversification, capitalization, management structure and
investor rights. These comparisons are intended to assist Investors in
understanding how their investments will be changed if, as a result of the
Acquisition, their tenancy-in-common interests in the assets, liabilities and
businesses of their respective Programs are exchanged for Units of the Company.
FORM OF ORGANIZATION
<TABLE>
<CAPTION>
Program Company
------- -------
<S> <C>
None of the Programs are organized The Company is a Delaware corporation
business entities such as formed for the purpose of acquiring
corporations, partnerships or business the Programs' Properties, as well as
trusts. Each commenced as an investing in and managing other real
opportunity to participate in a loan estate opportunities. The Company
secured by to-be-improved real will be taxed as a corporation.
property through a tenancy-in-common
investment mechanism. Each Program
remains as a tenancy-in-common among
its Investors. Investors are
individually responsible for the tax
consequences of a Program and the
reporting
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<PAGE>
thereof.
</TABLE>
LENGTH OF INVESTMENT
<TABLE>
<CAPTION>
Program Company
------- -------
<S> <C>
An investment in any of the Programs Unlike the Programs, the Company
originally was presented to Investors intends to continue its operations for
as an opportunity to have a tenancy- an indefinite time period and the
in-common participation in a loan Company has no specific plans for the
secured by real property. As such, disposition of assets acquired through
the investments were finite in length the Acquisition or subsequent
with the expectation that Investors' acquisitions. The Company is allowed
investments were to be returned, with to retain net sale or refinancing
interest, within a two to four year proceeds for new investments, capital
period. expenditures, working capital reserves
or other appropriate purposes.
</TABLE>
NATURE OF INVESTMENT
<TABLE>
<CAPTION>
Program Company
------- -------
<S> <C>
Since the respective Ownership Date of The Shares constitute equity interests
each of the Programs, the Investors in in the Company. Each Shareholder will
such Programs have been the beneficial be entitled to its pro rata share of
owners (as tenants-in-common) of the dividends and other distributions made
assets and the businesses of the with respect to the Shares. The
respective Programs. Actual title to distributions payable to Shareholders
the Properties is held by various are not fixed in amount and are only
entities acting as agents for the paid when declared by the Board of
Investors in the several Programs. Directors. The Company has no present
plans to pay distributions.
</TABLE>
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<PAGE>
PROPERTIES AND DIVERSIFICATION
PROGRAM
The investment portfolio of each of
the Programs is limited to the assets
acquired as of the applicable
Ownership Date, as well as such
additional assets as may have been
acquired with mandatory Investor
assessments or voluntary Investor
advances since the Ownership Date.
None of the Programs have the
authority to raise additional funds
from third parties to expand its
investment portfolios.
COMPANY
The Company is authorized to own and
acquire the Programs' Properties, make
other investments and issue additional
equity and debt securities to acquire
additional assets in order to increase
shareholder value.
ADDITIONAL EQUITY AND DILUTION
PROGRAM
None of the Programs are authorized to
raise additional funds other than
through the assessment/advance process
prescribed by the applicable tenancy-
in-common agreement. Therefore,
except to the extent that existing
Investors in a particular Program pay
mandatory assessments or make
voluntary advances, no dilution of an
Investor's interest in the Program can
occur.
COMPANY
The Board of Directors may, in its
discretion, issue additional equity
securities. The Company may sell
additional equity from time to time to
increase its available capital. The
issuance of additional equity
securities may result in a dilution of
the interests of the Shareholders.
BORROWING POLICIES
PROGRAM
Except to the extent authorized by
vote of Investors owning a majority of
the tenancy-in-common interests in the
loan to the original borrower, none of
the Programs is authorized to borrow
funds necessary, appropriate or
advisable to conduct its business and
affairs. Without such a majority
vote, the only additional funds which
the Programs may raise comes from
mandatory assessments from, or
voluntary advances by, existing
Investors.
COMPANY
The Company is permitted to borrow, on
a secured or unsecured basis, funds to
advance its business without limits in
order to increase shareholder value.
No shareholder vote is required.
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<PAGE>
RESTRICTIONS ON RELATED PARTY TRANSACTIONS AND BUSINESS COMBINATIONS
PROGRAM
None of the applicable servicing
agreements or tenancy-in-common
agreements for the Programs restrict
any of the Programs from entering into
business transactions with National or
its affiliates.
COMPANY
Under Delaware law, transactions
between the Company and one or more of
its directors or officers, or between
the Company or any affiliate of a
director or officer, are not void or
voidable if the transaction is
approved in good faith by a majority
of the disinterested directors or
Shareholders based on full disclosure;
or the transaction is fair as to the
Company as of the time it is
authorized, approved or ratified by
the Board of Directors, an appropriate
committee or the Shareholders. In
addition, the Company's Certificate of
Incorporation, as well as Delaware
law, prohibit certain business
combinations with owners of more than
15% of the outstanding voting stock of
the Company ("interested
stockholders"), or an affiliate of
such person, within the three year
period immediately prior to the date
on which such stockholder became an
interested stockholder.
105
<PAGE>
MANAGEMENT CONTROL AND RESPONSIBILITY
PROGRAM
National originally acted as servicing
agent for each of the Programs
pursuant to servicing agreements
entered into with each of the
Investors in each Program. Pursuant
to the servicing agreements, National
is essentially invested with
management authority to conduct the
business of each of the Programs.
Since the Ownership Dates, National's
role evolved to that of asset
manager for each of the Programs.
Subject to the approval of holders of a
majority-in-interest of each program,
and to compliance with other provisions
in the servicing agreements, the
servicing agreements are terminable on
30 days' written notice, provided that
the Investors do not have the power to
terminate the servicing agreements
unless and until all amounts owed to
National thereunder have been paid in
full. National does not need to seek
re-election but instead serves unless
removed by the Investors, which is
generally an extraordinary event.
Pursuant to the tenancy-in-common
agreements for each of the Programs,
matters concerning the collection,
servicing and administration of the
Outstanding Investment for each of the
Programs is governed by the will of
Investors holding more than 50% of the
Outstanding Investment. As agent,
National is accountable as a fiduciary
to each of the Programs and is
required to exercise good faith and
integrity in its dealings in
conducting the affairs of each of the
Programs. See "Fiduciary
Responsibility."
COMPANY
The Board of Directors has exclusive
control over the Company's business
and affairs subject only to the
restrictions in the Charter Documents.
Shareholders have the right to elect
members of the Board of Directors.
The Directors are accountable to the
Company as fiduciaries and are
required to exercise good faith and
integrity in conducting the Company's
affairs. See "Fiduciary
Responsibility." The Shareholders
have greater control over the
management of the Company than the
Investors have over the Programs
because members of the Company's Board
of Directors are elected by the
Shareholders.
106
<PAGE>
MANAGEMENT LIABILITY AND INDEMNIFICATION
PROGRAM
Pursuant to the servicing agreements,
National is indemnified and held
harmless by the Investors from and
against any and all liabilities for
acts or omissions performed in the
course of its activities, except as to
such liabilities caused or contributed
to, in whole or in part, by any gross
negligence or willful misconduct on
the part of National or its Agents.
COMPANY
The Company's Directors are not
personally liable for ordinary
liabilities of the Company. The
Charter Documents provide that a
Director's liability for breach of
fiduciary duty is limited to the full
extent allowable under Delaware law.
The Charter Documents and Delaware law
provide indemnification rights to
Directors and officers who act in good
faith, and in a manner reasonably
believed to be in or not opposed to
the best interests of the Company and,
with respect to criminal actions or
proceedings, who act without
reasonable cause to believe their
conduct was unlawful. In addition,
the Charter Documents indemnify
Directors and officers against amounts
paid for settlement, authorize the
Company to advance expenses incurred
in defense upon receipt of an
appropriate undertaking to repay such
amounts if appropriate, and authorize
the Company to carry insurance for the
benefit of the officers and Directors.
See "Fiduciary Responsibility."
107
<PAGE>
ANTI-TAKEOVER PROVISIONS
PROGRAM
Changes in management of any of the
Programs can be effected only by
removal of National as agent by
holders of a majority of the
Outstanding Investment in such
Programs. This would be an
extraordinary event.
COMPANY
The Charter Documents contain a number
of provisions that may have the effect
of delaying or discouraging a hostile
takeover of the Company. These
provisions include, among others, (i)
the power of the Board of Directors to
issue additional equity securities in
the Company; (ii) the classified Board
of Directors wherein only one-third of
the Directors are re-elected to the
Board in any given year and Directors
serve three year terms; (iii) any
action required or permitted to be
taken by Shareholders of the Company
must be effected at a duly called
annual meeting or a special meeting
unless such action requiring or
permitting stockholder approval is
approved by a majority of the Board of
Directors; (iv) special meetings of
Shareholders may only be called by a
majority of the Board, a Chairman of
the Board or the President; (v)
Directors may only be removed for
cause and only by the affirmative vote
of holders of not less than two-thirds
of the voting power of all outstanding
Shares; and (vi) amendments to the
anti-takeover provisions of the
Certificate of Incorporation may only
be effected by the affirmative vote of
holders of not less than two-thirds of
the voting power of all outstanding
Shares. See "Description of Shares."
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<PAGE>
VOTING RIGHTS
PROGRAM
Holders voting a majority of the
Outstanding Investment in each Program
may control decisions respecting the
collection, servicing and
administration of such Outstanding
Investment. Otherwise, investors in
the Programs have no voting rights.
COMPANY
The Company's Board of Directors
consists of three classes.
Shareholders are entitled to elect one
class of the Company's Board of
Directors at each annual meeting of
the Company. In addition,
Shareholders have the power to amend
the Charter Documents by the votes
required therein, to dissolve the
Company and to approve business
combinations between the Company and
other entities.
LIMITED LIABILITY OF INVESTORS
PROGRAM
As tenants-in-common in the respective
programs, the Investors are not
effectively insulated from personal
liability. Pursuant to the tenancy-
in-common agreements, Investors are
also susceptible to mandatory
assessments.
COMPANY
Under Delaware law, Shareholders will
not be liable for Company debts or
obligations. Upon issuance, the
Shares will be fully paid and non-
assessable.
VOTING PROCEDURES
THE VOTE OF EACH INVESTOR IS IMPORTANT. EACH INVESTOR IS URGED TO MARK,
DATE AND SIGN THE INVESTOR BALLOT AND RETURN IT IN THE ENCLOSED ENVELOPE.
TIME OF VOTING
The vote of the Investors with respect to the Acquisition will be
tabulated on _____________, 1998, unless such date is extended by the Company
in its sole discretion. The vote will be tabulated by National and verified
by BDO Seidman, LLP, a nationally recognized accounting firm, which is not
affiliated with the Company, the Programs or National. See "Investor Ballot
and Vote Required."
RECORD DATE AND OUTSTANDING VOTES
The Acquisition is being submitted for approval to those Investors holding
interests in the Programs as of the Record Date. The Record Date is
[_________________] for all Programs. At the Record Date, the following number
of votes were held of record by the number of Investors indicated below.
109
<PAGE>
<TABLE>
<CAPTION>
Number of Votes
[at 8/31/98] Required for
Number of Number of Votes Approval of
Program Investors Held of Record Acquisition
- --------- ------------- ----------------- ------------------
<S> <C> <C> <C>
Sacramento/Delta Greens 332 6,131,638 3,065,819
Oceanside 1,755 24,150,000 12,075,001
Yosemite/Ahwahnee I 426 9,063,163 4,531,582
Yosemite/Ahwahnee II 837 19,565,333 9,782,667
Mori Point 486 12,342,259 6,171,130
Cypress Lakes 832 18,971,767 9,485,884
Palmdale/Joshua Ranch 1,011 18,107,814 9,053,908
Esperanza 42 584,653 292,327
Stacey Rose A 2 114,098 57,049
Stacey Rose B 28 425,188 212,595
</TABLE>
Each Investor is entitled to one vote for each dollar (or fraction
thereof exceeding $0.50) of Outstanding Investment it has in the applicable
Program. Based on amounts of tenancy-in-common interests purchased in each
program, National has the following votes in each of the programs: 3,118
Sacramento/Delta Greens; 2,300 Oceanside; 2,373 Yosemite/Ahwahnee I; 69,384
Yosemite/Ahwahnee II; 5,279 Mori Point; 3,200 Cypress Lakes; 2,395
Palmdale/Joshua Ranch; 0 Esperanza, and 4,247 Stacey Rose A and 15,753 Stacey
Rose B. It will cast all of its votes in favor of the acquisition.
APPROVAL DATE
The Prospectus and form of Investor Ballot constitutes National's notice
of the proposed Acquisition. Each Investor has until 11:59 p.m., Pacific
Time, on ________________ [60 DAYS FROM THE DATE OF FIRST MAILING THE
PROSPECTUS OR PROPOSED ACQUISITION DATE], unless extended by the Company in
its sole discretion (the "Approval Date"), to inform the Company whether such
Investor wishes to approve or disapprove of his Program's participation in the
Acquisition. The Company and National ask that each Investor vote by
completing and returning the form of Investor Ballot accompanying this
Prospectus in the manner described below.
INVESTOR BALLOT AND VOTE REQUIRED
Investors who wish to vote "YES" for the Acquisition should complete,
sign and return the Investor Ballot relating to their interests which
accompanies this Prospectus. Each Investor's attention is directed to the
Investor Ballot and Instructions accompanying this Prospectus. Investor
Ballots must be delivered in person or by mail or by other delivery service
to National at the following address on, or prior to, the Approval Date:
National Investors Financial, Inc., Attention: Vivian Kennedy, 4220 Von
Karman Avenue, Suite 110, Newport Beach, California 92660.
Approval of the Acquisition by a Program requires the vote of Investors
holding a majority of the outstanding votes as of the Record Date. National
will tabulate the votes and such tabulation will be verified by BDO Seidman,
LLP, a nationally recognized accounting
110
<PAGE>
firm. Abstentions will be tabulated with respect to the Acquisition. Broker
(or other custodian) non-votes, if any, are not counted for purposes of
determining whether the Acquisition and related proposals have been approved.
Abstentions and broker (or other custodian) non-votes will have the effect
of a vote against the Acquisition. See table in "-- Record Date and
Outstanding Votes" for the number of votes which must be cast in favor of the
Acquisition for it to be approved by each respective Program.
Investors who sign and return the Investor Ballot without indicating a vote
will be deemed to have voted "YES" in favor of the Acquisition.
Investors who wish to vote against the Acquisition should also complete a
Investor Ballot. The failure to return a Investor Ballot will have the effect
of a vote against the Acquisition.
If the Acquisition is approved by all Programs, Investors in all Programs
will receive Acquisition Shares whether they voted in favor or against, or
abstained from voting on the Acquisition.
All questions as to the form of all documents and the validity
(including time of receipt) of all approvals will be determined by National
and such determinations will be final and binding. National reserves the
absolute right to waive any of the defects or irregularities in any approval
of the Acquisition or preparation of the form of Investor Ballot. National's
interpretation of the terms and conditions of the Acquisition will be final
and binding.
INVESTOR REPRESENTATIONS ON BALLOT
When voting, an Investor will be confirming to the company that (i) it
has received and reviewed the Prospectus and the applicable Supplements, (ii)
it understands that it will become a shareholder in the Company if the
acquisition is completed, (iii) it has the power and authority to vote as an
Investor, (iv) it understands that if it signs the Ballot but does not
indicate a vote, the Ballot will be deemed to have been voted IN FAVOR of the
Acquisition, and (v) if the Acquisition is completed, to the best of the
Investor's knowledge, the Company will acquire title to its interest in the
Programs' Property free and clear of all liens and adverse claims other than
property taxes. By voting in favor of the Acquisition, an Investor is
concurrently voting to terminate the tenancy-in-common agreement with other
Investors in its Program and the servicing agreement with National.
Termination of the servicing agreement relieves National of any future
liabilities or responsibilities to the Program, but all amounts owing to
National under the servicing agreement which have not been cancelled by
National will be assumed by the Company.
REVOCABILITY OF CONSENT
Investors may withdraw or revoke their consent at any time prior to the
Approval Date. To be effective, a written, telegrahic, fax or telex notice
of revocation or withdrawal of the Investor Ballot must be received by no
later than the Approval Date, addressed as follows: National Investors
Financial, Inc., Attention: Vivian Kennedy, 4220 Von Karman Avenue, Suite
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<PAGE>
110, Newport Beach, California 92660, telecopy number 949-752-9753. A notice
of revocation or withdrawal must specify the Investor's name and the name of
the Program to which such revocation or withdrawal relates.
SOLICITATION OF VOTES; SOLICITATION EXPENSES
Votes of Investors may be solicited by the management of National or
by third parties. Costs of solicitation will be allocated among the Programs,
pro rata in accordance with Exchange Values. No party will receive any
compensation contingent upon solicitation of a favorable vote or success of
the Acquisition.
NO DISSENTERS' RIGHTS
If the Acquisition is approved, Investors in any of the Programs who
dissent or abstain from consenting to the Acquisition will not be entitled to
dissenters' or appraisal rights under the tenancy-in-common agreements or the
Delaware or California law. Such rights, when they exist, give the holders of
securities the right to surrender such securities for an appraised value in
cash, if they oppose a merger or similar reorganization. No such rights will
be provided by National, the Programs, or the Company.
NO RIGHT TO PROGRAM BOOKS AND RECORDS
Investors have no rights under a Program's tenancy-in-common
agreement or servicing agreement, or under federal or state law, to obtain a
list of the names and addresses of the other Investors in a Program. If an
Investor wishes to communicate with the other Investors in a Program, upon
receipt of the material an Investor wishes mailed together with the amount of
postage necessary to make such mailing and an opinion of experienced counsel
reasonably acceptable to National that the proposed communication does
not violate applicable federal or state securities laws and regulations or
state real estate laws nor will assisting in the dissemination of such
materials subject National to any liability for violation of such laws and
rules, National will promptly mail such communications to a Program's
Investors.
ISSUANCE OF CERTIFICATES FOR ACQUISITION UNITS
Promptly after the Effective Time, there will be issued and mailed
to former Investors of record at the Effective Time one or more certificates
representing the number of Units to which such Investor is entitled.
If any certificate representing Shares and warrants is to be issued
in a name other than that in which an Investor is registered on National's
books for each Program as of the Effective Time, it will be a condition of
such issuance that the person requesting such change pay to the Company's
transfer agent any transfer fee or taxes required by reason of the issuance
of a certificate representing shares in any name other than that of the
registered Investor, or the person requesting such change establishes to the
satisfaction of the Company that any transfer tax has been paid or is not
applicable.
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<PAGE>
After the Effective Time, there will be no further registration of
transfers of tenancy-in- common interests that were issued and outstanding
immediately before such time that were exchanged for Units.
INTERESTS OF CERTAIN PERSONS IN THE ACQUISITION
AND CONFLICTS OF INTEREST
A number of potential conflicts of interest are inherent in the
relationship between National (and its shareholders) and the Investors. In
recognition of these conflicts, and the resulting need to independently
determine that the allocation of Shares is fair to the Investors, National
and the Company engaged Houlihan Valuation Advisers, the Independent
Valuator, to render the Fairness Opinion and the independent appraisers named
on page __ to independently determine the value of the Properties. The
conflicts of interest are summarized below.
BENEFITS TO NATIONAL
The benefits of the Acquisition for National primarily reside in the
relief from its duties, including fiduciary duties, and related costs as
asset manager for the Programs that are acquired by the Company. Asset
management for the Programs will no longer be necessary. This benefit is not
susceptible to meaningful quantification but it will reduce National's
overhead for managing the programs that have not paid National's asset
management fees. Although some of the Programs (Oceanside, Yosemite Ahwahnee
I and II, Cypress Lakes and Palmdale/Joshua Ranch) paid National its
contractual fees for such activities when funds were available to do so, some
of the Programs (Sacramento/Delta Greens, Mori Point, Esperanza and Stacey
Rose A and B) accrued some of these fees and other amounts due National.
Without having current payments for such fees, National frequently operated
under financial constraints and unprofitably. Additionally, without
obligation to do so, National also advanced its own funds to the
Sacramento/Delta Greens, Mori Point, Yosemite/ Ahwahnee, Cypress Lakes,
Palmdale/Joshua Ranch, Esperanza and Stacey Rose Programs, for the benefit of
those Investors. Aside from general asset management activities, specific
operational and property management functions performed by National's
principals and employees that will no longer be required to be performed by
them relate to construction disbursements, budget analysis, vendor and
subcontractor payments, accounting and bookkeeping, site inspections and work
verifications, insurance negotiations, bonding, property and use tax
coordination and payment, council and planning meeting attendance, political
involvement, consultant selection and management, securities, real estate and
specialty legal resource management, investor and broker administration and
tenancy-in-common-oriented communication and management. If the Acquisition
is approved, duties such as these that are still necessary will be undertaken
by the Company's management. See "Management Following the Acquisition --
Directors and Executive Officers Compensation and Incentives" for information
about compensation to be received by the identified persons for management
services.
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<PAGE>
COMPANY SHARES OWNED BY NATIONAL'S PRINCIPALS AND OTHER COMPANY MANAGEMENT
Family partnerships controlled by David G. Lasker and James N. Orth
(the shareholders of National) presently own, in the aggregate, [237,628]
shares of the Company's Common Stock. That represents over 75% of the
Company's outstanding stock. On the basis of a $20 per share value, such
shares would be deemed to have a value of $[4,752,560]. They paid,
out-of-pocket, $0.01 per share for the stock. National will pay the same
price as investors for its Units in the Company. See the table set forth in
Note (a) to Note 6 to the table set forth in "Background and Reasons for the
Acquisition -- Allocation of Shares Among the Programs." After the
Acquisition, these family partnerships will each control 6.88% (2.62% if all
the units are sold in the concurrent offering and 1.96% if all the units are
sold in the concurrent offering and all warrants in units issued in the
acquisition are exercised) of the Company's outstanding stock. It should be
noted that, although prior to 1995 National forgave over $3,400,000 of fees
and advances in its role as servicing agent and, if the Acquisition is
approved, will cancel and forgive an additional $385,523 in accrued but
unpaid fees, neither it nor its principals or employees are being compensated
based on those forgiven fees. To the extent National invested in any of the
Programs, it will be allocated Acquisition units on the same basis as
investors and at the same price.
In addition, in the formation period of the Company, L.C. Albertson,
Jr., Executive Vice President of the Company has purchased 44,685 shares,
respectively, at $0.01 per share. Mr. Albertson will control [2.59]% (0.99%
if all the units are sold in the concurrent offering and 0.74% if all the
units are sold in the concurrent offering and all warrants in units issued in
the acquisition are exercised) of the Company's outstanding stock after the
Acquisition.
OTHER BENEFITS TO SHAREHOLDERS OF NATIONAL
In addition to the Shares of the Company to be beneficially owned by
Mr. Lasker and Mr. Orth, they will receive the following additional economic
benefits if the Acquisition is completed:
<TABLE>
<CAPTION>
Mr. Lasker Mr. Orth
----------- -----------
<S> <C> <C>
Annual salary $ 180,000 $ 180,000
Bonus 2% of pre-tax 2% of pre-tax
profits, if any profits, if any
Additional Discretionary Bonus(1) up to 50% of up to 50% of
salary salary
Stock Options(2) 30,000 30,000
Participation in Company
employee benefit plans yes yes
5-year employment contract(3) yes yes
</TABLE>
- --------------------------------
(1) If certain budgeted performance attained; subject to Board of Directors'
allocation.
(2) 10,000 to be issued at the completion of the Acquisition exercisable at $20
per share; 10,000 to be issued on the first anniversary of the Acquisition;
and 10,000 to be issued on the second
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<PAGE>
anniversary of the Acquisition. The last two groups are exercisable at
market value on date of grant.
(3) See "Management Following the Acquisition -- Employment
Agreements."
COMPETITION WITH THE COMPANY FROM OTHER NON-PARTICIPATING PROGRAMS
If any of the three non-"Trudy Pat" programs elect not to
participate in the Acquisition, National may retain the servicing agent and
asset management responsibilities for those programs. National may continue
to apply time and resources to the management of these projects. In order to
do this, they will require the on-going attention of Messrs. Orth and Lasker,
as well as some of the personnel expertise that may also be employed by the
Company or its subsidiaries. If National elects to continue as asset manager
of these Programs, it is anticipated that there will be minimal conflicts.
However, in their capacities as officers of National, Messrs. Lasker and Orth
would be committed to continue to provide the same quality of service for
these projects as it has in the past.
LACK OF INDEPENDENT REPRESENTATION OF INVESTORS
The independent appraisers have independently determined the value
of the Properties. National and the Company have used their respective
judgment to reconcile the disparity between the October 1996, May 1997 and
March 1998 appraisals of the current Oceanside and Yosemite/Ahwahnee
Properties in arriving at the Exchange Values for the Oceanside and
Yosemite/Ahwahnee I and II Programs. See "Background and Reasons for the
Acquisition -- Calculation of Exchange Value" and "Appraisals and Fairness
Opinion -- Conflicting Yosemite/Ahwahnee Properties' Appraisals." Houlihan
Valuation Advisors, the Independent Valuator, has provided the Fairness
Opinion. Neither the Company nor National has retained any outside
representatives to act solely on behalf of the Investors in determining the
terms and conditions of the Acquisition. National did not engage an
independent representative because it believes it has fairly represented the
interests of the Investors. Further, Investors have the opportunity to vote
on the Acquisition. No group of Investors was empowered to negotiate the
terms and conditions of the Acquisition or to determine what procedures
should be in place to safeguard the rights and interests of the Investors. In
addition, due to cost factors, no investment banker, attorney, financial
consultant or expert was engaged to represent the interests of the Investors.
National and its principals have been the parties responsible for structuring
all the terms and conditions of the Acquisition. Legal counsel was engaged by
National to assist with the preparation and documentation of the Acquisition,
including this Prospectus, and did not serve, or purport to serve, as legal
counsel for the Programs or the Investors. If another representative or
representatives had been retained for the Investors, the allocation of the
Shares may have been more favorable to certain Programs and less favorable to
others, and fewer Shares may have been allocated to principals and other
Affiliates of National. In addition, had separate representation for each of
the Programs been arranged by National, the terms of the Acquisition may have
been different. There is no way to quantify what such differences might have
been or, if the proposed Acquisition would have even taken place at all.
While independent representatives were not engaged to represent the
interests of the Programs in structuring the Acquisition, National believes the
procedures used to protect the
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<PAGE>
financial interests of the Investors are fair. For example, National received
verification from Houlihan Valuation Advisors of its view that permitting the
Company's founders to hold [18.74]% (7.1% if all the units are sold in the
concurrent offering and 5.3% if all the units are sold in the concurrent
offering and all warrants in units issued in the acquisition are exercised)
of the outstanding Shares of the Company upon completion of the Acquisition
is fair under the circumstances. In addition, the Shares will be allocated
among the Programs in accordance with their respective Exchange Values, and
within the Programs among the Investors pro rata in accordance with their
Adjusted Outstanding Investment in each of the Programs. Recognizing the
inherent conflict of interest of having National establish these numbers
independently (without active involvement from persons not having a financial
interest in the Acquisition), they engaged independent appraisers to value
the real estate assets owned by each of the Programs and the Independent
Valuator to render an opinion on the overall fairness of the allocation of
Shares in the transaction, including the number of Shares in the Company
allocated to the programs, as well as to affiliates, employees, and the
principal shareholders of National and the Company. See "Appraisal and
Fairness Opinion."
FEATURES DISCOURAGING POTENTIAL TAKEOVERS
Certain features of the Charter Documents, as well as the Delaware
law, could be used by management of the Company to delay, discourage or
defeat efforts of third parties to take control of the Company, or acquire a
significant number of the Shares. See "Comparisons of Programs and the
Company -- Anti-Takeover Provisions."
ALLOCATION OF SERVICES AND EXPENSES
In addition to Messrs. Lasker and Orth, other employees of National
who will become employees of the Company currently provide investor
relations, accounting and office administration services related to the
operation of other programs which may not be included in the Acquisition.
These Programs were also formed by National. If the Acquisition is
consummated, these employees of National who will become employees of the
Company may continue to provide services related to non-participating
programs. As a result, possible conflicts of interest may arise regarding
allocation of services of these employees between the Company, National and
the non-participating programs. At this time, the allocation of services
between the Company and National's other programs is not susceptible to
meaningful quantification.
NON-ARM'S-LENGTH AGREEMENTS
All agreements and arrangements, including those relating to
compensation, between the Company and employees of the Company who are also
employees of National will not be the result of arm's-length negotiations.
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FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION
FIDUCIARY RESPONSIBILITY OF NATIONAL
The Programs are not partnerships and, thus, National does not have
the fiduciary duties of a general partner in dealing with the Programs.
However, as asset manager for each of the Programs, National has the specific
duties to Investors set forth in the various servicing agreements. In
addition, under California law, as an agent, National is under a fiduciary
duty to Investors (i) to use reasonable care, diligence and skill in its
work, (ii) not to compete with the Investors' interests without full
disclosure to, and agreement from, the Investors, and (iii) not to obtain an
interest adverse to the Investors without full disclosure to, and consent
from, the Investors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY
The directors and officers of the Company, in exercising the powers
and responsibilities of managing the Company, owe the Company and its
shareholders a duty of care and a duty of loyalty. However, under the
so-called "business judgment rule," which could apply to the officers and
directors of the Company, the officers and directors of the Company may not
be liable for errors in judgment or other acts or omissions made in good
faith which are done in a manner they believe to be in the best interests of
the Company and are performed with the care that an ordinarily prudent person
in a like position would use under similar circumstances. In the event any
legal action were brought against officers or directors of the Company, they
might be able to assert defenses based on the business judgment rule.
According to the Charter Documents, officers and directors and other
agents of the Company are entitled to indemnification from the Company for
any loss, damage or claim (including any reasonable attorneys' fees incurred
by such person in connection therewith) due to any act or omission made by
him or her, except in the case of fraudulent or illegal conduct of such
person. See "Management After the Acquisition -- Limitation of Liability and
Indemnification."
The indemnification provided by the Charter Documents is not deemed
to be exclusive of any other rights to which those indemnified may be
entitled under any agreement, vote of shareholders or directors, or
otherwise, and shall inure to the benefit of the heirs, executors and
administrators of such person. Any repeal or modification of the
indemnification provisions contained in the Charter Documents will not
adversely affect any right or protection of a director or officer of the
Company existing at the time of such repeal or modification.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to officers, directors or persons controlling
the Company pursuant to any provisions described in this Consent
Solicitation/Prospectus, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
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OFFICERS AND DIRECTORS INSURANCE
The Company intends to obtain insurance for the benefit of the
Company's officers, directors and other agents relating to the liability of
such persons. Such insurance would insure the officers, directors and agents
of the Company from any claim arising out of an alleged wrongful act by such
persons while acting as officers, directors or agents of the Company, and the
Company to the extent that it has indemnified the officers, directors and
agents for such loss.
FORWARD-LOOKING STATEMENTS
THE COMPANY (OR ITS REPRESENTATIVES) FROM TIME TO TIME MAY MAKE OR
MAY HAVE MADE CERTAIN FORWARD-LOOKING STATEMENTS, WHETHER ORALLY OR IN
WRITING, INCLUDING WITHOUT LIMITATION, STATEMENTS IN THIS PROSPECTUS OR
OTHERWISE RELATING TO THE BUSINESS PLAN OF THE COMPANY, ADVANTAGES THAT ARE
EXPECTED TO BE REALIZED BY THE ACQUISITION, ESTIMATES OF REAL ESTATE VALUES,
ESTIMATES OF POTENTIAL FINANCIAL RESULTS FROM OPERATIONS OR FROM SALES OF
REAL ESTATE, PRO FORMA FINANCIAL RESULTS AND OTHER MATTERS. SUCH STATEMENTS
ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO, AND ARE ACCOMPANIED BY, THE
FACTORS DISCLOSED UNDER THE HEADING "RISK FACTORS." SUCH FACTORS MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE RESULTS CONTAINED IN SUCH
FORWARD-LOOKING STATEMENTS. IN ADDITION TO THE "RISK FACTORS," INTERNAL AND
EXTERNAL FACTORS SUCH AS, BUT NOT LIMITED TO, THE FOLLOWING MAY ADVERSELY
AFFECT SUCH FORWARD-LOOKING STATEMENTS: (I) EXPECTED GREATER AVAILABILITY OF
FINANCING TO THE COMPANY MAY NOT MATERIALIZE; (II) COMPETITIVE PRESSURES MAY
INCREASE SIGNIFICANTLY; (III) THERE MAY BE UNEXPECTED COSTS OR OTHER
DIFFICULTIES RELATING TO THE CONSOLIDATION OF THE BUSINESS PLAN; (IV) CHANGES
IN THE INTEREST RATE ENVIRONMENT MAKE FINANCING MORE DIFFICULT OR IMPOSSIBLE;
(V) GENERAL ECONOMIC CONDITIONS DETERIORATE RESULTING IN, AMONG OTHER THINGS,
A DETERIORATION OF REAL ESTATE VALUES; (VI) LEGISLATIVE OR REGULATORY CHANGES
ADVERSELY AFFECTING THE COMPANY'S BUSINESS; AND (VII) CHANGES IN THE
SECURITIES MARKETS. ACCORDINGLY, FORWARD-LOOKING STATEMENTS SHOULD NOT BE
RELIED UPON AS A PREDICTION OF ACTUAL RESULTS.
BUSINESS AND PROPERTIES
THE COMPANY
The Company was formed as a Delaware corporation named American
Family Holdings, Inc. on August 6, 1997 to conduct the Acquisition. It
currently files no reports with the Commission under the Exchange Act. It
will operate as a holding company, with actual day-to-
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day management of the operations of the Properties being handled by a
to-be-formed wholly- owned subsidiary named American Family Communities,
Inc. ("AFC"). Upon completion of the Acquisition, the Properties will be
held and operated through up to seven separate subsidiaries of AFC, namely
Delta Greens Homes, Inc. (Sacramento/Delta Greens Property), Yosemite Woods
Family Resort, Inc. (Yosemite/Ahwahnee Properties), Mori Point Destinations,
Inc. (Mori Point Property), Cypress Lakes, Inc. (Cypress Lakes Property),
Palmdale/Joshua Ranch, Inc. (Palmdale/Joshua Ranch Property), Esperanza,
Inc. (Esperanza Property), and Victorville Homes, Inc. (Stacey Rose
Properties).
BUSINESS OF THE COMPANY
Upon completion of the Acquisition, the Company will be a
diversified real estate company involved in the residential development
industry, as well as the lodging and recreational industries. Its overall
initial objective will be to consolidate the various business plans of the
Programs into a unified Company business plan with the ultimate goal of
creating sufficient value in the Company's Shares to allow for Investors in
the Programs to have the ability to recover a significantly larger portion of
their Outstanding Investments in such Programs than if the Acquisition did
not occur.
As a part of its plan, in the future the Company may seek to acquire
certain assets and properties that are synergistic or add value to the
Company in accordance with its overall business plan. It may also seek to
acquire and develop additional properties that take advantage of its
expertise or its competitive position in order to enhance its financial
performance. Such additional acquisitions may include, but are not limited
to: (a) resort-oriented properties, such as hotels; (b)
extended-stay-oriented properties, such as recreational vehicle or timeshare
facilities; (c) leisure-oriented properties, such as golf courses and
recreation facilities; and (d) residential development properties. The
Company may also purchase or form adjunct businesses to supplement and
enhance these types of properties, such as customer financing, loan
servicing, mortgage brokerage, real estate brokerage, property management,
merchandising, marketing and telecommunications. In making such acquisitions,
to the extent possible, the Company will attempt to use shares of its common
stock for some or all of the purchase price. This would result in a dilution
of the voting power of then-existing investors in the Company.
Some of the risks which the Company may face if it makes the
acquisitions described above include, but are not limited to: (a) the
professional service fees and financing costs which the Company would incur
to complete such acquisitions; (b) significant competition from other
resort-oriented, extended-stay oriented, leisure-oriented, and residential
properties; (c) lack of management experience in operating such businesses to
the extent that experienced personnel cannot be acquired at the time of the
acquisition; (d) dilution of Investors' voting rights to the extent that the
Company's common stock is used for such acquisitions; and (e) costs of
on-going compliance with applicable government regulation of consumer
finance, real estate brokerage or telecommunications activities. Any of such
risks, together with additional risks which may be identified in the future,
could prevent the Company from accomplishing potential future acquisitions.
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PROPERTIES
The Company will purchase the Properties in their "as is" condition
from the Investors in the Programs, except that any remaining Investors'
liens will be removed. They are presently managed by National for the
Investors pursuant to servicing agreements which entitle National to receive
an annual fee equal to one percent of the principal amount outstanding as of
the Ownership Date of the applicable loan. Upon completion of the
Acquisition, the Company, through its subsidiaries, will own at least seven
Properties which are described below.
SACRAMENTO/DELTA GREENS PROPERTY. The Sacramento/Delta Greens
Property consists of a 121-acre site in South Sacramento, California, located
approximately one-half mile east of Interstate 5. Title is held by National
Investors Land Holding Trust IV as the agent of and for the benefit of the
Program's Investors. The Property is unencumbered by liens and is subject to
no leases, sales contracts or options and property taxes are currently on a
payment plan. A new tentative tract map is in process and has been revised to
provide for approximately 465 lots for the construction of single-family
homes and final approval is currently being sought from the City of
Sacramento. The area in which the Property is located is populated primarily
by lower to lower-middle income workers with combined family incomes of
$25,000 to $35,000. The nearby Meadowview area has a reputation as a high
crime area, but an active community effort is underway to upgrade the
community identity.
OCEANSIDE PROPERTY. Presently, the Property owned by the Oceanside
Program is the golf course at Yosemite/Ahwahnee (consisting of plus or minus
141.53 acres plus clubhouse, dining facilities and pro shop) and six outlots
(consisting of plus or minus 1,015.66 total acres of unimproved land designed
for residential development). The golf course was purchased in June 1998 for
$1,800,000 cash and the outlots were purchased for $1,750,000 cash pursuant
to the majority approval of the Oceanside Investors and the Yosemite/Ahwahnee
I and II Investors. The golf course has been leased to Ahwahnee Golf Course,
Inc., for the benefit of the Yosemite/Ahwahnee Programs on a net-net-net
basis for a period of five years. The lease calls for annual lease payments
to the Oceanside Program of $80,000 in the first year, $140,000 in the second
year, $250,000 in the third year, and $380,000 for each of the fourth and
fifth years.
YOSEMITE/AHWAHNEE PROPERTIES. The Yosemite/Ahwahnee Properties
originally consisted of approximately 1,650 acres divided into two parcels,
one containing 660 acres and one containing 990 acres prior to the sale of
the golf course and six outlots to the Oceanside Program in order to obtain
working capital. The 660 acre parcel was originally planned to be developed
with 218 residential estate lots, 1-3 acres in size. Of the 58 completed lots
in this portion of the property, 26 have been sold. The balance of the
project consists of approximately 990 acres which has been developed into an
18-hole golf course, a clubhouse and other amenities. In addition, this
portion contains a recreational vehicle membership park developed for an
eventual 600 spaces. It currently contains 50 "full hookup" sites with an
additional 101 sites with full hookups under construction. "Full hookups" are
spaces that have water, sewer and electrical and service to the site. The
Yosemite/Ahwahnee Program has retained ownership of the land containing the
recreational vehicle membership park and the land to be developed into
vacation villa timeshare facilities. A vacation villa is a detached,
stand-alone residence for
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timesharing users that has full kitchen, bathroom and sleeping facilities.
The Properties are located in Madera County, California, approximately 46
miles northeast of Fresno and 16 miles south of Yosemite National Park. Over
the past few years, the Park has averaged an annual visitor rate of 4.1
million people with the average group size being approximately 3.3 people.
Title to the remaining balance of the 660 acre parcel is held by
National Investors Land Holding Trust VIII for the benefit of the Investors in
Yosemite/Ahwahnee II Program. Title to the remaining balance of the 990 acre
parcel is held by National Investors Land Holding Trust IX for the benefit of
Investors in the Yosemite/ Ahwahnee I Program. The remaining balance of the 660
acre parcel is presently encumbered by a property tax lien and a first trust
deed held for the benefit of the Investors in the Yosemite/Ahwahnee I Program.
The remaining balance of the 990 acre parcel with the exception of the golf
course property which is leased on a triple-net basis by Ahwahnee Golf Course,
Inc. from the Oceanside Program, is presently encumbered by a property tax lien
and a first trust deed held for the benefit of the Investors in the Yosemite/
Ahwahnee II Program. The aggregate principal balance due on both parcels remains
at approximately $20,000,000. The trust deeds will be extinguished as part of
the Acquisition so that there will be no liens on the Properties except for
taxes.
MORI POINT PROPERTY. The Mori Point Property consists of
approximately 105 acres oceanfront land located in Pacifica, California.
Pacifica is a coastal suburban community of approximately 40,000 residents
located about 15 miles from downtown San Francisco and 7.5 miles west of the
San Francisco International Airport. The site is bounded on the north by
Sharp Park Golf Course, which is a publicly-owned golf course operated by the
City of San Francisco; on the south by a 120-acre parcel known as the
"Quarry" which is approved for mixed-use development as part of Pacifica's
Redevelopment District; and on the east by the Coast Highway. There is in
excess of a quarter of a mile of oceanfront on the west. The Property is
unencumbered by liens and is subject to no leases or sales contracts or
options and property taxes are currently under a payment plan. Portions of
this Property include habitat for two endangered species. Development will
not be permitted unless it can be demonstrated that impact on the garter
snake habitat can be ultimately mitigated. The cost to develop and implement
a mitigation plan is expected to be expensive and potentially time-consuming.
The Company believes that the impact can be mitigated and that necessary
approvals can be obtained; however, if a satisfactory, economical, mitigation
plan cannot be developed, no development could take place on the Property.
National believes this would radically reduce its value. Title to the Mori
Point property is held by National Investors Land Holding Trust for the
benefit of Investors in the Mori Point Program.
CYPRESS LAKES PROPERTY. The Cypress Lakes Property consists of 686
acres and 1,330 residential lots and is located in the northeastern portion
of Contra Costa County. The Property is located 40 and 50 miles,
respectively, northeast of Oakland and San Francisco. The Property is
unencumbered by liens and is subject to no leases, sales contracts or
options, however, property taxes are delinquent since 1995 in the amount of
approximately $199,000. It has a vesting tentative map approved by Contra
Costa County. The area in which it is located is primarily rural farmland.
The local areas of Brentwood and Oakley are considered to be good
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residential neighborhood locations. Title is held by National Investors
Financial Land Holding Trust VII for the benefit of the Program's Investors.
PALMDALE/JOSHUA RANCH PROPERTY. The Joshua Ranch Property consists of
739.6 acres of hillside property and is comprised of 539 10,000 and 20,000
square foot lots. The City of Palmdale, through a grant by the County of Los
Angeles, will develop a hiking, biking and equestrian trail across the Property.
The project will be equestrian-oriented and is located 60 miles north of Los
Angeles in the growing City of Palmdale.
Title is held by National Investors Land Holding Trust V for the
benefit of the Programs' Investors. The Property is unencumbered by liens and is
subject to no leases, sales contracts or options and property taxes are paid
currently under a payment plan. The project received approval of a vested
tentative map by the City of Palmdale in July 1998.
The neighborhood can provide a mix of housing (including single and
multi-family dwellings) and is served by adequate amenities such as parks,
retail, commercial and community services. Access to the Property is good and is
considered to be well located for residential usage.
ESPERANZA PROPERTY. The Esperanza Property consists of 6.12 acres, or
266,568 square feet, of unimproved raw land with varying terrain and topography.
The site is triangular in configuration and has approximately 1,000 feet of
frontage along Hesperia Road.
The Esperanza Property is zoned commercial. Victorville is regarded
as a high desert location within the Southern California region offering
lower residential and commercial real estate prices than more urban areas.
This is due, in part, to its somewhat remote location and hot summer climate.
Overall, the region's natural and man-made physical environment provides
adequate resources for commercial development.
According to the Victorville Chamber of Commerce, the number of housing
units in the City have grown from 6,108 units in 1980 to 23,143 units in January
1996, an annual growth rate of nine percent. The driving force behind
Victorville's rapid population and employment growth during the 1980s and 1990s
is Victorville's lower land prices and housing costs relative to other parts of
Southern California. The lower land basis helped draw residents looking for more
affordable housing options, as well as businesses to serve this growing
population base.
The Property is unencumbered by liens and is subject to no leases,
sales contracts or options; however, property taxes are delinquent in the amount
of approximately $19,700. A payment plan must be implemented in 2000 or the
property will be sold at a tax sale.
STACEY ROSE PROPERTIES. The Stacey Rose Properties consist of 32 acres
of unimproved raw land which is comprised of three separate parcels. The
Property is zoned residential and could contain approximately 160 lots.
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Since Victorville is regarded as a high desert location within the
Southern California region, it offers relatively lower residential and
commercial real estate prices. This is due, in part, to its somewhat remote
location and hot summer climate.
Victorville has experienced substantial growth since 1980, with the
population growing from 14,229 residents in 1980 to 40,674 residents in 1990, an
increase of 11% annually, according to the City of Victorville Chamber of
Commerce. The City is estimated to have reached 60,400 residents as of January
1, 1997, a six percent increase from 1990. The number of housing units in the
City has grown from 6,108 units in 1980 to 23,143 units in January 1996, an
annual growth rate of nine percent. The driving force behind Victorville's rapid
population and employment growth during the 1980s and 1990s is Victorville's
lower land prices and housing costs relative to other parts of Southern
California. The lower land basis helped draw residents looking for more
affordable housing options, as well as businesses to serve this growing
population base.
Title is held by National Investors Land Holding Trusts I, II and III
for the benefit of the Program Investors. The Property is unencumbered by liens
and is subject to no taxes, sales contracts or options and property taxes are
currently under a payment plan.
CONSOLIDATION OF THE PROGRAMS
Prior to the Acquisition, the Programs operated according to their
respective separate business plans. There have been many impediments to
achieving the objectives of Investors under those business plans. Upon
completion of the Acquisition, each of the Properties will be held in
subsidiaries of the Company with AFC coordinating the management according to a
unified business plan which is designed to maximize the value of the Company's
Shares. The economies of scale which will result from the consolidation will
allow AFC to introduce resources such as additional management and development
opportunities that would not have been economically feasible for the individual
Programs to obtain for themselves. Further, the consolidation will also reduce
the dependence of Investors in a particular Program on the geographic or
economic constraints which their respective operations were subject to prior to
the Acquisition. For example, Sacramento/Delta Greens Investors are entirely
dependent upon the economic opportunities available from building entry-level
homes in South Sacramento submarket. That dependency will be substantially
reduced by the Acquisition. The Acquisition will allow for Palmdale/Joshua Ranch
Investors to have geographical diversification in residential development
because of the Sacramento/Delta Greens Property, as well as being diversified
into the lodging and recreation industries as made available with the
Yosemite/Ahwahnee, Oceanside and Mori Point Properties. Conversely, the
Yosemite/Ahwahnee and Mori Point Investors' opportunities will be expanded and
diversified as well to take advantage of those represented by the
Sacramento/Delta Greens, the Cypress Lakes and the Palmdale/Joshua Ranch
Properties.
Upon completion of the Acquisition, the Company's resources can be
managed such that the operation of each of its subsidiaries contributes
meaningfully to the achievement of its consolidated business objectives.
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THE RESIDENTIAL DEVELOPMENT INDUSTRY
The Company anticipates that the demand for unimproved land will
increase in the near future and that unimproved properties with entitlements,
ready for physical improvements, will be in demand. In order to build homes,
land entitlements (necessary governmental approvals) must be obtained and
maintained in effect. Entitlements include development agreements, vesting
tentative maps and recorded maps. These give a developer the right to obtain
building permits to begin construction upon compliance with conditions that are
usually within the developer's control.
In order to acquire land for residential or timeshare development while
conserving cash, the Company may utilize options to buy land (generally
requiring a payment that is a small fraction of the purchase price to hold the
property pending financing). Such payment usually is applied to the purchase
price. It will fund additional acquisitions whenever possible with non-recourse
seller financing which does not require a full payment of the purchase price
immediately. The risk of securing the availability of property through the use
of options is that the Company will be unable to exercise the option and lose
the option payment. The risk of seller non-recourse financing is the potential
loss of the property, loss of the downpayment and loss of funds spent on
development if there is a default on the loan by the Company.
The Company views land as a component of a home's cost structure,
rather than for its speculative value. Due to the cyclical nature of the
industry, the critical role of risk management in land development, and the low
margins that are typical in today's homebuilding market, the Company will seek
to place more emphasis on the acquisition and development of potential timeshare
projects rather than for land to entitle the actual construction of homes. The
Company intends to focus its residential development acquisitions, if any,
primarily in the infill and emerging market segments. Properties acquired by the
Company through the Acquisition will be in various stages of the approval
process and development.
THE LODGING AND RECREATION INDUSTRY
This industry includes many distinct product categories, including
commercial lodging-oriented products such as hotels and conference centers,
recreation-oriented products such as golf courses, equestrian facilities, sports
complexes, marinas, theme parks, destination resorts, recreational vehicle
resorts, and vacation-oriented products such as timeshare resorts, to name a
few.
THE RECREATIONAL VEHICLE RESORT INDUSTRY.
Recent statistics indicate that recreational vehicle travel is on the
rise and, like timeshare, is being pushed by the baby boomer demands. There are
now an estimated 25 million recreational vehicle enthusiasts in the United
States. Recreational vehicle owners travel an average of 5,900 miles a year and
spend 23 days on the road. The average recreational vehicle owner is 48 years
old, owns his own home, has a household income just under $40,000 and is
overwhelmingly pleased with the purchase. Recreational vehicle sales have
increased by 44% between 1992 and 1995 and are projected to continue to increase
as the "boomers" enter their
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prime buying years of between 45 and 54. They value the recreational vehicle
as a less expensive way for the entire family to travel together.
Recreational vehicle camping topped hiking, wilderness camping, biking,
horseback riding, canoeing, boating and many other forms of recreation for
satisfaction among participants in outdoor activities. Nine of ten
recreational vehicle owners agree that recreational vehicles are a great way
to travel because they offer the convenience of home away from home; a
majority said that recreational vehicle parks are like a second
neighborhood; and there is a real camaraderie among users. Also, weekend
trips have increased 85% since 1984 and recreational vehicles are well suited
for such weekend travel. All of the above information is derived from
publications of the California Travel Parks Association.
THE TIMESHARE INDUSTRY
THE MARKET. According to an American Resort Development Association
("ARDA") study, the leisure industry is primarily made up of two components for
overnight accommodations: commercial lodging establishments and timeshare or
"vacation ownership" resorts. For many vacationers, particularly those with
families, a lengthy stay at a quality commercial lodging establishment can be
very expensive, and the space provided to the guest relative to the cost
(without renting multiple rooms) is not economical for vacationers. First
introduced in Europe in the mid-1960s, ownership of vacation intervals has been
one of the fastest growing segments of the hospitality industry over the past
two decades.
The Company believes that the following factors have contributed to the
increased acceptance of the timeshare concept among the general public and the
substantial growth of the timeshare industry over the past 15 years:
- Increased consumer confidence resulting from consumer
protection regulation of the timeshare industry;
- The entrance of brand name national lodging companies
to the industry;
- Increased flexibility of timeshare ownership due to
the growth of exchange organizations;
- Improvement in the quality of both the facilities
themselves and the management of available timeshare resorts;
- Increased consumer awareness of the value and benefits
of timeshare ownership; and
- Improved availability of financing for purchasers of
timeshare units.
The timeshare industry traditionally has been highly fragmented and
dominated by local and regional resort developers and operators. The Company
believes that one of the most significant factors contributing to the current
success of the timeshare industry is the entry into the market of some of the
world's major lodging, hospitality and entertainment companies, such as
Marriott, Disney, Hilton, Hyatt, Four Seasons and Inter-Continental, as well as
Promus and
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Westin. However, none of such brand name lodging companies are presently
potential competitors of the Company.
THE CONSUMER. The Company believes that the prime market for vacation
intervals is customers in the 40-55 year age range who are reaching the peak of
their earning power and are rapidly gaining more leisure time.
According to ARDA, the three primary reasons cited by consumers for
purchasing a vacation interval are (i) the ability to exchange the vacation
interval for accommodations at other resorts through exchange networks (cited by
82% of vacation interval purchasers), (ii) the money savings over traditional
resort vacations (cited by 61% of purchasers) and (iii) the quality and appeal
of the resort at which they purchased a vacation interval (cited by 54% of
purchasers). The ARDA study also indicated that vacation interval buyers have a
high rate of repeat purchases. In addition, customer satisfaction increases with
length of ownership, age, income, multiple location ownership and accessibility
to vacation interval exchange networks. The Company plans to create a timeshare
facility at the Yosemite/Ahwahnee Property to take advantage of expected growth
in the timeshare industry as the baby-boom generation enters the 40-55 year age
bracket, the age group which purchased the most vacation intervals in 1994.
TIMESHARE EXCHANGE COMPANIES. Exchange privileges simply represent the
opportunity for timeshare owners to place their timeshare interval in a pool and
exchange it for a comparable timeshare elsewhere. The ability to do this is the
single most important motivation for timeshare purchases, and appears especially
important to educated consumers, who look forward to opportunities to learn
through travel.
According to ARDA, two exchange companies dominate the industry. These
are Resort Condominiums International, which started in 1974 and controls about
two-thirds of the market, and Interval International, which began in 1976 and
controls most of the remaining one-third. Both systems operate similarly. They
compete to sign up new resorts; once a resort is affiliated with one or the
other company, anyone who purchases a timeshare at the resort is automatically
signed up with the exchange. Timeshare owners must renew their membership with
the exchange company every year for about $75. Exact figures are not available,
but it is estimated that about 75% of timeshare owners are affiliated with an
exchange company.
A timeshare owner wishing to make an exchange places his time in the
exchange system and requests a location and time to exchange into. Exchange
requests generally cost less than $100. Time placed in the exchange system does
not have to be used in order for the person who places it to receive the
exchange they request, and it is not a one-for-one trade.
THE EXECUTIVE CONFERENCE CENTER INDUSTRY
An Executive Conference Center is distinguished from general,
resort, institutional and academic conference centers by virtue of its
positioning within the target market to attract corporate executive meetings.
According to the International Association of Conference Centers ("IACC"), a
conference center is defined as "a facility whose primary purpose is to
accommodate small to medium-sized meetings." A fully dedicated conference
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center differs from a hotel or resort that has meeting space in that the
primary purpose of a conference center is to satisfy and accommodate groups
by offering a self-contained, full-service meeting environment. It is
dedicated to accommodating small-to-medium sized groups, and meetings usually
comprise at least 60% of a facility's overall business. Due to this
dedication to meetings, conference centers tailor their facilities and
services primarily to the needs of the meeting planner by providing all
necessary arrangements for the complete schedule of activities from arrival
to departure. The pricing structure for a conference is often a single,
uniform per person rate - a package that includes lodging, meals, coffee
breaks, meeting services, and equipment fees, called a Complete Meeting
Package, or the Full American Plan. Meeting rooms are designed and used only
for meetings and do not double as banquet rooms or exhibition space. Meal
functions are held in a central dining area. The IACC defines five types of
conference centers, one of which, the Executive or Dedicated Conference
center, the Company feels suits the Mori Point site the best.
At an Executive (Dedicated) Conference Center, groups are typically
composed of corporations, associations, and other organizations that emphasize
quality of accommodations and services over price. This type of facility was
developed primarily to satisfy upper-level management meetings and
education/training seminars. Facilities usually include sophisticated equipment
and are staffed with professional conference coordinators. Because of its
proximity to San Francisco and the Silicon Valley, the Company believes that the
Mori Point Conference Center could be positioned within this category of
facilities.
According to a recent report issued by the IACC and PKF Consulting
entitled "Conference Center Industry, A Statistical and Financial Profile -
North American 1996," since the recession in 1991 to year-end 1995, U.S.
conference centers have achieved a 27.2% increase in occupancy. This compares to
an 8.3% increase in occupancy for the overall lodging industry during the same
period. Except for resort conference centers, all types of conference facilities
have enjoyed double digit increases in occupancy since 1991.
According to the same sources, total revenue, measured on a per
occupied room basis, has grown approximately 20% for resort and executive
conference centers since 1991. For comparative purposes, cumulative inflation
during the same period was 11.9% and the total revenue for U.S. hotels grew only
10.4%.
The primary competitive lodging market for the proposed conference
center at Mori Point is comprised of four hotels with a total of 508 rooms. The
selection of the competitive supply was based on location, facilities and
amenities, room rate structure, and market orientation. These hotels are all
full-service hotels and conference centers which cater to group and leisure
demand emanating primarily from the Bay Area, but with a secondary component of
national business attracted to their coastal locations. The secondary
competitive lodging market is comprised of three group-oriented airport
properties with 1,865 guest rooms, rendering the total potential current
competition to 2,373 rooms.
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THE BUSINESS STRATEGY
The Company's objective is to become one of North America's leading
developers and operators of timeshare and recreational vehicle resort
properties, utilizing its residential assets and capital obtained from the sale
of certain properties and additional units, as well as exercise of warrants to
create the necessary initial cash flow and capital to do so. The Company does
not currently own or operate any timeshare or recreational vehicle resort
properties. After the Acquisition, the Company will own the Yosemite/Ahwahnee
Programs and their assets. On behalf of Investors in those Programs, National
currently operates a 54 site recreational vehicle park and is expanding the park
with the addition of another 100 sites. Additionally, National is beginning the
development of vacation villa timeshare units and investigating the feasibility
of traditional attached timeshare facilities for the future on the site as well.
The Company expects that it will have a competitive advantage by virtue
of the location advantages of the Yosemite/Ahwahnee and Mori Point Properties.
The Company expects that it will be capable of enhancing the value and financial
performance of the businesses and assets currently held by the Investors in
separate Programs through the consolidation which the Acquisition will provide.
In order to meet its objectives, the Company intends to (i) develop
certain of the Properties for their highest and best use, thereby maximizing
the value of the Company's asset base; (ii) increase the current cash flow
from the Company's consolidated operations, thereby enhancing the value of
the Company's businesses; (iii) maximize the profit margins of tangible and
intangible for-sale products by lowering costs and promoting efficiencies
through economies of scale; (iv) raise funds through a strategic combination
of the exercise of warrants by its stockholders, the sale of additional units
and the sale of selected real estate assets acquired from the Programs to
outside parties in order to finance the Company's operations and expansion;
and (v) generate revenues through lateral expansion by acquiring
complimentary projects and assets which are consistent with the Company's
objectives and business plans (external growth).
EXTERNAL GROWTH STRATEGY. When appropriate, and assuming market
acceptance for the Company's Shares, it is intended that growth through
acquisitions will be initially achieved through (i) the issuance of Shares of
the Company to the seller of the asset(s) to be acquired or (ii) the utilization
of options to purchase real estate assets. Preserving cash may be preferable
even though such transactions may result in the dilution of the current
Shareholders.
THE CONSOLIDATED BUSINESS PLAN
It is anticipated that the Company will have approximately $[1,500,000]
of liquidity if the Acquisition is completed before the end of 1998. The Company
will seek additional liquidity from the sale of one or more of the Company's
assets or a combination thereof. If one or more Properties have to be sold by
the Company at a substantial discount from the original loan amount to raise
cash for Company operations, which would enhance overall shareholder value, the
Company believes such a sale would make sense and will attempt it. Although
National
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attempted to develop the Properties after the Ownership Dates, except for the
Oceanside Program, the other Programs generally were faced with obstacles
which National was not able to overcome. The principal obstacle was the
inability to obtain project financing secured by the Properties from third
party lenders due to the unwillingness of California title insurance
companies to provide lenders' policies of title insurance when title was
beneficially held by such a large number of tenants-in-common. In addition,
potential joint venture partners found dealing with the tenancy-in-common
ownership structure of the Programs to be unattractive. The inability to
obtain third party financing and the unwillingness of Program Investors to
provide sufficient additional equity capital meant that National, on behalf
of the Programs, could not proceed to obtain necessary permits and approvals
from applicable real estate regulatory authorities without which continued
development could not proceed in order to improve the value and marketability
of the Programs. Furthermore, in the case of the Yosemite/Ahwahnee
Properties, prior to the cash sale of the golf course and certain outlots to
the Oceanside Program Investors, lack of adequate financing prevented a more
aggressive marketing of the golf course and recreational vehicle portions of
the Properties, as well as a slowdown in the sale of the estate lots. The
Company and National believe that these disadvantages will disappear when the
Properties are owned by a single corporation.
If the Company attains liquidity from the sale of units or certain of
the Properties or from the exercise of warrants, and if management is correct in
its belief that third party financing would become available to the Company
through the Acquisition (which eliminates the tenancy- in-common form of
ownership thereby making the critical element of lenders' policies of title
insurance available), it will then conduct the following activities in such a
manner so as to maximize positive cash flow in the most expeditious way. If such
liquidity is not attained, the Company's business plan will likely be no more
successful than the individual Programs have been since their respective
Ownership Dates.
THE SACRAMENTO/DELTA GREENS PROPERTY. It is the intent of the Company
to sell the property in bulk or develop it in phases. Depending on the
availability of working capital from the sale of assets, the Company will seek
to obtain approval of the revised tentative map from the City of Sacramento by
the first quarter of 1999. After the final map is approved, the necessary
infrastructure (main road and utilities) can then be built along with finished
lots, model homes and the first phase of production homes.
The material risks associated with the development of the
Sacramento/Delta Greens Property are (i) as of [August 31, 1998], approximately
$26,000 of property taxes are owed for the last payment of a 5-year payment plan
and must be paid in April 1999 in order to avoid loss of the Property for
delinquent taxes; (ii) funds must be available to cover the delinquent property
taxes, as well as costs of obtaining approval of the revised tentative and final
maps from the City of Sacramento; (iii) a recent ruling by local officials
stated that housing tracts in this area which are affected by the 100-year flood
plain must mitigate against potential flood damage which will add further costs
of the development; (iv) a substantial sales and marketing effort will be
necessary to sell homes constructed on the Property if a bulk sale of the lots
or the entire property is not made; (v) the Property is located in a lower
income residential area that has had a reputation as a high crime area; and (vi)
increasing government fees and assessments for streets,
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schools, parks and other infrastructure requirements could increase the cost
of lots to the Company thereby increasing the sales price of the lots which
will delay market absorption.
Real estate values in the area of the Property improved in 1997 and the
first part of 1998. The Property is located in the South Sacramento area which
is primarily populated with lower income residents. The general population of
the Sacramento area has been growing in recent years, indicating that housing
demand should continue to improve. However, there can be no assurance that the
Company will be able to develop the Property in a manner that is ultimately
profitable.
There are currently 230 active subdivisions in the Sacramento market.
Eleven of those are within ten miles of the Property and are designed to provide
single-family housing at a cost comparable to that proposed for the Property.
THE YOSEMITE/AHWAHNEE PROPERTIES. Yosemite National Park is located
within a six hour drive of over 30 million people. The Company plans to
aggressively focus on the following areas of operations and development for
these Properties: (1) recreational vehicle facility, (2) timeshare development,
and (3) the golf course facility.
Recreational vehicle development presents additional cash flow and
profit opportunities. In addition to the existing 54 recreational vehicle sites,
the Company intends to complete the construction of 100 more. Revenue from
membership sales and dues is expected to continue to increase in 1998 based on
investing an additional amount of about $700,000 in the construction of the new
recreational vehicle sites. Additional revenues can be generated from the
financing of the installment purchases of memberships, since most memberships
are purchased on an installment basis over a two to seven year time frame.
There are virtually no competitive recreational vehicle resorts in the
immediate area of the Property. The recreational vehicle park is a member of
Coast to Coast Resorts, AOR and Western Horizons. These affiliations are
important marketing tools. They allow members reciprocal use of many other
recreational vehicle camp resorts located regionally and across the country.
Bass Lake Resort, the nearest competitor, consists of 175 sites and is located
about 12 miles from the Property's site. It has about 1,900 members and has been
operational since 1984. On the other hand, the Yosemite/Ahwahnee recreational
vehicle park has been fully operational since August 1996 with 50 sites and has
over 320 members to date. The Company intends to aggressively expand this
membership base. The Bass Lake recreational vehicle resort is of significantly
lesser quality than the Yosemite/Ahwahnee recreational vehicle park. It is older
with deferred maintenance, has no golf course and lacks space for any additional
amenities or expansion.
The timeshare industry continues its significant growth pace,
particularly for developments that are well located near natural amenities, like
the Yosemite/Ahwahnee Property. A prominent timeshare industry consultant has
evaluated the project and has recommended a 170-unit timeshare development on
the Property. The planning and construction of the vacation villas has been
initiated . Additional capital of approximately $3,000,000 will be required to
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finalize the initial vacation villa timeshare construction on the
recreational vehicle site and implement an aggressive marketing program.
In terms of timeshare competition, the Property has almost none. As of
October 1996, there were 15 timeshare projects in California with active
marketing and sales programs. They include six from the Desert-Palm Springs and
Big Bear Mountain ski areas, four from the Lake Tahoe area and the remaining
five in other scattered locations. There is one relatively small project of 13
units near Bass Lake, run by Worldmark, a timeshare operator located in Seattle.
That project is of no competitive consequence because of its size and lack of
comparable amenities. There is no present or planned direct competition in the
immediate vicinity from any of the major companies involved in the timeshare
industry such as Marriott, Hyatt, Four Seasons, Disney or Hilton.
Since 1995, a significant amount of capital has been used for
improvements to the golf course. The golf course is considered to be a primary
amenity to attract future timeshare sales. Annual revenues have increased over
200% since 1995 and rounds played have more than doubled. Additional revenues
are a natural bi-product from the golf course for the ancillary products like
food, liquor and clothing. The golf course and surrounding land was recently
sold to the Oceanside Program for $3,550,000 in order to obtain working and
development capital.
There are also no comparable golf courses in the area. A nine-hole
course exists approximately five miles from the Property. It offers a
recreational facility primarily for local players but has no resort-type
amenities or room for expansion. In addition, there is another nine-hole
course just inside Yosemite Park near the Wawona Hotel. It is designed and
used primarily for tourist day stop and family-type entertainment. For
persons seeking a golf-related vacation or the challenges of a regulation
course, neither nine-hole course would be viewed as competitive.
The principal risks involved in the Yosemite/Ahwahnee Properties are
(i) as of August 31, 1998, approximately $[506,000] of property taxes remain on
a five-year payment plan that was recently arranged with the County of Madera
and must be paid when due in order to avoid a loss of the Properties for
delinquent property taxes; (ii) the need for substantial working capital to
operate and develop the recreational vehicle facility, the proposed timeshare
development, and the golf course facility; (iii) assuming that working capital
is available to accomplish the business plan, high marketing costs could
adversely affect profitability; and (iv) due to the remote location and the
resort nature of the project, financing costs for development will be less
readily available and likely more expensive than financing costs for traditional
residential development projects in more heavily populated areas.
The Company believes that the economic outlook for the golf course
operation is favorable. Given its proximity to Yosemite National Park and the
fact that the nearest comparable golf facility is approximately 15 miles away,
the Company expects that, with proper marketing, the use of the golf course will
increase. With regard to the recreational vehicle facility, vacation villas and
the proposed attached timeshare project, given its location in the much
travelled, highly desirable area near Yosemite Park, the Company believes that
with proper
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marketing it will be able to attract users of resort property to either the
recreational vehicle facility or the proposed timeshare units. Presently,
California has a strong economy with relatively low unemployment. The income
demographics for the products being offered at the Yosemite/Ahwahnee
Properties range from $35,000 to over $50,000 annually, and, according to the
California Travel Parks Association, there are 5,100,000 households in
California with incomes over $35,000 and 3,100,000 households in California
with incomes exceeding $50,000.
THE MORI POINT PROPERTY. The Company will continue with the proposed
development plan for a hotel/conference center on the Property. It may also
explore the possibility of including timeshare facilities in the development.
However, because of its proximity to San Francisco and the Silicon Valley, the
Company believes that the Mori Point Property could be positioned competitively
within the executive conference center category of facilities. Detailed plans
for the development of the Property do not exist at this time. Therefore, an
accurate cost to develop the facility, as well as a timetable, is not possible.
A study of the endangered species' habitat and any potential mitigation measures
is being conducted as are other environmentally-related issues like traffic
impacts. It is anticipated that over $500,000 will be needed by the Company to
complete the permitting process and deal with any other environmental concerns.
Within 12-18 months from completion of the Acquisition, the Company believes it
can obtain governmental approvals to complete the development of the Property.
The material risks associated with the development of the Mori Point
Property are (i) potential loss of the Property for delinquent property taxes
which, as of August 31,1998, amount to approximately $157,000 which are on a
payment plan and must be paid when due in order to avoid a loss at a tax sale;
(ii) the Tentative Tract Map and Specific Plan for the Property have expired and
new entitlements must be processed which is costly and time-consuming; (iii) two
endangered species are located on the Property requiring the preparation of an
acceptable plan to mitigate disruption of their habitats and there is no
assurance that acceptable mitigation plans can be proposed; and (iv) if an
acceptable mitigation plan cannot be developed, the Property will have little
value to the Company and it will be difficult to sell at any cost.
The Property is oceanfront property in the town of Pacifica,
California, located approximately ten miles from downtown San Francisco and five
miles from San Francisco International Airport. The San Francisco Bay Area has
enjoyed an economic boom for the last few years and it is on the cutting edge of
the emerging knowledge-based economy in the United States. The Bay Area is a
favorite destination for both tourists and conventioneers. It is desirable for
its scenery, restaurants, mild climate, and varied types of entertainment.
The following table, based on information contained in the May 1997
appraisal of the Mori Point Property by PKF Consulting, provides a summary of
the current primary and second competition of the proposed executive
conference center for Mori Point.
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<TABLE>
<CAPTION>
Property Number of Rooms Amenities
- -------- --------------- ---------
<S> <C> <C>
Primary Competition
Seascape Resort - Aptos 164 A, B, C, D
Chaminade Conference Center - Santa Cruz 152 A, C
Lighthouse Inn - Pacifica 95 A, B, C
Half Moon Bay Lodge 81
Secondary Competition
Hyatt Regency 791 A, B, C, D
Marriott 684 A, B, C, D
Westin 330 A, B, C, D
TOTAL 2,297
- -----
A - Restaurant
B - Meeting Rooms
C - Swimming Pool
D - Exercise Room
</TABLE>
Estimated year-end 1996 occupancy level for the primary competition for
a Mori Point hotel/conference center was 67.8%; the secondary competitive
market's performance was at a higher occupancy level of 83.3% for the same
period.
THE CYPRESS LAKES PROPERTY. The project has an approved vested
tentative map covering 1,330 residential units on 686 acres. Several different
land uses have been planned for the project, including an 18-hole championship
golf course, lakes, a church, public parks, 23 acres of open space, wetlands, a
school, a beach club, a fire station and a day care center. Due to the size of
the parcel and the required infrastructure to service it, the Property will most
likely be sold. The present vested tentative map will expire April 15, 1999 and
must be planned for renewal immediately. The Property is located in the delta
area of Contra Costa County and as such is subject to flooding without proper
levee protection which is typical of the area. The most likely candidates to
purchase the Property are large master-plan builder/developers who are able to
generate large front-end capital resources to install the needed infrastructure.
In the event the Company is unable to find a willing buyer, it will
need to continue processing for governmental approval which could require an
estimated $400,000 to finalize the engineering in order to submit for a final
record map. In the event a purchaser is not found, the next step would be to
install preliminary infrastructure to the site, record lots in increments of 100
units for potential sale to more moderately sized builders who could afford to
purchase lots in smaller quantities. Once the initial infrastructure is
installed, an aggressive sales program would be initiated with homebuilders to
coincide with the completion of the initial infrastructure to service the
project.
An additional alternative would be to bring in a joint venture partner
who can bring in cash and also act as the master developer. In either case, the
Company would attempt to phase
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out of any actual site work as soon as the economics and sales of land with
the project are stabilized.
The risks associated with the Property, its infrastructure challenges,
the size of the project and the high capital requirements all combine to
somewhat limit its marketability. The site is subject to
(1) A 100-year flood zone and must be protected by an earthen levee
that will surround the project's perimeter in an effort to reduce potential
flood, the costs of which are estimated to be in excess of $9,000,000;
(2) In 1995, the Company received a property tax default notice from
the Contra Costa County Treasurer-Tax Collector. As of August 31, 1998, total
taxes, penalties and interest amounts to approximately $199,000. The Company
intends to enter into a redemption plan agreement with Contra Costa County that
allows for the payment of delinquent taxes, penalties and interest over a
five-year period. Under the terms of the agreement, all property taxes must be
kept current and all payments made on time. If the Company defaults on the
agreement or fails to enter into the agreement by the deadline of June 30, 2000,
the Property could become subject to a tax sale.
(3) The cost of grading, installing utilities, building the levee and
golf course require in-depth planning and extensive estimating in order to
properly estimate the cost of such a large-scale development.
(4) Modification of the existing vesting tentative map might expose
the project to additional exactions by County government which could possibly
negatively impact the financial viability of the project.
(5) Market conditions, while improving at the present time, might well
become less positive over time as the project is built out.
According to the Ryness Company, a residential market feasibility
research company located in California, real estate values are improving in
eastern Contra Costa County; however, the project is considered to be a
"pioneering" area. Access to it by major transportation corridors is somewhat
limited and the area is considered to be somewhat rural. Shopping and schools
are located in neighboring Oakley and Brentwood. The project must be well
thought out, competitively priced and offer the consumer the ability to upgrade
and customize his or her house.
Also according to Ryness Company, the East Bay metropolitan statistical
area has an average annual demand for new housing of some 4,000 units per year.
Sales rates remain strong at one sale per project per week to 1.25 sales per
project per week. There were some 182 residential projects in the Bay Area in
the first quarter of 1998 with net sales averaging 1.29 sales per week.
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THE PALMDALE/JOSHUA RANCH PROPERTY. The project, which contains 739.6
acres and 539 10,000 and 20,000 square foot lots, has received a vested
tentative map. Due to the relatively large scale of the project, the Property
most likely will be sold in bulk. The most likely candidates to purchase a large
master-planned community such as Joshua Ranch are large master-plan builders
and developers. It is estimated that $140,000 will be required to complete the
engineering, soils and utility planning. It is unlikely that a purchaser can be
found until a majority of these funds are expended. If a purchaser is not found,
and depending on the market, the Company will need to secure third party
financing in order to record the final map and post the necessary bonds. The
next step would be to install the initial roads and utilities to service the
site and record lots in phases of 100 units for potential sale to more moderate
size builders. Again, third party financing will have to be obtained. An
aggressive lot sales program would coincide with the completion of the initial
improvements.
Another alternative is to bring in a joint venture partner who can
provide equity capital and also act as a master developer of the lots. In either
case, the Company will attempt to phase out of any actual site development work
as soon as the economics and sales within the project are stabilized. The risks
associated with the project, its infrastructure requirements in the initial
phases of the development, the project's size and large capital requirements
tend to limit the project's marketability. There are no assurances that the
Company can secure the necessary financing to start the project.
The risks associated with the Property include:
(1) In 1996, the Company entered into an installment Plan of Redemption
("Payment Plan") with the Los Angeles County Tax Collector. The Payment Plan
allows for the annual payment of delinquent property taxes, penalties and
interest over a period not to exceed five years providing that all payments,
including current property taxes, are paid on time. If payments, which amount to
approximately $53,000 annually or current year taxes of approximately $20,000,
are missed and the agreement falls into default, the Property could become
subject to a tax sale by the County.
(2) The cost of grading, installing utilities and building the main
infrastructure, require in-depth planning and extensive estimating in order to
properly assess the cost of such a large scale development.
(3) Market conditions, while improving marginally in the area, might
well become less favorable over time as the project is built out.
As stated in recent articles in the Business and Sunday Real Estate
Sections of the LOS ANGELES TIMES, real estate values are showing signs of
improving in the area. Access to the site is quite good with schools and major
services close by. National believes that the project is in the path of logical
development within the City. Major retail shopping is located close by as are
all other services.
National also believes that the current housing market is considered to
be of moderate supply and demand. Inventory is reducing and average unit prices
are relatively unchanged from
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the prior one-year period. There are presently 17 projects selling within the
submarket area which the Property is located. The project offers an
equestrian feature and larger lots than typically found in the market area
which should help to ensure a relatively stable annual sales pace.
THE ESPERANZA PROPERTY. The project, which contains 6.12 acres and is
commercially zoned, will most likely be sold to a commercial developer. The
Company will initiate a sales program utilizing a local commercial broker. An
arrangement for a payment plan for past due property taxes must be made in 2000
to avoid a tax sale.
The risks associated with the Property include
(i) approximately $23,000 of property taxes are delinquent and must be
brought current or a statutory 5-year payment plan must be arranged with the
County of San Bernardino in the year 2000 to avoid loss of the Property for
delinquent property taxes; and
(ii) rents and values for retail properties in the Victorville area are
expected to remain soft due to the amount of property zoned for commercial use
which is available for development.
THE STACEY ROSE PROPERTIES. The Property consists of 32 acres of
unimproved raw land which is comprised of three separate parcels. The Property
is zoned residential and could contain approximately 160 lots. The Property is
most likely to be sold to residential builders and developers. It is estimated
that it may cost about $50,000 to finalize a tentative tract map on the parcels.
A payment plan for past due taxes in the amount of approximately $7,500
annually, along with current taxes of approximately $10,000 annually, must be
kept current in order to avoid the loss of the Property to a tax sale.
The risks associated with the Property include
(i) approximately $30,000 of property taxes are delinquent and must be
brought current or a statutory 5-year payment plan must be arranged with the
County of San Bernardino in order to avoid loss of the Properties for delinquent
property taxes;
(ii) approximately $50,000 will be needed to finalize a tentative tract
map on the parcels;
(iii) a substantial, and potentially expensive, sales and marketing
effort will be necessary to sell homes which are constructed on the
Properties unless a bulk sale of the lots can be made;
(iv) the Properties are located in a lower income residential area;
(v) increasing government fees and assessments for streets, schools,
parks and other infrastructure requirements could increase the cost of the lots,
thereby delaying market absorption; and
(vi) home financing may not be available at reasonable costs.
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PRIORITY OF PROJECTS AND ESTIMATED TIMETABLE
If adequate working capital is available from the sale of assets,
the Company will bring delinquent property taxes current and begin work on
all of the Properties promptly after the Acquisition is completed. In order
to obtain additional working capital, the Company believes that funds may
also become available from the sale of the Units offered concurrently and
exercise of the warrants included in the Units offered in the Acquisition and
concurrently. It plans to sell one or more of the Sacramento/Delta Greens,
Mori Point, Cypress Lakes, Palmdale/Joshua Ranch, Esperanza or Stacey Rose
Properties to raise such working capital. Sale prices for all of these
Properties may be below the appraised values. The Company believes these
Properties can be sold at prices that would not be acceptable to, nor achieve
the objectives of, the respective Programs' Investors if such sales occurred
separately within each Program. Efforts to conduct such discounted sales were
never undertaken by National because of the Investors' expressed desire to
receive as nearly a full return of principal as possible. However, National
has investigated, and rejected, the auction process as an alternative since
it appears unlikely that such process would yield any significant number of
bidders or bidders willing to offer more than the amount of the appraised
values for any of the Properties. While discounted prices might not have been
attractive to the Programs' Investors, sales at such prices could provide
needed cash capital to move the Company forward once these Properties become
assets of the Company after the Acquisition.
Approximately $4,565,000 would be required for the Company to obtain
the necessary permits and complete the development activities for all of the
Properties, except for construction financing required to actually build a
hotel/conference center on the Mori Point Property and construction financing
for the Sacramento/Delta Greens Property. Any funds from the sale of assets will
be focused on the development of the Yosemite/Ahwahnee Properties as the Company
considers the Yosemite/Ahwahnee Properties to have the most potential for
short-term cash flows and long-term profits in order to build value for the
shareholders. Thus, in an environment with limited working capital, any costs
for the development or construction of any of the other Properties would assume
lesser priority in order to maximize the potential of the Yosemite/Ahwahnee
Properties.
If enough funds are raised from the sale of assets to fulfill the
Yosemite/Ahwahnee Properties' initial requirements (approximately
$3,000,000), the balance of any asset sale proceeds would be applied to the
Sacramento/Delta Greens, Mori Point, Cypress Lakes, Palmdale/Joshua Ranch,
Stacey Rose, and Esperanza Properties, in that order.
The Company plans on financing as many of the costs of the Properties
as possible from third party lenders or by entering into joint venture
development agreements with third parties. There are currently no committed
sources of external financing or prospective joint venture partners. However, as
stated above, the Company believes that third party lenders will be more willing
to provide financing where it can obtain title insurance which was not generally
available in the tenancy-in-common ownership structure. To the extent that
external sources of financing or joint venture partners are not available on
reasonable terms, the Company plans to sell one or
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more of the Sacramento/Delta Greens, Cypress Lakes, Palmdale/Joshua Ranch,
Esperanza, Stacey Rose or Mori Point Properties to raise operating capital.
The Company proposes to finance development of each of the Properties
in the following order of priority and manner:
YOSEMITE/AHWAHNEE PROPERTIES. Amount needed: $3,000,000. Funds would
come first from the proceeds of the sale of other assets. Balance, if any, from
third party financing, if available, or from exercise of warrants included in
the Units.
SACRAMENTO/DELTA GREENS. Amount needed: initially $25,000 to complete
the permitting and approval process. If a sale cannot be consummated, the
Company conducts the construction of the homes, approximately $3,000,000 of
capital will be needed to be financed for the permitting, approvals,
infrastructure and to build the initial phase of homes. Funds for the permitting
process would come first from a joint venture partner, or from sale of another
Property, with construction funding to come from a traditional third party
construction lender.
MORI POINT. Amount needed: initially $500,000 to complete the
permitting and approval process. Funds to complete the permitting process would
come from a joint venture partner in return for a profit participation, or sale
of one of the other Properties. Funds for the equity portion would also come
from those sources. Construction funds would come from traditional construction
lenders, perhaps with the assistance of a joint venture partner.
CYPRESS LAKES. Amount needed: initially $400,000 to modify the existing
vested tentative map in order to be more cost effective in the physical
development stages. Funds to complete the modifications to the vested tentative
map would come from a joint venture partner or sale of the Sacramento/Delta
Greens or Palmdale/Joshua Ranch Properties.
PALMDALE/JOSHUA RANCH. Amount needed: initially $140,000 in order to
complete grading, soils and utility studies in order to analyze and reduce
overall development costs. Funds to complete this work noted would come from a
joint venture partner or sale of the Sacramento/Delta Greens Property.
ESPERANZA. Amount needed is unknown to complete preliminary planning
for the commercial site. Funds to complete the work noted would come from a
joint venture partner or sale of the Sacramento/Delta Greens Property.
STACEY ROSE. Amount needed: $50,000 in order to obtain a tentative
map and complete grading, land planning and cost structure. Funds to
complete the work noted would come from a joint venture partner or sale of
the Sacramento/Delta Greens Property.
Cash flow from operations cannot be counted upon to provide funding for
the continued development of the Programs Properties. Cash flow from sales of
Properties, as well as proceeds from sale of the Units offered concurrently and
exercise of warrants, would constitute sources for such financing. Except for
operating costs and property tax
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<PAGE>
payments, the Company does not anticipate any other capital or cash
commitments. Pending property taxes, if any, will be brought current,
including applicable interest, from the proceeds of the sale of other
properties. Pursuant to statute, the Company will either enter into or
succeed to payment plans which permit back property taxes to be paid over a
five year period. To the extent that cash capital is not available to make
timely payments under such plans, the Company believes that the Properties
can be sold at amounts in excess of property taxes that are due.
The Company's plans for the development of the Yosemite/Ahwahnee
Properties currently targets the Spring of 1999 for the completion of 100
additional recreational vehicle sites and the readiness of the initial timeshare
vacation villa units at the recreational vehicle sites for sale. Thereafter,
additional recreational vehicle sites and vacation villa timeshare units will be
built from cash flow. If funds are available either from external sources or the
sale of other properties, the Company estimates that the Sacramento/Delta Greens
Property will involve approximately three years to complete the permitting
process, construction and sell out to homebuyers or other builders in the area.
The Mori Point permitting process will require up to two years. Assuming
necessary permits to develop a hotel/conference center are obtained, a sale of
the Property or its development with a joint venture partner will be solicited.
THERE IS NO ASSURANCE THAT THE ABOVE ESTIMATED TIMETABLES FOR ANY OF THE
PROPERTIES CAN BE MET.
TYPES OF BORROWING REQUIRED
The Company anticipates that it will seek infrastructure financing
and construction financing. Infrastructure financing is designed to provide
borrowed funds to construct roads, install utilities and other things
necessary for a Property to function in the manner anticipated. For example,
a residential development requires the installation of roads, sidewalks,
sewer lines, water lines, and power lines for it to be able to function as a
community. The principal risks involved in infrastructure financing involve
the cost (usually higher for infrastructure loans than construction or
permanent financing loans) and the risk that there will be no replacement
financing in the form of construction or permanent loans available when the
loan is due resulting in a default and a potential loss of the property.
Construction loans involve the financing necessary to actually build a
proposed project once the infrastructure is in place. As with infrastructure
financing, it is secured by the real estate meaning the failure to generate
sales or operating cash flow sufficient to pay the loans will result in a
default and a potential loss of the land which has been provided as collateral.
While less risky than infrastructure loans, construction loans usually bear a
higher interest rate than permanent loans do. See "-- Impact of Interest Rates
on the Company."
IMPACT OF INTEREST RATES ON THE COMPANY
The Company intends to use traditional construction loan financing if
it pursues the buildout of the lots and homes on its Sacramento/Delta Greens
Property, as well as for the construction of the traditional and vacation villa
timeshare units beyond the initial models. If interest rates rise during the
construction of and prior to the sell out of the completed homes, then
139
<PAGE>
the prices of the homes would have to be increased or the Company would have
to absorb the increased cost and associated decrease in profits. If prices
are increased, some buyers may be priced out of the market, in which case the
Properties would have less potential buyers and could suffer from a decline
in volume of homes sold. In addition, the sale of homes is dependent on
adequate and competitive buyer financing. Higher interest rates for potential
homebuyers will result in a decrease in the velocity of homes sold. The
Company may also consider some infrastructure financing, for roads and
utilities, for the Sacramento/Delta Greens Property. If that occurs, then
higher interest rates will negatively affect the profitability of the
Property. A falling interest rate environment will have the opposite effect
on these two Properties.
The Company intends to use its working capital to perform the planning,
engineering and other approval work for the Mori Point Property. It also intends
to use working capital and internally generated funds to finalize the
construction of an additional 100 recreational vehicle sites and vacation villa
timeshares, as well as the costs for the traditional timeshare approvals and
initial model construction on the Yosemite/Ahwahnee Properties. In these cases,
a rising or falling interest rate environment will have little or no direct
affect on those Properties. If the Company decides later to use a construction
loan to build the initial timeshare models, then a change in interest rates will
have the same affect as stated above relative to the construction of the
Sacramento/Delta Greens Property.
INSURANCE
Management of the Company believes that each of the Properties is
adequately insured for title, property and casualty matters.
EMPLOYEES
It is anticipated that the Company's initial employees will consist
of approximately 15 individuals located at the home office in Newport Beach,
California, who will handle the responsibilities of management, accounting
and administration of the subsidiaries through AFC. There will initially be
approximately 35 additional full- and part-time employees at the
Yosemite/Ahwahnee Property who will handle the operation and maintenance of
the project and carry forward with the development and entitlement
activities. Marketing and consulting services for the recreational vehicle
membership sales and resort operations are contracted through Western
Horizons, a Colorado-based recreational vehicle park management and marketing
company. None of the employees will be subject to collective bargaining
agreements.
LEGAL PROCEEDINGS
Neither the Company nor the Properties is the subject of any material
legal proceeding.
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POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of certain investment, financing,
conflicts of interest and other policies of the Company. These policies have
been determined by the Company's Board of Directors and generally may be
amended or revised from time to time by the Board of Directors without a vote
of the shareholders.
INVESTMENT POLICIES
INVESTMENTS IN REAL ESTATE. Initially, the Company will invest in the
Properties it receives in the Acquisition. This is a portfolio of properties in
various stages of development. As the business plans for the various Properties
described herein are either completed or matured, the Company will seek to
acquire and develop or manage, as appropriate, properties which are compatible
with its existing properties. Such properties may include resort properties (in
the development phase or completed), residential properties (in the development
phase), or such other types of properties as the Board of Directors may from
time to time in its sole discretion deem to be appropriate investments for the
Company. The Company expects that most of its initial investments will be
located in the State of California, although there is no requirement that such
be the case. In making such acquisitions, to the extent possible, the Company
will attempt to use shares of its common stock for some or all of the purchase
price. This would result in a dilution of the voting power of then-existing
investors in the Company.
The Company has no policy with regard to whether it will acquire assets
primarily for possible capital gain or primarily for income. It will acquire the
Properties in the Acquisition and properties in the future in the manner deemed
by the Board of Directors to be in the best interests of the Company and its
shareholders in making profits. The Company has no specific policy as to the
percentage of assets which will be concentrated in any specific property;
however, the Board of Directors will use its best efforts to diversify the
Company's investment portfolio as much as possible.
INVESTMENTS IN REAL ESTATE MORTGAGES. While the Company will emphasize
equity real estate investments, it may, in its discretion, invest in mortgages
and other interests related to real estate. The Company does not presently
intend to invest in mortgages, but may do so. The mortgages which the Company
may purchase may be first mortgages or junior mortgages and may or may not be
insured by a governmental agency.
SECURITIES OF OR INTERESTS IN PERSONS PRIMARILY ENGAGED IN REAL ESTATE
ACTIVITIES. The Company may also invest in securities of entities engaged in
real estate activities or securities of other issuers, including for the purpose
of exercising control over such entities. However, the Company has no present
plans to make any such investment in securities. In any event, the Company does
not intend that its investments in securities will require it to register as an
"investment company" under the Investment Company Act of 1940, and the Company
would divest itself of such securities before any such registration would be
required.
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JOINT VENTURES. The Company may enter into joint ventures or
partnerships or other participations with real estate developers, builders,
owners and others for the purpose of obtaining or retaining equity interests
in a particular property.
OFFERING SECURITIES IN EXCHANGE FOR PROPERTY. The Company may offer
its securities in exchange for a property in which it wishes to invest.
REPURCHASING ITS OWN SHARES. The Company may purchase or repurchase
Shares from any person for such consideration as the Board of Directors may
determine in its reasonable discretion, whether more or less than the
original issuance price of such Share or the then trading price of such Share.
ISSUANCE OF ADDITIONAL SECURITIES. The Board of Directors may, in
its discretion, issue additional equity securities from time to time to
increase its available capital. Such issuance will result in a dilution of
the interests of the then-existing Shareholders.
FINANCING POLICIES
ISSUANCE OF SENIOR SECURITIES. The Company may, at any time, issue
securities senior to the Shares, upon such terms and conditions as may be
determined by the Board of Directors.
BORROWING POLICY. The Company may, at any time, borrow, on a secured
or unsecured basis, funds to finance its business and, in connection
therewith, execute, issue and deliver promissory notes, commercial paper,
notes, debentures, bonds and other debt obligations which may be convertible
into shares or other equity interests or be issued together with warrants to
acquire shares or other equity interests. The Charter Documents impose no
limit upon the Company's debt. The Board has not established any maximum debt
limit for the Company, although it intends to act prudently in borrowing
funds for Company operations.
LENDING POLICIES. The Company may, at any time, make mortgage loans
secured by properties of the type in which the Company may invest, subject to
restrictions on related party transactions contained in the Delaware General
Corporation Law.
MISCELLANEOUS POLICIES
REPORTS TO SHAREHOLDERS. The Company will be subject to the
reporting requirements of the Exchange Act and will file annual and quarterly
reports. The Company currently intends to provide annual and quarterly
reports to its Shareholders.
COMPANY CONTROL. The Board of Directors has exclusive control over
the Company's business and affairs subject only to restrictions in the
Charter Documents and the Delaware General Corporation Law. Shareholders have
the right to elect members of the Board of Directors. The Directors are
accountable to the Company as fiduciaries and are required to exercise good
faith and integrity in conducting the Company's affairs.
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<PAGE>
WORKING CAPITAL RESERVES
The Company will attempt to maintain working capital reserves (and
when not sufficient, access to borrowing) in amounts that the Board of
Directors determines to be adequate to meet the normal contingencies in
connection with the operation of the Company's business and investments.
CAPITALIZATION
The following table sets forth the capitalization of the Company as
of August 31, 1998 after giving effect to the completion of the Acquisition.
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------
Pro Forma
Acquisition
<S> <C>
DEBT:
Capital lease obligations....................... $ 313,083
-------------------
Total debt.................................. 313,083
STOCKHOLDERS' EQUITY:
Common Stock(1)................................. 1,727
Additional paid-in capital(1)................... 26,212,692
Accumulated deficit(2).......................... -
-------------------
Total stockholders' equity.................. 26,214,419
-------------------
Total capitalization............................ $ 26,527,502
-------------------
-------------------
</TABLE>
- ------------------------
(1) Gives pro forma effect to the Acquisition and the conversion of investor
interests into common stock ownership in the Company.
DILUTION
Assuming completion of the Acquisition, the following table sets forth
on a pro forma basis as of June 30, 1998, with respect to the founders,
consultants and existing Program Investors, a comparison of the number and
percentage of Shares purchased and cash or other consideration paid and the
average price per share.
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<PAGE>
<TABLE>
<CAPTION>
Acquisition
----------------------------------------------------------------------------------------
Average
Price per
Shares Purchased Total Consideration Share
---------------- ------------------- -----
Number Percent Number Percent
------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Founders and Consultants 323,296 19% $ 3,233 0% $ 0.01
Program Investors 1,403,321 81 27,680,906 100 19.73
----------------- --- ------------------- --- ------------
Total 1,726,617 100% $ 27,684,139 100% $ 16.03
----------------- --- ------------------- --- ------------
----------------- --- ------------------- --- ------------
</TABLE>
SELECTED FINANCIAL INFORMATION
The following selected financial information should be read in
conjunction with the discussion set forth in "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and all of the
financial statements included elsewhere in this Prospectus. The pro forma
financial information is not necessarily indicative of what the actual
financial position and results of operations of the Company would have been
as of and for the periods indicated, nor does it purport to represent the
future financial position and results of operations for future periods.
144
<PAGE>
<TABLE>
<CAPTION>
Company Pro Forma The Acquisition Historical
---------------------------------- --------------------------------------------
Six Months Year Ended
Ended June 30, December 31, Years Ended
1998 1997 December 31
--------------- --------------- --------------------------------------------
The Acquisition The Acquisition 1997 1996 1995
--------------- --------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 324,654 $ 5,193,012 $ 5,193,012 $ 6,213,299 $ 6,333,143
Cost of sales 121,187 4,081,530 4,081,530 5,224,186 5,346,735
--------------- --------------- -------------- ------------- -------------
Gross profit 203,467 1,111,482 1,111,482 989,113 986,408
Expenses:
Selling, general and
administrative 2,413,683 5,676,067 4,357,059 4,029,618 2,486,099
Land write-down 255,000 1,299,651 1,299,651 845,000 16,167,424
Management fees - 0 949,003 949,003 949,003
--------------- --------------- -------------- ------------- -------------
Total expenses $ 2,668,683 $ 6,975,091 $ 6,605,713 $ 5,823,621 $ 19,602,526
Net interest income
(expense) (1,117) 31,345 31,345 73,205 1,222,008
--------------- --------------- -------------- ------------- -------------
Gain on sale of
property 1,871,279 - - - -
Net loss $ (595,054) $(5,832,886) $(5,462,886) $(4,761,303) $ (17,394,110)
--------------- --------------- -------------- ------------- -------------
--------------- --------------- -------------- ------------- -------------
Net loss per share (0.34) (3.38) N/A N/A N/A
--------------- ---------------
--------------- ---------------
Average number of
shares outstanding 1,726,617 [1,726,617] N/A N/A N/A
--------------- ---------------
--------------- ---------------
Balance Sheet Data:
Cash and cash
equivalents 2,809,752 N/A 540,909 1,065,715 N/A
Total real estate 27,601,000 N/A 27,427,617 28,444,055 N/A
Total assets 32,059,053 N/A 32,065,559 34,561,602 N/A
Total debt 313,083 N/A 324,920 424,767 N/A
Total liabilities 5,844,634 N/A 6,938,267 4,782,370 N/A
Stockholders'/
owners' equity 26,214,419 N/A 25,127,292 29,779,232 N/A
Other Data:
Cash used in
operating activities (2,525,042) N/A (2,015,894) (1,658,879) (68,615)
Cash provided by
(used in)
investing
activities 6,988,374 N/A (163,264) (186,211) (436,545)
Cash provided by
(used in)
financing
activities (2,067,345) N/A 1,523,975 1,168,817 674,403
</TABLE>
[NOTE THAT THE AVERAGE NUMBER OF SHARES OUTSTANDING WILL CHANGE AS WE
RECALCULATE EXCHANGE VALUES UNTIL WE GO EFFECTIVE. THAT'S WHY THEY ARE
BRACKETED.]
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<PAGE>
[TO BE UPDATED]
<TABLE>
<CAPTION>
The Acquisition Historical
-----------------------------------------------------------
Six Months
Ended June 30, Years Ended
1998 December 31
-------------------- -------------------------------------------------
1998 1997 1996 1995
------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT PROGRAM
DATA
OCEANSIDE
- ---------
Cash and cash
equivalents $ 17,037 $ 145,072 $ 660,207 $ N/A
Real estate 3,525,539 3,322,329 3,219,920 N/A
Total assets 4,335,472 5,443,408 7,938,216 N/A
Total debt - - 3,910 N/A
Total liabilities 778,149 1,271,694 1,207,402 N/A
Total owners' equity 3,557,323 4,171,714 6,730,814 N/A
Revenues - 4,290,850 5,490,180 5,920,600
Gross margin - 461,868 515,020 624,859
Net Loss (Income) (2,385,609) 1,857,850 548,675 367,219
YOSEMITE/AHWAHNEE
- -----------------
Cash and cash
equivalents $ 2.751,587 $ - $ 101,551 $ N/A
Real estate 5,423,254 10,137,074 10,404,135 N/A
Total assets 10,151,876 11,704,727 11,499,429 N/A
Total debt 313,083 340,563 420,857 N/A
Total liabilities 3,538,760 3,495,010 2,141,259 N/A
Total owners' equity 6,613,116 8,209,717 9,358,130 N/A
Revenues 324,654 902,162 723,119 412,543
Gross margin 203,467 649,614 474,093 361,549
Net Loss 1,877,901 2,059,368 2,078,604 915,537
</TABLE>
<TABLE>
<CAPTION>
The Acquisition Historical
-----------------------------------------------------------
Six Months
Ended June 30, Years Ended
1998 December 31
-------------------- -------------------------------------------------
1998 1997 1996 1995
-------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT PROGRAM
DATA
MORI POINT
- ----------
Cash and cash
equivalents $ 5,176 $ 7,204 $ 39,032 $ N/A
Real estate 4,100,000 4,100,000 4,100,000 N/A
Total assets 4,361,140 4,339,911 4,139,032 N/A
Total debt - - - N/A
Total liabilities 848,104 868,964 807,514 N/A
Total owners' equity 3,513,036 3,490,947 3,331,518 N/A
Revenues - - - -
Gross margin - - - -
Net Loss 123,848 279,448 189,125 146,867
SACRAMENTO/
- -----------
DELTA GREENS
- ------------
Cash and cash
equivalents 7,886 $ 4,099 $ 62,583 $ N/A
Real estate 1,745,000 2,000,000 2,230,000 N/A
Total assets 1,871,316 2,108,627 2,292,583 N/A
Total debt - - - N/A
Total liabilities 300,830 322,271 259,066 N/A
Total owners' equity 1,570,486 1,786,356 2,033,517 N/A
Revenues - - - -
Gross margin - - - -
Net Loss 315,545 394,796 1,062,684 131,590
</TABLE>
146
<PAGE>
<TABLE>
<CAPTION>
The Acquisition Historical
-----------------------------------------------------------
Six Months
Ended June 30, Years Ended
1998 December 31
-------------------- -------------------------------------------------
1998 1997 1996 1995
-------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Investment
Program Data
CYPRESS LAKES
- -------------
Cash and cash
equivalents $ 20,542 $ 148,068 $ 75,373 $ N/A
Real estate 5,200,000 5,200,000 5,200,000 N/A
Total assets 5,395,878 5,348,068 5,275,373 N/A
Total debt - - - N/A
Total liabilities 370,950 180,193 107,977 N/A
Total owners' equity 5,024,928 5,167,875 5,167,396 N/A
Revenues - - - -
Gross margin - - - -
Net Loss 234,378 392,353 254,791 14,484,305
PALMDALE/
- ---------
JOSHUA RANCH
- ------------
Cash and cash
equivalents $ 199 $ 98,898 $ 119,922 $ N/A
Real estate 2,700,000 2,700,000 2,700,000 N/A
Total assets 2,832,572 2,798,898 2,819,922 N/A
Total debt - - - N/A
Total liabilities 210,690 152,843 142,898 N/A
Total owners' equity 2,621,882 2,646,055 2,677,024 N/A
Revenues - - - -
Gross margin - - - -
Net Loss 232,302 455,476 615,688 1,211,310
</TABLE>
<TABLE>
<CAPTION>
The Acquisition Historical
-----------------------------------------------------------
Six Months
Ended June 30, Years Ended
1998 December 31
-------------------- -------------------------------------------------
1998 1997 1996 1995
-------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT
PROGRAM DATA
STACEY ROSE
- -----------
Cash and cash
equivalents $ 339 $ - $ - $ N/A
Real estate 320,000 320,000 320,000 N/A
Total assets 347,339 320,000 320,000 N/A
Total debt - - - N/A
Total liabilities 100,777 68,978 55,775 N/A
Total owners' equity 246,562 251,022 264,225 N/A
Revenues - - - -
Gross margin - - - -
Net Loss 6,410 13,203 12,445 76,571
ESPERANZA
- ---------
Cash and cash
equivalents $ 3,753 $ 7,191 $ 7,047 $ N/A
Real estate 270,000 270,000 270,000 N/A
Total assets 298,253 277,191 277,047 N/A
Total debt - - - N/A
Total liabilities 81,897 55,481 44,944 N/A
Total owners' equity 216,356 221,710 232,103 N/A
Revenues - - - -
Gross margin - - - -
Net Loss 5,354 10,393 9,859 65,678
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction
with the "Selected Financial Information" as well as the financial statements
listed in the index on page F-1. If approved by the Investors in the seven
former "Trudy Pat" programs and three non-"Trudy Pat" programs, as discussed
below, they will be acquired by the Company. Except for historical
information contained herein, the matters discussed in this report contain
forward-looking statements that involve risks and uncertainties that could
cause results to differ materially.
RESULTS OF OPERATIONS - THE SACRAMENTO/DELTA GREENS PROGRAM
COMPARISON OF PERIOD ENDED JUNE 30, 1998 TO 1997
No activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses decreased from $69,059 at
June 30, 1997 to $35,610 at June 30, 1998, a decrease of $33,449. The
operating expenses primarily consist of property taxes and consulting
expenses. Property tax expense remained consistent for both periods, while
consulting expenses decreased as a result of a decrease in the feasibility
studies performed on the property during the first quarter of 1998 compared
to the same period in 1997. Management fees were consistent for both periods
at $25,000 per period. These fees were for the management and administration
of the property.
The appraised value of the Sacramento/Delta Greens property
decreased from $2,230,000 at December 31, 1996 to $2,000,000 at June 30, 1997
due to a decrease in the median price of the homes in this community during
1996 and due to the decrease in the number of homes zoned for this property.
This decrease was reflected in the statement of operations as a property
write down loss.
During 1998, there was a further writedown of the Sacramento/Delta
Greens property from $2,000,000 at December 31, 1997 to $1,750,000 at June
30, 1998. The decrease was attributable to a further decrease in the number
of homes zoned for this property. This decrease was reflected in the
statement of operations as a property writedown loss.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO 1996
No development activity occurred during the periods on this
property. There were however, operating expenses and management fees incurred
in order to maintain these properties. Operating expenses decreased from
$169,649 for the year ended December 31, 1996 to $115,620 at December 31,
1997, a decrease of $54,029. The difference is a result of the employment of
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<PAGE>
consultants during 1997 to perform studies related to the proposed
development of the property. Management fees were consistent for both years
at $50,000 per year.
Due to a decrease of approximately 35% in the median prices of homes
in the communities surrounding Sacramento/Delta Greens during 1996 and a
decrease in the number of homes zoned for this property during 1997,
impairment losses of $845,000 and $230,000 were recorded on the property's
financial statements during the periods presented. Originally, 596 homes were
zoned for this property, while 534 homes are currently zoned for this
property.
RESULTS OF OPERATIONS - THE OCEANSIDE PROGRAM
COMPARISON OF PERIOD ENDED JUNE 30, 1998 TO 1997
For the six months ended June 30, 1998, net income amounted to
$2,385,609 compared to a net loss of $659,911 for the six months ended June
30, 1997. Some of the increase in net income is primarily due to the
following factors: a realization of the gain on the sale of real estate of
$2,730,563 in 1998; a decrease in the gross profit of $368,036, a decrease in
selling, general and administrative expenses of $346,516 and a decrease in
real estate inventory writedown of $360,172.
The gain on sale of real estate of $2,730,563 is a result of the
sale of the Symphony lots made during the second quarter of 1998.
The decrease in gross profit by $368,036 is due to the fact that
there were no home sales made during 1998, compared to the sale of 17 homes
during the first quarter of 1997.
Selling, general and administrative expenses decreased by $346,516
due to a decrease in the accounting, legal and consulting fees as a result of
the decrease of the homes sold during 1998.
As a result of the sales of homes on the Encore project, capitalized
construction costs incurred on these homes in excess of the consideration
received were written off during 1997.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO 1996
For the year ended December 31, 1997, the net loss amounted to
$1,857,850 compared to a net loss of $548,675 for the year ended December 31,
1996. The change of results are primarily from the following factors: a
decrease in revenue of $1,199,330, which has been offset by a decrease in
cost of sales of $1,146,678, an increase in selling, general and
administrative expenses of $171,725 and a writedown in the real estate
inventory of $1,069,651.
Revenues decreased in 1997 by $1,199,330 or 22% as compared to 1996.
The decrease was caused by 11 less homes being sold in 1997 as compared to
1996, which has been partially offset by an increase in the average selling
price of each home of approximately five percent. This increase in average
price is principally due to the recovery in the California real estate
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<PAGE>
market in 1997. In addition, the company sold the remaining two undeveloped
phases of the Encore project during 1997.
Cost of sales decreased in 1997 by $1,146,678 or 23% as compared to
1996 primarily due to the decrease in the number of houses sold discussed
above.
Selling, general and administrative expenses increased $171,725
(20%) due to an increase in the sales incentives provided on houses sold
during 1997 as compared to 1996. Some of the increase is also due to
increases in salaries and wages and consulting fees paid to employees and
consultants in 1997 compared to 1996.
Based on the net proceeds received from the sale of the remaining
inventory lots during 1997, the Program wrotedown its real estate inventory
to its estimated fair value resulting in a $1,069,651 charge against income
during the year ended December 31, 1997.
RESULTS OF OPERATIONS - THE YOSEMITE/AHWAHNEE PROGRAMS
COMPARISON OF PERIOD ENDED JUNE 30, 1998 TO 1997
For the six months ended June 30, 1998 the net loss amounted to
$1,877,901 compared to a net loss of $1,129,395 for the six months ended June
30, 1997. The change of results are primarily from the following factors: a
decrease in revenues of $121,625, a decrease in selling, general and
administrative expenses of $269,423 and the realization of the loss on sale
of real estate of $735,034 during 1998.
The decrease in revenues of $121,625 (27%) is due to the decline in
golf course activity during the first six months in 1998, compared to the
same period in 1997.
Selling, general and administrative expenses decreased by $269,423
(20%) as a result of the decrease in the golf course activity during the
first six months of 1998, compared to the same period in 1997.
As a result of the sale of the golf course and estate lots during
1998, a $859,284 loss was realized during the six months ended June 30,1998.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO 1996
For the year ended December 31, 1997, the net loss amounted to
$2,059,368, compared to a net loss of $2,078,604 for the year ended December
31, 1996. The change of results is primarily from the following factors: an
increase in revenues of $179,043 which has been offset by an increase in
selling, general and administrative expenses of $136,466 and an increase in
interest expense of $19,819.
The increase in revenues of $179,043 (25%) was primarily due to the
operation of the golf course for the entire period of 1997, while it was
closed for refurbishing for a portion of the
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<PAGE>
year ended December 31, 1996, as well as an increase of $85,615 of
recreational vehicle memberships during 1997.
The increase in selling, general and administrative expenses of
$136,466 (6%) is a result of the increased operations of the golf course and
the increased recreational vehicle membership sales effort during 1997 as
compared to 1996.
RESULTS OF OPERATIONS - THE MORI POINT PROGRAM
COMPARISON OF PERIOD ENDED JUNE 30, 1998 TO 1997
No activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses remained consistent at June
30,1 998, compared to June 30, 1997. The operating expenses consist of
property taxes and consulting expenses. Management fees were consistent for
both periods at $50,000. These fees were for the management and
administration of the property.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO 1996
No sales activity occurred during the period on this property
location. There were however, operating expenses and management fees incurred
in order to maintain these properties. Operating expenses increased from
$190,348 for the year ended December 31,1996 to $281,034 at December 31,
1997, an increase of $90,686. The operating expenses primarily consist of
property taxes and consulting fees related to feasibility studies performed
on the property. Property tax expense increased by $26,405 due to an increase
in the assessed property value, while consulting fees significantly increased
as the Program explored various development and entitlement options for the
property. Management fees were consistent for both years at $100,000 per
year. These fees were for the management and administration of the property.
RESULTS OF OPERATIONS - THE CYPRESS LAKES PROGRAM
COMPARISON OF PERIOD ENDED JUNE 30, 1998 TO 1997
No activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses increased from $140,454 at
June 30,1997 to $165,596 at June 30, 1998, an increase of $25,142. The
operating expenses primarily consist of property taxes and consulting
expenses. Property tax expense remained consistent for both periods, while
consulting expenses increased as a result of an increase in the work
performed on feasibility studies during the first quarter of 1998 compared to
the same period in 1997. Management fees were consistent for both periods at
$70,000 per period. These fees were for the management and administration of
the property.
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<PAGE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO 1996
No activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses increased from $120,114 at
December 31,1996 to $254,272 at December 31, 1997, an increase of $134,158.
The operating expenses primarily consist of property taxes, legal and
development expenses. Property taxes remained consistent for both periods.
Legal expenses increased by $75,331 and development expenses increased by
$59,150. These legal and development expenses mainly relate to land planning,
feasibility studies, permits and environmental consulting issues related to
the property. Management fees were consistent for both year ends at $140,000
per year. These fees were for the management and administration of the
property.
RESULTS OF OPERATIONS - THE PALMDALE/JOSHUA RANCH PROGRAM
COMPARISON OF PERIOD ENDED JUNE, 1998 TO 1997
No activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses increased from $144,883 at
June 30,1997 to $157,376 at June 30, 1998, an increase of $12,493. The
operating expenses primarily consist of property taxes and consulting
expenses. The increase in operating expenses were primarily attributable to
an increase in consulting expenses as a result of feasibility studies
performed on the property relating to the potential development of the
property. Property taxes remained consistent for both periods. Management
fees were also consistent for both periods at $75,000 per period. These fees
were for the management and administration of the property.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO 1996
No activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses decreased from $469,910 at
December 31,1996 to $306,484 at December 31, 1997, a decrease of $163,426.
The operating expenses primarily consist of property taxes, legal and
development and consulting expenses. Property taxes remained consistent for
both periods. Legal expenses increased by $86,111 and development and
consulting expenses decreased by $241,552. These legal and development
expenses mainly relate to land planning, feasibility studies, permits and
environmental consulting issues related to the property. Management fees were
consistent for both year ends at $150,000 per year. These fees were for the
management and administration of the property.
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RESULTS OF OPERATIONS - THE ESPERANZA PROGRAM
COMPARISON OF PERIOD ENDED JUNE 30, 1998 TO 1997
No activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses remained consistent at June
30,1998 compared to June 30, 1997. The operating expenses consist of property
taxes. Management fees were consistent for both periods at $2,500 per period.
These fees were for the management and administration of the property.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO 1996
No activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses remained consistent for both
years ending December 31,1997 and December 31, 1996. The operating expenses
consist of property taxes. Management fees were consistent for both year ends
at $5,000 per year. These fees were for the management and administration of
the property.
RESULTS OF OPERATIONS - THE STACEY ROSE PROGRAMS
COMPARISON OF PERIOD ENDED JUNE 30, 1998 TO 1997
No activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses remained consistent at June
30,1998 compared to June 30, 1997. The operating expenses consist of property
taxes. Management fees were consistent for both periods at $2,002 per period.
These fees were for the management and administration of the property.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO 1996
No activity occurred during the period on this property location.
There were however, operating expenses and management fees incurred in order
to maintain these properties. Operating expenses remained consistent for both
years ending December 31,1997 and December 31, 1996. The operating expenses
consist of property taxes. Management fees were consistent for both year ends
at $4,003 per year. These fees were for the management and administration of
the property.
LIQUIDITY AND CAPITAL RESOURCES
Upon completion of the Acquisition on a pro forma basis as of June 30,
1998, the Company will have approximately $2,800,000 of unrestricted cash
available to operate the Company and develop its owned real estate. The Company
is also attempting to raise additional funds by offering units for sale in
conjunction with the Acquisition, which if fully subscribed would result in net
proceeds of approximately $[2,200,000].
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In addition to the methods discussed above, the Company anticipates
creating additional liquidity through the following methods on an as needed
basis:
(a) Obtain additional mortgage debt against the Properties: At June 30,
1998, the Company had approximately $313,000 of debt and approximately
$1,009,000 of delinquent property taxes levied against its real estate, some of
which is being paid pursuant to statutorily permitted 5-year payment plans.
Based on its lack of significant leverage, the Company believes that some
liquidity can be generated through additional borrowings, if necessary. The
Company believes that mortgage debt will be available to it, when it was not
available to National on behalf of the Programs, because of the elimination of
the tenancy-in-common ownership structure. This will make available lenders'
policies of title insurance which are not available under the current structure.
(b) Obtain additional funding by selling off additional Properties:
The Company believes some of the Properties, or portions thereof, can be sold
to generate sufficient liquidity to develop the remaining Properties. In
conjunction with this strategy, the Company has made various property sales
during 1997 and 1998. In October 1997, the remaining 23 lots of the Encore
property, a development within the Oceanside Program, were sold for net
proceeds of $593,115. In addition to this sale, during June 1998, the 111
lots of the Symphony property, a second development within the Oceanside
Program, were sold for net proceeds of $6,576,859. In February 1998, the
Ahwahnee Program sold 13 single-family development lots for a sales price
of $307,500. The Company believes that the sale of the Sacramento/Delta Greens
or Mori Point Properties would be possible in bulk at prices discounted from the
March 1998 appraisal values but for more than the property taxes due.
(c) Reduce development capital needs through joint venture
arrangements: The Company believes that, due to the elimination of the
tenancy-in-common ownership structure which was cumbersome for potential
partners, it will be able to enter into joint venture arrangements to develop
and operate one or more of its current properties.
(d) Conserve development capital by slowing down the currently planned
development process: If the Company is unable to raise sufficient development
funds utilizing the methods discussed above, the pace of property development
can be slowed until necessary internal or external funding is generated.
Listed below is a summary, by project, of the estimated time period to
develop each project as well as the projected external financing needed to
complete development:
YOSEMITE/AHWAHNEE
The Company plans to continue to develop the recreational vehicle park,
continue to operate the golf course, build a new public overnight stay park,
construct timeshare units and market these products and services. The Company
estimates that this will require approximately $3,000,000 of funding. The source
of the funds is intended to be the proceeds from the sale of the golf course and
the estate lots which were sold in June 1998 to the Oceanside Program for
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proceeds of $3,550,000. If additional financing is required, the proceeds of the
unit offering, third party financing or sale of the Sacramento/Delta Greens,
Palmdale/Joshua Ranch or Mori Point Properties should be sufficient.
OCEANSIDE
The Company would continue to hold the Yosemite/Ahwahnee golf course
and surrounding land for lease and potential ultimate sale back to the
Yosemite/Ahwahnee Program.
MORI POINT
The Company anticipates developing a state of the art business
conference center located near San Francisco, California. The Company
anticipates that approximately $500,000 and 1.5 years is needed to complete the
entitlement and mapping process.
SACRAMENTO/DELTA GREENS
The Company anticipates finishing the permitting process and obtaining
the city and other governmental approvals of the project's tentative map and
design. Approximately $175,000 of capital is needed to complete the engineering,
environmental and other wetlands activities to finalize the tentative tract map
process.
CYPRESS LAKES
The Company will proceed with providing the due diligence documentation
required by the current potential buyer. The Company will then either consummate
the transaction or if the deal is not approved, then approximately $400,000 of
capital will be needed for the management, engineering and legal expenses to
redesign the project to minimize infrastructure costs and to renew the tentative
map.
PALMDALE/JOSHUA RANCH
The Company will most likely pursue a bulk sale at an adequate price.
Approximately $140,000 of capital is required in order to proceed with
finalizing the grading, soils and underground studies.
ESPERANZA
The Company will most likely pursue a bulk sale that is reasonable
under the current economic conditions, preferably before delinquent property
taxes become due in 2000.
STACEY ROSE
The Company will most likely pursue the approval of a tentative tract
map from the City of Victorville. It is estimated that the cost will exceed
$50,000 and will require about nine months.
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LIQUIDITY SUMMARY
The Company expects to meet its short- and long-term liquidity
requirements through the methods described above in addition to cash generated
from the operations of the resort properties once these properties are
operational. The Company believes that the liquidity sources described above
will be adequate to satisfy the cash requirements of the Company for the 12
months following the completion of the Acquisition.
HISTORICAL CASH FLOWS
THE OCEANSIDE PROGRAM
The Oceanside Program continued its development and sale of houses on
the Encore site during 1997 and decided to sell the remaining 23 undeveloped
lots on its Encore site at the end of 1997. This sale caused a decrease in the
number of houses sold by the Program from 30 in 1996 to 19 in 1997 and was the
significant factor causing the decrease in cash flows from operations of
$1,002,238 in 1996 to $297,288 in 1997. The Program continued limited
development of the Symphony site during 1996 and 1997 and repaid the line of
credit utilized to build houses on the Encore site during 1997.
As there were no homes sold in 1998, while 17 homes were sold in the
first six months of 1997, cash flows from operations decreased from $784,227 for
the six months ended June 30, 1997 to $8,513 for the six months ended June 30,
1998. The Program sold the Symphony lots during 1998, which generated $6,671,836
in cash inflows. With the proceeds of the sale, the Program purchased the
Ahwahnee golf course and estate lots for $3,552,314 and distributed $3,000,000
back to the investors.
THE YOSEMITE/AHWAHNEE PROGRAM
The Yosemite/Ahwahnee Programs experienced significant cash outflows
from operations during 1996 and 1997 due to the property of the Programs being
in a very early stage of development. As the property continues to progress
toward being fully developed, the amount of operational cash outflows should
decrease as a larger customer base will utilize current and future resort
amenities. These operational outflows, as well as the minimal expenditures made
by the Programs to expand the recreational vehicle park of the property, were
funded by contributions from current investors of the Programs.
The significant increase in the cash balance at June 30, 1998 is
primarily attributable to the sale of the golf course and some of the outlots in
1998. The proceeds from the sale of the golf course and outlots amounted to
$3,868,852.
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THE MORI POINT, SACRAMENTO/DELTA GREENS, CYPRESS LAKES, PALMDALE/JOSHUA RANCH,
ESPERANZA AND STACEY ROSE PROGRAMS
The Mori Point, Sacramento/Delta Greens, Cypress Lakes, Palmdale/Joshua
Ranch, Esperanza and Stacey Rose Programs continued to explore opportunities for
development of their real estate assets during 1996, 1997 and 1998. The
expenditures made to investigate various development opportunities were paid for
by contributions from current investors of each Program.
NEW ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for
financial statements with fiscal years beginning after December 15, 1997.
Earlier application is permitted. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. The adoption of SFAS No. 130
will not have a material effect on the financial position or results of
operations of the Company
Statements of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the
FASB is effective for financial statement beginning after December 15, 1997
(although the FASB is encouraging earlier application). The new standard
requires that public business enterprises report certain information about
operating segments in complete sets of financial statements of the enterprise
and in condensed financial statements of interim periods issued to shareholders.
It also requires that public business enterprises report certain information
about their products and services, the geographic areas in which they operate
and their major customers. The adoption of SFAS No. 131 will not have a material
effect on the financial position or results of operations of the Company.
Statements of Financial Accounting Standards No. 132 "Employees'
Disclosures about Pensions and Other Postretirement Benefits" issued by the FASB
is effective for financial statements with fiscal years beginning after December
15, 1997. Earlier application is encouraged. The new standard standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable. The adoption of SFAS No. 132 will not have a material effect
on the financial position or results of operations of the Company.
MANAGEMENT FOLLOWING THE ACQUISITION
The Company will operate under the direction of the Board, the members
of which are accountable to the Company and its shareholders as fiduciaries. The
Board will be responsible for the management and control of the affairs of the
Company; however, the executive officers of the Company and its subsidiaries
will manage the Company's and its subsidiaries' day-to-day affairs and the
acquisition and disposition of investments, subject to the Board's supervision.
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<PAGE>
The Company currently has six directors; it must have at least one and may have
no more than nine directors. As a matter of policy, the Company will maintain at
least two Independent Directors on the Board; that is, persons who are not
employed by or otherwise affiliated with the Company prior to becoming
directors. The Board will then be divided into three classes serving staggered
three year terms. See "Comparisons of Programs and the Company -- Anti-Takeover
Provisions."
Any director may resign at any time and may be removed with or without
cause by the shareholders upon the affirmative vote of a majority of all the
votes entitled to be cast for the election of directors at a special meeting
called for the purpose of such proposed removal. The notice of such meeting
shall indicate that the purpose, or one of the purposes, of such meeting is to
determine if a director will be removed. A vacancy created by death, resignation
or removal of a director may be filled by a vote of a majority of the remaining
directors. Each director will be bound by the Company's Charter Documents.
The directors are not required to devote all of their time to the
Company and are only required to devote such of their time to the affairs of
the Company as their duties require. The directors will meet quarterly or
more frequently if necessary. It is not expected that the directors will be
required to devote a substantial portion of their time to discharge their
duties as directors. Consequently, in the exercise of their fiduciary
responsibilities, the directors will be relying heavily on the executive
officers of the Company. The Board is empowered to fix the compensation of
all officers that it selects and may pay directors such compensation for
special services performed by them as it deems reasonable. Initially, the
Company will pay Independent Directors a retainer fee of $20,000 per year,
plus $1,000 per meeting attended, plus 2,500 options to purchase shares, plus
out-of-pocket expenses in attending meetings. The Company will not pay any
director compensation to the officers of the Company who also serve as
directors.
The general investment and borrowing policies of the Company are set
forth in this Prospectus. The directors will establish further policies on
investments and borrowings and shall monitor the administrative procedures,
investment operations and performance of the Company to assure that such
policies are in the best interest of the shareholders and are fulfilled. Until
modified by the directors, the Company will follow the policies on investments
and borrowings set forth in this Prospectus.
The Company believes that its management has the requisite real estate
experience to fulfill the Company's business plan. While none of the officers
have extensive experience in the development, marketing and management of
timeshares, Messrs. Lasker and Orth have developed familiarity with the
operating aspects by participating in the management of the Yosemite/Ahwahnee
Properties. To the extent a property needs skills not possessed by management,
or cannot be efficiently provided by management, consultants will be hired to
provide those skills and services.
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EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
Director Term
Name Age Position Expires
- ---- --- -------- --------------
<S> <C> <C> <C>
David G. Lasker 52 Co-Chairman of the 2000(1)
Board, President and
Chief Financial
Officer
James N. Orth 51 Co-Chairman of the 2000(1)
Board, Chief
Executive Officer and
Secretary
L.C. "Bob" Albertson, Jr. 54 Executive Vice 1999(1)
President of the
Company and President
and Chief Executive
Officer of American
Family Communities,
Inc., Director
Charles F. Hanson 61 Director 1999(1)
Dudley Muth 58 Director 2001(2)
James G. LeSieur, III 57 Director 2001(2)
</TABLE>
(1) Elected in 1997.
(2) Elected in 1998.
The following is a biographical summary of the experience of the
directors and executive officers of the Company.
DAVID G. LASKER - Co-Chairman of the Board, President and Chief
Financial Officer of the Company. Mr. Lasker has served as Chairman and
President of National Investors Financial, Inc. since 1986. Prior to that,
he served as Chairman and Vice chairman of the Board of Directors of
American Merchant Bank, a commercial bank headquartered in Orange County,
California, from 1985 to 1986. His experience includes all phases of
negotiating, underwriting, closing and servicing of residential and
commercial loans. Since the Ownership Date, Mr. Lasker has overseen the
development and construction of the Oceanside Property. He has served as
project manager of the Mori Point Property. He and Mr. Orth have supervised
the predevelopment activities of the Sacramento/Delta Greens Property and
they have shared the responsibility for the management and ultimate
development of a business plan for the Yosemite/Ahwahnee Properties. He and
Mr. Orth are responsible for overall management of the Company. Mr. Lasker
holds a Bachelor of Science degree from Purdue University and an M.B.A. from
the University of Southern California.
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<PAGE>
JAMES ORTH - Co-Chairman of the Board, Chief Executive Officer and
Secretary of the Company. Since 1986, Mr. Orth has been Executive Vice President
and a member of the Board of Directors of National Investors Financial, Inc.
Prior to that, in 1980, he was a founding member of NIF Securities, Inc., a
securities broker-dealer oriented to the capitalization of start-up and
second-stage business ventures. In addition, he has been a founder and executive
officer of a variety of companies specializing in financial management,
marketing and distribution. From 1969 through 1976, Mr. Orth was employed by IBM
Corporation as a marketing representative and territory manager. From 1977 to
1980, he was an employee, vice president and branch manager of ENI Corporation,
an oil and gas exploration company. He received a Bachelor of Science in
Mathematics-Statistics, French and Economics from the University of Wyoming in
1969 and did post-graduate work in the MBA-Finance program at the University of
Colorado.
L.C. "BOB" ALBERTSON, JR. - Executive Vice President and Director of
the Company, President and Chief Executive Officer of American Family
Communities, Inc., a wholly-owned subsidiary of the Company. Mr. Albertson
is responsible for the operation of the Company's Properties and the
implementation of the Company's business plan. Mr. Albertson is a 32-year
veteran of the homebuilding industry. From 1985 to 1996, he served as
President of a division of Presley Homes, Southern California Region, a
large publicly-traded homebuilding company. From 1981 to 1984, he was
President of Barrett American, Irvine, a publicly-traded homebuilding
company based in Great Britain. Mr. Albertson is President of HomeAid
America, a non-profit organization supported by the National Association of
Homebuilders. From 1985 to 1986, he served as President of the Building
Industry Association/Orange County Region.
CHARLES F. HANSON - Director of the Company. Since 1989, Mr. Hanson
has served as Co-Chairman of the Board of Larson Training Centers, Inc., a
vocational training company with campuses in the Cities of Orange and Carson,
California. Also, since 1994, he has served as an independent marketing
director for a major pharmaceutical company. In 1991, he developed Coastal
Pacific Commercial Corporation, a consulting company to the real estate
industry. From 1987 to 1989, Mr. Hanson was associated with CIS
Corporation, a New York stock exchange listed company and a leading equipment
leasing firm, as Vice President and National Sales Manager. In 1985, he
developed Half-Time Associates, Inc., a national seminar company. From 1983
to 1985, Mr. Hanson was associated with Integrated Resources, Inc. as Vice
President, Director of Marketing. Prior positions at Integrated Resources,
Inc. included Senior Executive Vice President of Integrated Resources Equity
Corp. and Executive Vice President, National Sales Manager and Director of
Marketing for Integrated Resources Energy Group. Mr. Hanson received his
Liberal Arts degree from the University of Washington.
DUDLEY MUTH - Director of the Company. Mr. Muth's career includes over
20 years of extensive experience in the field of corporate management, law,
securities and real estate. From June 1993 through May 1997, Mr. Muth served as
a consultant on real estate and securities matters and as Vice President of
Drake Capital Securities, Inc. He recently rejoined Drake Capital Securities,
Inc. to direct all compliance and legal activities. From March 1990 until June
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1992, he served as president of First Diversified Financial Services, Inc., a
syndicator of all-cash investments in California real estate. From June 1987
until February 1990, he was President of USREA/WESPAC which controlled two
public real estate investment trusts. From January 1985 to May 1987, Mr. Muth
was President of Cambio Equities Corporation and Cambio Securities
Corporation. From October 1982 to December 1984, he served as Executive Vice
President of Angeles Corporation. From July 1977 through September 1979, he
was Vice President and Director of Compliance for The Pacific Stock Exchange,
Inc. In 1967, he began his career in the tax department of Arthur Andersen &
Co. Mr. Muth received his Bachelor of Arts degree in Economics from Pomona
College, his M.B.A. in accounting from UCLA Graduate School of Management,
and his J.D. from the University of Southern California. He is a member of
the California State Bar and a Registered Principal with the NASD.
JAMES G. LESIEUR, III - Director of the Company. From April 1991 to the
present, Mr. LeSieur has been President and Chief Executive Officer of Sunwest
Bank, Tustin, California. Prior to that, he was Executive Vice President and
Chief Financial Officer of Sunwest Bank from December 1985 to March 1991, and
held other responsible officer positions with that bank from September 1975 to
November 1985. Before joining Sunwest Bank, he was with Arthur Young & Company
(independent accountants). He received a Bachelor of Science degree from Purdue
University and an M.B.A. degree from Wharton Graduate School of University of
Pennsylvania.
COMMITTEES OF THE BOARD OF DIRECTORS
EXECUTIVE COMMITTEE. In due course, the Board of Directors will
establish an executive committee (the "Executive Committee") which will be
granted the authority to acquire and dispose of real property and the power to
authorize, on behalf of the full Board of Directors, the execution of certain
contracts and agreements. The Company expects that the Executive Committee will
ultimately consist of the co-Chairmen of the Board of Directors and two
Independent Directors.
AUDIT COMMITTEE. The audit committee will consist of two
Independent Directors and, if permissible, one "inside" director (the "Audit
Committee"). The Audit Committee will make recommendations concerning the
engagement of independent auditors, review with the independent auditors the
plans and result of the audit engagement, approve professional services
provided by the independent auditors, review the independence of the
independent auditors, consider the range of audit and non-audit fees and
review the adequacy of the Company's internal accounting controls.
COMPENSATION COMMITTEE. In due course, the Board of Directors will
establish a compensation committee (the "Compensation Committee") to determine
compensation, including awards under the Company's Stock Incentive Plan for the
Company's executive officers. The Company expects that the Compensation
Committee will ultimately consist of two Independent Directors. Until the
Committee is established, the Independent Directors will serve as the
Compensation Committee.
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NOMINATING COMMITTEE. In due course, the Board of Directors will
establish a nominating committee (the "Nominating Committee") to nominate
persons to serve on the Company's Board of Directors as vacancies arise. The
Nominating Committee will ultimately consist of three directors, at least two of
whom will be Independent Directors
DIRECTORS AND EXECUTIVE OFFICERS COMPENSATION AND INCENTIVES
The Company will compensate designated key managers of the Company with
cash compensation and certain incentives including stock option and bonus plans.
The below table sets forth the estimated annual base salary to be paid to the
Chief Executive Officer, President and Vice Presidents, as well as the stock
options for the officers and directors.
<TABLE>
<CAPTION>
ANNUAL COMMON STOCK
NAME POSITION SALARY(1) OPTIONS
- ---- -------- --------- ------------
<S> <C> <C> <C>
David G. Lasker* Co-Chairman of the Board, $180,000 30,000(2)
President and Chief Financial
Officer
James N. Orth Co-Chairman of the Board, $180,000 30,000(2)
Chief Executive Officer and
Secretary
L.C. "Bob" Albertson, Jr. Executive Vice President and $200,000 30,000(2)
Director of the Company;
President and Chief Executive
Officer of American Family
Communities, Inc., Director
Charles F. Hanson Director - 2,500(3)
Dudley Muth* Director - 2,500(3)
James G. LeSieur, III* Director - 2,500(3)
</TABLE>
- ----------------------
* Initial members of Audit Committee.
(1) Employment Agreements for Messrs. Lasker, Orth and Albertson contain
provisions for bonus payments based on performance criteria.
(2) 10,000 to be issued upon completion of the Acquisition to
Messrs. Lasker, Orth and Albertson and 10,000 additional
options to be issued to each of them on the first and
second anniversaries of the Acquisition. These options are
nonqualified stock options which are not issued pursuant
to the Company's 1997 Stock Incentive Plan. They have a
ten year term. Messrs. Lasker, Orth and Albertson will be
able to exercise options for 3,333 shares immediately.
Options issued at later dates will be exercisable at market
value on the date of issuance.
(3) To be issued upon completion of the Acquisition. These options are
issued pursuant to the Company's 1997 Stock Incentive Plan. They have a
ten-year term and are
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exercisable one year from the date of grant at $20 per Share. The
number of options is determined by formula for the Independent
Directors.
STOCK INCENTIVE PLAN
The Company has established a stock incentive plan (the "Stock
Incentive Plan") to enable executive officers, key employees and directors of
the Company and its subsidiaries to participate in the ownership of the Company.
The Stock Incentive Plan is designed to attract and retain executive officers,
other key employees and directors of the Company and its subsidiaries and to
provide incentives to such persons to maximize the Company's value, as well as
cash flow, available for distribution. The Stock Incentive Plan provides for the
award to such executive officers and employees of the Company and its
subsidiaries of stock-based compensation alternatives such as restricted stock,
nonqualified stock options and incentive stock options and provides for the
grant to Independent Directors of nonqualified stock options on a formula basis.
The Stock Incentive Plan will be administered by the Compensation
Committee, which is authorized to select from among the eligible employees of
the Company and its subsidiaries the individuals to whom options are to be
granted and to determine the number of shares to be subject thereto and the
terms and conditions thereof. The Compensation Committee is also authorized to
adopt, amend and rescind rules relating to the administration of the Stock
Incentive Plan. Nonqualified stock options shall be granted to Independent
Directors in accordance with the formula set forth in the Stock Incentive Plan.
The Stock Incentive Plan was approved by the Company's founding
shareholders September 15, 1997. The following awards may be made under the
Plan:
NONQUALIFIED STOCK OPTIONS will provide for the right to purchase
Common Stock at a specified price which may be less than fair market value on
the date of grant (but not less than par value), and usually will become
exercisable in installments after the grant date. Nonqualified stock options may
be granted for any reasonable term.
INCENTIVE STOCK OPTIONS, if granted, will be designed to comply with
the provisions of the Code and will be subject to restrictions contained in the
Code, including exercise prices equal to at least 100% of fair market value of
Common Stock on the grant date and a ten year restriction on their term, but may
be subsequently modified to disqualify them from treatment as an incentive stock
option.
RESTRICTED STOCK is Common Stock of the Company which may be awarded to
key employees of the Company by the Compensation Committee, subject to such
restrictions on the exercise of full ownership as such Committee may determine.
Restrictions may relate, among other things, to duration of employment, Company
performance and individual performance
Promptly after the Closing of the Acquisition, the Company expects to
issue to certain directors of the Company options to purchase an aggregate of
7,500 shares of Common
163
<PAGE>
Stock pursuant to the Stock Incentive Plan. The term of each of such options
will be ten years from the date of grant and they will be exercisable one
year after the date of grant at a price per share equal to the public
offering price per Share in the Offering. The expected allocations of the
options to such persons is as presented above in the "Directors and Executive
Officers Compensation and Incentives." Except for those options, the Company
does not plan to grant options under the Stock Incentive Plan until after the
first year of operations.
NO CRITERIA FOR ISSUANCE OF OPTIONS OR RESTRICTED STOCK HAVE YET BEEN
DEVELOPED BY THE COMPENSATION COMMITTEE. There is no maximum number of options
that a single individual may receive.
185,000 shares of Common Stock, subject to adjustment, will be reserved
for issuance under the Stock Incentive Plan. There is no limit on the number of
awards that may be granted to any one individual (other than Independent
Directors who annually receive a fixed number of options automatically)
FEDERAL INCOME TAXES. If the option has no readily ascertainable fair
market value, no income is recognized by a participant at the time an option is
granted. If the option is an incentive stock option ("ISO"), no income will be
recognized upon the participant's exercise of the option. Income is recognized
by a participant when he or she disposes of shares acquired under an ISO. The
exercise of a nonqualified stock option ("NQSO") generally is a taxable event
that requires the participant to recognize, as ordinary income, the difference
between the shares' fair market value on the exercise date and the option price.
The employer (either the Company or its affiliate) will be entitled
to claim a federal income tax deduction on account of the exercise of a NQSO.
The amount of the deduction is equal to the ordinary income recognized by the
participant. The employer will not be entitled to a federal income tax
deduction on account of the grant or the exercise of an ISO. The employer may
claim a federal income tax deduction on account of certain dispositions of
Common Stock acquired upon the exercise of an ISO.
401(k) PLAN
The Company intends to establish a qualified retirement plan, with a
salary deferral feature designed to qualify under Section 401 of the Code (the
"401(k) Plan"). The 401(k) Plan will permit the employees of the Company and the
Operating Partnership to defer a portion of their compensation in accordance
with the provisions of Section 401(k) of the Code. The 401(k) Plan will allow
participants to defer up to 15% of their eligible compensation on a pre-tax
basis subject to certain maximum amounts. Matching contributions may be made in
amounts and at times determined by the Company. Amounts contributed by the
Company for a participant will vest over a period of years to be determined and
will be held in trust until distributed pursuant to the terms of the 401(k)
Plan.
Employees of the Company and its subsidiaries will be eligible to
participate in the 401(k) Plan if they meet certain requirements concerning
minimum age and period of credited
164
<PAGE>
service. All contributions to the 401(k) Plan will be invested in accordance
with participant elections among certain investment options. Distributions
from participant accounts will not be permitted before age 59 1/2, except in
the event of death, disability, certain financial hardships or termination of
employment.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Lasker
and Orth for a term of five years and Mr. Albertson for a term of three years,
each subject to automatic one year extensions unless terminated. The agreements
provide for signing bonuses of $25,000 each for Messrs. Lasker, Orth and
Albertson and for initial annual salary compensation as follows: Messrs. Lasker
and Orth, each $180,000; and Mr. Albertson $200,000. Each of the agreements for
Messrs. Lasker and Orth provides for annual increases of the greater of ten
percent per annum or the increase in the consumer price index for the
metropolitan area in which Newport Beach, California, is located and Mr.
Albertson's provides for annual salary increases of $25,000 per year for the
second and third years of his agreement. In addition, the salaries may be raised
at the discretion of the Board upon recommendation of the Compensation
Committee. No criteria other than prudent stewardship of Company resources exist
for the exercise of such discretion. Each agreement also contains provisions for
discretionary bonus consideration and a fixed bonus equal to two percent of
pre-tax profits in the case of Messrs. Orth, Lasker and Albertson. In addition,
Messrs. Lasker, Orth and Albertson may receive discretionary bonuses of up to
50% of base salary if certain to-be-budgeted financial results are exceeded.
Except to the extent required to carry on pre-existing duties to investors in
other programs managed by National or other pre-existing real estate
investments, each agreement includes provisions restricting the officers from
competing with the Company during the term of such employment. Each agreement
also provides for certain salary and benefit continuance for six months if the
officer is permanently disabled; and, provides for a severance payment in the
amount of 2.99 times for Messrs. Lasker, Orth and Albertson, the officer's
average salary and bonus over the past five years (or such shorter time as the
officer was employed), payable in 18 equal monthly installments for Messrs.
Lasker, Orth and Albertson. Change of control is generally defined to include a
consolidation in the hands of one Person of 40% or more of the voting securities
of the Company, a business combination after which the existing shareholders of
the Company hold less than 51% of the voting securities of the resulting entity,
or a change in membership of the Board of Directors resulting in 50% or more of
the Board of Directors not being nominated by management.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Charter Documents limit the liability of the Company's
directors to the Company and its stockholders for money damages to the fullest
extent permitted from time to time by Delaware law. Delaware law presently
permits the liability of directors to a corporation or its shareholders for
money damages to be limited, except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
the law; (iii) for unlawful
165
<PAGE>
distributions to stockholders; and (iv) for any transaction from which the
director derived an improper benefit.
The Company's By-Laws require the Company to indemnify its
directors, officers and certain other parties (collectively "agents") to the
fullest extent permitted from time to time by Delaware law. The Company's
Certificate of Incorporation and By-Laws also permit the Company to indemnify
its agents who have served another corporation or enterprise in various
capacities at the request of the Company. The Delaware law presently permits
a corporation to indemnify its agents against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their
service to or at the request of the Company, unless it is established that:
(i) the act or omission of the indemnified party was material to the matter
giving rise to the proceeding and was committed in bad faith or was the
result of active and deliberate dishonesty; (ii) the indemnified party
actually received an improper personal benefit; or (iii) in the case of any
criminal proceeding, the indemnified party had reasonable cause to believe
that the act or omission was unlawful. Indemnification may be made against
judgments, penalties, fines, settlements and reasonable expenses actually
incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by or in the right of the
Company, indemnification may not be made with respect to any proceeding in
which the director or officer has been adjudged to be liable to the Company.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer in
which the director or officer was adjudged to be liable on the basis that the
personal benefit was improperly received. The termination of any proceeding
by conviction, or upon a plea of NOLO CONTENDERE or its equivalent, or an
entry of any order of probation prior to judgment, creates a rebuttable
presumption that the director or officer did not meet the requisite standard
of conduct required for indemnification to be permitted. Indemnification
under the provisions of the Delaware law is not deemed exclusive to any other
rights, by indemnification or otherwise, to which an officer or director may
be entitled under the Company's Charter or By- Laws, or under resolutions of
shareholders or directors, contract or otherwise.
The Company will apply for a directors and officers liability insurance
policy in an amount of $5,000,000. The directors and officers liability
insurance insures (i) the directors and officers of the Company from any claim
arising out of an alleged wrongful act by such persons while acting as directors
and officers of the Company and (ii) the Company to the extent that it has
indemnified the directors and officers for such loss.
PRIOR PROGRAMS
None of the executive officers of the Company have participated in the
operation of an entity with similar objectives to those of the Company, although
each of such officers has skills and experience in one or more of the types of
property to be acquired and operated by the Company. See "Management Following
the Acquisition -- Executive Officers and Directors" for biographical
information about the executive officers.
166
<PAGE>
In the last ten years, National sponsored 12 programs which offered
tenancy-in-common interests in loans secured by real estate located in
California. Nine of such programs were public programs having raised more
than $100,000,000 from more than 5,500 investors and three were private
programs. The total amount of money raised from the private offerings was
approximately $900,000 from a total of 72 investors. Loans were made to
developers of 10 California properties. One-half of one percent of the loans
were made to developers of shopping centers, approximately 30% to developers
of mixed use projects (commercial and residential) and approximately 70% to
developers of residential properties. All of the properties involved
previously undeveloped land. Of the amount loaned, approximately $16,000,000
was distributed back to investors. Of the 12 lending programs, ten eventually
were defaulted upon by the borrowers and two paid the lender/investors in
full. In each of the programs where borrowers defaulted and National did not
replace the borrower with another entity, possession of the applicable
property was taken through National's efforts and the investors became the
tenant-in-common owners of the properties through trusts established for
their benefit by National. Where possible, National is in the process of
trying to bring these properties to a point where they can be sold or
otherwise return as much as possible to the investors.
None of the 12 tenancy-in-common lending programs had investment
objectives similar to those of the Company.
The names of the programs are: Sacramento/Delta Greens "Trudy Pat"
Program, Oceanside "Trudy Pat" Program, Yosemite/Ahwahnee I "Trudy Pat"
Program, Yosemite/Ahwahnee II "Trudy Pat" Program, Mori Point "Trudy Pat"
Program, Cypress Lakes "Trudy Pat" Program (located in Contra Costa County,
California), Joshua Ranch "Trudy Pat" Program (located in Palmdale,
California), Arciero-Diamond Ridge "Trudy Pat" Program (located in Diamond
Bar, California), Esperanza Program (located in Victorville, California),
Stacey Rose "A" Program (located in Victorville, California), Stacey Rose "B"
Program (located in Victorville, California), and Franklin Meadows "Trudy
Pat" Program (located in Sacramento, California). None of such programs have
been required to file reports with the Commission.
Only the Yosemite/Ahwahnee Properties and the Cypress Lakes property
have been acquired through foreclosure in the past three years. Detailed
information regarding the Yosemite/Ahwahnee Properties may be found at "Business
and Properties -- Properties -- Yosemite/Ahwahnee Properties." The Cypress Lakes
property consists of approximately 686 acres which were intended to be developed
into an 18-hole golf course along with 1,330 residential units.
The principal adverse business development which caused 10 of the 12
loans to default was the precipitous decline of the value of real estate
throughout California brought about by the economic recession that commenced
in California in the early 1990s. The decline in real estate values changed
the economics of the projects planned by the developers so that they were no
longer able to project profitability for themselves. Further, the
availability of traditional financing for construction was significantly
reduced due to (i) the savings and loan association failures of the late
1980s and (ii) bank regulatory requirements which tightened the availability
of
167
<PAGE>
credit generally and substantially increased the amount of equity required
as a prerequisite to obtaining a real estate development loan.
With real estate values down and the availability of credit
substantially reduced, the borrowers elected to cut their losses, default on
the loans and turn the Properties over to the lender/Investors. This decision
resulted in the Investors in the various Programs becoming tenancy-in-common
beneficial owners of the real estate which secured the loans. This economic
reality was not unique to the Programs.
PRIOR PERFORMANCE SCHEDULES
Certain prior performance schedules are included in the following
tables. Schedule A shows, as of December 31, 1997, general information about
funds raised by the only program the offering for which closed in the last three
years. Schedule B shows, as of December 31, 1997, compensation paid to National
or its affiliates by the eleven programs which have not been completed. Schedule
C shows, as of December 31, 1997, the annual operating results of the eight
programs the offering for which closed in the last five years. Schedule D shows
general information about the one program that was completed within the last
five years and the two programs which obtained title to the real estate securing
their loans in the last five years. See also "Background and Reasons for the
Acquisition --Historical Compensation for Servicing, Asset and Property
Management/Effect of Acquisition" and "-- Historical Cash Distributions to
Investors" for further information about compensation paid to National and its
affiliates and distributions to Investors in the Programs.
168
<PAGE>
SCHEDULE A
The purpose of Schedule A is to show, as of August 31, 1998, information about
the funds raised and the associated offering expenses of the only "Trudy Pat"
program which closed in the three most recent years. The business objective of
the program was to earn a higher rate of interest on money than was available
from financial institutions and to receive a return of the principal advance in
four years or less. THIS PROGRAM DID NOT HAVE INVESTMENT OBJECTIVES SIMILAR TO
THOSE OF THE COMPANY. Prospective investors should be aware that the results of
this program are not necessarily indicative of the potential results of the
Company. See "Prior Programs" at page __ for a narrative summary of similar
programs in which National was involved.
<TABLE>
<CAPTION>
ARCIERO-DIAMOND RIDGE
---------------------
<S> <C>
Dollar amount offered $ 14,000,000
Dollar amount raised 5,538,800
Less offering expenses:
Organizational expenses(1) 0
Sales commissions(1) 0
Discounts retained by affiliates(1) 0
Loan Amount $ 5,538,800
Date offering began July 21, 1993
Length of offering in months 12.75
Months to investment all available for one
investment
</TABLE>
- ---------------------
(1) The borrower repaid the loan proceeds on August 17, 1994 before the entire
amount offered was raised. No offering expenses were paid by the investors.
169
<PAGE>
SCHEDULE B
The purpose of Schedule B is to show, as of August 31, 1998, aggregate
compensation paid over the last three years to National and its affiliates by
the eleven public "Trudy Pat" programs which have not been completed. The
business objective of the program was to earn a higher rate of interest on money
than was available from financial institutions and to receive a return of the
principal advance in four years or less. NONE OF THE PROGRAMS HAVE INVESTMENT
OBJECTIVES SIMILAR TO THOSE OF THE COMPANY. Prospective investors should be
aware that the results of these programs are not necessarily indicative of the
potential results of the Company. See "Prior Programs" at page __ for a
narrative summary of similar programs in which National was involved.
<TABLE>
<CAPTION>
Sacramento/ Yosemite/ Yosemite/
Delta Greens Oceanside Ahwahnee I Ahwahnee II Mori Point
------------ ------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Date offering commenced 11/1/88 11/15/91 5/2/89 9/10/90 11/20/89
Dollar amount raised $5,000,000 $30,000,000 $6,500,000 $13,500,000 $10,000,000
Servicing fees
Jan. 1995 to Dec. 1997:
Accrued 0 0 0 0 0
Paid 0 900,000 48,750 101,250 0
Property management fees
Jan. 1995 to Dec. 1997:
Accrued 141,733 0 0 0 272,667
Paid 8,267 0 146,250 303,750 27,333
Amount paid to National
from proceeds of offerings
closed in the most recent
three years N/A N/A N/A N/A N/A
Arciero-
Joshua Ranch Cypress Lakes Diamond Ridge
------------ ------------- -------------
<S> <C> <C> <C>
Date offering commenced 3/26/90 2/19/91 7/21/93
Dollar amount raised $15,000,000 $14,000,000 $5,538,000
Servicing fees
Jan. 1995 to Dec. 1997:
Accrued 0 0 0
Paid 0 0 0
Property management fees
Jan. 1995 to Dec. 1997:
Accrued 0 0 0
Paid 450,000 420,000 0
Amount paid to National
from proceeds of offerings
closed in the most recent
three years N/A N/A $ 69,670
</TABLE>
170
<PAGE>
SCHEDULE B (continued)
<TABLE>
<CAPTION>
Esperanza Stacey Rose "A" Stacey Rose "B"
----------- --------------- ----------------
<S> <C> <C> <C>
Date offering commenced 11/18/87 5/5/88 5/5/88
Dollar amount raised $500,000 $85,000 $315,300
Servicing fees
Jan. 1995 to Dec. 1997:
Accrued 0 0 0
Paid 0 0 0
Property management fees
Jan. 1995 to Dec. 1997:
Accrued 15,000 2,550 9,459
Paid 0 0 0
Amount paid to National
from proceeds of offerings
closed in the most recent
three years N/A N/A N/A
</TABLE>
171
<PAGE>
SCHEDULE C
The purpose of Schedule C is to show, as of August 31, 1998, the annual
operating results of the seven public "Trudy Pat" programs the offerings of
which closed in the most recent five years. No tax information is included
as tenancy-in-common arrangements are not required to file information tax
returns. Each investor determines the tax treatment of distributions. The
business objective of the program was to earn a higher rate of interest on
money than was available from financial institutions and to receive a return
of the principal advance in four years or less. NONE OF THE PROGRAMS HAVE
INVESTMENT OBJECTIVES SIMILAR TO THOSE OF THE COMPANY. Prospective investors
should be aware that the results of these programs are not necessarily
indicative of the potential results of the Company. See "Prior Programs" at
page __ for a narrative summary of similar programs in which National was
involved.
<TABLE>
<CAPTION>
Sacramento/Delta Greens Oceanside
----------------------------------- -------------------------------------------------------------------------
1993 1994 1995 1996 1997 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Borrower loan
repayments:
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 375,000 $ 900,000 $ 900,000 $ 675,000 $
Interest 0 0 0 0 0 3,145,869 393,750 0 0 0 3,000,000
Cash from sale N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Distributions to
investors:(1)
Principal 0 0 0 0 0 0 375,000 900,000 900,000 675,000
Interest 0 0 0 0 0 3,145,869 393,750 0 $ 0 0
Distributions per
$1,000 invested:
Principal N/A N/A N/A N/A N/A 0 12.50 30 30 22.50
Interest N/A N/A N/A N/A N/A 104.86 13.13 0 0 0
</TABLE>
- -------------
(1) Net of servicing fees and property management fees and expenses.
172
<PAGE>
SCHEDULE C (continued)
<TABLE>
<CAPTION>
Yosemite/Ahwahnee I Yosemite/Ahwahnee II
------------------------------------------------------ ------------------------------------------------------
1993 1994 1995 1996 1997 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Borrower loan
repayments:
Principal $ 103,085 $ 0 $ 0 $ 0 $ 0 $ 68,264 $ 0 $ 0 $ 0 $ 0
Interest 920,794 4,756 0 0 0 688,303 10,273 0 0 0
Cash from sale N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Distributions to
investors:(1)
Principal 103,085 0 0 0 0 68,264 0 0 0 0
Interest 920,794 4,756 0 0 0 688,303 10,273 0 0 0
Distributions per
$1,000 invested:
Principal 15.86 0 0 0 0 5.06 0 0 0 0
Interest 141.66 .73 0 0 0 50.99 .76 0 0 0
</TABLE>
- ---------
(1) Net of servicing fees and property management fees and expenses.
173
<PAGE>
SCHEDULE C (continued)
<TABLE>
<CAPTION>
Mori Point Joshua Ranch
------------------------------------------------------ ------------------------------------------------------
1993 1994 1995 1996 1997 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Borrower loan
repayments:
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest 0 0 0 0 0 478,127 0 0 0 0
Cash from sale 0 0 0 0 0 N/A 0 0 0 0
Distributions to
investors:(1)
Principal 0 0 0 0 0 0 0 0 0 0
Interest 0 0 0 0 0 478,127 0 0 0 0
Distributions per
$1,000 invested:
Principal 0 0 0 0 0 0 0 0 0 0
Interest 0 0 0 0 0 31.88 0 0 0 0
</TABLE>
- -----------
(1) Net of servicing fees and property management fees and expenses.
174
<PAGE>
SCHEDULE C (continued)
<TABLE>
<CAPTION>
Cypress Lakes Arciero-Diamond Ridge
-------------------------------------------------- --------------------------------------------------
1993 1994 1995 1996 1997 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Borrower loan
repayments:
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 5,538,800 N/A N/A N/A
Interest 1,337,101 62,706 0 0 0 113,531 297,077 N/A N/A N/A
Cash from sale N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Distributions to
investors:(1)
Principal 0 0 0 0 0 $ 0 5,538,800 N/A N/A N/A
Interest 1,337,101 62,706 0 0 0 113,551 997,027 N/A N/A N/A
Distributions per $1,000
invested:
Principal 0 0 0 0 0 $ 0 1,000 N/A N/A N/A
Interest 95.57 4.48 0 0 0 20.50 53.64 N/A N/A N/A
</TABLE>
- ------------
(1) Net of servicing fees and property management fees and expenses.
175
<PAGE>
SCHEDULE D
The purpose of Schedule D is to show, as of August 31, 1998, the results of
the "Trudy Pat" programs which closed or in which the loan has been
completely repaid or title obtained to the property within the last five
years. No tax information is available as tenancy-in-common arrangements are
not required to file information income tax returns. The business objective
of the program was to earn a higher rate of interest on money than was
available from financial institutions and to receive a return of the
principal advance in four years or less. NONE OF THE PROGRAMS HAVE
INVESTMENT OBJECTIVES SIMILAR TO THOSE OF THE COMPANY. Prospective investors
should be aware that the results of these programs are not necessarily
indicative of the potential results of the Company. See "Prior Programs" at
page __ for a narrative summary of similar programs in which National was
involved.
<TABLE>
<CAPTION>
Arciero-Diamond Palmdale/
Ridge Joshua Ranch Cypress Lakes
----- ------------ -------------
<S> <C> <C> <C>
Dollar amount raised $ 5,538,800 $ 15,000,000 $ 14,000,000
Loan secured by one property one property one property
Date loan fully funded July 25, 1994 February 24, 1992 February 26, 1993
Date loan paid off or title to property
obtained August 17, 1994(1) October 8,1993 July 14, 1995
Repayment/Distributions:
Principal $ 5,538,800 $ -0- $ -0-
Interest $ 297,077(2) $ 3,887,428 $ 3,739,550
Distributions per $1,000 invested:
Principal $ 1,000 $ -0- $ -0-
Interest $ 53.64(2) $ 259.16 $ 267.11
</TABLE>
- ----------
(1) This loan was funded over the course of 12.75 months, commencing on July
21, 1993. Funds were first advanced to the borrower on September 16, 1993.
(2) Net of compensation to National. In 1993, interest in the amount of
$113,551 ($53.64 per $1,000 of investment), net of compensation to
National, was distributed to investors.
176
<PAGE>
SECONDARY MARKET FOR TENANCY-IN-COMMON INTERESTS
There is no organized market for the tenancy-in-common interests held by
Investors in the Programs. Any transfers of such interests must be privately
negotiated among willing parties.
PRINCIPAL SHAREHOLDERS
The following tables set forth information as of the date hereof as to each
person or entity who owns of record or is known by the Company to own
beneficially five percent or more of the Company's outstanding voting securities
and information as to the securities ownership of management. All stock
ownership shown below is direct unless otherwise indicated.
PRINCIPAL SHAREHOLDERS
<TABLE>
<CAPTION>
Percent of All
Voting Shares
Name and Address Common Stock Outstanding
---------------- ------------ -----------
<S> <C> <C>
Yale Partnership for Growth and [118,814] 36.7%
Development, L.P.(1)
4220 Von Karman Avenue
Suite 110
Newport Beach, CA 92660
J-Pat, L.P.(2) [118,814] 36.7%
4220 Von Karman Avenue
Suite 110
Newport Beach, CA 92660
</TABLE>
- --------------
(1) As manager of the general partner, Mr. Lasker controls this partnership and
has sole voting and investment power.
(2) As manager of the general partner, Mr. Orth controls this partnership and
has sole voting and investment power.
177
<PAGE>
DIRECTOR AND OFFICER STOCK OWNERSHIP
<TABLE>
<CAPTION>
Percent of
Percent of Class if
Class if Percent of Acquisition
Percent Acquisition Class if Completed,
of Class if Completed Acquisition All Units
Acquisition only and all Completed Sold and All Common
Common Completed Warrants and All Warrants Stock Percent
Name/Position Stock Only(3) Exercised(3) Units Sold(3) Exercised(3) Options of Class
------------- ----- ---- ------- ------------- ------------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
David G. Lasker,
President, Chief
Financial Officer and
Director(1) [118,814] 6.88%(4) 2.0%(7) 1.96%(10) 1.85%(13) 10,000(16) 26.66%
James Orth, Chief
Executive Officer,
Secretary and Director(2) [118,814] 6.88%(4) 2.0%(7) 1.96%(10) 1.85%(13) 10,000(16) 26.66%
L.C. "Bob" Albertson, Jr.
Executive Vice President,
Director 44,685 2.59%(5) 0.8%(8) 0.74%(11) 0.7%(14) 10,000(16) 26.66%
Charles F. Hanson, Jr.,
Director - - - - - 2,500 6.67%
Dudley Muth, Director - - - - - 2,500 6.67%
James G. LeSieur III,
Director - - - - - 2,500 6.68%
Directors and Officers as
a group [282,313] 16.35%(6) 4.8%(9) 4.66%(12) 4.40%(15) 37,500 100.00%
</TABLE>
- ---------------------
(1) Mr. Lasker controls Yale Partnership for Growth and Development, L.P. which
owns the Shares reported. He has sole voting and investment power.
(2) Mr. Orth controls J-Pat, L.P. which owns the Shares reported. He has sole
voting and investment power.
(3) Assuming all ten Programs participate in the Acquisition.
(4) 6.97% if only seven Programs participate.
(5) 2.62% if only seven Programs participate.
(6) 16.56% if only seven Programs participate.
(7) 2.03% if only seven Programs participate.
(8) 0.77% if only seven Programs participate.
(9) 4.83% if only seven Programs participate.
(10) 1.99% if only seven Programs participate.
(11) 0.75% if only seven Programs participate.
(12) 4.73% if only seven Programs participate.
(13) 1.87% if only seven Programs participate.
(14) 0.7% if only seven Programs participate.
(15) 4.44% if only seven Programs participate.
(16) Options to be granted to Messrs. Lasker, Orth and Albertson initially
will not be granted pursuant to the Stock Incentive Plan. Those
granted to the other directors will be granted pursuant to that
Plan. Messrs. Lasker, Orth and Albertson each will be able to exercise
options to purchase 3,333 shares immediately upon receipt. In
addition, each of Messrs. Lasker, Orth and Albertson will be issued
10,000 options on the first anniversary of the Acquisition and 10,000
options on the second anniversary of the Acquisition.
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DESCRIPTION OF SECURITIES
The following description of the Shares and other capital stock of the
Company does not purport to be complete but contains a summary of portions of
the Company's Certificate of Incorporation and is qualified in its entirety
by reference to the Company's Certificate of Incorporation.
GENERAL
The total number of shares of stock which the Company has authority to
issue is 12,000,000 shares, of which 10,000,000 are shares of Common Stock,
$0.001 par value per share ("Common Stock"), and 2,000,000 are shares of
Preferred Stock, $0.001 par value per share ("Preferred Stock"). The Board of
Directors is authorized to provide for the issuance of shares of Preferred Stock
in one or more series, to establish the number of shares in each series and to
fix the designation, powers, preferences and the rights of such series and the
qualifications, limitations or restrictions thereof.
COMMON STOCK
All shares of Common Stock offered hereby will be duly authorized, fully
paid and nonassessable. Subject to the preferential rights of any other shares
or series of shares of Preferred Stock, holders of Common Stock will be entitled
to receive distributions on such Common Stock if, as and when authorized and
declared by the Board of Directors of the Company out of assets legally
available therefor and to share ratably in the assets of the Company legally
available for distribution to its Shareholders in the event of its liquidation,
dissolution or winding-up after payment of, or adequate provision for, all known
debts and liabilities of the Company.
Each outstanding share of Common Stock entitles the holder to one vote on
all matters submitted to a vote of Shareholders, including the election of
directors, and, except as otherwise required by law or except as provided with
respect to any other class or series of shares of stock, the holders of such
shares of Common Stock will possess the exclusive voting power. There is no
cumulative voting in the election of directors, which means that the holders of
a majority of the outstanding shares of Common Stock can elect all of the
directors then standing for election and the holders of the remaining shares, if
any, will not be able to elect any directors. Holders of Common Stock have no
conversion, sinking fund, redemption rights or any preemptive rights to
subscribe for any securities of the Company.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more
series as authorized by the Board of Directors. Prior to issuance of shares
of each series, the Board of Directors by resolution shall designate that
series to distinguish it from all other series and classes of stock of the
Company, shall specify the number of shares to be included in the series and
shall set the
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terms, preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms
or conditions of redemption. Subject to the express terms of any other
series of preferred stock outstanding at the time and notwithstanding any
other provision of the Certificate of Incorporation, the Board of Directors
may increase or decrease the number of shares of, or alter the designation or
classify or reclassify, any unissued shares of any series of Preferred Stock
by setting or changing, in any one or more respects, from time to time before
issuing the shares, and the terms, preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption of the
shares of any series of Preferred Stock. There are no shares of Preferred
Stock outstanding and the Company has no present plans to issue any.
WARRANTS
The only presently existing warrants will be issued as part of the Units
to be issued in the Acquisition and the concurrent offering they are
denominated "1998" Warrants. Each warrant will be exercisable to purchase
one share of Common Stock. The 1998 Warrants will be exercisable for a period
of 20 consecutive trading days commencing on the first trading day of the
first full week after the six-month anniversary of the issuance of the Units
to Investors. The exercise price would be [80%] of the average trading price
for the Common Stock with average trading price meaning the average of the
closing trading prices for the Common Stock for the 20 consecutive trading
days (whether or not trades actually occurred on all of such dates) prior to
the date the 1998 Warrants first become exercisable. The warrants are [not]
detachable from the Units [for 60 days], contain standard anti-dilution
clauses and will be fully transferable from [60 days from] the date of the
close of the Acquisition. The Common Stock issued upon exercise of these
warrants has been registered under the Securities Act and, when issued, will
be freely tradable. [The warrants will not be listed initially.] National
will not exercise any of the warrants it receives with Units allocated to it
as an Investor in each of the Programs.
CERTAIN SHAREHOLDER VOTING REQUIREMENTS
The Company's Certificate of Incorporation requires the concurrence of the
holders of two-thirds of the voting power of the outstanding voting stock to
amend specified provisions of the Company's Certificate of Incorporation and
By-Laws, which provide that (i) shareholders generally may not call a special
meeting of shareholders or act by written consent; (ii) subject to applicable
law, the Company's Board of Directors will be divided into three classes, the
effect of which is that only approximately one-third of the Board will be
elected each year; (iii) directors may be removed by the Shareholders only for
cause and only upon the affirmative vote of two-thirds of the voting power of
the outstanding voting stock; (iv) a vote of two-thirds of the voting power of
the outstanding voting stock not held by an "interested stockholder" is required
for the approval of specified types of business combinations; and (v) subject to
applicable law, holders of Common Stock will not be entitled to cumulative
voting of shares for the election of directors. These provisions, together with
a classified Board of Directors and the authorization to
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issue Preferred Stock on terms designated by the Board of Directors, could be
used to defend against certain business combinations not favored by the Board
of Directors (so-called "hostile takeovers").
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company.
THE OFFERING
OFFERING OF ACQUISITION UNITS
Subject to the conditions set forth in this Prospectus, the Company is
offering to Investors in the Programs an aggregate of [1,403,321] Units in
exchange for all of the real estate and other assets, certain of the
liabilities and business of all of the Programs. The purpose of the offering
is to consolidate the operations of the Programs, improve the ability to sell
or obtain financing for development of the Program's Properties, eliminate the
assessment process, focus on revenue-generating potential, improve efficiency
of operations in order to reduce costs and increase profit potential, and
create greater potential overall value than each of the Programs have
separately. The Units will be allocated to the Programs based on Exchange
Values and will be further allocated within each of the Programs pro rata in
respect of the Adjusted Outstanding Investments of the Investors in the
respective Programs. For example,
<TABLE>
<CAPTION>
If your Adjusted Outstanding You will receive
Investment is $10,000 in the following number of Units
------------------------ -------------------------------
If Only the Seven
If All Programs "Trudy Pat" Programs
Participate Participate
----------- -----------
<S> <C> <C>
Sacramento/Delta Greens 128 128
Oceanside 111 111
Yosemite/Ahwahnee I 122 122
Yosemite/Ahwahnee II 117 117
Mori Point 219 219
Cypress Lakes 154 154
Palmdale/Joshua Ranch 72 72
Esperanza 185 -
Stacey Rose A 229 -
Stacey Rose B 228 -
</TABLE>
No sales commission will be paid by any party in connection with the
exchange of the Units for the assets of the Programs.
Immediately after the approval of the Acquisition, as agent of and on
behalf of the Investors, National or an affiliated entity will execute the
acquisition agreements for the Properties of each of the Programs and title
to each of the Properties will pass to the Company in accordance with
California real estate law. In addition, certificates for the Units will be
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prepared by the Company's Transfer Agent and Registrar, and promptly mailed
to all Investors of record.
CONCURRENT OFFERING
In addition to the Consent Solicitation, the Company is simultaneously
offering up to 125,000 units at $20 per unit to be issued exclusively to
existing program investors. The offering is a "best efforts" offering with no
minimum number of units which must be sold. There is no assurance that any
proceeds will be received. No sales can be completed unless the acquisition is
approved. Each unit consists of one share and three 1998 Warrants. Each unit
offered concurrently will be identical to the Units issued in the Acquisition.
NASD broker-dealers will receive an aggregate of $1.40 per unit commission from
the company for any units sold with their help.
If any funds are raised by the offering, they would be used to pay
offering expenses, acquisition expenses, property taxes due, and for working
capital, as detailed in the company's business plan. Any funds raised on
exercise of warrants would be used for working capital.
FOR ADDITIONAL INFORMATION ABOUT THE CONCURRENT OFFERING, SEE THE
PROSPECTUS WHICH ACCOMPANIES THIS CONSENT SOLICITATION STATEMENT AS A
SEPARATE DOCUMENT.
APPRAISALS AND FAIRNESS OPINION
GENERAL
Exchange Values were determined as of _________, 1998 [THE MONTH-END
BEFORE MAILING OF THIS PROSPECTUS] and have been assigned to each of the
Programs solely to establish a method of allocating the Shares for purposes of
the Acquisition. The Exchange Values were determined by National and the
Company. The starting point for the Exchange Values was the independent
appraised value of each of the Program's real estate; however, due to the
significant disparity between the March 1998 and the October 1996 appraised
values of the Yosemite/Ahwahnee I and II Properties, management of National and
the Company had to reconcile those appraisals to arrive at Exchange Values for
the Yosemite/Ahwahnee I and II Properties. See "-- Conflicting Yosemite/Ahwahnee
Properties' Appraisals" for adjustments to the appraised values of the
Yosemite/Ahwahnee Properties that were made to arrive at those Exchange Values.
Such appraised values were determined for the Programs by the following
appraisers:
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<TABLE>
<CAPTION>
Name, Address of Appraisers
Name of Program and Date of Appraisal
- --------------- ---------------------------
<S> <C>
Sacramento/Delta Greens David E. Lane, Inc.
9851 Horn Road, Suite 150
Old Mills Winery Office Park
Sacramento, California 95827
Date: May 1997 and March 1998
Yosemite/Ahwahnee I and II Arnold Associates
751 West 18th Street
Post Office Box 272
Merced, California 95341
Date: May 1997 and March 1998
The Mentor Group, Inc.
4333 Park Terrace Drive
Suite 200
Westlake Village, California 91361
Date: October 1996
Mori Point PKF Consulting
425 California Street
San Francisco, California 94104
Date: May 1997 and March 1998
Cypress Lakes Sedway Group
3 Embarcadero Centre, Suite 1150
San Francisco, California 94111
Date: March 1998
Palmdale/Joshua Ranch Likas & Associates
20101 S.W. Birch Street, Suite 150B
Newport Beach, California 92660
Date: March 1998
Esperanza Likas & Associates
20101 S.W. Birch Street, Suite 150B
Newport Beach, California 92660
Date: March 1998
Stacey Rose A and B Likas & Associates
20101 S.W. Birch Street, Suite 150B
Newport Beach, California 92660
Date: March 1998
</TABLE>
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<PAGE>
The aggregate appraised values of the assets covered by all appraisals
(as the Yosemite/Ahwahnee appraisals were reconciled by National and the
Company) is $27,601,000.
The above appraisers were selected because of their respective
reputations and experience in appraising the value of real estate of the type
involved. In addition, in the cases of Arnold Associates and Boznanski &
Company, the original borrowers had used these companies for the appraisals
delivered to the lenders (Investors) at the time the original "Trudy Pat" loan
was made. National felt their prior experience with the Yosemite/Ahwahnee
Properties and the Oceanside Property, respectively, might provide some cost
savings to their respective Programs.
National then engaged Houlihan Valuation Advisors, 2029 Century Park
East, Suite 2890, Los Angeles, California 90067, the Independent Valuator, to
render an opinion that the allocation of Shares among the Programs, as well as
the number of Shares retained by management of the Company and other founders of
the Company, is fair to the Investors from a financial point of view whether
only the seven Trudy Pat programs elect to participate or all ten Programs elect
to participate. National did not request the Independent Valuator to render
opinions on the financial fairness of other possible combinations of Programs.
National did not believe the other combinations to be material if the proposed
allocations from seven or all ten Programs was financially fair. If the
Acquisition results in the combination of Programs other than the seven Trudy
Pat Programs or all ten Programs, there will be no fairness opinions that
addresses that combination of Programs.
The Fairness Opinion is attached as Appendix 1 to this Prospectus. The
Fairness Opinion and appraisals have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. Copies may be obtained without
charge by writing to Vivian Kennedy, National Investors Financial, Inc., 4220
Von Karman Avenue, Suite 110, Newport Beach, California 92660.
National did not impose any limitations on the scope of the
investigations of the independent appraisers or the Independent Valuator to
enable them to render their respective appraisals and the Fairness Opinion.
National and the Company determined the consideration to be paid to the
Investors. The Independent Valuator has no obligation to update its Fairness
Opinion. Neither National nor the Company plans to request an update at present.
There is no contract, agreement or understanding between National or the Company
on the one hand and the Independent Valuator on the other hand regarding any
future engagement.
The Fairness Opinion is discussed in detail in "Background and Reasons
for the Acquisition -- Appraisals and Fairness Opinion."
EXPERIENCE OF INDEPENDENT APPRAISERS
Each of the independent appraisers is a member in a nationally
recognized society such as the American Institute of Real Estate Appraisers
("MAI"). Each has been involved in the appraisal of real estate in California
for many years. National believes that each of the independent appraisers is
recognized among such appraiser's peers as being well experienced in
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<PAGE>
appraising the type of real estate it was asked to value. National selected
the appraisers because of the appraisers' respective experience and
reputation in connection with real estate assets of the nature they were,
respectively, asked to value.
MAY 1997 AND MARCH 1998 APPRAISALS
On behalf of the Programs, National engaged the independent
appraisers identified in "-- General" above to appraise the "as is," highest
and best use, value of the real estate portfolio of the applicable Program.
Each of the independent appraisers has consented to reference to the
appraisals in this Prospectus.
SUMMARY OF METHODOLOGY. In the case of the real estate in the
Sacramento/Delta Greens Program, the independent appraiser determined that the
sales comparison, land residual, and discounted cash flow methods for appraising
real estate were appropriate to use. In the case of the real estate in the
Yosemite/Ahwahnee I and II Programs, the independent appraiser determined that
the sales comparison, income and cost methods for appraising real estate were
appropriate to use on various portions of the Properties. In the case of the
real estate in the Mori Point Program, the independent appraiser determined that
the discounted cash flow, ground rent capitalization and sales comparison
methods for appraising real estate were appropriate to use. In the case of the
real estate in the Palmdale/Joshua Ranch, Esperanza and Stacey Rose A and B
Programs, the independent appraiser determined that the sales comparison
approach was appropriate to use. In the case of the Cypress Lakes Program, the
independent appraiser determined the sales comparison approach and the
subdivision development approach were appropriate to use. See Appendix 2 for
definitions of these appraisal methods.
In conducting each of the appraisals, representatives of the several
appraisers reviewed and relied upon, without independent verification, certain
information provided by National, including, but not limited to: applicable
financial information; property descriptions; historical acquisition
information; title information relating to encumbrances; and such other
information as was requested by the appraiser and available to National.
Representatives of each of the appraisers performed site inspections on the real
estate of each of the Programs in 1997. In the course of these visits, any
physical facilities were inspected and information on the local market, as well
as the subject property, was gathered.
Where appropriate, applicable government records were reviewed and
information was gathered from applicable government officials. As appropriate,
historical operating statements for certain of the Properties were reviewed.
Each appraiser then estimated the value of the real estate of the
applicable Programs based on the approaches to valuation described above.
CONCLUSION AS TO APPRAISED VALUE. Based on the valuation methodology
used by each of the appraisers, the estimated "as is" value of the real estate
for each of the Programs is as follows:
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<PAGE>
<TABLE>
<CAPTION>
Real Estate "As Is" Ownership Date Real Estate
Name of Program Value Conclusion(1) Value Conclusions
- --------------- -------------------- --------------------------
<S> <C> <C>
Sacramento/Delta Greens $ 1,745,000 $ 3,075,000
Oceanside N/A(2) 6,484,000(3)
Yosemite/Ahwahnee I and II 20,916,000 19,641,000
Mori Point 5,500,000 4,100,000
Cypress Lakes 6,000,000 5,200,000
Palmdale/Joshua Ranch 2,700,000 5,390,000
Esperanza 270,000 530,000
Stacey Rose A and B 320,000 1,600,000
------------ ------------
TOTAL $ 37,451,000 $ 46,020,000
------------ ------------
------------ ------------
</TABLE>
- ------------
(1) See Appendix 2 for a description of each appraiser's conclusion with regard
to the valuation methods selected and with regard to separately
identifiable portions of the Property of each program.
(2) Parcels of Yosemite/Ahwahnee properties were purchased on June 5, 1998.
These parcels represent $10,350,000 of the total value.
(3) The value of the original Oceanside Program's property at the time title
was taken. That property was subsequently sold.
ASSUMPTIONS, LIMITATIONS AND QUALIFICATIONS. Each appraisal report
was prepared in accordance with the Uniform Standards of Professional
Appraisal Practice. Each appraiser utilized certain assumptions to determine
the appraised value of the Properties.
See Appendix 2 for a discussion of the assumptions, limitations and
qualifications of the appraisals.
THE MENTOR APPRAISAL
In the Fall of 1996, National hired The Mentor Group, Inc. ("Mentor")
to appraise the "highest and best use" value of the Yosemite/Ahwahnee Properties
as a guide for planning purposes. As of October 10, 1996, using primarily the
cost approach, Mentor determined the "as is" value of the subdivision portion of
the Properties to be $530,000 and the "as is" value of the balance (deemed
excess land) as $3,460,000 for an aggregate appraised value of approximately
$4,000,000. Mentor determined that the highest and best use of the Properties,
as of the appraisal date, was to hold the project for future study or project
implementation. In the Spring of 1997, National hired Arnold Associates to
determine the "as is" value of the Properties assuming that they were developed
at their highest and best use, recognizing that, to achieve highest and best
use, it would take a substantial continued investment in the Properties and a
significant amount of time.
In conducting the appraisal, representatives of The Mentor Group
reviewed and relied upon, without independent verification, certain information
provided by National, including, but not limited to: applicable financial
information; property descriptions; historical acquisition
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<PAGE>
information; title information relating to encumbrances; and such other
information as was requested by the appraiser and available to National.
Representatives of the appraiser performed site inspections on the real
estate of each of the Programs in the Fall of 1996. In the course of these
visits, any physical facilities were inspected and information on the local
market, as well as the subject property, was gathered.
Where appropriate, applicable government records were reviewed and
information was gathered from applicable government officials. As appropriate,
historical operating statements for certain of the Properties were reviewed.
The appraiser then estimated the value of the real estate of the
Yosemite/Ahwahnee Properties based on the approaches to valuation described
above.
CONFLICTING YOSEMITE/AHWAHNEE PROPERTIES' APPRAISALS
Faced with the significant disparity between the Yosemite/Ahwahnee
valuation conclusions of The Mentor Group and Arnold Associates (as the Arnold
Associates appraisal was updated to March 31, 1998), in order to arrive at an
Exchange Value for the Yosemite/Ahwahnee Properties, National used its judgment
regarding the two appraisals as follows:
First, with regard to the Ahwahnee Country Club portion of the combined
Properties, National judged the Arnold Associates appraisal as more reasonable
due to substantial improvements to the golf course and a doubling in the number
of golf course rounds played since the Mentor appraisal. Thus, the Arnold
appraisal of $3,810,000 for this portion of the Properties was used to determine
the aggregate value for purposes of calculating Exchange value.
Second, with regard to the Ahwahnee recreational vehicle park
portion, National accepted the Arnold Associates appraisal as more reasonable
due to the significant increase in membership sales from approximately 50 to
over 400 since the Mentor appraisal. Thus, the Arnold appraisal of $3,886,000
for this portion of the Properties was used to determine the aggregate
appraised value for purposes of calculating Exchange Value.
Third, with regard to Phase I of the Ahwahnee Country Club Estate lots,
sales subsequent to the Mentor appraisal support the Arnold Associates estimate
of value.
Fourth, as to the balance of the land, National accepted the
conservative Mentor appraisal as more reasonable due to the time and costs
required to develop these parcels.
Fifth, the aggregate revised appraisal was allocated between the
Yosemite/Ahwahnee I and II Programs in accordance with the amounts of the
respective original loans by each Program. National deemed this allocation
reasonable because there is no other way to allocate the respective financial
contribution to the current status of the entire property. This allocation
yielded a revised appraised value of $1,782,950 to the Yosemite/Ahwahnee I
Property and $3,703,050 to the Yosemite/Ahwahnee II Property.
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<PAGE>
ON-GOING RELATIONSHIPS
Each of the appraisers was paid a fee for its appraisals deemed to be
reasonable by National. The fees for such appraisals were paid out of funds
available to the respective Programs through cash flow or assessments. In
addition, each appraiser was reimbursed for reasonable travel and other
out-of-pocket expenses incurred in making site visits and in preparing the
valuations. The fees were negotiated between National and each of the appraisers
and payment thereof is not dependent upon completion of the Acquisition. Neither
National nor the Company has retained any of the appraisers in the past,
although the borrower in the Oceanside Program used Boznanski & Company and the
borrower in the Yosemite/Ahwahnee I and II Programs used Arnold Associates in
connection with the original "Trudy Pat" loans. National and the Company may
engage one or more of the appraisers to provide appraisal and other services in
the future. There is no contract, agreement or understanding between National or
the Company on the one hand and any of the appraisers on the other hand
regarding any future engagement.
UPDATES/CHANGES
None of the appraisers have any obligation to update their appraisals
and, at present, neither National nor the Company plan to obtain further
updates. Except for improvement in revenues from operations of the golf course
at the Yosemite/Ahwahnee Properties since the date of the Mentor appraisal,
neither National nor the Company are aware of any conditions which have changed
since the date of the appraisals which may affect appraised values.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material Federal income
tax consequences of the Acquisition to the Investors and the Company. It is
based on the Internal Revenue Code of 1986, as amended, the Income Tax
Regulations, judicial decisions, current positions of the Treasury Department
and the Internal Revenue Service contained in published Revenue Rulings and
Revenue Procedures, and current administrative positions of the Service, any of
which could be materially and adversely changed, possibly on a retroactive
basis, at any time.
It is impractical to summarize all potential Federal, state, local and
foreign tax consequences of the Acquisition. Accordingly, the following
discussion does not address any aspect of state, local or foreign law or Federal
estate or gift tax matters. Moreover, the following discussion does not address
special considerations that may apply (i) to certain classes of Investors
including, without limitation, Investors who are insurance companies, financial
institutions, securities dealers, foreign persons or Investors who receive Units
as compensation, or (ii) to Investors subject to special rules including,
without limitation, the personal holding company tax, the accumulated earnings
tax, the tax on unrelated business taxable income of tax- exempt entities, and
the S corporation rules. The Federal income tax consequences to any particular
Investor may be affected by matters not discussed below. Consequently, the
following
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<PAGE>
discussion should not be regarded as a complete analysis of all the
possible tax consequences or as a substitute for consultation by Investors with
their own tax advisors.
No advance rulings have been or will be obtained from the Service with
respect to any aspect of the Acquisition. Counsel to the Company, Arter & Hadden
LLP, is unable to give an opinion as to whether the Acquisition transaction will
qualify under Section 351 of the Code, as discussed below. Counsel has delivered
its opinion to the Company to the effect that the discussion under "Federal
Income Tax Consequences" accurately reflects the law as of the date of this
Prospectus. No other opinion of counsel has been or will be obtained with
respect to any tax aspect of the Acquisition. Unlike an advance ruling,
counsel's opinion is not binding on the Service and provides no assurance that
the Service will not challenge an Investor's or the Company's tax treatment of
the Acquisition. In the event of such a challenge, an Investor or the Company
may be adversely affected and personally may incur substantial legal and
accounting fees and costs even if the challenge proves to be unsuccessful. The
adverse consequences might not be the same for all Investors.
Upon receipt of a written request, a copy of the opinion will be
transmitted promptly, without charge, by the Company. Requests should be
addressed to Vivian Kennedy, National Investors Financial, Inc. 4220 Von
Karman Avenue, Suite 110, Newport Beach, California 92660.
INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE ACQUISITION AS
THEY RELATE TO THEIR PERSONAL TAX SITUATIONS.
QUALIFICATION OF THE ACQUISITION AS A SECTION 351 TRANSACTION
1. GENERAL RULES. The Federal income tax consequences of the
Acquisition will depend primarily on whether the Acquisition qualifies as a
Section 351 transaction. (All "Section" references in this summary are to the
specified Section of the Code.) The Company intends to treat the Acquisition as
a qualifying Section 351 transaction.
The Acquisition will qualify under Section 351 if (i) the
Company is not an "investment company," and (ii) collectively, the Investors in
the Programs who transfer the Properties to the Company in exchange for Units
are in "control" of the Company "immediately after the exchange." The Company's
transfer of the Properties to its subsidiary corporations in Section 351
transfers will not invalidate the Acquisition from qualifying as a Section 351
transaction. See, e.g., Revenue Ruling 77-449, 1977-2 C.B. 110.
(a) INVESTMENT COMPANY. The Acquisition will not qualify under
Section 351 if the Company is an "investment company" as defined in Section
351(e). Counsel to the Company is of the opinion that the Company is not an
investment company for this purpose.
(b) CONTROL. The Investors must be in "control" of the Company
immediately after the exchange. The term "control" is defined in Section 368(c)
as stock possessing at least
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80% of the total combined voting power of all classes of stock entitled to
vote and at least 80% of the total number of shares of all other classes of
stock of the corporation. Investors will acquire 80% or more of the Shares of
the Company (which is the only class of stock of the Company) and,
accordingly, will acquire "control" of the Company.
(c) IMMEDIATELY AFTER THE EXCHANGE. The Investors also must be
in control of the Company "immediately after the exchange." This requirement has
been the subject of considerable litigation, remains uncertain in certain
respects, and is subject to a case-by-case analysis of the facts, and is subject
to the application of the "step transaction doctrine" to those facts. This
uncertainty is compounded because the courts have not universally agreed upon
all of the components that are used in determining whether the step transaction
doctrine should be applied.
The principal concern raised by the possible application of
the step transaction doctrine to the Acquisition is that it may cause a
sufficient number of Investors, who will own 80% or more of the outstanding
Shares on the Effective Date, to be treated as owning less than 80%
"immediately after the exchange." This may occur if Investors in transactions
CONTEMPLATED BY THEM ON THE EFFECTIVE DATE dispose of Shares after the
Effective Date. This also could occur if the Company issues additional Shares
after the Acquisition in a transaction subject to the step transaction
doctrine. The Company does not intend to issue any additional Shares with
respect to which the step transaction may apply.
Under the step transaction doctrine, if an Investor's
subsequent disposition of Shares and his receipt of Shares in the Acquisition
are treated as elements of a single integrated transaction of the Investor,
the Investor is not treated as holding his Shares "immediately after the
exchange." If, as a result of the application of this doctrine, a sufficient
number of Investors are not treated as holding their Shares "immediately
after the exchange," the Acquisition would not qualify under Section 351.
Courts generally have enunciated three tests to determine whether the step
transaction doctrine may be applied to disqualify a transaction under Section
351, and one court may apply one of the following tests while another court
applies another test:
(i) End Result Test: Under this test, ostensibly
separate transactions are combined when it appears that they were really
components steps of a single transaction and that each of the steps was
intended to be taken for the purpose of reaching a specific end result.
(ii) Mutual Interdependence Test: Under this test, the
courts consider whether steps are so interdependent that the legal
relationships created by one transaction would be fruitless without the
completion of the entire series of transactions. Unlike the end result test,
the mutual interdependence test focuses on the relationships of the steps,
not merely on the end result
(iii) Binding Obligation Test: Under this test, a
transaction will be aggregated with another transaction if there is a binding
commitment to do the other transaction.
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2. APPLICATION TO THE ACQUISITION. The potential application of the
step transaction doctrine to Investors' acquisitions and subsequent dispositions
of their Shares depends on the specific facts and circumstances with respect to
each Investor who disposes of Shares. Neither the Company nor counsel to the
Company is in a position to make a determination as to whether Investors who
acquire at least 80% of the Shares will or will not be subject to the step
transaction doctrine. Consequently, counsel to the Company is unable to opine as
to whether the Acquisition will qualify under Section 351. However, because (i)
Investors will acquire 80% or more of the Shares in the Acquisition, and (ii)
the Company is not aware of any facts which lead it to believe that any
subsequent disposition of Shares by one or more Investors may be subject to any
of the step transaction tests discussed above, the Company intends to take the
position that the Acquisition qualifies under Section 351. There can be no
assurance, however, that the Service will not take a contrary position.
Investors should recognize that if a relatively small number of
Investors subsequently dispose of their Shares in transactions subject to the
step transaction doctrine, the Acquisition will not qualify under Section
351. Investors will acquire [81.26]% of the Units. See "Prospectus Summary
- --Exchange Value/Allocation of Shares." Accordingly, if Investors dispose of
more than [65]% of the Shares included in the Units in transactions subject
to the step transaction doctrine, the Acquisition will not qualify under
Section 351. Conversely, if Investors who acquire 80% or more of the Shares
are not subject to the step transaction doctrine, counsel to the Company is
of the opinion that the Acquisition will qualify under Section 351.
FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
1. TAX CONSEQUENCES TO INVESTORS OF A SECTION 351 TRANSACTION. If the
Acquisition qualifies under Section 351, the tax consequences to the Investors
will include the following:
(a) Pursuant to Section 351(b), no loss will be recognized by
Investors in a Program which transfers a property to the Company in exchange for
Units. However, if the fair market value of the Shares and warrants received by
an Investor for this interest in a property exceeds the Investor's tax basis in
the Property, the Investor will recognize such gain in an amount not to exceed
the fair market value of such warrants.
Sections 357(b) and 357(c) provide special gain
recognition rules if one or more properties subject to liabilities are
contributed to a corporation for the principal purpose of tax avoidance or for
other than a bona fide business purpose, or if such liabilities exceed the tax
basis of the contributed properties. Because of the nature and amount of the
liabilities which will be assumed by the Company, it is not anticipated that any
Investor will recognize gain under these rules.
(b) Pursuant to Section 358, an Investor's tax basis in his
Shares on the Effective Date generally will equal: the tax basis of his
interests in the Properties at that time, minus the fair market value of the
warrants he receives, plus any gain recognized by him (none is anticipated) in
the Acquisition. However, an Investor's tax basis in his Shares will be reduced
by the amount of his share of any liabilities to which the Properties are
subject, except to the extent
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that the payment of such liabilities would have been deductible. An
Investor's tax basis in his warrants will equal the fair market value of the
warrants on the Effective Date.
(c) Pursuant to Section 1223(1), an Investor's holding
period in his Shares will be determined by including ("tacking") the holding
period of his interests in the Properties if his interests in the Properties
are held by him as capital assets or Section 1231(b) assets. An Investor's
interests in the Properties may constitute a combination of capital assets
and Section 1231(b) assets, for which tacking of holding periods is allowed,
and non-capital assets, for which tacking of holding periods is not allowed.
In such event, it may be necessary to make an allocation under Section
1223(1), with the result that the tax basis of each Share received by the
Investor will be divided for holding-period purposes. See Rev. Rul. 85-164,
1985-2 C.B. 117. An Investor's holding period for his warrants will
commence on the day after the Effective Date.
2. TAX CONSEQUENCES OF ACQUISITION TO THE COMPANY OF A SECTION 351
TRANSACTION. If the Acquisition qualifies under Section 351, the tax
consequences to the Company will include the following:
(a) Pursuant to Section 1032, no gain or loss will be
recognized by the Company on its receipt of the Properties in exchange for
the issuance of Shares.
(b) Pursuant to Section 362(a), the initial tax bases of the
Company in the Properties on the Effective Date will equal the sum of the tax
bases of the Investors in the Properties on the Effective Date and any gain
recognized by the Investors (none is anticipated) in the Acquisition.
(c) Pursuant to Section 1223(2), the Company's holding periods
in the contributed Properties will include ("tack") the holding periods of the
Investors in the Properties.
3. TAX CONSEQUENCES IF THE ACQUISITION DOES NOT QUALIFY UNDER SECTION
351. As discussed above, the Company intends to report the Acquisition as a
qualifying under Section 351. However, if for any reason the Acquisition does
not qualify, the tax consequences will include the following:
(a) INVESTORS.
(i) An Investor will recognize gain or loss
upon his receipt of Shares and warrants in exchange for his interests in the
Properties transferred by the Programs. The amount of gain or loss will equal
the difference between the tax basis of his interests in the Properties on
the Effective Date and his amount realized in the Acquisition. The amount
realized generally will equal the sum of the fair market value on the
Effective Date of the Shares and warrants he acquires and his share of any
liabilities to which the Properties are subject. The character of an
Investor's gain or loss will depend on his holding periods with respect to
his interests in the Properties and whether such interests are capital
assets, Section 1231(b) assets or non-capital assets.
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(ii) An Investor's initial tax bases in the
Shares he acquires will be equal to the fair market value of the Shares and
warrants, respectively, on the Effective Date. An Investor's holding periods of
such Shares and warrants will commence on the day after the Effective Date, with
no tacking of his holding periods for his interests in the Properties sold to
the Company.
(b) COMPANY. The Company will not recognize any gain or loss
upon the receipt of contributed Properties of the Programs in exchange for the
issuance of Units. The initial tax basis of the Company in the Properties
generally will be equal to the sum of the fair market value of the Shares and
warrants on the Effective Date and the amount of liabilities to which the
Properties are subject. The Company's holding periods in the Properties will
commence on the day after the Effective Date.
FEDERAL INCOME TAX CONSEQUENCES TO INVESTORS AFTER THE EFFECTIVE DATE
1. SHAREHOLDERS NOT TAXABLE ON COMPANY'S INCOME. The Company
is a C corporation (a "regular" corporation, rather than an S corporation)
and is a separate entity from the Shareholders for tax purposes.
Consequently, the Company will file its own income tax returns and pay tax on
its taxable income. The Company's taxable income will not flow through to
the shareholders for purposes of determining their tax liabilities.
2. DISTRIBUTIONS TO SHAREHOLDERS. Distributions by the Company to the
Shareholders will be taken into account in determining their tax liabilities. In
general, distributions will be taxable as dividend income to the extent of the
Company's current or accumulated "earnings and profits" (as calculated for
Federal income tax purposes). Any distributions to a Shareholder in excess of
earnings and profits (i) will constitute a non-taxable return of capital to the
extent of his tax basis in his Shares, and (ii) will be treated as taxable gain
from the sale or exchange of the Shares to the extent the distribution exceeds
the tax basis of his Shares. The character of such gain will depend on the
Investor's holding period for such Shares and whether the Shares are held as a
capital asset (subject to the "collapsible corporation" rules discussed below).
3. DISPOSITION OF SHARES; EXERCISE OF WARRANTS.
(a) SHARES. If an Investor disposes of Shares in a taxable
transaction, the Investor generally will recognize gain or loss equal to the
difference between the tax basis of his Shares and the amount realized in the
disposition. The character of such gain or loss generally will depend on the
Investor's holding period for such Shares and whether the Shares are held as a
capital asset. The "collapsible corporation" rules of Section 341 may apply
under some circumstances to convert capital gain into ordinary income. However,
even if the Company were treated as a collapsible corporation, any capital gain
recognized by an Investor would not be converted into ordinary income unless (i)
the Investor owns (taking into account certain attribution rules) at certain
times more than 5% of the outstanding stock of the Company, or (ii) the
Investor's stock is attributed to another shareholder who owns at certain times
more than 5% the outstanding stock of the Company.
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(b) WARRANTS. No gain or loss will be recognized by an
Investor or the Company upon the Investor's receipt of Shares pursuant to the
exercise of warrants. The tax basis of such Shares will be equal to the sum of
the exercise price and the tax basis of the warrants. The holding period for
Shares will commence on the date of exercise of the warrants. An Investor will
recognize a loss if a warrant expires without being exercised in an amount equal
to the tax basis of the warrant. An Investor generally will recognize gain or
loss upon the disposition of a warrant in an amount equal to the difference of
the amount realized upon disposition and the tax basis of the warrant.
REPORTS TO SHAREHOLDERS
The Company intends to provide periodic reports to Shareholders
regarding the operations of the Company over the course of the year. Financial
information contained in all reports to Shareholders will be prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles. The Company's annual report, which will include financial statements
audited and reported upon by independent public accountants, will be furnished
within 120 days following the close of each fiscal year. Summary information
regarding the quarterly financial results of the Company will be furnished to
Shareholders on a quarterly basis.
Investors have the right under applicable federal and Delaware laws to
obtain information about the Company and, at their expense, may obtain a list of
names and addresses of all of the Shareholders to be used for a proper purpose.
In the event that the Commission promulgates rules [OR IN THE EVENT THAT THE
APPLICABLE ________________ EXCHANGE RULES AND REGULATIONS ARE AMENDED] so that,
taking such changes into account, the Company's reporting requirements are
reduced, the Company may cease preparing and distributing certain of the
aforementioned reports, if the directors determine such action to be in the best
interests of the Company and if such cessation is in compliance with the rules
and regulations of the Commission.
LEGAL MATTERS
Certain legal matters, including the legality of the Shares and the
units and the description of federal income tax consequences contained under
"Federal Income Tax Consequences," will be passed upon for the Company by Arter
& Hadden LLP, Los Angeles, California.
EXPERTS
The Financial Statements of American Family Holdings, Inc. and its
subsidiaries and the Programs included in this Prospectus and in the
Registration Statement of which this Prospectus
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is a part have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods set forth in their reports
appearing elsewhere herein and in the Registration Statement and have been so
included in reliance upon such reports given upon the authority of that firm
as experts in accounting and auditing
FURTHER INFORMATION
This Consent Solicitation Statement/Prospectus does not contain all
the information set forth in the Registration Statements on Forms S-4 and the
exhibits relating thereto which the Company has filed with the Commission, in
Washington, D.C., under the Securities Act, and to which reference is hereby
made. The Registration Statement and the exhibits and schedules forming a
part thereof filed by the Company with the Commission can be inspected and
copies obtained at the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices
of the Commission: 7 World Trade Center, 13th Floor, New York, New York 10048
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D. C. 20549,
at prescribed rates, and electronically through the Commission's Electronic
Data Gathering, Analysis and Retrieval system at the Commission's Website
(http://www.sec.gov).
All summaries contained herein of documents which are filed as exhibits
to the Registration Statements are qualified in their entirety by this reference
to those exhibits. The Company has not knowingly made any untrue statement of a
material fact or omitted to state any fact required to be stated in the
Registration Statements, including this Prospectus, or necessary to make the
statements therein not misleading.
GLOSSARY
"Acquisition" means the purchase of the assets, liabilities and
business of each of the Programs in exchange for Shares.
"Acquisition Expenses" means all of the costs and expenses incurred by
the Company or the Programs in connection with the Acquisition including such
expenses as: (i) preparation, printing, filing and delivering of the
Registration Statement and the Prospectus; (ii) the filing fees payable to the
Securities and Exchange Commission and to the National Association of Securities
Dealers, Inc.; (iii) costs associated in transferring to the Company title to
the Properties and providing the Company with title insurance with respect to
each of the Properties; (iv) the escrow arrangements, including the compensation
to the Escrow Agent; [(v) the fees and costs incurred by the company in listing
its shares on the ______________;] (vi) fees and costs of the Company's counsel
and independent auditors; (vii) fees and costs of independent appraisers and the
Independent Valuator; (viii) all expenses incurred in connection with the
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solicitation of Investor votes regarding the Acquisition; and (ix) other
expenses related to the offering of the units.
"Adjusted Outstanding Investment" means the Outstanding Investment of
an Investor adjusted to take into account the interest owed, or due to be
received, as the case may be, on voluntary advances to the applicable Program
made in lieu of mandatory assessments which certain other Investors failed to
make.
"Affiliate" means, with respect to any Person, (i) any Person
directly or indirectly controlling, controlled by or under common control
with such Person, (ii) any Person owning or controlling ten percent or more
of the outstanding voting securities of such Person; (iii) any officer,
director, member (in the case of a limited liability company) or partner of
such Person or of any Person specified in (i) or (ii) above; and (iv) any
company in which any officer, director, member or partner of any Person
specified in (iii) above is an officer, director, member or partner.
"Charter Documents" means the Certificate of Incorporation
and By-Laws of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any similar law or provision enacted in lieu thereof, unless the
context indicates otherwise.
"Commission" means the Securities and Exchange Commission.
"Company" means American Family Holdings, Inc., a Delaware
corporation.
"Directors" means persons authorized to manage and direct the affairs
of the Company and who are members of the Board of Directors of the Company.
"Effective Time" means the date and time as of which the Acquisition
is completed, and title to the Properties has passed to the Company.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Exchange Value" means the price in the form of Shares, valued at $20
per Share, by the Company, that the Company is willing to pay for the assets,
liabilities and business of a Program for purposes of allocating Shares among
the Programs in the Acquisition. Exchange Value of a Program is calculated as
follows: appraisal value of real estate plus book value of other assets minus
liabilities plus the amount of accrued fees and expenses to be forgiven by
National and its affiliates in the Acquisition.
"Fairness Opinion" means the opinion of the Independent Valuator to the
Programs as to the fairness, from a financial point of view, of the Acquisition
transaction to the Investors.
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"Independent Director" means a Director of the Company whose primary
business or professional affiliations, if any, are with organizations not
affiliated with the Company. As of the date of the Prospectus, there are no
Independent Directors.
"Independent Valuator" means Houlihan Valuation Advisors.
"Investor" means a Person that purchased a
tenancy-in-common interest in one of the loans secured by a deed of trust, that
formed the basis of one of the Programs.
"Investor Ballot" means the ballot accompanying this Prospectus to be
used by the Investor to vote its wishes to approve or disapprove participation
of a particular Program in the Acquisition, and to subscribe for units.
"IRS" or "Service" means the U.S. Internal Revenue Service.
"NASD" means the National Association of Securities
Dealers, Inc.
"National" means National Investors Financial, Inc., the company which
organized, and acts as servicing agent for the Investors in, each of the
Programs.
"ODI" means Oceanside Development, Inc., the entity formed to hold
title to the Oceanside Property for the benefit of Investors in the Oceanside
Program and to supervise continued development.
"Outstanding Investment" means the sum of the unpaid principal balance
owed to an Investor as of the Ownership Date plus accrued but unpaid interest on
such balance as of the Ownership Date plus all amounts paid by the Investor
pursuant to mandatory assessments called for by National plus all amounts
voluntarily advanced by an Investor on behalf of Investors who failed to honor a
demand for an assessment from National.
"Ownership Date" means, with respect to a particular Program Property,
the date on which title to the Property in question was taken and controlled for
the benefit of the Investors in such Program.
"Person" means any natural person, partnership, corporation, limited
liability company, association or other legal entity.
"Program" means any one of the following: Sacramento/Delta Greens
Program, Mori Point Program, Oceanside Program, Yosemite/Ahwahnee I Program,
Yosemite/Ahwahnee II Program, Cypress Lakes Program, Palmdale/Joshua Ranch
Program, Esperanza Program, Stacey Rose A Program and Stacey Rose B Program.
"Programs" means each of the foregoing collectively. None of the Programs is
structured as a partnership, corporation, trust, limited liability company, or
separately identifiable business association of any kind. Each Program merely
consists of a group of Persons, each of whom purchased a fractionalized,
tenancy-in- common, interest in a loan secured by a deed of trust on real
property. Such group of Persons is bound together only by a servicing agreement
with National and a tenancy-in-common
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agreement among themselves. The tenancy-in-common agreements permit holders
of a majority of the Outstanding Investments in a particular Program to bind
the Program on certain decisions including the sale of the Program's Property.
"Property" or "Properties" means the interests in real property held by
one or more of the Programs or the Company.
"Prospectus" means this Consent Solicitation Statement/Prospectus which
is included in the Registration Statement filed with the Commission in
connection with the issuance of the Units in the Acquisition.
"Record Date" means the date five days before the date of this
Prospectus.
"Registration Statement" means the Company's registration statement on
Form S-4 containing the Prospectus, filed with the Commission in the form in
which it becomes effective, as the same may be at any time and from time to time
thereafter amended or supplemented.
"Securities Act" means the U.S. Securities Act of 1933, as
amended.
"Shares" means common stock in the Company.
"Shareholder" means a Person holding Shares.
"Solicitation Period" means the period commencing on the date this
Consent Solicitation Statement/Prospectus is first mailed or delivered to
Investors and continuing until the later of (i) ___________, 199_ [60 DAYS FROM
THE DATE THE PROSPECTUS IS MAILED] and (ii) such later dates as may be selected
by the Company.
"Trudy Pat" means trust deed loan participation sold pursuant to a
permit issued by the California Department of Corporations. With regard to seven
of the Programs, Trudy Pat refers to the loans, secured by first deeds of trust,
in which fractional, tenancy-in-common, interests were purchased by the
applicable Investors.
"Unit" means one Share plus three 1998 Warrants to purchase three
additional Shares.
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FINANCIAL STATEMENTS
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PRO FORMA COMBINED FINANCIAL INFORMATION:
Pro Forma Combined Balance Sheet as of June 30, 1998. . . . . . . . F-4
Notes to Pro Forma Combined Balance Sheet . . . . . . . . . . . . . F-5
Pro Forma Combined Statement of Operations for the year ended
December 31, 1997 and for the six months ended June 30, 1998. . . F-7
Notes to Pro Forma Combined Statement of Operations . . . . . . . . F-8
AMERICAN FAMILY HOLDINGS, INC.
Report of Independent Certified Public Accountants. . . . . . . . . F-10
Balance Sheet as of June 30, 1998 . . . . . . . . . . . . . . . . . F-11
Notes to Balance Sheet . . . . . . . . . . . . . . . . . . . . . . F-12
THE OCEANSIDE PROGRAM
Report of Independent Certified Public Accountants. . . . . . . . . F-14
Balance Sheet as of December 31, 1997 and June 30, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Statements of Operations for two years ended December 31, 1997
and 1996 and for the six months ended June 30, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-16
Statements of Owners' Equity for two years ended December 31,
1997 and 1996 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-17
Statements of Cash Flows for two years ended December 31, 1997
and 1996 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-18
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . F-19
THE YOSEMITE/AHWAHNEE PROGRAMS
Report of Independent Certified Public Accountants. . . . . . . . . F-23
Balance Sheet as of December 31, 1997 and June 30, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
Statements of Operations for two years ended December 31, 1997
and 1996 and for the six months ended June 30, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
Statements of Owners' Equity for two years ended December 31,
1997 and 1996 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-26
Statements of Cash Flows for two years ended December 31, 1997
and 1996 and for the six months ended June 30, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . F-28
THE MORI POINT PROGRAM
Report of Independent Certified Public Accountants. . . . . . . . . F-34
Balance Sheet as of December 31, 1997 and June 30, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35
Statements of Operations for two years ended December 31, 1997
and 1996 and for the six months ended June 30, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36
Statements of Owners' Equity for two years ended December 31,
1997 and 1996 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-37
Statements of Cash Flows for two years ended December 31, 1997
and 1996 and for the six months ended June 30, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-38
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . F-39
F-1
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
Report of Independent Certified Public Accountants. . . . . . . . . F-42
Balance Sheet as of December 31, 1997 and June 30, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-43
Statements of Operations for two years ended December 31, 1997
and 1996 and for the six months ended June 30, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-44
Statements of Owners' Equity for two years ended December 31,
1997 and 1996 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-45
Statements of Cash Flows for two years ended December 31, 1997
and 1996 and for the six months ended June 30, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-46
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . F-47
THE CYPRESS LAKES PROGRAM
Report of Independent Certified Public Accountants. . . . . . . . . F-50
Balance Sheet as of December 31, 1997 and June 30, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-51
Statements of Operations for two years ended December 31, 1997
and 1998 and for the six months ended June 30, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-52
Statements of Owners' Equity for two years ended December 31,
1997 and 1996 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-53
Statements of Cash Flows for two years ended December 31, 1997
and 1996 and for the six months ended June 30, 1998 and 1997
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-54
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . F-55
THE PALMDALE/JOSHUA RANCH PROGRAM
Report of Independent Certified Public Accountants. . . . . . . . . F-58
Balance Sheet as of December 31, 1997 and June 30, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-59
Statements of Operations for two years ended December 31,
1997 and 1998 and for the six months ended June 30, 1998
and 1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . F-60
Statements of Owners' Equity for two years ended December 31,
1997 and 1996 and for the six months ended June 30, 1998
and 1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . F-61
Statements of Cash Flows for two years ended December 31,
1997 and 1996 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-62
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . F-63
THE STACEY ROSE PROGRAM
Report of Independent Certified Public Accountants. . . . . . . . . F-66
Balance Sheet as of December 31, 1997 and June 30, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-67
Statements of Operations for two years ended December 31,
1997 and 1998 and for the six months ended June 30, 1998
and 1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . F-68
Statements of Owners' Equity for two years ended December 31,
1997 and 1996 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-69
Statements of Cash Flows for two years ended December 31, 1997
and 1996 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-70
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . F-71
THE ESPERANZA PROGRAM
Report of Independent Certified Public Accountants. . . . . . . . . F-74
Balance Sheet as of December 31, 1997 and June 30, 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . F-75
Statements of Operations for two years ended December 31,
1997 and 1998 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-76
Statements of Owners' Equity for two years ended December 31,
1997 and 1996 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-77
Statements of Cash Flows for two years ended December 31, 1997
and 1996 and for the six months ended June 30, 1998 and
1997 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . F-78
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . F-79
</TABLE>
F-2
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
PRO FORMA COMBINED BALANCE SHEET
The following unaudited Pro Forma Combined Balance Sheet as of June
30, 1998 and the Pro Forma Combined Statement of Operations for the year
ended December 31, 1997 and for the six months ended June 30, 1998 have been
prepared to reflect the acquisitions of the assets, certain liabilities and
business of the Oceanside Program, the Yosemite/Ahwahnee Programs, the Mori
Point Program, the Sacramento/Delta Greens Program, the Cypress Lakes
Program, the Palmdale/Joshua Ranch Program, the Stacey Rose Programs and the
Esperanza Program (collectively, "The Acquisition"). The unaudited Pro Forma
Balance Sheet has been prepared as if The Acquisition had been consummated as
of June 30, 1998. The unaudited Pro Forma Statement of Operations for the
year ended December 31, 1997 and for the six months ended June 30, 1998 has
been prepared as if The Acquisition occurred at the beginning of each period
presented. The unaudited Pro Forma Combined Financial Statements and related
notes should be read in conjunction with the audited financial statements
contained elsewhere in this Prospectus. The unaudited Pro Forma Combined
Financial Statements are not necessarily indicative of what the actual
financial position or results of operations would have been for the
respective periods if the transactions had been consummated on the dates
indicated, nor does it purport to represent the future financial position or
results of operations of the Company.
F-3
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
PRO FORMA COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
As of June 30, 1998
--------------------------------------------------------------------
The Pro Forma Pro Forma
Company Programs(1) Adjustments Combined
------- ---------- ----------- --------
<S> <C> <C> <C> <C>
THE ACQUISITION
ASSETS:
Real estate, net . . . . . . . . . . . . . . $ - $23,283,793 $ 4,317,207 (2) $27,601,000
Cash and cash equivalents. . . . . . . . . . 3,901 2,806,519 (668)(4) 2,809,752
Restricted cash. . . . . . . . . . . . . . . - 221,726 - 221,726
Notes receivable . . . . . . . . . . . . . . - 295,629 295,629
Goodwill . . . . . . . . . . . . . . . . . . - - 100,000 (3) 100,000
Property and equipment . . . . . . . . . . . - 340,350 340,350
Deferred membership selling expense. . . . . - 581,781 - 581,781
Other assets . . . . . . . . . . . . . . . . - 108,815 108,815
Due from affiliate . . . . . . . . . . . . . - 1,955,243 (1,955,243)(5) -
Deferred acquisition costs . . . . . . . . . 1,955,243 (1,955,243)(3) -
---------- ---------- ----------- ----------
Total assets. . . . . . . . . . . . . . 1,959,144 29,593,856 32,059,053
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES:
Deferred membership revenue. . . . . . . . . - 1,385,710 1,385,710
Capital lease obligations. . . . . . . . . . - 313,083 313,083
Accounts payable and other liabilities . . . - 2,327,157 2,327,157
Due to affiliate . . . . . . . . . . . . . . 1,955,243 2,072,494 (1,955,243)(5) 1,818,684
(385,523)(6)
---------- ---------- ----------- ----------
Total liabilities . . . . . . . . . . . 1,955,243 6,230,157 5,844,634
---------- ---------- ----------
---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Common Stock . . . . . . . . . . . . . . . . 391 0 1,403 (2) 1,727
(67)(4)
Additional paid-in-capital . . . . . . . . . 3,510 0 27,679,503 (2) 26,212,692
(1,855,243)(3)
(601)(4)
385,523(6)
Accumulated deficit. . . . . . . . . . . . . - - -
Owners' equity . . . . . . . . . . . . . . . - 23,363,699 (23,363,699)(2) -
---------- ---------- ----------
Total stockholders' equity. . . . . . . 3,901 23,363,699 26,214,419
---------- ---------- ----------
Total liabilities and
stockholders' equity. . . . . . . . 1,959,144 29,593,856 32,059,053
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-4
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEETS
PRO FORMA ADJUSTMENTS
These pro forma adjustments reflect the completion of the Acquisition. The
following sets forth the adjustments:
(1) Reflects the historical combined balance sheets of the Programs as of June
30, 1998.
(2) To record the fair market value of the stock issued to the investment
programs being acquired in conjunction with the Acquisition in accordance
with the following schedule:
<TABLE>
<S> <C>
Net book value of Programs $23,363,699
Add: Excess of real estate appraised
value over book value 4,317,207(a)
-----------
Fair value of assets acquired and units
issued in Acquisition $27,680,906
Less: Par value of stock issued (1,403)
-----------
Net increase to additional paid-in-capital
and accumulated deficit $27,679,503
-----------
-----------
</TABLE>
(a) The carrying value of all non-real estate assets and liabilities are
deemed to approximate their fair values at the time of the Acquisition.
Due to the original shareholder group having a significant ownership
interest in the Company and control of senior management and board of
director positions, the Company is considered the accounting acquirer in
the Acquisition. The transaction will be consummated by issuing 1,403,321
units of the Company, the value of which is estimated to be $19.73 per
unit, to the investors in the Programs. The value per unit of the
Company's units is based on the following calculation:
<TABLE>
<S> <C>
Fair value of net assets acquired in Acquisition $27,680,906
divided by the number of units issued 1,403,321
----------
Fair value per unit $ 19.73
----------
----------
</TABLE>
This excess purchase price is due to the appraised value of the
properties held by some of the programs being greater than their
carrying value on the program's historical financial statements.
These excess values are summarized as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Program Historical Financial Appraised Value Excess Purchase Price
Value
Mori Point $4,100,000 $6,000,000 $1,900,000
Oceanside 3,525,539 5,080,000 1,554,461
Cypress Lakes 5,200,000 6,000,000 800,000
Yosemite/Ahwahnee 5,423,254 5,486,000 62,746
--------- --------- ---------
TOTAL $4,317,207
---------
---------
</TABLE>
(3) To reclass the various professional fees incurred to consummate the
securities registration ($1,855,243) to equity, and the direct costs of
consummating the Acquisition to goodwill.
(4) To reflect the cancellation of 66,807 shares of common stock of the Company
in conjunction with the final allocation of units between Program investors
and founders.
(5) To eliminate intercompany receivables.
(6) To reflect the forgiveness of fees due from the Oceanside ($261,273) and
Yosemite/Ahwahnee ($124,250) programs and the resulting adjustment to the
value of the stock given to the founders of the Company.
F-5
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
NOTES TO PRO FORMA COMBINED BALANCE SHEETS
(7) Segment Information
American Family Holdings, Inc. ("American") has two reportable segments:
vacation and leisure resort properties and residential home properties.
The vacation and leisure resort property is used to generate revenue
through a recreational vehicle membership plan, as well as a golf course
and resort operation. The residential home properties segment derives its
revenue from the development and sales of residential housing and lots.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies.
<TABLE>
<CAPTION>
SEGMENT ASSETS JUNE 30
Vacation and Residential Home
Leisure Resort Development All Other Total
-------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
Segment Assets 10,214,627 5,889,933 17,806,503 33,911,063
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF ASSETS
<S> <C>
Total assets for reportable segments 33,911,063
Cash 3,233
Goodwill 100,000
Elimination of receivables from corporate headquarters (1,955,243)
----------
Consolidated total assets after adjustments 32,059,053
----------
----------
</TABLE>
F-6
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
The pro forma combined statements of operations presented below reflect the
acquisition as previously described as if it occurred at the beginning of the
periods presented. The Company was omitted from the statements presented below
since it had no operations during the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31, 1997 Six Months Ended June 30, 1998
------------------------------------------------- -----------------------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
Programs(1) Adjustments Combined Programs(1) Adjustments Combined
---------- ----------- -------- ---------- ----------- --------
THE ACQUISITION
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . $5,193,012 $ $5,193,012 $324,654 $324,654
Cost of sales. . . . . . . . . . 4,081,530 4,081,530 121,187 121,187
---------- ---------- --------- ---------
Gross profit . . . . . . . . . . 1,111,482 1,111,482 203,467 203,467
Selling, general and
administrative . . . . . . . . 4,357,059 350,000(2) 5,676,062 1,754,181 175,000(2) 2,413,683
949,003(3) 474,502(3)
20,000(4) 10,000(4)
Land write down. . . . . . . . . 1,299,651 1,299,651 255,000 - 255,000
Management fees. . . . . . . . . 949,003 (949,003)(3) 0 474,502 (474,502)(3)
---------- ---------- --------- ---------
Total expenses . . . . . . . . . 6,605,713 6,975,713 2,483,683 2,668,683
---------- ---------- --------- ---------
Interest income (expense). . . . 31,345 31,345 (1,117) (1,117)
Gain on sale of property . . . . - - 1,871,279 1,871,279
---------- ---------- --------- ---------
Net income (loss). . . . . . . . (5,462,886) (5,832,886) (410,054) (595,054)
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Net loss per
common share(5). . . . . . . . . (3.42) (0.34)
---------- ---------
---------- ---------
</TABLE>
F-7
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
PRO FORMA ADJUSTMENTS
(1) Reflects the historical combined statements of operations of the Programs
for the year ended December 31, 1997 and for the six months ended June 30,
1998.
(2) To reflect the replacement of National as asset manager of the investment
programs with the new management structure of the Company:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1997 June 30, 1998
----------------- -------------
<S> <C> <C>
Officers and staff salaries to be $ 806,000 $ 403,000
included in selling, general and
administration after Acquisition
Officers salaries included in selling,
general and administration prior to $(456,000) $(228,000)
Acquisition -------- -------
Pro forma adjustment to selling, general
and administration $ 350,000 $ 175,000
-------- -------
-------- -------
</TABLE>
(3) To reflect the cancellation of the servicing agreements between National
and the investment programs and the reclass of this associated overhead to
administrative expenses.
(4) To amortize goodwill arising from the Acquisition over its estimated useful
life of 5 years.
(5) Net loss per share is based on 1,726,617 weighted average number of shares
outstanding and does not include any warrants to be issued in conjunction
with the company's units offering or the Acquisition.
(6) Segment Information
American Family Holdings, Inc. ("American") has two reportable segments:
vacation and leisure resort properties and residential home properties.
The vacation and leisure resort property is used to generate revenue
through a recreational vehicle membership plan, as well as a golf course
and resort operation. The residential home properties segment derives its
revenue from the development and sales of residential housing.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. However, in the
calculation of the pro forma loss for these segments, American officers
salaries, management fees and acquisition expenses were excluded.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
<S> <C> <C> <C> <C>
Vacation and Residential Home
Leisure Resort Development All Other Total
-------------- ----------- --------- -----
Revenues 902,162 4,290,850 5,193,012
Segment profit/(loss) (1,795,368) (1,665,850) (1,545,668) (5,006,886)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
<S> <C> <C> <C> <C>
Vacation and Residential Home
Leisure Resort Development All Other Total
-------------- ----------- --------- -----
Revenues 324,654 - - 324,654
Segment profit/(loss) (1,877,901) 2,385,609 (689,762) (182,054)
</TABLE>
F-8
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(6) Segment Information (continued)
<TABLE>
<CAPTION>
PROFIT OR LOSS RECONCILIATION DECEMBER 31, 1997 JUNE 30, 1998
<S> <C> <C>
Total profit or loss for reportable segments (5,006,886) (182,054)
Adjustment for expenses not included in
segment loss:
Officers salaries (806,000) (403,000)
Amortization of goodwill (20,000) (10,000)
--------- -------
Total pro forma loss after adjustments (5,832,886) (595,054)
--------- -------
--------- -------
</TABLE>
F-9
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
American Family Holdings, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of American Family Holdings, Inc.
as of June 30, 1998. The balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on the balance sheet
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, based on our audit, the balance sheet referred to above presents
fairly, in all material respects, the financial position of American Family
Holdings, Inc. of as of June 30, 1998 in conformity with generally accepted
accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
July 17, 1998
F-10
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
BALANCE SHEET
JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,901
Deferred acquisition costs . . . . . . . . . . . . . . . . . 1,955,243
---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . 1,959,144
---------
---------
LIABILITIES
Due to affiliate . . . . . . . . . . . . . . . . . . . . . . 1,955,243
STOCKHOLDERS' EQUITY (Note 2):
Preferred Stock, shares authorized - 2,000,000;
issued and outstanding 0 . . . . . . . . . . . . . . . . . -
Common Stock, $0.001 par value; shares authorized -
10,000,000; shares issued and outstanding - 390,103. . . . 391
Additional paid in capital . . . . . . . . . . . . . . . . 3,510
---------
Total stockholders' equity . . . . . . . . . . . . . . . 3,901
---------
Total liabilities and stockholders' equity . . . . . . . . . 1,959,144
---------
---------
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
NOTES TO BALANCE SHEET
NOTE 1. ORGANIZATION AND BASIS OF FINANCIAL PRESENTATION
American Family Holdings, Inc. (the Company) was organized and incorporated
in Delaware to become a publicly held corporation which would acquire the
assets, certain liabilities and business activities owned by investors in the
investment programs listed below in exchange for ownership in the Company. The
Company will also attempt to sell a maximum of 1,000,000 units consisting of one
share of its common stock plus one warrant at a price of $20 per Unit. Each
warrant entitled the holder to purchase three additional shares of common stock
at 80% of the closing price of the stock on the day prior to exercise of the
warrant. The warrant has a term of two years following the completion of the
Offering. Listed below are the investment programs to be acquired and the
number of units of the Company issued to the investors in these programs:
<TABLE>
<CAPTION>
Number of
Investment Program Units
- ------------------ -----
<S> <C>
Oceanside 268,653
Yosemite/Ahwahnee I and II 340,006
Mori Point 270,652
Sacramento/Delta Greens 78,524
Cypress Lakes 291,246
Palmdale/Joshua Ranch 131,094
Esperanza 10,818
Stacey Rose A and 12,328
---------
1,403,321
</TABLE>
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DEFERRED ACQUISITION COSTS
Deferred acquisition costs represent costs incurred by the Company in
conjunction with the acquisition of the net assets of investment programs and
the registration of the units to be issued in the Acquisition. If the
transaction is not successfully completed, these costs will be expensed.
Upon a successful completion of the transaction, the direct costs associated
with the acquisition of the programs, which are approximately $100,000, has
been capitalized and will be allocated in conjunction with the acquisition
allocations. The remaining balance of $1,855,243, which represents the costs
associated with the registration of the securities to be issued in the
Acquisition, will be recorded as an adjustment to additional paid in capital.
F-12
<PAGE>
AMERICAN FAMILY HOLDINGS, INC.
NOTES TO BALANCE SHEET
(CONTINUED)
NOTE 2. EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements, contingent upon the
successful completion of the Acquisition, with two members of senior
management for a term of five years and one member of senior management for a
term of three years, each subject to automatic one year extensions unless
terminated. The agreements provide for annual compensation of $180,000,
$180,000 and $200,000 and contain provisions for bonus consideration based on
performance standards. The agreements also provide for the issuance of 10,000
nonqualified stock options to each member upon completion of the Acquisition
and 10,000 additional nonqualified stock options to be issued to each of
these members on the first and second anniversaries of the Acquisition.
These options have ten year terms. The original tranche of options are
exercisable at $20 per share, while the remaining two tranches are
exercisable at the market price of the Company's stock at the date of grant.
In addition, except to the extent required to carry on pre-existing duties to
investors in other programs managed by National or other pre-existing real
estate investments, each agreement includes provisions restricting the
officers from competing with the Company during the term of such employment;
providing for certain salary and benefit continuance for six months if the
officer is permanently disabled; and, providing for a severance payment in
the amount of 2.99 times the officer's average salary and bonus over the past
five years (or such shorter time as the officer was employed), payable in 36
equal monthly installments, in the event of a change of control of the
Company within two years of the change of control event.
NOTE 3. STOCK INCENTIVE PLAN
The Company has established a stock incentive plan (the "Stock Incentive
Plan") to enable executive officers, key employees and directors of the Company
and its subsidiaries to participate in the ownership of the Company. The
following awards may be made under the Plan:
NONQUALIFIED STOCK OPTIONS will provide for the right to purchase Common
Stock at a specified price which may be less than fair market value on the date
of grant (but not less than par value), and usually will become exercisable in
installments after the grant date. Nonqualified stock options may be granted
for any reasonable term.
INCENTIVE STOCK OPTIONS, if granted, will be designed to comply with the
provisions of the Code and will be subject to restrictions contained in the
Code, including exercise prices equal to at least 100% of fair market value of
Common Stock on the grant date and a ten year restriction on their term, but may
be subsequently modified to disqualify them from treatment as an incentive stock
option.
RESTRICTED STOCK is Common Stock of the Company which may be awarded to key
employees of the Company by the Compensation Committee, subject to such
restrictions on the exercise of full ownership as such Committee may determine.
Restrictions may relate, among other things, to duration of employment, Company
performance and individual performance.
Promptly after the Closing of the Acquisition, the Company expects to issue
to certain officers, directors and key employees of the Company and its
subsidiaries options to purchase an aggregate of 7,500 shares of Common Stock
pursuant to the Stock Incentive Plan. The term of each of such options will be
10 years from the date of grant. Commencing one year from the Closing, each
such option will vest 25% per year over four years and is exercisable at a price
per share equal to the public offering price per Share in the Offering. The
expected allocations of the options to such persons is as presented above in the
"Directors and Executive Officers Compensation and Incentives."
185,000 shares of Common Stock, subject to adjustment, will be reserved for
issuance under the Stock Incentive Plan. There is no limit on the number of
awards that may be granted to any one individual (other than Independent
Directors who annually receive a fixed number of options automatically).
F-13
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of the Oceanside "Trudy Pat"
Program ("Oceanside Program") (as defined in Note 1) as of December 31, 1997,
and the related statements of operations, changes in owners' equity and cash
flows for each of the two years in the period ended December 31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 presentation of the
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of the
Oceanside Program as of December 31, 1997, and the results of operations and
cash flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
February 24, 1998
F-14
<PAGE>
THE OCEANSIDE PROGRAM
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 145,072 $ $17,037
Restricted cash 1,421,670 221,726
Note receivable (Note 7) 50,000 50,000
Real estate and improvements - 3,525,539
Real estate property held for sale 3,322,329 -
Property and equipment, net (Note 3) 14,093 36,436
Other assets 46,597 32,712
Due from affiliate (Note 1) 443,647 452,022
---------- ----------
Total assets $5,443,408 $4,335,472
---------- ----------
---------- ----------
LIABILITIES:
Accounts payable $ 274,664 $ 292,478
Due to affiliate (Note 4) 800,000 281,273
Accrued expenses and other liabilities 197,030 204,398
---------- ----------
Total liabilities 1,271,694 778,149
COMMITMENTS AND CONTINGENCIES (Note 4)
OWNERS' EQUITY:
Owners' Equity 4,171,714 3,557,323
---------- ----------
Total liabilities and owners' equity $5,443,408 $4,335,472
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
THE OCEANSIDE PROGRAM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------- -------------------
1997 1996 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
REVENUES FROM HOME SALES $ 4,290,850 $ 5,490,180 $ - $ 3,240,050
COST OF HOME SALES 3,828,982 4,975,160 - 2,872,014
----------- ----------- ---------- -----------
GROSS PROFIT 461,868 515,020 - 368,036
EXPENSES:
Selling, general and administrative 1,014,712 842,987 205,047 551,563
Real estate inventory writedown (Note 7) 1,069,651 - - 360,172
Related party management fees (Note 4) 300,000 300,000 150,000 150,000
----------- ----------- ---------- -----------
Total expenses 2,384,363 1,142,987 355,047 1,061,735
Interest income 64,645 79,292 10,093 33,788
Gain on sale of real estate (Note 8) - - 2,730,563 -
----------- ----------- ---------- -----------
Net income (loss) $(1,857,850) $ (548,675) $2,385,609 $ (659,911)
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
THE OCEANSIDE PROGRAM
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Balance January 1, 1996 $ 8,179,489
Capital distributions (900,000)
Net loss for the year (548,675)
-----------
Balance December 31, 1996 6,730,814
Capital distributions (701,250)
Net loss for the year (1,857,850)
-----------
Balance December 31, 1997 4,171,714
Capital distributions (3,000,000)
Net profit for the Period (unaudited) 2,385,609
Balance June 30, 1998 (unaudited) $ 3,557,323
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
THE OCEANSIDE PROGRAM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------- ---------------------
1997 1996 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,857,850) $ (548,675) $ 2,385,609 $ (659,911)
Adjustments net loss to cash
provided by (used in) operating
activities:
Depreciation and amortization 12,584 3,352 4,432 4,255
Gain on sale of real estate - - (2,730,563) -
Real estate inventory writedown 1,069,651 - - -
Increase (decrease) from changes in:
Restricted cash 358,471 326,089 1,199,944 250,360
Note receivable (50,000) - -
Real estate inventory 1,161,508 1,155,537 - 1,231,159
Other assets (21,631) (24,120) 13,885 (35,948)
Due from affiliate (443,647) - (8,375) -
Accounts payable (311,104) 286,196 17,814 (108,989)
Accrued expenses and
other liabilities 379,306 (196,141) (772,632) 103,301
----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities 297,288 1,002,238 110,114 784,227
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (4,854) (17,600) - (4,854)
Additions to real estate property held
for sale (102,409) (96,462) (238,149) -
Cash received on sale of real estate - - 3,000,000 -
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (107,263) (114,062) 2,761,851 (4,854)
CASH FLOWS FROM FINANCING ACTIVITIES:
Line of credit proceeds 1,821,560 3,600,000 - 1,821,560
Line of credit repayments (1,825,470) (3,596,090) - (1,825,470)
Contributions (distributions) (701,250) (900,000) (3,000,000) (450,000)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities (705,160) (896,090) (3,000,000) (453,910)
----------- ----------- ----------- -----------
Net increase (decrease) in
cash and cash equivalents (515,135) (7,914) (128,035) 325,463
Cash and cash equivalents
at beginning of period 660,207 668,121 145,072 660,207
----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period $ 145,072 $ 660,207 $ 17,037 $ 985,670
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash paid during the
period for interest $ 4,272 $ 9,526 - $ 4,272
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Interest capitalized for the year ended December 31, 1996 and 1997 were $14,939
and $4,536.
See accompanying notes to financial statements.
F-18
<PAGE>
THE OCEANSIDE PROGRAM
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
During 1993 National Investors Financial, Inc. ("National"), represented by
NASD registered securities broker-dealers, completed the funding of a real
estate loan for the Oceanside Program (the "Program") to entities affiliated
with the Ved Corporation, the original borrowers, in the amount of $30,000,000
by selling undivided tenant-in-common interests in such loan to 1,755 investors.
In November of 1993, the borrower granted the property ("Oceanside Development")
securing the loan to Oceanside Development, Inc., a California corporation (the
"Company"), formed by National on behalf of the investors in the Oceanside
Program. The first lien was kept intact after the date of grant to protect the
investors' interests in the underlying property during its development. As the
investors' interests are to be converted to common stock in conjunction with a
proposed acquisition of the Program, the underlying protection of the lien is no
longer needed and will be extinguished as part of the acquisition. Oceanside
Development is a single family detached home development consisting of two
tracts, Encore and Symphony. The property is located in Oceanside, California
and is currently held by Oceanside Development, Inc. on behalf of the Oceanside
Investors. The Oceanside property was appraised at $6,484,000 as of the date of
grant from the original borrower. Therefore, the property has been written down
to its fair market value at the time of grant and the investors' interests in
the property is reflected as Owners' Equity in the financial statements.
The accompanying financial statements include the accounts of the Program, which
consist of Oceanside Development, Inc. and Oceanside Development, LLC, and do
not include the accounts of National.
AMERICAN FAMILY HOLDINGS, INC.
American Family Holdings, Inc., a California corporation ("American"), was
formed to be a publicly-held corporation to acquire the businesses of certain
investment programs previously syndicated by National in exchange for equity in
American. In addition, American Family Holdings, Inc. will offer a maximum of
1,000,000 units, which consists of one share of common stock and one warrant at
a price of $20 per unit. Each warrant entitled the holder to purchase three
additional shares of common stock at 80% of the closing price of the stock on
the day prior to exercise of the warrant. The warrant has a term of two years
following the completion of the Offering.
In conjunction with the contemplated transactions, the Program is currently
capitalizing the associated costs and recording these costs as due from the
American. These costs are currently shown as deferred acquisition costs on the
books of American. These costs will, however, be allocated against a ratio of
the proceeds received from the units offering and the value of the shares given
to the program investors in exchange for their undivided tenant-in-common
interests after the completion of both transactions.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS AND RESTRICTED CASH
The Oceanside Program management considers all highly liquid investments with
an original maturity of three months or less when purchased to be cash
equivalents. The Program has restricted bonded cash accounts which may only be
used for capital expenditures on the residential properties. The restricted
cash balance at December 31, 1997 and June 30, 1998 were $1,421,670 and
$221,726.
F-19
<PAGE>
THE OCEANSIDE PROGRAM
NOTES TO FINANCIAL STATEMENTS
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REAL ESTATE INVENTORIES AND REAL ESTATE PROPERTY HELD FOR SALE
Costs incurred which are included in real estate inventories and property
held for sale consist of land, land development costs, direct and indirect costs
of construction, other overhead costs, interest and property taxes. Interest
and property taxes are capitalized to real estate inventories when development
activities begin, and capitalization ends when the qualifying assets are ready
for their intended use. As of December 31, 1997, the Oceanside Development had
111 lots classified as property held for sale.
Effective January 1, 1996, the Program adopted the provisions of Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires impairment losses to be recorded on long-lived assets being
developed, based on fair value, when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Examples of indicators of impairment include
a significant decrease in the market value of an asset, a significant change in
the extent or manner in which an asset is used or a significant adverse change
in legal or business factors that could affect the value of an asset. Assets
held for sale are to be carried at the lower of cost or fair value less the
costs to sell.
The estimation process in determining the fair value of real estate assets is
inherently uncertain and relies to a considerable extent on current and future
economic and market conditions, the availability of suitable financing to fund
holding, development, and construction activities, and the repayment or
refinancing of existing indebtedness. Such economic and market conditions may
effect management's development and marketing plans. Accordingly, the ultimate
realizations to differ from amounts presently estimated.
SALE AND PROFIT RECOGNITION
Revenues from home sales are recognized when closings have occurred. At the
time of revenue recognition, costs of home sales are charged with direct costs
of construction and an allocation of a project's total estimated costs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
being provided principally on the straight line method over the estimated useful
lives or the related assets. Estimated useful lives range from 3-5 years.
INCOME TAXES
The financial statements include the activity of the Program, which income or
losses are included in the investors' respective tax returns.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1997 and
1998 are unaudited; however, in the opinion of management of the Program, the
interim financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation o the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
F-20
<PAGE>
THE OCEANSIDE PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles required management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Based upon certain market assumptions and information available to
management, the carrying values of financial instruments as of December 31, 1997
and June 30, 1998 approximate their fair values. The carrying value of cash and
cash equivalents, accounts payable and accrued expenses are assumed to
approximate fair value as they are short term in nature and receivable or
payable on demand. The fair value of the line of credit was estimated based on
similar interest rates available for comparable financial instruments.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31 June 30,
1997 1998
----------- ----------
<S> <C> <C>
Office and computer equipment $ 5,787 $16,776
Furniture and fixtures 25,145 40,931
------ ------
30,932 57,707
Less accumulated depreciation (16,839) (21,271)
------ ------
$14,093 $36,436
------ ------
------ ------
</TABLE>
NOTE 4. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Program is currently managed, subject to a servicing agreement, by
National. National also currently manages seven other programs under similar
servicing agreements. As documented within the servicing agreement, National
is to receive an annual fee equal to 1% of the original loan balance.
National's requirements under the servicing agreement include managing the
assets of the Program to assure that the purpose and the activities of the
Program are continued for the investors. The Program incurred asset
management expenses of $300,000, $300,000, $150,000 and $150,000 for the
years ended December 31, 1996 and 1997 and for the six months ended June 30,
1997 and 1998. Additionally, the Program accrued compensation expense of
$192,000, $192,000, $96,000 and $96,000 for the years ended December 31, 1996
and 1997 and for the six months ended June 30, 1997 and 1998 payable to
senior management of the Program, who are also the principals of National.
Total accrued and unpaid management fees and compensation as of December 31,
1997 and June 30, 1998 were $800,000 and $281,273. Included in the Due to
Affiliate balance at June 30, 1998 is an amount of $261,273, which relates to
commissions payable to National for the sale of the symphony lots.
F-21
<PAGE>
THE OCEANSIDE PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4. COMMITMENTS (CONTINUED)
LAWSUITS
The Program is, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant effect
on the financial position of the Program.
NOTE 5. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in the
Program to make additional capital contributions. Such contributions are only
recorded to the extent of cash received.
NOTE 6. CONCENTRATION OF CREDIT RISK
The Program's financial instruments that are exposed to concentrations of
credit risk consist of cash and cash equivalents and restricted cash accounts
placed with federally insured financial institutions. Such accounts may at
times exceed federally insured limits. The Program has not experienced any
losses on such accounts.
NOTE 7. REAL ESTATE INVENTORY WRITEDOWN
In October 1997, the Program sold the remaining lots on the Encore project
for $650,000, which included a note receivable of $50,000. This note bears
interest at 10% per annum and is due the earlier of (i) the close of escrow of
the last Encore lot sold by the purchaser or (ii) one year. All capitalized
construction costs incurred on the related lots in excess of the consideration
received have been written off in the current year.
NOTE 8. RELATED PARTY TRANSACTIONS
In June 1998, the Program purchased land held for sale from the Oceanside
Program ("Oceanside") and immediately sold the same land to an outside third
party for approximately $6,550,000 in net cash proceeds. In exchange for the
purchase of the Program's land from Oceanside, the program gave to Oceanside
$3,000,000 in cash, and land and a golf course, valued at $3,550,000. The
value of the land and golf course was derived by subtracting the value of the
land sold to an outside third party of $6,550,000 from the $3,000,000 of cash
given to Oceanside. This transaction resulted in a loss on the sale of the
land and golf course of approximately $478,000. The Program also entered into
a lease agreement with Yosemite for a five year lease of the golf course back
to Yosemite. Annual lease revenue to be received as of June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
Years Ending December 31 Amount
------------------------ ------
<S> <C>
1998 $ 80,000
1999 220,000
2000 390,000
2001 630,000
2002 760,000
Thereafter 380,000
---------
$2,460,000
---------
---------
</TABLE>
NOTE 9. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
As part of the purchase and sale transaction disclosed in Note 8, land
valued at approximately $3,550,000 was exchanged between the Program and the
Yosemite/Ahwahnee Program.
F-22
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of the Yosemite/Ahwahnee I and II
"Trudy Pat" Programs (the "Yosemite/Ahwahnee Programs") (as defined in Note 1)
as of December 31, 1997, and the related consolidated statements of operations,
changes in owners' equity and cash flows for each of the two years in the period
ended December 31, 1997. These consolidated 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 presentation of the
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of the
Yosemite/Ahwahnee Programs as of December 31, 1997, and the results of
operations and cash flows for each of the two years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
February 24, 1998
F-23
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS:
Real estate and improvements (Note 3) $10,137,074 $5,423,254
Cash and cash equivalents - 2,751,587
Notes receivable (Note 4) 353,028 245,629
Property and equipment, net (Note 5) 371,058 303,904
Deferred membership selling expense (Note 11) 538,993 581,781
Other assets 61,935 76,103
Due from affiliate (Note 1) 242,639 769,618
---------- ----------
Total assets $11,704,727 $10,151,876
---------- ----------
---------- ----------
LIABILITIES:
Capital lease obligations (Note 6) 340,563 313,083
Accounts payable 303,400 166,693
Due to affiliate (Note 7) 841,763 997,532
Accrued property taxes (Note 7) 683,558 499,606
Accrued expenses and other liabilities 144,149 176,136
Deferred revenues (Note 11) 1,181,577 1,385,710
---------- ----------
Total liabilities 3,495,010 3,538,760
COMMITMENTS AND CONTINGENCIES (NOTE 7)
OWNERS' EQUITY:
Owners' Equity 8,209,717 6,613,116
---------- ----------
Total liabilities and
owners' equity $11,704,727 $10,151,876
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
-------------------------- --------------------
1997 1996 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
REVENUES
Golf course operations $ 765,167 $ 571,778 $ 252,953 $ 416,898
Sale of RV memberships 136,995 51,380 71,701 29,381
Sale of developed lots - 99,961 - -
---------- ---------- ---------- ----------
Total revenues 902,162 723,119 324,654 446,279
COST OF SALES
Golf course operations 252,548 165,836 121,187 90,827
Developed lots - 83,190 - -
---------- ---------- ---------- ----------
Total cost of sales 252,548 249,026 121,187 90,827
GROSS PROFIT 649,614 474,093 203,467 355,452
EXPENSES:
Selling, general and administrative 2,470,201 2,333,735 1,110,194 1,379,617
Related party management fees (Note 7) 200,000 200,000 100,000 100,000
---------- ---------- ---------- ----------
Total expenses 2,670,201 2,533,735 1,210,194 1,479,617
Interest expense 38,781 18,962 11,890 5,230
Loss on sale of real estate (Notes 12 and 13) - - 859,284 -
---------- ---------- ---------- ----------
Net loss $(2,059,368) $(2,078,604) $(1,877,901) $(1,129,395)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<S> <C>
Balance January 1, 1996 $10,295,663
Capital contributions 1,141,111
Net loss for the year (2,078,604)
----------
Balance December 31, 1996 9,358,170
Capital contributions 910,915
Net loss for the period (2,059,368)
----------
Balance December 31, 1997 8,209,717
Capital contributions (unaudited) 281,300
Net loss for the period (unaudited) (1,877,901)
----------
Balance June 30, 1998 (unaudited) $6,613,116
----------
----------
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------- -------------------
1997 1996 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,059,368) $(2,078,604) $(1,877,901) $(1,129,395)
Adjustments net loss to cash
provided by (used in) operating activities:
Cost of developed lots sold - 83,190 -
Loss on sale of real estate - 859,284 -
Depreciation and amortization 381,299 336,229 175,902 184,155
Increase (decrease) from changes in:
Other assets (114,023) (264,478) 93,231 (196,083)
Due from affiliate (242,639) - (526,979) -
Accounts payable 92,661 172,210 (135,521) 117,633
Accrued expenses and
other liabilities 622,226 304,920 (120,446) 318,272
Net deferral of sales revenues and
selling expenses 443,673 198,910 161,345 242,888
---------- ---------- --------- ---------
Net cash provided by (used in)
operating activities (876,171) (1,247,623) (1,371,085) (462,530)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment - (48,899) -
Net cash proceeds from the purchase and sale of
assets (Notes 12 and 13) - 3,868,852 -
Additions to real estate (56,001) (23,250) (35,577)
---------- ---------- --------- ---------
Net cash provided by (used in)
investing activities (56,001) (72,149) 3,868,852 (35,577)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital lease repayments (80,294) (67,088) (27,480) (104,345)
Contributions 910,915 1,141,111 281,300 674,898
---------- ---------- --------- ---------
Net cash provided by (used in)
financing activities 830,621 1,074,023 253,820 570,553
---------- ---------- --------- ---------
Net increase (decrease) in
cash and cash equivalents (101,551) (245,749) 2,751,587 72,446
Cash and cash equivalents
at beginning of period 101,551 347,300 - 101,551
---------- ---------- --------- ---------
Cash and cash equivalents
at end of period $ - $ 101,551 $ 2,751,587 $ 173,997
---------- ---------- --------- ---------
---------- ---------- --------- ---------
Cash paid during the
period for interest $ 40,628 $ 27,557 $ 31,885 $ 21,354
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
During 1989 and 1992 National Investors Financial, Inc. ("National"),
represented by NASD registered securities broker-dealers, completed the funding
of two real estate loans for the Yosemite/Ahwahnee Programs (the "Programs") by
selling undivided tenant-in-common interests in such loans to investors. The
Yosemite/Ahwahnee I loan was in the amount of $6,500,000 to 426 investors and
Yosemite/Ahwahnee II was in the amount of $13,500,000 to 837 investors. In
September of 1995, on behalf of the Yosemite/Ahwahnee investors, National
foreclosed on the borrower and took title to the property ("Ahwahnee Golf Course
and Resort") involved. The first liens were kept intact after the foreclosure
to protect the investors' interests in the underlying property during its
development. As the investors' interests are to be converted to common stock in
conjunction with a proposed acquisition of the Programs, the underlying
protection of the liens are no longer needed and will be extinguished as part of
the acquisition. Ahwahnee Golf Course and Resort is projected to be a
multi-faceted resort, which currently includes a country club and a partially
completed recreational vehicle park, with plans to develop the remainder of the
project, potentially as a timeshare facility. The 1,650 acre property is
located in Madera County, California, approximately 15 miles south of Yosemite
National Park and is currently held in trust by National on behalf of the
Yosemite/Ahwahnee Investors. The Company obtained an appraisal as of the date of
foreclosure, which assumes that the property is developed at its highest and
best use, and the result of the appraisal, after certain accounting-related
adjustments made by the Company, was a fair market value of $10,800,000.
Therefore, the property has been written down to its fair market value at the
time of the foreclosure and the investors' interest in the property is reflected
as Owners' Equity in the financial statements. Since taking over these
properties, National has operated them on behalf of the investors through a
corporation known as Ahwahnee Golf Course and Resort, Inc.
The accompanying financial statements include the accounts of the Programs,
which consist of Ahwahnee Golf Course and Resort, Inc., National Investors Land
Holding Trust VII and National Investors Land Holding Trust IX, and do not
include the accounts of National.
AMERICAN FAMILY HOLDINGS, INC.
American Family Holdings, Inc., a California corporation ("American"), was
formed to be a publicly-held corporation to acquire the businesses of certain
investment programs previously syndicated by National in exchange for equity in
American. In addition, American will offer a maximum of 1,000,000 units, which
consist of one share of common stock and one warrant at a price of $20 per unit.
Each warrant entitled the holder to purchase three additional shares of common
stock at 80% of the closing price of the stock on the day prior to exercise of
the warrant. The warrant has a term of two years following the completion of the
Offering.
In conjunction with the contemplated transactions, the Program is currently
capitalizing the associated costs and recording these costs as due from the
American. These costs are currently shown as deferred acquisition costs on the
books of American. These costs will, however, be allocated against a ratio of
the proceeds received from the units offering and the value of the shares given
to the program investors in exchange for their undivided tenant-in-common
interests after the completion of both transactions.
F-28
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
The Programs' management considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash equivalents.
REAL ESTATE AND IMPROVEMENTS
Real estate and improvements are carried at cost. Expenditures for
additions and improvements are capitalized, and expenditures for repairs and
maintenance are charged to expense as incurred. Depreciation is provided on a
straight-line basis on land improvements and buildings and improvements over
estimated useful lives ranging from 5-30 years.
Effective January 1, 1996, the Programs adopted the provisions of Statement of
Financial Accounting Standards No. 121 ("SFAS No. 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of",
which requires impairment losses to be recorded on long-lived assets being
developed, based on fair value, when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Examples of indicators of impairment include
a significant decrease in the market value of an asset, a significant change in
the extent or manner in which an asset is used or a significant adverse change
in legal or business factors that could affect the value of an asset.
The estimation process in determining the fair value of real estate assets is
inherently uncertain and relies to a considerable extent on current and future
economic and market conditions, the availability of suitable financing to fund
holding, development, and construction activities, and the repayment or
refinancing of existing indebtedness. Such economic and market conditions may
effect management's development and marketing plans. Accordingly, the ultimate
realizations may differ from amounts presently estimated.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are being provided principally on the straight line method over the estimated
useful lives or the related assets. Estimated useful lives range from 3-5
years.
REVENUE RECOGNITION
The Programs generate revenues from its golf course operations and sales of
recreational vehicle memberships. Revenues from the sale of recreational
vehicle memberships are not recognized until the Programs have received at least
10% of the total purchase price and the statutory 3 day rescission period has
elapsed. Until a contract to purchase a recreational vehicle membership
qualifies as a sale, all payments received are accounted for as customer
deposits. The Program sells these recreational vehicle memberships to members
on a timeshare plan. The length of this plan ranges from the length of the
remaining lifetime of the primary member to the lifetimes of the primary member,
the primary member's child and the primary member's grandchild. The membership
rights include the use of the recreational vehicle park and facilities. The
only restriction to the membership is that members may only use the recreational
vehicle park for a maximum of seven days at a time with a minimum of seven days
between visits. These revenues are recognized into income on a straight-line
basis over the expected life of the memberships sold, which approximates 10
years. In addition, costs directly related to the sale of such memberships are
deferred and recognized as selling expenses over this same amortization period.
F-29
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED SELLING EXPENSES
The Company expenses most forms of advertising, except for costs associated
with commissions and direct mail costs, which is capitalized and amortized over
its expected period of failure benefits.
Commissions include commissions paid to salespeople, which are directly
associated with the successful sale of individual memberships. The commissions
paid to salespeople are amortized over the same period that the membership
revenue is recognized. Direct mail advertising consists primarily of the
campaigns held to promote the sale of the recreational vehicle lots. The
Company is able to determine which membership sales occur because of the direct
mailings. As a result, the total mailing costs are allocated to these
membership sakes and amortized over the same period
INCOME TAXES
The financial statements include the activity of the Programs, whose income
or losses are included in the investors' respective tax returns.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1998 are
unaudited; however, in the opinion of management of the Program, the interim
financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation o the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Based upon certain market assumptions and information available to
management, the carrying values of financial instruments as of December 31, 1997
and June 30, 1998 approximate their fair values. The carrying value of cash and
cash equivalents, accounts payable and accrued expenses are assumed to
approximate fair value as they are short term in nature and receivable or
payable on demand. The fair values of notes receivable and capital lease
obligations were estimated based on similar interest rates available for
comparable financial instruments.
NOTE 3. REAL ESTATE AND IMPROVEMENTS
Real estate and improvements consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
----------- ----------
<S> <C> <C>
Land $ 8,114,645 $5,205,536
Land improvements 1,890,656 223,800
Buildings and improvements 820,783 152,681
----------- ----------
10,826,084 5,582,017
Less accumulated depreciation (689,010) (158,763)
----------- ----------
$10,137,074 $5,423,254
----------- ----------
----------- ----------
</TABLE>
F-30
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4. NOTES RECEIVABLE
The Programs make unsecured loans to individuals in conjunction with its
sales of recreational vehicle memberships. These loans bear interest at rates
between 0% and 17%, range in length from one to seven years and may be prepaid
at any time without penalty. Notes receivable are shown net of discounts of
$24,950 and $25,150 as of December 31, 1997 and June 30, 1998. As of December
31, 1997 and June 30, 1998, a total of $324,502 and $284,704 of the notes
receivable balance is expected to be collected after one year. The total
allowance for doubtful accounts as of December 31, 1997 and June 30, 1998 is
$41,073 and $4,080.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
----------- ----------
<S> <C> <C>
Capital lease equipment $505,998 $515,317
Furnitures and fixtures 25,349 2,987
Machinery and equipment 37,033 -
----------- ----------
568,380 518,304
Less accumulated depreciation (197,322) (214,400)
----------- ----------
$371,058 $303,904
----------- ----------
----------- ----------
</TABLE>
NOTE 6. CAPITAL LEASE OBLIGATIONS
Future minimum rental payments under noncancellable capital leases as of
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
1998 120,923
1999 113,893
2000 113,893
2001 59,184
-------
Total minimum lease payments 407,893
Amount representing interest 67,330
-------
Present value of minimum lease payments 340,563
-------
-------
</TABLE>
F-31
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 7. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Programs are currently managed, subject to a servicing agreement, by
National. National also currently manages five other programs under similar
servicing agreements. As documented within the servicing agreement, National is
to receive an annual fee equal to 1% of the original loan balance. National's
requirements under the servicing agreement include managing the assets of the
Programs to assure that the purpose and activities of the Programs are continued
for the investors. The Programs incurred asset management expenses of $200,000,
$200,000, $100,000 and $100,000 for the years ended December 31, 1996 and 1997
and for the six months ended June 30, 1997 and 1998. Additionally, the Programs
accrued compensation expense of $264,000, $264,000, $114,000 and $114,000 for
the years ended December 31, 1996 and 1997 and for the six months ended June 30,
1997 and 1998 payable to senior management of the Company, who are also
principals of National. Total accrued and unpaid management fees and
compensation as of December 31, 1997 and June 30, 1998 were $841,763 and
$997,532. Included in the Due to Affiliate balance at June 30, 1998 is an
amount of $124,250, which relates to commissions payable to National for the
sale of the lots.
LAWSUITS
The Program is, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant effect
on the financial position of the Program.
DELINQUENT PROPERTY TAXES
The Program has delinquent property taxes of $683,558 and $499,606 as of
December 31, 1997 and June 30, 1998. The Program is in the process of
negotiating a payment plan with appropriate taxing authorities relative to the
payment of these past due taxes.
NOTE 8. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in the
Program to make additional capital contributions. Such contributions are only
recorded to the extent of cash received.
NOTE 9. DEBT FORECLOSURE
In September 1995, the management company, for the benefit of investors in
debt securities secured by the Property, foreclosed on the Property. Due to the
debtor's financial position as of December 31, 1994, the foreclosure has been
accounted for as if it took place prior to January 1, 1995.
NOTE 10. SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the years ended December 31, 1996 and 1997, the Company entered into
capital lease obligations of $298,572 and $0.
As part of the purchase and sale transaction disclosed in Note 13, land
valued at approximately $3,550,000 was exchanged between the Program and the
Oceanside Program.
F-32
<PAGE>
THE YOSEMITE/AHWAHNEE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 11. DEFERRED REVENUE AND MEMBERSHIP SELLING EXPENSES
Deferred revenue consists of amounts deferred in conjunction with the sales
of campground memberships. Components of the changes in deferred membership
selling expenses and deferred membership sales revenue are as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1996 1998 1997
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Deferred Selling Expenses:
Deferred selling expenses, beginning of year $ 263,508 $ 0 $ 538,993 $263,508
Expenses deferred 338,627 292,787 76,219 163,313
Expenses recognized (63,142) (29,279) (33,431) (30,592)
Deferred expenses written off - - - -
---------- -------- ---------- --------
Net change 275,485 263,508 42,788 132,721
---------- -------- ---------- --------
Deferred selling expenses, end of year $ 538,993 $263,508 $ 581,781 $396,229
---------- -------- ---------- --------
---------- -------- ---------- --------
Deferred Revenue:
Deferred revenue, beginning of year $ 462,419 $ 0 1,181,577 462,419
Revenue deferred 856,153 513,799 275,834 428,076
Revenue recognized (136,995) (51,380) (71,701) (29,381)
---------- -------- ---------- --------
Net change 719,158 462,419 204,133 398,695
---------- -------- ---------- --------
Deferred Revenue, end of year $1,181,577 $462,419 $1,385,710 $861,114
---------- -------- ---------- --------
---------- -------- ---------- --------
</TABLE>
NOTE 12. SALE OF LAND
On February 19, 1998, the Program entered into a sale transaction with a
consultant on the project for the sale of 13 single-family development estate
lots. The total sale price for these lots was $307,500 which realized a
$477,757 loss on the sale. Included in the sale agreement was a repurchase
provision which gives the Program the option to repurchase 12 of these lots from
the buyer for $300,000. In order to maintain this option, the Program must make
monthly option payments of $4,165 per month until the options are exercised.
The repurchase option expires in January 2001.
NOTE 13. RELATED PARTY TRANSACTIONS
In June 1998, the Program purchased land held for sale from the Oceanside
Program ("Oceanside"), and immediately sold the same land to an outside third
party for approximately $6,550,000 in net cash proceeds. In exchange for the
purchase of the Program's land from Oceanside, the Program gave to Oceanside
$3,000,000 in cash, and land and a golf course, valued at $3,550,000. The
valuation of the land and golf course was derived by subtracting the value of
the land sold to an outside third party of $6,550,000 from the $3,000,000 of
cash given to Oceanside. This transaction resulted in a loss on the sale of
the land and golf course of approximately $478,000. The Program then entered
into a five year lease agreement for the operation of the golf course.
Future minimum lease payments under the operating lease as of June 30, 1998
were as follows:
<TABLE>
<CAPTION>
Years Ending December 31 Amount
------------------------ ------
<S> <C>
1998 $ 80,000
1999 220,000
2000 390,000
2001 630,000
2002 760,000
Thereafter 380,000
----------
$2,460,000
----------
----------
</TABLE>
F-33
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of the Mori Point "Trudy Pat"
Program (the "Mori Point Program") (as defined in Note 1) as of December 31,
1997, and the related statements of operations, changes in owners' equity and
cash flows for each of the two years in the period ended December 31, 1997.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 presentation of the
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of the Mori
Point Program as of December 31, 1997, and the results of operations and cash
flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
February 24, 1998
F-34
<PAGE>
THE MORI POINT PROGRAM
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS:
Land $4,100,000 $4,100,000
Cash and cash equivalents 7,204 5,176
Due from affiliate (Note 1) 232,707 255,964
---------- ----------
Total assets $4,339,911 $4,361,140
---------- ----------
---------- ----------
LIABILITIES:
Due to affiliate (Note 3) $ 497,885 $ 537,885
Notes to affiliate (Note 3) - 43,655
Accrued property taxes (Note 3) 264,464 164,497
Accrued expenses 86,615 102,067
---------- ----------
Total liabilities $ 848,964 $ 848,104
COMMITMENTS AND CONTINGENCIES (NOTE 3)
OWNERS' EQUITY:
Owners' Equity 3,490,947 3,513,036
---------- ----------
Total liabilities and
owners' equity $4,339,911 $4,361,140
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-35
<PAGE>
THE MORI POINT PROGRAM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------ ------------------------
1997 1996 1998 1997
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
EXPENSES:
Selling, general and administrative $ 181,034 $ 90,348 $ 73,072 $ 73,340
Related party management fees (Note 3) 100,000 100,000 50,000 50,000
--------- --------- --------- ---------
Total expenses 281,034 190,348 123,072 123,340
Interest income/(expense) 1,586 1,223 (776) 488
--------- --------- --------- ---------
Net loss $(279,448) $(189,125) $(123,848) $(122,852)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-36
<PAGE>
THE MORI POINT PROGRAM
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
Total
----------
<S> <C>
Balance January 1, 1996 3,352,238
Capital contributions 202,310
Net loss for the year (189,125)
----------
Balance December 31, 1996 3,365,423
Capital contributions 404,972
Net loss for the period (279,448)
----------
Balance December 31, 1997 $3,490,947
Capital contributions (unaudited) 145,937
Net loss for the period (unaudited) (123,848)
----------
Balance June 30, 1998 (unaudited) $3,513,036
----------
----------
</TABLE>
See accompanying notes to financial statements.
F-37
<PAGE>
THE MORI POINT PROGRAM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------ ------------------------
1997 1996 1998 1997
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(279,448) $(189,125) $(123,848) $(122,852)
Increase (decrease) from changes in:
Due from affiliate (232,707) - (23,257) (6,522)
Accrued expenses 75,355 25,847 (44,515) (47,606)
--------- --------- --------- ---------
Net cash used in operating
activities (436,800) (163,278) (191,620) (176,980)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions 404,972 202,310 145,937 196,376
Proceeds from notes to affiliate - - 43,655 -
--------- --------- --------- ---------
Net cash provided by
financing activities 404,972 202,310 189,592 196,376
Net increase (decrease) in cash and cash
equivalents (31,828) 39,032 (2,028) 19,396
Cash and cash equivalents at beginning
of period 39,032 - 7,204 39,032
--------- --------- --------- ---------
Cash and cash equivalents
at end of period $ 7,204 $ 39,032 $ 5,176 $ 58,428
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-38
<PAGE>
THE MORI POINT PROGRAM
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
During 1990 National Investors Financial, Inc. ("National"), represented by
NASD registered securities broker-dealers, completed the funding of a real
estate loan for the Mori Point "Trudy Pat" Program (the "Program") in the amount
of $10,000,000 by selling undivided tenant-in-common interests in such loan to
486 investors. In August of 1992, on behalf of the Mori Point Program
investors, National foreclosed on and took title to the property ("Mori Point")
involved in the Mori Point Program. Mori Point is currently raw land which is
zoned for a 275 room hotel/conference center, 60 residential units and an
equestrian/commercial facility. The property is located in Pacifica, California
and is currently held in trust by National on behalf of the Mori Point
Investors. The Mori Point property was recently appraised at $4,100,000 as of
the date of foreclosure. Therefore, the property has been written down to its
fair market value at the time of the foreclosure and the investors' interest in
the property is reflected as Owners' Equity in the financial statements.
The accompanying financial statements include the accounts of the Program, which
consists of the Mori Point Land Holding Trust, and do not include the accounts
of National.
AMERICAN FAMILY HOLDINGS, INC.
American Family Holdings, Inc., a California corporation ("American"), was
formed to be a publicly-held corporation to acquire the businesses of certain
investment programs previously syndicated by National in exchange for equity in
American. In addition, American will offer a maximum of 1,000,000 units, which
consist of one share of common stock and one warrant at a price of $20 per unit.
Each warrant entitled the holder to purchase three additional shares of common
stock at 80% of the closing price of the stock on the day prior to exercise of
the warrant. The warrant has a term of two years following the completion of the
Offering.
In conjunction with the contemplated transactions, the Program is currently
capitalizing the associated costs and recording these costs as due from
American. These costs are currently shown as deferred acquisition costs on the
books of American. These costs will, however, be allocated against a ratio of
the proceeds received from the units offering and the value of the shares given
to the program investors in exchange for their undivided tenant-in-common
interests after the completion of both transactions.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Management of the Program considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash equivalents.
F-39
<PAGE>
THE MORI POINT PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
LAND
Land is carried at cost. Effective January 1, 1996, the Program adopted
the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS
No. 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which requires impairment losses to be recorded on
long-lived assets being developed, based on fair value, when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Examples of
indicators of impairment include a significant decrease in the market value of
an asset, a significant change in the extent or manner in which an asset is used
or a significant adverse change in legal or business factors that could affect
the value of an asset.
The estimation process in determining the fair value of real estate assets is
inherently uncertain and relies to a considerable extent on current and future
economic and market conditions, the availability of suitable financing to fund
holding, development, and construction activities, and the repayment or
refinancing of existing indebtedness. Such economic and market conditions may
effect management's development and marketing plans. Accordingly, the ultimate
realizations may differ from amounts presently estimated.
INCOME TAXES
The financial statements include the activity of the Program, whose income
or losses are included in the investors' respective tax returns.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1997 and
1998 are unaudited; however, in the opinion of management of the Program, the
interim financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 3. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Program is currently managed, subject to a servicing agreement, by
National. National also currently manages six other programs under similar
servicing agreements. As documented within the servicing agreement, National is
to receive an annual fee equal to 1% of the original loan balance. National's
requirements under the servicing agreement include managing the assets of the
Program to assure that the purpose and activities of the Program are continued
for the investors. The Program incurred asset management expenses of $100,000,
$100,000, $50,000 and $50,000 for the years ended December 31, 1996 and 1997
and for the six months ended June 30, 1997 and 1998. Total accrued and unpaid
management fees as of December 31, 1997 and June 30, 1998 were $497,885 and
$537,885.
F-40
<PAGE>
THE MORI POINT PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. COMMITMENTS (CONTINUED)
NOTES TO AFFILIATE
The Program received advances from National during 1998 amounting to $42,700.
These advances are evidenced by demand notes with interest at the rate of 10%
per annum.
LAWSUITS
The Program is, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant effect
on the financial position of the Program.
DELINQUENT PROPERTY TAXES
The Program has delinquent property taxes of $264,464 and $164,497 as of
December 31, 1997 and June 30, 1998. The Program has entered into a five-year
payment plan with appropriate taxing authorities relative to the payment of
these past due taxes.
NOTE 4. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in the
Program to make additional capital contributions. Such contributions are only
recorded to the extent of cash received.
F-41
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of the Sacramento/Delta Greens
"Trudy Pat" Program (the "Sacramento/Delta Greens Program") (as defined in Note
1) as of December 31, 1997, and the related statements of operations, changes in
owners' equity and cash flows for each of the two years in the period ended
December 31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 presentation of the
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of the
Sacramento/Delta Greens Program as of December 31, 1997, and the results of
operations and cash flows for each of the two years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
February 24, 1998
F-42
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS:
Land $ 2,000,000 $ 1,745,000
Cash and cash equivalents 4,099 7,886
Due from affiliate (Note 1) 104,528 118,430
----------- -----------
Total assets $ 2,108,627 $ 1,871,316
----------- -----------
----------- -----------
LIABILITIES:
Accounts payable $ 25,641 $ 14,094
Due to affiliate (Note 3) 188,344 181,178
Notes to affiliate (Note 3) - 18,500
Accrued property taxes (Note 3) 58,536 27,308
Accrued expenses 49,750 59,750
----------- -----------
Total liabilities 322,271 300,830
COMMITMENTS AND CONTINGENCIES (NOTE 3)
OWNERS' EQUITY:
Owners' Equity 1,786,356 1,570,486
----------- -----------
Total liabilities and owners' equity $ 2,108,627 $ 1,871,316
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
Year Ended December 31, June 30,
----------------------------- -----------------------------
1997 1996 1998 1997
----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
EXPENSES:
Selling, general and administrative $ 115,620 $ 169,649 $ 35,610 $ 69,059
Land write-down (Note 5) 230,000 845,000 255,000 230,000
Related party management fees (Note 3) 50,000 50,000 25,000 25,000
----------- ----------- ----------- -----------
Total expenses 395,620 1,064,649 315,610 324,059
Interest income 824 1,965 65 479
----------- ----------- ----------- -----------
Net income (loss) $ (394,796) $(1,062,684) $ (315,545) $ (323,580)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-44
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
Total
-----------
<S> <C>
Balance January 1, 1996 $ 2,820,595
Capital contributions 262,572
Net loss for the year (1,062,684)
-----------
Balance December 31, 1996 2,020,483
Capital contributions 160,669
Net loss for the year (394,796)
-----------
Balance December 31, 1997 $ 1,786,356
Capital contributions (unaudited) 99,675
Net loss for the period (unaudited) (315,545)
-----------
Balance June 30, 1998 (unaudited) $ 1,570,486
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
Year Ended December 31, June 30,
----------------------------- ------------------------------
1997 1996 1998 1997
------------ ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (394,796) $(1,062,684) $ (315,545) $ (323,580)
Adjustment to reconcile net income
(loss) to net cash provided by (used in)
operating activities -
Real estate property write-down 230,000 845,000 255,000 230,000
Increase (decrease) from changes in:
Due from affiliate (104,528) - (13,902) (2,813)
Accounts payable (4,283) 29,924 (11,547) (4,284)
Accrued expenses 54,454 (19,834) (28,394) (15,759)
----------- ----------- ----------- -----------
Net cash used in operating activities (219,153) (207,594) (114,388) (116,436)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions 160,669 262,572 99,675 76,125
Proceeds from notes to affiliate - - 18,500 -
----------- ----------- ----------- -----------
Net cash provided by
financing activities 160,669 262,572 118,175 76,125
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (58,484) 54,978 3,787 (40,311)
Cash and cash equivalents at beginning
of period 62,583 7,605 4,099 62,583
----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period $ 4,099 $ 62,583 $ 7,886 $ 22,272
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash paid during the period for interest $ - $ - $ - $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
During 1989 National Investors Financial, Inc. ("National"), represented by
NASD registered securities broker-dealers, completed the funding of a real
estate loan for the Sacramento/Delta Greens Program (the "Program") in the
amount of $5,000,000 by selling undivided tenant-in-common interests in such
loan to 332 investors. In March of 1993, on behalf of the Sacramento/Delta
Greens Program investors, National foreclosed on the property and took title to
the property ("Sacramento/Delta Greens") involved in the Sacramento/Delta Greens
Program. Sacramento/Delta Greens is currently raw land which is zoned and has
an approved tentative tract map for a single-family detached housing development
of 534 homes. The property is located in Sacramento, California and is
currently held in Trust by National on behalf of the Sacramento/Delta Greens
investors. The Sacramento/Delta Greens property was recently appraised at
$3,075,000 as of the date of foreclosure. Therefore, the property has been
written down to its fair market value at the time of the foreclosure and the
investors' interest in the property is reflected as Owners' Equity in the
financial statements.
The accompanying financial statements include the accounts of the Program, which
consists of the Sacramento/Delta Greens Land Holding Trust, and do not include
the accounts of National.
AMERICAN FAMILY HOLDINGS, INC.
American Family Holdings, Inc., a California corporation ("American"), was
formed to be a publicly-held corporation to acquire the businesses of certain
investment programs previously syndicated by National in exchange for equity in
American. In addition, American Family Holdings, Inc. will offer a maximum of
1,000,000 units, which consist of one share of common stock and one warrant at a
price of $20 per unit. Each warrant entitled the holder to purchase three
additional shares of common stock at 80% of the closing price of the stock on
the day prior to exercise of the warrant. The warrant has a term of two years
following the completion of the Offering.
In conjunction with the contemplated transactions, the Program is currently
capitalizing the associated costs and recording these costs as due from
American. These costs are currently shown as deferred acquisition costs on the
books of American. These costs will, however, be allocated against a ratio of
the proceeds received from the units offering and the value of the shares given
to the program investors in exchange for their undivided tenant-in-common
interests after the completion of both transactions.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Management of the Program considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash equivalents.
F-47
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LAND
Land is carried at cost. Effective January 1, 1996, the Program adopted
the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS No.
121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which requires impairment losses to be recorded on
long-lived assets being developed, based on fair value, when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Examples of
indicators of impairment include a significant decrease in the market value of
an asset, a significant change in the extent or manner in which an asset is used
or a significant adverse change in legal or business factors that could affect
the value of an asset.
The estimation process in determining the fair value of real estate assets is
inherently uncertain and relies to a considerable extent on current and future
economic and market conditions, the availability of suitable financing to fund
holding, development, and construction activities, and the repayment or
refinancing of existing indebtedness. Such economic and market conditions may
effect management's development and marketing plans. Accordingly, the ultimate
realizations may differ from amounts presently estimated.
INCOME TAXES
The financial statements include the activity of the Program, whose income
or losses are included in the investors' respective tax returns..
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1997 and
1998 are unaudited; however, in the opinion of management of the Program, the
interim financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 3. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Program is currently managed, subject to a servicing agreement, by
National. National also currently manages seven other programs under similar
servicing agreements. As documented within the servicing agreement, National
is to receive an annual fee equal to 1% of the original loan balance.
National's requirements under the servicing agreement include managing the
assets of the Program to assure that the purpose and activities of the
program are continued for the investors. The Program incurred asset
management expenses of $50,000, $50,000, $25,000 and $25,000 for the years
ended December 31, 1996 and 1997 and for the six months ended June 30, 1997
and 1998. Total accrued and unpaid management fees as of December 31, 1997
and June 30, 1998 were $188,344 and $181,178.
F-48
<PAGE>
THE SACRAMENTO/DELTA GREENS PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. COMMITMENTS (CONTINUED)
NOTES TO AFFILIATE
The program received advances from National during 1998 amounting to
$18,457. These advances are evidenced by demand notes with interest at the
rate of 10% per annum.
LAWSUITS
The Program is, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant effect
on the financial position of the Program.
DELINQUENT PROPERTY TAXES
The Program has delinquent property taxes of $58,536 and $27,308 as of
December 31, 1997 and June 30, 1998. The Program has entered into a five-year
payment plan with appropriate taxing authorities relative to the payment of
these past due taxes.
NOTE 4. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in the
Program to make additional capital contributions. Such contributions are only
recorded to the extent of cash received.
NOTE 5. LAND WRITE-DOWN
In 1993, 596 lots were approved and appraised at a value of $5,159 per lot.
Based on an appraisal done in May 1997, the appraised value of the land had
decreased in 1996 by approximately 27% due to a decline in economic conditions
of the Sacramento/Delta Greens surrounding area, which resulted in the writedown
of the cost of the land of $845,000. Due to a decrease in zoning of the lots to
534 in 1997, a $230,000 writedown in the cost of the land was recorded during
the year ended December 31, 1997.
Based on an appraisal done in June 1998, the appraised value of the land
had decreased in 1998 by approximately 13% due to a change in the map of the
property to include a wetlands/habitat area, reducing the number of lots to 465
in 1998. Due to this decrease, an additional $255,000 writedown in the cost of
the land was recorded during the six months ended June 30, 1998.
F-49
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of the Cypress Lakes "Trudy Pat"
Program (the "Cypress Lakes Program") (as defined in Note 1) as of December 31,
1997, and the related statements of operations, changes in owners' equity and
cash flows for each of the two years in the period ended December 31, 1997.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 presentation of the
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of the Cypress
Lakes Program as of December 31, 1997, and the results of operations and cash
flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
May 22, 1998
F-50
<PAGE>
THE CYPRESS LAKES PROGRAM
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS:
Land $5,200,000 $5,200,000
Cash and cash equivalents 148,068 20,542
Due from affiliate (Note 1) - 175,336
----------- -----------
Total assets $5,348,068 $5,395,878
----------- -----------
----------- -----------
LIABILITIES:
Accrued property taxes (Note 3) 180,193 204,404
Notes to affiliate (Note 3) - 47,046
Accrued expenses - 119,500
----------- -----------
Total liabilities $ 180,193 $ 370,950
COMMITMENTS AND CONTINGENCIES (NOTE 3)
OWNERS' EQUITY:
Owners' Equity 5,167,875 5,024,928
----------- -----------
Total liabilities and owners' equity $5,348,068 $5,395,878
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-51
<PAGE>
THE CYPRESS LAKES PROGRAM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, -----------------------------
----------------------------- June 30,
1997 1996 1998 1997
------------ ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
EXPENSES:
Selling, general and administrative $ 254,272 $ 120,114 $ 165,596 $ 140,454
Related party management fees (Note 3) 140,000 140,000 70,000 70,000
----------- ----------- ----------- -----------
Total expenses 394,272 260,114 235,596 210,454
Interest income 1,919 5,323 1,218 987
----------- ----------- ----------- -----------
Net loss $(392,353) $(254,791) $(234,378) $(209,467)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-52
<PAGE>
THE CYPRESS LAKES PROGRAM
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
Total
-----------
<S> <C>
Balance January 1, 1996 $5,398,074
Capital Contributions 8,579
Net loss for the year (254,791)
-----------
Balance December 31, 1996 5,151,862
Capital Contributions 408,366
Net loss for the period (392,353)
-----------
Balance December 31, 1997 5,167,875
Capital Contributions (unaudited) 91,431
Net loss for the period (unaudited) (234,378)
-----------
Balance June 30, 1998 (unaudited) $5,024,928
-----------
-----------
</TABLE>
See accompanying notes to financial statements.
F-53
<PAGE>
THE CYPRESS LAKES PROGRAM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
Year Ended December 31, June 30,
-----------------------------
1997 1996 1998 1997
------------ ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(392,353) $(254,791) $(234,378) $(209,467)
Increase (decrease) from changes in:
Due from affiliate - - (175,336) -
Accrued expenses 56,682 (137,803) 143,711 44,798
----------- ----------- ----------- -----------
Net cash used in operating
activities (335,671) (392,594) (266,003) (164,669)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions 408,366 8,579 91,431 183,231
Proceeds from notes to affiliate - - 47,046 -
----------- ----------- ----------- -----------
Net cash provided by
financing activities 408,366 8,579 138,477 183,231
Net increase (decrease) in cash
and cash equivalents 72,695 (384,015) (127,526) 18,562
Cash and cash equivalents at beginning
of period 75,373 459,388 148,068 75,373
----------- ----------- ----------- -----------
Cash and cash equivalents
at end of period $ 148,068 $ 75,373 $ 20,542 $ 93,935
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash paid during the period for interest $ - $ - $ - $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-54
<PAGE>
THE CYPRESS LAKES PROGRAM
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
During 1993 National Investors Financial, Inc. ("National"), represented by
NASD registered securities broker-dealers, completed the funding of a real
estate loan for the Cypress Lakes "Trudy Pat" Program (the "Program") in the
amount of $14,000,000 by selling undivided tenant-in-common interests in such
loan to 832 investors. In July of 1995, on behalf of the Cypress Lakes Program
investors, National foreclosed on the property and took title to the property
("Cypress Lakes") involved in the Cypress Lakes Program. Cypress Lakes currently
consists of 686 acres of raw land. The development rights granted include 1,330
single-family residential lots; an 18-hole golf course, clubhouse, and tennis
courts. The property is located in Contra Costa County, California, which is
located along the northeastern shore of San Francisco Bay and is currently held
in trust by National on behalf of the Cypress Lakes Investors. The Cypress
Lakes property was recently appraised at $5,200,000 as of the date of
foreclosure. Therefore, the property has been written down to its fair market
value at the time of the foreclosure and the investors' interest in the property
is reflected as Owners' Equity in the financial statements.
The accompanying financial statements include the accounts of the Program, which
consists of the Cypress Lakes Land Holding Trust, and do not include the
accounts of National.
AMERICAN FAMILY HOLDINGS, INC.
American Family Holdings, Inc., a California corporation ("American"), was
formed to be a publicly-held corporation to acquire the businesses of certain
investment programs previously syndicated by National in exchange for equity in
American. In addition, American will offer a maximum of 1,000,000 units, which
consist of one share of common stock and one warrant at a price of $20 per unit.
Each warrant entitled the holder to purchase three additional shares of common
stock at 80% of the closing price of the stock on the day prior to exercise of
the warrant. The warrant has a term of two years following the completion of the
Offering.
In conjunction with the contemplated transactions, the Program is currently
capitalizing the associated costs and recording these costs as due from
American. These costs are currently shown as deferred acquisition costs on the
books of American. These costs will, however, be allocated against a ratio of
the proceeds received from the units offering and the value of the shares given
to the program investors in exchange for their undivided tenant-in-common
interests after the completion of both transactions.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Management of the Program considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash equivalents.
LAND
Land is carried at cost. Effective January 1, 1996, the Program adopted
the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS
No. 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", which requires impairment losses to be
recorded on long-lived assets being developed, based on fair value, when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Examples of indicators of impairment include a significant decrease
in the market value of an asset, a significant change in the extent or manner
in which an asset is used or a significant adverse change in legal or
business factors that could affect the value of an asset.
F-55
<PAGE>
THE CYPRESS LAKES PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimation process in determining the fair value of real estate assets is
inherently uncertain and relies to a considerable extent on current and
future economic and market conditions, the availability of suitable financing
to fund holding, development, and construction activities, and the repayment
or refinancing of existing indebtedness. Such economic and market conditions
may effect management's development and marketing plans. Accordingly, the
ultimate realizations may differ from amounts presently estimated.
INCOME TAXES
The financial statements include the activity of the Program, whose income
or losses are included in the investors' respective tax returns.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1997 and
1998 are unaudited; however in the opinion of the Property's management, the
interim financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 3. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Program is currently managed, subject to a servicing agreement, by
National. National also currently manages seven other programs under similar
servicing agreements. As documented within the servicing agreement, National is
to receive an annual fee equal to 1% of the original loan balance. National's
requirements under the servicing agreement include managing the assets of the
Program to assure that the purpose and activities of the Program are continued
for the investors. The Program incurred asset management expenses of $140,000,
$140,000, $70,000 and $70,000 for the years ended December 31, 1996 and 1997 and
for the six months ended June 30, 1997 and 1998. As of June 30, 1998 there were
no outstanding management fees.
NOTES TO AFFILIATE
The program received advances from National during 1998 amounting to
$46,850. These advances are evidenced by demand notes with interest at the rate
of 10% per annum.
LAWSUITS
The Program is, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant effect
on the financial position of the Program.
F-56
<PAGE>
THE CYPRESS LAKES PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. COMMITMENTS (CONTINUED)
DELINQUENT PROPERTY TAXES
The Program has delinquent property taxes of $180,193 and $204,404 as of
December 31, 1997 and June 30, 1998. The Program has entered into a five-year
payment plan with appropriate taxing authorities relative to the payment of
these past due taxes.
NOTE 4. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in the
Program to make additional capital contributions. Such contributions are only
recorded to the extent of cash received.
F-57
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of the Palmdale/Joshua Ranch
"Trudy Pat" Program (the "Palmdale/Joshua Ranch Program") (as defined in Note 1)
as of December 31, 1997, and the related statements of operations, changes in
owners' equity and cash flows for each of the two years in the period ended
December 31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 presentation of the
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of the
Palmdale/Joshua Ranch Program as of December 31, 1997, and the results of
operations and cash flows for each of the two years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
May 24, 1998
F-58
<PAGE>
THE PALMDALE/JOSHUA RANCH PROGRAM
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
---------- -----------
(unaudited)
<S> <C> <C>
ASSETS:
Land $2,700,000 $2,700,000
Cash and cash equivalents 98,898 199
Due from affiliate (Note 1) - 132,373
---------- -----------
Total assets $2,798,898 $2,832,572
---------- -----------
---------- -----------
LIABILITIES:
Accounts payable $ 42,527 $ 35,527
Due to affiliate (Note 3) 3,100 100
Notes to affiliate - 7,220
Accrued property taxes (Note 3) 107,216 63,343
Accrued Expenses - 104,500
---------- -----------
Total liabilities 152,843 210,690
COMMITMENTS AND CONTINGENCIES (NOTE 3)
OWNERS' EQUITY:
Owners' Equity 2,646,055 2,621,882
---------- -----------
Total liabilities and owners' equity $2,798,898 $2,832,572
---------- -----------
---------- -----------
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE>
THE PALMDALE/JOSHUA RANCH PROGRAM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, ----------------
----------------------- June 30,
1997 1996 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
EXPENSES:
Selling, general and administrative $ 306,484 $ 469,910 $ 157,376 $ 104,883
Related party management fees (Note 3) 150,000 150,000 75,000 75,000
------------ ------------ ------------ ------------
Total expenses 456,484 619,910 232,376 179,883
Interest income 1,008 4,222 74 702
------------ ------------ ------------ ------------
Net income (loss) $ (455,476) $ (615,688) $ (232,302) $ (179,181)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE>
THE PALMDALE/JOSHUA RANCH PROGRAM
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
Total
-----
<S> <C>
Balance January 1, 1996 $ 2,775,289
Capital contributions 517,423
Net loss for the year (615,688)
---------------
Balance December 31, 1996 2,677,024
Capital contributions 424,507
Net loss for the year (455,476)
---------------
Balance December 31, 1997 2,646,055
Capital contributions (unaudited) 208,129
Net loss for the period (unaudited) (232,302)
---------------
Balance June 30, 1998 (unaudited) $ 2,621,882
---------------
---------------
</TABLE>
See accompanying notes to financial statements.
F-61
<PAGE>
THE PALMDALE/JOSHUA RANCH PROGRAM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------- ------------------------
1997 1996 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (455,476) $ (615,688) $ (232,302) $ (179,181)
Increase (decrease) from changes in:
Due from affiliate - - (132,373) (12,500)
Accounts payable 42,527 - (7,000) -
Accrued expenses (32,582) (34,432) 57,627 (44,909)
------------- ------------- ------------- -------------
Net cash used in operating activities (445,531) (650,120) (314,048) (236,590)
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions 424,507 517,423 208,129 255,364
Proceeds from notes to affiliate - - 7,220 -
------------- ------------- ------------- -------------
Net cash provided by
financing activities 424,507 517,423 215,349 255,364
Net increase (decrease) in cash and cash
equivalents (21,024) (132,697) (98,699) 18,774
Cash and cash equivalents at beginning
of period 119,922 252,619 98,898 119,922
------------- ------------- ------------- -------------
Cash and cash equivalents
at end of period $ 98,898 $ 119,922 $ 199 $ 138,696
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Cash paid during the period for interest $ - $ - $ - $ -
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-62
<PAGE>
THE PALMDALE/JOSHUA RANCH PROGRAM
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
During 1992 National Investors Financial, Inc. ("National"), represented by
NASD registered securities broker-dealers, completed the funding of a real
estate loan for the Palmdale/Joshua Ranch "Trudy Pat" Program (the "Program") in
the amount of $15,000,000 by selling undivided tenant-in-common interests in
such loan to 1011 investors. In October of 1993, on behalf of the
Palmdale/Joshua Ranch Program investors, National foreclosed on the property and
took title to the property ("Palmdale/Joshua Ranch") involved in the
Palmdale/Joshua Ranch Program. Palmdale/Joshua Ranch currently consists of 794
acres of raw land. The land consists of 539 proposed single-family lots and 472
acres of open space and proposed streets. The property is located in Palmdale,
California, which is approximately 37 miles north of Los Angeles. The property
is currently held in Trust by National on behalf of the Palmdale/Joshua Ranch
investors. The Palmdale/Joshua Ranch property was recently appraised at
$5,390,000 as of the date of foreclosure. Therefore, the property has been
written down to its fair market value at the time of the foreclosure and the
investors' interest in the property is reflected as Owners' Equity in the
financial statements.
The accompanying financial statements include the accounts of the Program, which
consists of the Esperanza Land Holding Trust, and do not include the accounts of
National.
AMERICAN FAMILY HOLDINGS, INC.
American Family Holdings, Inc., a California corporation ("American"), was
formed to be a publicly-held corporation to acquire the businesses of certain
investment programs previously syndicated by National in exchange for equity in
American. In addition, American Family Holdings, Inc. will offer a maximum of
1,000,000 units, which consist of one share of common stock and one warrant at a
price of $20 per unit. Each warrant entitled the holder to purchase three
additional shares of common stock at 80% of the closing price of the stock on
the day prior to exercise of the warrant. The warrant has a term of two years
following the completion of the Offering.
In conjunction with the contemplated transactions, the Program is currently
capitalizing the associated costs and recording these costs as due from the
American. These costs are currently shown as deferred acquisition costs on the
books of American. These costs will, however, be allocated against a ratio of
the proceeds received from the units offering and the value of the shares given
to the program investors in exchange for their undivided tenant-in-common
interests after the completion of both transactions.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Management of the Program considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash equivalents.
LAND
Land is carried at cost. Effective January 1, 1996, the Program adopted
the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS
No. 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", which requires impairment losses to be
recorded on long-lived assets being developed, based on fair value, when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Examples of indicators of impairment include a significant decrease
in the market value of an asset, a significant change in the extent or manner
in which an asset is used or a significant adverse change in legal or
business factors that could affect the value of an asset.
F-63
<PAGE>
THE PALMDALE/JOSHUA RANCH PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimation process in determining the fair value of real estate assets is
inherently uncertain and relies to a considerable extent on current and
future economic and market conditions, the availability of suitable financing
to fund holding, development, and construction activities, and the repayment
or refinancing of existing indebtedness. Such economic and market conditions
may effect management's development and marketing plans. Accordingly, the
ultimate realizations may differ from amounts presently estimated.
INCOME TAXES
The financial statements include the activity of the Program, whose income
or losses are included in the investors' respective tax returns.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1997 and
1998 are unaudited; however in the opinion of the Property's management, the
interim financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 3. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Program is currently managed, subject to a servicing agreement, by
National. National also currently manages seven other programs under similar
servicing agreements. As documented within the servicing agreement, National is
to receive an annual fee equal to 1% of the original loan balance. National's
requirements under the servicing agreement include managing the assets of the
Program to assure that the purpose and activities of the program are continued
for the investors. The Program incurred asset management expenses of $150,000,
$150,000, $75,000, and $75,000 for the years ended December 31, 1996 and 1997
and for the six months ended June 30, 1997 and 1998. Total accrued and unpaid
management fees as of December 31, 1997 and June 30, 1998 were $3,100 and $100.
NOTES TO AFFILIATE
The program received advances from National during 1998 amounting to
$7,200. These advances are evidenced by demand notes with interest at the rate
of 10% per annum.
LAWSUITS
The Program is, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant effect
on the financial position of the Program.
F-64
<PAGE>
THE PALMDALE/JOSHUA RANCH PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. COMMITMENTS (CONTINUED)
DELINQUENT PROPERTY TAXES
The Program has delinquent property taxes of $107,216 and $63,343 as of
December 31, 1997 and June 30, 1998. The Program has entered into a five-year
payment plan with appropriate taxing authorities relative to the payment of
these past due taxes.
NOTE 4. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in the
Program to make additional capital contributions. Such contributions are only
recorded to the extent of cash received.
F-65
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of the Stacey Rose A and B "Trudy
Pat" Programs (the "Stacey Rose Programs") (as defined in Note 1) as of December
31, 1997, and the related statements of operations, changes in owners' equity
and cash flows for each of the two years in the period ended December 31, 1997.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 presentation of the
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of the Stacey
Rose Programs as of December 31, 1997, and the results of operations and cash
flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
May 22, 1998
F-66
<PAGE>
THE STACEY ROSE PROGRAMS
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS:
Land $ 320,000 $ 320,000
Cash and cash equivalents - 339
Due from affiliate (Note 1) - 27,000
---------- ----------
Total assets $ 320,000 $ 347,339
---------- ----------
---------- ----------
LIABILITIES:
Due to affiliate (Note 3) $ 31,275 $ 33,276
Notes to affiliate (Note 3) - 15,292
Accrued property taxes (Note 3) 37,703 29,709
Accrued expenses - 22,500
---------- ----------
Total liabilities $ 68,978 $ 100,777
COMMITMENTS AND CONTINGENCIES (NOTE 3)
OWNERS' EQUITY:
Owners' Equity 251,022 246,562
---------- ----------
Total liabilities and owners' equity $ 320,000 $ 347,339
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE>
THE STACEY ROSE PROGRAMS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------- ------------------
1997 1996 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
EXPENSES:
Selling, general and administrative $ 9,200 $ 8,442 $ 4,370 $ 4,594
Related party management fees (Note 3) 4,003 4,003 2,002 2,002
--------- --------- --------- ---------
Total expenses 13,203 12,445 6,372 6,596
Interest expense - - 38 -
--------- --------- --------- ---------
Net loss $ (13,203) $ (12,445) $ (6,410) $ (6,596)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE>
THE STACEY ROSE PROGRAMS
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
Total
-----
<S> <C>
Balance January 1, 1996 $ 276,670
Net loss for the year (12,445)
---------
Balance December 31, 1996 264,225
Net loss for the period (13,203)
---------
Balance December 31, 1997 251,022
Capital contributions (unaudited) 1,950
Net loss for the period (unaudited) (6,410)
---------
Balance June 30, 1998 (unaudited) $ 246,562
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE>
THE STACEY ROSE PROGRAMS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------- -------------------
1997 1996 1998 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (13,203) $ (12,445) $ (6,410) $ (6,596)
Increase (decrease) from changes in:
Due from affiliate - - (27,000) -
Accrued expenses 13,203 12,445 16,507 (6,596)
---------- ---------- --------- ---------
Net cash used in operating
activities - - (16,903) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions - - 1,950 -
Proceeds from notes to affiliate - - 15,292 -
---------- ---------- --------- ---------
Net cash provided by
financing activities - - 17,242 -
Net increase in cash and cash equivalents - - 339 -
Cash and cash equivalents at beginning
of period - - - -
---------- ---------- --------- ---------
Cash and cash equivalents
at end of period $ - $ - $ 339 $ -
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-70
<PAGE>
THE STACEY ROSE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
During 1988 National Investors Financial, Inc. ("National"), represented by
NASD registered securities broker-dealers, completed the funding on two real
estate loans for the Stacey Rose "Trudy Pat" Programs (the "Programs") by
selling undivided tenant-in-common interests in such loans to investors. The
Stacey Rose A loan was in the amount of $85,000 to two investors and the Stacey
Rose B loan was in the amount of $315,300 to 28 investors. In October 1992, on
behalf of the Stacey Rose Program investors, National foreclosed on the property
and took title to the property ("Stacey Rose") involved in the Stacey Rose
Programs. Stacey Rose is currently raw land which is zoned for approximately
160 single-family residential units. The property is located in Victorville,
California, and is currently held in trust by National on behalf of the Stacey
Rose Investors. The Stacey Rose property was recently appraised at $1,600,000
as of the date of foreclosure. Therefore, the property has been written down to
its fair market value at the time of the foreclosure and the investors' interest
in the property is reflected as Owners' Equity in the financial statements.
The accompanying financial statements include the accounts of the Programs,
which consists of the Stacey Rose Land Holding Trust, and do not include the
accounts of National.
AMERICAN FAMILY HOLDINGS, INC.
American Family Holdings, Inc., a California corporation ("American"), was
formed to be a publicly-held corporation to acquire the businesses of certain
investment programs previously syndicated by National in exchange for equity in
American. In addition, American will offer a maximum of 1,000,000 units, which
consist of one share of common stock and one warrant at a price of $20 per unit.
Each warrant entitled the holder to purchase three additional shares of common
stock at 80% of the closing price of the stock on the day prior to exercise of
the warrant. The warrant has a term of two years following the completion of the
Offering.
In conjunction with the contemplated transactions, the Programs are
currently capitalizing the associated costs and recording these costs as due
from American. These costs are currently shown as deferred acquisition costs on
the books of American. These costs will, however, be allocated against a ratio
of the proceeds received from the units offering and the value of the shares
given to the program investors in exchange for their undivided tenant-in-common
interests after the completion of both transactions.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Management of the Programs consider all highly liquid investments with an
original maturity of three months or less when purchased to be cash equivalents.
LAND
Land is carried at cost. Effective January 1, 1996, the Programs adopted
the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS
No. 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", which requires impairment losses to be
recorded on long-lived assets being developed, based on fair value, when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Examples of indicators of impairment include a significant decrease
in the market value of an asset, a significant change in the extent or manner
in which an asset is used or a significant adverse change in legal or
business factors that could affect the value of an asset.
F-71
<PAGE>
THE STACEY ROSE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimation process in determining the fair value of real estate assets is
inherently uncertain and relies to a considerable extent on current and
future economic and market conditions, the availability of suitable financing
to fund holding, development, and construction activities, and the repayment
or refinancing of existing indebtedness. Such economic and market conditions
may effect management's development and marketing plans. Accordingly, the
ultimate realizations may differ from amounts presently estimated.
INCOME TAXES
The financial statements include the activity of the Programs, whose income
or losses are included in the investors' respective tax returns.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1997 and
1998 are unaudited; however in the opinion of the Property's management, the
interim financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 3. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Programs are currently managed, subject to a servicing agreement, by
National. National also currently manages seven other programs under similar
servicing agreements. As documented within the servicing agreement, National is
to receive an annual fee equal to 1% of the original loan balance. National's
requirements under the servicing agreement include managing the assets of the
Programs to assure that the purpose and activities of the Programs are continued
for the investors. The Programs incurred asset management expenses of $4,003,
$4,003, $2,002 and $2,002 for the years ended December 31, 1996 and 1997 and for
the six months ended June 30, 1997 and 1998. Total accrued and unpaid
management fees as of December 31, 1997 and June 30, 1998 were $31,275 and
$33,276.
NOTES TO AFFILIATE
The program received advances from National during 1998 amounting to
$15,250. These advances are evidenced by demand notes with interest at the rate
of 10% per annum.
LAWSUITS
The Programs are, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant effect
on the financial position of the Programs.
F-72
<PAGE>
THE STACEY ROSE PROGRAMS
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. COMMITMENTS (CONTINUED)
DELINQUENT PROPERTY TAXES
The Program has delinquent property taxes of 37,703 and 29,709 as of
December 31, 1997 and June 30,1998. The Program has entered into a five-year
payment plan with appropriate taxing authorities relative to the payment of
these past due taxes.
NOTE 4. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in the
Programs to make additional capital contributions. Such contributions are only
recorded to the extent of cash received.
F-73
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
National Investors Financial, Inc.
Los Angeles, California
We have audited the accompanying balance sheet of the Esperanza "Trudy Pat"
Program (the "Esperanza Program") (as defined in Note 1) as of December 31,
1997, and the related statements of operations, changes in owners' equity and
cash flows for each of the two years in the period ended December 31, 1997.
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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 presentation of the
financial statements. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of the
Esperanza Program as of December 31, 1997, and the results of operations and
cash flows for each of the two years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California
May 24, 1998
F-74
<PAGE>
THE ESPERANZA PROGRAM
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
------------ -----------
(unaudited)
<S> <C> <C>
ASSETS:
Land $ 270,000 $ 270,000
Cash and cash equivalents 7,191 3,753
Due from affiliate (Note 1) - 24,500
---------- ----------
Total assets $ 277,191 $ 298,253
---------- ----------
---------- ----------
LIABILITIES:
Due to affiliate (Note 3) $ 38,750 $ 41,250
Accrued property taxes (Note 3) 16,731 19,647
Accrued Expenses - 21,000
---------- ----------
Total liabilities $ 55,481 $ 81,897
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
OWNERS' EQUITY:
Owners' Equity 221,710 216,356
---------- ----------
Total liabilities and owners' equity $ 277,191 $ 298,253
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-75
<PAGE>
THE ESPERANZA PROGRAM
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------- ------------------------
1997 1996 1998 1997
---------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
EXPENSES:
Selling, general and administrative $ 5,537 $ 5,001 $ 2,916 $ 2,681
Related party management fees (Note 3) 5,000 5,000 2,500 2,500
---------- --------- --------- ---------
Total expenses 10,537 10,001 5,416 5,181
---------- --------- --------- ---------
Interest income 144 142 62 71
--------- --------- --------- ---------
Net income (loss) $ (10,393) $ (9,859) $ (5,354) $ (5,110)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-76
<PAGE>
THE ESPERANZA PROGRAM
STATEMENTS OF OWNERS' EQUITY
<TABLE>
<CAPTION>
Total
----------
<S> <C>
Balance January 1, 1996 241,962
Net loss for the year (9,859)
----------
Balance December 31, 1996 232,103
Net loss for the year (10,393)
----------
Balance December 31, 1997 221,710
Net loss for the period (unaudited) (5,354)
Balance June 30, 1998 (unaudited) $ 216,356
----------
----------
</TABLE>
See accompanying notes to financial statements.
F-77
<PAGE>
THE ESPERANZA PROGRAM
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
-------------------
Year Ended December 31, June 30,
------------------------------
1997 1996 1998 1997
---------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,393) $ (9,859) $ (5,354) $ (5,110)
Increase (decrease) from changes in:
Due from affiliate - - (24,500) -
Accrued expenses 10,537 9,951 26,416 5,181
---------- --------- --------- ---------
Net cash provided by (used in)
operating activities 144 92 (3,438) 71
Net increase (decrease)
in cash and cash equivalents 144 92 (3,438) 71
Cash and cash equivalents at beginning
of period 7,047 6,955 7,191 7,047
---------- --------- --------- ---------
Cash and cash equivalents
at end of period $ 7,191 $ 7,047 $ 3,753 $ 7,118
---------- --------- --------- ---------
---------- --------- --------- ---------
Cash paid during the period for interest $ - $ - $ - $ -
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-78
<PAGE>
THE ESPERANZA PROGRAM
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION
During 1988 National Investors Financial, Inc. ("National"), represented by
NASD registered securities broker-dealers, completed the funding of a real
estate loan for the Esperanza "Trudy Pat" Program (the "Program") in the amount
of $500,000 by selling undivided tenant-in-common interests in such loan to 42
investors. In December of 1990, on behalf of the Esperanza Program investors,
National foreclosed on the property and took title to the property ("Esperanza")
involved in the Esperanza Program. Esperanza is currently raw land which is
zoned for various commercial activities, including retail and office buildings,
with a minimum building site area of 10,000 square feet. The property is
located in Victorville, California and is currently held in Trust by National on
behalf of the Esperanza investors. The Esperanza property was recently
appraised at $530,000 as of the date of foreclosure. Therefore, the property
has been written down to its fair market value at the time of the foreclosure
and the investors' interest in the property is reflected as Owners' Equity in
the financial statements.
The accompanying financial statements include the accounts of the Program, which
consists of the Esperanza Land Holding Trust, and do not include the accounts of
National.
AMERICAN FAMILY HOLDINGS, INC.
American Family Holdings, Inc., a California corporation ("American"), was
formed to be a publicly-held corporation to acquire the businesses of certain
investment programs previously syndicated by National in exchange for equity in
American. In addition, American Family Holdings, Inc. will offer a maximum of
1,000,000 units, which consist of one share of common stock and one warrant at a
price of $20 per unit. Each warrant entitled the holder to purchase three
additional shares of common stock at 80% of the closing price of the stock on
the day prior to exercise of the warrant. The warrant has a term of two years
following the completion of the Offering.
In conjunction with the contemplated transactions, the Program is currently
capitalizing the associated costs and recording these costs as due from
American. These costs are currently shown as deferred acquisition costs on the
books of American. These costs will, however, be allocated against a ratio of
the proceeds received from the units offering and the value of the shares given
to the program investors in exchange for their undivided tenant-in-common
interests after the completion of both transactions.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Management of the Program considers all highly liquid investments with an
original maturity of three months or less when purchased to be cash equivalents.
LAND
Land is carried at cost. Effective January 1, 1996, the Program adopted
the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS
No. 121") "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", which requires impairment losses to be
recorded on long-lived assets being developed, based on fair value, when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Examples of indicators of impairment include a significant decrease
in the market value of an asset, a significant change in the extent or manner
in which an asset is used or a significant adverse change in legal or
business factors that could affect the value of an asset.
F-79
<PAGE>
THE ESPERANZA PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimation process in determining the fair value of real estate assets is
inherently uncertain and relies to a considerable extent on current and
future economic and market conditions, the availability of suitable financing
to fund holding, development, and construction activities, and the repayment
or refinancing of existing indebtedness. Such economic and market conditions
may effect management's development and marketing plans. Accordingly, the
ultimate realizations may differ from amounts presently estimated.
INCOME TAXES
The financial statements include the activity of the Program, whose income
or losses are included in the investors' respective tax returns.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The interim financial statements for the six months ended June 30, 1997 and
1998 are unaudited; however in the opinion of the Property's management, the
interim financial statements include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for the
interim period. The results of operations for such interim period are not
necessarily indicative of the results to be obtained for the full year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 3. COMMITMENTS
SERVICING/MANAGEMENT AGREEMENT
The Program is currently managed, subject to a servicing agreement, by
National. National also currently manages seven other programs under similar
servicing agreements. As documented within the servicing agreement, National is
to receive an annual fee equal to 1% of the original loan balance. National's
requirements under the servicing agreement include managing the assets of the
Program to assure that the purpose and activities of the program are continued
for the investors. The Program incurred asset management expenses of $5,000,
$5,000, $2,500, and $2,500 for the years ended December 31, 1996 and 1997 and
for the six months ended June 30, 1997 and 1998. Total accrued and unpaid
management fees as of December 31, 1997 and June 30, 1998 were $38,750 and
$41,250.
LAWSUITS
The Program is, from time to time, involved in various lawsuits generally
incidental to its business operations. In the opinion of management, the
ultimate resolution of these matters, if any, will not have a significant effect
on the financial position of the Program.
F-80
<PAGE>
THE ESPERANZA PROGRAM
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 3. COMMITMENTS (CONTINUED)
DELINQUENT PROPERTY TAXES
The Program has delinquent property taxes of $16,731 and $19,647 as of
December 31, 1997 and June 30, 1998. The Program has entered into a five-year
payment plan with appropriate taxing authorities relative to the payment of
these past due taxes.
NOTE 4. CAPITAL CONTRIBUTIONS
Through a voting procedure that can be initiated by National as Servicing
Agent, a majority of the investors has the power to require all investors in the
Program to make additional capital contributions. Such contributions are only
recorded to the extent of cash received.
F-81
<PAGE>
APPENDICES
Appendix 1 Fairness Opinion
Appendix 2 Selected Additional Appraisal Information
<PAGE>
APPENDIX 1
[Form of Fairness Opinion]
_________ __, 1998
Boards of Directors of National Investors Financial, Inc.,
and American Family Holdings, Inc., and each of the Investors in the following:
Sacramento/Delta Greens "Trudy Pat" Program
Oceanside "Trudy Pat" Program
Yosemite/Ahwahnee I "Trudy Pat" Program
Yosemite/Ahwahnee II "Trudy Pat" Program
Mori Point "Trudy Pat" Program
Cypress Lakes "Trudy Pat" Program
Palmdale/Joshua Ranch "Trudy Pat" Program
Esperanza Program
Stacey Rose Properties A Program
Stacey Rose Properties B Program
Ladies and Gentlemen:
We understand that a transaction is contemplated (the "Transaction") whereby
a newly formed company, American Family Holdings, Inc. (the "Company"), will
purchase the real estate (the "Properties"), other assets, liabilities and
business activities relating to certain trust deed participation ("Trudy
Pat") loan programs, as well as certain similarly structured non-Trudy Pat
loan programs sponsored by National Investors Financial, Inc. ("National").
The Trudy Pat )and non-Trudy Pat) loans were initially funded by groups of
investors (the "Investors") who, by virtue of the borrowers' default on the
loans, have become the beneficial owners of the Properties which secured the
loans. These include Trudy Pat loans on real property in Sacramento,
California ("Delta Greens"), Pacifica, California ("Mori Point"), Oceanside,
California ("Oceanside"), two separate parcels in Oakhurst, California
("Yosemite/Ahwahnee I" and "Yosemite/Ahwahnee II"), Contra Costa County,
California ("Cypress Lakes"), Palmdale, California (Palmdale/Joshua Ranch"),
as well as non-Trudy Pat loans on three separate parcels of real property in
Victorville, California ("Esperanza," "Stacey Rose Properties A Program" and
"Stacey Rose Properties B Program"). The Company's capitalization
immediately prior to the Transaction is expected to be [323,676] shares of
common stock, represented by 118,903 shares each to two partnerships
controlled by the principals of National and 85,870 total shares issued to
employees of National and the Company, and consultants to certain of the
programs (collectively, the "Founders' Shares"). As consideration for the
purchase of the programs, the Company will issue units consisting of common
stock (the "Shares"), as well as warrants to
A1.1
<PAGE>
purchase additional common stock, to the respective Investors in the
following amounts: [78,520] Shares to the Sacramento/Delta Greens Investors
(representing [4.55] percent of the total shares outstanding after the
issuance of the Shares), [270,652] Shares to the Mori Point Investors
(representing [15.67] percent of the total Shares outstanding after the
issuance of the Shares), [268,653] shares to the Oceanside Investors
(representing [15.56] percent of the total Shares outstanding after the
issuance of the Shares), [110,502] Shares to the Yosemite/Ahwahnee I
Investors (representing [6.40] percent of the total Shares outstanding after
the issuance of the Shares), [229,504] Shares to the Yosemite/Ahwahnee II
Investors (representing [13.29] percent of the total Shares outstanding after
the issuance of the Shares), [291,246] Shares to the Cypress Lakes Investors
(representing [16.86] percent of the total Shares outstanding after the
issuance of the Shares), [131,094] Shares to the Palmdale/Joshua Ranch
Investors (representing [7.59] percent of the total Shares outstanding after
the issuance of the Shares), [10,818] Shares to the Esperanza Investors
(representing [0.63] percent of the total Shares outstanding after the
issuance of the Shares), [12,617] Shares to the Stacey Rose A Investors
(representing [0.15] percent of the total Shares outstanding after the
issuance of the Shares), and [9,711] Shares to the Stacey Rose B Investors
(representing [0.56] percent of the total Shares outstanding after the
issuance of the Shares). In connection with the Transaction, it is
anticipated that the Company's common stock will be listed for public sale on
the ____________ under the symbol ________.
You have requested our opinion (the "Opinion") as to the fairness of the
allocation of Shares pursuant to the Transaction, on a fully diluted basis
inclusive of the Founders' Shares, from a financial point of view, to the
Investors in each of Sacramento/Delta Greens, Mori Point, Oceanside,
Yosemite/Ahwahnee I, Yosemite/Ahwahnee II, Cypress Lakes, Palmdale/Joshua Ranch,
Esperanza, Stacey Rose A and Stacey Rose B. Our Opinion is limited to the
allocation of Shares to the Investors in connection with the Transaction. We
have not performed an analysis of, and express no opinion with respect to the
fair market value of the Shares, the Company's cost structure on a going forward
basis and whether such structure will result in a greater cost for services to
the Investors than they were incurring collectively when the programs were being
managed by National, nor have we analyzed alternatives to the transaction from
the standpoint of the Investors.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. Reviewed a draft copy of the Consent Solicitation Statement/Prospectus for
the Transaction (the "Prospectus") dated _______, 1998;
2. Reviewed the following real estate appraisals (collectively, the
"Appraisals") with respect to the Properties:
A1.2
<PAGE>
a) an appraisal of a property in Oakhurst, California, formerly
wholly-owned by the Yosemite/Ahwahnee I and II Programs (portions
of which were subsequently sold to Oceanside in June 1998), prepared
by Arnold Associates, as of March 31, 1998 (the "Arnold Appraisal"),
b) an appraisal of a property in Oakhurst, California, formerly
wholly-owned by the Yosemite/Ahwahnee I and II Programs (portions
of which were subsequently sold to Oceanside in June 1998), prepared
by the Mentor Group, as of October 10, 1996 (the "Mentor Appraisal"),
c) an appraisal of the Mori Point Property, prepared by PKF Consulting,
as of March 31, 1998,
d) an appraisal of the Delta Greens Property, prepared by David E, Lane,
Inc., as of March 31, 1998,
e) an appraisal of the Cypress Lakes Property, prepared by Sedway Group,
as of March 31, 1998, and
f) appraisals of the Palmdale/Joshua Ranch, Esperanza and Stacey Rose
Properties A and B prepared by Likas & Associates, as of March 31,
1998.
3. Reviewed the following feasibility studies with respect to the Properties:
a) a study of the Yosemite/Ahwahnee I and II Properties, prepared by
LEXES Enterprises, dated August 28, 1996,
b) a study of the Yosemite/Ahwahnee I and II Properties, prepared by RCI
Consulting, dated July 1998, and
c) a study of the Delta Greens Property, prepared by Barnett Research
Associates, dated December 23, 1996;
4. Reviewed a draft copy of the Agreement of Purchase and Sale and Joint
Escrow Instructions between National and a third party, dated as of
__________ (the "Purchase Agreement"), relating to a potential sale of
the Cypress Lakes Property;
5. Reviewed audited financial statements for each of the Delta Greens
Property, the Mori Point Property, the Oceanside Property, the
Yosemite/Ahwahnee I and II Properties, the Cypress Lakes Property, the
Palmdale/Joshua Ranch Property, the Esperanza Property and the Stacey Rose
A and B Properties, as well as pro forma consolidated financial
A1.3
<PAGE>
statements for the Company, for the two years ended December 31, 1997
through the six months ended June 30, 1998;
6. Met with management of the Company and National regarding matters
pertinent to our analysis;
7. Reviewed a draft copy of the Golf Course Net Lease between Oceanside
Development, Inc. and Ahwahnee Golf Course, Inc., dated ______________,
1998
8. Conducted site visits to each of the Properties, and met with the General
Manager of the Yosemite/Ahwahnee I and II Properties;
9. Reviewed certain documents related to the Trudy Pat and other trust
deed participation loans on the Properties;
10. Reviewed certain other documents and schedules which were pertinent to our
analysis; and
11. Conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company or the Properties and do
not assume any responsibility with respect to it. Our Opinion is necessarily
based on business, economic, market and other conditions as they exist and can
be evaluated by us at the date of this letter.
We have assumed that the financial statements provided to us correctly reflect
the financial results and condition of the Company (on a pro forma basis) and
the programs for the time periods covered in accordance with generally accepted
accounting principles consistently applied. We have further assumed that there
has been no material change in the financial results and condition of the
Company (on a pro forma basis) or the programs since the date of the most recent
financial statements made available to us. We have not been requested to, and
did not, solicit third party indications of interest in acquiring all or any
part of the Properties. Furthermore, at your request, we have not negotiated
the Transaction or advised you with respect to alternatives to it.
The enterprise value of most entities whose primary business purpose is owning
real estate is determined based on the adjusted book value (or net asset value)
approach. We deemed this to be a reasonable methodology for determining the
enterprise value of each of the Oceanside, Mori Point, Yosemite/Ahwahnee I and
II, Delta Greens, Cypress Lakes, Palmdale/Joshua Ranch, Esperanza and Stacey
Rose A and B programs. In the adjusted book value approach, the estimated
current market value of individual assets and liabilities are substituted for
their
A1.4
<PAGE>
carrying value on the programs' financial statements (or book value). The
enterprise value is the resulting value of the equity after subtracting
liabilities from the market value of assets.
To determine the current net asset value of each of the Programs, the
Independent Valuator relied on the Appraisals, without independent analysis
or verification, to represent the current fair market value of the respective
properties. In the case of the properties sold to Oceanside by
Yosemite/Ahwahnee I and II programs in June 1998, we relied upon the
Company's representation that these sales were not arm's length negotiated
transactions and that the Company's reconciliation of value utilizing a
combination of the Arnold and Mentor Appraisals represents the best current
indication of the fair market value of those properties. In the case of the
property remaining in the Yosemite/Ahwahnee I and II programs, the Company
represents that the value according to the Arnold Appraisal is representative
of its current fair market value (after being reduced to reflect lot sales
since the date of the Appraisal). In the case of the Cypress Lakes property
(which has an appraised value of $6,000,000), there is a possibility that in
the near future the Company will enter into a purchase agreement with a
potential buyer for a purchase price of $11,550,000, including third-party
commissions, payable in a combination of cash and a promissory note. However,
the purchase agreement would give the buyer the ability to cancel the sale
without penalty for any reason within a 120 day due diligence period. During
a subsequent 60 day period, the buyer could cancel with forfeiture of a
$100,000 deposit. Because of the terms of the agreement, the Company
believes that there is considerable uncertainty regarding whether the
property will be sold for that amount, if at all. Therefore, our net asset
value calculation is based on the $6,000,000 appraised value subject to the
condition that if the sale is consummated and the net proceeds are greater
than the appraised value, the Investors in Cypress Lakes will receive an
additional number of units (valued at $20) equal to the difference in the
purchase price (exclusive of interest) and the appraised value. In
determining net asset value, the Independent Valuator used the book value as
of June 30, 1998 for most of the non-real estate assets. This was considered
reasonable because the majority of these assets consist of cash, restricted
cash, accounts receivable, notes receivable or amounts due from affiliates,
which are relatively liquid and worth approximately their book value. With
respect to property and equipment (excluding real estate), no appraisals were
provided to the Independent Valuator. Management believes the book value of
property and equipment to be reasonably indicative of its market value.
Deferred membership selling expense and deferred revenues which appear on the
balance sheet of the Yosemite/Ahwahnee II Program as of June 30, 1998 were
included in the net asset value calculation at book value even though they
are intangible assets and liabilities in order to reflect the on-going assets
and liabilities associated with operating the recreational vehicle park. Real
property held for sale on the Oceanside program's balance sheet as of June
30, 1998 was not included because it was subsequently sold and the proceeds
were distributed to investors. Liabilities were subtracted out at book
value. Using the aforementioned methodology, the resulting net asset values
as of June 30, 1998 were as follows (rounded to the nearest $000): $5,356,000
for Oceanside (or 19.10 percent of the combined net asset value); $2,210,000
for Yosemite/Ahwahnee I (or 7.88 percent of the combined net asset
A1.5
<PAGE>
value); $4,590,000 for Yosemite/Ahwahnee II (or 16.36 percent of the combined
net asset value); $5,413,000 for Mori Point (or 19.30 percent of the combined
net asset value); $1,570,000 for Sacramento/Delta Greens (or 5.60 percent of
the combined net asset value); $5,825,000 for Cypress Lakes (or 20.77 percent
of the combined net asset value); $2,622,000 for Palmdale/Joshua Ranch (or
9.35 percent of the combined net asset value); $216,000 for Esperanza (or
0.77 percent of the combined net asset value); $52,000 for Stacey Rose A
Program (or 0.90 percent of the combined net asset value); and $247,000 for
Stacey Rose Properties B Program (or 0.69 percent of the combined net asset
value).
With respect to the 323,631 Founders Shares, the Independent Valuator was
primarily concerned with the 237,806 shares to be issued to the family
limited partnerships under the control of David Lasker and James Orth. For
our purposes, we considered a certain number of those shares to represent
consideration to Messrs. Lasker and Orth in connection with their
responsibilities as officers of the Company. The Independent Valuator assumed
this number of shares would be 89,370 shares (or 44,685 each for Messrs.
Lasker and Orth), which is based on the number of shares to be issued to Mr.
Albertson on the basis of arm's length negotiations. The remaining 148,436
shares, or 8.60 percent of the total shares expected to be outstanding upon
consummation of the Transaction, represents consideration for the role of
Messrs. Lasker and Orth in structuring and completing the Acquisition, which
is reasonable given the fact that the Acquisition they have structured
should, among other things, enhance the Investors' liquidity more than enough
to offset the dilution resulting from the issuance of the shares. Even though
there is no guarantee that an active market will develop for the Company's
Shares, when compared with likely discounts for lack of marketability in
excess of 30 percent for their current ownership interests (based on
historical studies), the Investors' liquidity should be expected to be
increased significantly.
Based on the foregoing, and in reliance thereon, it is our opinion that from
a financial point of view, the allocation of the Shares pursuant to the
Transaction, on a fully diluted basis inclusive of the Founders' Shares, is
fair to the Investors in Delta Greens, Mori Point, Oceanside,
Yosemite/Ahwahnee I, Yosemite/Ahwahnee II, Cypress Lakes, Palmdale/Joshua
Ranch if only those seven choose to participate in the transaction, and the
Investors in all ten programs if all Investors in each of the Esperanza
Program, Stacey Rose Properties A Program and Stacey Rose Properties B
Program choose to participate.
This Opinion is furnished solely for your benefit and may not be relied upon
by any other person without our express, prior written consent. We
understand, however, that this Opinion may be referred to in the Prospectus
to be filed by the Company in connection with this Transaction. This Opinion
is delivered to you subject to the conditions, scope of engagement,
limitations and understandings set forth in this Opinion and subject to the
understanding that the obligations of HVA in the Transaction are solely
corporate obligations, and no officer, director, employee, agent, shareholder
or controlling person of HVA shall be subjected to any personal liability
A1.6
<PAGE>
whatsoever to any person, nor will any such claim be asserted by or on behalf
of you or your affiliates.
HOULIHAN VALUATION ADVISORS
A1.7
<PAGE>
Appendix 2
SELECTED ADDITIONAL APPRAISAL INFORMATION
The following selected additional information about the appraisals of the
Programs' Properties is presented so that the Investors can better understand
the methods used and results of the appraisals.
SACRAMENTO/DELTA GREENS PROGRAM (David E. Lane, Inc.)
<TABLE>
<S> <C> <C>
Sales Comparison Approach(1) $2,134,000
Land Residual Approach(2) 2,403,000
Discounted Cash Flow(3) 1,815,000
Conclusion of "as is" value $2,000,000(a)
-------------
-------------
</TABLE>
- ----------------
(a) $1,745,000 at March 31, 1998. Reduction in value was caused by a change to
the tentative map which reduced the number of lots from 534 to 465.
Reduction in number of lots was caused by requirement of a wetlands/habitat
set aside. Material assumptions from May 1997 were unchanged.
Heaviest reliance in the May 1997 appraisal was placed on the Sales
Comparison Approach because the Property is undeveloped and generates no
revenue.
Material Assumptions
- As of the 1993 date of value the property was approved for 596 lots,
including 144 duplexes.
- As of the 1997 date of value the property is approved for 534 lots,
all single family.
- Physical and economic conditions as of the 1993 date of value were as
reported in the appraisal. No inspection or investigation was made in 1993.
Assumptions particular to cash flow analysis
- A sell-out, or absorption, period of ten years.
- A base paper lot value of $7,500 for small groups of lots, with
step-up increases of $500 per lot per year -- as many option or phased sales
are usually arranged (last year is at $12,000 per lot).
- Lots sold in groups of two phases per year in numerical order, using
the current tentative map of 534 lots.
A2.1
<PAGE>
- Commission and marketing of 5%, as limited sales agreements are
envisioned.
- Real estate taxes based on an interpolated value of $2,000,000, times
the combined 1.5% tax and levies rate, with the declining total value of the
remaining lots increased by 2% annually.
- Miscellaneous costs, such as insurance and overhead, of 1% of sales.
- A discount rate of 20%.
MORI POINT PROGRAM (PKF Consulting)
<TABLE>
<S> <C> <C>
Discounted Cash Flow(3) $5,300,000
Ground Rent Capitalization Approach(4) 6,000,000
Sales Comparison Approach(1) 5,400,000
Conclusion of "as is" value $5,500,000(a)
-------------
-------------
</TABLE>
- ----------------
(a) $6,000,000 at March 31, 1998. Increase in value from May 1997 is
attributable to modestly improved real estate conditions in the area.
Material Assumption
- The project will be open by January 1, 2002.
As the sales comparisons available were not similarly sized or located, of
a similar development potential, the greatest reliance was placed on the
Discounted Cash Flow Approach as good market information was available to
support the potential cash flow and development cost of the potential project.
The Ground Rent Capitalization Approach was used as a test of reasonableness.
YOSEMITE/AHWANHEE I AND II PROGRAMS (Arnold Associates)
GOLF COURSE/COUNTRY CLUB
------------------------
<TABLE>
<S> <C> <C>
Sales Comparison Approach(1) $5,400,000
Income Approach(5) 4,810,000
Cost Approach(6) 6,270,000
Conclusion of "as is" value $4,480,000*(a)
--------------
--------------
</TABLE>
* Reflects a $5,100,000 stabilized value less $620,000 of lost income
during stabilization process of the golf course.
- ----------------
(a) $3,810,000 at March 31, 1998 reflecting a $4,450,000 stabilized value less
$640,000 of lost income during stabilization process. Reduction was caused
by a general decline in the golf industry since May 1997 plus lost income
due to heavy rains in 1998.
A2.2
<PAGE>
The Sales Comparison Approach was deemed the most reliable because
sufficient market data existed, although the comparables were superior in
location, quality or condition. The Income Approach was not reliable as there
was no historical data available.
Material Assumption
- Stabilized income and rounds played.
RV PARK
-------
<TABLE>
<S> <C> <C>
Sales Comparison Approach(1) $3,886,000
Cost Approach(6) 3,986,000
Conclusion of "as is" value $3,886,000(a)
-------------
-------------
</TABLE>
- -----------------
(a) Value unchanged from May 1997.
The Sales Comparison Approach was deemed the most reliable. The Cost
Approach was suspect because of lack of historical data. There was no
historical data to support the Income Approach.
<TABLE>
<S> <C>
COUNTRY CLUB ESTATES ("as is") $2,250,000(a)
ESTATE "OUTLOTS" F, G AND H ("as is") $5,800,000(a)
OTHER "OUTLOTS" C, D AND E ("as is") $4,500,000(a)
</TABLE>
- ---------------
(a) Value unchanged from May 1997.
In each of the last three categories, only the Sales Comparison Approach
was used as such approach was deemed the only reliable indicator value for the
types of property in question.
Valuation qualification for the Estates: Changes in concept and
realignment of Road 621 could change density and possibly trigger additional
wildlife habitat easement acreage.
YOSEMITE/AHWAHNEE I AND II PROGRAMS (Mentor)
Utilizing a sales comparison approach(1) for the undeveloped land and a
cost approach(7) for the balance of the Properties, in October 1996, The Mentor
Group, Inc. appraisal valued the
<TABLE>
<S> <C> <C>
Country Club Estates ("as is") $ 530,000
Remaining Real Estate
Land 1,895,000
Buildings 1,025,000
Land Improvements 541,200
Conclusion of "as is" value $4,000,000(a)
-------------
-------------
</TABLE>
- ----------------
A2.3
<PAGE>
(a) No update was sought for this appraisal.
At the time of the appraisal, The Mentor Group did not adopt the income
capitalization approach for the golf course portion because it was not projected
to be profitable in the near future and needed considerable expenditures to be
operational. The sales comparison approach was not used for the golf course
portion because there were no comparable sales.
PALMDALE/JOSHUA RANCH PROGRAM (Likas & Associates)
<TABLE>
<S> <C> <C>
Sales Comparison Approach(1) $2,700,000
Conclusion of "as is" value $2,700,000
----------
----------
</TABLE>
Since the subject property consists only of vacant land, with no grading
plans or approved tract maps, the Sales Comparison Approach was deemed the most
reliable indicator of value. Thus, only this valuation methodology was
utilized.
Material Assumptions
- The subject property consists of 539 proposed single-family lots.
- No soil or environmental reports were uncovered or made available to
the appraisers. The appraisers assume that a soils report would not reveal any
unusual conditions and that there are no adverse soil conditions at the subject
property. The appraisers also assume that the subject property's soils
conditions will not negatively affect the value of the subject property.
- No title report reflecting the subject property was made available to
the appraisers. The appraisers explicitly assume that the only easements are
normal street, utility and access easements which do not adversely affect the
value of the subject property.
- The property taxes for the subject property are past due and
delinquent in the amount of $103,637. There is currently a structured pay-off
agreement with the balance to be paid off in April of 2000. Within the
valuation analysis, the appraisers explicitly assume all taxes are current.
- Drainage is assumed to be adequate.
STACEY ROSE PROGRAMS (Likas & Associates)
<TABLE>
<S> <C> <C>
Sales Comparison Approach $320,000
Conclusion of "as is" value $320,000
----------
----------
</TABLE>
Since the subject property consists only of vacant land, with no approved
tract maps, the Sales Comparison Approach was deemed the most reliable
indicator of value. Thus, only this valuation methodology was utilized.
A2.4
<PAGE>
Material Assumptions
- According to the City of Victorville Engineering Department, the Oro
Grande wash traverses over approximately 10,000 square feet of the subject
property. However, the City of Victorville Engineering Department has also
stated that this area could be utilized as open area, thus not restricting the
density of development. The appraisers have explicitly assumed this to be true.
- No soil or environmental reports were uncovered or made available to
the appraisers. The appraisers assume that a soils report would not reveal any
unusual conditions and that there are no adverse soil conditions at the subject
property. The appraisers also assume that the subject property's soils
conditions will not negatively affect the value of the subject property.
- No title report reflecting the subject property was made available to
the appraisers. The appraisers explicitly assume that the only easements are
normal street, utility and access easements which do not adversely affect the
value of the subject property.
- The property taxes for the subject property are past due and
delinquent in the amount of $36,440. This figure does not include the 1997 tax
year, and is only valid until April 30, 1998. Within the valuation analysis,
the appraisers explicitly assume all taxes are current.
- Drainage is assumed to be adequate.
ESPERANZA PROGRAM (Likas & Associates)
<TABLE>
<S> <C> <C>
Sales Comparison Approach $270,000
Conclusion of "as is" value $270,000
--------
--------
</TABLE>
Since the subject property consists only of vacant land, with no approved
tract maps, the Sales Comparison Approach was deemed the most reliable
indicator of value. Thus, only this valuation methodology was utilized.
Material Assumptions
- No soil or environmental reports were uncovered or made available to
the appraisers. The appraisers assume that a soils report would not reveal any
unusual conditions and that there are no adverse soil conditions at the subject
property. The appraisers also assume that the subject property's soils
conditions will not negatively affect the value of the subject property.
- No title report reflecting the subject property was made available to
the appraisers. The appraisers explicitly assume that the only easements are
normal street, utility and access easements which do not adversely affect the
value of the subject property.
A2.5
<PAGE>
- The property taxes for the subject property are past due and
delinquent in the amount of $15,542.25. This figure does not include the
1997 tax year and is only valid until April 30, 1998. Within the valuation
analysis, the appraisers explicitly assume all taxes are current.
- Drainage is assumed to be adequate.
CYPRESS LAKES (Sedway Group)
<TABLE>
<S> <C> <C>
Sales Comparison Approach $6,100,000
Subdivision Development Approach $6,000,000
Conclusion of "as is" value $6,000,000
----------
----------
</TABLE>
Since the subject property has received a vesting tentative map, both the
Sales Comparison Approach and Subdivision Development Approach to value were
utilized. Because the Subdivision Development Approach takes into account
estimated costs and other factors the appraisers believe this approach is better
able to accommodate the particular characteristics of the Cypress Lakes project.
Accordingly, this approach was given the primary consideration in the
determination of value.
Material Assumptions
- The subject property consists of 1,330 single-family lots.
- No soil or environmental reports were uncovered or made available to
the appraisers. The appraisers assume that a soils report would not reveal any
unusual conditions and that there are no adverse soil conditions at the subject
property. The appraisers also assume that the subject property's soils
conditions will not negatively affect the value of the subject property.
- The property taxes for the subject property are past due and
delinquent in the amount of $168,446.22. The appraisers have been informed that
the owner of the subject property intends to satisfy the property taxes before a
transfer of title occurs. Within the valuation analysis, the appraisers
explicitly assume all taxes are current.
- There are five separately owned parcels of land that are entirely
surrounded by the subject property. The owners of these parcels have been
approached to sell their land in order for it to be a part of the Cypress Lakes
development. However, the owners have declined to sell their land. The local
school district has been approached with regard to condemning these properties
for use as a school site that would exist on the subject property. While these
parcels remain in private ownership, the appraisal assumes that this
condemnation will occur and that these properties will be used as a school site.
A2.6
<PAGE>
- Because of the Subdivision Development Approach to value utilized
in the appraisal, the value conclusion is extremely sensitive to the
reliability of the cost estimates prepared by the prior landowners of the
subject property Accordingly, the appraisers assume that the cost estimates
provided by the prior landowners are accurate and reliable.
- -----------------
1 The SALES COMPARISON APPROACH produces an estimate of value by comparing
the sales and/or listings of similar properties in the same area as the
subject property or in competing areas. This technique is used to indicate
the value established by informed buyers and sellers in the market.
2 In a LAND RESIDUAL ANALYSIS, a simple deduction is applied to an estimated
finished-lot price that a homebuilder could afford to pay in the
neighborhood.
3 A DISCOUNTED CASH FLOW ANALYSIS is used to value vacant land that has the
potential for development for a use when that use represents the likely
highest and best use of the land.
4 The GROUND RENT APPROACH is particularly appropriate for special use
properties such as hotels, where there is not a sufficient number of truly
comparable land sales to accurately estimate the value of the site using
the sales comparison approach. Ground rent is the amount paid for the
right to use and occupy the land according to the terms of a ground lease.
It corresponds to the value of the land owner's interest in the land, the
lease fee interest.
5 The INCOME CAPITALIZATION APPROACH is based on an estimate of the subject
property's possible net operating income. The net operating income is
capitalized to arrive at an indication of value from the standpoint of an
investment. This method measures the present worth of anticipated future
benefits (net income) derived from the property.
6 The COST APPROACH considers the current cost of reproducing or replacing a
property, less accrued depreciation in the property. A summation of the
market value of the land assumed vacant and reproduction cost new of the
improvements provides an indication of the total value of the property.
7 The SUBDIVISION DEVELOPMENT APPROVAL combined the sales comparison approach
with an estimate of costs to be incurred, along with certain income
capitalization techniques..
A2.7
<PAGE>
General Appraisal Assumptions
1. SACRAMENTO/DELTA GREENS PROGRAM
- The legal description, dimensions, and areas used herein are assumed
to be correct.
- Title to the property is assumed to be free and clear of any liens or
encumbrances, and to be merchantable title, unless otherwise specified herein.
- No responsibility is assumed for matters that are legal in nature.
- Information furnished by the appraiser by others has been reviewed and
analyzed and is believed to be reasonably accurate, but cannot be guaranteed.
- Unless otherwise specified herein, it is assumed that there are no
adverse subsurface conditions, particularly those relating to soil-bearing
capacity.
- Unless otherwise stated in this report: The existence of hazardous
material, which may or may not be present on the property, was not observed by
the appraiser. The appraiser has no knowledge of the existence of such
materials on or in the property. The appraiser, however, is not qualified to
detect such substances. He presence of substances such as asbestos, radon
urea-formaldehyde foam insulation, or other potentially hazardous materials may
affect the value of the property. The value estimate is predicated on the
assumption that there is no such material on or in the property that would cause
a loss in value. No responsibility is assumed for any such conditions, or for
any expertise or engineering knowledge required to discover them.
2. MORI POINT
- The appraiser assumes no responsibility for economic, physical or
demographic factors which may affect or alter the opinions in this report if
said economic, physical or demographic factors were not present as of the date
of the letter of transmittal accompanying this report. The appraiser is not
obligated to predict future political, economic or social trends.
- In preparing the report, the appraiser was required to rely on
information furnished by other individuals or found in previously existing
records and/or documents. Unless otherwise indicated, such information is
presumed to be reliable. However, no warranty, either express or implied, is
given by the appraiser for the accuracy of such information and the appraiser
assumes no responsibility for information relied upon later found to have been
inaccurate.
- No opinion as to the title of the subject property is rendered.
Data related to ownership and legal description was obtained from the
attached title report records and is considered reliable. Title is assumed
to be marketable and free and clear of all liens, encumbrances, easements and
restrictions except those specifically discussed in the report. The
A2.8
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property is appraised assuming it to be under responsible ownership and
competent management, and available for its highest and best use.
- The appraiser assumes no responsibility for hidden or unapparent
conditions of the property, subsoil, ground water or structures that render the
subject property more or less valuable. No responsibility is assumed for
arranging for engineering, geologic or environmental studies that may be
required to discover such hidden or unapparent conditions.
- The appraiser has not been provided any information regarding the
presence of any material or substance on or in any portion of the subject
property or improvements thereon, which material or substance possesses or may
possess toxic, hazardous and/or other harmful and/or dangerous characteristics.
Unless otherwise stated in the report, the appraiser did not become aware of the
presence of any such material or substance during the appraiser's inspection of
the subject property. However, the appraiser is not qualified to investigate or
test for the presence of such materials or substances. The presence of such
materials or substances may adversely affect the value of the subject property.
The value estimated in this report is predicted on the assumption that no such
material or substance is present on or in the subject property or in such
proximity thereto that it would cause a loss in value. The appraiser assumes no
responsibility for the presence of any such substance or material on or in the
subject property, nor for any expertise or engineering knowledge required to
discover the presence of such substance or material. Unless otherwise stated,
this report assumes the subject property is in compliance with all federal,
state and local environmental laws, regulations and rules.
- Unless otherwise stated, the subject property is appraised assuming it
to be in full compliance with all applicable zoning and land use regulations and
restrictions.
- Unless otherwise stated, the property is appraised assuming that all
required licenses, permits, certificates, consents or other legislative and/or
administrative authority from any local, state or national government or private
entity or organization have been or can be obtained or renewed for any use on
which the value estimate contained in this report is based.
- No engineering survey has been made by the appraiser. Except as
specifically stated, data relative to size and area of the subject property was
taken from sources considered reliable and no encroachment of the subject
property is considered to exist.
- It is assumed that the utilization of the land and/or improvements is
within the boundaries or property described herein and that there is no
encroachment or trespass.
3. YOSEMITE/AHWAHNEE I AND II (Arnold)
- No responsibility is assumed for the legal description or for matters
including legal or title considerations. Title to the property is assumed to be
good and marketable unless otherwise stated. The property is assumed to be
available for its highest and best use.
A2.9
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- The property is appraised free and clear of any or all liens or
encumbrances unless otherwise stated.
- Responsible ownership and competent property management are assumed.
- The information furnished by others is believed to be reliable.
However, no warranty is given for its accuracy.
- The appraiser assumes no responsibility for economic or physical
factors occurring after the date of value which may affect the opinions herein
stated. The projections included in this report are subject to changes in
future conditions that cannot be accurately predicted by the appraiser and could
affect the future income or value projections.
- No engineering survey has been made by the appraiser. Except as
specifically stated, data relative to size and area were taken from sources
considered reliable. The plot plans and illustrative material in this report
are included only to assist the reader in visualizing the property.
- That there are no hidden or unapparent conditions of the property,
subsoil, or structures that render it more or less valuable. No responsibility
is assumed for such conditions or for arranging for engineering studies that may
be required to discover them.
- That there is full compliance with all applicable federal, state, and
local environmental regulations and laws unless noncompliance is stated,
defined, and considered in the appraisal report.
- That unless otherwise stated in this report, the existence of
hazardous material, which may or may not be present on the property, was not
observed by the appraiser. The appraiser has no knowledge of the existence of
such materials on or in the property. The appraiser however, is not qualified
to detect such substances. The presence of any potentially hazardous materials
or substances may affect the value of the property. The value estimate is
predicated on the assumption that there are no such materials or substances on
or in or under the property that would cause a loss in value. No responsibility
is assumed for any such conditions, or for any expertise or engineering
knowledge required to discover them.
- That all applicable zoning and use regulations and restrictions have
been complied with, unless a nonconformity has been stated, defined, and
considered in the appraisal report.
- That all required licenses, certificates of occupancy, consents, or
other legislative or administrative authority from any local, state, or national
government or private entity organization have been or can be obtained or
renewed for any use on which the value estimate contained in this report is
based.
A2.10
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- That the utilization of the land and improvements is within the
boundaries or property lines of the property described and that there is no
encroachment or trespass unless noted in this report.
4. YOSEMITE/AHWAHNEE I AND II (Mentor)
- The title of the property is marketable.
- Unless otherwise indicated, the property is free and clear of all
liens, encumbrances, easement and restrictions.
- The property does not exist in violation of any applicable codes,
ordinances, statutes or other governmental regulations.
- The property is under responsible ownership and competent management
and is available for its highest and best use.
- Information supplied by others, which was considered in this
valuation, came from sources believed to be reliable. The appraiser assumes no
further responsibility for its accuracy. The appraiser reserves the right to
adjust the valuation herein reported by consideration of additional or more
reliable data that may become available.
- The appraiser assumes no hidden or unexpected conditions of the
property exist which would adversely affect value.
- The appraiser assumed no responsibility for economic or physical
factors occurring after the date of value which may affect the opinions
reported.
- Hazardous substances, if present in a facility, can introduce an
actual or potential liability that will adversely affect the marketability and
value of the facility. Such liability may take the form of immediate
recognition of existing hazardous conditions. Future liability could stem from
the release of currently nonhazardous contaminants, such as asbestos fibers or
toxic vapors from urea formaldehyde foam insulation, through aging or building
renovations.
In the development of the appraiser's opinion of value, no
consideration has been given to such liability or its impact on value. The
appraiser is not qualified to investigate the possible presence of toxic
materials requiring either immediate or future correction.
- The overall site does contain various easements, as well encumbering
the larger landholdings, which are assumed not to adversely affect the
utilization of the subject land.
- All governmental approvals necessary to permit development for the
proposed residential, recreational vehicle timeshare area are assumed available
as per actual discussions with the Madera County planner. However, no
preliminary site plans showing the proposed development were submitted.
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5. JOSHUA RANCH
- No responsibility is assumed for matters which are legal in nature.
- There are easements which are assumed to be typical utility easements
and do not negatively impact the value of the property.
- No opinion of title is rendered, and the subject property is appraised
as though free of all easements, liens, or encumbrances. Title is assumed to be
marketable.
- No survey of the boundaries of the subject property was undertaken by
the appraisers. All areas and dimensions furnished to the appraisers are
presumed to be correct.
- No soils report has been reviewed in connection with the valuation
analysis. Unless otherwise stated, it is assumed that there are no adverse
subsurface conditions.
- Forecasts of future events that influence the valuation process are
predicated on the continuation of historic and current trends in the market.
- The subject property is appraised assuming it to be under responsible
ownership and competent management and available for its highest and best use.
- No environmental site assessment report was provided for the
appraisers' review. It is assumed that there are no hidden or unappparent
conditions of substances in the soil or subsoil that may be hazardous or toxic.
- It is assumed that there are no deed restrictions to a single use of
the subject property. The presence of such restrictions could adversely impact
the value of the site.
6. STACEY ROSE AT VICTORVILLE
- No responsibility is assumed for matters which are legal in nature.
- There are easements which are assumed to be typical utility easements
and do not negatively impact the value of the property.
- No opinion of title is rendered, and the subject property is appraised
as though free of all easements, liens, or encumbrances. Title is assumed to be
marketable.
- No survey of the boundaries of the subject property was undertaken by
the appraisers. All areas and dimensions furnished to the appraisers are
presumed to be correct.
- No soils report has been reviewed in connection with the valuation
analysis. Unless otherwise stated, it is assumed that there are no adverse
subsurface conditions.
A2.12
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- Forecasts of future events that influence the valuation process are
predicated on the continuation of historic and current trends in the market.
- The subject property is appraised assuming it to be under responsible
ownership and competent management and available for its highest and best use.
- No environmental site assessment report was provided for the
appraisers' review. It is assumed that there are no hidden or unappparent
conditions of substances in the soil or subsoil that may be hazardous or toxic.
- It is assumed that there are no deed restrictions to a single use of
the subject property. The presence of such restrictions could adversely impact
the value of the site.
7. ESPERANZA AT VICTORVILLE
- No responsibility is assumed for matters which are legal in nature.
- There are easements which are assumed to be typical utility easements
and do not negatively impact the value of the property.
- No opinion of title is rendered, and the subject property is appraised
as though free of all easements, liens, or encumbrances. Title is assumed to be
marketable.
- No survey of the boundaries of the subject property was undertaken by
the appraisers. All areas and dimensions furnished to the appraisers are
presumed to be correct.
- No soils report has been reviewed in connection with the valuation
analysis. Unless otherwise stated, it is assumed that there are no adverse
subsurface conditions.
- Forecasts of future events that influence the valuation process are
predicated on the continuation of historic and current trends in the market.
- The subject property is appraised assuming it to be under responsible
ownership and competent management and available for its highest and best use.
- No environmental site assessment report was provided for the
appraisers' review. It is assumed that there are no hidden or unappparent
conditions of substances in the soil or subsoil that may be hazardous or toxic.
- It is assumed that there are no deed restrictions to a single use of
the subject property. The presence of such restrictions could adversely impact
the value of the site.
A2.13
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8. CYPRESS LAKES
- No opinion of title is rendered, and the subject property is appraised
as though free of all easements, liens, or encumbrances. Title is assumed to be
marketable.
- The subject property is appraised assuming it to be under responsible
ownership and competent management and available for its highest and best use.
- No environmental site assessment report was provided for the
appraisers' review. It is assumed that there are no hidden or unappparent
conditions of substances in the soil or subsoil that may be hazardous or toxic.
- No engineering study, property survey, soil study or environmental
investigation has been made and no liability is assumed in connection with such
matters.
- Dimensions and areas are as supplied by others or based upon field
measurements and are subject to a survey by qualified professional surveyors or
architects.
- It is assumed that all necessary entitlements, licenses, agreements,
franchises, etc., remain in full force and effect in order to continue the
operations of the property throughout the financial analysis period of this
appraisal, unless otherwise noted.
A2.14
<PAGE>
SUPPLEMENT TO CONSENT SOLICITATION STATEMENT/PROSPECTUS
OF
AMERICAN FAMILY HOLDINGS, INC.
PREPARED FOR INVESTORS IN
SACRAMENTO/DELTA GREENS "TRUDY PAT" PROGRAM
CAPITALIZED TERMS USED IN THIS SUPPLEMENT AND NOT DEFINED
HEREIN HAVE THE MEANING GIVEN TO THEM IN THE PROSPECTUS.
SEE "GLOSSARY" AT PAGE __ OF THE PROSPECTUS.
-------------------
You must read entire Consent Solicitation Statement/Prospectus to fully
understand the Acquisition. This Supplement has been prepared to help the
Investors in the Sacramento/Delta Greens Program to understand how the
Acquisition described in the accompanying Prospectus will affect them. If
completed, the effects of the Acquisition may be different for Investors in
the other Programs. A separate supplement has been prepared for each of the
other Programs, copies of which may be obtained, without charge, by writing
to National Investors Financial, Inc., 4220 Von Karman Avenue, Suite 110,
Newport Beach, California 92660, Attention: Vivian Kennedy, or calling
1-800-590-7772.
As described in the accompanying Prospectus, American Family Holdings,
Inc. (the "Company") is offering units of its securities in exchange for the
assets (including cash reserves), certain liabilities and business activities
owned by Investors in seven former "Trudy Pat" programs and three other
programs managed by National Investors Financial, Inc. ("National"). For
this proposed Acquisition, the Company will issue an aggregate of
$[28,066,419] of units arbitrarily valued at $20 per unit. A unit consists
of one share of common stock plus warrants to purchase three additional
shares. [The shares included in the units will be listed for trading on the
___________ under the symbol "___." The warrants will [not] be listed for
trading.] The purpose of the transaction is to consolidate the operations
of the programs, improve the ability to sell or obtain financing for
development of the programs' properties, eliminate the assessment process,
focus on revenue-generating potential, improve efficiency of operations
in order to reduce costs and increase profit potential, and provide the
investors with liquidity for their investments.
Of the [1,403,321] units ([1,380,175] units if only the "Trudy Pat"
programs participate) to be issued by the Company in the Acquisition,
Investors in the Sacramento/Delta Greens Program will receive a total of
[78,524] units or [128] units per $10,000 of Adjusted Outstanding Investment.
After the costs of an outright sale of the property, and the payment of
Program liabilities, National does not believe any alternative would yield to
Investors in the Sacramento/Delta Greens Program an amount that is higher
than the value of the Company units to be received in the Acquisition. You
may receive additional units if your program's property is sold, and if
before December 31, 1999, cash sale proceeds (net of closing costs and
interest) are received in excess of the property's March 1998 appraisal value.
In each of the Programs, the Investors will vote on whether to approve the
Acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED IN EACH OF THE
SEVEN "TRUDY PAT" PROGRAMS MUST VOTE TO APPROVE THE ACQUISITION FOR IT TO TAKE
PLACE.
This solicitation commenced on _______, 1998 and expires at 5:00 p.m.,
Pacific Time, on __________, 1998 unless extended. Call 1-800-590-7772 with
questions.
MOST MATERIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will no longer have a tenancy-in-common
interest in your program's property. Instead, you will hold shares in a
publicly-traded real estate company and will not receive liquidation proceeds
when, or if, your program's property is sold. As an investor in a
publicly-traded company with many stockholders, you will have relatively less
voting power.
- - If the acquisition is approved, your investment will be subject to the
risks associated with residential development plus new risks associated with a
business which also operates a golf course and a recreational vehicle park, and
which plans to pursue commercial development and the development of timeshare
facilities and a hotel/conference center.
- - If a trading market develops, the initial trading price for the stock will
likely be substantially below the arbitrary value of $20 per unit assigned for
purposes of the acquisition. Thus, the value of the units you receive may be
less than you might receive if the property of your program were sold.
- - Principal stockholders of National and executive officers of the Company
will hold approximately 16.35% of the Company's stock (6.23% if all the units
are sold in the concurrent offering and 4.66% if all the units are sold in
the concurrent offering and all warrants issued int he acquisition are
exercised) for which they paid $0.01 per share and will receive annual cash
compensation aggregating $560,000 as officers and employees. National will be
relieved of its servicing and asset management obligations and will no longer
earn servicing and asset management fees of approximately $885,000 annually.
However, the Company will still owe National over $1,800,000 of accrued but
unpaid fees and expenses.
- - No independent advisors represented you in structuring this transaction.
- - There can be no assurance that the transaction is not a taxable event. If
so, National believes a tax loss is the probable result for most of you.
- - The Company must have additional cash to fund its proposed operations. If
it cannot obtain such funding from the sale of certain of its properties, the
exercise of the warrants included in the units or the sale of additional
units, it may no more successful than the programs have been individually in
completing the development of some or all of the properties.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE ACQUISITION.
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MATERIAL RISKS AND DISADVANTAGES
A full description of the material risks of the Acquisition may be found on
pages [__] through [__] of the accompanying Prospectus. Those risks include:
RISKS OF THE ACQUISITION
THERE WILL BE FUNDAMENTAL CHANGE IN THE NATURE OF YOUR INVESTMENT. If
the acquisition is completed, there will be a change in the nature of the
investment of each investor from holding a tenancy-in-common interest in real
estate to holding shares (and the right to buy additional shares) in an
on-going company, the assets of which may be changed from time to time
without approval of investors. If the acquisition is completed, investors
will be able to liquidate their investments only by selling their shares
[on the _____] or in private transactions, and they will not receive a return
of their investment in the form of liquidation proceeds through property
sales. If the acquisition is completed, investors will have an investment in
an entity that is larger than each of the programs and will thus lose
relative voting power. Investors will have an investment in a business which
also operates a golf course and a recreational vehicle park, and which plans
to pursue the development of timeshare facilities and a hotel/conference
center.
THE EXCHANGE VALUES OF THE PROGRAMS ARE NOT THE SAME AS THE POTENTIAL SALES
PRICE. Investors are subject to the risk that the exchange value of a program
does not reflect the price a program's assets might bring in a sale. If the
property of a program were to be sold, the net proceeds of the sale and the
amount finally distributed to an investor in that program may be more or less
than the exchange value. There is no assurance that the future value of the
shares and warrants received in the acquisition will be greater than the most
recent appraised value of the property.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. Initially, shares may trade
at prices substantially below the arbitrarily determined exchange value of $20
per unit or the historical book value of the company's assets. There is no
guaranty that a liquid trading market will develop for the shares, or be
sustained. If a trading market develops for the shares, the price of shares
after the acquisition will likely decrease below the exchange value per share of
$20 due to a potentially large number of shares that investors may sell
immediately after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN STRUCTURING THE ACQUISITION. The
founders of the company, and specifically the principal shareholders of
National, as well as National itself, will be subject to conflicts of
interest. The principal shareholders and employees of National and the
company will hold approximately [16.35]% of the company's outstanding stock
(6.23% if all the units are sold in the concurrent offering and 4.66% if all
the units are sold in the concurrent offering and all warrants in units
issued in the acquisition are exercised) for which they paid $0.01 per share.
Other founders of the company will hold approximately [2.3]% of the
company's outstanding stock (0.88% if all the units are sold in the
concurrent offering and 0.66% if all such units are sold and all warrants
issued in the acquisition are exercised) for which they also paid $0.01 per
share. Thus, the investors' total ownership interests in the programs'
properties will be diluted by the equity interest in the company held by the
founders of the company. The principal stockholders of National and other
executive officers of the
2
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company will receive annual cash compensation aggregating $560,000 as
officers and employees of the company. National will be relieved of its
servicing and asset management obligations and will no longer earn asset
management or servicing related fees. However, despite the fact that
National will have forgiven over $3,800,000 of unpaid fees and expenses, the
company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not favored
by the board of directors. These provisions include a board of directors with
three classes serving staggered three year terms, the inability to remove a
particular director before the expiration of his or her term without a
two-thirds supermajority vote , and the inability to amend the anti-takeover
provisions of the charter documents without a similar vote. Thus, if investors
are unhappy with management's performance, it will be more difficult to remove
directors not favored by the investors.
NO INDEPENDENT PARTY WAS RETAINED BY NATIONAL TO NEGOTIATE ON BEHALF OF THE
INVESTORS. Therefore, terms of the acquisition may be less favorable to
investors and more favorable to founders of the company which included the
principal shareholders of National than if the acquisition had been subject to
arm's-length negotiation. Had an independent party negotiated on behalf of each
program, the terms of the acquisition may have been more favorable to certain or
all of the programs and fewer shares and less favorable employment contracts may
have been received by the founders of the company.
THE ACQUISITION MAY NOT BE A TAX-FREE TRANSACTION TO INVESTORS. Due to
uncertainties in the facts of this transaction, tax counsel is unable to opine
conclusively on the tax consequences of the acquisition to investors. The
acquisition may be taxable, if at all, only with respect to the investors'
receipt of warrants. Alternatively, if the acquisition is a fully taxable
transaction, an investor would recognize gain or loss in 1998 equal to the
difference between the investor's tax basis in his interest in a program
property, and the number of shares of the company received valued at $20 per
unit. If the acquisition is treated as fully taxable, National believes most
investors would recognize a tax loss.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the acquisition,
none of the properties will be subject to any liens other than for property
taxes. The board of directors could authorize borrowing by the company the debt
service for which may adversely affect the company's ability to make
distributions to shareholders. The company may incur full recourse debt which
exposes all of the assets of the company to repayment instead of limited
recourse debt which generally exposes specific properties for the repayment of
debt.
THE BOARD OF DIRECTORS MAY UNILATERALLY CHANGE INVESTMENT, FINANCING AND
CERTAIN OTHER POLICIES WITHOUT SHAREHOLDER APPROVAL. Although the board of
directors of the company intends to implement the business plan set forth
herein, the board will have the ability to change investment, financing and
other policies of the company without the consent of shareholders.
THERE WILL BE NO APPRAISAL OR SIMILAR RIGHTS FOR NONCONSENTING INVESTORS.
If you vote against the acquisition, and it is approved, you will not be able to
object to the acquisition and
3
<PAGE>
receive the appraised value of your tenancy-in-common interest in your
program's assets. You will have no choice other than to accept units for
your interests.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed over a year
ago to take part in the acquisition of your property. It does not have the
benefit of operating for a long time. This means that shares in the company
are much riskier than ownership of shares of established companies. If the
company had been operating as if it owned the properties which it desires to
acquire, it would have experienced losses to date.
THERE WILL BE FUNDAMENTAL CHANGES IN THE BUSINESS PLAN IF THE
ACQUISITION TAKES PLACE. Rather than being focused on a single property, the
company will be an infinite life entity focused on the management of the
properties if at least seven of the former "Trudy Pat" programs plus the
properties of other programs which elect to participate in the acquisition.
The effect of this on investors is two-fold. First, poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the other properties. Second, there will be no
particular time when an investor can expect that a sale of any of the
properties will result in cash distributions to him or her.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes or
sales of a particular property. Those decisions will be made by the board of
directors or management. In addition, you will have an investment in an entity
that is larger than each of the programs and, thus, you will lose relative
voting power.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular principal and interest payments on
their original investments, because of the borrowers' defaults there have been
no distributions from any of the programs, other than the Oceanside program, in
the past three years. Future cash distributions will be based on the company's
earnings and the decision of the board of directors to pay dividends.
Therefore, even if a property in which you formerly held an interest were to
perform well, there is no assurance that there would be cash distributions to
you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. Prior to the
dates that title to the properties securing the original program loans was
taken, National was entitled to an annual loan servicing fee equal to one
percent of the original loan amounts. When title to the properties was taken
on behalf of the programs, even though the loans no longer existed, National
continued to charge the same rate as the servicing fee for the asset
management services it provided to investors. The investors in each of the
programs had become the beneficial tenant-in-common owners of real estate,
most of which was undeveloped. While it had no obligation to do so, in order
to assist the beneficial owners in protecting their real estate assets and
readying them for sale or development, National assumed the duties of an
asset manager after title was taken to the properties. In this capacity,
National obtained information from investors about their preferences in
regard to development or sale of the properties, and facilitated the
assessment of investors to raise funds necessary to pay property taxes,
insurance and other costs of property ownership.
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<PAGE>
The annual fees payable to National are currently $50,000 for
Sacramento/Delta Greens; $300,000 for Oceanside; $61,068 for Yosemite/Ahwahnee
I; $133,646 for Yosemite/Ahwahnee II; $100,000 for Mori Point; $140,000 for
Cypress Lakes; $150,000 for Palmdale/Joshua Ranch; $5,000 for Esperanza; $3,153
for Stacey Rose A; and $850 for Stacey Rose B.
In addition to the one percent fee, compensation has been earned for
property management services provided to the Oceanside program ($896,000
accrued since the date of ownership (November 1993) through June 30, 1998;
$876,000 actually paid) and Yosemite/Ahwahnee properties ($594,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervision of: entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside
and Yosemite/Ahwahnee projects; and contract negotiations and documentation.
To the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
In the future, compensation will be paid to officers of the company in the
form of salaries (aggregating $560,000 annually plus contractual bonus
opportunities and salary increases), stock options and other benefits. See
"Management Following the Acquisition -- Directors and Executive Officers
Compensation and Incentives" for details of stock options and other benefits.
These salaries and other forms of compensation will be payable to management of
the company even if one or more of the properties acquired in the acquisition is
subsequently sold.
HOLDERS OF MAJORITY OF TENANCY-IN-COMMON INTERESTS BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of outstanding
interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THAT THE EXCHANGE VALUES FOR THOSE
PROPERTIES COULD BE TOO LOW OR TOO HIGH. National reviewed the updated March
1998 appraisal of the Yosemite/Ahwahnee properties which reflected an aggregate
"as is" appraised value of $20,246,000 and the October 1996 appraisal which
reflected an "as is" aggregate appraised value of $4,000,000. The results of
those appraisals clearly differed from each other, and, in management's
judgment, the difference could not be accounted for solely by improving market
conditions. Some of the parcels, including the golf course, were subsequently
sold, on June 5, 1998, to the Oceanside Program investors to obtain working
capital for the Yosemite/Ahwahnee programs. Based on its review of all
appraisals, National concluded that the properties currently owned by the
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Yosemite/Ahwahnee I and II Programs have values of $5,486,000 ($1,782,950 and
$3,703,050, respectively), and the parcels currently owned by the Oceanside
Program have a value of $5,080,000. National believes its approach is
reasonable.
GENERAL REAL ESTATE RISKS
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent property
taxes are not timely paid, the company could lose one or more of the
properties to tax sales. Each of the programs' properties is subject to the
following delinquent property taxes as of August 31, 1998: Sacramento/Delta
Greens - approximately $27,000; Yosemite/Ahwahnee (combined) - approximately
$500,000; Mori Point -approximately $165,000; Cypress lakes - approximately
$204,000; Palmdale/Joshua Ranch - approximately $63,000; Esperanza -
approximately $20,000; and Stacey Rose (combined) - approximately $30,000.
Annual payments required for all the properties for current taxes (including
amounts currently due on five-year payment plans) total approximately $549,000.
In the case of Sacramento/Delta Greens, Yosemite/Ahwahnee, Mori Point,
Palmdale/Joshua Ranch and Stacey Rose properties, National has entered into
statutorily authorized 5-year payment plans with the applicable taxing
authorities.
CERTAIN ASSETS MUST BE SOLD TO RAISE WORKING CAPITAL. Unless a minimum of
approximately $[4,565,000] from sale of certain assets of the programs or the
sale of units in the concurrent offering or the exercise of warrants become
available, the company will not be able to proceed with its entire business
plan. The company will also need financing from other sources to complete its
plan. Financing sources are not predictable and interest rates or other costs
of financing may be prohibitive. Neither the programs nor the company have
received any commitment from other sources. In their current
tenancy-in-common structure, the programs cannot obtain traditional bank
financing.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL AND OTHER LAWS MAY REQUIRE EXPENSIVE
HAZARDOUS SUBSTANCE CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC
IMPROVEMENTS. We have not conducted any environmental audits on the properties.
As a result, there may be environmental liability to the Company. Local
governments have required residential developers to pay assessments for streets,
schools and parks which increase the cost of development. Increased costs can
have a negative affect on the company's sale of residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as earthquakes
and floods may be uninsurable or too expensive to insure. The company does not
plan to carry earthquake or flood insurance. If an uninsured loss occurs, the
company would lose capital as well as revenues, and would still owe other debts
related to the property affected, if any.
THE DEVELOPMENT OF ADDITIONAL PROJECTS MAY OCCUR. We may develop
additional projects in the future, although we have no immediate plans to do so.
Real estate development involves more risks than in the ownership and operation
of established projects. Financing may not be available on favorable terms for
development projects; construction may not be completed on
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schedule or budget; long-term financing may not be available on completion of
construction; and sites may not be sold on profitable terms.
THE CALIFORNIA ECONOMY HAS FLUCTUATED BROADLY IN THE PAST FEW YEARS.
Initially, we will conduct all of our business in California. Our markets
have been affected by substantial fluctuations in local economic conditions,
interest rates, inflation, employment levels and regulations. California has
also experienced draught conditions, resulting in water conservation measures
and rationing. In the past, these conditions have caused local governments to
restrict residential development. California's climate and geology present
risks of natural disaster such as earthquakes and floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE OWED
$[1,818,684] BY THE COMPANY. This represents accrued fees and expenses from the
programs which National has not cancelled. This amount is due and payable and
the company intends to start paying it after the Acquisition, but only from
operating revenues, proceeds from the sale of assets or the exercise of
warrants, and not from working capital generated by the proceeds of unit
sales in the concurrent offering.
REAL ESTATE RISKS OF SACRAMENTO/DELTA GREENS
PERMITS TO DEVELOP THE PROPERTIES NEED TO BE OBTAINED. Construction of the
Sacramento/Delta Greens property will require approval of a new tentative map,
the filing of a final map and obtaining building permits from the city. The
tentative tract map process for the Sacramento/Delta Greens property required
that studies be conducted to identify any endangered species' habitat on the
property. Since some were identified, changes to the tentative development plans
have been made to reduce or eliminate any damage to the habitat. A new tentative
map needs to be approved by the City. The longer this process takes, the longer
it will be before any of the property is ready or any construction, further
development activity or sale.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS AT THE SACRAMENTO/DELTA GREENS
PROPERTY MAY CAUSE THE COMPANY TO INCUR SUBSTANTIAL CARRYING COSTS UNTIL THE
LOTS CAN BE SOLD. Changing market conditions may increase the difficulty of
selling the lots. If the company chooses to build homes on the lots, delays in
construction, the lack of reasonably priced construction or mortgage financing,
and the general California economy could lengthen the holding period for the
lots. This would mean a delay in realizing cash from the business operations.
The average carrying costs, including property taxes, management and servicing
related fees, for this property has averaged approximately $10,000 per month
over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real estate
is cyclical and the residential lot development industry is highly competitive.
If the demand for new lots does not keep pace with competitive supply, our
properties may be sold at a loss. The location of the company's lots, the
presence of other competition, customer acceptance and pricing are all factors
affecting success. Competitors may have better financial, managerial and other
resources, affecting our ability to successfully compete. Sacramento/Delta
Greens represents over 5% of the assets of the company.
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ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not be
available to pay the engineering costs required to mitigate endangered
species issues and pay for the planning and design expenses for the city to
approve a new tentative trace map (estimated by management to cost approximately
$25,000). Another risk is whether the lots to be developed will appeal to
builders and whether home financing will be available. Finally, there is a
risk that the development and sale of lots or homes will be profitable.
Real Estate Risks of Yosemite/Ahwahnee Properties (including the golf
course and surrounding land which is owned by the Oceanside program investors)
PERMITS TO DEVELOP THE CONDOMINIUM-TYPE TIMESHARE ASPECT OF THE RESORT HAVE
NOT YET BEEN OBTAINED. The Yosemite/Ahwahnee property has a final map on 32
remaining single family estate lots and a use permit for a 600 space
recreational vehicle park. Planning and development are underway for 100
additional recreational vehicle sites, as well as vacation villa timeshare
units. Additional planned usage such as traditional, attached timeshare units
will require extensive county and state approvals through the Departments of
Real Estate and Housing and Commercial Development.
RISKS AFFECTING OPERATION OF A GOLF COURSE. Increased competition,
seasonality, weather and course conditions will affect the operations of the
company. While no new golf courses have opened near the Ahwahnee Golf Course,
new courses could increase the competition and reduce the rounds played.
Seasonal variations may require the company to supplement revenue at the golf
course to meet operating expenses. Weather can negatively affect the turf grass
and reduce the number of rounds played. Inflationary costs may not be offset by
increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as well
as to pleasure or destination travel preferences by visitors and tourists. All
of these factors could reduce the amount of money earned by the company.
The Yosemite/Ahwahnee golf course can be an important amenity which may
attract potential timeshare purchasers in the future. At this time, the project
does not rely on the golf course for its revenue. National estimates that the
value of the golf course will be less than 20% of the assets of the company.
RESORT DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF REASONS AND COULD
RESULT IN LOSSES. In addition to normal real estate risks, financing is hard to
obtain, and the lodging industry can be unpredictable, seasonal and very
competitive. Without additional financing or capital, the company will not be
able to develop its resort projects as part of its growth strategy. Economic
conditions, changes in travel patterns, extreme weather conditions, labor and
other variable costs can all affect revenues and profits. For example, Spring
through Fall at the Yosemite/Ahwahnee property are the periods of highest
occupancy. Seasonality can be expected to cause quarterly fluctuations in the
company's revenues.
RISKS RELATING TO TIMESHARE OPERATIONS. Certain factors affecting
timeshare operations could result in losses. Negative press surrounding the
remarketing of timeshares might negatively impact sales and operations. Also,
marketing costs are high relative to selling price which can reduce or eliminate
profits from the sale of timeshare interests.
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In addition, according to the American Resort Development Association,
there is a tendency for timeshare owners to default more often on their
timeshare loans then homebuyers who borrow to buy a home. If a buyer
defaults, we would incur costs in remarketing the timeshare.
The timeshare industry is extremely competitive and we may not be able to
secure development financing on acceptable terms.
Since the project is not yet permitted for traditional attached
timeshare units, there has been no allocation of assets. Should attached
timeshare be approved, the company anticipates that a significant portion of
the revenue of the company will be derived from sales of timeshare units,
possibly in excess of 25%.
RISKS RELATING TO RECREATIONAL VEHICLE PARK OPERATIONS. Risks relating to
recreational vehicle parks are substantially the same as those described above
for timeshare projects.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not be
available to (i) make up for the current cash drain from operations and
maintenance of the golf course, clubhouse and current recreational vehicle
facilities (estimated by management at approximately $350,000) annually and
(ii) complete the construction of additional recreational vehicle sites and
obtain approvals for and construction of the first group of vacation villa
timeshare units (estimated by management to cost approximately $3,000,000).
There are also a risk that the operation of recreational vehicle sites,
timeshares and golf course activities will not be profitable.
REAL ESTATE RISKS OF MORI POINT PROPERTY
PERMITS TO DEVELOP THE PROPERTY HAVE NOT YET BEEN OBTAINED. If needed
permits for development are not obtained or reissued, the business plan for the
company will have to be revised. Additionally, the presence of two endangered
species on the Mori Point property increases the risks that necessary approvals
may not be received if an acceptable habitat mitigation plan cannot be
developed. The permitting process with the California Coastal Commission and
the City of Pacifica is expensive and time consuming. Mori Point had a specific
plan and tentative map approvals to build a hotel/conference center which
expired in 1991. These approvals must be obtained or reinstated prior to
construction on the property. Mori Point will represent approximately 20% of
the assets of the company.
HOTEL/CONFERENCE CENTER DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF
REASONS AND COULD RESULT IN LOSSES. In addition to normal real estate risks,
financing is hard to obtain, and the lodging industry can be unpredictable,
seasonal and very competitive. Without additional financing or capital, the
company will not be able to develop its hotel/conference center project as part
of its growth strategy. Economic conditions, changes in travel patterns,
extreme weather conditions, labor and other variable costs can all affect
revenues and profits. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues. At the hotel/conference center property
at Mori Point, we may be competing against well-known chains and extended-stay
inns.
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ADDITIONAL SPECIFIC RISKS. There is a risk that the city government will
not approve the property for its intended use. Capital to conduct engineering
and environmental studies in order to apply for and obtain approvals for its use
from the city is estimated to be approximately $500,000. Capital will also be
necessary for roads, utilities and other infrastructure costs prior to
construction. Finally, there is a risk that the proposed hotel/conference
center may not be profitable.
REAL ESTATE RISKS OF CYPRESS LAKES PROPERTY
THE VESTED TENTATIVE MAP WILL EXPIRE IN APRIL 1999 UNLESS RENEWED AND
THE BUILD OUT OF THE PROPERTY WILL BE EXPENSIVE. Due to being located in a
100-year flood plain, the property requires a levee to be constructed around
its perimeter which is very expensive to construct. Preliminary engineering
estimates indicate these costs to be more than $9,000,000. It may be
desirable to change the vesting tentative map if the costs can be reduced
significantly. While mere extension of the expiration date of the existing
vested tentative map is not expected to be controversial, any changes in the
existing plan could subject the project to public hearings which might result
in additional costs being placed on the project. This could would further
increase the high front-end financial requirements. Additionally, such
modifications might not be approved.
Cypress Lakes is a proposed master-planned community and represents more
than 20% of the assets of the Company. Joint venture partners would have to be
brought in by the Company to help with the large capital requirements of such a
large project. It may be difficult to find substantial builder/developers who
have the financial ability to purchase or develop the project in order to
develop it. Changing market conditions may increase the difficulty in selling
lots.
Should the company determine to build out the project, delays in
construction, reasonably priced mortgage and construction financing and the
local and general California economy could lengthen the holding period for the
lots. This would mean delays in realizing cash from the business operations.
RISKS AFFECTING OPERATION OF A GOLF COURSE. When, and if, the golf course
is developed, it will face competition from the 15 golf courses within a 25-mile
radius. Seasonality, weather and course conditions will affect the operations
of the company. Weather can negatively affect the turf grass and reduce the
number of rounds played. Inflationary costs may not be offset by increased
dues. Also, golf's success depends on discretionary spending by consumers,
which may be vulnerable to regional and economic conditions, as well as to
pleasure or destination travel preferences by visitors and tourists. All of
these factors could reduce the amount of money earned by the company.
RISKS OF RESIDENTIAL DEVELOPMENT. Totaling 1,330 lots, a large supply of
lots would be available and, due to the cyclical nature of the housing industry,
demand may fluctuate differently than supply. This could result in needing to
sell lots at a loss. Due to the size of the project, it could take between six
and ten years to complete, which would subject it to new competitors entering
the marketplace during the sales period. An environmental impact report
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was obtained on the property. Any and all environmental concerns will be
mitigated as required in the vested tentative map condition of approval. No
evidence of endangered species that would limit or preclude development of
the project have been found.
REAL ESTATE RISKS OF PALMDALE/JOSHUA RANCH PROPERTY
A FINAL TRACT MAP MUST BE RECORDED. After several years of effort by
National, the vested tentative map was approved by the City of Palmdale at a
hearing before the planning commission in early July 1998. A final recorded map
must be secured by National or a buyer in order to build on the property. Final
engineering, soils, utility and various improvement studies will need to be
conducted in order to record the final map.
PERMITS TO DEVELOP THE PROPERTY NEED TO BE OBTAINED. A final recorded map,
which could take nine to twelve months after starting the process, will be
required prior to construction. Due to the size of this project which
encompasses some 739.6 acres and is currently planned for 539 lots, additional
grading studies, soils investigation and utility planning needs to be done which
could negatively impact the cost of this large-scale development.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Finding
builder/developers that have the financial strength to handle this size project
can be difficult. Changing market conditions, the lack of reasonably-priced
construction or mortgage financing and the general or local market conditions
could lengthen the holding period for lots. This would mean a delay in
realizing cash from business operations. The average carrying costs, including
property taxes, predevelopment and asset management services for this property
have averaged approximately $16,300 per month over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real estate
is cyclical and the residential lot development industry is highly competitive.
If the demand for new lots does not keep pace with competitive supply, the
property may be sold at a loss. The location of the lots, the presence of other
competition, customer acceptance and pricing are all factors affecting success.
Competitors may have better financial, managerial and other resources affecting
the company's ability to successfully compete. An environmental impact report
was obtained on the property. Any and all environmental concerns will be
mitigated as required in the vested tentative map conditions of approval. No
evidence of endangered species that would limit or preclude development of
the project have been found.
Palmdale/Joshua Ranch is a proposed residential development and represents
about 10% of the assets of the Company.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not be
available to pay for or finance (i) engineering, soils and utility studies which
is estimated to cost approximately $140,000, and (ii) another risk is whether
the lots to be developed may appeal to project builders. Palmdale/Joshua
Ranch is a proposed residential development and represents about 10% of the
assets of the company.
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REAL ESTATE RISKS OF ESPERANZA PROPERTY
RISKS OF COMMERCIAL DEVELOPMENT. The material risks associated with the
development of the Esperanza Property are (i) as of August 31, 1998,
approximately $23,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the property for delinquent property
taxes; and (ii) despite a strong economy, rents and values for many retail
properties are expected to remain soft in 1998. Pressure on rents brought
about by over building, weakness in demand for space and store closures
caused by lagging profits are the forces causing a soft market. No
environmental or endangered species reports have been prepared for the
property.
ADDITIONAL SPECIFIC RISKS. Within the City of Victorville there are
approximately 3,250 acres zoned for commercial use, of which 60% remains
available for development. Victorville is home to the largest enclosed regional
shopping center between San Bernardino and Las Vegas, which is known as The Mall
of Victor Valley. These commercial sites represent significant competition to
the Esperanza project. There are more than 5,400 acres within the city limits
of Victorville zoned for light and heavy industrial use. Nearly nine percent of
this 5,400 acres of land is vacant and is available in parcels ranging in size
from one-half to five hundred acres.
REAL ESTATE RISKS OF STACEY ROSE PROPERTIES
RISKS OF RESIDENTIAL DEVELOPMENT. The material risks associated with the
development of the Stacey Rose Properties are (i) as of August 31, 1998,
approximately $30,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the County
of Riverside to avoid loss of the Properties for delinquent property taxes; (ii)
it is estimated that it may cost about $50,000 to finalize a tentative tract map
on the parcels; (iii) a substantial, and potentially expensive, sales and
marketing effort will be necessary to sell homes constructed on the properties
if a bulk sale of the lots is not made; (iv) the properties are located in a
lower income residential area; and (v) increasing government fees and
assessments for streets, schools, parks and other infrastructure requirements
could increase the cost of lots to the company, thereby increasing the sales
price of the lots which will delay market absorption. No environmental or
endangered species reports have been prepared for the property.
ADDITIONAL SPECIFIC RISKS. There is a risk that (i) adequate funds will
not be available to finalize a tentative tract map on the parcels (approximately
$50,000); (ii) the project will not appeal to project builders; and (iii) home
financing at reasonable costs may not be available. There is also a risk that
the development and sale of lots or home may not be profitable
ANTI-TAKEOVER PROVISIONS
Certain provisions of the charter documents may restrict changes in control
of the Company's management. These provisions may make it more difficult or
expensive for another party to acquire and exercise control of the Company or to
change its management, even if that change would be beneficial to you. These
provisions include:
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ADDITIONAL CLASSES OF SHARES. Under the company's certificate of
incorporation, subject to the receipt of fair value, the Board of Directors may
issue shares in other classes or series and fix the rights, powers and
limitations associated with such shares. Although the Board of Directors has no
present intention of doing so, it could issue a class or series that could,
depending on its terms, impede a merger, tender offer or other transaction that
you might believe is in your best interest or in which you might receive a
premium for your shares over the then current market price. The issuance of
such shares could also dilute your voting power.
STAGGERED BOARD. The Board of Directors is divided into three classes
serving staggered three year terms. This arrangement may affect your ability to
change control of the company, even if you believe such a change is in your best
interests.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The company's certificate
of incorporation, as well as Delaware law, prohibits certain business
combinations with owners of more than 15% of the outstanding voting stock of the
company ("interested stockholders") within the three year period immediately
prior to the date on which the interested stockholder became an interested
stockholder. These restrictions on certain business combinations may deter
potential purchasers who seek control of the company.
SUPERMAJORITY VOTES. Changes to the company's certificate of incorporation
which cover anti-takeover provisions require the approval of two-thirds of the
company's voting stock. This restriction also may deter potential purchasers
who seek control of the company.
IN ADDITION TO THE ANTI-TAKEOVER PROVISIONS, THE DELAWARE LAW, AS WELL AS
THE CHARTER DOCUMENTS, LIMIT THE LIABILITY OF DIRECTORS AND OFFICERS TO
SHAREHOLDERS. This limitation of liability may exceed the protections National
enjoys under the programs' servicing agreements and limit shareholders'
claims against management.
FAIRNESS TO INVESTORS IN THE SACRAMENTO/DELTA GREENS PROGRAM
Both procedurally and from a financial point of view, the company and
National believe the terms of the acquisition are fair as a whole and to the
investors in each of the programs. This determination is based on
consideration of the following positive and negative factors:
- the units offer an opportunity for individual investor liquidity
while the tenancy-in-common interests do not, however, there is no assurance
that the shares will have any liquidity, or that any liquid market that develops
will be sustained;
- while the number of units to be issued to reflect the exchange value
of a program is arbitrary, the trading price of the shares included in the units
initially is likely to be substantially below the $20 value arbitrarily assigned
to the units. In our opinion, the exchange values offered to investors for
their assets allow for an equitable allocation of the [1,403,321] units
([1,380,175] units if only the "Trudy Pat" programs participate) among the
programs. The disparity between exchange values and appraised values results
from adding the value of program cash reserves and other assets, if any, to
appraised values and deducting program
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liabilities (principally accrued property taxes and other fees net of fees to
be forgiven by National);
- on completion of the acquisition the investors will hold over 80%
(over 94.77% if all units are sold in the concurrent offering and all of the
warrants included in the units to be issued in the Acquisition are exercised)
of the outstanding stock of the company. After the acquisition, a total of
[4.55]% of the outstanding stock of the Company will be held by
Sacramento/Delta Greens investors (4.61% if only the seven "Trudy Pat"
programs participate). After the acquisition, founders of the company
(principals, employees, former employees and consultants of National) will
hold less than 20% (__% if only the seven "Trudy Pat" programs participate).
Founders' shares were purchased for $.01 per share. National and its
principals will have forgiven over $3,800,000 of expenses and accrued fees of
which a total of approximately $2,148,000 was earned for asset management and
property management services after the loans defaulted and before the
Ownership Dates of the properties. The balance was earned after foreclosure
for asset and property management services and expenses. Of such amount,
$500,000 is attributable to fees owed by Sacramento/Delta Greens investors.
National believes that the amount paid for the property management services
is no greater than the amount that a third party would charge;
- the current appraised value of the Sacramento/Delta Greens real estate
assets ($1,745,000) (as well as the real estate assets of the other programs)
and the fact that substantial financing is needed to further the property's
development;
- the probability that the transaction will have minimal, if any,
negative tax affect on investors. National believes there will likely be no
out-of-pocket tax cost to all, or the vast majority, of you;
- while conflicts of interest exist in the structuring of the
acquisition, the issuance of shares to the founders of the company and the
determination of management compensation and while you did not have independent
representation in the structuring of the acquisition, we believe they have been
counterbalanced by your opportunity to vote on the transaction and the Fairness
Opinion;
- while the Sacramento/Delta Greens Program was originally formed to
have a two to four year finite life which, for Sacramento/Delta Greens, should
have ended between 1991 and 1992 and the investors expected to receive a return
of their investment from the original borrower, the company is an infinite life
entity which will not return the program investors' original investment based on
a sale or refinancing of the properties underlying the original programs.
However, after the borrowers defaulted on the "Trudy Pat" loans, the investors
became beneficial owners of the underlying properties with the need to complete
development, manage or otherwise ready the properties for sale. Those endeavors
had no fixed timetable and, thus, the finite life aspect of their original
investments was significantly changed. Therefore, the infinite life aspect of
the company is not viewed by National to be a material change from the
investors' CURRENT situation;
- the acquisition will cause fundamental changes in the business plan of
the Sacramento/Delta Greens program. Rather than being focused on the
development of a single property for residential purposes, the company will be
focused on the management of at least
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seven and as many as ten properties. Thus, the poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the Sacramento/Delta Greens property. Further, there
will be no particular time when an Investor can expect its interest to be
automatically liquidated;
- the fact that Sacramento/Delta Greens investors have twice rejected
offers to acquire the property due to price and terms of the proposed
transactions;
- investors will not be able to vote on changes to or dispositions of
the Sacramento/Delta Greens property or borrowing secured by that property.
Those decisions will be made by the Board of Directors or management of the
company. Further, as investors in a larger entity, relative voting power will
be diluted;
- future cash distributions will be based on the company's earnings and
the decision of the Board of Directors to pay dividends rather than the
performance or sale of the Sacramento/Delta Greens property;
- investors voting against the acquisition will have no alternative but
to accept shares in the company if the acquisition is approved by holders of a
majority of the tenancy-in-common interests in each of the programs;
- the anti-takeover provisions of the company's charter documents
contain provisions that may have the effect of delaying or discouraging a change
in management which is not favored by the Board of Directors of the company; and
- the Fairness Opinion rendered by Houlihan Valuation Advisers, an
independent valuation firm, which addresses only the allocation of the units
in the acquisition and not the amount of the consideration paid to program
investors in the acquisition as a whole. See "Background and Reasons for the
Acquisition" at page __ of the Prospectus.
National reviewed the arbitrary value you will receive in connection with
the acquisition and compared it with what you might receive if (i) the
Sacramento/Delta Greens property were operated "as is" ($995 per $10,000 of
Adjusted Outstanding Investment), (ii) the Sacramento/Delta Greens property was
sold in a quick sale in three months or less ($995 per $10,000 of Adjusted
Outstanding Investment), or (iii) the Sacramento/Delta Greens property was sold
at the appraised value (net of program debts) used to determine the
Sacramento/Delta Greens exchange value ($2,273 per $10,000 of Adjusted
Outstanding Investment). Based on that review, and even acknowledging that,
initially, the company's shares included in the units issued in the acquisition
would likely trade substantially below the arbitrary $20 issuance value for the
units, National believes that there is a higher probability of realizing value
from the Sacramento/Delta Greens property through the acquisition than through
the other alternatives. This belief is based on the expectation that some
financing opportunities will become available based on the form of the entity
and the time pressure associated with forced sales or liquidation will be
relieved. See "Background and Reasons for the Acquisition -- Comparison to
Alternatives" and "Recommendation of National and Fairness Determination" at
pages __ and __ of the Prospectus.
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Based on the above factors and comparison, National concluded that the
acquisition is fair, both substantively and procedurally.
THERE ARE NO MATERIAL DIFFERENCES BETWEEN THE FAIRNESS ANALYSIS FOR THIS
PROGRAM AND FOR ANY OF THE OTHER NINE PROGRAMS PROPOSED TO BE INCLUDED IN THE
ACQUISITION.
CALCULATION OF EXCHANGE VALUE
The Exchange Value of the Sacramento/Delta Greens Program (as well as each
of the other Programs) is essentially the consideration at which the Company is
offering in exchange for the real estate assets, cash reserves, certain
liabilities and business of the Program. The value is reflected as a number of
units of the Company (in the case of the Sacramento/Delta Greens Program, 78,524
units) multiplied by an arbitrary $20 per unit value.
The Exchange Value for the Sacramento/Delta Greens Program was
calculated as follows: appraised value of the Sacramento/Delta Greens
Program property at March 31, 1998, plus book value of other Sacramento/Delta
Greens Program assets at August 31, 1998, less Sacramento/Delta Greens Program
liabilities at August 31, 1998.
The following table summarizes the calculation of the Exchange Value of the
Sacramento/Delta Greens Program and the value assigned on $10,000 of Adjusted
Outstanding Investment:
<TABLE>
<CAPTION>
Value Assigned
Appraised Net Other to Program per
Value of + Assets and = Exchange $10,000 of Adjusted
Real Estate(1) Liabilities(2) Value Outstanding Investment
----------- ----------- ----- ----------------------
<S> <C> <C> <C>
$ 1,745,000 $[ (174,514)] $[ 1,570,486] $ [ 2,558](3)
</TABLE>
- ----------------
(1) Reflects independent appraisal as of March 1998.
(2) The following table quantifies the adjustments to appraised values made in
determining Sacramento/Delta Greens property's Exchange Value as of
August 31, 1998.
<TABLE>
<CAPTION>
Book Assets Book Liabilities Net Other Assets
(8/31/98)* - (8/31/98)* = and Liabilities
--------- --------- ---------------
<S> <C> <C>
$ 126,316 $ (300,830) $ (174,514)
</TABLE>
* See balance sheet of the Program in the financial statements
accompanying the Prospectus for details of book assets and book
liabilities. There is no mortgage debt on the Sacramento/Delta Greens
property.
(3) Equals [128] Company shares arbitrarily valued at $20 per unit.
ALLOCATION OF SHARES
The [1,403,321] shares of Company common stock being offered to Investors
in the Acquisition represent over 80% of the Company's shares (92.9% if all
the units are sold in the concurrent offering and 94.7% if all the units are
sold in the concurrent offering and
16
<PAGE>
all warrants in units issued in the acquisition are exercised) which will be
outstanding upon completion of the Acquisition. The remaining shares will be
held by management and other founders of the Company. Such shares will be
allocated among the Programs pro rata in accordance with Exchange Values.
The Sacramento/Delta Greens Program will be allocated [78,524] shares.
The shares allocated to the Sacramento/Delta Greens Program will be
allocated among Investors in the Program based on their respective pro rata
investments in the Program (taking into account assessments paid and unpaid, as
well as interest accrued to each Investor through the date beneficial ownership
of the Program's Property was taken for the Investors) as adjusted for voluntary
advances. An Investor in the Sacramento/Delta Greens Program with an adjusted
investment amount of $10,000 will receive [128] units in the Company arbitrarily
valued at $20 per unit.
Neither National nor the Company's founders have any economic
interest in the Sacramento/Delta Greens Program except for National's
contractual right to asset management fees and the $3,118 of
tenancy-in-common interests purchased by National at the inception of the
Program for which interests National will receive units in the Acquisition
pro rata with the other Sacramento/Delta Greens Investors. National will
undertake not to exercise the warrants in the units.
The following table and its footnotes sets forth the amount owed by the
original borrower to the Sacramento/Delta Greens Program (including accrued but
unpaid interest) plus the amount of assessments and advances paid by Investors
at August 31, 1998, appraised real estate value, Exchange Value of the Program,
the number and percentage of shares allocated to the Program, and the number of
shares and comparative value of the Company to be held by founders after the
Acquisition.
<TABLE>
<CAPTION>
% of Total
Shares to be
Outstanding
After the
Amount Real Estate Acquisition if
Owed plus Appraised Exchange No. of Shares all Programs
Name of Program Assessments Value Value(1) Allocated(1)(2) Participate
--------------- ----------- ----- ----- --------- -----------
<S> <C> <C> <C> <C> <C>
Sacramento/Delta Greens $ 6,131,638 $ 1,745,000 $[1,570,486] [78,524] [4.55]%
</TABLE>
- ---------------
(1) The founders of the Company which include members of Company management,
as well as certain employees, former employees of National and consultants
to the Company and the Programs, will hold a total of [323,631] Company
shares after the Acquisition (18.74% of the outstanding shares
post-Acquisition, 17.48% if all the units are sold in the concurrent
offering and 5.3% if all the units are sold in the concurrent offering
and all warrants in units issued in the acquisition are exercised) which,
if valued at $20 per share, would have an aggregate value of $[6,472,620].
The Company was formed, and shares were purchased by the founders for $.01
per share, prior to making the Acquisition proposal. The shares to be
retained by the Company's founders were not determined based only on fees
cancelled or to be cancelled by
17
<PAGE>
National and its principals. Overall, National believed that the Company's
founders should hold less than 20% of the shares after the Acquisition
assuming none of the Units in the concurrent offering are sold and none
of the warrants are exercised. See "Dilution" at page __ of the Prospectus.
If the Acquisition is completed, the following table sets forth the fees
which National and its principals have cancelled, or will cancel:
<TABLE>
<CAPTION>
Previously To Be
Name of Program Cancelled Cancelled
--------- ---------
<S> <C>
Sacramento/Delta Greens $ 500,000 $ -0-
Oceanside 601,125 261,273
Yosemite/Ahwahnee I 72,158 -0-
Yosemite/Ahwahnee II 1,157,867 124,250
Mori Point 461,589 -0-
Cypress Lakes 468,000 -0-
Palmdale (Joshua Ranch) -0- -0-
Esperanza 102,134 -0-
Stacey Rose A 64,293 -0-
Stacey Rose B 17,267 -0-
----------- ---------
TOTAL $ 3,444,433 $ 385,523
----------- ----------
----------- ----------
</TABLE>
(2) Had the shares retained by the founders of the Company been allocated to
the founders based only on cancelled fees, 13% (13.7% if only the
seven "Trudy Pat" programs participate) of the total shares to be owned by
the Company's founders after the Acquisition (42,111 shares if all
programs participate and 44,378 shares if only the seven "Trudy Pat"
programs participate) would have been deemed allocated from this Program.
HISTORICAL COMPENSATION TO NATIONAL/EFFECT OF ACQUISITION
The following table sets forth the compensation accrued by National, as
well as actually paid to National, during the years ended December 31, 1997,
1996 and 1995, and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
Incurred Actually Incurred Actually Actually Incurred for Actually Paid
for Paid for for Year Paid for Incurred for Paid for Six Months in Six Months
Year Ended Year Ended Ended Year Ended Year Ended Year Ended Ended Ended
Name of Program 12/31/95(1) 12/31/95 12/31/96(1) 12/31/96 12/31/97(1) 12/31/97 6/30/98 6/30/98
--------------- -------- -------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sacramento/Delta Greens $50,000(2) $-0- $50,000(2) $-0- $50,000 (2) $8,267 $25,000 $32,166
</TABLE>
- --------------
(1) These amounts represent accrued asset management fees.
(2) Approximately $62,886 per year if the Acquisition had been completed during
the above periods including $32,700 of estimated salaries to be paid by the
Company to its officers and which were allocated to the Sacramento/Delta
Greens Program based on Exchange Values. No cash would have been available
to pay officers' bonuses or dividends to shareholders.
18
<PAGE>
HISTORICAL CASH DISTRIBUTIONS TO INVESTORS/
EFFECT OF THE ACQUISITION
The following table sets forth the cash distributions made to Investors
during each of the years ended December 31, 1992, 1993, 1994, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
Prior to
Name of Program 1992 1992 1993 1994 1995 1996 1997 Total
--------------- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sacramento/Delta Greens
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest $ 1,654,013 $ 343,750 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,997,763
</TABLE>
There have been no recent distributions to Investors. The Acquisition is
not expected to alter this distribution pattern.
FURTHER FINANCIAL INFORMATION
See the following portions of the Prospectus for further financial
information about the Sacramento/Delta Greens Program, as well as the others:
- "Selected Financial Information" at page __.
- "Management's Discussion and Analysis of Financial Condition and
Result of Operations" at page __.
- "Financial Statements" at page F-1.
19
<PAGE>
SUPPLEMENT TO CONSENT SOLICITATION STATEMENT/PROSPECTUS
OF
AMERICAN FAMILY HOLDINGS, INC.
PREPARED FOR INVESTORS IN
OCEANSIDE "TRUDY PAT" PROGRAM
CAPITALIZED TERMS USED IN THIS SUPPLEMENT AND NOT DEFINED
HEREIN HAVE THE MEANING GIVEN TO THEM IN THE PROSPECTUS.
SEE "GLOSSARY" AT PAGE __ OF THE PROSPECTUS.
--------------------
YOU MUST READ THE ENTIRE CONSENT SOLICITATION STATEMENT/PROSPECTUS TO
FULLY UNDERSTAND THE ACQUISITION. This Supplement has been prepared to help
the Investors in the Oceanside Program to understand how the Acquisition
described in the accompanying Prospectus will affect them. If completed, the
effects of the Acquisition may be different for Investors in the other
Programs. A separate supplement has been prepared for each of the other
Programs, copies of which may be obtained, without charge, by writing to
National Investors Financial, Inc., 4220 Von Karman Avenue, Suite 110,
Newport Beach, California 92660, Attention: Vivian Kennedy, or calling
1-800-590-7772.
As described in the accompanying Prospectus, American Family Holdings, Inc.
(the "Company") is offering units of its securities in exchange for the assets
(including cash reserves), certain liabilities and business activities owned by
Investors in seven former "Trudy Pat" programs and three other programs managed
by National Investors Financial, Inc. ("National"). For this proposed
Acquisition, the Company will issue an aggregate of $[28,066,419] of units
arbitrarily valued at $20 per unit. A unit consists of one share of common
stock plus warrants to purchase three additional shares. [The shares included
in the units will be listed for trading on the ___________ under the symbol
"___." The warrants will [not] be listed for trading.] The purpose of the
transaction is to consolidate the operations of the programs, improve the
ability to sell or obtain financing for development of the programs'
properties, eliminate the assessment process, focus on revenue-generating
potential, improve efficiency of operations in order to reduce costs and
increase profit potential, and provide the investors with liquidity for their
investments.
Of the [1,403,321] units ([1,380,175] units if only the "Trudy Pat"
programs participate) to be issued by the Company in the Acquisition,
Investors in the Oceanside Program will receive a total of [268,653] units or
[111] units per $10,000 of Adjusted Outstanding Investment. After the costs
of an outright sale of the property, and the payment of Program liabilities,
National does not believe any alternative would yield to Investors in the
Oceanside Program an amount that is higher than the value of the Company
units to be received in the Acquisition. You may receive additional units if
your programs's property is sold, and if before December 31, 1999, cash sale
proceeds (net of closing costs and interest) are received in excess of the
property's March 1998 appraisal value.
In each of the Programs, the Investors will vote on whether to approve the
Acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED IN THE
SEVEN "TRUDY PAT" PROGRAMS MUST VOTE TO APPROVE THE ACQUISITION FOR IT TO TAKE
PLACE.
This solicitation commenced on _______, 1998 and expires at 5:00 p.m.,
Pacific Time, on __________, 1998 unless extended. Call 1-800-590-7772 with
questions.
MOST MATERIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will no longer have a tenancy-in-common
interest in your program's property. Instead, you will hold shares in a
publicly-traded real estate company and will not receive liquidation proceeds
when, or if, your program's property is sold. As an investor in a
publicly-traded company with many stockholders, you will have relatively less
voting power.
- - If the acquisition is approved, your investment will be subject to the
risks associated with residential and commercial development plus new risks
associated with a business which also operates a golf course and a recreational
vehicle park, and which plans to pursue the development of timeshare facilities
and a hotel/conference center.
- - If a trading market develops, the initial trading price for the stock will
likely be substantially below the arbitrary value of $20 per unit assigned for
purposes of the acquisition. Thus, the value of the units you receive may be
less than you might receive if the property of your program were sold.
- - Principal stockholders of National and executive officers of the Company
will hold approximately 16.23% if all the units are sold in the concurrent
offering and 4.66% if all the units are sold in the concurrent offering and
all warrants issued in the acquisition are exercised) for which they paid
$0.01 per share and will receive annual cash compensation aggregating
$560,000 as officers and employees. National will be relieved of its
servicing and asset management obligations and will no longer earn servicing
and asset management fees of approximately $885,000 annually. However, the
Company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
- - No independent advisors represented you in structuring this transaction.
- - There can be no assurance that the transaction is not a taxable event. If
so, National believes a tax loss is the probable result for most of you.
- - The Company must have additional cash to fund its proposed operations. If
it cannot obtain such funding from the sale of certain of its properties, the
exercise of the warrants included in the units or the sale of additional
units, it may be no more successful than the programs have been individually
in completing the development of some or all of the properties.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE ACQUISITION.
1
<PAGE>
MATERIAL RISKS AND DISADVANTAGES
A full description of the material risks of the Acquisition may be found on
pages [__] through [__] of the accompanying Prospectus. Those risks include:
RISKS OF THE ACQUISITION
THERE WILL BE FUNDAMENTAL CHANGE IN THE NATURE OF YOUR INVESTMENT. If
the acquisition is completed, there will be a change in the nature of the
investment of each investor from holding a tenancy-in-common interest in real
estate to holding shares (and the right to buy additional shares) in an
on-going company, the assets of which may be changed from time to time
without approval of investors. If the acquisition is completed, investors
will be able to liquidate their investments only by selling their shares
[on the _____] or in private transactions, and they will not receive a return
of their investment in the form of liquidation proceeds through property
sales. If the acquisition is completed, investors will have an investment in
an entity that is larger than each of the programs and will thus lose
relative voting power. Investors will have an investment in a business which
also operates a golf course and a recreational vehicle park, and which plans
to pursue the development of timeshare facilities and a hotel/conference
center.
THE EXCHANGE VALUES OF THE PROGRAMS ARE NOT THE SAME AS THE POTENTIAL
SALES PRICE. Investors are subject to the risk that the exchange value of a
program does not reflect the price a program's assets might bring in a sale. If
the property of a program were to be sold, the net proceeds of the sale and the
amount finally distributed to an investor in that program may be more or less
than the exchange value. There is no assurance that the future value of the
shares and warrants received in the acquisition will be greater than the most
recent appraised value of the property.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. Initially, shares may trade
at prices substantially below the arbitrarily determined exchange value of $20
per unit or the historical book value of the company's assets. There is no
guaranty that a liquid trading market will develop for the shares, or be
sustained. If a trading market develops for the shares, the price of shares
after the acquisition will likely decrease below the exchange value per share of
$20 due to a potentially large number of shares that investors may sell
immediately after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN STRUCTURING THE ACQUISITION. The
founders of the company, and specifically the principal shareholders of
National, as well as National itself, will be subject to conflicts of
interest. The principal shareholders and employees of National and the
company will hold approximately [16.35]% of the company's outstanding stock
(6.23% if all the units are sold in the concurrent offering and 4.66% if all
the units are sold in the concurrent offering and all warrants in units
issued in the acquisition are exercised) for which they paid $0.01 per share.
Other founders of the company will hold approximately [2.3]% of the
company's outstanding stock (0.88% if all the units are sold in the
concurrent offering and 0.66% if all such units are sold and all warrants
issued in the acquisition are exercised) for which they also paid $0.01 per
share. Thus, the investors' total ownership interests in the programs'
properties will be diluted by the equity interest in the company held by the
founders of the company. The principal stockholders of National and other
executive officers of the
2
<PAGE>
company will receive annual cash compensation aggregating $560,000 as
officers and employees of the company. National will be relieved of its
servicing and asset management obligations and will no longer earn asset
management or servicing related fees. However, despite the fact that
National will have forgiven over $3,800,000 of unpaid fees and expenses, the
company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not favored
by the board of directors. These provisions include a board of directors with
three classes serving staggered three year terms, the inability to remove a
particular director before the expiration of his or her term without a
two-thirds supermajority vote, and the inability to amend the anti-takeover
provisions of the charter documents without a similar vote. Thus, if investors
are unhappy with management's performance, it will be more difficult to remove
directors not favored by the investors.
NO INDEPENDENT PARTY WAS RETAINED BY NATIONAL TO NEGOTIATE ON BEHALF OF THE
INVESTORS. Therefore, terms of the acquisition may be less favorable to
investors and more favorable to founders of the company which included the
principal shareholders of National than if the acquisition had been subject to
arm's-length negotiation. Had an independent party negotiated on behalf of each
program, the terms of the acquisition may have been more favorable to certain or
all of the programs and fewer shares and less favorable employment contracts may
have been received by the founders of the company.
THE ACQUISITION MAY NOT BE A TAX-FREE TRANSACTION TO INVESTORS. Due to
uncertainties in the facts of this transaction, tax counsel is unable to opine
conclusively on the tax consequences of the acquisition to investors. The
acquisition may be taxable, if at all, only with respect to the investors'
receipt of warrants. Alternatively, if the acquisition is a fully taxable
transaction, an investor would recognize gain or loss in 1998 equal to the
difference between the investor's tax basis in his interest in a program
property, and the number of shares of the company received valued at $20 per
unit. If the acquisition is treated as fully taxable, National believes most
investors would recognize a tax loss.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the acquisition,
none of the properties will be subject to any liens other than for property
taxes. The board of directors could authorize borrowing by the company the debt
service for which may adversely affect the company's ability to make
distributions to shareholders. The company may incur full recourse debt which
exposes all of the assets of the company to repayment instead of limited
recourse debt which generally exposes specific properties for the repayment of
debt.
THE BOARD OF DIRECTORS MAY UNILATERALLY CHANGE INVESTMENT, FINANCING AND
CERTAIN OTHER POLICIES WITHOUT SHAREHOLDER APPROVAL. Although the board of
directors of the company intends to implement the business plan set forth
herein, the board will have the ability to change investment, financing and
other policies of the company without the consent of shareholders.
THERE WILL BE NO APPRAISAL OR SIMILAR RIGHTS FOR NONCONSENTING
INVESTORS. If you vote against the acquisition, and it is approved, you will
not be able to object to the acquisition and
3
<PAGE>
receive the appraised value of your tenancy-in-common interest in your
program's assets. You will have no choice other than to accept units for
your interests.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed over a year
ago to take part in the acquisition of your property. It does not have
the benefit of operating for a long time. This means that shares in the
company are much riskier than ownership of shares of established companies.
If the company had been operating as if it owned the properties which it
desires to acquire, it would have experienced losses to date.
THERE WILL BE FUNDAMENTAL CHANGES IN THE BUSINESS PLAN IF THE
ACQUISITION TAKES PLACE. Rather than being focused on a single property, the
company will be an infinite life entity focused on the management of the
properties of at least seven of the former "Trudy Pat" programs plus the
properties of other programs which elect to participate in the acquisition.
The effect of this on investors is two-fold. First, poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the other properties. Second, there will be no
particular time when an investor can expect that a sale of any of the
properties will result in cash distributions to him or her.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes or
sales of a particular property. Those decisions will be made by the board of
directors or management. In addition, you will have an investment in an entity
that is larger than each of the programs and, thus, you will lose relative
voting power.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular principal and interest payments on
their original investments, because of the borrowers' defaults there have been
no distributions from any of the programs, other than the Oceanside program, in
the past three years. Future cash distributions will be based on the company's
earnings and the decision of the board of directors to pay dividends.
Therefore, even if a property in which you formerly held an interest were to
perform well, there is no assurance that there would be cash distributions to
you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. Prior to the
dates that title to the properties securing the original program loans was
taken, National was entitled to an annual loan servicing fee equal to one
percent of the original loan amounts. When title to the properties was taken
on behalf of the programs, even though the loans no longer existed, National
continued to charge the same rate as the servicing fee for the asset
management services it provided to investors. The investors in each of the
programs had become the beneficial tenant-in-common owners of real estate,
most of which was undeveloped. While it had no obligation to do so, in order
to assist the beneficial owners in protecting their real estate assets and
readying them for sale or development, National assumed the duties of an
asset manager after title was taken to the properties. In this capacity,
National obtained information from investors about their preferences in
regard to development or sale of the properties, and facilitated the
assessment of investors to raise funds necessary to pay property taxes,
insurance and other costs of property ownership.
4
<PAGE>
The annual fees payable to National are currently $50,000 for
Sacramento/Delta Greens; $300,000 for Oceanside; $61,068 for
Yosemite/Ahwahnee I; $133,646 for Yosemite/Ahwahnee II; $100,000 for Mori
Point; $140,000 for Cypress Lakes; $150,000 for Palmdale/Joshua Ranch; $5,000
for Esperanza; $3,153 for Stacey Rose A; and $850 for Stacey Rose B.
In addition to the one percent fee, compensation has been earned for
property management services provided to the Oceanside program ($896,000
accrued since the date of ownership (November 1993) through June 30, 1998;
$876,000 actually paid) and Yosemite/Ahwahnee properties ($594,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervision of: entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside and
Yosemite/Ahwahnee projects; and contract negotiations and documentation. To
the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
In the future, compensation will be paid to officers of the company in the
form of salaries (aggregating $560,000 annually plus contractual bonus
opportunities and salary increases), stock options and other benefits. See
"Management Following the Acquisition -- Directors and Executive Officers
Compensation and Incentives" for details of stock options and other benefits.
These salaries and other forms of compensation will be payable to management of
the company even if one or more of the properties acquired in the acquisition is
subsequently sold.
HOLDERS OF MAJORITY OF TENANCY-IN-COMMON INTERESTS BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of outstanding
interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THAT THE EXCHANGE VALUES FOR THOSE
PROPERTIES COULD BE TOO LOW OR TOO HIGH. National reviewed the updated March
1998 appraisal of the Yosemite/Ahwahnee properties which reflected an
aggregate "as is" appraised value of $20,246,000 and the October 1996
appraisal which reflected an "as is" aggregate appraised value of $4,000,000.
The results of those appraisals clearly differed from each other, and, in
management's judgment, the difference could not be accounted for solely by
improving market conditions. Some of the parcels, including the golf course,
were subsequently sold, on June 5, 1998, to the Oceanside Program investors
to obtain working capital for the Yosemite/Ahwahnee programs. Based on its
review of all appraisals, National concluded that the properties currently
owned by the
5
<PAGE>
Yosemite/Ahwahnee I and II Programs have values of $5,486,000
($1,782,950 and $3,703,050, respectively), and the parcels currently owned by
the Oceanside Program have a value of $5,080,000. National believes its
approach is reasonable.
GENERAL REAL ESTATE RISKS
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent property
taxes are not timely paid, the company could lose one or more of the
properties to tax sales. Each of the programs' properties is subject to the
following delinquent property taxes as of August 31, 1998: Sacramento/Delta
Greens - approximately $27,000; Yosemite/Ahwahnee (combined) - approximately
$500,000; Mori Point -approximately $165,000; Cypress lakes - approximately
$204,000; Palmdale/Joshua Ranch - approximately $63,000; Esperanza -
approximately $20,000; and Stacey Rose (combined) - approximately $30,000.
Annual payments required for all the properties for current taxes (including
amounts currently due on five-year payment plans) total approximately
$549,000. In the case of Sacramento/Delta Greens, Yosemite/Ahwahnee, Mori
Point, Palmdale/Joshua Ranch and Stacey Rose properties, National has entered
into statutorily authorized 5-year payment plans with the applicable taxing
authorities.
CERTAIN ASSETS MUST BE SOLD TO RAISE WORKING CAPITAL. Unless a minimum
of approximately $[4,565,000] from sale of certain assets of the programs or
the sale of units in the concurrent offering or the exercise of warrants
become available, the company will not be able to proceed with its entire
business plan. The company will also need financing from other sources to
complete its plan. Financing sources are not predictable and interest rates
or other costs of financing may be prohibitive. Neither the programs nor the
company have received any commitment from other sources. In their current
tenancy-in-common structure, the programs cannot obtain traditional bank
financing.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL AND OTHER LAWS MAY REQUIRE
EXPENSIVE HAZARDOUS SUBSTANCE CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC
IMPROVEMENTS. We have not conducted any environmental audits on the
properties. As a result, there may be environmental liability to the company.
Local governments have required residential developers to pay assessments
for streets, schools and parks which increase the cost of development.
Increased costs can have a negative affect on the company's sale of
residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as earthquakes
and floods may be uninsurable or too expensive to insure. The company does not
plan to carry earthquake or flood insurance. If an uninsured loss occurs, the
company would lose capital as well as revenues, and would still owe other debts
related to the property affected, if any.
THE DEVELOPMENT OF ADDITIONAL PROJECTS MAY OCCUR. We may develop
additional projects in the future, although we have no immediate plans to do so.
Real estate development involves more risks than in the ownership and operation
of established projects. Financing may not be available on favorable terms for
development projects; construction may not be completed on
6
<PAGE>
schedule or budget; long-term financing may not be available on completion of
construction; and sites may not be sold on profitable terms.
THE CALIFORNIA ECONOMY HAS FLUCTUATED BROADLY IN THE PAST FEW YEARS.
Initially, we will conduct all of our business in California. Our markets
have been affected by substantial fluctuations in local economic conditions,
interest rates, inflation, employment levels and regulations. California has
also experienced draught conditions, resulting in water conservation measures
and rationing. In the past, these conditions have caused local governments
to restrict residential development. California's climate and geology
present risks of natural disaster such as earthquakes and floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE
OWED $[1,818,684] BY THE COMPANY. This represents accrued fees and expenses
from the programs which National has not cancelled. This amount is due and
payable and the company intends to start paying it after the Acquisition, but
only from operating revenues, proceeds from the sale of assets or the
exercise of warrants, and not from working capital generated by the proceeds
of unit sales in the concurrent offering.
REAL ESTATE RISKS OF SACRAMENTO/DELTA GREENS
PERMITS TO DEVELOP THE PROPERTIES NEED TO BE OBTAINED. Construction of
the Sacramento/Delta Greens property will require approval of a new tentative
map, the filing of a final map and obtaining building permits from the city.
The tentative tract map process for the Sacramento/Delta Greens property
required that studies be conducted to identify any endangered species'
habitat on the property. Since some were identified, changes to the tentative
development plans have been made to reduce or eliminate any damage to the
habitat. A new tentative map needs to be approved by the City. The longer
this process takes, the longer it will be before any of the property is ready
for any construction, further development activity or sale.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS AT THE SACRAMENTO/DELTA GREENS
PROPERTY MAY CAUSE THE COMPANY TO INCUR SUBSTANTIAL CARRYING COSTS UNTIL THE
LOTS CAN BE SOLD. Changing market conditions may increase the difficulty of
selling the lots. If the company chooses to build homes on the lots, delays in
construction, the lack of reasonably priced construction or mortgage financing,
and the general California economy could lengthen the holding period for the
lots. This would mean a delay in realizing cash from the business operations.
The average carrying costs, including property taxes, management and servicing
related fees, for this property has averaged approximately $10,000 per month
over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, our properties may be sold at a loss. The location of the company's
lots, the presence of other competition, customer acceptance and pricing are
all factors affecting success. Competitors may have better financial,
managerial and other resources, affecting our ability to successfully
compete. Sacramento/Delta Greens represents over 5% of the assets of the
company.
7
<PAGE>
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay the engineering costs required to mitigate endangered
species issues and pay for the planning and design expenses for the city to
approve a new tentative trace map (estimated by management to cost
approximately $25,000). Another risk is whether the lots to be developed
will appeal to builders and whether home financing will be available.
Finally, there is a risk that the development and sale of lots or homes will
be profitable.
REAL ESTATE RISKS OF YOSEMITE/AHWAHNEE PROPERTIES (INCLUDING THE GOLF
COURSE AND SURROUNDING LAND WHICH IS OWNED BY THE OCEANSIDE PROGRAM INVESTORS)
PERMITS TO DEVELOP THE CONDOMINIUM-TYPE TIMESHARE ASPECT OF THE RESORT
HAVE NOT YET BEEN OBTAINED. The Yosemite/Ahwahnee property has a final map
on 32 remaining single family estate lots and a use permit for a 600 space
recreational vehicle park. Planning and development are underway for 100
additional recreational vehicle sites, as well as vacation villa timeshare
units. Additional planned usage such as traditional, attached timeshare
units will require extensive county and state approvals.
RISKS AFFECTING OPERATION OF A GOLF COURSE. Increased competition,
seasonality, weather and course conditions will affect the operations of the
company. While no new golf courses have opened near the Ahwahnee Golf Course,
new courses could increase the competition and reduce the rounds played.
Seasonal variations may require the company to supplement revenue at the golf
course to meet operating expenses. Weather can negatively affect the turf grass
and reduce the number of rounds played. Inflationary costs may not be offset by
increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as well
as to pleasure or destination travel preferences by visitors and tourists. All
of these factors could reduce the amount of money earned by the company.
The Yosemite/Ahwahnee golf course can be an important amenity which may
attract potential timeshare purchasers in the future. At this time, the project
does not rely on the golf course for its revenue. National estimates that the
value of the golf course will be less than 20% of the assets of the company.
RESORT DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF REASONS AND COULD
RESULT IN LOSSES. In addition to normal real estate risks, financing is hard to
obtain, and the lodging industry can be unpredictable, seasonal and very
competitive. Without additional financing or capital, the company will not be
able to develop its resort projects as part of its growth strategy. Economic
conditions, changes in travel patterns, extreme weather conditions, labor and
other variable costs can all affect revenues and profits. For example, Spring
through Fall at the Yosemite/Ahwahnee property are the periods of highest
occupancy. Seasonality can be expected to cause quarterly fluctuations in the
company's revenues.
RISKS RELATING TO TIMESHARE OPERATIONS. Certain factors affecting
timeshare operations could result in losses. Negative press surrounding the
remarketing of timeshares might negatively impact sales and operations. Also,
marketing costs are high relative to selling price which can reduce or eliminate
profits from the sale of timeshare interests.
8
<PAGE>
In addition, according to the American Resort Development Association,
there is a tendency for timeshare owners to default more often on their
timeshare loans then homebuyers who borrow to buy a home. If a buyer
defaults, we would incur costs in remarketing the timeshare.
The timeshare industry is extremely competitive and we may not be able to
secure development financing on acceptable terms.
Since the project is not yet permitted for traditional attached
timeshare units, there has been no allocation of assets. Should attached
timeshare be approved, the company anticipates that a significant portion of
the revenue of the company will be derived from sales of timeshare units.
RISKS RELATING TO RECREATIONAL VEHICLE PARK OPERATIONS. Risks relating to
recreational vehicle parks are substantially the same as those described above
for timeshare projects.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to (i) make up for the current cash drain from operations and
maintenance of the golf course, clubhouse and current recreational vehicle
facilities (estimated by management at approximately $350,000) annually and
(ii) complete the construction of additional recreational vehicle sites and
obtain approvals for and construction of the first group of vacation villa
timeshare units (estimated by management to cost approximately $3,000,000).
There are also a risk that the operation of recreational vehicle sites,
timeshares and golf course activities will not be profitable.
REAL ESTATE RISKS OF MORI POINT PROPERTY
PERMITS TO DEVELOP THE PROPERTY HAVE NOT YET BEEN OBTAINED. If needed
permits for development are not obtained or reissued, the business plan for
the company will have to be revised. Additionally, the presence of two
endangered species on the Mori Point property increases the risks that
necessary approvals may not be received if an acceptable habitat mitigation
plan cannot be developed. The permitting process with the California Coastal
Commission and the City of Pacifica is expensive and time consuming. Mori
Point had a specific plan and tentative map approvals to build a
hotel/conference center which expired in 1991. These approvals must be
obtained or reinstated prior to construction on the property. Mori Point will
represent approximately 20% of the assets of the company.
HOTEL/CONFERENCE CENTER DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF
REASONS AND COULD RESULT IN LOSSES. In addition to normal real estate risks,
financing is hard to obtain, and the lodging industry can be unpredictable,
seasonal and very competitive. Without additional financing or capital, the
company will not be able to develop its hotel/conference center project as part
of its growth strategy. Economic conditions, changes in travel patterns,
extreme weather conditions, labor and other variable costs can all affect
revenues and profits. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues. At the hotel/conference center property
at Mori Point, we may be competing against well-known chains and extended-stay
inns.
9
<PAGE>
ADDITIONAL SPECIFIC RISKS. There is a risk that the city government will
not approve the property for its intended use. Capital to conduct engineering
and environmental studies in order to apply for and obtain approvals for its use
from the city is estimated to be approximately $500,000. Capital will also be
necessary for roads, utilities and other infrastructure costs prior to
construction. Finally, there is a risk that the proposed hotel/conference
center may not be profitable.
REAL ESTATE RISKS OF CYPRESS LAKES PROPERTY
THE VESTED TENTATIVE MAP WILL EXPIRE IN APRIL 1999 UNLESS RENEWED AND
THE BUILD OUT OF THE PROPERTY WILL BE EXPENSIVE. Due to being located in a
100-year flood plain, the property requires a levee to be constructed around
its perimeter which is very expensive to construct. Preliminary engineering
estimates indicate these costs to be more than $9,000,000. It may be
desirable to change the vesting tentative map if the costs can be reduced
significantly. While mere extension of the expiration date of the existing
vested tentative map is not expected to be controversial, any changes in the
existing plan could subject the project to public hearings which might result
in additional costs being placed on the project. This could further increase
the high front-end financial requirements. Additionally, such modifications
might not be approved.
Cypress Lakes is a proposed master-planned community and represents more
than 20% of the assets of the company. Joint venture partners would have to
be brought in by the Company to help with the large capital requirements of
such a large project in order to develop it. It may be difficult to find
substantial builder/developers who have the financial ability to purchase or
develop the project. Changing market conditions may increase the difficulty
in selling lots.
Should the company determine to build out the project, delays in
construction, reasonably priced mortgage and construction financing and the
local and general California economy could lengthen the holding period for the
lots. This would mean delays in realizing cash from the business operations.
RISKS AFFECTING OPERATION OF A GOLF COURSE. When, and if, the golf course
is developed, it will face competition from the 15 golf courses within a 25-mile
radius. Seasonality, weather and course conditions will affect the operations
of the company. Weather can negatively affect the turf grass and reduce the
number of rounds played. Inflationary costs may not be offset by increased
dues. Also, golf's success depends on discretionary spending by consumers,
which may be vulnerable to regional and economic conditions, as well as to
pleasure or destination travel preferences by visitors and tourists. All of
these factors could reduce the amount of money earned by the company.
RISKS OF RESIDENTIAL DEVELOPMENT. Totaling 1,330 lots, a large supply
of lots would be available and, due to the cyclical nature of the housing
industry, demand may fluctuate differently than supply. This could result in
needing to sell lots at a loss. Due to the size of the project, it could
take between six and ten years to complete, which would subject it to new
competitors entering the marketplace during the sales period. An
environmental impact report
10
<PAGE>
was obtained on the property. Any and all environmental concerns will be
mitigated as required in the vested tentative map conditions of approval. No
evidence of endangered species that would limit or preclude development of
the project have been found.
REAL ESTATE RISKS OF PALMDALE/JOSHUA RANCH PROPERTY
A FINAL TRACT MAP MUST BE RECORDED. After several years of effort by
National, the vested tentative map was approved by the City of Palmdale at a
hearing before the planning commission in early July 1998. A final recorded map
must be secured by National or a buyer in order to build on the property. Final
engineering, soils, utility and various improvement studies will need to be
conducted in order to record the final map.
PERMITS TO DEVELOP THE PROPERTY NEED TO BE OBTAINED. A final recorded map,
which could take nine to twelve months after starting the process, will be
required prior to construction. Due to the size of this project which
encompasses some 739.6 acres and is currently planned for 539 lots, additional
grading studies, soils investigation and utility planning needs to be done which
could negatively impact the cost of this large-scale development.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Finding
builder/developers that have the financial strength to handle this size project
can be difficult. Changing market conditions, the lack of reasonably-priced
construction or mortgage financing and the general or local market conditions
could lengthen the holding period for lots. This would mean a delay in
realizing cash from business operations. The average carrying costs, including
property taxes, predevelopment and asset management services for this property
have averaged approximately $16,300 per month over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, the property may be sold at a loss. The location of the lots, the
presence of other competition, customer acceptance and pricing are all
factors affecting success. Competitors may have better financial, managerial
and other resources affecting the company's ability to successfully compete.
An environmental impact report was obtained on the property. Any and all
environmental concerns will be mitigated as required in the vested tentative
map conditions of approval. No evidence of endangered species that would
limit or preclude development of the project have been found.
Palmdale/Joshua Ranch is a proposed residential development and represents
about 10% of the assets of the Company.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not be
available to pay for or finance (i) engineering, soils and utility studies which
is estimated to cost approximately $140,000, and (ii) another risk is whether
the lots to be developed may appeal to project builders. Palmdale/Joshua
Ranch is a proposed residential development and represents about 10% of the
assets of the company.
11
<PAGE>
REAL ESTATE RISKS OF ESPERANZA PROPERTY
RISKS OF COMMERCIAL DEVELOPMENT. The material risks associated with the
development of the Esperanza Property are (i) as of August 31, 1998,
approximately $23,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the property for delinquent property
taxes; and (ii) despite a strong economy, rents and values for many retail
properties are expected to remain soft in 1998. Pressure on rents brought
about by over building, weakness in demand for space and store closures
caused by lagging profits are the forces causing a soft market. No
environmental or endangered species reports have been prepared for the property.
ADDITIONAL SPECIFIC RISKS. Within the City of Victorville there are
approximately 3,250 acres zoned for commercial use, of which 60% remains
available for development. Victorville is home to the largest enclosed regional
shopping center between San Bernardino and Las Vegas, which is known as The Mall
of Victor Valley. These commercial sites represent significant competition to
the Esperanza project. There are more than 5,400 acres within the city limits
of Victorville zoned for light and heavy industrial use. Nearly nine percent of
this 5,400 acres of land is vacant and is available in parcels ranging in size
from one-half to five hundred acres.
REAL ESTATE RISKS OF STACEY ROSE PROPERTIES
RISKS OF RESIDENTIAL DEVELOPMENT. The material risks associated with the
development of the Stacey Rose Properties are (i) as of August 31, 1998,
approximately $30,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the County
of Riverside to avoid loss of the Properties for delinquent property taxes; (ii)
it is estimated that it may cost about $50,000 to finalize a tentative tract map
on the parcels; (iii) a substantial, and potentially expensive, sales and
marketing effort will be necessary to sell homes constructed on the properties
if a bulk sale of the lots is not made; (iv) the properties are located in a
lower income residential area; and (v) increasing government fees and
assessments for streets, schools, parks and other infrastructure requirements
could increase the cost of lots to the company, thereby increasing the sales
price of the lots which will delay market absorption. No environmental or
endangered species reports have been prepared for the property.
ADDITIONAL SPECIFIC RISKS. There is a risk that (i) adequate funds will
not be available to finalize a tentative tract map on the parcels (approximately
$50,000); (ii) the project will not appeal to project builders; and (iii) home
financing at reasonable costs may not be available. There is also a risk that
the development and sale of lots or home may not be profitable
ANTI-TAKEOVER PROVISIONS
Certain provisions of the charter documents may restrict changes in control
of the Company's management. These provisions may make it more difficult or
expensive for another party to acquire and exercise control of the Company or to
change its management, even if that change would be beneficial to you. These
provisions include:
12
<PAGE>
ADDITIONAL CLASSES OF SHARES. Under the company's certificate of
incorporation, subject to the receipt of fair value, the Board of Directors may
issue shares in other classes or series and fix the rights, powers and
limitations associated with such shares. Although the Board of Directors has no
present intention of doing so, it could issue a class or series that could,
depending on its terms, impede a merger, tender offer or other transaction that
you might believe is in your best interest or in which you might receive a
premium for your shares over the then current market price. The issuance of
such shares could also dilute your voting power.
STAGGERED BOARD. The Board of Directors is divided into three classes
serving staggered three year terms. This arrangement may affect your ability to
change control of the company, even if you believe such a change is in your best
interests.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The company's certificate
of incorporation, as well as Delaware law, prohibits certain business
combinations with owners of more than 15% of the outstanding voting stock of the
company ("interested stockholders") within the three year period immediately
prior to the date on which the interested stockholder became an interested
stockholder. These restrictions on certain business combinations may deter
potential purchasers who seek control of the company.
SUPERMAJORITY VOTES. Changes to the company's certificate of incorporation
which cover anti-takeover provisions require the approval of two-thirds of the
company's voting stock. This restriction also may deter potential purchasers
who seek control of the company.
IN ADDITION TO THE ANTI-TAKEOVER PROVISIONS, THE DELAWARE LAW, AS WELL AS
THE CHARTER DOCUMENTS, LIMIT THE LIABILITY OF DIRECTORS AND OFFICERS TO
SHAREHOLDERS. This limitation of liability may exceed the protections National
enjoys under the programs' servicing agreements and limit shareholders' claims
against management.
FAIRNESS TO INVESTORS IN THE OCEANSIDE PROGRAM
Both procedurally and financial point of view, the company and National
believe the terms of the acquisition are fair as a whole and to the investors
in each of the programs. This determination is based on consideration of the
following positive and negative factors:
- the units offer an opportunity for individual investor liquidity
while the tenancy-in-common interests do not, however, there is no assurance
that the shares will have any liquidity, or that any liquid market that develops
will be sustained;
- while the number of units to be issued to reflect the exchange value
of a program is arbitrary, the trading price of the shares included in the units
initially is likely to be substantially below the $20 value arbitrarily assigned
to the units. In our opinion, the exchange values offered to investors for
their assets allow for an equitable allocation of the [1,403,321] units
([1,380,175] units if only the "Trudy Pat" programs participate) among the
programs. The disparity between exchange values and appraised values results
from adding the value of program cash reserves and other assets, if any, to
appraised values and deducting program
13
<PAGE>
liabilities (principally accrued property taxes and other fees net of fees to be
forgiven by National);
- on completion of the acquisition the investors will hold over 80%
(over 94.7% if all units are sold in the concurrent offering and all of the
warrants included in the units to be issued in the Acquisition are exercised)
of outstanding stock of the company. After the acquisition, a total of
[15.56]% of the outstanding stock of the Company will be held by Oceanside
investors (15.77% if only the seven "Trudy Pat" programs participate). After
the acquisition, founders of the company (principals, employees, former
employees and consultants of National) will hold less than 20% ( % if only
the seven "Trudy Pat" programs participate). Founders' shares were purchased
for $.01 per share. Among the Properties, National and its principals will
have forgiven over $3,800,000 of expenses and accrued fees of which a total
of approximately $2,148,000 was earned for asset management and property
management services after the loans defaulted and before the Ownership Dates
of the properties. The balance was earned after foreclosure for asset and
property management services and expenses. However, none of such amount is
attributable to fees owed by Oceanside investors. National believes that the
amount paid for the property management services is no greater than the
amount that a third party would charge;
- the current appraised value of the Oceanside real estate assets
($5,080,000) (as well as the real estate assets of the other programs) and the
fact that substantial financing is needed to further the property's development;
- the probability that the transaction will have minimal, if any,
negative tax affect on investors. National believes there will likely be no
out-of-pocket tax cost to all, or the vast majority, of you;
- while conflicts of interest exist in the structuring of the
acquisition, the issuance of shares to the founders of the company and the
determination of management compensation and while you did not have independent
representation in the structuring of the acquisition, we believe they have been
counterbalanced by your opportunity to vote on the transaction and the Fairness
Opinion;
- while the Oceanside Program (as well as the other programs) were
originally formed to have a two to four year finite life which, for Oceanside,
should have ended between 1995 and 1996 and the investors expected to receive a
return of their investment from the original borrower, the company is an
infinite life entity which will not return the program investors' original
investment based on a sale or refinancing of the properties underlying the
original programs. However, after the borrowers defaulted on the "Trudy Pat"
loans, the investors became beneficial owners of the underlying properties with
the need to complete development, manage or otherwise ready the properties for
sale. Those endeavors had no fixed timetable and, thus, the finite life aspect
of their original investments was significantly changed. Therefore, the
infinite life aspect of the company is not viewed by National to be a material
change from the investors' CURRENT situation;
- the acquisition will cause fundamental changes in the individual
business plan of the Oceanside program. Rather than being focused on the
development of a single property for residential purposes or the management of a
golf course and country club, the company will be
14
<PAGE>
focused on the management of at least seven and as many as ten properties.
Thus, the poor performance of a particular property may affect the company's
operations as a whole regardless of the performance of the Oceanside property.
Further, there will be no particular time when an Investor can expect its
interest to be automatically liquidated;
- the fact that Oceanside investors recently elected to sell their
remaining residential lots and reinvest a portion of the sale proceeds in the
golf course/country club and certain other residential lots formerly owned by
the Yosemite/Ahwahnee investors;
- Oceanside investors will not be able to vote on changes to or
dispositions of the Oceanside property or borrowing secured by that property.
Those decisions will be made by the Board of Directors or management of the
company. Further, as investors in a larger entity, relative voting power will
be diluted;
- future cash distributions will be based on the company's earnings and
the decision of the Board of Directors to pay dividends rather than the
performance or sale of the Oceanside property;
- investors voting against the acquisition will have no alternative but
to accept shares in the company if the acquisition is approved by holders of a
majority of the tenancy-in-common interests in each of the programs;
- the anti-takeover provisions of the company's charter documents
contain provisions that may have the effect of delaying or discouraging a change
in management which is not favored by the Board of Directors of the company; and
- the Fairness Opinion rendered by Houlihan Valuation Advisers, an
independent valuation firm which addresses only the allocation of the units in
the acquisition and not the amount of the consideration paid to program
investors in the acquisition as a whole. See "Background and Reasons for the
Acquisition" at page __ of the Prospectus.
National reviewed the arbitrary value you will receive in connection with
the acquisition and compared it with what you might receive if (i) the Oceanside
property was operated "as is" ($1,068 per $10,000 of Adjusted Outstanding
Investment), (ii) the Oceanside property was sold in a quick sale in three
months or less ($1,068 per $10,000 of Adjusted Outstanding Investment), or (iii)
the Oceanside property was sold at the appraised value (net of program debts)
used to determine the Oceanside exchange value ($2,015 per $10,000 of Adjusted
Outstanding Investment). Based on that review, and even acknowledging that,
initially, the company's shares included in the units issued in the acquisition
would likely trade substantially below the arbitrary $20 issuance value for the
units, National believes that there is a higher probability of realizing value
from the Oceanside property through the acquisition than through the other
alternatives. This belief is based on the expectation that some financing
opportunities will become available based on the form of the entity and the time
pressure associated with forced sales or liquidation will be relieved. See
"Background and Reasons for the Acquisition -- Comparison to Alternatives" and
"Recommendation of National and Fairness Determination" at pages __ and __ of
the Prospectus.
15
<PAGE>
Based on the above factors and comparisons, National concluded that the
acquisition is fair, both substantively and procedurally.
THERE ARE NO MATERIAL DIFFERENCES BETWEEN THE FAIRNESS ANALYSIS FOR THIS
PROGRAM AND FOR ANY OF THE OTHER NINE PROGRAMS PROPOSED TO BE INCLUDED IN THE
ACQUISITION.
CALCULATION OF EXCHANGE VALUE
The Exchange Value of the Oceanside Program (as well as each of the other
Programs) is essentially the consideration which the Company is offering in
exchange for the real estate assets, cash reserves, certain liabilities and
business of the Program. The value is reflected as a number of units of the
Company (in the case of the Oceanside Program, [268,653] units) multiplied by an
arbitrary $20 per unit value.
The Exchange Value for the Oceanside Program was calculated as follows:
appraised value of the Oceanside Program's Property at March 31, 1998, plus
book value of other Oceanside Program assets at , 1998, less Oceanside Program
liabilities at , 1998.
The following table summarizes the calculation of the Exchange Value of the
Oceanside Program and the value assigned per $10,000 of Adjusted Outstanding
Investment:
<TABLE>
<CAPTION>
Value Assigned
Appraised Net Other to Program per
Value of + Assets and = Exchange $10,000 of Adjusted
Real Estate(1) Liabilities(2) Value Outstanding Investment
----------- ----------- ----- ----------------------
<S> <C> <C> <C>
$ 5,080,000 $ 293,057 $[5,373,057] $ [2,225](3)
</TABLE>
- ----------------
(1) Reflects independent appraisal as of March 1998.
(2) The following table quantifies the adjustments to appraised values made in
determining the Oceanside property Exchange Value as of , 1998.
<TABLE>
<CAPTION>
Book Assets Book Liabilities Net Other Assets
(8/31/98)* - (8/31/98)* = and Liabilities
--------- ---------- ---------------
<S> <C> <C>
$ 809,933 $ (516,876) $ 293,057
</TABLE>
* See balance sheet of the Oceanside Program in the financial statements
accompanying the Prospectus for details of book assets and book
liabilities. There is no third party mortgage debt on the Oceanside
property.
(3) Equals [111] Company shares arbitrarily valued at $20 per unit.
ALLOCATION OF SHARES
The [1,403,321] shares of Company common stock being offered to Investors
in the Acquisition represent over 80% of the Company's shares ( % if all
the units are sold in the concurrent offering and % if all the units are
sold in the concurrent offering and all warrants in units issued in the
acquisition are exercised) which will be outstanding upon completion of the
Acquisition. The remaining shares will be held by management and other
16
<PAGE>
founders of the Company. Such shares will be allocated among the Programs pro
rata in accordance with Exchange Values. The Oceanside Program will be
allocated [268,653] shares.
The shares allocated to the Oceanside Program will be allocated among
Investors in the Program based on their respective pro rata investments in the
Program (taking into account assessments paid and unpaid, as well as interest
accrued to each Investor through the date beneficial ownership of the Program's
Property was taken for the Investors) as adjusted for voluntary advances. An
Investor in the Oceanside Program with an adjusted investment amount of $10,000
will receive [111] units in the Company arbitrarily valued at $20 per unit.
Neither National nor the Company's founders have any economic interest
in the Oceanside Program except for National's contractual right to asset
management fees and the $[2,300] of tenancy-in-common interests purchased by
National at the inception of the Program for which interests National will
receive units in the Acquisition pro rata with the other Oceanside Investors.
National will undertake not to exercise the warrants in the units.
The following table and its footnotes sets forth the amount owed by the
original borrower to the Oceanside Program (including accrued but unpaid
interest) plus the amount of assessments and advances paid by Investors at June
30, 1998, appraised real estate value, Exchange Value of the Program, the number
and percentage of shares allocated to the Program, and the number of shares and
comparative value of the Company to be held by founders after the Acquisition.
<TABLE>
<CAPTION>
% of Total
Shares to be
Outstanding
After the
Amount Real Estate Acquisition if
Owed plus Appraised Exchange No. of Shares All Programs
Name of Program Assessments Value Value(1) Allocated(1)(2) Participate
--------------- ----------- ----- ----- --------- -----------
<S> <C> <C> <C> <C> <C>
Oceanside $ 24,150,000 $ 5,080,000 $ 5,373,057 [268,653] [15.56]%
</TABLE>
- ---------------
(1) The founders of the Company which include members of Company management,
as well as certain employees, former employees of National and
consultants to the Company and the Programs, will hold a total of
[323,631] Company shares after the Acquisition, (18.74% of the
outstanding shares post-Acquisition, 17.48% if all the units are sold in
the concurrent offering and 5.3% if all the units are sold in the
concurrent offering and all warrants in units issued in the acquisition
are exercised) which, if valued at $20 per share, would have an
aggregate value of $[6,472,620]. The Company was formed, and shares
were purchased by the founders for $.01 per share, prior to making the
Acquisition proposal. The shares to be retained by the Company's
founders were not determined based only on fees cancelled or to be
cancelled by National and its principals. Overall, National believed
that the Company's founders should hold less than 20% of the shares
after the Acquisition assuming none of the Units in the concurrent
offering are sold and none of the warrants are exercised. See
"Dilution" at page of the Prospectus. If the Acquisition is completed,
the following table sets forth the fees which National and its
principals have cancelled, or will cancel:
17
<PAGE>
<TABLE>
<CAPTION>
Previously To Be
Name of Program Cancelled Cancelled
--------- ---------
<S> <C>
Sacramento/Delta Greens $ 500,000 $ -0-
Oceanside 601,125 261,273
Yosemite/Ahwahnee I 72,158 -0-
Yosemite/Ahwahnee II 1,157,867 124,250
Mori Point 461,589 -0-
Cypress Lakes 468,000 -0-
Palmdale (Joshua Ranch) -0- -0-
Esperanza 102,134 -0-
Stacey Rose A 64,293 -0-
Stacey Rose B 17,267 -0-
----------- ---------
TOTAL $ 3,444,433 $ 385,523
----------- ---------
----------- ---------
</TABLE>
(2) Had the shares retained by the founders of the Company been
allocated to the founders based only on cancelled fees, [22.5]% ([23.7]%
if only the seven "Trudy Pat" programs participate) of the total shares
to be owned by the Company's founders after the Acquisition ([72,873]
shares if all programs participate and [76,544] shares if only the seven
"Trudy Pat" programs participate) would have been deemed allocated from
this Program.
HISTORICAL COMPENSATION TO NATIONAL/EFFECT OF ACQUISITION
The following table sets forth the compensation accrued by National, as
well as actually paid to National, during the years ended December 31, 1997,
1996 and 1995, and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
Incurred
Actually Actually Actually for Actually Paid
Incurred for Paid for Incurred for Paid for Incurred for Paid for Six Months in Six Months
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Ended Ended
Name of Program 12/31/95(1) 12/31/95(2) 12/31/96(1) 12/31/96(2) 12/31/97(1) 12/31/97(2) 6/30/98 6/30/98
--------------- -------- -------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Oceanside $492,000(3) $300,000 $492,000(3) $300,000 $444,000(3) $300,000 $246,000 $1,026,000
</TABLE>
- ---------------
(1) These amounts represent asset management fees and officer and employees
salaries for property management services rendered for Oceanside
Development, Inc.
(2) These amounts represent asset management fees only.
(3) Approximately $377,315 per year if the Acquisition had been completed
during the above periods including $196,204 of estimated salaries to be
paid by the Company to its officers and which were allocated to the
Oceanside Program based on Exchange Values. No cash would have been
available to pay officers' bonuses or dividends to shareholders.
18
<PAGE>
HISTORICAL CASH DISTRIBUTIONS TO INVESTORS/
EFFECT OF THE ACQUISITION
The following table sets forth the cash distributions made to Investors
during each of the years ended December 31, 1992, 1993, 1994, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
Name of Program 1992 1993 1994 1995 1996 1997 Total
--------------- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Oceanside
Principal $ 0 $ 0 $ 375,000 $ 900,000 $ 900,000 $ 675,000 $2,850,000*
Interest $ 1,080,804 $ 3,145,869 $ 393,750 $ 0 $ 0 $ 0 $4,620,423
</TABLE>
- ---------------
* An additional $3,000,000 in principal was distributed in June 1998
subsequent to sale of the program's inventory of remaining lots.
There have been no recent distributions to Investors. The Acquisition is
not expected to alter this distribution pattern.
FURTHER FINANCIAL INFORMATION
See the following portions of the Prospectus for further financial
information about the Oceanside Program, as well as the others:
- "Selected Financial Information" at page __.
- "Management's Discussion and Analysis of Financial Condition and
Result of Operations" at page __.
- "Financial Statements" at page F-1.
19
<PAGE>
SUPPLEMENT TO CONSENT SOLICITATION STATEMENT/PROSPECTUS
OF
AMERICAN FAMILY HOLDINGS, INC.
PREPARED FOR INVESTORS IN
YOSEMITE/AHWAHNEE I "TRUDY PAT" PROGRAM
CAPITALIZED TERMS USED IN THIS SUPPLEMENT AND NOT
DEFINED HEREIN HAVE THE MEANING GIVEN TO THEM IN THE PROSPECTUS.
SEE "GLOSSARY" AT PAGE __ OF THE PROSPECTUS.
-------------------
This Supplement has been prepared to help the Investors in the
Yosemite/Ahwahnee I Program to understand how the Acquisition described in
the accompanying Prospectus will affect them. If completed, the effects of
the Acquisition may be different for Investors in the other Programs. A
separate supplement has been prepared for each of the other Programs, copies
of which may be obtained, without charge, by writing to National Investors
Financial, Inc., 4220 Von Karman Avenue, Suite 110, Newport Beach, California
92660, Attention: Vivian Kennedy, or calling 1-800-590-7772.
As described in the accompanying Prospectus, American Family Holdings,
Inc. (the "Company") is offering shares of its securities in exchange for the
assets (including cash reserves), certain liabilities and business activities
owned by Investors in seven former "Trudy Pat" programs managed by National
Investors Financial, Inc. ("National"). For this proposed Acquisition, the
Company will issue an aggregate of $[28,066,419] of units arbitrarily valued
at $20 per unit. A unit consists of one share of common stock plus warrants
to purchase three additional shares. [The shares included in the units will be
listed for trading on the __________ under the symbol "___." The warrants will
[not] be listed for trading.] The purpose of the transaction is to consolidate
the operations of the programs, improve the ability to sell or obtain financing
for development of the programs' properties, eliminate the assessment process,
focus on revenue-generating potential, improve efficient of operations in order
to reduce costs and increase profit potential, and provide the investors with
liquidity for their investments.
Of the [1,403,321] units ([1,380,175] units if only the "Trudy Pat"
programs participate) to be issued by the Company in the Acquisition,
Investors in the Yosemite/Ahwahnee I Program will receive a total of [110,502]
units or [122] units per $10,000 of Adjusted Outstanding Investment. After
the costs of an outright sale of the property, and the payment of Program
liabilities, National does not believe any alternative would yield to
Investors in the Yosemite/Ahwahnee I program an amount that is higher than
the value of the Company units to be received in the Acquisition. You may
receive additional units if your program's property is sold, and if before
December 31, 1999, cash sale proceeds (net of closing costs and interest) are
received in excess of the property's March 1998 appraisal value.
In each of the Programs, the Investors will vote on whether to approve the
Acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED IN THE SEVEN
"TRUDY PAT" PROGRAMS MUST VOTE TO APPROVE THE ACQUISITION FOR IT TO TAKE
PLACE.
This solicitation commenced on _______, 1998 and expires at 5:00 p.m.,
Pacific Time, on __________, 1998 unless extended. Call 1-800-590-7772 with
questions.
MOST MATERIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will no longer have a
tenancy-in-common interest in your program's property. Instead, you will
hold shares in a publicly-traded real estate company and will not receive
liquidation proceeds when, or if, your program's property is sold. As an
investor in a publicly-traded company with many stockholders, you will have
relatively less voting power.
- - If the Acquisition is approved, your investment will be subject to the
risks associated with resort development and management plus new risks
associated with a business which also plans to construct and sell residential
properties, and which plans to pursue the development of a hotel/conference
center.
- - If a trading market develops, the initial trading price for the stock will
likely be substantially below the arbitrary value of $20 per unit assigned for
purposes of the acquisition. Thus, the value of the units you receive may be
less than you might receive if the property of your program were sold.
- - Principal stockholders National and executive officers of the Company will
hold approximately (6.23% if all the units are sold in the concurrent offering
and 4.66% if all the units are sold in the concurrent offering and all warrants
issued in the acquisition are exercised) for which they paid $0.01 per share and
will receive annual cash compensation aggregating $560,000 as officers and
employees. National will be relieved of its servicing and asset management
obligations and will no longer earn servicing and asset management fees of
approximately $885,000 annually. However, the Company will still owe National
over $1,800,000 of accrued but unpaid fees and expenses.
- - No independent advisors represented you in structuring this transaction.
- - There can be no assurance that the transaction is not a taxable event.
If so, National believes a tax loss is the probable result for most of you.
- - The Company must have additional cash to fund its proposed operations. If
it cannot obtain such funding from the sale of certain of its properties, the
exercise of the warrants included in the units or the sale of additional units,
it may be no more successful than the programs have been individually in
completing the development of some or all of the properties.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE ACQUISITION.
<PAGE>
MATERIAL RISKS AND DISADVANTAGES
A full description of the material risks of the Acquisition may be found on
pages [__] through [__] of the accompanying Prospectus. Those risks include:
RISKS OF THE ACQUISITION
THERE WILL BE FUNDAMENTAL CHANGE IN THE NATURE OF YOUR INVESTMENT. If
the acquisition is completed, there will be a change in the nature of the
investment of each investor from holding a tenancy-in-common interest in real
estate to holding shares (and the right to buy additional shares) in an
on-going company, the assets of which may be changed from time to time
without approval of investors. If the acquisition is completed, investors
will be able to liquidate their investments only by selling their shares [on
the _____] or in private transactions, and they will not receive a return of
their investment in the form of liquidation proceeds through property sales.
If the acquisition is completed, investors will have an investment in an
entity that is larger than each of the programs and will thus lose relative
voting power. Investors will have an investment in a business which also
operates a golf course and a recreational vehicle park, and which plans to
pursue the development of timeshare facilities and a hotel/conference center.
THE EXCHANGE VALUES OF THE PROGRAMS ARE NOT THE SAME AS THE POTENTIAL SALES
PRICE. Investors are subject to the risk that the exchange value of a program
does not reflect the price a program's assets might bring in a sale. If the
property of a program were to be sold, the net proceeds of the sale and the
amount finally distributed to an investor in that program may be more or less
than the exchange value. There is no assurance that the future value of the
shares and warrants received in the acquisition will be greater than the most
recent appraised value of the property.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. Initially, shares may trade
at prices substantially below the arbitrarily determined exchange value of $20
per unit or the historical book value of the company's assets. There is no
guaranty that a liquid trading market will develop for the shares, or be
sustained. If a trading market develops for the shares, the price of shares
after the acquisition will likely decrease below the exchange value per share of
$20 due to a potentially large number of shares that investors may sell
immediately after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN STRUCTURING THE ACQUISITION. The
founders of the company, and specifically the principal shareholders of
National, as well as National itself, will be subject to conflicts of
interest. The principal shareholders and employees of National and the
company will hold approximately [16.35]% of the company's outstanding stock
(6.23% if all the units are sold in the concurrent offering and 4.66% if all
the units are sold in the concurrent offering and all warrants in units
issued in the acquisition are exercised) for which they paid $0.01 per share.
Other founders of the company will hold approximately [2.3]% of the company's
outstanding stock (0.88% if all the units are sold in the concurrent offering
and 0.66% if all such units are sold and all warrants issued in the
acquisition are exercised) for which they also paid $0.01 per share. Thus, the
investors' total ownership interests in the programs' properties will be
diluted by the equity interest in the company held by the founders of
2
<PAGE>
the company. The principal stockholders of National and other executive
officers of the company will receive annual cash compensation aggregating
$560,000 as officers and employees of the company. National will be relieved
of its servicing and asset management obligations and will no longer earn
asset management or servicing related fees. However, despite the fact that
National will have forgiven over $3,800,000 of unpaid fees and expenses,
the company will still owe National over $1,800,000 of accrued but unpaid
fees and expenses.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not
favored by the board of directors. These provisions include a board of
directors with three classes serving staggered three year terms, the
inability to remove a particular director before the expiration of his or her
term without a two-thirds supermajority vote, and the inability to amend the
anti-takeover provisions of the charter documents without a similar vote.
Thus, if investors are unhappy with management's performance, it will be more
difficult to remove directors not favored by the investors.
NO INDEPENDENT PARTY WAS RETAINED BY NATIONAL TO NEGOTIATE ON BEHALF
OF THE INVESTORS. Therefore, terms of the acquisition may be less favorable
to investors and more favorable to founders of the company which included the
principal shareholders of National than if the acquisition had been subject
to arm's-length negotiation. Had an independent party negotiated on behalf
of each program, the terms of the acquisition may have been more favorable to
certain or all of the programs and fewer shares and less favorable employment
contracts may have been received by the founders of the company.
THE ACQUISITION MAY NOT BE A TAX-FREE TRANSACTION TO INVESTORS. Due
to uncertainties in the facts of this transaction, tax counsel is unable to
opine conclusively on the tax consequences of the acquisition to investors.
The acquisition may be taxable, if at all, only with respect to the
investors' receipt of warrants. Alternatively, if the acquisition is a fully
taxable transaction, an investor would recognize gain or loss in 1998 equal
to the difference between the investor's tax basis in his interest in a
program property, and the number of shares of the company received valued at
$20 per unit. If the acquisition is treated as fully taxable, National
believes most investors would recognize a tax loss.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the
acquisition, none of the properties will be subject to any liens other than
for property taxes. The board of directors could authorize borrowing by the
company the debt service for which may adversely affect the company's ability
to make distributions to shareholders. The company may incur full recourse
debt which exposes all of the assets of the company to repayment instead of
limited recourse debt which generally exposes specific properties for the
repayment of debt.
THE BOARD OF DIRECTORS MAY UNILATERALLY CHANGE INVESTMENT, FINANCING AND
CERTAIN OTHER POLICIES WITHOUT SHAREHOLDER APPROVAL. Although the board of
directors of the company intends to implement the business plan set forth
herein, the board will have the ability to change investment, financing and
other policies of the company without the consent of shareholders.
3
<PAGE>
THERE WILL BE NO APPRAISAL OR SIMILAR RIGHTS FOR NONCONSENTING
INVESTORS. If you vote against the acquisition, and it is approved, you will
not be able to object to the acquisition and receive the appraised value of
your tenancy-in-common interest in your program's assets. You will have no
choice other than to accept units for your interests.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed over a year
ago to take part in the acquisition of your property. It does not have the
benefit of operating for a long time. This means that shares in the company
are much riskier than ownership of shares of established companies. If the
company had been operating as if it owned the properties which it desires to
acquire, it would have experienced losses to date.
THERE WILL BE FUNDAMENTAL CHANGES IN THE BUSINESS PLAN IF THE
ACQUISITION TAKES PLACE. Rather than being focused on a single property, the
company will be an infinite life entity focused on the management of the
properties of at least seven of the former "Trudy Pat" programs plus the
properties of other programs which elect to participate in the acquisition.
The effect of this on investors is two-fold. First, poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the other properties. Second, there will be no
particular time when an investor can expect that a sale of any of the
properties will result in cash distributions to him or her.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes or
sales of a particular property. Those decisions will be made by the board of
directors or management. In addition, you will have an investment in an entity
that is larger than each of the programs and, thus, you will lose relative
voting power.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular principal and interest payments on
their original investments, because of the borrowers' defaults there have been
no distributions from any of the programs, other than the Oceanside program, in
the past three years. Future cash distributions will be based on the company's
earnings and the decision of the board of directors to pay dividends.
Therefore, even if a property in which you formerly held an interest were to
perform well, there is no assurance that there would be cash distributions to
you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. Prior to the dates
that title to the properties securing the original program loans was taken,
National was entitled to an annual loan servicing fee equal to one percent of
the original loan amounts. When title to the properties was taken on behalf of
the programs, even though the loans no longer existed, National continued to
charge the same rate as the servicing fee for the asset management services it
provided to investors. The investors in each of the programs had become the
beneficial tenant-in-common owners of real estate, most of which was
undeveloped. While it had no obligation to do so, in order to assist the
beneficial owners in protecting their real estate assets and readying them for
sale or development, National assumed the duties of an asset manager after title
was taken to the properties. In this capacity, National obtained information
from investors about their preferences in regard to development or sale of the
properties, and facilitated the assessment
4
<PAGE>
of investors to raise funds necessary to pay property taxes, insurance and
other costs of property ownership.
The annual fees payable to National are currently $50,000 for
Sacramento/Delta Greens; $300,000 for Oceanside; $61,068 for
Yosemite/Ahwahnee I; $133,646 for Yosemite/Ahwahnee II; $100,000 for Mori
Point; $140,000 for Cypress Lakes; $150,000 for Palmdale/Joshua Ranch; $5,000
for Esperanza; $3,153 for Stacey Rose A; and $850 for Stacey Rose B.
In addition to the one percent fee, compensation has been earned for
property management services provided to the Oceanside program ($896,000
accrued since the date of ownership (November 1993) through June 30, 1998;
$876,000 actually paid) and Yosemite/Ahwahnee properties ($594,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervision of: entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside
and Yosemite/Ahwahnee projects; and contract negotiations and documentation.
To the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
In the future, compensation will be paid to officers of the company in the
form of salaries (aggregating $560,000 annually plus contractual bonus
opportunities and salary increases), stock options and other benefits. See
"Management Following the Acquisition -- Directors and Executive Officers
Compensation and Incentives" for details of stock options and other benefits.
These salaries and other forms of compensation will be payable to management of
the company even if one or more of the properties acquired in the acquisition is
subsequently sold.
HOLDERS OF MAJORITY OF TENANCY-IN-COMMON INTERESTS BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of outstanding
interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THAT THE EXCHANGE VALUES FOR THOSE
PROPERTIES COULD BE TOO LOW OR TOO HIGH. National reviewed the updated March
1998 appraisal of the Yosemite/Ahwahnee properties which reflected an
aggregate "as is" appraised value of $20,246,000 and the October 1996
appraisal which reflected an "as is" aggregate appraised value of $4,000,000.
The results of those appraisals clearly differed from each other, and, in
management's judgment, the difference could not be accounted for solely by
improving market conditions. Some of the parcels,
5
<PAGE>
including the golf course, were subsequently sold, on June 5, 1998, to the
Oceanside Program investors to obtain working capital for the
Yosemite/Ahwahnee programs. Based on its review of all appraisals, National
concluded that the properties currently owned by the Yosemite/Ahwahnee I and
II Programs have values of $5,486,000 ($1,782,950 and $3,703,050,
respectively), and the parcels currently owned by the Oceanside Program have
a value of $5,080,000. National believes its approach is reasonable.
GENERAL REAL ESTATE RISKS
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent property
taxes are not timely paid, the company could lose one or more of the
properties to tax sales. Each of the programs' properties is subject to the
following delinquent property taxes as of August 31, 1998: Sacramento/Delta
Greens - approximately $27,000; Yosemite/Ahwahnee (combined) - approximately
$500,000; Mori Point - approximately $165,000; Cypress lakes - approximately
$204,000; Palmdale/Joshua Ranch - approximately $63,000; Esperanza -
approximately $20,000; and Stacey Rose (combined) - approximately $30,000.
Annual payments required for all the properties for current taxes (including
amounts currently due on five-year payment plans) total approximately $549,000.
In the case of Sacramento/Delta Greens, Yosemite/Ahwahnee, Mori Point,
Palmdale/Joshua Ranch and Stacey Rose properties, National has entered into
statutorily authorized 5-year payment plans with the applicable taxing
authorities.
CERTAIN ASSETS MUST BE SOLD TO RAISE WORKING CAPITAL. Unless a minimum
of approximately $[4,565,000] from sale of certain assets of the programs or
the sale of units in the concurrent offering or the exercise of warrants
become available, the company will not be able to proceed with its entire
business plan. The company will also need financing from other sources to
complete its plan. Financing sources are not predictable and interest rates
or other costs of financing may be prohibitive. Neither the programs nor the
company have received any commitment from other sources. In their current
tenancy-in-common structure, the programs cannot obtain traditional bank
financing.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL AND OTHER LAWS MAY REQUIRE
EXPENSIVE HAZARDOUS SUBSTANCE CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC
IMPROVEMENTS. We have not conducted any environmental audits on the
properties. As a result, there may be environmental liability to the company.
Local governments have required residential developers to pay assessments for
streets, schools and parks which increase the cost of development. Increased
costs can have a negative affect on the company's sale of residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as
earthquakes and floods may be uninsurable or too expensive to insure. The
company does not plan to carry earthquake or flood insurance. If an
uninsured loss occurs, the company would lose capital as well as revenues,
and would still owe other debts related to the property affected, if any.
THE DEVELOPMENT OF ADDITIONAL PROJECTS MAY OCCUR. We may develop
additional projects in the future, although we have no immediate plans to do
so. Real estate development involves
6
<PAGE>
more risks than in the ownership and operation of established projects.
Financing may not be available on favorable terms for development projects;
construction may not be completed on schedule or budget; long-term financing
may not be available on completion of construction; and sites may not be sold
on profitable terms.
THE CALIFORNIA ECONOMY HAS FLUCTUATED BROADLY IN THE PAST FEW YEARS.
Initially, we will conduct all of our business in California. Our markets
have been affected by substantial fluctuations in local economic conditions,
interest rates, inflation, employment levels and regulations. California has
also experienced draught conditions, resulting in water conservation measures
and rationing. In the past, these conditions have caused local governments
to restrict residential development. California's climate and geology
present risks of natural disaster such as earthquakes and floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE
OWED $[1,818,684] BY THE COMPANY. This represents accrued fees and expenses
from the programs which National has not cancelled. This amount is due and
payable and the company intends to start paying it after the Acquisition, but
only from operating revenues, proceeds from the sale of assets or the
exercise of warrants, and not from working capital generated by the proceeds
of unit sales in the concurrent offering.
REAL ESTATE RISKS OF SACRAMENTO/DELTA GREENS
PERMITS TO DEVELOP THE PROPERTIES NEED TO BE OBTAINED. Construction of
the Sacramento/Delta Greens property will require approval of a new tentative
map, the filing of a final map and obtaining building permits from the city.
The tentative tract map process for the Sacramento/Delta Greens property
required that studies be conducted to identify any endangered species'
habitat on the property. Since some were identified, changes to the tentative
development plans have been made to reduce or eliminate any damage to the
habitat. A new tentative map needs to be approved by the City. The longer
this process takes, the longer it will be before any of the property is ready
for any construction, further development activity or sale.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS AT THE SACRAMENTO/DELTA GREENS
PROPERTY MAY CAUSE THE COMPANY TO INCUR SUBSTANTIAL CARRYING COSTS UNTIL THE
LOTS CAN BE SOLD. Changing market conditions may increase the difficulty of
selling the lots. If the company chooses to build homes on the lots, delays in
construction, the lack of reasonably priced construction or mortgage financing,
and the general California economy could lengthen the holding period for the
lots. This would mean a delay in realizing cash from the business operations.
The average carrying costs, including property taxes, management and servicing
related fees, for this property has averaged approximately $10,000 per month
over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real estate
is cyclical and the residential lot development industry is highly competitive.
If the demand for new lots does not keep pace with competitive supply, our
properties may be sold at a loss. The location of the company's lots, the
presence of other competition, customer acceptance and pricing are all factors
affecting success. Competitors may have better financial, managerial and other
resources,
7
<PAGE>
affecting our ability to successfully compete. Sacramento/Delta Greens
represents over 5% of the assets of the company.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay the engineering costs required to mitigate endangered
species issues and pay for the planning and design expenses for the city to
approve a new tentative trace map (estimated by management to cost
approximately $25,000). Another risk is whether the lots to be developed
will appeal to builders and whether home financing will be available.
Finally, there is a risk that the development and sale of lots or homes will
be profitable.
REAL ESTATE RISKS OF YOSEMITE/AHWAHNEE PROPERTIES (INCLUDING THE GOLF
COURSE AND SURROUNDING LAND WHICH IS OWNED BY THE OCEANSIDE PROGRAM INVESTORS)
PERMITS TO DEVELOP THE CONDOMINIUM-TYPE TIMESHARE ASPECT OF THE RESORT
HAVE NOT YET BEEN OBTAINED. The Yosemite/Ahwahnee property has a final map
on 32 remaining single family estate lots and a use permit for a 600 space
recreational vehicle park. Planning and development are underway for 100
additional recreational vehicle sites, as well as vacation villa timeshare
units. Additional planned usage such as traditional, attached timeshare
units will require extensive county and state approvals.
RISKS AFFECTING OPERATION OF A GOLF COURSE. Increased competition,
seasonality, weather and course conditions will affect the operations of the
company. While no new golf courses have opened near the Ahwahnee Golf Course,
new courses could increase the competition and reduce the rounds played.
Seasonal variations may require the company to supplement revenue at the golf
course to meet operating expenses. Weather can negatively affect the turf grass
and reduce the number of rounds played. Inflationary costs may not be offset by
increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as well
as to pleasure or destination travel preferences by visitors and tourists. All
of these factors could reduce the amount of money earned by the company.
The Yosemite/Ahwahnee golf course can be an important amenity which may
attract potential timeshare purchasers in the future. At this time, the project
does not rely on the golf course for its revenue. National estimates that the
value of the golf course will be less than 20% of the assets of the company.
RESORT DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF REASONS AND COULD
RESULT IN LOSSES. In addition to normal real estate risks, financing is hard to
obtain, and the lodging industry can be unpredictable, seasonal and very
competitive. Without additional financing or capital, the company will not be
able to develop its resort projects as part of its growth strategy. Economic
conditions, changes in travel patterns, extreme weather conditions, labor and
other variable costs can all affect revenues and profits. For example, Spring
through Fall at the Yosemite/Ahwahnee property are the periods of highest
occupancy. Seasonality can be expected to cause quarterly fluctuations in the
company's revenues.
8
<PAGE>
RISKS RELATING TO TIMESHARE OPERATIONS. Certain factors affecting
timeshare operations could result in losses. Negative press surrounding the
remarketing of timeshares might negatively impact sales and operations. Also,
marketing costs are high relative to selling price which can reduce or eliminate
profits from the sale of timeshare interests.
In addition, according to the American Resort Development Association,
there is a tendency for timeshare owners to default more often on their
timeshare loans then homebuyers who borrow to buy a home. If a buyer defaults,
we would incur costs in remarketing the timeshare.
The timeshare industry is extremely competitive and we may not be able to
secure development financing on acceptable terms.
Since the project is not yet permitted for traditional attached
timeshare units, there has been no allocation of assets. Should attached
timeshare be approved, the company anticipates that a significant portion of
the revenue of the company will be derived from sales of timeshare units.
RISKS RELATING TO RECREATIONAL VEHICLE PARK OPERATIONS. Risks relating to
recreational vehicle parks are substantially the same as those described above
for timeshare projects.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to (i) make up for the current cash drain from operations and
maintenance of the golf course, clubhouse and current recreational vehicle
facilities (estimated by management at approximately $350,000) annually and
(ii) complete the construction of additional recreational vehicle sites and
obtain approvals for and construction of the first group of vacation villa
timeshare units (estimated by management to cost approximately $3,000,000).
There are also a risk that the operation of recreational vehicle sites,
timeshares and golf course activities will not be profitable.
REAL ESTATE RISKS OF MORI POINT PROPERTY
PERMITS TO DEVELOP THE PROPERTY HAVE NOT YET BEEN OBTAINED. If needed
permits for development are not obtained or reissued, the business plan for
the company will have to be revised. Additionally, the presence of two
endangered species on the Mori Point property increases the risks that necessary
approvals may not be received if an acceptable habitat mitigation plan cannot
be developed. The permitting process with the California Coastal Commission
and the City of Pacifica is expensive and time consuming. Mori Point had a
specific plan and tentative map approvals to build a hotel/conference center
which expired in 1991. These approvals must be obtained or reinstated prior to
construction on the property. Mori Point will represent approximately 20% of
the assets of the company.
HOTEL/CONFERENCE CENTER DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF
REASONS AND COULD RESULT IN LOSSES. In addition to normal real estate risks,
financing is hard to obtain, and the lodging industry can be unpredictable,
seasonal and very competitive. Without additional financing or capital, the
company will not be able to develop its hotel/conference center project
9
<PAGE>
as part of its growth strategy. Economic conditions, changes in travel
patterns, extreme weather conditions, labor and other variable costs can all
affect revenues and profits. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues. At the hotel/conference center
property at Mori Point, we may be competing against well-known chains and
extended-stay inns.
ADDITIONAL SPECIFIC RISKS. There is a risk that the city government will
not approve the property for its intended use. Capital to conduct engineering
and environmental studies in order to apply for and obtain approvals for its use
from the city is estimated to be approximately $500,000. Capital will also be
necessary for roads, utilities and other infrastructure costs prior to
construction. Finally, there is a risk that the proposed hotel/conference
center may not be profitable.
REAL ESTATE RISKS OF CYPRESS LAKES PROPERTY
THE VESTED TENTATIVE MAP WILL EXPIRE IN APRIL 1999 UNLESS RENEWED AND
THE BUILD OUT OF THE PROPERTY WILL BE EXPENSIVE. Due to being located in a
100-year flood plain, the property requires a levee to be constructed around
its perimeter which is very expensive to construct. Preliminary engineering
estimates indicate these costs to be more than $9,000,000. It may be
desirable to change the vesting tentative map if the costs can be reduced
significantly. While mere extension of the expiration date of the existing
vested tentative map is not expected to be controversial, any changes in the
existing plan could subject the project to public hearings which might result
in additional costs being placed on the project. This could further increase
the high front-end financial requirements. Additionally, such modifications
might not be approved.
Cypress Lakes is a proposed master-planned community and represents more
than 20% of the assets of the company. Joint venture partners would have to
be brought in by the Company to help with the large capital requirements of
such a large project in order to develop it. It may be difficult to find
substantial builder/developers who have the financial ability to purchase or
develop the project. Changing market conditions may increase the difficulty
in selling lots.
Should the company determine to build out the project, delays in
construction, reasonably priced mortgage and construction financing and the
local and general California economy could lengthen the holding period for the
lots. This would mean delays in realizing cash from the business operations.
RISKS AFFECTING OPERATION OF A GOLF COURSE. When, and if, the golf course
is developed, it will face competition from the 15 golf courses within a
25-mile radius. Seasonality, weather and course conditions will affect the
operations of the company. Weather can negatively affect the turf grass and
reduce the number of rounds played. Inflationary costs may not be offset by
increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as
well as to pleasure or destination travel preferences by visitors and
tourists. All of these factors could reduce the amount of money earned by
the company.
10
<PAGE>
RISKS OF RESIDENTIAL DEVELOPMENT. Totaling 1,330 lots, a large supply
of lots would be available and, due to the cyclical nature of the housing
industry, demand may fluctuate differently than supply. This could result in
needing to sell lots at a loss. Due to the size of the project, it could
take between six and ten years to complete, which would subject it to new
competitors entering the marketplace during the sales period. An
environmental impact report was obtained on the property. Any and all
environmental concerns will be mitigated as required in the vested tentative
map conditions of approval. No evidence of endangered species that would
limit or preclude development of the project have been found.
REAL ESTATE RISKS OF PALMDALE/JOSHUA RANCH PROPERTY
A FINAL TRACT MAP MUST BE RECORDED. After several years of effort by
National, the vested tentative map was approved by the City of Palmdale at a
hearing before the planning commission in early July 1998. A final recorded map
must be secured by National or a buyer in order to build on the property. Final
engineering, soils, utility and various improvement studies will need to be
conducted in order to record the final map.
PERMITS TO DEVELOP THE PROPERTY NEED TO BE OBTAINED. A final recorded map,
which could take nine to twelve months after starting the process, will be
required prior to construction. Due to the size of this project which
encompasses some 739.6 acres and is currently planned for 539 lots, additional
grading studies, soils investigation and utility planning needs to be done which
could negatively impact the cost of this large-scale development.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Finding
builder/developers that have the financial strength to handle this size project
can be difficult. Changing market conditions, the lack of reasonably-priced
construction or mortgage financing and the general or local market conditions
could lengthen the holding period for lots. This would mean a delay in
realizing cash from business operations. The average carrying costs, including
property taxes, predevelopment and asset management services for this property
have averaged approximately $16,300 per month over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real estate
is cyclical and the residential lot development industry is highly competitive.
If the demand for new lots does not keep pace with competitive supply, the
property may be sold at a loss. The location of the lots, the presence of other
competition, customer acceptance and pricing are all factors affecting success.
Competitors may have better financial, managerial and other resources affecting
the company's ability to successfully compete. An environmental impact
report was obtained on the property. Any and all environmental concerns will
be mitigated as required in the vested tentative map conditions of approval.
No evidence of endangered species that would limit or preclude development of
the project have been found.
Palmdale/Joshua Ranch is a proposed residential development and represents
about 10% of the assets of the Company.
11
<PAGE>
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not be
available to pay for or finance (i) engineering, soils and utility studies which
is estimated to cost approximately $140,000, and (ii) another risk is whether
the lots to be developed may appeal to project builders. Palmdale/Joshua
Ranch is a proposed residential development and represents about 10% of the
assets of the company.
REAL ESTATE RISKS OF ESPERANZA PROPERTY
RISKS OF COMMERCIAL DEVELOPMENT. The material risks associated with the
development of the Esperanza Property are (i) as of August 31, 1998,
approximately $23,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the property for delinquent property
taxes; and (ii) despite a strong economy, rents and values for many retail
properties are expected to remain soft in 1998. Pressure on rents brought
about by over building, weakness in demand for space and store closures
caused by lagging profits are the forces causing a soft market. No
environmental or endangered species reports have been prepared for the
property.
ADDITIONAL SPECIFIC RISKS. Within the City of Victorville there are
approximately 3,250 acres zoned for commercial use, of which 60% remains
available for development. Victorville is home to the largest enclosed regional
shopping center between San Bernardino and Las Vegas, which is known as The Mall
of Victor Valley. These commercial sites represent significant competition to
the Esperanza project. There are more than 5,400 acres within the city limits
of Victorville zoned for light and heavy industrial use. Nearly nine percent of
this 5,400 acres of land is vacant and is available in parcels ranging in size
from one-half to five hundred acres.
REAL ESTATE RISKS OF STACEY ROSE PROPERTIES
RISKS OF RESIDENTIAL DEVELOPMENT. The material risks associated with the
development of the Stacey Rose Properties are (i) as of August 31, 1998,
approximately $30,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the County
of Riverside to avoid loss of the Properties for delinquent property taxes; (ii)
it is estimated that it may cost about $50,000 to finalize a tentative tract map
on the parcels; (iii) a substantial, and potentially expensive, sales and
marketing effort will be necessary to sell homes constructed on the properties
if a bulk sale of the lots is not made; (iv) the properties are located in a
lower income residential area; and (v) increasing government fees and
assessments for streets, schools, parks and other infrastructure requirements
could increase the cost of lots to the company, thereby increasing the sales
price of the lots which will delay market absorption. No environmental or
endangered species reports have been prepared for the property.
ADDITIONAL SPECIFIC RISKS. There is a risk that (i) adequate funds will
not be available to finalize a tentative tract map on the parcels (approximately
$50,000); (ii) the project will not appeal to project builders; and (iii) home
financing at reasonable costs may not be available. There is also a risk that
the development and sale of lots or home may not be profitable
12
<PAGE>
ANTI-TAKEOVER PROVISIONS
Certain provisions of the charter documents may restrict changes in control
of the Company's management. These provisions may make it more difficult or
expensive for another party to acquire and exercise control of the Company or to
change its management, even if that change would be beneficial to you. These
provisions include:
ADDITIONAL CLASSES OF SHARES. Under the company's certificate of
incorporation, subject to the receipt of fair value, the Board of Directors may
issue shares in other classes or series and fix the rights, powers and
limitations associated with such shares. Although the Board of Directors has no
present intention of doing so, it could issue a class or series that could,
depending on its terms, impede a merger, tender offer or other transaction that
you might believe is in your best interest or in which you might receive a
premium for your shares over the then current market price. The issuance of
such shares could also dilute your voting power.
STAGGERED BOARD. The Board of Directors is divided into three classes
serving staggered three year terms. This arrangement may affect your ability to
change control of the company, even if you believe such a change is in your best
interests.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The company's certificate
of incorporation, as well as Delaware law, prohibits certain business
combinations with owners of more than 15% of the outstanding voting stock of the
company ("interested stockholders") within the three year period immediately
prior to the date on which the interested stockholder became an interested
stockholder. These restrictions on certain business combinations may deter
potential purchasers who seek control of the company.
SUPERMAJORITY VOTES. Changes to the company's certificate of incorporation
which cover anti-takeover provisions require the approval of two-thirds of the
company's voting stock. This restriction also may deter potential purchasers
who seek control of the company.
IN ADDITION TO THE ANTI-TAKEOVER PROVISIONS, THE DELAWARE LAW, AS WELL AS
THE CHARTER DOCUMENTS, LIMIT THE LIABILITY OF DIRECTORS AND OFFICERS TO
SHAREHOLDERS. This limitation of liability may exceed the protections National
enjoys under the programs' servicing agreements and limit shareholders'
claims against management.
FAIRNESS TO INVESTORS IN THE YOSEMITE/AHWAHNEE I PROGRAM
Both procedurally and from a financial point of view, the company and
National believe the terms of the acquisition are fair as a whole and to the
investors in each of the programs. This determination is based on
consideration of the following positive and negative factors:
- the units offer an opportunity for individual investor liquidity
while the tenancy-in-common interests do not, however, there is no assurance
that the shares will have any liquidity, or that any liquid market that
develops will be sustained;
13
<PAGE>
- while the number of units to be issued to reflect the exchange
value of a program is arbitrary, the trading price of the shares included in
the units initially is likely to be substantially below the $20 value
arbitrarily assigned to the units. In our opinion, the exchange values
offered to investors for their assets allow for an equitable allocation of
the [1,403,321] units ([1,380,175] units if only the "Trudy Pat" programs
participate) among the programs. The disparity between exchange values and
appraised values results from adding the value of program cash reserves and
other assets, if any, to appraised values and deducting program liabilities
(principally accrued property taxes and other fees net of fees to be forgiven
by National);
- on completion of the acquisition the investors will hold over 80%
(over 94.7% of all units are sold in the concurrent offering and all of the
warrants included in the units to be issued in the Acquisition are exercised)
of the outstanding stock of the company. After the acquisition, a total of
[6.40]% of the outstanding stock of the Company will be held by
Yosemite/Ahwahnee I investors (6.49% if only the seven "Trudy Pat" programs
participate). After the acquisition, founders of the company (principals,
employees, former employees and consultants of National) will hold less than
20% ( % if only the seven "Trudy Pat" programs participate). Founders'
shares were purchased for $.01 per share. Among the properties, National and
its principals will have forgiven over $3,800,000 of expenses and accrued
fees of which a total of approximately $2,148,000 was earned for asset
management and property management services after the loans defaulted and
before the Ownership Dates of the properties. The balance was earned after
foreclosure for asset and property management services and expenses. Of such
amount, $72,158 is attributable to fees owed by Yosemite/Ahwahnee I
investors. National believes that the amount paid for the property
management services is no greater than the amount that a third party would
charge;
- the current appraised value of the Yosemite/Ahwahnee I real estate
assets ($1,782,950) (as well as the real estate assets of the other programs)
and the fact that substantial financing is needed to further the property's
development;
- the probability that the transaction will have minimal, if any,
negative tax affect on investors. National believes there will likely be no
out-of-pocket tax cost to all, or the vast majority, of you;
- while conflicts of interest exist in the structuring of the
acquisition, the issuance of shares to the founders of the company and the
determination of management compensation and while you did not have independent
representation in the structuring of the acquisition, we believe they have been
counterbalanced by your opportunity to vote on the transaction and the Fairness
Opinion;
- while the Yosemite/Ahwahnee I Program (as well as the other programs)
were originally formed to have a two to four year finite life which, for
Yosemite/Ahwahnee I, should have ended between 1991 and 1992 and the investors
expected to receive a return of their investment from the original borrower, the
company is an infinite life entity which will not return the program investors'
original investment based on a sale or refinancing of the properties underlying
the original programs. However, after the borrowers defaulted on the "Trudy
Pat" loans, the investors became beneficial owners of the underlying properties
with the need to
14
<PAGE>
complete development, manage or otherwise ready the properties for sale.
Those endeavors had no fixed timetable and, thus, the finite life aspect of
their original investments was significantly changed. Therefore, the
infinite life aspect of the company is not viewed by National to be a
material change from the investors' CURRENT situation;
- the acquisition will cause fundamental changes in the business plan of
the Yosemite/Ahwahnee I Program. Rather than being focused on a single property
for resort development and management purposes, the company will be focused on
the management of at least seven and as many as ten properties. Thus, the
poor performance of a particular property may affect the company's operations
as a whole regardless of the performance of the Yosemite/Ahwahnee I Property.
Further, there will be no particular time when an Investor can expect its
interest to be automatically liquidated;
- the fact that with the exception of the recent sale of the golf course
and certain residential lots to the Oceanside investors, it has been difficult
to find buyer or joint venture or financial partners for the entire project;
- Yosemite/Ahwahnee I investors will not be able to vote on changes to
or dispositions of Yosemite/Ahwahnee I property or borrowing secured by that
property. Those decisions will be made by the Board of Directors or management
of the company. Further, as investors in a larger entity, relative voting power
will be diluted;
- future cash distributions will be based on the company's earnings and
the decision of the Board of Directors to pay dividends rather than the
performance or sale of the Yosemite/Ahwahnee I property;
- investors voting against the acquisition will have no alternative but
to accept shares in the company if the acquisition is approved by holders of a
majority of the tenancy-in-common interests in each of the programs;
- the anti-takeover provisions of the company's charter documents
contain provisions that may have the effect of delaying or discouraging a change
in management which is not favored by the Board of Directors of the company; and
- the Fairness Opinion rendered by Houlihan Valuation Advisers, an
independent valuation firm which addresses only the allocation of the shares in
the acquisition and not the amount of the consideration paid to program
investors in the acquisition as a whole. See "Background and Reasons for the
Acquisition" at page __ of the Prospectus.
National reviewed the arbitrary value you will receive in connection with
the acquisition and compared it with what you might receive if (i) the
Yosemite/Ahwahnee I property was operated "as is" ($1,355 per $10,000 of
Adjusted Outstanding Investment), (ii) the Yosemite/Ahwahnee I property was sold
in a quick sale in three months or less ($1,355 per $10,000 of Adjusted
Outstanding Investment), or (iii) the Yosemite/Ahwahnee I property was sold at
the appraised value used to determine the Yosemite/Ahwahnee I exchange value
($2,239 per $10,000 of Adjusted Outstanding Investment). Based on that review,
and even
15
<PAGE>
acknowledging that, initially, the company's shares included in the
units issued in the acquisition would likely trade substantially below the
arbitrary $20 issuance value for the units, National believes that there is a
higher probability of realizing value from the Yosemite/Ahwahnee I property
through the acquisition than through the other alternatives. This belief is
based on the expectation that some financing opportunities will become available
based on the form of the entity and the time pressure associated with forced
sales or liquidation will be relieved. See "Background and Reasons for the
Acquisition -- Comparison to Alternatives" and "Recommendation of National and
Fairness Determination" at pages __ and __ of the Prospectus.
Based on the above factors and comparisons, National concluded that the
acquisition is fair, both substantively and procedurally.
THERE ARE NO MATERIAL DIFFERENCES BETWEEN THE FAIRNESS ANALYSIS FOR THIS
PROGRAM AND FOR ANY OF THE OTHER NINE PROGRAMS PROPOSED TO BE INCLUDED IN THE
ACQUISITION.
CALCULATION OF EXCHANGE VALUE
The Exchange Value of the Yosemite/Ahwahnee I Program (as well as each of
the other Programs) is essentially the consideration which the Company is
offering in exchange for the real estate assets, certain liabilities and
business of the Program. The value is reflected as a number of units of the
Company (in the case of the Yosemite/Ahwahnee I Program, [110,502] units)
multiplied by an arbitrary $20 per unit value.
In calculating the Exchange Value for the Yosemite/Ahwahnee I Program,
National had to reconcile the differences between the March 1998 appraisal by
Arnold Associates and the October 1996 appraisal by The Mentor Group. See
"Appraisals and Fairness Opinion -- Reconciliation of Yosemite/Ahwahnee
Properties' Appraisals" at page [__] of the Prospectus. After determining
the appraised value of the Program, the Exchange Value was calculate by
adding to the appraised value the book value of the Program's other assets at
August 31, 1998, deducting the Program's liabilities at August 31, 1998.
The following table summarizes the calculation of the Exchange Value of the
Yosemite/Ahwahnee I Program and the value assigned on $10,000 of Adjusted
Outstanding Investment:
<TABLE>
<CAPTION>
Value Assigned
Appraised Net Other to Program per
Value of + Assets and = Exchange $10,000 of Adjusted
Real Estate(1) Liabilities(2) Value Outstanding Investment
-------------- ------------------ --------------- ----------------------
<S> <C> <C> <C>
$ 1,782,950 $[ 427,086] $ 2,210,036] $ [2,435](3)
</TABLE>
- ----------
(1) Reflects independent appraisal as of March 1998, adjusted for
inconsistencies with the October 1996 appraisal
(2) The following table quantifies the adjustments to appraised values made in
determining Yosemite/Ahwahnee I property's Exchange Value as of August 31,1998.
16
<PAGE>
<TABLE>
<CAPTION>
Book Assets Book Liabilities Net Other Assets
(8/31/98)* - (8/31/98)* = and Liabilities
------------------- ------------------------- --------------------------
<S> <C> <C>
$ 1,536,802 $ (1,109,716) $ (427,086)
</TABLE>
* See balance sheet of the Program in the financial statements
accompanying the Prospectus for details of book assets and book
liabilities. There is no third party mortgage debt on the
Yosemite/Ahwahnee I Property.
(3) Equals [122] Company shares arbitrarily valued at $20 per unit.
ALLOCATION OF SHARES
The [1,403,321] shares of Company common stock being offered to Investors
in the Acquisition represent over 80% of the Company's shares (92.9% if all
the units are sold in the concurrent offering and 94.7% if all the units are
sold in the concurrent offering and all warrants in units issued in the
acquisition are exercised) which will be outstanding upon completion of the
Acquisition. The remaining shares will be held by management and other founders
of the Company. Such shares will be allocated among the Programs pro rata in
accordance with Exchange Values. The Yosemite/Ahwahnee I Program will be
allocated [110,502] shares.
The shares allocated to the Yosemite/Ahwahnee I Program will be allocated
among Investors in the Program based on their respective pro rata investments in
the Program (taking into account assessments paid and unpaid, as well as
interest accrued to each Investor through the date beneficial ownership of the
Program's Property was taken for the Investors) as adjusted for voluntary
advances. An Investor in the Yosemite/Ahwahnee I Program with an adjusted
investment amount of $10,000 will receive [122] shares of units in the Company
arbitrarily valued at $20 per unit.
Neither National nor the Company's founders have any interest in
the Yosemite/ Ahwahnee I Program except for National's contractual right to
asset management fees and the $2,373 of tenancy-in-common interests purchased
by National for which interests National will receive units in the
Acquisition pro rata with the other Yosemite/Ahwahnee I Investors. National
will undertake not to exercise the warrants in the units.
The following table and its footnotes sets forth the amount owed by the
original borrower to the Yosemite/Ahwahnee I Program (including accrued but
unpaid interest) plus the amount of assessments and advances paid by
Investors at August 31, 1998, appraised real estate value, Exchange Value of
the Program, the number and percentage of shares allocated to the Program,
and the number of shares and comparative value of the Company to be held by
founders after the Acquisition.
17
<PAGE>
<TABLE>
<CAPTION>
% of Total
Shares to be
Outstanding
After the
Amount Real Estate Acquisition if
Owed plus Appraised Exchange No. of Shares All Programs
Name of Program Assessments Value Value(1) Allocated(1)(2) Participate
- --------------------- ------------------ ----------------- ------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Yosemite/Ahwahnee I $ 9,063,163 $ 1,782,036 $ 2,210,036 110,502 [6.40]%
</TABLE>
- -------------------
(1) The founders of the Company which include members of Company management,
as well as certain employees, former employees of National and
consultants to the Company and the Programs, will hold a total of
[323,631] Company shares after the Acquisition (18.74% of the
outstanding shares post-Acquisition, 17.48% if all the units are sold in
the concurrent offering and 5.3% if all the units are sold in the
concurrent offering and all warrants in units issued in the acquisition
are exercised) which, if valued at $20 per share, would have an
aggregate value of $[6.472,620]. The Company was formed, and shares
were purchased by the founders for $.01 per share, prior to making the
Acquisition proposal. The shares to be retained by the Company's
founders were not determined based only on fees cancelled or to be
cancelled by National and its principals. Overall, National believed
that the Company's founders should hold slightly less than 20% of the
shares after the Acquisition assuming none of the Units in the
concurrent offering are sold and none of the warrants are exercised.
See "Dilution" at page __ of the Prospectus. If the Acquisition is
completed, the following table sets forth the fees which National and
its principals have cancelled, or will cancel:
<TABLE>
<CAPTION>
Previously To Be
Name of Program Cancelled Cancelled
------------- -----------
<S> <C> <C>
Sacramento/Delta Greens $500,000 -0-
Oceanside 601,125 261,273
Yosemite/Ahwahnee I 72,158 -0-
Yosemite/Ahwahnee II 1,157,867 124,250
Mori Point 461,589 -0-
Cypress Lakes 468,000 -0-
Palmdale (Joshua Ranch) -0- -0-
Esperanza 102,134 -0-
Stacey Rose A 64,293 -0-
Stacey Rose B 17,267 -0-
---------- -----------
TOTAL $3,444,433 $ 385,523
---------- -----------
---------- -----------
</TABLE>
(2) Had the shares retained by the founders of the Company been allocated to
the founders based only on cancelled fees, [1.8]% ([2]% if only the
seven "Trudy Pat" programs participate) of the total shares to be owned
by the Company's founders after the Acquisition ([6,097] shares if all
programs participate and [6,405] shares if only the seven "Trudy Pat"
programs participate) would have been deemed allocated from this Program.
18
<PAGE>
HISTORICAL COMPENSATION TO NATIONAL/EFFECT OF ACQUISITION
The following table sets forth the compensation accrued by National, as
well as actually paid to National, during the years ended December 31, 1997,
1996 and 1995, and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
Incurred
Incurred Actually Incurred Actually Incurred Actually for Six Actually Paid
for Year Paid for for Year Paid for for Year Paid for Months in Six
Ended Year Ended Ended Year Ended Ended Year Ended Ended Months Ended
Name of Program 12/31/95(1) 12/31/95(2) 12/31/96(1) 12/31/96(2) 12/31/97(1) 12/31/97(2) 6/30/98 6/30/98
- --------------------- ------------ ----------- ----------- ----------- ------------- ----------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Yosemite/Ahwahnee I $84,051(3) $-0- $150,800(3) $101,626 $148,439 (3) $60,700 $75,333 $30,392
</TABLE>
- ----------------
(1) These amounts represent servicing fees and salaries for officers and
employees of Ahwahnee Golf Course and Resort, Inc. for property management
services.
(2) These amounts represent asset management fees only.
(3) Approximately $81,752 per year if the Acquisition had been completed during
the above periods including $42,511 of estimated salaries to be paid by the
Company to its officers and other employees which were allocated to the
Yosemite/Ahwahnee I Program based on Exchange Values. No cash would have
been available to pay officers' bonuses or dividends to shareholders.
HISTORICAL CASH DISTRIBUTIONS TO INVESTORS/
EFFECT OF THE ACQUISITION
The following table sets forth the cash distributions made to Investors
during each of the years ended December 31, 1992, 1993, 1994, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
Prior to
Name of Program 1992 1992 1993 1994 1995 1996 1997 Total
- ----------------------- ------------ --------- -------- ----------- ------- -------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Yosemite/Ahwahnee I
Principal $ 45,000 $135,000 $103,085 $ 0 $ 0 $ 0 $ 0 $ 283,085
Interest $1,903,306 $920,794 $335,557 $ 4,756 $ 0 $ 0 $ 0 $ 3,164,413
</TABLE>
There have been no recent distributions to Investors. The Acquisition is
not expected to alter this distribution pattern.
FURTHER FINANCIAL INFORMATION
See the following portions of the Prospectus for further financial
information about the Yosemite/Ahwahnee I Program, as well as the others:
- "Selected Financial Information" at page __.
- "Management's Discussion and Analysis of Financial Condition and
Result of Operations" at page __.
- "Financial Statements" at page F-1.
19
<PAGE>
SUPPLEMENT TO CONSENT SOLICITATION STATEMENT/ PROSPECTUS
OF
AMERICAN FAMILY HOLDINGS, INC.
PREPARED FOR INVESTORS IN
YOSEMITE/AHWAHNEE II "TRUDY PAT" PROGRAM
CAPITALIZED TERMS USED IN THIS SUPPLEMENT AND NOT DEFINED
HEREIN HAVE THE MEANING GIVEN TO THEM IN THE PROSPECTUS.
SEE "GLOSSARY" AT PAGE __ OF THE PROSPECTUS.
----------------------
You must read the entire Consent Solicitation Statement/Prospectus to
fully understand the Acquisition. This Supplement has been prepared to help
the Investors in the Yosemite/Ahwahnee II Program to understand how the
Acquisition described in the accompanying Prospectus will affect them. If
completed, the effects of the Acquisition may be different for Investors in
the other Programs. A separate supplement has been prepared for each of the
other Programs, copies of which may be obtained, without charge, by writing
to National Investors Financial, Inc., 4220 Von Karman Avenue, Suite 110,
Newport Beach, California 92660, Attention: Vivian Kennedy, or calling
1-800-590-7772.
As described in the accompanying Prospectus, American Family Holdings,
Inc. (the "Company") is offering units of its securities in exchange for the
assets (including cash reserves), certain liabilities and business activities
owned by Investors in seven former "Trudy Pat" programs and three other
programs managed by National Investors Financial, Inc. ("National"). For
this proposed Acquisition, the Company will issue an aggregate of
$[28,066,419] of units arbitrarily valued at $20 per unit. A unit consists
of one share of common stock plus warrants to purchase three additional
shares. [The shares included in the units will be listed for trading on
the ___________under the symbol "___." The warrants will [not] be listed for
trading.] The purpose of the transaction is to consolidate the operations of
the programs, improve the ability to sell or obtain financing for development
of the programs' properties, eliminate the assessment process, focus on
revenue-generating potential, improve efficiency of operations in order to
reduce costs and increase profit potential, and provide the investors with
liquidity for their investments.
Of the [1,403,321] units ([1,380,175] units if only the "Trudy Pat"
programs participate) the Company in the Acquisition, Investors in the
Yosemite/Ahwahnee II Program will receive a total of [229,504] shares or [117]
shares per $10,000 of Adjusted Outstanding Investment. After the costs of an
outright sale of the property, and the payment of Program liabilities,
National does not believe any alternative would yield to Investors in the
Yosemite/Ahwahnee II program an amount that is higher than the value of the
Company units to be received in the Acquisition. You may receive additional
units if your program's property is sold, and if before December 31, 1999,
cash sale proceeds (net of closing costs and interest) are received in excess
of the property's March 1998 appraisal value.
In each of the Programs, the Investors will vote on whether to approve the
Acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED IN
THE SEVEN "TRUDY PAT" PROGRAMS MUST VOTE TO APPROVE THE ACQUISITION FOR IT TO
TAKE PLACE.
This solicitation commenced on _______, 1998 and expires at 5:00 p.m.,
Pacific Time, on __________, 1998 unless extended. Call 1-800-590-7772 with
questions.
MOST MATERIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will no longer have a
tenancy-in-common interest in your program's property. Instead, you will
hold shares in a publicly-traded real estate company and will not receive
liquidation proceeds when, or if, your program's property is sold. As an
investor in a publicly-traded company with many stockholders, you will have
relatively less voting power.
- - If the acquisition is approved, your investment will be subject to the
risks associated with resort development and management plus new risks
associated with a business which also plans to construct and sell residential
properties, and which plans to pursue the development of a hotel/conference
center.
- - If a trading market develops, the initial trading price for the stock
will likely be substantially below the arbitrary value of $20 per unit
assigned for purposes of the acquisition. Thus, the value of the units you
receive may be less than you might receive if the property of your program
were sold.
- - Principal stockholders of National and executive officers of the
Company will hold approximately (6.23% if all the units are sold in the
concurrent offering and 4.66% if all the units are sold in the concurrent
offering and all warrants issued in the acquisition are exercised) for which
they paid $0.01 per share and will receive annual cash compensation
aggregating $560,000 as officers and employees. National will be relieved of
its servicing and asset management obligations and will no longer earn
servicing and asset management fees of approximately $885,000 annually.
However, the Company will still owe National over $1,800,000 of accrued but
unpaid fees and expenses.
- - No independent advisors represented you in structuring this transaction.
- - There can be no assurance that the transaction is not a taxable event.
If so, National believes a tax loss is the probable result for most of you.
- - The Company must have additional cash to fund its proposed operations.
If it cannot obtain such funding from the sale of certain of its properties,
the exercise of the warrants included in the units or the sale of additional
units, it may be no more successful than the programs have been individually
in completing the development of some or all of the properties.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE ACQUISITION.
<PAGE>
MATERIAL RISKS AND DISADVANTAGES
A full description of the material risks of the Acquisition may be found
on pages [__] through [__] of the accompanying Prospectus. Those risks
include:
RISKS OF THE ACQUISITION
THERE WILL BE FUNDAMENTAL CHANGE IN THE NATURE OF YOUR INVESTMENT. If
the acquisition is completed, there will be a change in the nature of the
investment of each investor from holding a tenancy-in-common interest in real
estate to holding shares (and the right to buy additional shares) in an
on-going company, the assets of which may be changed from time to time
without approval of investors. If the acquisition is completed, investors
will be able to liquidate their investments only by selling their shares
[on the ______] or in private transactions, and they will not receive a
return of their investment in the form of liquidation proceeds through
property sales. If the acquisition is completed, investors will have an
investment in an entity that is larger than each of the programs and will
thus lose relative voting power. Investors will have an investment in a
business which also operates a golf course and a recreational vehicle park,
and which plans to pursue the development of timeshare facilities and a
hotel/conference center.
THE EXCHANGE VALUES OF THE PROGRAMS ARE NOT THE SAME AS THE POTENTIAL
SALES PRICE. Investors are subject to the risk that the exchange value of a
program does not reflect the price a program's assets might bring in a sale.
If the property of a program were to be sold, the net proceeds of the sale
and the amount finally distributed to an investor in that program may be more
or less than the exchange value. There is no assurance that the future value
of the shares and warrants received in the acquisition will be greater than
the most recent appraised value of the property.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. Initially, shares may
trade at prices substantially below the arbitrarily determined exchange value
of $20 per unit or the historical book value of the company's assets. There
is no guaranty that a liquid trading market will develop for the shares, or
be sustained. If a trading market develops for the shares, the price of
shares after the acquisition will likely decrease below the exchange value
per share of $20 due to a potentially large number of shares that investors
may sell immediately after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN STRUCTURING THE ACQUISITION. The
founders of the company, and specifically the principal shareholders of
National, as well as National itself, will be subject to conflicts of
interest. The principal shareholders and employees of National and the
company, will hold approximately [16.35]% of the company's outstanding stock
(6.23% if all the units are sold in the concurrent offering and 4.66% if all
the units are sold in the concurrent offering and all warrants in units
issued in the acquisition are exercised) for which they paid $0.01 per share.
Other founders of the company will hold approximately [2.3]% of the company's
outstanding stock (0.88% if all the units are sold in the concurrent offering
and 0.66% if all such units are sold and all warrants issued in the
acquisition are exercised) for which they also paid $0.01 per share. Thus, the
investors' total ownership interests in the programs' properties will be
diluted by the equity interest in the company held by the founders of
1
<PAGE>
the company. The principal stockholders of National and other executive
officers of the company will receive annual cash compensation aggregating
$560,000 as officers and employees of the company. National will be relieved
of its servicing and asset management obligations and will no longer earn
asset management or servicing related fees. However, despite the fact that
National will have forgiven over $3,800,000 of unpaid fees and expenses,
the company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not
favored by the board of directors. These provisions include a board of
directors with three classes serving staggered three year terms, the
inability to remove a particular director before the expiration of his or her
term without a two-thirds supermajority vote, and the inability to amend the
anti-takeover provisions of the charter documents without a similar vote.
Thus, if investors are unhappy with management's performance, it will be more
difficult to remove directors not favored by the investors.
NO INDEPENDENT PARTY WAS RETAINED BY NATIONAL TO NEGOTIATE ON BEHALF OF
THE INVESTORS. Therefore, terms of the acquisition may be less favorable to
investors and more favorable to founders of the company which included the
principal shareholders of National than if the acquisition had been subject
to arm's-length negotiation. Had an independent party negotiated on behalf
of each program, the terms of the acquisition may have been more favorable to
certain or all of the programs and fewer shares and less favorable employment
contracts may have been received by the founders of the company.
THE ACQUISITION MAY NOT BE A TAX-FREE TRANSACTION TO INVESTORS. Due to
uncertainties in the facts of this transaction, tax counsel is unable to
opine conclusively on the tax consequences of the acquisition to investors.
The acquisition may be taxable, if at all, only with respect to the
investors' receipt of warrants. Alternatively, if the acquisition is a fully
taxable transaction, an investor would recognize gain or loss in 1998 equal
to the difference between the investor's tax basis in his interest in a
program property, and the number of shares of the company received valued at
$20 per unit. If the acquisition is treated as fully taxable, National
believes most investors would recognize a tax loss.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the
acquisition, none of the properties will be subject to any liens other than
for property taxes. The board of directors could authorize borrowing by the
company the debt service for which may adversely affect the company's ability
to make distributions to shareholders. The company may incur full recourse
debt which exposes all of the assets of the company to repayment instead of
limited recourse debt which generally exposes specific properties for the
repayment of debt.
THE BOARD OF DIRECTORS MAY UNILATERALLY CHANGE INVESTMENT, FINANCING AND
CERTAIN OTHER POLICIES WITHOUT SHAREHOLDER APPROVAL. Although the board of
directors of the company intends to implement the business plan set forth
herein, the board will have the ability to change investment, financing and
other policies of the company without the consent of shareholders.
THERE WILL BE NO APPRAISAL OR SIMILAR RIGHTS FOR NONCONSENTING
INVESTORS. If you vote against the acquisition, and it is approved, you will
not be able to object to the acquisition and
2
<PAGE>
receive the appraised value of your tenancy-in-common interest in your
program's assets. You will have no choice other than to accept units for
your interests.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed over a year
ago to take part in the acquisition of your property. It does not have the
benefit of operating for a long time. This means that shares in the company
are much riskier than ownership of shares of established companies. If the
company had been operating as if it owned the properties which it desires
to acquire, it would have experienced losses to date.
THERE WILL BE FUNDAMENTAL CHANGES IN THE BUSINESS PLAN IF THE
ACQUISITION TAKES PLACE. Rather than being focused on a single property, the
company will be an infinite life entity focused on the management of the
properties of at least seven of the former "Trudy Pat" programs plus the
properties of other programs which elect to participate in the acquisition.
The effect of this on investors is two-fold. First, poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the other properties. Second, there will be no
particular time when an investor can expect that a sale of any of the
properties will result in cash distributions to him or her.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes
or sales of a particular property. Those decisions will be made by the board
of directors or management. In addition, you will have an investment in an
entity that is larger than each of the programs and, thus, you will lose
relative voting power.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular principal and interest payments on
their original investments, because of the borrowers' defaults there have
been no distributions from any of the programs, other than the Oceanside
program, in the past three years. Future cash distributions will be based on
the company's earnings and the decision of the board of directors to pay
dividends. Therefore, even if a property in which you formerly held an
interest were to perform well, there is no assurance that there would be cash
distributions to you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. Prior to the
dates that title to the properties securing the original program loans was
taken, National was entitled to an annual loan servicing fee equal to one
percent of the original loan amounts. When title to the properties was taken
on behalf of the programs, even though the loans no longer existed, National
continued to charge the same rate as the servicing fee for the asset
management services it provided to investors. The investors in each of the
programs had become the beneficial tenant-in-common owners of real estate,
most of which was undeveloped. While it had no obligation to do so, in order
to assist the beneficial owners in protecting their real estate assets and
readying them for sale or development, National assumed the duties of an
asset manager after title was taken to the properties. In this capacity,
National obtained information from investors about their preferences in
regard to development or sale of the properties, and facilitated the
assessment of investors to raise funds necessary to pay property taxes,
insurance and other costs of property ownership.
3
<PAGE>
The annual fees payable to National are currently $50,000 for
Sacramento/Delta Greens; $300,000 for Oceanside; $61,068 for
Yosemite/Ahwahnee I; $133,646 for Yosemite/Ahwahnee II; $100,000 for Mori
Point; $140,000 for Cypress Lakes; $150,000 for Palmdale/Joshua Ranch; $5,000
for Esperanza; $3,153 for Stacey Rose A; and $850 for Stacey Rose B.
In addition to the one percent fee, compensation has been earned for
property management services provided to the Oceanside program ($896,000
accrued since the date of ownership (November 1993) through June 30, 1998;
$876,000 actually paid) and Yosemite/Ahwahnee properties ($594,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervision of: entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside
and Yosemite/Ahwahnee projects; and contract negotiations and documentation.
To the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
In the future, compensation will be paid to officers of the company in
the form of salaries (aggregating $560,000 annually plus contractual bonus
opportunities and salary increases), stock options and other benefits. See
"Management Following the Acquisition -- Directors and Executive Officers
Compensation and Incentives" for details of stock options and other benefits.
These salaries and other forms of compensation will be payable to management
of the company even if one or more of the properties acquired in the
acquisition is subsequently sold.
HOLDERS OF MAJORITY OF TENANCY-IN-COMMON INTERESTS BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of outstanding
interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THAT THE EXCHANGE VALUES FOR THOSE
PROPERTIES COULD BE TOO LOW OR TOO HIGH. National reviewed the updated March
1998 appraisal of the Yosemite/Ahwahnee properties which reflected an
aggregate "as is" appraised value of $20,246,000 and the October 1996
appraisal which reflected an "as is" aggregate appraised value of $4,000,000.
The results of those appraisals clearly differed from each other, and, in
management's judgment, the difference could not be accounted for solely by
improving market conditions. Some of the parcels, including the golf course,
were subsequently sold, on June 5, 1998, to the Oceanside Program investors
to obtain working capital for the Yosemite/Ahwahnee programs. Based on its
review of all appraisals, National concluded that the properties currently
owned by the
4
<PAGE>
Yosemite/Ahwahnee I and II Programs have values of $5,486,000
($1,782,950 and $3,703,050, respectively), and the parcels currently owned by
the Oceanside Program have a value of $5,080,000. National believes its
approach is reasonable.
GENERAL REAL ESTATE RISKS
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent property
taxes are not timely paid, the company could lose one or more of the
properties to tax sales. Each of the programs' properties is subject to the
following delinquent property taxes as of August 31, 1998: Sacramento/Delta
Greens approximately $27,000; Yosemite/Ahwahnee (combined) - approximately
$500,000; Mori Point - approximately $165,000; Cypress lakes - approximately
$204,000; Palmdale/Joshua Ranch - approximately $63,000; Esperanza -
approximately $20,000; and Stacey Rose (combined) - approximately $30,000.
Annual payments required for all the properties for current taxes (including
amounts currently due on five-year payment plans) total approximately
$549,000. In the case of Sacramento/Delta Greens, Yosemite/Ahwahnee, Mori
Point, Palmdale/Joshua Ranch and Stacey Rose properties, National has entered
into statutorily authorized 5-year payment plans with the applicable taxing
authorities.
CERTAIN ASSETS MUST BE SOLD TO RAISE WORKING CAPITAL. Unless a
minimum of approximately $[4,565,000] from sale of certain assets of the
programs or the sale of units in the concurrent offering or the exercise of
warrants become available, the company will not be able to proceed with its
entire business plan. The company will also need financing from other
sources to complete its plan. Financing sources are not predictable and
interest rates or other costs of financing may be prohibitive. Neither the
programs nor the company have received any commitment from other sources. In
their current tenancy-in-common structure, the programs cannot obtain
traditional bank financing.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL AND OTHER LAWS MAY REQUIRE
EXPENSIVE HAZARDOUS SUBSTANCE CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC
IMPROVEMENTS. We have not conducted any environmental audits on the
properties. As a result, there may be environmental liability to the company.
Local governments have required residential developers to pay assessments
for streets, schools and parks which increase the cost of development.
Increased costs can have a negative affect on the company's sale of
residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as
earthquakes and floods may be uninsurable or too expensive to insure. The
company does not plan to carry earthquake or flood insurance. If an
uninsured loss occurs, the company would lose capital as well as revenues,
and would still owe other debts related to the property affected, if any.
THE DEVELOPMENT OF ADDITIONAL PROJECTS MAY OCCUR. We may develop
additional projects in the future, although we have no immediate plans to do
so. Real estate development involves more risks than in the ownership and
operation of established projects. Financing may not be available on
favorable terms for development projects; construction may not be completed
on
5
<PAGE>
schedule or budget; long-term financing may not be available on completion of
construction; and sites may not be sold on profitable terms.
THE CALIFORNIA ECONOMY HAS FLUCTUATED BROADLY IN THE PAST FEW YEARS.
Initially, we will conduct all of our business in California. Our markets
have been affected by substantial fluctuations in local economic conditions,
interest rates, inflation, employment levels and regulations. California has
also experienced draught conditions, resulting in water conservation measures
and rationing. In the past, these conditions have caused local governments
to restrict residential development. California's climate and geology
present risks of natural disaster such as earthquakes and floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE
OWED $[1,818,684] BY THE COMPANY. This represents accrued fees and expenses
from the programs which National has not cancelled. This amount is due and
payable and the company intends to start paying it after the Acquisition, but
only from operating revenues, proceeds from the sale of assets or the
exercise of warrants, and not from working capital generated by the proceeds
of unit sales in the concurrent offering.
REAL ESTATE RISKS OF SACRAMENTO/DELTA GREENS
PERMITS TO DEVELOP THE PROPERTIES NEED TO BE OBTAINED. Construction of
the Sacramento/Delta Greens property will require approval of a new tentative
map, the filing of a final map and obtaining building permits from the city.
The tentative tract map process for the Sacramento/Delta Greens property
required that studies be conducted to identify any endangered species'
habitat on the property. Since some were identified, changes to the tentative
development plans have been made to reduce or eliminate any damage to the
habitat. A new tentative map needs to be approved by the City. The longer
this process takes, the longer it will be before any of the property is ready
for any construction, further development activity or sale.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS AT THE SACRAMENTO/DELTA GREENS
PROPERTY MAY CAUSE THE COMPANY TO INCUR SUBSTANTIAL CARRYING COSTS UNTIL THE
LOTS CAN BE SOLD. Changing market conditions may increase the difficulty of
selling the lots. If the company chooses to build homes on the lots, delays
in construction, the lack of reasonably priced construction or mortgage
financing, and the general California economy could lengthen the holding
period for the lots. This would mean a delay in realizing cash from the
business operations. The average carrying costs, including property taxes,
management and servicing related fees, for this property has averaged
approximately $10,000 per month over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, our properties may be sold at a loss. The location of the company's
lots, the presence of other competition, customer acceptance and pricing are
all factors affecting success. Competitors may have better financial,
managerial and other resources, affecting our ability to successfully compete.
Sacramento/Delta Greens represents over 5% of the assets of the company.
6
<PAGE>
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay the engineering costs required to mitigate endangered
species issues and pay for the planning and design expenses for the city to
approve a new tentative trace map (estimated by management to cost
approximately $25,000). Another risk is whether the lots to be developed
will appeal to builders and whether home financing will be available. Finally,
there is a risk that the development and sale of lots or homes will be
profitable.
Real Estate Risks of Yosemite/Ahwahnee Properties (including the golf
course and surrounding land which is owned by the Oceanside program investors)
PERMITS TO DEVELOP THE CONDOMINIUM-TYPE TIMESHARE ASPECT OF THE RESORT
HAVE NOT YET BEEN OBTAINED. The Yosemite/Ahwahnee property has a final map
on 32 remaining single family estate lots and a use permit for a 600 space
recreational vehicle park. Planning and development are underway for 100
additional recreational vehicle sites, as well as vacation villa timeshare
units. Additional planned usage such as traditional, attached timeshare
units will require extensive county and state approvals.
RISKS AFFECTING OPERATION OF A GOLF COURSE. Increased competition,
seasonality, weather and course conditions will affect the operations of the
company. While no new golf courses have opened near the Ahwahnee Golf
Course, new courses could increase the competition and reduce the rounds
played. Seasonal variations may require the company to supplement revenue at
the golf course to meet operating expenses. Weather can negatively affect
the turf grass and reduce the number of rounds played. Inflationary costs
may not be offset by increased dues. Also, golf's success depends on
discretionary spending by consumers, which may be vulnerable to regional and
economic conditions, as well as to pleasure or destination travel preferences
by visitors and tourists. All of these factors could reduce the amount of
money earned by the company.
The Yosemite/Ahwahnee golf course can be an important amenity which may
attract potential timeshare purchasers in the future. At this time, the
project does not rely on the golf course for its revenue. National estimates
that the value of the golf course will be less than 20% of the assets of the
company.
RESORT DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF REASONS AND COULD
RESULT IN LOSSES. In addition to normal real estate risks, financing is hard
to obtain, and the lodging industry can be unpredictable, seasonal and very
competitive. Without additional financing or capital, the company will not
be able to develop its resort projects as part of its growth strategy.
Economic conditions, changes in travel patterns, extreme weather conditions,
labor and other variable costs can all affect revenues and profits. For
example, Spring through Fall at the Yosemite/Ahwahnee property are the
periods of highest occupancy. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues.
RISKS RELATING TO TIMESHARE OPERATIONS. Certain factors affecting
timeshare operations could result in losses. Negative press surrounding the
remarketing of timeshares might negatively impact sales and operations. Also,
marketing costs are high relative to selling price which can reduce or
eliminate profits from the sale of timeshare interests.
7
<PAGE>
In addition, according to the American Resort Development Association,
there is a tendency for timeshare owners to default more often on their
timeshare loans then homebuyers who borrow to buy a home. If a buyer
defaults, we would incur costs in remarketing the timeshare.
The timeshare industry is extremely competitive and we may not be able
to secure development financing on acceptable terms.
Since the project is not yet permitted for traditional attached
timeshare units, there has been no allocation of assets. Should attached
timeshare be approved, the company anticipates that a significant portion of
the revenue of the company will be derived from sales of timeshare units.
RISKS RELATING TO RECREATIONAL VEHICLE PARK OPERATIONS. Risks relating
to recreational vehicle parks are substantially the same as those described
above for timeshare projects.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to (i) make up for the current cash drain from operations and
maintenance of the golf course, clubhouse and current recreational vehicle
facilities (estimated by management at approximately $350,000) annually and
(ii) complete the construction of additional recreational vehicle sites and
obtain approvals for and construction of the first group of vacation villa
timeshare units (estimated by management to cost approximately $3,000,000).
There are also a risk that the operation of recreational vehicle sites,
timeshares and golf course activities will not be profitable.
REAL ESTATE RISKS OF MORI POINT PROPERTY
PERMITS TO DEVELOP THE PROPERTY HAVE NOT YET BEEN OBTAINED. If needed
permits for development are not obtained or reissued, the business plan for
the company will have to be revised. Additionally, the presence of two
endangered species on the Mori Point property increases the risks that
necessary approvals may not be received if an acceptable habitat mitigation
plan cannot be developed. The permitting process with the California Coastal
Commission and the City of Pacifica is expensive and time consuming. Mori
Point had a specific plan and tentative map approvals to build a
hotel/conference center which expired in 1991. These approvals must be
obtained or reinstated prior to construction on the property. Mori Point will
represent approximately 20% of the assets of the company.
HOTEL/CONFERENCE CENTER DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF
REASONS AND COULD RESULT IN LOSSES. In addition to normal real estate risks,
financing is hard to obtain, and the lodging industry can be unpredictable,
seasonal and very competitive. Without additional financing or capital, the
company will not be able to develop its hotel/conference center project as
part of its growth strategy. Economic conditions, changes in travel
patterns, extreme weather conditions, labor and other variable costs can all
affect revenues and profits. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues. At the hotel/conference center
property at Mori Point, we may be competing against well-known chains and
extended-stay inns.
8
<PAGE>
ADDITIONAL SPECIFIC RISKS. There is a risk that the city government
will not approve the property for its intended use. Capital to conduct
engineering and environmental studies in order to apply for and obtain
approvals for its use from the city is estimated to be approximately
$500,000. Capital will also be necessary for roads, utilities and other
infrastructure costs prior to construction. Finally, there is a risk that
the proposed hotel/conference center may not be profitable.
REAL ESTATE RISKS OF CYPRESS LAKES PROPERTY
THE VESTED TENTATIVE MAP WILL EXPIRE IN APRIL 1999 UNLESS RENEWED AND
THE BUILD OUT OF THE PROPERTY WILL BE EXPENSIVE. Due to being located in a
100-year flood plain, the property requires a levee to be constructed around
its perimeter which is very expensive to construct. Preliminary engineering
estimates indicate these costs to be more than $9,000,000. It may be
desirable to change the vesting tentative map if the costs can be reduced
significantly. While mere extension of the expiration date of the existing
vested tentative map is not expected to be controversial, any changes in the
existing plan could subject the project to public hearings which might result
in additional costs being placed on the project. This could further increase
the high front-end financial requirements. Additionally, such modifications
might not be approved.
Cypress Lakes is a proposed master-planned community and represents more
than 20% of the assets of the company. Joint venture partners would have to
be brought in by the Company to help with the large capital requirements of
such a large project in order to develop it. It may be difficult to find
substantial builder/developers who have the financial ability to purchase or
develop the project. Changing market conditions may increase the difficulty
in selling lots.
Should the company determine to build out the project, delays in
construction, reasonably priced mortgage and construction financing and the
local and general California economy could lengthen the holding period for
the lots. This would mean delays in realizing cash from the business
operations.
RISKS AFFECTING OPERATION OF A GOLF COURSE. When, and if, the golf
course is developed, it will face competition from the 15 golf courses within
a 25-mile radius. Seasonality, weather and course conditions will affect the
operations of the company. Weather can negatively affect the turf grass and
reduce the number of rounds played. Inflationary costs may not be offset by
increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as
well as to pleasure or destination travel preferences by visitors and
tourists. All of these factors could reduce the amount of money earned by
the company.
RISKS OF RESIDENTIAL DEVELOPMENT. Totaling 1,330 lots, a large supply
of lots would be available and, due to the cyclical nature of the housing
industry, demand may fluctuate differently than supply. This could result in
needing to sell lots at a loss. Due to the size of the project, it
could take between six and ten years to complete, which would subject it to
new competitors entering the marketplace during the sales period. An
environmental impact report
9
<PAGE>
was obtained on the property. Any and all environmental concerns will be
mitigated as required in the vested tentative map conditions of approval. No
evidence of endangered species that would limit or preclude development of
the project have been found.
REAL ESTATE RISKS OF PALMDALE/JOSHUA RANCH PROPERTY
A FINAL TRACT MAP MUST BE RECORDED. After several years of effort by
National, the vested tentative map was approved by the City of Palmdale at a
hearing before the planning commission in early July 1998. A final recorded
map must be secured by National or a buyer in order to build on the property.
Final engineering, soils, utility and various improvement studies will need
to be conducted in order to record the final map.
PERMITS TO DEVELOP THE PROPERTY NEED TO BE OBTAINED. A final recorded
map, which could take nine to twelve months after starting the process, will
be required prior to construction. Due to the size of this project which
encompasses some 739.6 acres and is currently planned for 539 lots,
additional grading studies, soils investigation and utility planning needs to
be done which could negatively impact the cost of this large-scale
development.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Finding
builder/developers that have the financial strength to handle this size
project can be difficult. Changing market conditions, the lack of
reasonably-priced construction or mortgage financing and the general or local
market conditions could lengthen the holding period for lots. This would
mean a delay in realizing cash from business operations. The average
carrying costs, including property taxes, predevelopment and asset management
services for this property have averaged approximately $16,300 per month over
the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, the property may be sold at a loss. The location of the lots, the
presence of other competition, customer acceptance and pricing are all
factors affecting success. Competitors may have better financial, managerial
and other resources affecting the company's ability to successfully compete.
An environmental impact report was obtained on the property. Any and all
environmental concerns will be mitigated as required in the vested tentative
map conditions of approval. No evidence of endangered species that would
limit or preclude development of the project have been found.
Palmdale/Joshua Ranch is a proposed residential development and
represents about 10% of the assets of the Company.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay for or finance (i) engineering, soils and utility studies
which is estimated to cost approximately $140,000, and (ii) another risk is
whether the lots to be developed may appeal to project builders.
Palmdale/Joshua Ranch is a proposed residential development and represents
about 10% of the assets of the company.
10
<PAGE>
REAL ESTATE RISKS OF ESPERANZA PROPERTY
RISKS OF COMMERCIAL DEVELOPMENT. The material risks associated with the
development of the Esperanza Property are (i) as of August 31, 1998,
approximately $23,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the property for delinquent property
taxes; and (ii) despite a strong economy, rents and values for many retail
properties are expected to remain soft in 1998. Pressure on rents brought
about by over building, weakness in demand for space and store closures
caused by lagging profits are the forces causing a soft market. No
environmental or endangered species reports have been prepared for the
property.
ADDITIONAL SPECIFIC RISKS. Within the City of Victorville there are
approximately 3,250 acres zoned for commercial use, of which 60% remains
available for development. Victorville is home to the largest enclosed
regional shopping center between San Bernardino and Las Vegas, which is known
as The Mall of Victor Valley. These commercial sites represent significant
competition to the Esperanza project. There are more than 5,400 acres within
the city limits of Victorville zoned for light and heavy industrial use.
Nearly nine percent of this 5,400 acres of land is vacant and is available in
parcels ranging in size from one-half to five hundred acres.
REAL ESTATE RISKS OF STACEY ROSE PROPERTIES
RISKS OF RESIDENTIAL DEVELOPMENT. The material risks associated with
the development of the Stacey Rose Properties are (i) as of August 31, 1998,
approximately $30,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the Properties for delinquent property
taxes; (ii) it is estimated that it may cost about $50,000 to finalize a
tentative tract map on the parcels; (iii) a substantial, and potentially
expensive, sales and marketing effort will be necessary to sell homes
constructed on the properties if a bulk sale of the lots is not made; (iv)
the properties are located in a lower income residential area; and (v)
increasing government fees and assessments for streets, schools, parks and
other infrastructure requirements could increase the cost of lots to the
company, thereby increasing the sales price of the lots which will delay
market absorption. No environmental or endangered species reports have been
prepared for the property.
ADDITIONAL SPECIFIC RISKS. There is a risk that (i) adequate funds will
not be available to finalize a tentative tract map on the parcels
(approximately $50,000); (ii) the project will not appeal to project
builders; and (iii) home financing at reasonable costs may not be available.
There is also a risk that the development and sale of lots or home may not be
profitable
ANTI-TAKEOVER PROVISIONS
Certain provisions of the charter documents may restrict changes in
control of the Company's management. These provisions may make it more
difficult or expensive for another party to acquire and exercise control of
the Company or to change its management, even if that change would be
beneficial to you. These provisions include:
11
<PAGE>
ADDITIONAL CLASSES OF SHARES. Under the company's certificate of
incorporation, subject to the receipt of fair value, the Board of Directors
may issue shares in other classes or series and fix the rights, powers and
limitations associated with such shares. Although the Board of Directors has
no present intention of doing so, it could issue a class or series that
could, depending on its terms, impede a merger, tender offer or other
transaction that you might believe is in your best interest or in which you
might receive a premium for your shares over the then current market price.
The issuance of such shares could also dilute your voting power.
STAGGERED BOARD. The Board of Directors is divided into three classes
serving staggered three year terms. This arrangement may affect your ability
to change control of the company, even if you believe such a change is in
your best interests.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The company's
certificate of incorporation, as well as Delaware law, prohibits certain
business combinations with owners of more than 15% of the outstanding voting
stock of the company ("interested stockholders") within the three year period
immediately prior to the date on which the interested stockholder became an
interested stockholder. These restrictions on certain business combinations
may deter potential purchasers who seek control of the company.
SUPERMAJORITY VOTES. Changes to the company's certificate of
incorporation which cover anti-takeover provisions require the approval of
two-thirds of the company's voting stock. This restriction also may deter
potential purchasers who seek control of the company.
IN ADDITION TO THE ANTI-TAKEOVER PROVISIONS, THE DELAWARE LAW, AS WELL
AS THE CHARTER DOCUMENTS, LIMIT THE LIABILITY OF DIRECTORS AND OFFICERS TO
SHAREHOLDERS. This limitation of liability may exceed the protections
National enjoys under the programs' servicing agreements and limit
shareholders' claims against management.
FAIRNESS TO INVESTORS IN THE YOSEMITE/AHWAHNEE II PROGRAM
Both procedurally and from a financial point of view, the company and
National believe the terms of the acquisition are fair as a whole and to the
investors in each of the programs. This determination is based on
consideration of the following positive and negative factors:
- the units an opportunity for individual investor liquidity
while the tenancy-in-common interests do not, however, there is no assurance
that the shares will have any liquidity, or that any liquid market that
develops will be sustained;
- while the number of units to be issued to reflect the exchange
value of a program is arbitrary, the trading price of the shares included in
the units initially is likely to be substantially below the $20 value
arbitrarily assigned to the units. In our opinion, the exchange values
offered to investors for their assets allow for an equitable allocation of
the [1,403,321] units ([1,380,175] units if only the "Trudy Pat" programs
participate) among the programs. The disparity between exchange values and
appraised values results from adding the value of program cash reserves and
other assets, if any, to appraised values and deducting program
12
<PAGE>
liabilities (principally accrued property taxes and other fees net of fees to
be forgiven by National);
- on completion of the acquisition the investors will hold over 80%
(over 94.7% if all units are sold in the concurrent offering and all of the
warrants included in the units to be issued in the acquisition are exercised)
of the outstanding stock of the company. After the acquisition, a total of
[13.29]% of the outstanding stock of the Company will be held by
Yosemite/Ahwahnee II investors (13.47% if only the seven "Trudy Pat" programs
participate). After the acquisition, founders of the company (principals,
employees, former employees and consultants of National) will hold less than
20% ( % if only the seven "Trudy Pat" programs participate). Founders'
shares were purchased for $.01 per share. Among the properties, National and
its principals will have forgiven over $3,800,000 of expenses and accrued
fees of which a total of approximately $2,148,000 was earned for asset
management and property management services after the loans defaulted and
before the Ownership Dates of the properties. The balance was earned after
foreclosure for asset and property management services and expenses. Of such
amount, $1,157,867 is attributable to fees owed by Yosemite/Ahwahnee II
investors. National believes that the amount paid for the property
management services is no greater than the amount that a third party would
charge;
- the current appraised value of the Yosemite/Ahwahnee II real estate
assets ($3,703,050) (as well as the real estate assets of the other programs)
and the fact that substantial financing is needed to further the property's
development;
- the probability that the transaction will have minimal, if any,
negative tax affect on investors. National believes there will likely be no
out-of-pocket tax cost to all, or the vast majority, of you;
- while conflicts of interest exist in the structuring of the
acquisition, the issuance of shares to the founders of the company and the
determination of management compensation and while you did not have
independent representation in the structuring of the acquisition, we believe
they have been counterbalanced by your opportunity to vote on the transaction
and the Fairness Opinion;
- while the Yosemite/Ahwahnee II Program (as well as the other
programs) were originally formed to have a two to four year finite life which
should have ended between 1996 and 1997 and the investors expected to receive
a return of their investment from the original borrower, the company is an
infinite life entity which will not return the program investors' original
investment based on a sale or refinancing of the properties underlying the
original programs. However, after the borrowers defaulted on the "Trudy Pat"
loans, the investors became beneficial owners of the underlying properties
with the need to complete development, manage or otherwise ready the
properties for sale. Those endeavors had no fixed timetable and, thus, the
finite life aspect of their original investments was significantly changed.
Therefore, the infinite life aspect of the company is not viewed by National
to be a material change from the investors' CURRENT situation;
- the acquisition will cause fundamental changes in the individual
business plan of the Yosemite/Ahwahnee II Program. Rather than being focused
on the development of a single property for resort development and management
purposes, the company will be focused on the
13
<PAGE>
management of at least seven and as many as ten properties. Thus, the poor
performance of a particular property may affect the company's operations as a
whole regardless of the performance of the Yosemite/Ahwahnee II Property.
Further, there will be no particular time when an Investor can expect its
interest to be automatically liquidated;
- the fact that, except for the recent sale of a portion of the
property to Oceanside investors, it has been difficult to find buyers or
joint venture or financial partners for the project;
- Yosemite/Ahwahnee II investors will not be able to vote on changes
to or dispositions of the Yosemite/Ahwahnee II Property or borrowing secured
by that property. Those decisions will be made by the Board of Directors or
management of the company. Further, as investors in a larger entity,
relative voting power will be diluted;
- future cash distributions will be based on the company's earnings
and the decision of the Board of Directors to pay dividends rather than the
performance or sale of the Yosemite/Ahwahnee II Property;
- investors voting against the acquisition will have no alternative
but to accept shares in the company if the acquisition is approved by holders
of a majority of the tenancy-in-common interests in each of the programs;
- the anti-takeover provisions of the company's charter documents
contain provisions that may have the effect of delaying or discouraging a
change in management which is not favored by the Board of Directors of the
company; and
- the Fairness Opinion rendered by Houlihan Valuation Advisers, an
independent valuation firm which addresses only the allocation of the units
in the acquisition and not the amount of the consideration paid to program
investors in the acquisition as a whole. See "Background and Reasons for the
Acquisition" at page __ of the Prospectus.
National reviewed the arbitrary value you will receive in connection
with the acquisition and compared it with what you might receive if (i) the
Yosemite/Ahwahnee II property was operated "as is" ($1,304 per $10,000 of
Adjusted Outstanding Investment), (ii) the Yosemite/Ahwahnee II property was
sold in a quick sale in three months or less ($1,304 per $10,000 of Adjusted
Outstanding Investment), or (iii) the Yosemite/Ahwahnee II property was sold
at the appraised value, net of program debt, used to determine the
Yosemite/Ahwahnee II exchange value ($2,155 per $10,000 of Adjusted
Outstanding Investment). Based on that review, and even acknowledging that,
initially, the company's shares included in the units issued in the
acquisition would likely trade substantially below the arbitrary $20 issuance
value for the units, National believes that there is a higher probability of
realizing value from the Yosemite/Ahwahnee II property through the
acquisition than through the other alternatives. This belief is based on the
expectation that some financing opportunities will become available based on
the form of the entity and the time pressure associated with forced sales or
liquidation will be relieved. See "Background and Reasons for the
Acquisition -- Comparison to Alternatives" and "Recommendation of National
and Fairness Determination" at pages __ and __ of the Prospectus.
14
<PAGE>
Based on the above factors and comparisons, National concluded that the
acquisition is fair, both substantively and procedurally.
THERE ARE NO MATERIAL DIFFERENCES BETWEEN THE FAIRNESS ANALYSIS FOR THIS
PROGRAM AND FOR ANY OF THE OTHER NINE PROGRAMS PROPOSED TO BE INCLUDED IN THE
ACQUISITION.
CALCULATION OF EXCHANGE VALUE
The Exchange Value of the Yosemite/Ahwahnee II Program (as well as each
of the other Programs) is essentially the consideration which the Company is
offering in exchange for the real estate assets, certain liabilities and
business of the Program. The value is reflected as a number of units of the
Company (in the case of the Yosemite/Ahwahnee II Program, [229,504] units)
multiplied by an arbitrary $20 per unit value.
In calculating the Exchange Value for the Yosemite/Ahwahnee II Program,
National had to reconcile the differences between the March 1998 appraisal by
Arnold Associates and the October 1996 appraisal by The Mentor Group. See
"Appraisals and Fairness Opinion -- Reconciliation of Yosemite/Ahwahnee
Properties' Appraisals" at page [__] of the Prospectus. After determining
the appraised value of the Program, the Exchange Value was calculate by
adding to the appraised value the book value of the Program's other assets at
August 31, 1998, deducting the Program's liabilities as of August 31, 1998.
The following table summarizes the calculation of the Exchange Value of
the Yosemite/Ahwahnee II Program and the value assigned on $10,000 of
Adjusted Outstanding Investment:
<TABLE>
<CAPTION>
Value Assigned
Appraised Value Net Other to Program per
of + Assets and = $10,000 of Adjusted
Real Estate(1) Liabilities(2) Exchange Value Outstanding Investment
--------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
$ 3,703,050 $ 887,026 $ 4,590,076 $ [2,344](3)
</TABLE>
- ---------------
(1) Reflects independent appraisal as of March 1998, adjusted for
inconsistencies with October 1996 appraisals.
(2) The following table quantifies the adjustments to appraised values made in
determining the Yosemite/Ahwahnee II property's Exchange Value as of
August 31, 1998.
<TABLE>
<CAPTION>
Book Assets Book Liabilities Net Other Assets and
(8/31/98)* - (8/31/98)* = Liabilities
----------- ---------------- ---------------------
<S> <C> <C>
$ 3,191,820 $ (2,304,794) $ [(887,026)]
</TABLE>
* See balance sheet of the Program in the financial statements
accompanying the Prospectus for details of book assets and book
liabilities. There is no third party mortgage debt on the
Yosemite/Ahwahnee II property.
(3) Equals [117] Company shares arbitrarily valued at $20 per unit.
ALLOCATION OF SHARES
15
<PAGE>
The [1,403,321] shares of Company common stock being offered to
Investors in the Acquisition represent over 80% of the Company's shares (92.7%
if all the units are sold in the current offering and 94.7% if all the units
are sold in the concurrent offering and all warrants in units issued in the
acquisition are exercised) which will be outstanding upon completion of
the Acquisition. The remaining shares will be held by management and other
founders of the Company. Such shares will be allocated among the Programs
pro rata in accordance with Exchange Values. The Yosemite/Ahwahnee II
Program will be allocated [229,504] shares.
The shares allocated to the Yosemite/Ahwahnee II Program will be
allocated among Investors in the Program based on their respective pro rata
investments in the Program (taking into account assessments paid and unpaid,
as well as interest accrued to each Investor through the date beneficial
ownership of the Program's Property was taken for the Investors) as adjusted
for voluntary advances. An Investor in the Yosemite/Ahwahnee I Program with
an adjusted investment amount of $10,000 will receive [117] shares of units
in the Company arbitrarily valued at $20 per unit.
Neither National nor the Company's founders have any interest in
the Yosemite/ Ahwahnee II Program except for National's contractual right to
asset management fees and the $[69,384] of tenancy-in-common interests
purchased by National for which interests National will receive units in the
Acquisition pro rata with the other Yosemite/Ahwahnee II Investors. National
will undertake not to exercise the warrants in the units.
The following table and its footnotes sets forth the amount owed by the
original borrower to the Yosemite/Ahwahnee II Program (including accrued but
unpaid interest) plus the amount of assessments and advances paid by
Investors at August 31, 1998, appraised real estate value, Exchange Value of
the Program, the number and percentage of shares allocated to the Program,
and the number of shares and comparative value of the Company to be held by
founders after the Acquisition.
<TABLE>
<CAPTION>
% of Total
Shares to be
Outstanding
After the
Amount Real Estate Acquisition if
Owed plus Appraised Exchange No. of Shares All Programs
Name of Program Assessments Value Value(1) Allocated(1)(2) Participate
--------------- ----------- ------------ --------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Yosemite/Ahwahnee II $ 19,565,233 $ 3,703,050 $ [4,590,076] [229,504] [13.29]%
</TABLE>
- ----------
(1) The founders of the Company which include members of Company management,
as well as certain employees, former employees of National and consultants
to the Company and the Programs, will hold a total of [323,631] Company
shares after the Acquisition (18.74% of the outstanding shares
post-Acquisition, 17.48% if all the units are sold in the concurrent
offering and 5.3% if all the units are sold in the concurrent offering
and all warrants in units issued in the acquisition are exercised) which,
if valued at $20 per share, would have an aggregate value of $[6,472,620].
The Company was formed, and shares were purchased by the founders for
16
<PAGE>
$.01 per share, prior to making the Acquisition proposal. The shares to
be retained by the Company's founders were not determined based only on
fees cancelled or to be cancelled by National and its principals.
Overall, National believed that the Company's founders should hold less
than 20% of the shares after the Acquisition assuming none of the Units
in the concurrent offering are sold and none of the warrants are
exercised. See "Dilution" at page __ of the Prospectus. If the
Acquisition is completed, the following table sets forth the fees which
National and its principals have cancelled, or will cancel:
<TABLE>
<CAPTION>
Previously To Be
Name of Program Cancelled Cancelled
---------- ---------
<S> <C> <C>
Sacramento/Delta Greens $500,000 $ -0-
Oceanside 601,125 261,273
Yosemite/Ahwahnee I 72,158 -0-
Yosemite/Ahwahnee II 1,157,867 124,250
Mori Point 461,589 -0-
Cypress Lakes 468,000 -0-
Palmdale (Joshua Ranch) -0- -0-
Esperanza 102,134 -0-
Stacey Rose A 64,293 -0-
Stacey Rose B 17,267 -0-
---------- ----------
TOTAL $3,444,433 $ 385,523
---------- ----------
---------- ----------
</TABLE>
(2) Had the shares retained by the founders of the Company been allocated to
the founders based only on cancelled fees, [33.5]% ([35.2]% if only the
seven "Trudy Pat" programs participate) of the total shares to be owned
by the Company's founders after the Acquisition ([108,416] shares if all
programs participate and 108,339 shares if only the seven "Trudy Pat"
programs participate) would have been deemed allocated from this Program.
HISTORICAL COMPENSATION TO NATIONAL/EFFECT OF ACQUISITION
The following table sets forth the compensation accrued by National, as
well as actually paid to National, during the years ended December 31, 1997,
1996 and 1995, and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
Incurred
Actually Incurred Actually Actually for Actually Paid
Incurred for Paid for for Paid for Incurred for Paid for Six Months in Six Months
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Ended Ended
Name of Program 12/31/95(1) 12/31/95(2) 12/31/96(1) 12/31/96(2) 12/31/97(1) 12/31/97(2) 6/30/98 6/30/98
--------------- ------------ ----------- ----------- ------------ ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Yosemite/Ahwahnee II $174,569(3) $-0- $313,200(3) $211,069 $248,157 (3) $123,998 $150,667 $55,667
</TABLE>
- -----------------
(1) These amounts represent asset management fees and salaries for officers
and employees of Ahwahnee Golf Course and Resort, Inc. for operations
and property management services.
(2) These amounts represent asset management fees.
(3) Approximately $169,792 per year if the Acquisition had been completed
during the above periods including $88,292 of estimated salaries to be
paid by the Company to its officers and
17
<PAGE>
other employees which were allocated to the Yosemite/Ahwahnee II Program
based on Exchange Values. No cash would have been available to pay
officers' bonuses or dividends to shareholders.
HISTORICAL CASH DISTRIBUTIONS TO INVESTORS/
EFFECT OF THE ACQUISITION
The following table sets forth the cash distributions made to Investors
during each of the years ended December 31, 1992, 1993, 1994, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
Prior to
Name of Program 1992 1992 1993 1994 1995 1996 1997 Total
--------------------- --------- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Yosemite/Ahwahnee II
Principal $ 20,000 $ 60,000 $ 68,264 $ 0 $ 0 $ 0 $ 0 $ 148,264
Interest $592,498 $ 1,153,352 $688,303 $ 10,273 $ 0 $ 0 $ 0 $ 2,444,426
</TABLE>
There have been no recent distributions to Investors. The Acquisition is
not expected to alter this distribution pattern.
FURTHER FINANCIAL INFORMATION
See the following portions of the Prospectus for further financial
information about the Yosemite/Ahwahnee II Program, as well as the others:
- "Selected Financial Information" at page __.
- "Management's Discussion and Analysis of Financial Condition and
Result of Operations" at page __.
- "Financial Statements" at page F-1.
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SUPPLEMENT TO CONSENT SOLICITATION STATEMENT/ PROSPECTUS
OF
AMERICAN FAMILY HOLDINGS, INC.
PREPARED FOR INVESTORS IN
MORI POINT "TRUDY PAT" PROGRAM
CAPITALIZED TERMS USED IN THIS SUPPLEMENT AND NOT DEFINED HEREIN
HAVE THE MEANING GIVEN TO THEM IN THE PROSPECTUS.
SEE "GLOSSARY" AT PAGE __ OF THE PROSPECTUS.
--------------------
YOU MUST READ THE ENTIRE CONSENT SOLICITATION STATEMENT/PROSPECTUS TO
FULLY UNDERSTAND THE ACQUISITION. This Supplement has been prepared to help
the Investors in the Mori Point Program to understand how the Acquisition
described in the accompanying Prospectus will affect them. If completed, the
effects of the Acquisition may be different for Investors in the other
Programs. A separate supplement has been prepared for each of the other
Programs, copies of which may be obtained, without charge, by writing to
National Investors Financial, Inc., 4220 Von Karman Avenue, Suite 110,
Newport Beach, California 92660, Attention: Vivian Kennedy, or calling
1-800-590-7772.
As described in the accompanying Prospectus, American Family Holdings,
Inc. (the "Company") is offering units of its securities in exchange for the
assets (including cash reserves), certain liabilities and business activities
owned by Investors in seven former "Trudy Pat" programs and three other
programs managed by National Investors Financial, Inc. ("National"). For
this proposed Acquisition, the Company will issue an aggregate of
$[28,066,419] of unit arbitrarily valued at $20 per unit. A unit consists of
one share of common stock plus warrants to purchase three additional shares.
The [shares included in the units will be listed for trading on the
___________ under the symbol "___." The warrants will [not] be listed for
trading.] The purpose of the transaction is to consolidate the operations of
the programs, improve the ability to sell or obtain financing for development
of the programs' properties, eliminate the assessment process, focus on
revenue-generating potential, improve efficiency of operations in order to
reduce costs and increase profit potential, and provide the investors with
liquidity for their investments.
Of the [1,403,321] units ([1,380,175] units if only the "Trudy Pat"
programs participate) to be issued by the Company in the Acquisition,
Investors in the Mori Point Program will receive a total of [270,652] shares
or [219]shares per $10,000 of Adjusted Outstanding Investment. After the
costs of an outright sale of the property, and the payment of Program
liabilities, National does not believe any alternative would yield to
Investors in the Mori Point program an amount that is higher than the value
of the Company units to be received in the Acquisition. You may receive
additional units if your program's property is sold, and if before December
31, 1999, cash sale proceeds (net of closing costs and interest) are received
in excess of the property's March 1998 appraisal value.
In each of the Programs, the Investors will vote on whether to approve
the Acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED THE
SEVEN "TRUDY PAT" PROGRAMS MUST VOTE TO APPROVE THE ACQUISITION FOR IT TO
TAKE PLACE.
This solicitation commenced on _______, 1998 and expires at 5:00 p.m.,
Pacific Time, on __________, 1998 unless extended. Call 1-800-590-7772 with
questions.
MOST MATERIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will no longer have a tenancy-in-common
interest in your program's property. Instead, you will hold shares in a
publicly-traded real estate company and will not receive liquidation proceeds
when, or if, your program's property is sold. As an investor in a
publicly-traded company with many stockholders, you will have relatively less
voting power.
- - If the acquisition is approved, your investment will be subject to the
risks associated with the development of a hotel/conference center plus new
risks associated with a business which also operates a golf course and a
recreational vehicle park, and which plans to pursue the development of
timeshare facilities, commercial facilities and residential lots.
- - If a trading market develops, the initial trading price for the stock will
likely be substantially below the arbitrary value of $20 per unit assigned for
purposes of the acquisition. Thus, the value of the units you receive may be
less than you might receive if the property of your program were sold.
- - Principal stockholders of National and executive officers of the Company
will hold approximately (6.23% if all the units are sold in the concurrent
offering and 4.66% if all the units are sold in the concurrent offering and
all warrants issued in the acquisition are exercised) for which they paid
$0.01 per share and will receive annual cash compensation aggregating
$560,000 as officers and employees. National will be relieved of its
servicing and asset management obligations and will no longer earn servicing
and asset management fees of approximately $885,000 annually. However, the
Company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
- - No independent advisors represented you in structuring this transaction.
- - There can be no assurance that the transaction is not a taxable event. If
so, National believes a tax loss is the probable result for most of you.
- - The Company must have additional cash to fund its proposed operations.
If it cannot obtain such funding from the sale of certain of its properties,
the exercise of the warrants included in the units or the sale of additional
units, it will be no more successful than the programs have been individually
in completing the development of some or all of the properties.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE ACQUISITION.
<PAGE>
MATERIAL RISKS AND DISADVANTAGES
A full description of the material risks of the Acquisition may be found on
pages [__] through [__] of the accompanying Prospectus. Those risks include:
RISKS OF THE ACQUISITION
THERE WILL BE FUNDAMENTAL CHANGE IN THE NATURE OF YOUR INVESTMENT. If
the acquisition is completed, there will be a change in the nature of the
investment of each investor from holding a tenancy-in-common interest in real
estate to holding shares (and the right to buy additional shares) in an
on-going company, the assets of which may be changed from time to time
without approval of investors. If the acquisition is completed, investors
will be able to liquidate their investments only by selling their shares
[on the _____] or in private transactions, and they will not receive a return
of their investment in the form of liquidation proceeds through property
sales. If the acquisition is completed, investors will have an investment in
an entity that is larger than each of the programs and will thus lose
relative voting power. Investors will have an investment in a business which
also operates a golf course and a recreational vehicle park, and which plans
to pursue the development of timeshare facilities and a hotel/conference
center.
THE EXCHANGE VALUES OF THE PROGRAMS ARE NOT THE SAME AS THE POTENTIAL SALES
PRICE. Investors are subject to the risk that the exchange value of a program
does not reflect the price a program's assets might bring in a sale. If the
property of a program were to be sold, the net proceeds of the sale and the
amount finally distributed to an investor in that program may be more or less
than the exchange value. There is no assurance that the future value of the
shares and warrants received in the acquisition will be greater than the most
recent appraised value of the property.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. Initially, shares may trade
at prices substantially below the arbitrarily determined exchange value of $20
per unit or the historical book value of the company's assets. There is no
guaranty that a liquid trading market will develop for the shares, or be
sustained. If a trading market develops for the shares, the price of shares
after the acquisition will likely decrease below the exchange value per share of
$20 due to a potentially large number of shares that investors may sell
immediately after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN STRUCTURING THE ACQUISITION. The
founders of the company, and specifically the principal shareholders of
National, as well as National itself, will be subject to conflicts of
interest. The principal shareholders and employees of National and the
company will hold approximately [16.35]% of the company's outstanding stock
(6.23% if all units are sold in the concurrent offering and 4.66% if all
units are sold in the concurrent offering and all warrants in units issued in
the acquisition are exercised) for which they paid $0.01 per share. Other
founders of the company will hold approximately [2.3]% of the company's
outstanding stock (0.88% if all the units are sold in the concurrent offering
and 0.66% if all such units are sold and all warrants issued in the
acquisition are exercised) for which they also paid $0.01 per share. Thus,
the investors' total ownership interests in the programs' properties will be
diluted by the equity interest in the company held by the founders of the
company. The principal stockholders of National and other executive officers
of the
<PAGE>
company will receive annual cash compensation aggregating $560,000 as
officers and employees of the company. National will be relieved of its
servicing and asset management obligations and will no longer earn asset
management or servicing related fees. However, despite the fact that
National will have forgiven over $3,800,000 of unpaid fees and expenses, the
company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not favored
by the board of directors. These provisions include a board of directors with
three classes serving staggered three year terms, the inability to remove a
particular director before the expiration of his or her term without a
two-thirds supermajority vote , and the inability to amend the anti-takeover
provisions of the charter documents without a similar vote. Thus, if investors
are unhappy with management's performance, it will be more difficult to remove
directors not favored by the investors.
NO INDEPENDENT PARTY WAS RETAINED BY NATIONAL TO NEGOTIATE ON BEHALF OF THE
INVESTORS. Therefore, terms of the acquisition may be less favorable to
investors and more favorable to founders of the company which included the
principal shareholders of National than if the acquisition had been subject to
arm's-length negotiation. Had an independent party negotiated on behalf of each
program, the terms of the acquisition may have been more favorable to certain or
all of the programs and fewer shares and less favorable employment contracts may
have been received by the founders of the company.
THE ACQUISITION MAY NOT BE A TAX-FREE TRANSACTION TO INVESTORS. Due to
uncertainties in the facts of this transaction, tax counsel is unable to opine
conclusively on the tax consequences of the acquisition to investors. The
acquisition may be taxable, if at all, only with respect to the investors'
receipt of warrants. Alternatively, if the acquisition is a fully taxable
transaction, an investor would recognize gain or loss in 1998 equal to the
difference between the investor's tax basis in his interest in a program
property, and the number of shares of the company received valued at $20 per
unit. If the acquisition is treated as fully taxable, National believes most
investors would recognize a tax loss.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the acquisition,
none of the properties will be subject to any liens other than for property
taxes. The board of directors could authorize borrowing by the company the debt
service for which may adversely affect the company's ability to make
distributions to shareholders. The company may incur full recourse debt which
exposes all of the assets of the company to repayment instead of limited
recourse debt which generally exposes specific properties for the repayment of
debt.
THE BOARD OF DIRECTORS MAY UNILATERALLY CHANGE INVESTMENT, FINANCING AND
CERTAIN OTHER POLICIES WITHOUT SHAREHOLDER APPROVAL. Although the board of
directors of the company intends to implement the business plan set forth
herein, the board will have the ability to change investment, financing and
other policies of the company without the consent of shareholders.
THERE WILL BE NO APPRAISAL OR SIMILAR RIGHTS FOR NONCONSENTING INVESTORS.
If you vote against the acquisition, and it is approved, you will not be able to
object to the acquisition and
2
<PAGE>
receive the appraised value of your tenancy-in-common interest in your
program's assets. You will have no choice other than to accept units for
your interests.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed over a year
ago to take part in the acquisition of your property. It does not have the
benefit of operating for a long time. This means that shares in the company
are much riskier than ownership of shares of established companies. If the
company had been operating as if it owned the properties which it desires to
acquire, it would have experienced losses to date.
THERE WILL BE FUNDAMENTAL CHANGES IN THE BUSINESS PLAN IF THE
ACQUISITION TAKES PLACE. Rather than being focused on a single property, the
company will be an infinite life entity focused on the management of the
properties of at least seven of the former "Trudy Pat" programs plus the
properties of other programs which elect to participate in the acquisition.
The effect of this on investors is two-fold. First, poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the other properties. Second, there will be no
particular time when an investor can expect that a sale of any of the
properties will result in cash distributions to him or her.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes or
sales of a particular property. Those decisions will be made by the board of
directors or management. In addition, you will have an investment in an entity
that is larger than each of the programs and, thus, you will lose relative
voting power.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular principal and interest payments on
their original investments, because of the borrowers' defaults there have been
no distributions from any of the programs, other than the Oceanside program, in
the past three years. Future cash distributions will be based on the company's
earnings and the decision of the board of directors to pay dividends.
Therefore, even if a property in which you formerly held an interest were to
perform well, there is no assurance that there would be cash distributions to
you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. Prior to the
dates that title to the properties securing the original program loans was
taken, National was entitled to an annual loan servicing fee equal to one
percent of the original loan amounts. When title to the properties was taken
on behalf of the programs, even though the loans no longer existed, National
continued to charge the same rate as the servicing fee for the asset
management services it provided to investors. The investors in each of the
programs had become the beneficial tenant-in-common owners of real estate,
most of which was undeveloped. While it had no obligation to do so, in order
to assist the beneficial owners in protecting their real estate assets and
readying them for sale or development, National assumed the duties of an
asset manager after title was taken to the properties. In this capacity,
National obtained information from investors about their preferences in
regard to development or sale of the properties, and facilitated the
assessment of investors to raise funds necessary to pay property taxes,
insurance and other costs of property ownership.
3
<PAGE>
The annual fees payable to National are currently $50,000 for
Sacramento/Delta Greens; $300,000 for Oceanside; $61,068 for Yosemite/Ahwahnee
I; $133,646 for Yosemite/Ahwahnee II; $100,000 for Mori Point; $140,000 for
Cypress Lakes; $150,000 for Palmdale/Joshua Ranch; $5,000 for Esperanza; $3,153
for Stacey Rose A; and $850 for Stacey Rose B.
In addition to the one percent fee, compensation has been earned for
property management services provided to the Oceanside program ($896,000
accrued since the date of ownership (November 1993) through June 30, 1998;
$876,000 actually paid) and Yosemite/Ahwahnee properties ($594,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervision of: entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside
and Yosemite/Ahwahnee projects; and contract negotiations and documentation.
To the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
In the future, compensation will be paid to officers of the company in the
form of salaries (aggregating $560,000 annually plus contractual bonus
opportunities and salary increases), stock options and other benefits. See
"Management Following the Acquisition -- Directors and Executive Officers
Compensation and Incentives" for details of stock options and other benefits.
These salaries and other forms of compensation will be payable to management of
the company even if one or more of the properties acquired in the acquisition is
subsequently sold.
HOLDERS OF MAJORITY OF TENANCY-IN-COMMON INTERESTS BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of outstanding
interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THAT THE EXCHANGE VALUES FOR THOSE
PROPERTIES COULD BE TOO LOW OR TOO HIGH. National reviewed the updated March
1998 appraisal of the Yosemite/Ahwahnee properties which reflected an
aggregate "as is" appraised value of $20,246,000 and the October 1996
appraisal which reflected an "as is" aggregate appraised value of $4,000,000.
The results of those appraisals clearly differed from each other, and, in
management's judgment, the difference could not be accounted for solely by
improving market conditions. Some of the parcels, including the golf course,
were subsequently sold, on June 5, 1998, to the Oceanside Program investors
to obtain working capital for the Yosemite/Ahwahnee programs. Based on its
review of all appraisals, National concluded that the properties currently
owned by the
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<PAGE>
Yosemite/Ahwahnee I and II Programs have values of $5,486,000 ($1,782,950 and
$3,703,050, respectively), and the parcels currently owned by the Oceanside
Program have a value of $5,080,000. National believes its approach is
reasonable.
GENERAL REAL ESTATE RISKS
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent property
taxes are not timely paid, the company could lose one or more of the
properties to tax sales. Each of the programs' properties is subject to the
following delinquent property taxes as of August 31, 1998: Sacramento/Delta
Greens - approximately $27,000; Yosemite/Ahwahnee (combined) - approximately
$500,000; Mori Point - approximately $165,000; Cypress lakes - approximately
$204,000; Palmdale/Joshua Ranch - approximately $63,000; Esperanza -
approximately $20,000; and Stacey Rose (combined)- approximately $30,000.
Annual payments required for all the properties for current taxes (including
amounts currently due on five-year payment plans) total approximately
$549,000. In the case of Sacramento/Delta Greens, Yosemite/Ahwahnee, Mori
Point, Palmdale/Joshua Ranch and Stacey Rose properties, National has entered
into statutorily authorized 5-year payment plans with the applicable taxing
authorities.
CERTAIN ASSETS MUST BE SOLD TO RAISE WORKING CAPITAL. Unless a minimum
of approximately $[4,565,000] from sale of certain assets of the programs or
the sale of units in the concurrent offering or the exercise of warrants
become available, the company will not be able to proceed with its entire
business plan. The company will also need financing from other sources to
complete its plan. Financing sources are not predictable and interest rates
or other costs of financing may be prohibitive. Neither the programs nor the
company have received any commitment from other sources. In their current
tenancy-in-common structure, the programs cannot obtain traditional bank
financing.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL AND OTHER LAWS MAY REQUIRE
EXPENSIVE HAZARDOUS SUBSTANCE CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC
IMPROVEMENTS. We have not conducted any environmental audits on the
properties. As a result, there may be environmental liability to the company.
Local governments have required residential developers to pay assessments
for streets, schools and parks which increase the cost of development.
Increased costs can have a negative affect on the company's sale of
residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as earthquakes
and floods may be uninsurable or too expensive to insure. The company does not
plan to carry earthquake or flood insurance. If an uninsured loss occurs, the
company would lose capital as well as revenues, and would still owe other debts
related to the property affected, if any.
THE DEVELOPMENT OF ADDITIONAL PROJECTS MAY OCCUR. We may develop
additional projects in the future, although we have no immediate plans to do so.
Real estate development involves more risks than in the ownership and operation
of established projects. Financing may not be available on favorable terms for
development projects; construction may not be completed
5
<PAGE>
on schedule or budget; long-term financing may not be available on completion
of construction; and sites may not be sold on profitable terms.
THE CALIFORNIA ECONOMY HAS FLUCTUATED BROADLY IN THE PAST FEW YEARS.
Initially, we will conduct all of our business in California. Our markets
have been affected by substantial fluctuations in local economic conditions,
interest rates, inflation, employment levels and regulations. California has
also experienced draught conditions, resulting in water conservation measures
and rationing. In the past, these conditions have caused local governments
to restrict residential development. California's climate and geology
present risks of natural disaster such as earthquakes and floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE
OWED $[1,818,684] BY THE COMPANY. This represents accrued fees and expenses
from the programs which National has not cancelled. This amount is due and
payable and the company intends to start paying it after the Acquisition, but
only from operating revenues, proceeds from the sale of assets or the
exercise of warrants, and not from working capital generated by the proceeds
of unit sales in the concurrent offering.
REAL ESTATE RISKS OF SACRAMENTO/DELTA GREENS
PERMITS TO DEVELOP THE PROPERTIES NEED TO BE OBTAINED. Construction of
the Sacramento/Delta Greens property will require approval of a new tentative
map, the filing of a final map and obtaining building permits from the city.
The tentative tract map process for the Sacramento/Delta Greens property
required that studies be conducted to identify any endangered species'
habitat on the property. Since some were identified, changes to the tentative
development plans have been made to reduce or eliminate any damage to the
habitat. A new tentative map needs to be approved by the City. The longer
this process takes, the longer it will be before any of the property is ready
for any construction, further development activity or sale.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS AT THE SACRAMENTO/DELTA GREENS
PROPERTY MAY CAUSE THE COMPANY TO INCUR SUBSTANTIAL CARRYING COSTS UNTIL THE
LOTS CAN BE SOLD. Changing market conditions may increase the difficulty of
selling the lots. If the company chooses to build homes on the lots, delays in
construction, the lack of reasonably priced construction or mortgage financing,
and the general California economy could lengthen the holding period for the
lots. This would mean a delay in realizing cash from the business operations.
The average carrying costs, including property taxes, management and servicing
related fees, for this property has averaged approximately $10,000 per month
over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, our properties may be sold at a loss. The location of the company's
lots, the presence of other competition, customer acceptance and pricing are
all factors affecting success. Competitors may have better financial,
managerial and other resources, affecting our ability to successfully
compete. Sacramento/Delta Greens represents over 5% of the assets of the
company.
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ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay the engineering costs required to mitigate endangered
species issues and pay for the planning and design expenses for the city to
approve a new tentative trace map (estimated by management to cost
approximately $25,000). Another risk is whether the lots to be developed
will appeal to project builders and whether home financing will be available.
Finally, there is a risk that the development and sale of lots or homes will
be profitable.
REAL ESTATE RISKS OF YOSEMITE/AHWAHNEE PROPERTIES (including the golf
course and surrounding land which is owned by the Oceanside program investors)
PERMITS TO DEVELOP THE CONDOMINIUM-TYPE TIMESHARE ASPECT OF THE RESORT
HAVE NOT YET BEEN OBTAINED. The Yosemite/Ahwahnee property has a final map
on 32 remaining single family estate lots and a use permit for a 600 space
recreational vehicle park. Planning and development are underway for 100
additional recreational vehicle sites, as well as vacation villa timeshare
units. Additional planned usage such as traditional, attached timeshare
units will require extensive county and state approvals.
RISKS AFFECTING OPERATION OF A GOLF COURSE. Increased competition,
seasonality, weather and course conditions will affect the operations of the
company. While no new golf courses have opened near the Ahwahnee Golf Course,
new courses could increase the competition and reduce the rounds played.
Seasonal variations may require the company to supplement revenue at the golf
course to meet operating expenses. Weather can negatively affect the turf grass
and reduce the number of rounds played. Inflationary costs may not be offset by
increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as well
as to pleasure or destination travel preferences by visitors and tourists. All
of these factors could reduce the amount of money earned by the company.
The Yosemite/Ahwahnee golf course can be an important amenity which may
attract potential timeshare purchasers in the future. At this time, the
project does not rely on the golf course for its revenue. National estimates
that the value of the golf course will be less than 20% of the assets of the
company.
RESORT DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF REASONS AND COULD
RESULT IN LOSSES. In addition to normal real estate risks, financing is hard to
obtain, and the lodging industry can be unpredictable, seasonal and very
competitive. Without additional financing or capital, the company will not be
able to develop its resort projects as part of its growth strategy. Economic
conditions, changes in travel patterns, extreme weather conditions, labor and
other variable costs can all affect revenues and profits. For example, Spring
through Fall at the Yosemite/Ahwahnee property are the periods of highest
occupancy. Seasonality can be expected to cause quarterly fluctuations in the
company's revenues.
RISKS RELATING TO TIMESHARE OPERATIONS. Certain factors affecting
timeshare operations could result in losses. Negative press surrounding the
remarketing of timeshares might negatively impact sales and operations. Also,
marketing costs are high relative to selling price which can reduce or eliminate
profits from the sale of timeshare interests.
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In addition, according to the American Resort Development Association,
there is a tendency for timeshare owners to default more often on their
timeshare loans then homebuyers who borrow to buy a home. If a buyer
defaults, we would incur costs in remarketing the timeshare.
The timeshare industry is extremely competitive and we may not be able to
secure development financing on acceptable terms.
Since the project is not yet permitted for traditional attached
timeshare units, there has been no allocation of assets. Should attached
timeshare be approved, the company anticipates that a significant portion of
the revenue of the company will be derived from sales of timeshare units.
RISKS RELATING TO RECREATIONAL VEHICLE PARK OPERATIONS. Risks relating to
recreational vehicle parks are substantially the same as those described above
for timeshare projects.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to (i) make up for the current cash drain from operations and
maintenance of the golf course, clubhouse and current recreational vehicle
facilities (estimated by management at approximately $350,000) annually and
(ii) complete the construction of additional recreational vehicle sites and
obtain approvals for and construction of the first group of vacation villa
timeshare units (estimated by management to cost approximately $3,000,000).
There are also a risk that the operation of recreational vehicle sites,
timeshares and golf course activities will not be profitable.
REAL ESTATE RISKS OF MORI POINT PROPERTY
PERMITS TO DEVELOP THE PROPERTY HAVE NOT YET BEEN OBTAINED. If needed
permits for development are not obtained or reissued, the business plan for
the company will have to be revised. Additionally, the presence of two
endangered species on the Mori Point property increases the risks that
necessary approvals may not be received if an acceptable habitat mitigation
plan cannot be developed. The permitting process with the California Coastal
Commission and the City of Pacifica is expensive and time consuming. Mori
Point had a specific plan and tentative map approvals to build a
hotel/conference center which expired in 1991. These approvals must be
obtained or reinstated prior to construction on the property. Mori Point will
represent approximately 20% of the assets of the company.
HOTEL/CONFERENCE CENTER DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF
REASONS AND COULD RESULT IN LOSSES. In addition to normal real estate risks,
financing is hard to obtain, and the lodging industry can be unpredictable,
seasonal and very competitive. Without additional financing or capital, the
company will not be able to develop its hotel/conference center project as part
of its growth strategy. Economic conditions, changes in travel patterns,
extreme weather conditions, labor and other variable costs can all affect
revenues and profits. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues. At the hotel/conference center property
at Mori Point, we may be competing against well-known chains and extended-stay
inns.
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ADDITIONAL SPECIFIC RISKS. There is a risk that the city government
will not approve the property for its intended use. Capital to conduct
engineering and environmental studies in order to apply for and obtain
approvals for its use from the city is estimated to be approximately
$500,000. Capital will also be necessary for roads, utilities and other
infrastructure costs prior to construction. Finally, there is a risk that
the proposed hotel/conference center may not be profitable.
REAL ESTATE RISKS OF CYPRESS LAKES PROPERTY
THE VESTED TENTATIVE MAP WILL EXPIRE IN APRIL 1999 UNLESS RENEWED AND
THE BUILD OUT OF THE PROPERTY WILL BE EXPENSIVE. Due to being located in a
100-year flood plain, the property requires a levee to be constructed around
its perimeter which is very expensive to construct. Preliminary engineering
estimates indicate these costs to be more than $9,000,000. It may be
desirable to change the vesting tentative map if the costs can be reduced
significantly. While mere extension of the expiration date of the existing
vested tentative map is not expected to be controversial, any changes in the
existing plan could subject the project to public hearings which might result
in additional costs being placed on the project. This could further increase
the high front-end financial requirements. Additionally, such modifications
might not be approved.
Cypress Lakes is a proposed master-planned community and represents more
than 20% of the assets of the company. Joint venture partners would have to
be brought in by the Company to help with the large capital requirements of
such a large project in order to develop it. It may be difficult to find
substantial builder/developers who have the financial ability to purchase or
develop the project. Changing market conditions may increase the difficulty
in selling lots.
Should the company determine to build out the project, delays in
construction, reasonably priced mortgage and construction financing and the
local and general California economy could lengthen the holding period for
the lots. This would mean delays in realizing cash from the business
operations.
RISKS AFFECTING OPERATION OF A GOLF COURSE. When, and if, the golf
course is developed, it will face competition from the 15 golf courses within
a 25-mile radius. Seasonality, weather and course conditions will affect the
operations of the company. Weather can negatively affect the turf grass and
reduce the number of rounds played. Inflationary costs may not be offset by
increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as
well as to pleasure or destination travel preferences by visitors and
tourists. All of these factors could reduce the amount of money earned by
the company.
RISKS OF RESIDENTIAL DEVELOPMENT. Totaling 1,330 lots, a large supply
of lots would be available and, due to the cyclical nature of the housing
industry, demand may fluctuate differently than supply. This could result in
needing to sell lots at a loss. Due to the size of the project, it could
take between six and ten years to complete, which would subject it to new
competitors entering the marketplace during the sales period. An
environmental impact report
9
<PAGE>
was obtained on the property. Any and all environmental concerns will be
mitigated as required in the vested tentative map conditions of approval. No
evidence of endangered species that would limit or preclude development of
the project have been found.
REAL ESTATE RISKS OF PALMDALE/JOSHUA RANCH PROPERTY
A FINAL TRACT MAP MUST BE RECORDED. After several years of effort by
National, the vested tentative map was approved by the City of Palmdale at a
hearing before the planning commission in early July 1998. A final recorded
map must be secured by National or a buyer in order to build on the property.
Final engineering, soils, utility and various improvement studies will need
to be conducted in order to record the final map.
PERMITS TO DEVELOP THE PROPERTY NEED TO BE OBTAINED. A final recorded
map, which could take nine to twelve months after starting the process, will
be required prior to construction. Due to the size of this project which
encompasses some 739.6 acres and is currently planned for 539 lots,
additional grading studies, soils investigation and utility planning needs to
be done which could negatively impact the cost of this large-scale
development.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Finding
builder/developers that have the financial strength to handle this size
project can be difficult. Changing market conditions, the lack of
reasonably-priced construction or mortgage financing and the general or local
market conditions could lengthen the holding period for lots. This would
mean a delay in realizing cash from business operations. The average
carrying costs, including property taxes, predevelopment and asset management
services for this property have averaged approximately $16,300 per month over
the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, the property may be sold at a loss. The location of the lots, the
presence of other competition, customer acceptance and pricing are all
factors affecting success. Competitors may have better financial, managerial
and other resources affecting the company's ability to successfully compete.
An environmental impact report was obtained on the property. Any and all
environmental concerns will be mitigated as required in the vested tentative
map conditions of approval. No evidence of endangered species that would limit
or preclude development of the project have been found.
Palmdale/Joshua Ranch is a proposed residential development and represents
about 10% of the assets of the Company.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay for or finance (i) engineering, soils and utility studies
which is estimated to cost approximately $140,000, and (ii) another risk is
whether the lots to be developed may appeal to project builders.
Palmdale/Joshua Ranch is a proposed residential development and represents
about 10% of the assets of the company.
10
<PAGE>
REAL ESTATE RISKS OF ESPERANZA PROPERTY
RISKS OF COMMERCIAL DEVELOPMENT. The material risks associated with the
development of the Esperanza Property are (i) as of August 31, 1998,
approximately $23,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the property for delinquent property
taxes; and (ii) despite a strong economy, rents and values for many retail
properties are expected to remain soft in 1998. Pressure on rents brought
about by over building, weakness in demand for space and store closures
caused by lagging profits are the forces causing a soft market. No
environmental or endangered species reports have been prepared for the
property.
ADDITIONAL SPECIFIC RISKS. Within the City of Victorville there are
approximately 3,250 acres zoned for commercial use, of which 60% remains
available for development. Victorville is home to the largest enclosed regional
shopping center between San Bernardino and Las Vegas, which is known as The Mall
of Victor Valley. These commercial sites represent significant competition to
the Esperanza project. There are more than 5,400 acres within the city limits
of Victorville zoned for light and heavy industrial use. Nearly nine percent of
this 5,400 acres of land is vacant and is available in parcels ranging in size
from one-half to five hundred acres.
REAL ESTATE RISKS OF STACEY ROSE PROPERTIES
RISKS OF RESIDENTIAL DEVELOPMENT. The material risks associated with
the development of the Stacey Rose Properties are (i) as of August 31, 1998,
approximately $30,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the Properties for delinquent property
taxes; (ii) it is estimated that it may cost about $50,000 to finalize a
tentative tract map on the parcels; (iii) a substantial, and potentially
expensive, sales and marketing effort will be necessary to sell homes
constructed on the properties if a bulk sale of the lots is not made; (iv)
the properties are located in a lower income residential area; and (v)
increasing government fees and assessments for streets, schools, parks and
other infrastructure requirements could increase the cost of lots to the
company, thereby increasing the sales price of the lots which will delay
market absorption. No environmental or endangered species reports have been
prepared for the property.
ADDITIONAL SPECIFIC RISKS. There is a risk that (i) adequate funds will
not be available to finalize a tentative tract map on the parcels (approximately
$50,000); (ii) the project will not appeal to project builders; and (iii) home
financing at reasonable costs may not be available. There is also a risk that
the development and sale of lots or home may not be profitable.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the charter documents may restrict changes in control
of the Company's management. These provisions may make it more difficult or
expensive for another party to acquire and exercise control of the Company or to
change its management, even if that change would be beneficial to you. These
provisions include:
11
<PAGE>
ADDITIONAL CLASSES OF SHARES. Under the company's certificate of
incorporation, subject to the receipt of fair value, the Board of Directors may
issue shares in other classes or series and fix the rights, powers and
limitations associated with such shares. Although the Board of Directors has no
present intention of doing so, it could issue a class or series that could,
depending on its terms, impede a merger, tender offer or other transaction that
you might believe is in your best interest or in which you might receive a
premium for your shares over the then current market price. The issuance of
such shares could also dilute your voting power.
STAGGERED BOARD. The Board of Directors is divided into three classes
serving staggered three year terms. This arrangement may affect your ability to
change control of the company, even if you believe such a change is in your best
interests.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The company's certificate
of incorporation, as well as Delaware law, prohibits certain business
combinations with owners of more than 15% of the outstanding voting stock of the
company ("interested stockholders") within the three year period immediately
prior to the date on which the interested stockholder became an interested
stockholder. These restrictions on certain business combinations may deter
potential purchasers who seek control of the company.
SUPERMAJORITY VOTES. Changes to the company's certificate of incorporation
which cover anti-takeover provisions require the approval of two-thirds of the
company's voting stock. This restriction also may deter potential purchasers
who seek control of the company.
IN ADDITION TO THE ANTI-TAKEOVER PROVISIONS, THE DELAWARE LAW, AS WELL
AS THE CHARTER DOCUMENTS, LIMIT THE LIABILITY OF DIRECTORS AND OFFICERS TO
SHAREHOLDERS. This limitation of liability may exceed the protections
National enjoys under the programs' servicing agreements and limit
shareholders' claims against management.
FAIRNESS TO INVESTORS IN THE MORI POINT PROGRAM
Both procedurally and from a financial point of view, the company and
National believe the terms of the acquisition are fair as a whole and to the
investors in each of the programs. This determination is based on
consideration of the following positive and negative factors:
- the units offer an opportunity for individual investor liquidity
while the tenancy-in-common interests do not, however, there is no assurance
that the shares will have any liquidity, or that any liquid market that develops
will be sustained;
- while the number of units to be issued to reflect the exchange value
of a program is arbitrary, the trading price of the shares included in the units
initially is likely to be substantially below the $20 value arbitrarily assigned
to the units. In our opinion, the exchange values offered to investors for
their assets allow for an equitable allocation of the [1,403,321] units
([1,380,175] units if only the "Trudy Pat" programs participate) among the
programs. The disparity between exchange values and appraised values results
from adding the value of program cash reserves and other assets, if any, to
appraised values and deducting program
12
<PAGE>
liabilities (principally accrued property taxes and other fees net of fees to
be forgiven by National);
- on completion of the acquisition the investors will hold over 80%
(over 94.7% if all units are sold in the concurrent offering and all of the
warrants included in the units to be issued in the acquisition are exercised)
of the outstanding stock of the company. After the acquisition, a total of
[15.67]% of the outstanding stock of the Company will be held by Mori Point
investors (15.88% if only the seven "Trudy Pat" programs participate). After
the acquisition, founders of the company (principals, employees, former
employees and consultants of National) will hold less than 20% (___% if only
the seven "Trudy Pat" programs participate). Founders' shares were purchased
for $.01 per share. Among the properties, National and its principals will have
forgiven over $3,800,000 of expenses and accrued fees of which a total of
approximately $2,148,000 was earned for asset management and property
management services after the loans defaulted and before the Ownership Dates
of the properties. The balance was earned after foreclosure for asset and
property management services and expenses. Of such amount, $461,589 is
attributable to fees owed by Mori Point investors. National believes that the
amount paid for the property management services is no greater than the
amount that a third party would charge;
- the current appraised value of the Mori Point real estate assets
($6,000,000) (as well as the real estate assets of the other programs) and the
fact that substantial financing is needed to further the property's development;
- the probability that the transaction will have minimal, if any,
negative tax affect on investors. National believes there will likely be no
out-of-pocket tax cost to all, or the vast majority, of you;
- while conflicts of interest exist in the structuring of the
acquisition, the issuance of shares to the founders of the company and the
determination of management compensation and while you did not have independent
representation in the structuring of the acquisition, we believe they have been
counterbalanced by your opportunity to vote on the transaction and the Fairness
Opinion;
- while the Mori Point Program (as well as the other programs) were
originally formed to have a two to four year finite life which should have ended
between 1993 and 1994 and the investors expected to receive a return of their
investment from the original borrower, the company is an infinite life entity
which will not return the program investors' original investment based on a sale
or refinancing of the properties underlying the original programs. However,
after the borrowers defaulted on the "Trudy Pat" loans, the investors became
beneficial owners of the underlying properties with the need to complete
development, manage or otherwise ready the properties for sale. Those endeavors
had no fixed timetable and, thus, the finite life aspect of their original
investments was significantly changed. Therefore, the infinite life aspect of
the company is not viewed by National to be a material change from the
investors' CURRENT situation;
- the acquisition will cause fundamental changes in the business
plans of the Mori Point Program. Rather than being focused on the
development of a single property for hotel/conference center purposes, the
company will be focused on the management of at least seven and as many as
ten properties. Thus, the poor performance of a particular property may
13
<PAGE>
affect the company's operations as a whole regardless of the performance of
the Mori Point property. Further, there will be no particular time when an
Investor can expect its interest to be automatically liquidated;
- the facts that Mori Point investors have rejected an offer to acquire
the property due to the terms of the proposed transaction and it has been
difficult to find buyers or joint venture or financial partners for the project;
- Mori Point investors will not be able to vote on changes to or
dispositions of the Mori Point property or borrowing secured by that property.
Those decisions will be made by the Board of Directors or management of the
company. Further, as investors in a larger entity, relative voting power will
be diluted;
- future cash distributions will be based on the company's earnings and
the decision of the Board of Directors to pay dividends rather than the
performance or sale of the Mori Point property;
- investors voting against the acquisition will have no alternative but
to accept shares in the company if the acquisition is approved by holders of a
majority of the tenancy-in-common interests in each of the programs;
- the anti-takeover provisions of the company's charter documents
contain provisions that may have the effect of delaying or discouraging a change
in management which is not favored by the Board of Directors of the company; and
- the Fairness Opinion rendered by Houlihan Valuation Advisers, an
independent valuation firm, which addresses only the allocation of the units in
the acquisition and not the amount of the consideration paid to program
investors in the acquisition as a whole. See "Background and Reasons for the
Acquisition" at page __ of the Prospectus.
National reviewed the arbitrary value you will receive in connection with
the acquisition and compared it with what you might receive if (i) the Mori
Point property was operated "as is" ($1,711 per $10,000 of Adjusted Outstanding
Investment), (ii) the Mori Point property was sold in a quick sale in three
months or less ($1,711 per $10,000 of Adjusted Outstanding Investment), or (iii)
the Mori Point property was sold at the appraised value used to determine the
Mori Point exchange value ($3,898 per $10,000 of Adjusted Outstanding
Investment). Based on that review, and even acknowledging that, initially, the
company's shares included in the units issued in the acquisition would likely
trade substantially below the arbitrary $20 issuance value for the units,
National believes that there is a higher probability of realizing value from the
Mori Point property through the acquisition than through the other alternatives.
This belief is based on the expectation that some financing opportunities will
become available based on the form of the entity and the time pressure
associated with forced sales or liquidation will be relieved. See "Background
and Reasons for the Acquisition -- Comparison to Alternatives" and
"Recommendation of National and Fairness Determination" at pages __ and __ of
the Prospectus.
14
<PAGE>
Based on the above factors and comparisons, National concluded that the
acquisition is fair, both substantively and procedurally.
THERE ARE NO MATERIAL DIFFERENCES BETWEEN THE FAIRNESS ANALYSIS FOR THIS
PROGRAM AND FOR ANY OF THE OTHER NINE PROGRAMS PROPOSED TO BE INCLUDED IN THE
ACQUISITION.
CALCULATION OF EXCHANGE VALUE
The Exchange Value of the Mori Point Program (as well as each of the other
Programs) is essentially the consideration at which the Company is offering in
exchange for the real estate assets, cash reserves, certain liabilities and
business of the Program. The value is reflected as a number of units of the
Company (in the case of the Mori Point Program, [270,652] units) multiplied by
an arbitrary $20 per unit value.
The Exchange Value for the Mori Point Program was calculated as
follows: appraised value of the Mori Point Program's property at March 1998,
plus book value of other Mori Point Program assets at August 31, 1998, less
Mori Point Program liabilities at August 31, 1998.
The following table summarizes the calculation of the Exchange Value of the
Mori Point Program and the value assigned on $10,000 of Adjusted Outstanding
Investment:
<TABLE>
<CAPTION>
Value Assigned
Appraised Net Other to Program per
Value of + Assets and = Exchange $10,000 of Adjusted
Real Estate(1) Liabilities(2) Value Outstanding Investment
----------- ----------- ----- ----------------------
<S> <C> <C> <C>
$ 6,000,000 $[ (586,964)] $[ 5,413,036] $ [ 4,384](3)
</TABLE>
- ----------------
(1) Reflects independent appraisal as of March 1998.
(2) The following table quantifies the adjustments to appraised values made in
determining the Mori Point property's Exchange Value as of August 31, 1998.
<TABLE>
<CAPTION>
Book Assets Book Liabilities Net Other Assets
(8/31/98)* - (8/31/98)* = and Liabilities
--------- --------- ---------------
<S> <C> <C>
$ 261,140 $ (848,104) $ [ (586,964)]
</TABLE>
* See balance sheet of the Program in the financial statements
accompanying the Prospectus for details of book assets and book
liabilities. There is no mortgage debt on the Mori Point Property.
(3) Equals [219] Company shares arbitrarily valued at $20 per unit.
ALLOCATION OF SHARES
The [1,403,321] shares of Company common stock being offered to Investors
in the Acquisition represent over 80% of the Company's shares (92.9% if all
the units are sold in the concurrent offering and 94.7% if all the units are
sold in the concurrent offering and all warrants in units issued in the
acquisition are exercised) which will be outstanding upon completion of the
Acquisition. The remaining shares will be held by management and other
15
<PAGE>
founders of the Company. Such shares will be allocated among the Programs
pro rata in accordance with Exchange Values. The Mori Point Program will be
allocated [_______] shares.
The shares allocated to the Mori Point Program will be allocated among
Investors in the Program based on their respective pro rata investments in the
Program (taking into account assessments paid and unpaid, as well as interest
accrued to each Investor through the date beneficial ownership of the Program's
Property was taken for the Investors) as adjusted for voluntary advances. An
Investor in the Mori Point Program with an adjusted investment amount of $10,000
will receive [219] units in the Company arbitrarily valued at $20 per unit.
Neither National nor the Company's founders have any economic interest
in the Mori Point Program except for National's contractual right to asset
management fees and the $5,279 of tenancy-in-common interests purchased by
National for which interests National will receive units in the Acquisition pro
rata with the other Mori Point Investors. National will undertake not to
exercise the warrants in the units.
The following table and its footnotes sets forth the amount owed by the
original borrower to the Mori Point Program (including accrued but unpaid
interest) plus the amount of assessments and advances paid by Investors at
August 31, 1998, appraised real estate value, Exchange Value of the Program,
the number and percentage of shares allocated to the Program, and the number
of shares and comparative value of the Company to be held by founders after
the Acquisition.
<TABLE>
<CAPTION>
% of Total
Shares to be
Outstanding
After the
Amount Real Estate Acquisition if
Owed plus Appraised Exchange No. of Shares All Programs
Name of Program Assessments Value Value(1) Allocated(1)(2) Participate
- --------------- ----------- ----- -------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Mori Point $ 12,342,259 $ 6,000,000 $[ 5,413,036] [270,652] [15.67]%
</TABLE>
- ------------
(1) The founders of the Company which include members of Company
management, as well as certain employees, former employees of National
and consultants to the Company and the Programs, will hold a total of
[323,631] Company shares after the Acquisition (18.74% of the
outstanding shares post-Acquisition, 17.48% if all the units are sold in
the concurrent offering and 5.3% if all the units are sold in the
concurrent offering and all warrants in units issued in the acquisition
are exercised) which, if valued at $20 per share, would have an
aggregate value of $[6,472,620]. The Company was formed, and shares
were purchased by the founders for $.01 per share, prior to making the
Acquisition proposal. The shares to be retained by the Company's
founders were not determined based only on fees cancelled or to be
cancelled by National and its principals. Overall, National believed
that the Company's founders should hold less than 20% of the shares
after the Acquisition assuming none of the Units in the concurrent
offering are sold and none of the warrants are exercised. See "Dilution"
at page __ of the Prospectus. If the Acquisition is completed, the
following table sets forth the fees which National and its principals
have cancelled, or will cancel:
16
<PAGE>
<TABLE>
<CAPTION>
Previously To Be
Name of Program Cancelled Cancelled
--------- ---------
<S> <C> <C>
Sacramento/Delta Greens $ 500,000 $ -0-
Oceanside 601,125 261,273
Yosemite/Ahwahnee I 72,158 -0-
Yosemite/Ahwahnee II 1,157,867 124,250
Mori Point 461,589 -0-
Cypress Lakes 468,000 -0-
Palmdale (Joshua Ranch) -0- -0-
Esperanza 102,134 -0-
Stacey Rose A 64,293 -0-
Stacey Rose B 17,267 -0-
----------- ---------
TOTAL $ 3,444,433 $ 385,523
----------- ---------
----------- ---------
</TABLE>
(2) Had the shares retained by the founders of the Company been allocated to
the founders based only on cancelled fees, [12]% ([12.7]% if only the
seven "Trudy Pat" programs participate) of the total shares to be owned by
the Company's founders after the Acquisition (39,004 shares if all
programs participate and 40,969 shares if only the seven "Trudy Pat"
programs participate) would have been deemed allocated from this Program.
HISTORICAL COMPENSATION TO NATIONAL/EFFECT OF ACQUISITION
The following table sets forth the compensation accrued by National, as
well as actually paid to National, during the years ended December 31, 1997,
1996 and 1995, and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
Incurred
Incurred Actually Incurred Actually Incurred Actually for Actually Paid
for Year Paid for for Year Paid for for Year Paid for Six Months in Six Months
Ended Year Ended Ended Year Ended Ended Year Ended Ended Ended
Name of Program 12/31/95(1) 12/31/95(2) 12/31/96(1) 12/31/96(2) 12/31/97(1) 12/31/97(2) 6/30/98 6/30/98
--------------- -------- -------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mori Point $100,000(2) $-0- $100,000(2) $-0- $100,000(2) $27,333 $50,000 $10,000
</TABLE>
- ---------------
(1) These amounts represent accrued asset management fees.
(2) Approximately $125,772 per year if the Acquisition had been completed
during the above periods including $65,401 of estimated salaries to be paid
by the Company to its officers and which were allocated to the Mori Point
Program based on Exchange Values. No cash would have been available to pay
officers' bonuses or dividends to shareholders.
HISTORICAL CASH DISTRIBUTIONS TO INVESTORS/
EFFECT OF THE ACQUISITION
No cash distributions made to Investors in any of the years ended December
31, 1992, 1993, 1994, 1995, 1996 or 1997. Prior to 1992, $1,354,708 in interest
was distributed to Investors. The Acquisition is not expected to alter this
distribution pattern.
17
<PAGE>
FURTHER FINANCIAL INFORMATION
See the following portions of the Prospectus for further financial
information about the Mori Point Program, as well as the others:
- "Selected Financial Information" at page __.
- "Management's Discussion and Analysis of Financial Condition and
Result of Operations" at page __.
- "Financial Statements" at page F-1.
18
<PAGE>
SUPPLEMENT TO CONSENT SOLICITATION STATEMENT/PROSPECTUS
OF
AMERICAN FAMILY HOLDINGS, INC.
PREPARED FOR INVESTORS IN
CYPRESS LAKES "TRUDY PAT" PROGRAM
CAPITALIZED TERMS USED IN THIS SUPPLEMENT AND NOT DEFINED
HEREIN HAVE THE MEANING GIVEN TO THEM IN THE PROSPECTUS.
SEE "GLOSSARY" AT PAGE __ OF THE PROSPECTUS.
-------------------------
You must read the entire Consent Solicitation Statement/Prospectus to
fully understand the Acquisition. This Supplement has been prepared to help
the Investors in the Cypress Lakes Program to understand how the Acquisition
described in the accompanying Prospectus will affect them. If completed, the
effects of the Acquisition may be different for Investors in the other
Programs. A separate supplement has been prepared for each of the other
Programs, copies of which may be obtained, without charge, by writing to
National Investors Financial, Inc., 4220 Von Karman Avenue, Suite 110,
Newport Beach, California 92660, Attention: Vivian Kennedy, or calling
1-800-590-7772.
As described in the accompanying Prospectus, American Family
Holdings, Inc. (the "Company") is offering units of its securities in
exchange for the assets (including cash reserves), certain liabilities and
business activities owned by Investors in seven former "Trudy Pat" programs
and three other programs managed by National Investors Financial, Inc.
("National"). For this proposed Acquisition, the Company will issue an
aggregate of $[28,066,419] of units arbitrarily valued at $20 per unit. A
unit consists of one share of common stock plus warrants to purchase three
additional shares. [The shares included in the units will be listed for
trading on the ___________ under the symbol "___." The warrants will [not]
be listed for trading.] The purpose of the transaction is to consolidate the
operations of the programs, improve the ability to sell or obtain financing
for development of the programs' properties, eliminate the assessment
process, focus on revenue-generating potential, improve efficient of
operations in order to reduce costs and increase profit potential, and
provide the investors with liquidity for their investments.
Of the [1,403,321] units to be issued by the Company in the Acquisition,
Investors in the Cypress Lakes Program will receive a total of [291,296]
shares or [153 shares per $10,000 of Adjusted Outstanding Investment. After
the costs of an outright sale of the property, and the payment of Program
liabilities, National does not believe any alternative would yield to Investors
in the Cypress Lakes Program an amount that is higher than the value of the
Company units to be received in the Acquisition. You may receive additional
units if your program's property is sold, and if before December 31, 1999,
cash sale proceeds (net of closing costs and interest) are received in excess
of the property's March 1998 appraisal value.
In each of the Programs, the Investors will vote on whether to approve the
Acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED IN THE SEVEN
"TRUDY PAT" PROGRAMS MUST VOTE TO APPROVE THE ACQUISITION FOR IT TO TAKE PLACE.
This solicitation commenced on _______, 1998 and expires at 5:00 p.m.,
Pacific Time, on __________, 1998 unless extended. Call 1-800-590-7772 with
questions.
MOST MATERIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will no longer have a
tenancy-in-common interest in your program's property. Instead, you will
hold shares in a publicly-traded real estate company and will not receive
liquidation proceeds when, or if, your program's property is sold. As an
investor in a publicly-traded company with many stockholders, you will have
relatively less voting power.
- - If the acquisition is approved, your investment will be subject to the
risks associated with residential development plus new risks associated with
a business which also operates a golf course and a recreational vehicle park,
and which plans to pursue the development of timeshare facilities, commercial
facilities, and a hotel/conference center.
- - If a trading market develops, the initial trading price for the stock
will likely be substantially below the arbitrary value of $20 per unit
assigned for purposes of the acquisition. Thus, the value of the units you
receive may be less than you might receive if the property of your program
were sold.
- - Principal stockholders of National and executive officers of the
Company will hold approximately (6.23% if all the units are sold in the
concurrent offering and 4.66% if all the units are sold in the concurrent
offering and all warrants issued in the acquisition are exercised) for which
they paid $0.01 per share and will receive annual cash compensation
aggregating $560,000 as officers and employees. National will be relieved of
its servicing and asset management obligations and will no longer earn
servicing and asset management fees of approximately $885,000 annually.
However, the Company will still owe National over $1,800,000 of accrued but
unpaid fees and expenses.
- - No independent advisors represented you in structuring this transaction.
- - There can be no assurance that the transaction is not a taxable event.
If so, National believes a tax loss is the probable result for most of you.
- - The Company must have additional cash to fund its proposed
operations. If it cannot obtain such funding from the sale of certain of its
properties, the exercise of the warrants included in the units or the sale
of additional units, it will be no more successful than the programs have
been individually in completing the development of some or all of the
properties.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE ACQUISITION.
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MATERIAL RISKS AND DISADVANTAGES
A full description of the material risks of the Acquisition may be found
on pages [__] through [__] of the accompanying Prospectus. Those risks
include:
RISKS OF THE ACQUISITION
THERE WILL BE FUNDAMENTAL CHANGE IN THE NATURE OF YOUR INVESTMENT.
If the acquisition is completed, there will be a change in the nature of the
investment of each investor from holding a tenancy-in-common interest in real
estate to holding shares (and the right to buy additional shares) in an
on-going company, the assets of which may be changed from time to time
without approval of investors. If the acquisition is completed, investors
will be able to liquidate their investments only by selling their shares
[on the _____] or in private transactions, and they will not receive a
return of their investment in the form of liquidation proceeds through
property sales. If the acquisition is completed, investors will have an
investment in an entity that is larger than each of the programs and will
thus lose relative voting power. Investors will have an investment in a
business which also operates a golf course and a recreational vehicle park,
and which plans to pursue the development of timeshare facilities and a
hotel/conference center.
THE EXCHANGE VALUES OF THE PROGRAMS ARE NOT THE SAME AS THE POTENTIAL
SALES PRICE. Investors are subject to the risk that the exchange value of a
program does not reflect the price a program's assets might bring in a sale.
If the property of a program were to be sold, the net proceeds of the sale
and the amount finally distributed to an investor in that program may be more
or less than the exchange value. There is no assurance that the future value
of the shares and warrants received in the acquisition will be greater than
the most recent appraised value of the property.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. Initially, shares may
trade at prices substantially below the arbitrarily determined exchange value
of $20 per unit or the historical book value of the company's assets. There
is no guaranty that a liquid trading market will develop for the shares, or
be sustained. If a trading market develops for the shares, the price of
shares after the acquisition will likely decrease below the exchange value
per share of $20 due to a potentially large number of shares that investors
may sell immediately after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN STRUCTURING THE ACQUISITION. The
founders of the company, and specifically the principal shareholders of
National, as well as National itself, will be subject to conflicts of
interest. The principal shareholders and employees of National and the
company will hold approximately [16.35]% of the company's outstanding stock
(6.23% if all the units are sold in the concurrent offering and 0.66% if all
the units are sold in the concurrent offering and all warrants in units
issued in the acquisition are exercised) for which they paid $0.01 per share.
Other founders of the company will hold approximately [2.3]% of the
company's outstanding stock (0.88% if all the units are sold in the
concurrent offering and 0.66% if all such units are sold and all warrants
issued in the acquisition are exercised) for which they also paid $0.01 per
share. Thus, the investors' total ownership interests in the programs'
properties will be diluted by the equity interest in the company held by the
founders of the company. The principal stockholders of National and other
executive officers of the
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company will receive annual cash compensation aggregating $560,000 as
officers and employees of the company. National will be relieved of its
servicing and asset management obligations and will no longer earn asset
management or servicing related fees. However, despite the fact that
National will have forgiven over $3,800,000 of unpaid fees and expenses, the
company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not
favored by the board of directors. These provisions include a board of
directors with three classes serving staggered three year terms, the
inability to remove a particular director before the expiration of his or her
term without a two-thirds supermajority vote, and the inability to amend the
anti-takeover provisions of the charter documents without a similar vote.
Thus, if investors are unhappy with management's performance, it will be more
difficult to remove directors not favored by the investors.
NO INDEPENDENT PARTY WAS RETAINED BY NATIONAL TO NEGOTIATE ON BEHALF OF
THE INVESTORS. Therefore, terms of the acquisition may be less favorable to
investors and more favorable to founders of the company which included the
principal shareholders of National than if the acquisition had been subject
to arm's-length negotiation. Had an independent party negotiated on behalf
of each program, the terms of the acquisition may have been more favorable to
certain or all of the programs and fewer shares and less favorable employment
contracts may have been received by the founders of the company.
THE ACQUISITION MAY NOT BE A TAX-FREE TRANSACTION TO INVESTORS. Due
to uncertainties in the facts of this transaction, tax counsel is unable to
opine conclusively on the tax consequences of the acquisition to investors.
The acquisition may be taxable, if at all, only with respect to the
investors' receipt of warrants. Alternatively, if the acquisition is a fully
taxable transaction, an investor would recognize gain or loss in 1998 equal
to the difference between the investor's tax basis in his interest in a
program property, and the number of shares of the company received valued at
$20 per unit. If the acquisition is treated as fully taxable, National
believes most investors would recognize a tax loss.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the
acquisition, none of the properties will be subject to any liens other than
for property taxes. The board of directors could authorize borrowing by the
company the debt service for which may adversely affect the company's ability
to make distributions to shareholders. The company may incur full recourse
debt which exposes all of the assets of the company to repayment instead of
limited recourse debt which generally exposes specific properties for the
repayment of debt.
THE BOARD OF DIRECTORS MAY UNILATERALLY CHANGE INVESTMENT, FINANCING AND
CERTAIN OTHER POLICIES WITHOUT SHAREHOLDER APPROVAL. Although the board of
directors of the company intends to implement the business plan set forth
herein, the board will have the ability to change investment, financing and
other policies of the company without the consent of shareholders.
THERE WILL BE NO APPRAISAL OR SIMILAR RIGHTS FOR NONCONSENTING
INVESTORS. If you vote against the acquisition, and it is approved, you will
not be able to object to the acquisition and
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receive the appraised value of your tenancy-in-common interest in your
program's assets. You will have no choice other than to accept units for
your interests.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed over a year
ago to take part in the acquisition of your property. It does not have the
benefit of operating for a long time. This means that shares in the company
are much riskier than ownership of shares of established companies. If the
company had been operating as if it owned the properties which it desires to
acquire, it would have experienced losses to date.
THERE WILL BE FUNDAMENTAL CHANGES IN THE BUSINESS PLAN IF THE
ACQUISITION TAKES PLACE. Rather than being focused on a single property, the
company will be an infinite life entity focused on the management of the
properties of at least seven of the former "Trudy Pat" programs plus the
properties of other programs which elect to participate in the acquisition.
The effect of this on investors is two-fold. First, poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the other properties. Second, there will be no
particular time when an investor can expect that a sale of any of the
properties will result in cash distributions to him or her.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes
or sales of a particular property. Those decisions will be made by the board
of directors or management. In addition, you will have an investment in an
entity that is larger than each of the programs and, thus, you will lose
relative voting power.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular principal and interest payments on
their original investments, because of the borrowers' defaults there have
been no distributions from any of the programs, other than the Oceanside
program, in the past three years. Future cash distributions will be based on
the company's earnings and the decision of the board of directors to pay
dividends. Therefore, even if a property in which you formerly held an
interest were to perform well, there is no assurance that there would be cash
distributions to you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. Prior to the
dates that title to the properties securing the original program loans was
taken, National was entitled to an annual loan servicing fee equal to one
percent of the original loan amounts. When title to the properties was taken
on behalf of the programs, even though the loans no longer existed, National
continued to charge the same rate as the servicing fee for the asset
management services it provided to investors. The investors in each of the
programs had become the beneficial tenant-in-common owners of real estate,
most of which was undeveloped. While it had no obligation to do so, in order
to assist the beneficial owners in protecting their real estate assets and
readying them for sale or development, National assumed the duties of an
asset manager after title was taken to the properties. In this capacity,
National obtained information from investors about their preferences in
regard to development or sale of the properties, and facilitated the
assessment of investors to raise funds necessary to pay property taxes,
insurance and other costs of property ownership.
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The annual fees payable to National are currently $50,000 for
Sacramento/Delta Greens; $300,000 for Oceanside; $61,068 for
Yosemite/Ahwahnee I; $133,646 for Yosemite/Ahwahnee II; $100,000 for Mori
Point; $140,000 for Cypress Lakes; $150,000 for Palmdale/Joshua Ranch; $5,000
for Esperanza; $3,153 for Stacey Rose A; and $850 for Stacey Rose B.
In addition to the one percent fee, compensation has been earned for
property management services provided to the Oceanside program ($896,000
accrued since the date of ownership (November 1993) through June 30, 1998;
$876,000 actually paid) and Yosemite/Ahwahnee properties ($594,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervision of: entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside
and Yosemite/Ahwahnee projects; and contract negotiations and documentation.
To the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
In the future, compensation will be paid to officers of the company in
the form of salaries (aggregating $560,000 annually plus contractual bonus
opportunities and salary increases), stock options and other benefits. See
"Management Following the Acquisition -- Directors and Executive Officers
Compensation and Incentives" for details of stock options and other benefits.
These salaries and other forms of compensation will be payable to management
of the company even if one or more of the properties acquired in the
acquisition is subsequently sold.
HOLDERS OF MAJORITY OF TENANCY-IN-COMMON INTERESTS BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of outstanding
interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THAT THE EXCHANGE VALUES FOR THOSE
PROPERTIES COULD BE TOO LOW OR TOO HIGH. National reviewed the updated March
1998 appraisal of the Yosemite/Ahwahnee properties which reflected an
aggregate "as is" appraised value of $20,246,000 and the October 1996
appraisal which reflected an "as is" aggregate appraised value of $4,000,000.
The results of those appraisals clearly differed from each other, and, in
management's judgment, the difference could not be accounted for solely by
improving market conditions. Some of the parcels, including the golf course,
were subsequently sold, on June 5, 1998, to the Oceanside Program investors
to obtain working capital for the Yosemite/Ahwahnee programs. Based on its
review of all appraisals, National concluded that the properties currently
owned by the
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Yosemite/Ahwahnee I and II Programs have values of $5,486,000 ($1,782,950 and
$3,703,050, respectively), and the parcels currently owned by the Oceanside
Program have a value of $5,080,000. National believes its approach is
reasonable.
GENERAL REAL ESTATE RISKS
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent
property taxes are not timely paid, the company could lose one or more of the
properties to tax sales. Each of the programs' properties is subject to the
following delinquent property taxes as of August 31, 1998: Sacramento/Delta
Greens -approximately $27,000; Yosemite/Ahwahnee (combined) - approximately
$500,000; Mori Point - approximately $165,000; Cypress lakes - approximately
$204,000; Palmdale/Joshua Ranch - approximately $63,000; Esperanza -
approximately $20,000; and Stacey Rose (combined) - approximately $30,000.
Annual payments required for all the properties for current taxes (including
amounts currently due on five-year payment plans) total approximately
$549,000. In the case of Sacramento/Delta Greens, Yosemite/Ahwahnee, Mori
Point, Palmdale/Joshua Ranch and Stacey Rose properties, National has entered
into statutorily authorized 5-year payment plans with the applicable taxing
authorities.
CERTAIN ASSETS MUST BE SOLD TO RAISE WORKING CAPITAL. Unless a minimum
of approximately $[4,565,000] from sale of certain assets of the programs or
the sale of units in the concurrent offering or the exercise of warrants
become available, the company will not be able to proceed with its entire
business plan. The company will also need financing from other sources to
complete its plan. Financing sources are not predictable and interest rates
or other costs of financing may be prohibitive. Neither the programs nor the
company have received any commitment from other sources. In their current
tenancy-in-common structure, the programs cannot obtain traditional bank
financing.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL AND OTHER LAWS MAY REQUIRE
EXPENSIVE HAZARDOUS SUBSTANCE CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC
IMPROVEMENTS. We have not conducted any environmental audits on the
properties. As a result, there may be environmental liability to the company.
Local governments have required residential developers to pay assessments
for streets, schools and parks which increase the cost of development.
Increased costs can have a negative affect on the company's sale of
residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as
earthquakes and floods may be uninsurable or too expensive to insure. The
company does not plan to carry earthquake or flood insurance. If an
uninsured loss occurs, the company would lose capital as well as revenues,
and would still owe other debts related to the property affected, if any.
THE DEVELOPMENT OF ADDITIONAL PROJECTS MAY OCCUR. We may develop
additional projects in the future, although we have no immediate plans to do
so. Real estate development involves more risks than in the ownership and
operation of established projects. Financing may not be available on
favorable terms for development projects; construction may not be completed
on
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schedule or budget; long-term financing may not be available on completion of
construction; and sites may not be sold on profitable terms.
THE CALIFORNIA ECONOMY HAS FLUCTUATED BROADLY IN THE PAST FEW YEARS.
Initially, we will conduct all of our business in California. Our markets
have been affected by substantial fluctuations in local economic conditions,
interest rates, inflation, employment levels and regulations. California has
also experienced draught conditions, resulting in water conservation measures
and rationing. In the past, these conditions have caused local governments
to restrict residential development. California's climate and geology
present risks of natural disaster such as earthquakes and floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE
OWED $[1,818,684] BY THE COMPANY. This represents accrued fees and expenses
from the programs which National has not cancelled. This amount is due and
payable and the company intends to start paying it after the Acquisition, but
only from operating revenues, proceeds from the sale of assets or the
exercise of warrants, and not from working capital generated by the proceeds
of unit sales in the concurrent offering.
REAL ESTATE RISKS OF SACRAMENTO/DELTA GREENS
PERMITS TO DEVELOP THE PROPERTIES NEED TO BE OBTAINED. Construction of
the Sacramento/Delta Greens property will require approval of a new tentative
map, the filing of a final map and obtaining building permits from the city.
The tentative tract map process for the Sacramento/Delta Greens property
required that studies be conducted to identify any endangered species'
habitat on the property. Since some were identified, changes to the tentative
development plans have been made to reduce or eliminate any damage to the
habitat. A new tentative map needs to be approved by the City. The longer
this process takes, the longer it will be before any of the property is ready
for any construction, further development activity or sale.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS AT THE SACRAMENTO/DELTA GREENS
PROPERTY MAY CAUSE THE COMPANY TO INCUR SUBSTANTIAL CARRYING COSTS UNTIL THE
LOTS CAN BE SOLD. Changing market conditions may increase the difficulty of
selling the lots. If the company chooses to build homes on the lots, delays
in construction, the lack of reasonably priced construction or mortgage
financing, and the general California economy could lengthen the holding
period for the lots. This would mean a delay in realizing cash from the
business operations. The average carrying costs, including property taxes,
management and servicing related fees, for this property has averaged
approximately $10,000 per month over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, our properties may be sold at a loss. The location of the company's
lots, the presence of other competition, customer acceptance and pricing are
all factors affecting success. Competitors may have better financial,
managerial and other resources, affecting our ability to successfully compete.
Sacramento/Delta Greens represents over 5% of the assets of the company.
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ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay the engineering costs required to mitigate endangered
species issues and pay for the planning and design expenses for the city to
approve a new tentative trace map (estimated by management to cost
approximately $25,000). Another risk is whether the lots to be developed
will appeal to builders and whether home financing will be available.
Finally, there is a risk that the development and sale of lots or homes will
be profitable.
REAL ESTATE RISKS OF YOSEMITE/AHWAHNEE PROPERTIES (INCLUDING THE GOLF
COURSE AND SURROUNDING LAND WHICH IS OWNED BY THE OCEANSIDE PROGRAM INVESTORS)
PERMITS TO DEVELOP THE CONDOMINIUM-TYPE TIMESHARE ASPECT OF THE RESORT
HAVE NOT YET BEEN OBTAINED. The Yosemite/Ahwahnee property has a final map
on 32 remaining single family estate lots and a use permit for a 600 space
recreational vehicle park. Planning and development are underway for 100
additional recreational vehicle sites, as well as vacation villa timeshare
units. Additional planned usage such as traditional, attached timeshare
units will require extensive county and state approvals.
RISKS AFFECTING OPERATION OF A GOLF COURSE. Increased competition,
seasonality, weather and course conditions will affect the operations of the
company. While no new golf courses have opened near the Ahwahnee Golf
Course, new courses could increase the competition and reduce the rounds
played. Seasonal variations may require the company to supplement revenue at
the golf course to meet operating expenses. Weather can negatively affect
the turf grass and reduce the number of rounds played. Inflationary costs
may not be offset by increased dues. Also, golf's success depends on
discretionary spending by consumers, which may be vulnerable to regional and
economic conditions, as well as to pleasure or destination travel preferences
by visitors and tourists. All of these factors could reduce the amount of
money earned by the company.
The Yosemite/Ahwahnee golf course can be an important amenity which may
attract potential timeshare purchasers in the future. At this time, the
project does not rely on the golf course for its revenue. National estimates
that the value of the golf course will be less than 20% of the assets of the
company.
RESORT DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF REASONS AND COULD
RESULT IN LOSSES. In addition to normal real estate risks, financing is hard
to obtain, and the lodging industry can be unpredictable, seasonal and very
competitive. Without additional financing or capital, the company will not
be able to develop its resort projects as part of its growth strategy.
Economic conditions, changes in travel patterns, extreme weather conditions,
labor and other variable costs can all affect revenues and profits. For
example, Spring through Fall at the Yosemite/Ahwahnee property are the
periods of highest occupancy. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues.
RISKS RELATING TO TIMESHARE OPERATIONS. Certain factors affecting
timeshare operations could result in losses. Negative press surrounding the
remarketing of timeshares might negatively impact sales and operations. Also,
marketing costs are high relative to selling price which can reduce or
eliminate profits from the sale of timeshare interests.
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In addition, according to the American Resort Development Association,
there is a tendency for timeshare owners to default more often on their
timeshare loans then homebuyers who borrow to buy a home. If a buyer
defaults, we would incur costs in remarketing the timeshare.
The timeshare industry is extremely competitive and we may not be able
to secure development financing on acceptable terms.
Since the project is not yet permitted for traditional attached
timeshare units, there has been no allocation of assets. Should attached
timeshare be approved, the company anticipates that a significant portion of
the revenue of the company will be derived from sales of timeshare units.
RISKS RELATING TO RECREATIONAL VEHICLE PARK OPERATIONS. Risks relating
to recreational vehicle parks are substantially the same as those described
above for timeshare projects.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to (i) make up for the current cash drain from operations and
maintenance of the golf course, clubhouse and current recreational vehicle
facilities (estimated by management at approximately $350,000) annually and
(ii) complete the construction of additional recreational vehicle sites and
obtain approvals for and construction of the first group of vacation villa
timeshare units (estimated by management to cost approximately $3,000,000).
There are also a risk that the operation of recreational vehicle sites,
timeshares and golf course activities will not be profitable.
REAL ESTATE RISKS OF MORI POINT PROPERTY
PERMITS TO DEVELOP THE PROPERTY HAVE NOT YET BEEN OBTAINED. If needed
permits for development are not obtained or reissued, the business plan for
the company will have to be revised. Additionally, the presence of two
endangered species on the Mori Point property increases the risks that
necessary approvals may not be received if an acceptable habitat mitigation
plan cannot be developed. The permitting process with the California Coastal
Commission and the City of Pacifica is expensive and time consuming. Mori
Point had a specific plan and tentative map approvals to build a
hotel/conference center which expired in 1991. These approvals must be
obtained or reinstated prior to construction on the property. Mori Point
will represent approximately 20% of the assets of the company.
HOTEL/CONFERENCE CENTER DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF
REASONS AND COULD RESULT IN LOSSES. In addition to normal real estate risks,
financing is hard to obtain, and the lodging industry can be unpredictable,
seasonal and very competitive. Without additional financing or capital, the
company will not be able to develop its hotel/conference center project as
part of its growth strategy. Economic conditions, changes in travel
patterns, extreme weather conditions, labor and other variable costs can all
affect revenues and profits. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues. At the hotel/conference center
property at Mori Point, we may be competing against well-known chains and
extended-stay inns.
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ADDITIONAL SPECIFIC RISKS. There is a risk that the city government
will not approve the property for its intended use. Capital to conduct
engineering and environmental studies in order to apply for and obtain
approvals for its use from the city is estimated to be approximately
$500,000. Capital will also be necessary for roads, utilities and other
infrastructure costs prior to construction. Finally, there is a risk that
the proposed hotel/conference center may not be profitable.
REAL ESTATE RISKS OF CYPRESS LAKES PROPERTY
THE VESTED TENTATIVE MAP WILL EXPIRE IN APRIL 1999 UNLESS RENEWED AND
THE BUILD OUT OF THE PROPERTY WILL BE EXPENSIVE. Due to being located in a
100-year flood plain, the property requires a levee to be constructed around
its perimeter which is very expensive to construct. Preliminary engineering
estimates indicate these costs to be more than $9,000,000. It may be
desirable to change the vesting tentative map if the costs can be reduced
significantly. While mere extension of the expiration date of the existing
vested tentative map is not expected to be controversial, any changes in the
existing plan could subject the project to public hearings which might result
in additional costs being placed on the project. This could further increase
the high front-end financial requirements. Additionally, such modifications
might not be approved.
Cypress Lakes is a proposed master-planned community and represents more
than 20% of the assets of the company. Joint venture partners would have to
be brought in by the Company to help with the large capital requirements of
such a large project in order to develop it. It may be difficult to find
substantial builder/developers who have the financial ability to purchase or
develop the project. Changing market conditions may increase the difficulty
in selling lots.
Should the company determine to build out the project, delays in
construction, reasonably priced mortgage and construction financing and the
local and general California economy could lengthen the holding period for
the lots. This would mean delays in realizing cash from the business
operations.
RISKS AFFECTING OPERATION OF A GOLF COURSE. When, and if, the golf
course is developed, it will face competition from the 15 golf courses within
a 25-mile radius. Seasonality, weather and course conditions will affect the
operations of the company. Weather can negatively affect the turf grass and
reduce the number of rounds played. Inflationary costs may not be offset by
increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as
well as to pleasure or destination travel preferences by visitors and
tourists. All of these factors could reduce the amount of money earned by
the company.
RISKS OF RESIDENTIAL DEVELOPMENT. Totaling 1,330 lots, a large supply
of lots would be available and, due to the cyclical nature of the housing
industry, demand may fluctuate differently than supply. This could result in
needing to sell lots at a loss. Due to the size of the project, it could
take between six and ten years to complete, which would subject it to new
competitors entering the marketplace during the sales period. An
environmental impact report
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was obtained on the property. Any and all environmental concerns will be
mitigated as required in the vested tentative map conditions of approval. No
evidence of endangered species that would limit or preclude development of
the project have been found.
REAL ESTATE RISKS OF PALMDALE/JOSHUA RANCH PROPERTY
A FINAL TRACT MAP MUST BE RECORDED. After several years of effort by
National, the vested tentative map was approved by the City of Palmdale at a
hearing before the planning commission in early July 1998. A final recorded
map must be secured by National or a buyer in order to build on the property.
Final engineering, soils, utility and various improvement studies will need
to be conducted in order to record the final map.
PERMITS TO DEVELOP THE PROPERTY NEED TO BE OBTAINED. A final recorded
map, which could take nine to twelve months after starting the process, will
be required prior to construction. Due to the size of this project which
encompasses some 739.6 acres and is currently planned for 539 lots,
additional grading studies, soils investigation and utility planning needs to
be done which could negatively impact the cost of this large-scale
development.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Finding
builder/developers that have the financial strength to handle this size
project can be difficult. Changing market conditions, the lack of
reasonably-priced construction or mortgage financing and the general or local
market conditions could lengthen the holding period for lots. This would
mean a delay in realizing cash from business operations. The average
carrying costs, including property taxes, predevelopment and asset management
services for this property have averaged approximately $16,300 per month over
the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, the property may be sold at a loss. The location of the lots, the
presence of other competition, customer acceptance and pricing are all
factors affecting success. Competitors may have better financial, managerial
and other resources affecting the company's ability to successfully compete.
An environmental impact report was obtained on the property. Any and all
environmental concerns will be mitigated as required in the vested tentative
map conditions of approval. No evidence of endangered species that would
limit or preclude development of the project have been found.
Palmdale/Joshua Ranch is a proposed residential development and
represents about 10% of the assets of the Company.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay for or finance (i) engineering, soils and utility studies
which is estimated to cost approximately $140,000, and (ii) another risk is
whether the lots to be developed may appeal to project builders.
Palmdale/Joshua Ranch is a proposed residential development and represents
about 10% of the assets of the company.
11
<PAGE>
REAL ESTATE RISKS OF ESPERANZA PROPERTY
RISKS OF COMMERCIAL DEVELOPMENT. The material risks associated with
the development of the Esperanza Property are (i) as of August 31, 1998,
approximately $23,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the property for delinquent property
taxes; and (ii) despite a strong economy, rents and values for many retail
properties are expected to remain soft in 1998. Pressure on rents brought
about by over building, weakness in demand for space and store closures
caused by lagging profits are the forces causing a soft market. No
environmental or endangered species reports have been prepared for the
property.
ADDITIONAL SPECIFIC RISKS. Within the City of Victorville there are
approximately 3,250 acres zoned for commercial use, of which 60% remains
available for development. Victorville is home to the largest enclosed
regional shopping center between San Bernardino and Las Vegas, which is known
as The Mall of Victor Valley. These commercial sites represent significant
competition to the Esperanza project. There are more than 5,400 acres within
the city limits of Victorville zoned for light and heavy industrial use.
Nearly nine percent of this 5,400 acres of land is vacant and is available in
parcels ranging in size from one-half to five hundred acres.
REAL ESTATE RISKS OF STACEY ROSE PROPERTIES
RISKS OF RESIDENTIAL DEVELOPMENT. The material risks associated with
the development of the Stacey Rose Properties are (i) as of August 31, 1998,
approximately $30,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the Properties for delinquent property
taxes; (ii) it is estimated that it may cost about $50,000 to finalize a
tentative tract map on the parcels; (iii) a substantial, and potentially
expensive, sales and marketing effort will be necessary to sell homes
constructed on the properties if a bulk sale of the lots is not made; (iv)
the properties are located in a lower income residential area; and (v)
increasing government fees and assessments for streets, schools, parks and
other infrastructure requirements could increase the cost of lots to the
company, thereby increasing the sales price of the lots which will delay
market absorption. No environmental or endangered species reports have been
prepared for the property.
ADDITIONAL SPECIFIC RISKS. There is a risk that (i) adequate funds will
not be available to finalize a tentative tract map on the parcels
(approximately $50,000); (ii) the project will not appeal to project
builders; and (iii) home financing at reasonable costs may not be available.
There is also a risk that the development and sale of lots or home may not be
profitable
ANTI-TAKEOVER PROVISIONS
Certain provisions of the charter documents may restrict changes in
control of the Company's management. These provisions may make it more
difficult or expensive for another party to acquire and exercise control of
the Company or to change its management, even if that change would be
beneficial to you. These provisions include:
12
<PAGE>
ADDITIONAL CLASSES OF SHARES. Under the company's certificate of
incorporation, subject to the receipt of fair value, the Board of Directors
may issue shares in other classes or series and fix the rights, powers and
limitations associated with such shares. Although the Board of Directors has
no present intention of doing so, it could issue a class or series that
could, depending on its terms, impede a merger, tender offer or other
transaction that you might believe is in your best interest or in which you
might receive a premium for your shares over the then current market price.
The issuance of such shares could also dilute your voting power.
STAGGERED BOARD. The Board of Directors is divided into three classes
serving staggered three year terms. This arrangement may affect your ability
to change control of the company, even if you believe such a change is in
your best interests.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The company's
certificate of incorporation, as well as Delaware law, prohibits certain
business combinations with owners of more than 15% of the outstanding voting
stock of the company ("interested stockholders") within the three year period
immediately prior to the date on which the interested stockholder became an
interested stockholder. These restrictions on certain business combinations
may deter potential purchasers who seek control of the company.
SUPERMAJORITY VOTES. Changes to the company's certificate of
incorporation which cover anti-takeover provisions require the approval of
two-thirds of the company's voting stock. This restriction also may deter
potential purchasers who seek control of the company.
In addition to the anti-takeover provisions, the Delaware law, as well
as the charter documents, limit the liability of directors and officers to
shareholders. This limitation of liability may exceed the protections
National enjoys under the programs' servicing agreements and limit
shareholders' claims against management.
FAIRNESS TO INVESTORS IN THE CYPRESS LAKES PROGRAM
From a financial point of view, the company and National believe the
terms of the acquisition are fair as a whole and to the investors in each of
the programs. This determination is based on consideration of the following
positive and negative factors:
- the units offer an opportunity for individual investor liquidity
while the tenancy-in-common interests do not, however, there is no assurance
that the shares will have any liquidity, or that any liquid market that
develops will be sustained;
- while the number of units to be issued to reflect the exchange
value of a program is arbitrary, the trading price of the shares included in
the units initially is likely to be substantially below the $20 value
arbitrarily assigned to the units. In our opinion, the exchange values
offered to investors for their assets allow for an equitable allocation of
the [1,403,321] units ([1,380,175] units if only the "Trudy Pat" programs
participate) among the programs. The disparity between exchange values and
appraised values results from adding the value of program cash reserves and
other assets, if any, to appraised values and deducting program
13
<PAGE>
liabilities (principally accrued property taxes and other fees net of fees to
be forgiven by National);
- on completion of the acquisition the investors will hold over
80%(over 94.7% if all units are sold in the concurrent offering and all of
the warrants included in the units to be issued in the Acquisition are
exercised) of the outstanding stock of the company. After the acquisition, a
total of [16.86]% of the outstanding stock of the Company will be held by
Cypress Lakes investors (17.09% if only the seven "Trudy Pat" programs
participate). After the acquisition, founders of the company (principals,
employees, former employees and consultants of National) will hold less than
20% (__% if only the seven "Trudy Pat" programs participate). Founders'
shares were purchased for $.01 per share. Among the Properties, National and
its principals will have forgiven over $3,800,000 of expenses and accrued
fees of which a total of approximately $2,148,000 was earned for asset
management and property management services after the loans defaulted and
before the Ownership Dates for the properties. The balance was earned after
foreclosure for asset and property management services and expenses. Of such
amount, $1,120,000 is attributable to fees owed by Cypress Lakes investors.
National believes that the amount paid for the property management services
is no greater than the amount that a third party would charge;
- the current appraised value of the Cypress Lakes real estate assets
($6,000,000) (as well as the real estate assets of the other programs) and
the fact that substantial financing is needed to further the property's
development;
- the probability that the transaction will have minimal, if any,
negative tax affect on investors. National believes there will likely be no
out-of-pocket tax cost to all, or the vast majority, of you;
- while conflicts of interest exist in the structuring of the
acquisition, the issuance of shares to the founders of the company and the
determination of management compensation and while you did not have
independent representation in the structuring of the acquisition, we believe
they have been counterbalanced by your opportunity to vote on the transaction
and the Fairness Opinion;
- while the Cypress Lakes Program (as well as the other programs)
were originally formed to have a two to four year finite life which should
have ended between 1995 and 1997 and the investors expected to receive a
return of their investment from the original borrower, the company is an
infinite life entity which will not return the program investors' original
investment based on a sale or refinancing of the properties underlying the
original programs. However, after the borrowers defaulted on the "Trudy Pat"
loans, the investors became beneficial owners of the underlying properties
with the need to complete development, manage or otherwise ready the
properties for sale. Those endeavors had no fixed timetable and, thus, the
finite life aspect of their original investments was significantly changed.
Therefore, the infinite life aspect of the company is not viewed by National
to be a material change from the investors' CURRENT situation;
- the acquisition will cause fundamental changes in the business plan
of the Cypress Lakes program. Rather than being focused on the development
of a single property for residential purposes, the company will be focused on
the management of at least seven and as many as ten properties. Thus, the
poor performance of a particular property may affect the
14
<PAGE>
Company's operations as a whole regardless of the performance of the Cypress
Lakes property. Further, there will be no particular time when an Investor
can expect its interest to be automatically liquidated;
- the fact that the Cypress Lakes property has been reviewed by
several potential buyers or developers without the receipt of any purchase
offers;
- investors will not be able to vote on changes to or dispositions of
the Cypress Lakes property or borrowing secured by that property. Those
decisions will be made by the Board of Directors or management of the
company. Further, as investors in a larger entity, relative voting power will
be diluted;
- future cash distributions will be based on the company's earnings
and the decision of the Board of Directors to pay dividends rather than the
performance or sale of the Cypress Lakes property;
- investors voting against the acquisition will have no alternative
but to accept shares in the company if the acquisition is approved by holders
of a majority of the tenancy-in-common interests in each of the programs;
- the anti-takeover provisions of the company's charter documents
contain provisions that may have the effect of delaying or discouraging a
change in management which is not favored by the Board of Directors of the
company; and
- the Fairness Opinion rendered by Houlihan Valuation Advisers, an
independent valuation firm, which addresses only the allocation of the units
in the acquisition and not the amount of the consideration paid to program
investors in the acquisition as a whole. See "Background and Reasons for the
Acquisition" at page __ of the Prospectus.
National reviewed the arbitrary value you will receive in connection
with the acquisition and compared it with what you might receive if (i) the
Cypress Lakes property were operated "as is" ($1,327 per $10,000 of Adjusted
Outstanding Investment), (ii) the Cypress Lakes property was sold in a quick
sale in three months or less ($1,327 per $10,000 of Adjusted Outstanding
Investment), or (iii) the Cypress Lakes property was sold at the appraised
value, net of program debt, used to determine the Cypress Lakes exchange
value ($2,746 per $10,000 of Adjusted Outstanding Investment). Based on that
review, and even acknowledging that, initially, the company's shares included
in the units issued in the acquisition would likely trade substantially below
the arbitrary $20 issuance value for the units, National believes that there
is a higher probability of realizing value from the Cypress Lakes property
through the acquisition than through the other alternatives. This belief is
based on the expectation that some financing opportunities will become
available based on the form of the entity and the time pressure associated
with forced sales or liquidation will be relieved. See "Background and
Reasons for the Acquisition -- Comparison to Alternatives" and
"Recommendation of National and Fairness Determination" at pages __ and __ of
the Prospectus.
15
<PAGE>
Based on the above factors and comparisons, National concluded that the
acquisition is fair, both substantively and procedurally.
THERE ARE NO MATERIAL DIFFERENCES BETWEEN THE FAIRNESS ANALYSIS FOR THIS
PROGRAM AND FOR ANY OF THE OTHER NINE PROGRAMS PROPOSED TO BE INCLUDED IN THE
ACQUISITION.
CALCULATION OF EXCHANGE VALUE
The Exchange Value of the Cypress Lakes Program (as well as each of the
other Programs) is essentially the consideration at which the Company is
offering in exchange for the real estate assets, cash reserves, certain
liabilities and business of the Program. The value is reflected as a number
of units of the Company (in the case of the Cypress Lakes Program, 291,246
units) multiplied by an arbitrary $20 per share unit.
The Exchange Value for the Cypress Lakes Program was calculated as
follows: appraised value of the Cypress Lakes Program property at March 31,
1998, plus book value of other Cypress Lakes Program assets at August 31, 1998,
less Cypress Lakes Program liabilities at August 31, 1998.
The following table summarizes the calculation of the Exchange Value of
the Cypress Lakes Program and the value assigned on $10,000 of Adjusted
Outstanding Investment:
<TABLE>
<CAPTION>
Value Assigned
Appraised Net Other to Program per
Value of Assets and Exchange $10,000 of Adjusted
Real Estate(1) + Liabilities(2) = Value Outstanding Investment
-------------- -------------- -------- ----------------------
<S> <C> <C> <C>
$ 6,000,000 $[ (175,072] $ [5,824,928] $ [3,062](3)
</TABLE>
- ------------
(1) Reflects independent appraisal as of March 1998.
(2) The following table quantifies the adjustments to appraised values made in
determining Cypress Lakes property's Exchange Value as of August 31, 1998.
<TABLE>
<CAPTION>
Book Assets Book Liabilities Net Other Assets
(8/31/98)* - (8/31/98)* = and Liabilities
----------- ---------------- ----------------
<S> <C> <C>
$ 195,878 $ 370,950 $ (175,072)
</TABLE>
* See balance sheet of the Program in the financial statements
accompanying the Prospectus for details of book assets and book
liabilities. There is no mortgage debt on the Cypress Lakes property.
(3) Equals [153] Company shares arbitrarily valued at $20 per unit.
ALLOCATION OF SHARES
The [1,403,321] shares of Company common stock being offered to
Investors in the Acquisition represent over 80% of the Company's shares (___%
if all the units are sold in the concurrent offering and ___% if all the
units are sold in the concurrent offering and all warrants in units issued
in the acquisition are exercised) which will be outstanding upon
16
<PAGE>
completion of the Acquisition. The remaining shares will be held by
management and other founders of the Company. Such shares will be allocated
among the Programs pro rata in accordance with Exchange Values. The Cypress
Lakes Program will be allocated [291,246] shares.
The shares allocated to the Cypress Lakes Program will be allocated
among Investors in the Program based on their respective pro rata investments
in the Program (taking into account assessments paid and unpaid, as well as
interest accrued to each Investor through the date beneficial ownership of
the Program's Property was taken for the Investors) as adjusted for voluntary
advances. An Investor in the Cypress Lakes Program with an adjusted
investment amount of $10,000 will receive [153] units in the Company
arbitrarily valued at $20 per unit.
Neither National nor the Company's founders have any economic
interest in the Cypress Lakes Program except for National's contractual right
to asset management fees and the $3,200 of tenancy-in-common interests
purchased by National at the inception of the Program for which interests
National will receive units in the Acquisition pro rata with the other
Cypress Lakes Investors. National will undertake not to exercise the
warrants in the units
The following table and its footnotes sets forth the amount owed by the
original borrower to the Cypress Lakes Program (including accrued but unpaid
interest) plus the amount of assessments and advances paid by Investors at
August 31, 1998, appraised real estate value, Exchange Value of the Program,
the number and percentage of shares allocated to the Program, and the number
of shares and comparative value of the Company to be held by founders after
the Acquisition.
<TABLE>
<CAPTION>
% of Total
Shares to be
Outstanding
After the
Amount Real Estate Acquisition if
Owed plus Appraised Exchange No. of Shares All Programs
Name of Program Assessments Value Value(1) Allocated(1)(2) Participate
--------------- ------------ ------------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
Cypress Lakes $ 18,971,767 $ 6,000,000 $ [5,824,928] [291,246] [16.86]%
</TABLE>
- -------------
(1) The founders of the Company which include members of Company
management, as well as certain employees, former employees of National
and consultants to the Company and the Programs, will hold a total of
[323,631] Company shares after the Acquisition (18.74% of the
outstanding shares post-Acquisition, 17.48% if all the units are sold in
the concurrent offering and 5.3% if all the units are sold in the
concurrent offering and all warrants in units issued in the acquisition
are exercised) which, if valued at $20 per share, would have an
aggregate value of $[6,472,620]. The Company was formed, and shares
were purchased by the founders for $.01 per share, prior to making the
Acquisition proposal. The shares to be retained by the Company's
founders were not determined based only on fees cancelled or to be
cancelled by National and its principals. Overall, National believed
that the Company's founders should hold less than 20% of the shares
after the Acquisition assuming none of the Units in the concurrent
offering are sold and none of the warrants are exercised. See "Dilution"
at
17
<PAGE>
page __ of the Prospectus. If the Acquisition is completed, the following
table sets forth the fees which National and its principals have cancelled,
or will cancel:
<TABLE>
<CAPTION>
Previously To Be
Name of Program Cancelled Cancelled
------------- -----------
<S> <C> <C>
Sacramento/Delta Greens $ 500,000 $ -0-
Oceanside 601,125 261,273
Yosemite/Ahwahnee I 72,158 -0-
Yosemite/Ahwahnee II 1,157,867 124,250
Mori Point 461,589 -0-
Cypress Lakes 468,000 -0-
Palmdale (Joshua Ranch) -0- -0-
Esperanza 102,134 -0-
Stacey Rose A 64,293 -0-
Stacey Rose B 17,267 -0-
------------ ----------
TOTAL $ 3,444,433 $ 385,523
------------ ----------
------------ ----------
</TABLE>
(2) Had the shares retained by the founders of the Company been
allocated to the founders based only on cancelled fees, [16.5]% ([12.8]%
if only the seven "Trudy Pat" programs participate) of the total shares
to be owned by the Company's founders after the Acquisition ([53,269]
shares if all programs participate and [41,538] shares if only the seven
"Trudy Pat" programs participate) would have been deemed allocated from
this Program.
HISTORICAL COMPENSATION TO NATIONAL/EFFECT OF ACQUISITION
The following table sets forth the compensation accrued by National, as
well as actually paid to National, during the years ended December 31, 1997,
1996 and 1995, and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
Incurred
Actually Incurred Actually Actually for Six
Incurred for Paid for for Year Paid for Incurred for Paid for Months Actually Paid
Year Ended Year Ended Ended Year Ended Year Ended Year Ended Ended in Six Months
Name of Program 12/31/95(1) 12/31/95(2) 12/31/96(1) 12/31/96(2) 12/31/97(1) 12/31/97(2) 6/30/98 Ended 6/30/98
--------------- ------------ ----------- ----------- ----------- ----------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cypress Lakes $140,000(2) $140,000 $140,000(2) $140,000 $140,000(2) $140,000 $70,000 $70,000
</TABLE>
- -------------
(1) These amounts represent accrued asset management fees.
(2) Approximately $176,080 per year if the Acquisition had been completed
during the above periods including $91,562 of estimated salaries to be paid
by the Company to its officers and which were allocated to the Cypress
Lakes Program based on Exchange Values. No cash would have been available
to pay officers' bonuses or dividends to shareholders.
18
<PAGE>
HISTORICAL CASH DISTRIBUTIONS TO INVESTORS/
EFFECT OF THE ACQUISITION
The following table sets forth the cash distributions made to Investors
during each of the years ended December 31, 1992, 1993, 1994, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
Prior to
1992 1992 1993 1994 1995 1996 1997 Total
---------- --------- ---------- ---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cypress Lakes
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest $ 621,198 $ 1,781,251 $1,337,101 $ 62,706 $ 0 $ 0 $ 0 $ 3,802,256
</TABLE>
There have been no recent distributions to Investors. The Acquisition
is not expected to alter this distribution pattern.
FURTHER FINANCIAL INFORMATION
See the following portions of the Prospectus for further financial
information about the Cypress Lakes Program, as well as the others:
- "Selected Financial Information" at page __.
- "Management's Discussion and Analysis of Financial Condition and
Result of Operations" at page __.
- "Financial Statements" at page F-1.
19
<PAGE>
SUPPLEMENT TO CONSENT SOLICITATION STATEMENT/PROSPECTUS
OF
AMERICAN FAMILY HOLDINGS, INC.
PREPARED FOR INVESTORS IN
PALMDALE/JOSHUA RANCH "TRUDY PAT" PROGRAM
CAPITALIZED TERMS USED IN THIS SUPPLEMENT AND NOT DEFINED
HEREIN HAVE THE MEANING GIVEN TO THEM IN THE PROSPECTUS.
SEE "GLOSSARY" AT PAGE __ OF THE PROSPECTUS.
----------------------
You must read the entire Consent Solicitation Statement/Prospectus to
fully understand the Acquisition. This Supplement has been prepared to help
the Investors in the Palmdale/Joshua Ranch Program to understand how the
Acquisition described in the accompanying Prospectus will affect them. If
completed, the effects of the Acquisition may be different for Investors in
the other Programs. A separate supplement has been prepared for each of the
other Programs, copies of which may be obtained, without charge, by writing
to National Investors Financial, Inc., 4220 Von Karman Avenue, Suite 110,
Newport Beach, California 92660, Attention: Vivian Kennedy, or calling
1-800-590-7772.
As described in the accompanying Prospectus, American Family Holdings,
Inc. (the "Company") is offering units of its securities in exchange for the
assets (including cash reserves), certain liabilities and business activities
owned by Investors in seven former "Trudy Pat" programs and three other
programs managed by National Investors Financial, Inc. ("National"). For
this proposed Acquisition, the Company will issue an aggregate of
$[28,066,419] of units arbitrarily valued at $20 per unit. A unit consists
of one share of common stock plus warrants to purchase three additional
shares. [The shares included in the units will be listed for trading on
the ___________ under the symbol "___." The warrants will [not] be listed
for trading.] The purpose of the transaction is to consolidate the operations
of the programs, improve the ability to sell or obtain financing for
development of the programs' properties, eliminate the assessment process,
focus on revenue-generating potential, improve efficiency of operation in
order to reduce costs and increase profit potential, and provide the
investors with liquidity for their investments.
Of the [1,403,321] units to be issued by the Company in the Acquisition,
Investors in the Palmdale/Joshua Ranch Program will receive a total of
[131,094]shares or [72] shares per $10,000 of Adjusted Outstanding
Investment. After the costs of an outright sale of the property, and the
payment of Program liabilities, National does not believe any alternative
would yield to Investors in the Palmdale/Joshua Ranch Program an amount that
is higher than the value of the Company units to be received in the
Acquisition. You may receive additional units if your program's property is
sold, and if before December 31, 1999, cash sales proceeds (net of closing
costs and interest) are received in excess of the property's March 1998
appraisal value.
In each of the Programs, the Investors will vote on whether to approve the
Acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED IN THE SEVEN
"TRUDY PAT" PROGRAMS MUST VOTE TO APPROVE THE ACQUISITION FOR IT TO TAKE PLACE.
This solicitation commenced on _______, 1998 and expires at 5:00 p.m.,
Pacific Time, on __________, 1998 unless extended. Call 1-800-590-7772 with
questions.
MOST MATERIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will no longer have a
tenancy-in-common interest in your program's property. Instead, you will
hold shares in a publicly-traded real estate company and will not receive
liquidation proceeds when, or if, your program's property is sold. As an
investor in a publicly-traded company with many stockholders, you will have
relatively less voting power.
- - If the acquisition is approved, your investment will be subject to the
risks associated with residential development plus new risks associated with
a business which also operates a golf course and a recreational vehicle park,
and which plans to pursue the development of timeshare facilities, commercial
facilities, and a hotel/conference center.
- - If a trading market develops, the initial trading price for the stock
will likely be substantially below the arbitrary value of $20 per unit
assigned for purposes of the acquisition. Thus, the value of the units you
receive may be less than you might receive if the property of your program
were sold.
- - Principal stockholders of National and executive officers of the Company
will hold approximately (6.23% if all the units are sold in the concurrent
offering and 4.66% if all the units are sold in the concurrent offering and
all warrants issued in the acquisition are exercised) for which they paid
$0.01 per share and will receive annual cash compensation aggregating
$560,000 as officers and employees. National will be relieved of its
servicing and asset management obligations and will no longer earn servicing
and asset management fees of approximately $885,000 annually. However, the
Company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
- - No independent advisors represented you in structuring this transaction.
- - There can be no assurance that the transaction is not a taxable event.
If so, National believes a tax loss is the probable result for most of you.
- - The Company must have additional cash to fund its proposed operations.
If it cannot obtain such funding from the sale of certain of its properties,
the exercise of the warrants included in the units or the sale of additional
units, it will be no more successful than the programs have been individually
in completing the development of some or all of the properties.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE
ACQUISITION.
<PAGE>
MATERIAL RISKS AND DISADVANTAGES
A full description of the material risks of the Acquisition may be found
on pages [__] through [__] of the accompanying Prospectus. Those risks
include:
RISKS OF THE ACQUISITION
THERE WILL BE FUNDAMENTAL CHANGE IN THE NATURE OF YOUR INVESTMENT. If
the acquisition is completed, there will be a change in the nature of the
investment of each investor from holding a tenancy-in-common interest in real
estate to holding shares (and the right to buy additional shares) in an
on-going company, the assets of which may be changed from time to time
without approval of investors. If the acquisition is completed, investors
will be able to liquidate their investments only by selling their shares [on
the _____] or in private transactions, and they will not receive a return of
their investment in the form of liquidation proceeds through property sales.
If the acquisition is completed, investors will have an investment in an
entity that is larger than each of the programs and will thus lose relative
voting power. Investors will have an investment in a business which also
operates a golf course and a recreational vehicle park, and which plans to
pursue the development of timeshare facilities and a hotel/conference center.
THE EXCHANGE VALUES OF THE PROGRAMS ARE NOT THE SAME AS THE POTENTIAL
SALES PRICE. Investors are subject to the risk that the exchange value of a
program does not reflect the price a program's assets might bring in a sale.
If the property of a program were to be sold, the net proceeds of the sale
and the amount finally distributed to an investor in that program may be more
or less than the exchange value. There is no assurance that the future value
of the shares and warrants received in the acquisition will be greater than
the most recent appraised value of the property.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. Initially, shares may
trade at prices substantially below the arbitrarily determined exchange value
of $20 per unit or the historical book value of the company's assets. There
is no guaranty that a liquid trading market will develop for the shares, or
be sustained. If a trading market develops for the shares, the price of
shares after the acquisition will likely decrease below the exchange value
per share of $20 due to a potentially large number of shares that investors
may sell immediately after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN STRUCTURING THE ACQUISITION. The
founders of the company, and specifically the principal shareholders of
National, as well as National itself, will be subject to conflicts of
interest. The principal shareholders and employees of National and the
company will hold approximately [16.35]% of the company's outstanding stock
(6.23% if all the units are sold in the concurrent offering and 4.66% if all
the units are sold in the concurrent offering and all warrants in units
issued in the acquisition are exercised) for which they paid $0.01 per share.
Other founders of the company will hold approximately [2.3]% of the company's
outstanding stock (0.88% if all the units are sold in the concurrent offering
and 0.66% if all such units are sold and all warrants issued in the acquisition
are exercised) for which they also paid $0.01 per share. Thus, the investors'
total ownership interests in the programs' properties will be diluted by the
equity interest in the company held by the founders of the company. The
principal stockholders of National and other executive officers of the
<PAGE>
company will receive annual cash compensation aggregating $560,000 as
officers and employees of the company. National will be relieved of its
servicing and asset management obligations and will no longer earn asset
management or servicing related fees. However, despite the fact that
National will have forgiven over $3,800,000 of unpaid fees and expenses, the
company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not
favored by the board of directors. These provisions include a board of
directors with three classes serving staggered three year terms, the
inability to remove a particular director before the expiration of his or her
term without a two-thirds supermajority vote, and the inability to amend the
anti-takeover provisions of the charter documents without a similar vote.
Thus, if investors are unhappy with management's performance, it will be more
difficult to remove directors not favored by the investors.
NO INDEPENDENT PARTY WAS RETAINED BY NATIONAL TO NEGOTIATE ON BEHALF OF
THE INVESTORS. Therefore, terms of the acquisition may be less favorable to
investors and more favorable to founders of the company which included the
principal shareholders of National than if the acquisition had been subject
to arm's-length negotiation. Had an independent party negotiated on behalf
of each program, the terms of the acquisition may have been more favorable to
certain or all of the programs and fewer shares and less favorable employment
contracts may have been received by the founders of the company.
THE ACQUISITION MAY NOT BE A TAX-FREE TRANSACTION TO INVESTORS. Due to
uncertainties in the facts of this transaction, tax counsel is unable to
opine conclusively on the tax consequences of the acquisition to investors.
The acquisition may be taxable, if at all, only with respect to the
investors' receipt of warrants. Alternatively, if the acquisition is a fully
taxable transaction, an investor would recognize gain or loss in 1998 equal
to the difference between the investor's tax basis in his interest in a
program property, and the number of shares of the company received valued at
$20 per unit. If the acquisition is treated as fully taxable, National
believes most investors would recognize a tax loss.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the
acquisition, none of the properties will be subject to any liens other than
for property taxes. The board of directors could authorize borrowing by the
company the debt service for which may adversely affect the company's ability
to make distributions to shareholders. The company may incur full recourse
debt which exposes all of the assets of the company to repayment instead of
limited recourse debt which generally exposes specific properties for the
repayment of debt.
THE BOARD OF DIRECTORS MAY UNILATERALLY CHANGE INVESTMENT, FINANCING AND
CERTAIN OTHER POLICIES WITHOUT SHAREHOLDER APPROVAL. Although the board of
directors of the company intends to implement the business plan set forth
herein, the board will have the ability to change investment, financing and
other policies of the company without the consent of shareholders.
THERE WILL BE NO APPRAISAL OR SIMILAR RIGHTS FOR NONCONSENTING
INVESTORS. If you vote against the acquisition, and it is approved, you will
not be able to object to the acquisition and
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receive the appraised value of your tenancy-in-common interest in your
program's assets. You will have no choice other than to accept units for
your interests.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed within the
past year to take part in the acquisition of your property. It does not have
the benefit of operating for a long time. This means that shares in the
company are much riskier than ownership of shares of established companies.
If the company had been operating as if it owned the properties which it
desires to acquire, it would have experienced losses to date.
THERE WILL BE FUNDAMENTAL CHANGES IN THE BUSINESS PLAN IF THE
ACQUISITION TAKES PLACE. Rather than being focused on a single property, the
company will be an infinite life entity focused on the management of the
properties of at least seven of the former "Trudy Pat" programs plus the
properties of other programs which elect to participate in the acquisition.
The effect of this on investors is two-fold. First, poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the other properties. Second, there will be no
particular time when an investor can expect that a sale of any of the
properties will result in cash distributions to him or her.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes
or sales of a particular property. Those decisions will be made by the board
of directors or management. In addition, you will have an investment in an
entity that is larger than each of the programs and, thus, you will lose
relative voting power.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular principal and interest payments on
their original investments, because of the borrowers' defaults there have
been no distributions from any of the programs, other than the Oceanside
program, in the past three years. Future cash distributions will be based on
the company's earnings and the decision of the board of directors to pay
dividends. Therefore, even if a property in which you formerly held an
interest were to perform well, there is no assurance that there would be cash
distributions to you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. Prior to the
dates that title to the properties securing the original program loans was
taken, National was entitled to an annual loan servicing fee equal to one
percent of the original loan amounts. When title to the properties was taken
on behalf of the programs, even though the loans no longer existed, National
continued to charge the same rate as the servicing fee for the asset
management services it provided to investors. The investors in each of the
programs had become the beneficial tenant-in-common owners of real estate,
most of which was undeveloped. While it had no obligation to do so, in order
to assist the beneficial owners in protecting their real estate assets and
readying them for sale or development, National assumed the duties of an
asset manager after title was taken to the properties. In this capacity,
National obtained information from investors about their preferences in
regard to development or sale of the properties, and facilitated the
assessment of investors to raise funds necessary to pay property taxes,
insurance and other costs of property ownership.
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The annual fees payable to National are currently $50,000 for
Sacramento/Delta Greens; $300,000 for Oceanside; $61,068 for
Yosemite/Ahwahnee I; $133,646 for Yosemite/Ahwahnee II; $100,000 for Mori
Point; $140,000 for Cypress Lakes; $150,000 for Palmdale/Joshua Ranch; $5,000
for Esperanza; $3,153 for Stacey Rose A; and $850 for Stacey Rose B.
In addition to the one percent fee, compensation has been earned for
property management services provided to the Oceanside program ($896,000
accrued since the date of ownership (November 1993) through June 30, 1998;
$876,000 actually paid) and Yosemite/Ahwahnee properties ($594,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervision of: entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside
and Yosemite/Ahwahnee projects; and contract negotiations and documentation.
To the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
In the future, compensation will be paid to officers of the company in
the form of salaries (aggregating $560,000 annually plus contractual bonus
opportunities and salary increases), stock options and other benefits. See
"Management Following the Acquisition -- Directors and Executive Officers
Compensation and Incentives" for details of stock options and other benefits.
These salaries and other forms of compensation will be payable to management
of the company even if one or more of the properties acquired in the
acquisition is subsequently sold.
HOLDERS OF MAJORITY OF TENANCY-IN-COMMON INTERESTS BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of outstanding
interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THAT THE EXCHANGE VALUES FOR THOSE
PROPERTIES COULD BE TOO LOW OR TOO HIGH. National reviewed the updated March
1998 appraisal of the Yosemite/Ahwahnee properties which reflected an
aggregate "as is" appraised value of $20,246,000 and the October 1996
appraisal which reflected an "as is" aggregate appraised value of $4,000,000.
The results of those appraisals clearly differed from each other, and, in
management's judgment, the difference could not be accounted for solely by
improving market conditions. Some of the parcels, including the golf course,
were subsequently sold, on June 5, 1998, to the Oceanside Program investors
to obtain working capital for the Yosemite/Ahwahnee programs. Based on its
review of all appraisals, National concluded that the properties currently
owned by the
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Yosemite/Ahwahnee I and II Programs have values of $5,486,000 ($1,782,950 and
$3,703,050, respectively), and the parcels currently owned by the Oceanside
Program have a value of $5,080,000. National believes its approach is
reasonable.
GENERAL REAL ESTATE RISKS
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent property
taxes are not timely paid, the company could lose one or more of the
properties to tax sales. Each of the programs' properties is subject to the
following delinquent property taxes as of August 31, 1998: Sacramento/Delta
Greens -approximately $27,000; Yosemite/Ahwahnee (combined) - approximately
$500,000; Mori Point - approximately $165,000; Cypress lakes - approximately
$204,000; Palmdale/Joshua Ranch - approximately $63,000; Esperanza -
approximately $20,000; and Stacey Rose (combined) - approximately $30,000.
Annual payments required for all the properties for current taxes (including
amounts currently due on five-year payment plans) total approximately
$549,000. In the case of Sacramento/Delta Greens, Yosemite/Ahwahnee, Mori
Point, Palmdale/Joshua Ranch and Stacey Rose properties, National has entered
into statutorily authorized 5-year payment plans with the applicable taxing
authorities.
CERTAIN ASSETS MUST BE SOLD TO RAISE WORKING CAPITAL. Unless a minimum
of approximately $[4,565,000] from sale of certain assets of the programs or
the sale of units in the concurrent offering or the exercise of warrants
become available, the company will not be able to proceed with its entire
business plan. The company will also need financing from other sources to
complete its plan. Financing sources are not predictable and interest rates
or other costs of financing may be prohibitive. Neither the programs nor the
company have received any commitment from other sources. In their current
tenancy-in-common structure, the programs cannot obtain traditional bank
financing.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL AND OTHER LAWS MAY REQUIRE
EXPENSIVE HAZARDOUS SUBSTANCE CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC
IMPROVEMENTS. We have not conducted any environmental audits on the
properties. As a result, there may be environmental liability to the company.
Local governments have required residential developers to pay assessments
for streets, schools and parks which increase the cost of development.
Increased costs can have a negative affect on the company's sale of
residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as
earthquakes and floods may be uninsurable or too expensive to insure. The
company does not plan to carry earthquake or flood insurance. If an
uninsured loss occurs, the company would lose capital as well as revenues,
and would still owe other debts related to the property affected, if any.
THE DEVELOPMENT OF ADDITIONAL PROJECTS MAY OCCUR. We may develop
additional projects in the future, although we have no immediate plans to do
so. Real estate development involves more risks than in the ownership and
operation of established projects. Financing may not be available on
favorable terms for development projects; construction may not be completed
on
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schedule or budget; long-term financing may not be available on completion
of construction; and sites may not be sold on profitable terms.
THE CALIFORNIA ECONOMY HAS FLUCTUATED BROADLY IN THE PAST FEW YEARS.
Initially, we will conduct all of our business in California. Our
markets have been affected by substantial fluctuations in local economic
conditions, interest rates, inflation, employment levels and regulations.
California has also experienced draught conditions, resulting in water
conservation measures and rationing. In the past, these conditions have
caused local governments to restrict residential development. California's
climate and geology present risks of natural disaster such as earthquakes and
floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE
OWED $[1,818,684] BY THE COMPANY. This represents accrued fees and expenses
from the programs which National has not cancelled. This amount is due and
payable and the company intends to start paying it after the Acquisition, but
only from operating revenues, proceeds from the sale of assets or the
exercise of warrants, and not from working capital generated by the proceeds
of unit sales in the concurrent offering.
REAL ESTATE RISKS OF SACRAMENTO/DELTA GREENS
PERMITS TO DEVELOP THE PROPERTIES NEED TO BE OBTAINED. Construction of
the Sacramento/Delta Greens property will require approval of a new tentative
map, the filing of a final map and obtaining building permits from the city.
The tentative tract map process for the Sacramento/Delta Greens property
required that studies be conducted to identify any endangered species'
habitat on the property. Since some were identified, changes to the tentative
development plans have been made to reduce or eliminate any damage to the
habitat. A new tentative map needs to be approved by the City. The longer
this process takes, the longer it will be before any of the property is ready
for any construction, further development activity or sale.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS AT THE SACRAMENTO/DELTA GREENS
PROPERTY MAY CAUSE THE COMPANY TO INCUR SUBSTANTIAL CARRYING COSTS UNTIL THE
LOTS CAN BE SOLD. Changing market conditions may increase the difficulty of
selling the lots. If the company chooses to build homes on the lots, delays
in construction, the lack of reasonably priced construction or mortgage
financing, and the general California economy could lengthen the holding
period for the lots. This would mean a delay in realizing cash from the
business operations. The average carrying costs, including property taxes,
management and servicing related fees, for this property has averaged
approximately $10,000 per month over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, our properties may be sold at a loss. The location of the company's
lots, the presence of other competition, customer acceptance and pricing are
all factors affecting success. Competitors may have better financial,
managerial and other resources, affecting our ability to successfully compete.
Sacramento/Delta Greens represents over 5% of the assets of the company.
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ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay the engineering costs required to mitigate endangered
species issues and pay for the planning and design expenses for the city to
approve a new tentative trace map (estimated by management to cost
approximately $25,000). Another risk is whether the lots to be developed
will appeal to builders and whether home financing will be available.
Finally, there is a risk that the development and sale of lots or homes will
be profitable.
REAL ESTATE RISKS OF YOSEMITE/AHWAHNEE PROPERTIES (INCLUDING THE GOLF
COURSE AND SURROUNDING LAND WHICH IS OWNED BY THE OCEANSIDE PROGRAM INVESTORS)
PERMITS TO DEVELOP THE CONDOMINIUM-TYPE TIMESHARE ASPECT OF THE RESORT
HAVE NOT YET BEEN OBTAINED. The Yosemite/Ahwahnee property has a final map
on 32 remaining single family estate lots and a use permit for a 600 space
recreational vehicle park. Planning and development are underway for 100
additional recreational vehicle sites, as well as vacation villa timeshare
units. Additional planned usage such as traditional, attached timeshare
units will require extensive county and state approvals.
RISKS AFFECTING OPERATION OF A GOLF COURSE. Increased competition,
seasonality, weather and course conditions will affect the operations of the
company. While no new golf courses have opened near the Ahwahnee Golf
Course, new courses could increase the competition and reduce the rounds
played. Seasonal variations may require the company to supplement revenue at
the golf course to meet operating expenses. Weather can negatively affect
the turf grass and reduce the number of rounds played. Inflationary costs
may not be offset by increased dues. Also, golf's success depends on
discretionary spending by consumers, which may be vulnerable to regional and
economic conditions, as well as to pleasure or destination travel preferences
by visitors and tourists. All of these factors could reduce the amount of
money earned by the company.
The Yosemite/Ahwahnee golf course can be an important amenity which may
attract potential timeshare purchasers in the future. At this time, the
project does not rely on the golf course for its revenue. National estimates
that the value of the golf course will be less than 20% of the assets of the
company.
RESORT DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF REASONS AND COULD
RESULT IN LOSSES. In addition to normal real estate risks, financing is hard
to obtain, and the lodging industry can be unpredictable, seasonal and very
competitive. Without additional financing or capital, the company will not
be able to develop its resort projects as part of its growth strategy.
Economic conditions, changes in travel patterns, extreme weather conditions,
labor and other variable costs can all affect revenues and profits. For
example, Spring through Fall at the Yosemite/Ahwahnee property are the
periods of highest occupancy. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues.
RISKS RELATING TO TIMESHARE OPERATIONS. Certain factors affecting
timeshare operations could result in losses. Negative press surrounding the
remarketing of timeshares might negatively impact sales and operations. Also,
marketing costs are high relative to selling price which can reduce or
eliminate profits from the sale of timeshare interests.
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In addition, according to the American Resort Development Association,
there is a tendency for timeshare owners to default more often on their
timeshare loans then homebuyers who borrow to buy a home. If a buyer
defaults, we would incur costs in remarketing the timeshare.
The timeshare industry is extremely competitive and we may not be able
to secure development financing on acceptable terms.
Since the project is not yet permitted for traditional attached
timeshare units, there has been no allocation of assets. Should attached
timeshare be approved, the company anticipates that a significant portion of
the revenue of the company will be derived from sales of timeshare units.
RISKS RELATING TO RECREATIONAL VEHICLE PARK OPERATIONS. Risks relating
to recreational vehicle parks are substantially the same as those described
above for timeshare projects.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to (i) make up for the current cash drain from operations and
maintenance of the golf course, clubhouse and current recreational vehicle
facilities (estimated by management at approximately $350,000) annually and
(ii) complete the construction of additional recreational vehicle sites and
obtain approvals for and construction of the first group of vacation villa
timeshare units (estimated by management to cost approximately $3,000,000).
There are also a risk that the operation of recreational vehicle sites,
timeshares and golf course activities will not be profitable.
REAL ESTATE RISKS OF MORI POINT PROPERTY
PERMITS TO DEVELOP THE PROPERTY HAVE NOT YET BEEN OBTAINED. If needed
permits for development are not obtained or reissued, the business plan for
the company will have to be revised. Additionally, the presence of two
endangered species on the Mori Point property increases the risks that
necessary approvals may not be received if an acceptable habitat mitigation
plan cannot be developed. The permitting process with the California Coastal
Commission and the City of Pacifica is expensive and time consuming. Mori
Point had a specific plan and tentative map approvals to build a
hotel/conference center which expired in 1991. These approvals must be
obtained or reinstated prior to construction on the property. Mori Point will
represent approximately 20% of the assets of the company.
HOTEL/CONFERENCE CENTER DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF
REASONS AND COULD RESULT IN LOSSES. In addition to normal real estate risks,
financing is hard to obtain, and the lodging industry can be unpredictable,
seasonal and very competitive. Without additional financing or capital, the
company will not be able to develop its hotel/conference center project as
part of its growth strategy. Economic conditions, changes in travel
patterns, extreme weather conditions, labor and other variable costs can all
affect revenues and profits. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues. At the hotel/conference center
property at Mori Point, we may be competing against well-known chains and
extended-stay inns.
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ADDITIONAL SPECIFIC RISKS. There is a risk that the city government
will not approve the property for its intended use. Capital to conduct
engineering and environmental studies in order to apply for and obtain
approvals for its use from the city is estimated to be approximately
$500,000. Capital will also be necessary for roads, utilities and other
infrastructure costs prior to construction. Finally, there is a risk that
the proposed hotel/conference center may not be profitable.
REAL ESTATE RISKS OF CYPRESS LAKES PROPERTY
THE VESTED TENTATIVE MAP WILL EXPIRE IN APRIL 1999 UNLESS RENEWED AND
THE BUILD OUT OF THE PROPERTY WILL BE EXPENSIVE. Due to being located in a
100-year flood plain, the property requires a levee to be constructed around
its perimeter which is very expensive to construct. Preliminary engineering
estimates indicate these costs to be more than $9,000,000. It may be
desirable to change the vesting tentative map if the costs can be reduced
significantly. While mere extension of the expiration date of the existing
vested tentative map is not expected to be controversial, any changes in the
existing plan could subject the project to public hearings which might result
in additional costs being placed on the project. This could further increase
the high front-end financial requirements. Additionally, such modifications
might not be approved.
Cypress Lakes is a proposed master-planned community and represents more
than 20% of the assets of the company. Joint venture partners would have to
be brought in by the Company to help with the large capital requirements of
such a large project in order to develop it. It may be difficult to find
substantial builder/developers who have the financial ability to purchase or
develop the project. Changing market conditions may increase the difficulty
in selling lots.
Should the company determine to build out the project, delays in
construction, reasonably priced mortgage and construction financing and the
local and general California economy could lengthen the holding period for
the lots. This would mean delays in realizing cash from the business
operations.
RISKS AFFECTING OPERATION OF A GOLF COURSE. When, and if, the golf
course is developed, it will face competition from the 15 golf courses within
a 25-mile radius. Seasonality, weather and course conditions will affect the
operations of the company. Weather can negatively affect the turf grass and
reduce the number of rounds played. Inflationary costs may not be offset by
increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as
well as to pleasure or destination travel preferences by visitors and
tourists. All of these factors could reduce the amount of money earned by
the company.
RISKS OF RESIDENTIAL DEVELOPMENT. Totaling 1,330 lots, a large supply
of lots would be available and, due to the cyclical nature of the housing
industry, demand may fluctuate differently than supply. This could result in
needing to sell lots at a loss. Due to the size of the project, it could
take between six and ten years to complete, which would subject it to new
competitors entering the marketplace during the sales period. An
environmental impact report
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was obtained on the property. Any and all environmental concerns will be
mitigated as required in the vested tentative map conditions of approval. No
evidence of endangered species that would limit or preclude development of
the project have been found.
REAL ESTATE RISKS OF PALMDALE/JOSHUA RANCH PROPERTY
A FINAL TRACT MAP MUST BE RECORDED. After several years of effort by
National, the vested tentative map was approved by the City of Palmdale at a
hearing before the planning commission in early July 1998. A final recorded
map must be secured by National or a buyer in order to build on the property.
Final engineering, soils, utility and various improvement studies will need
to be conducted in order to record the final map.
PERMITS TO DEVELOP THE PROPERTY NEED TO BE OBTAINED. A final recorded
map, which could take nine to twelve months after starting the process, will
be required prior to construction. Due to the size of this project which
encompasses some 739.6 acres and is currently planned for 539 lots,
additional grading studies, soils investigation and utility planning needs to
be done which could negatively impact the cost of this large-scale
development.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Finding
builder/developers that have the financial strength to handle this size
project can be difficult. Changing market conditions, the lack of
reasonably-priced construction or mortgage financing and the general or local
market conditions could lengthen the holding period for lots. This would
mean a delay in realizing cash from business operations. The average
carrying costs, including property taxes, predevelopment and asset management
services for this property have averaged approximately $16,300 per month over
the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, the property may be sold at a loss. The location of the lots, the
presence of other competition, customer acceptance and pricing are all
factors affecting success. Competitors may have better financial, managerial
and other resources affecting the company's ability to successfully compete.
An environmental impact report was obtained on the property. Any and all
environmental concerns will be mitigated as required in the vested tentative
map conditions of approval. No evidence of endangered species that would
limit or preclude development of the project have been found.
Palmdale/Joshua Ranch is a proposed residential development and
represents about 10% of the assets of the Company.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay for or finance (i) engineering, soils and utility studies
which is estimated to cost approximately $140,000, and (ii) another risk is
whether the lots to be developed may appeal to project builders.
Palmdale/Joshua Ranch is a proposed residential development and represents
about 10% of the assets of the company.
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REAL ESTATE RISKS OF ESPERANZA PROPERTY
RISKS OF COMMERCIAL DEVELOPMENT. The material risks associated with the
development of the Esperanza Property are (i) as of August 31, 1998,
approximately $23,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the property for delinquent property
taxes; and (ii) despite a strong economy, rents and values for many retail
properties are expected to remain soft in 1998. Pressure on rents brought
about by over building, weakness in demand for space and store closures
caused by lagging profits are the forces causing a soft market. No
environmental or endangered species reports have been prepared for the
property.
ADDITIONAL SPECIFIC RISKS. Within the City of Victorville there are
approximately 3,250 acres zoned for commercial use, of which 60% remains
available for development. Victorville is home to the largest enclosed
regional shopping center between San Bernardino and Las Vegas, which is known
as The Mall of Victor Valley. These commercial sites represent significant
competition to the Esperanza project. There are more than 5,400 acres within
the city limits of Victorville zoned for light and heavy industrial use.
Nearly nine percent of this 5,400 acres of land is vacant and is available in
parcels ranging in size from one-half to five hundred acres.
REAL ESTATE RISKS OF STACEY ROSE PROPERTIES
RISKS OF RESIDENTIAL DEVELOPMENT. The material risks associated with
the development of the Stacey Rose Properties are (i) as of August 31, 1998,
approximately $30,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the Properties for delinquent property
taxes; (ii) it is estimated that it may cost about $50,000 to finalize a
tentative tract map on the parcels; (iii) a substantial, and potentially
expensive, sales and marketing effort will be necessary to sell homes
constructed on the properties if a bulk sale of the lots is not made; (iv)
the properties are located in a lower income residential area; and (v)
increasing government fees and assessments for streets, schools, parks and
other infrastructure requirements could increase the cost of lots to the
company, thereby increasing the sales price of the lots which will delay
market absorption. No environmental or endangered species reports have been
prepared for the property.
ADDITIONAL SPECIFIC RISKS. There is a risk that (i) adequate funds will
not be available to finalize a tentative tract map on the parcels
(approximately $50,000); (ii) the project will not appeal to project
builders; and (iii) home financing at reasonable costs may not be available.
There is also a risk that the development and sale of lots or home may not be
profitable
ANTI-TAKEOVER PROVISIONS
Certain provisions of the charter documents may restrict changes in
control of the Company's management. These provisions may make it more
difficult or expensive for another party to acquire and exercise control of
the Company or to change its management, even if that change would be
beneficial to you. These provisions include:
12
<PAGE>
ADDITIONAL CLASSES OF SHARES. Under the company's certificate of
incorporation, subject to the receipt of fair value, the Board of Directors
may issue shares in other classes or series and fix the rights, powers and
limitations associated with such shares. Although the Board of Directors has
no present intention of doing so, it could issue a class or series that
could, depending on its terms, impede a merger, tender offer or other
transaction that you might believe is in your best interest or in which you
might receive a premium for your shares over the then current market price.
The issuance of such shares could also dilute your voting power.
STAGGERED BOARD. The Board of Directors is divided into three classes
serving staggered three year terms. This arrangement may affect your ability
to change control of the company, even if you believe such a change is in
your best interests.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The company's
certificate of incorporation, as well as Delaware law, prohibits certain
business combinations with owners of more than 15% of the outstanding voting
stock of the company ("interested stockholders") within the three year period
immediately prior to the date on which the interested stockholder became an
interested stockholder. These restrictions on certain business combinations
may deter potential purchasers who seek control of the company.
SUPERMAJORITY VOTES. Changes to the company's certificate of
incorporation which cover anti-takeover provisions require the approval of
two-thirds of the company's voting stock. This restriction also may deter
potential purchasers who seek control of the company.
IN ADDITION TO THE ANTI-TAKEOVER PROVISIONS, THE DELAWARE LAW, AS WELL
AS THE CHARTER DOCUMENTS, LIMIT THE LIABILITY OF DIRECTORS AND OFFICERS TO
SHAREHOLDERS. This limitation of liability may exceed the protections
National enjoys under the programs' servicing agreements and limit
shareholders' claims against management.
FAIRNESS TO INVESTORS IN THE PALMDALE/JOSHUA RANCH PROGRAM
Both procedurally and from a financial point of view, the company and
National believe the terms of the acquisition are fair as a whole and to the
investors in each of the programs. This determination is based on
consideration of the following positive and negative factors:
- the units offer an opportunity for individual investor liquidity
while the tenancy-in-common interests do not, however, there is no assurance
that the shares will have any liquidity, or that any liquid market that
develops will be sustained;
- while the number of units to be issued to reflect the exchange
value of a program is arbitrary, the trading price of the shares included in
the units initially is likely to be substantially below the $20 value
arbitrarily assigned to the units. In our opinion, the exchange values
offered to investors for their assets allow for an equitable allocation of
the [1,403,321] units ([1,380,175] units if only the "Trudy Pat" programs
participate) among the programs. The disparity between exchange values and
appraised values results from adding the value of program cash reserves and
other assets, if any, to appraised values and deducting program
13
<PAGE>
liabilities (principally accrued property taxes and other fees net of fees to
be forgiven by National);
- on completion of the acquisition the investors will hold over 80%
(over 94.7% if all units are sold in the concurrent offering and all of the
warrants included in the units to be issued in the Acquisition are exercised)
of the outstanding stock of the company. After the acquisition, a total of
[7.59]% of the outstanding stock of the Company will be held by
Palmdale/Joshua Ranch investors (7.69% if only the seven "Trudy Pat" programs
participate). After the acquisition, founders of the company (principals,
employees, former employees and consultants of National) will hold less than
20% (__% if only the seven "Trudy Pat" programs participate). Founders'
shares were purchased for $.01 per share. Among the properties, National and
its principals will have forgiven over $3,800,000 of expenses and accrued
fees of which a total of approximately $2,148,000 was earned for asset
management and property management services after the loans defaulted and
before the Ownership Dates of the properties. The balance was earned after
foreclosure for asset and property management services and expenses. Of such
amount, $137,111 is attributable to fees owed by Palmdale/Joshua Ranch
investors. National believes that the amount paid for the property
management services is no greater than the amount that a third party would
charge;
- the current appraised value of the Palmdale/Joshua Ranch real
estate assets ($2,700,000) (as well as the real estate assets of the other
programs) and the fact that substantial financing is needed to further the
property's development;
- the probability that the transaction will have minimal, if any,
negative tax affect on investors. National believes there will likely be no
out-of-pocket tax cost to all, or the vast majority, of you;
- while conflicts of interest exist in the structuring of the
acquisition, the issuance of shares to the founders of the company and the
determination of management compensation and while you did not have
independent representation in the structuring of the acquisition, we believe
they have been counterbalanced by your opportunity to vote on the transaction
and the Fairness Opinion;
- while the Palmdale/Joshua Ranch Program (as well as the other
programs) were originally formed to have a two to four year finite life which
should have ended between 1993 and 1995 and the investors expected to receive
a return of their investment from the original borrower, the company is an
infinite life entity which will not return the program investors' original
investment based on a sale or refinancing of the properties underlying the
original programs. However, after the borrowers defaulted on the "Trudy Pat"
loans, the investors became beneficial owners of the underlying properties
with the need to complete development, manage or otherwise ready the
properties for sale. Those endeavors had no fixed timetable and, thus, the
finite life aspect of their original investments was significantly changed.
Therefore, the infinite life aspect of the company is not viewed by National
to be a material change from the investors' CURRENT situation;
- the acquisition will cause fundamental changes in the business plan
of the Palmdale/Joshua Ranch program. Rather than being focused on the
development of a single property for residential purposes, the company will
be focused on the management of at least
14
<PAGE>
seven and as many as ten properties. Thus, the poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the Palmdale/Joshua Ranch property. Further, there
will be no particular time when an Investor can expect its interest to be
automatically liquidated;
- the fact that the Palmdale/Joshua Ranch property has been exposed
for sale or development without receiving any offers that would approximate a
return of the original investment;
- investors will not be able to vote on changes to or dispositions of
the Palmdale/Joshua Ranch property or borrowing secured by that property.
Those decisions will be made by the Board of Directors or management of the
company. Further, as investors in a larger entity, relative voting power will
be diluted;
- future cash distributions will be based on the company's earnings
and the decision of the Board of Directors to pay dividends rather than the
performance or sale of the Palmdale/Joshua Ranch property;
- investors voting against the acquisition will have no alternative
but to accept shares in the company if the acquisition is approved by holders
of a majority of the tenancy-in-common interests in each of the programs;
- the anti-takeover provisions of the company's charter documents
contain provisions that may have the effect of delaying or discouraging a
change in management which is not favored by the Board of Directors of the
company; and
- the Fairness Opinion rendered by Houlihan Valuation Advisers, an
independent valuation firm, which addresses only the allocation of the units
in the acquisition and not the amount of the consideration paid to program
investors in the acquisition as a whole. See "Background and Reasons for the
Acquisition" at page __ of the Prospectus.
National reviewed the arbitrary value you will receive in connection
with the acquisition and compared it with what you might receive if (i) the
Palmdale/Joshua Ranch property were operated "as is" ($627 per $10,000 of
Adjusted Outstanding Investment), (ii) the Palmdale/Joshua Ranch property was
sold in a quick sale in three months or less ($627 per $10,000 of Adjusted
Outstanding Investment), or (iii) the Palmdale/Joshua Ranch property was sold
at the appraised value, net of program debt, used to determine the
Palmdale/Joshua Ranch exchange value ($1,297 per $10,000 of Adjusted
Outstanding Investment). Based on that review, and even acknowledging that,
initially, the company's shares included in the units issued in the
acquisition would likely trade substantially below the arbitrary $20 issuance
value for the units, National believes that there is a higher probability of
realizing value from the Palmdale/Joshua Ranch property through the
acquisition than through the other alternatives. This belief is based on the
expectation that some financing opportunities will become available based on
the form of the entity and the time pressure associated with forced sales or
liquidation will be relieved. See "Background and Reasons for the
Acquisition -- Comparison to
15
<PAGE>
Alternatives" and "Recommendation of National and Fairness Determination" at
pages __ and __ of the Prospectus.
Based on the above factors and comparisons, National concluded that the
acquisition is fair, both substantively and procedurally.
THERE ARE NO MATERIAL DIFFERENCES BETWEEN THE FAIRNESS ANALYSIS FOR THIS
PROGRAM AND FOR ANY OF THE OTHER NINE PROGRAMS PROPOSED TO BE INCLUDED IN THE
ACQUISITION.
CALCULATION OF EXCHANGE VALUE
The Exchange Value of the Palmdale/Joshua Ranch Program (as well as each
of the other Programs) is essentially the consideration at which the Company
is offering in exchange for the real estate assets, cash reserves, certain
liabilities and business of the Program. The value is reflected as a number
of units of the Company (in the case of the Palmdale/Joshua Ranch Program,
131,094 units) multiplied by an arbitrary $20 per unit value.
The Exchange Value for the Palmdale/Joshua Ranch Program was calculated
as follows: appraised value of the Palmdale/Joshua Ranch Program property at
March 31, 1998, plus book value of other Palmdale/Joshua Ranch Program assets
at August 31, 1998, less Palmdale/Joshua Ranch Program liabilities at August
31, 1998.
The following table summarizes the calculation of the Exchange Value of
the Palmdale/Joshua Ranch Program and the value assigned on $10,000 of
Adjusted Outstanding Investment:
<TABLE>
<CAPTION>
Value Assigned
Appraised Net Other to Program per
Value of + Assets and = Exchange $10,000 of Adjusted
Real Estate(1) Liabilities(2) Value Outstanding Investment
- -------------- --------------- -------- ----------------------
<S> <C> <C> <C>
$ 2,700,000 $[ (78,118)] $ [2,621,882] $ [1,446](3)
- -----------
</TABLE>
(1) Reflects independent appraisal as of March 1998.
(2) The following table quantifies the adjustments to appraised values
made in determining Palmdale/Joshua Ranch property's Exchange Value as
of August 31, 1998.
<TABLE>
<CAPTION>
Book Assets Book Liabilities Net Other Assets
(8/31/98)* - (8/31/98)* = and Liabilities
----------- ------------ -----------------
<S> <C> <C>
$ 132,572 $ 210,690 $ (78,118)
</TABLE>
* See balance sheet of the Program in the financial statements
accompanying the Prospectus for details of book assets and
book liabilities. There is no mortgage debt on the Palmdale/Joshua
Ranch property.
(3) Equals [72] Company shares arbitrarily valued at $20 per unit.
16
<PAGE>
ALLOCATION OF SHARES
The [1,403,321] shares of Company common stock being offered to Investors in
the Acquisition represent over 80% of the Company's shares (92.9% if all the
units are sold in the concurrent offering and 94.7% if all the units are sold
in the concurrent offering and all warrants in units issued in the acquisition
are exercised) which will be outstanding upon completion of the Acquisition.
The remaining shares will be held by management and other founders of the
Company. Such shares will be allocated among the Programs pro rata in
accordance with Exchange Values. The Palmdale/Joshua Ranch Program will be
allocated [131,094] shares.
The shares allocated to the Palmdale/Joshua Ranch Program will be
allocated among Investors in the Program based on their respective pro rata
investments in the Program (taking into account assessments paid and unpaid,
as well as interest accrued to each Investor through the date beneficial
ownership of the Program's Property was taken for the Investors) as adjusted
for voluntary advances. An Investor in the Palmdale/Joshua Ranch Program
with an adjusted investment amount of $10,000 will receive [72] units in the
Company arbitrarily valued at $20 per unit.
Neither National nor the Company's founders have any economic
interest in the Palmdale/Joshua Ranch Program except for National's
contractual right to asset management fees and the $2,395 of
tenancy-in-common interests purchased by National at the inception of the
Program for which interests National will receive units in the Acquisition
pro rata with the other Palmdale/Joshua Ranch Investors. National will
undertake not to exercise the warrants in the units.
The following table and its footnotes sets forth the amount owed by the
original borrower to the Palmdale/Joshua Ranch Program (including accrued but
unpaid interest) plus the amount of assessments and advances paid by
Investors at August 31, 1998, appraised real estate value, Exchange Value of
the Program, the number and percentage of shares allocated to the Program,
and the number of shares and comparative value of the Company to be held by
founders after the Acquisition.
<TABLE>
<CAPTION>
% of Total
Shares to be
Outstanding
After the
Amount Real Estate Acquisition if
Owed plus Appraised Exchange No. of Shares All Programs
Name of Program Assessments Value Value(1) Allocated(1)(2) Participate
--------------- ------------- ------------ -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Palmdale/Joshua Ranch $ 18,107,814 $ 2,700,000 $ [2,621,882] [131.094] [7.59]%
</TABLE>
- -------------
(1) The founders of the Company which include members of Company management, as
well as certain employees, former employees of National and consultants to
the Company and the Programs, will hold a total of [323,631] Company shares
after the Acquisition (18.74% of the outstanding shares post-Acquisition,
17.48% if all the units are sold in the concurrent offering and 5.3%
17
<PAGE>
if all the units are sold in the concurrent offering and all warrants in
units issued in the acquisition are exercised) which, if valued at $20
per share, would have an aggregate value of $[6,472,620]. The Company
was formed, and shares were purchased by the founders for $.01 per share,
prior to making the Acquisition proposal. The shares to be retained by
the Company's founders were not determined based only on fees cancelled
or to be cancelled by National and its principals. Overall, National
believed that the Company's founders should hold less than 20% of the
shares after the Acquisition assuming none of the Units in the concurrent
offering are sold and none of the warrants are exercised. See "Dilution"
at page __ of the Prospectus. If the Acquisition is completed, the
following table sets forth the fees which National and its principals
have cancelled, or will cancel:
<TABLE>
<CAPTION>
Previously To Be
Name of Program Cancelled Cancelled
-------------- ---------
<S> <C> <C>
Sacramento/Delta Greens $ 500,000 $ -0-
Oceanside 601,125 261,273
Yosemite/Ahwahnee I 72,158 -0-
Yosemite/Ahwahnee II 1,157,867 124,250
Mori Point 461,589 -0-
Cypress Lakes 468,000 -0-
Palmdale (Joshua Ranch) -0- -0-
Esperanza 102,134 -0-
Stacey Rose A 64,293 -0-
Stacey Rose B 17,267 -0-
------------ --------
TOTAL $ 3,444,433 $385,523
------------ --------
------------ --------
</TABLE>
HISTORICAL COMPENSATION TO NATIONAL/EFFECT OF ACQUISITION
The following table sets forth the compensation accrued by National, as
well as actually paid to National, during the years ended December 31, 1997,
1996 and 1995, and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
Actually
Actually Incurred Actually Actually Incurred for Paid in Six
Incurred for Paid for for Year Paid for Incurred for Paid for Six Months Months
Year Ended Year Ended Ended Year Ended Year Ended Year Ended Ended Ended
Name of Program 12/31/95(1) 12/31/95(2) 12/31/96(1) 12/31/96(2) 12/31/97(1) 12/31/97(2) 6/30/98 6/30/98
--------------- ------------ ----------- ----------- ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Palmdale/Joshua Ranch $150,000(2) $248,750 $150,000(2) $150,000 $150,000(2) $150,000 $75,000 $75,000
</TABLE>
- ------------
(1) These amounts represent accrued asset management fees.
18
<PAGE>
(2) Approximately $188,658 per year if the Acquisition had been completed
during the above periods including $98,102 of estimated salaries to be paid
by the Company to its officers and which were allocated to the
Palmdale/Joshua Ranch Program based on Exchange Values. No cash would have
been available to pay officers' bonuses or dividends to shareholders.
HISTORICAL CASH DISTRIBUTIONS TO INVESTORS/
EFFECT OF THE ACQUISITION
The following table sets forth the cash distributions made to Investors
during each of the years ended December 31, 1992, 1993, 1994, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
Prior to
1992 1992 1993 1994 1995 1996 1997 Total
----------- ----------- ---------- ---------- ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Palmdale/Joshua Ranch
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest $ 1,523,775 $ 1,885,526 $ 478,127 $ 0 $ 0 $ 0 $ 0 $ 3,887,428
</TABLE>
There have been no recent distributions to Investors. The Acquisition
is not expected to alter this distribution pattern.
FURTHER FINANCIAL INFORMATION
See the following portions of the Prospectus for further financial
information about the Sacramento/Delta Greens Program, as well as the others:
- "Selected Financial Information" at page __.
- "Management's Discussion and Analysis of Financial Condition and
Result of Operations" at page __.
- "Financial Statements" at page F-1.
19
<PAGE>
SUPPLEMENT TO CONSENT SOLICITATION STATEMENT/PROSPECTUS
OF
AMERICAN FAMILY HOLDINGS, INC.
PREPARED FOR INVESTORS IN
ESPERANZA PROGRAM
CAPITALIZED TERMS USED IN THIS SUPPLEMENT AND NOT DEFINED HEREIN HAVE THE
MEANING GIVEN TO THEM IN THE PROSPECTUS. SEE "GLOSSARY" AT PAGE __ OF THE
PROSPECTUS.
---------------------
You must read the entire Consent Solicitation Statement/Prospectus to
fully understand the Acquisition. This Supplement has been prepared to help
the Investors in the Esperanza Program to understand how the Acquisition
described in the accompanying Prospectus will affect them. If completed, the
effects of the Acquisition may be different for Investors in the other
Programs. A separate supplement has been prepared for each of the other
Programs, copies of which may be obtained, without charge, by writing to
National Investors Financial, Inc., 4220 Von Karman Avenue, Suite 110,
Newport Beach, California 92660, Attention: Vivian Kennedy, or calling
1-800-590-7772.
As described in the accompanying Prospectus, American Family Holdings,
Inc. (the "Company") is offering units of its securities in exchange for the
assets (including cash reserves), certain liabilities and business activities
owned by Investors in seven former "Trudy Pat" programs and three other
programs managed by National Investors Financial, Inc. ("National"). For
this proposed Acquisition, the Company will issue an aggregate of
$[28,066,419] of units arbitrarily valued at $20 per unit. A unit consists
of one share of common stock plus warrants to purchase three additional
shares. [The shares included in the units will be listed for trading on the
___________ under the symbol "___." The warrants will [not] be listed for
trading.] The purpose of the transaction is to consolidate the operations of
the programs, improve the ability to sell or obtain financing for development
of the programs' properties, eliminate the assessment process, focus on
revenue-generating potential, improve efficiency of operations in order to
reduce costs and increase profit potential, and provide the investors with
liquidity for their investments.
Of the [1,403,321] units to be issued by the Company in the Acquisition,
Investors in the Esperanza Program will receive a total of [10,818] shares or
[185] shares per $10,000 of Adjusted Outstanding Investment. After the costs
of an outright sale of the property, and the payment of Program liabilities,
National does not believe any alternative would yield to Investors in the
Esperanza Program an amount that is higher than the value of the Company units
to be received in the Acquisition. You may receive additional units if your
program's property is sold, and if before December 31, 1999, cash sale proceeds
(net of closing costs and interest) are received in excess of the property's
March 1998 appraisal value.
In each of the Programs, the Investors will vote on whether to approve the
Acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED IN THE
SEVEN "TRUDY PAT" PROGRAMS MUST VOTE TO APPROVE THE ACQUISITION FOR IT TO
TAKE PLACE.
This solicitation commenced on _______, 1998 and expires at 5:00 p.m.,
Pacific Time, on __________, 1998 unless extended. Call 1-800-590-7772 with
questions.
MOST MATERIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will no longer have a
tenancy-in-common interest in your program's property. Instead, you will
hold shares in a publicly-traded real estate company and will not receive
liquidation proceeds when, or if, your program's property is sold. As an
investor in a publicly-traded company with many stockholders, you will have
relatively less voting power.
- - If the acquisition is approved, your investment will be subject to the
risks associated with residential development plus new risks associated with
a business which also operates a golf course and a recreational vehicle park,
and which plans to pursue the development of timeshare facilities, commercial
facilities, and a hotel/conference center.
- - If a trading market develops, the initial trading price for the stock
will likely be substantially below the arbitrary value of $20 per unit for
purposes of the acquisition. Thus, the value of the units you receive may be
less than you might receive if the property of your program were sold.
- - Principal stockholders of National and executive officers of the Company
will hold approximately (6.23% if all the units are sold in the concurrent
offering and 4.66% if all the units are sold in the concurrent offering and
all warrants issued in the acquisition are exercised) for which they paid
$0.01 per share and will receive annual cash compensation aggregating
$560,000 as officers and employees. National will be relieved of its
servicing and asset management obligations and will no longer earn servicing
and asset management fees of approximately $885,000 annually. However, the
Company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
- - No independent advisors represented you in structuring this transaction.
- - There can be no assurance that the transaction is not a taxable event.
If so, National believes a tax loss is the probable result for most of you.
- - The Company must have additional cash to fund its proposed operations.
If it cannot obtain such funding from the sale of certain of its properties,
the exercise of the warrants included in the units or the sale of additional
units, it will be no more successful than the programs have been individually
in completing the development of some or all of the properties.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE
ACQUISITION.
1
<PAGE>
MATERIAL RISKS AND DISADVANTAGES
A full description of the material risks of the Acquisition may be found
on pages [__] through [__] of the accompanying Prospectus. Those risks
include:
RISKS OF THE ACQUISITION
THERE WILL BE FUNDAMENTAL CHANGE IN THE NATURE OF YOUR INVESTMENT. If
the acquisition is completed, there will be a change in the nature of the
investment of each investor from holding a tenancy-in-common interest in real
estate to holding shares (and the right to buy additional shares) in an
on-going company, the assets of which may be changed from time to time
without approval of investors. If the acquisition is completed, investors
will be able to liquidate their investments only by selling their shares
[on the _____] or in private transactions, and they will not receive a return
of their investment in the form of liquidation proceeds through property
sales. If the acquisition is completed, investors will have an investment in
an entity that is larger than each of the programs and will thus lose
relative voting power. Investors will have an investment in a business which
also operates a golf course and a recreational vehicle park, and which plans
to pursue the development of timeshare facilities and a hotel/conference
center.
THE EXCHANGE VALUES OF THE PROGRAMS ARE NOT THE SAME AS THE POTENTIAL
SALES PRICE. Investors are subject to the risk that the exchange value of a
program does not reflect the price a program's assets might bring in a sale.
If the property of a program were to be sold, the net proceeds of the sale
and the amount finally distributed to an investor in that program may be more
or less than the exchange value. There is no assurance that the future value
of the shares and warrants received in the acquisition will be greater than
the most recent appraised value of the property.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. Initially, shares may
trade at prices substantially below the arbitrarily determined exchange value
of $20 per unit or the historical book value of the company's assets. There
is no guaranty that a liquid trading market will develop for the shares, or
be sustained. If a trading market develops for the shares, the price of
shares after the acquisition will likely decrease below the exchange value
per share of $20 due to a potentially large number of shares that investors
may sell immediately after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN STRUCTURING THE ACQUISITION. The
founders of the company, and specifically the principal shareholders of
National, as well as National itself, will be subject to conflicts of
interest. The principal shareholders and employees of National and the
company will hold approximately [16.35]% of the company's outstanding stock
(6.23% if all the units are sold in concurrent offering and 4.66% if all the
units are sold in the concurrent offering and all warrants in units issued
in the acquisition are exercised) for which they paid $0.01 per share. Other
founders of the company will hold approximately [2.3]% of the company's
outstanding stock (0.88% if all the units are sold in the concurrent offering
and 0.66% if all such units are sold and all warrants issued in the
acquisition are exercised) for which they also paid $0.01 per share. Thus,
the investors' total ownership interests in the programs' properties will be
diluted by the equity interest in the company held by the founders of the
company. The principal stockholders of National and other executive officers
of the
2
<PAGE>
company will receive annual cash compensation aggregating $560,000 as
officers and employees of the company. National will be relieved of its
servicing and asset management obligations and will no longer earn asset
management or servicing related fees. However, despite the fact that
National will have forgiven over $3,800,000 of unpaid fees and expenses, the
company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not
favored by the board of directors. These provisions include a board of
directors with three classes serving staggered three year terms, the
inability to remove a particular director before the expiration of his or her
term without a two-thirds supermajority vote, and the inability to amend the
anti-takeover provisions of the charter documents without a similar vote.
Thus, if investors are unhappy with management's performance, it will be more
difficult to remove directors not favored by the investors.
NO INDEPENDENT PARTY WAS RETAINED BY NATIONAL TO NEGOTIATE ON BEHALF OF
THE INVESTORS. Therefore, terms of the acquisition may be less favorable to
investors and more favorable to founders of the company which included the
principal shareholders of National than if the acquisition had been subject
to arm's-length negotiation. Had an independent party negotiated on behalf
of each program, the terms of the acquisition may have been more favorable to
certain or all of the programs and fewer shares and less favorable employment
contracts may have been received by the founders of the company.
THE ACQUISITION MAY NOT BE A TAX-FREE TRANSACTION TO INVESTORS. Due to
uncertainties in the facts of this transaction, tax counsel is unable to
opine conclusively on the tax consequences of the acquisition to investors.
The acquisition may be taxable, if at all, only with respect to the
investors' receipt of warrants. Alternatively, if the acquisition is a fully
taxable transaction, an investor would recognize gain or loss in 1998 equal
to the difference between the investor's tax basis in his interest in a
program property, and the number of shares of the company received valued at
$20 per unit. If the acquisition is treated as fully taxable, National
believes most investors would recognize a tax loss.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the
acquisition, none of the properties will be subject to any liens other than
for property taxes. The board of directors could authorize borrowing by the
company the debt service for which may adversely affect the company's ability
to make distributions to shareholders. The company may incur full recourse
debt which exposes all of the assets of the company to repayment instead of
limited recourse debt which generally exposes specific properties for the
repayment of debt.
THE BOARD OF DIRECTORS MAY UNILATERALLY CHANGE INVESTMENT, FINANCING AND
CERTAIN OTHER POLICIES WITHOUT SHAREHOLDER APPROVAL. Although the board of
directors of the company intends to implement the business plan set forth
herein, the board will have the ability to change investment, financing and
other policies of the company without the consent of shareholders.
THERE WILL BE NO APPRAISAL OR SIMILAR RIGHTS FOR NONCONSENTING
INVESTORS. If you vote against the acquisition, and it is approved, you will
not be able to object to the acquisition and
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receive the appraised value of your tenancy-in-common interest in your
program's assets. You will have no choice other than to accept units for
your interests.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed over a year
ago to take part in the acquisition of your property. It does not have the
benefit of operating for a long time. This means that shares in the company
are much riskier than ownership of shares of established companies. If the
company had been operating as if it owned the properties which it desires to
acquire, it would have experienced losses to date.
THERE WILL BE FUNDAMENTAL CHANGES IN THE BUSINESS PLAN IF THE
ACQUISITION TAKES PLACE. Rather than being focused on a single property, the
company will be an infinite life entity focused on the management of the
properties of at least seven of the former "Trudy Pat" programs plus the
properties of other programs which elect to participate in the acquisition.
The effect of this on investors is two-fold. First, poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the other properties. Second, there will be no
particular time when an investor can expect that a sale of any of the
properties will result in cash distributions to him or her.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes
or sales of a particular property. Those decisions will be made by the board
of directors or management. In addition, you will have an investment in an
entity that is larger than each of the programs and, thus, you will lose
relative voting power.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular principal and interest payments on
their original investments, because of the borrowers' defaults there have
been no distributions from any of the programs, other than the Oceanside
program, in the past three years. Future cash distributions will be based on
the company's earnings and the decision of the board of directors to pay
dividends. Therefore, even if a property in which you formerly held an
interest were to perform well, there is no assurance that there would be cash
distributions to you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. Prior to the
dates that title to the properties securing the original program loans was
taken, National was entitled to an annual loan servicing fee equal to one
percent of the original loan amounts. When title to the properties was taken
on behalf of the programs, even though the loans no longer existed, National
continued to charge the same rate as the servicing fee for the asset
management services it provided to investors. The investors in each of the
programs had become the beneficial tenant-in-common owners of real estate,
most of which was undeveloped. While it had no obligation to do so, in order
to assist the beneficial owners in protecting their real estate assets and
readying them for sale or development, National assumed the duties of an
asset manager after title was taken to the properties. In this capacity,
National obtained information from investors about their preferences in
regard to development or sale of the properties, and facilitated the
assessment of investors to raise funds necessary to pay property taxes,
insurance and other costs of property ownership.
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The annual fees payable to National are currently $50,000 for
Sacramento/Delta Greens; $300,000 for Oceanside; $61,068 for
Yosemite/Ahwahnee I; $133,646 for Yosemite/Ahwahnee II; $100,000 for Mori
Point; $140,000 for Cypress Lakes; $150,000 for Palmdale/Joshua Ranch; $5,000
for Esperanza; $3,153 for Stacey Rose A; and $850 for Stacey Rose B.
In addition to the one percent fee, compensation has been earned for
property management services provided to the Oceanside program ($896,000
accrued since the date of ownership (November 1993) through June 30, 1998;
$876,000 actually paid) and Yosemite/Ahwahnee properties ($594,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervision of: entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside
and Yosemite/Ahwahnee projects; and contract negotiations and documentation.
To the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
In the future, compensation will be paid to officers of the company in
the form of salaries (aggregating $560,000 annually plus contractual bonus
opportunities and salary increases), stock options and other benefits. See
"Management Following the Acquisition -- Directors and Executive Officers
Compensation and Incentives" for details of stock options and other benefits.
These salaries and other forms of compensation will be payable to management
of the company even if one or more of the properties acquired in the
acquisition is subsequently sold.
HOLDERS OF MAJORITY OF TENANCY-IN-COMMON INTERESTS BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of outstanding
interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THAT THE EXCHANGE VALUES FOR THOSE
PROPERTIES COULD BE TOO LOW OR TOO HIGH. National reviewed the updated March
1998 appraisal of the Yosemite/Ahwahnee properties which reflected an
aggregate "as is" appraised value of $20,246,000 and the October 1996
appraisal which reflected an "as is" aggregate appraised value of $4,000,000.
The results of those appraisals clearly differed from each other, and, in
management's judgment, the difference could not be accounted for solely by
improving market conditions. Some of the parcels, including the golf course,
were subsequently sold, on June 5, 1998, to the Oceanside Program investors
to obtain working capital for the Yosemite/Ahwahnee programs. Based on its
review of all appraisals, National concluded that the properties currently
owned by the
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Yosemite/Ahwahnee I and II Programs have values of $5,486,000 ($1,782,950 and
$3,703,050, respectively), and the parcels currently owned by the Oceanside
Program have a value of $5,080,000. National believes its approach is
reasonable and has received an opinion from Houlihan Valuation Advisors that
the allocation of the shares among the programs is fair.
GENERAL REAL ESTATE RISKS
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent property
taxes are not timely paid, the company could lose one or more of the
properties to tax sales. Each of the programs' properties is subject to the
following delinquent property taxes as of August 31, 1998: Sacramento/Delta
Greens -approximately $27,000; Yosemite/Ahwahnee (combined) - approximately
$500,000; Mori Point - approximately $165,000; Cypress lakes - approximately
$204,000; Palmdale/Joshua Ranch - approximately $63,000; Esperanza -
approximately $20,000; and Stacey Rose (combined) - approximately $30,000.
Annual payments required for all the properties for current taxes (including
amounts currently due on five-year payment plans) total approximately
$549,000. In the case of Sacramento/Delta Greens, Yosemite/Ahwahnee, Mori
Point, Palmdale/Joshua Ranch and Stacey Rose properties, National has entered
into statutorily authorized 5-year payment plans with the applicable taxing
authorities.
CERTAIN ASSETS MUST BE SOLD TO RAISE WORKING CAPITAL. Unless a minimum
of approximately $[4,565,000] from sale of certain assets of the programs or
the sale of units in the concurrent offering or the exercise of warrants
become available, the company will not be able to proceed with its entire
business plan. The company will also need financing from other sources to
complete its plan. Financing sources are not predictable and interest rates
or other costs of financing may be prohibitive. Neither the programs nor the
company have received any commitment from other sources. In their current
tenancy-in-common structure, the programs cannot obtain traditional bank
financing.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL AND OTHER LAWS MAY REQUIRE
EXPENSIVE HAZARDOUS SUBSTANCE CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC
IMPROVEMENTS. We have not conducted any environmental audits on the
properties. As a result, there may be environmental liability to the company.
Local governments have required residential developers to pay assessments
for streets, schools and parks which increase the cost of development.
Increased costs can have a negative affect on the company's sale of
residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as
earthquakes and floods may be uninsurable or too expensive to insure. The
company does not plan to carry earthquake or flood insurance. If an
uninsured loss occurs, the company would lose capital as well as revenues,
and would still owe other debts related to the property affected, if any.
THE DEVELOPMENT OF ADDITIONAL PROJECTS MAY OCCUR. We may develop
additional projects in the future, although we have no immediate plans to do
so. Real estate development involves more risks than in the ownership and
operation of established projects. Financing may not be available on
favorable terms for development projects; construction may not be completed
on
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schedule or budget; long-term financing may not be available on completion of
construction; and sites may not be sold on profitable terms.
THE CALIFORNIA ECONOMY HAS FLUCTUATED BROADLY IN THE PAST FEW YEARS.
Initially, we will conduct all of our business in California. Our markets
have been affected by substantial fluctuations in local economic conditions,
interest rates, inflation, employment levels and regulations. California has
also experienced draught conditions, resulting in water conservation measures
and rationing. In the past, these conditions have caused local governments
to restrict residential development. California's climate and geology
present risks of natural disaster such as earthquakes and floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE
OWED $[1,818,684] BY THE COMPANY. This represents accrued fees and expenses
from the programs which National has not cancelled. This amount is due and
payable and the company intends to start paying it after the Acquisition, but
only from operating revenues or proceeds from the sale of assets or the
exercise of warrants, and not from working capital generated by the proceeds
of unit sales in the concurrent offering.
REAL ESTATE RISKS OF SACRAMENTO/DELTA GREENS
PERMITS TO DEVELOP THE PROPERTIES NEED TO BE OBTAINED. Construction of
the Sacramento/Delta Greens property will require approval of a new tentative
map, the filing of a final map and obtaining building permits from the city.
The tentative tract map process for the Sacramento/Delta Greens property
required that studies be conducted to identify any endangered species'
habitat on the property. Since some were identified, changes to the tentative
development plans have been made to reduce or eliminate any damage to the
habitat. A new tentative map needs to be approved by the City. The longer
this process takes, the longer it will be before any of the property is ready
for any construction, further development activity or sale.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS AT THE SACRAMENTO/DELTA GREENS
PROPERTY MAY CAUSE THE COMPANY TO INCUR SUBSTANTIAL CARRYING COSTS UNTIL THE
LOTS CAN BE SOLD. Changing market conditions may increase the difficulty of
selling the lots. If the company chooses to build homes on the lots, delays
in construction, the lack of reasonably priced construction or mortgage
financing, and the general California economy could lengthen the holding
period for the lots. This would mean a delay in realizing cash from the
business operations. The average carrying costs, including property taxes,
management and servicing related fees, for this property has averaged
approximately $10,000 per month over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, our properties may be sold at a loss. The location of the company's
lots, the presence of other competition, customer acceptance and pricing are
all factors affecting success. Competitors may have better financial,
managerial and other resources, affecting our ability to successfully compete.
Sacramento/Delta Greens represents over 5% of the assets of the company.
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ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay the engineering costs required to mitigate endangered
species issues and pay for the planning and design expenses for the city to
approve a new tentative trace map (estimated by management to cost
approximately $25,000). Another risk is whether the lots to be developed
will appeal to project builders and whether home financing will be available.
Finally, there is a risk that the development and sale of lots or homes will
be profitable.
REAL ESTATE RISKS OF YOSEMITE/AHWAHNEE PROPERTIES (INCLUDING THE GOLF
COURSE AND SURROUNDING LAND WHICH IS OWNED BY THE OCEANSIDE PROGRAM INVESTORS)
PERMITS TO DEVELOP THE CONDOMINIUM-TYPE TIMESHARE ASPECT OF THE RESORT
HAVE NOT YET BEEN OBTAINED. The Yosemite/Ahwahnee property has a final map
on 32 remaining single family estate lots and a use permit for a 600 space
recreational vehicle park. Planning and development are underway for
100 additional recreational vehicle sites, as well as vacation villa timeshare
units. Additional planned usage such as traditional, attached timeshare
units will require extensive county and state approvals.
RISKS AFFECTING OPERATION OF A GOLF COURSE. Increased competition,
seasonality, weather and course conditions will affect the operations of the
company. While no new golf courses have opened near the Ahwahnee Golf
Course, new courses could increase the competition and reduce the rounds
played. Seasonal variations may require the company to supplement revenue at
the golf course to meet operating expenses. Weather can negatively affect
the turf grass and reduce the number of rounds played. Inflationary costs
may not be offset by increased dues. Also, golf's success depends on
discretionary spending by consumers, which may be vulnerable to regional and
economic conditions, as well as to pleasure or destination travel preferences
by visitors and tourists. All of these factors could reduce the amount of
money earned by the company.
The Yosemite/Ahwahnee golf course can be an important amenity which may
attract potential timeshare purchasers in the future. At this time, the
project does not rely on the golf course for its revenue. National estimates
that the value of the golf course will be less than 20% of the assets of the
company.
RESORT DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF REASONS AND COULD
RESULT IN LOSSES. In addition to normal real estate risks, financing is hard
to obtain, and the lodging industry can be unpredictable, seasonal and very
competitive. Without additional financing or capital, the company will not
be able to develop its resort projects as part of its growth strategy.
Economic conditions, changes in travel patterns, extreme weather conditions,
labor and other variable costs can all affect revenues and profits. For
example, Spring through Fall at the Yosemite/Ahwahnee property are the
periods of highest occupancy. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues.
RISKS RELATING TO TIMESHARE OPERATIONS. Certain factors affecting
timeshare operations could result in losses. Negative press surrounding the
remarketing of timeshares might negatively impact sales and operations. Also,
marketing costs are high relative to selling price which can reduce or
eliminate profits from the sale of timeshare interests.
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In addition, according to the American Resort Development Association,
there is a tendency for timeshare owners to default more often on their
timeshare loans then homebuyers who borrow to buy a home. If a buyer
defaults, we would incur costs in remarketing the timeshare.
The timeshare industry is extremely competitive and we may not be able
to secure development financing on acceptable terms.
Since the project is not yet permitted for traditional attached
timeshare units, there has been no allocation of assets. Should attached
timeshare be approved, the company anticipates that a significant portion of
the revenue of the company will be derived from sales of timeshare units.
RISKS RELATING TO RECREATIONAL VEHICLE PARK OPERATIONS. Risks relating
to recreational vehicle parks are substantially the same as those described
above for timeshare projects.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to (i) make up for the current cash drain from operations and
maintenance of the golf course, clubhouse and current recreational vehicle
facilities (estimated by management at approximately $350,000) annually and
(ii) complete the construction of additional recreational vehicle sites and
obtain approvals for and construction of the first group of vacation villa
timeshare units (estimated by management to cost approximately $3,000,000).
There are also a risk that the operation of recreational vehicle sites,
timeshares and golf course activities will not be profitable.
REAL ESTATE RISKS OF MORI POINT PROPERTY
PERMITS TO DEVELOP THE PROPERTY HAVE NOT YET BEEN OBTAINED. If needed
permits for development are not obtained or reissued, the business plan for
the company will have to be revised or abandoned. Additionally, the presence
of two endangered species on the Mori Point property increases the risks that
necessary approvals may not be received if an acceptable habitat mitigation
plan cannot be developed. The permitting process with the California Coastal
Commission and the City of Pacifica is expensive and time consuming. Mori
Point had a specific plan and tentative map approvals to build a
hotel/conference center which expired in 1991. These approvals must be
obtained or reinstated prior to construction on the property. Mori Point will
represent approximately 20% of the assets of the company.
HOTEL/CONFERENCE CENTER DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF
REASONS AND COULD RESULT IN LOSSES. In addition to normal real estate risks,
financing is hard to obtain, and the lodging industry can be unpredictable,
seasonal and very competitive. Without additional financing or capital, the
company will not be able to develop its hotel/conference center project as
part of its growth strategy. Economic conditions, changes in travel
patterns, extreme weather conditions, labor and other variable costs can all
affect revenues and profits. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues. At the hotel/conference center
property at Mori Point, we may be competing against well-known chains and
extended-stay inns.
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ADDITIONAL SPECIFIC RISKS. There is a risk that the city government
will not approve the property for its intended use. Capital to conduct
engineering and environmental studies in order to apply for and obtain
approvals for its use from the city is estimated to be approximately
$500,000. Capital will also be necessary for roads, utilities and other
infrastructure costs prior to construction. Finally, there is a risk that
the proposed hotel/conference center may not be profitable.
REAL ESTATE RISKS OF CYPRESS LAKES PROPERTY
THE VESTED TENTATIVE MAP WILL EXPIRE IN APRIL 1999 UNLESS RENEWED AND
THE BUILD OUT OF THE PROPERTY WILL BE EXPENSIVE. Due to being located in a
100-year flood plain, the property requires a levee to be constructed around
its perimeter which is very expensive to construct. Preliminary engineering
estimates indicate these costs to be more than $9,000,000. It may be
desirable to change the vesting tentative map if the costs can be reduced
significantly. While mere extension of the expiration date of the existing
vested tentative map is not expected to be controversial, any changes in the
existing plan could subject the project to public hearings which might result
in additional costs being placed on the project. This could further increase
the high front-end financial requirements. Additionally, such modifications
might not be approved.
Cypress Lakes is a proposed master-planned community and represents more
than 20% of the assets of the company. Joint venture partners would have to
be brought in by the Company to help with the large capital requirements of
such a large project in order to develop it. It may be difficult to find
substantial builder/developers who have the financial ability to purchase or
develop the project. Changing market conditions may increase the difficulty
in selling lots.
Should the company determine to build out the project, delays in
construction, reasonably priced mortgage and construction financing and the
local and general California economy could lengthen the holding period for
the lots. This would mean delays in realizing cash from the business
operations.
RISKS AFFECTING OPERATION OF A GOLF COURSE. When, and if, the golf
course is developed, it will face competition from the 15 golf courses within a
25-mile radius. Seasonality, weather and course conditions will affect the
operations of the company. Weather can negatively affect the turf grass and
reduce the number of rounds played. Inflationary costs may not be offset by
increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as
well as to pleasure or destination travel preferences by visitors and
tourists. All of these factors could reduce the amount of money earned by
the company.
RISKS OF RESIDENTIAL DEVELOPMENT. Totaling 1,330 lots, a large supply
of lots would be available and, due to the cyclical nature of the housing
industry, demand may fluctuate differently than supply. This could result in
needing to sell lots at a loss. Due to the size of the project, it
could take between six and ten years to complete, which would subject it to
new competitors entering the marketplace during the sales period. An
environmental impact report
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was obtained on the property. Any and all environmental concerns will be
mitigated as required in the vested tentative map conditions of approval. No
evidence of endangered species that would limit or preclude development of
the project have been found.
REAL ESTATE RISKS OF PALMDALE/JOSHUA RANCH PROPERTY
A FINAL TRACT MAP MUST BE RECORDED. After several years of effort by
National, the vested tentative map was approved by the City of Palmdale at a
hearing before the planning commission in early July 1998. A final recorded
map must be secured by National or a buyer in order to build on the property.
Final engineering, soils, utility and various improvement studies will need
to be conducted in order to record the final map.
PERMITS TO DEVELOP THE PROPERTY NEED TO BE OBTAINED. A final recorded
map, which could take nine to twelve months after starting the process, will
be required prior to construction. Due to the size of this project which
encompasses some 739.6 acres and is currently planned for 539 lots,
additional grading studies, soils investigation and utility planning needs to
be done which could negatively impact the cost of this large-scale
development.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Finding
builder/developers that have the financial strength to handle this size
project can be difficult. Changing market conditions, the lack of
reasonably-priced construction or mortgage financing and the general or local
market conditions could lengthen the holding period for lots. This would
mean a delay in realizing cash from business operations. The average
carrying costs, including property taxes, predevelopment and asset management
services for this property have averaged approximately $16,300 per month over
the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, the property may be sold at a loss. The location of the lots, the
presence of other competition, customer acceptance and pricing are all
factors affecting success. Competitors may have better financial, managerial
and other resources affecting the company's ability to successfully compete.
An environmental impact report was obtained on the property. Any and all
environmental concerns will be mitigated as required in the vested tentative
map conditions of approval. No evidence of endangered species that would
limit or preclude development of the project have been found.
Palmdale/Joshua Ranch is a proposed residential development and
represents about 10% of the assets of the Company.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay for or finance (i) engineering, soils and utility studies
which is estimated to cost approximately $140,000, and (ii) another risk is
whether the lots to be developed may appeal to project builders.
Palmdale/Joshua Ranch is a proposed residential development and represents
about 10% of the assets of the company.
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REAL ESTATE RISKS OF ESPERANZA PROPERTY
RISKS OF COMMERCIAL DEVELOPMENT. The material risks associated with the
development of the Esperanza Property are (i) as of August 31, 1998,
approximately $23,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the property for delinquent property
taxes; and (ii) despite a strong economy, rents and values for many retail
properties are expected to remain soft in 1998. Pressure on rents brought
about by over building, weakness in demand for space and store closures
caused by lagging profits are the forces causing a soft market. No
environmental or endangered species reports have been prepared for the
property.
ADDITIONAL SPECIFIC RISKS. Within the City of Victorville there are
approximately 3,250 acres zoned for commercial use, of which 60% remains
available for development. Victorville is home to the largest enclosed
regional shopping center between San Bernardino and Las Vegas, which is known
as The Mall of Victor Valley. These commercial sites represent significant
competition to the Esperanza project. There are more than 5,400 acres within
the city limits of Victorville zoned for light and heavy industrial use.
Nearly nine percent of this 5,400 acres of land is vacant and is available in
parcels ranging in size from one-half to five hundred acres.
REAL ESTATE RISKS OF STACEY ROSE PROPERTIES
RISKS OF RESIDENTIAL DEVELOPMENT. The material risks associated with
the development of the Stacey Rose Properties are (i) as of August 31, 1998,
approximately $30,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the Properties for delinquent property
taxes; (ii) it is estimated that it may cost about $50,000 to finalize a
tentative tract map on the parcels; (iii) a substantial, and potentially
expensive, sales and marketing effort will be necessary to sell homes
constructed on the properties if a bulk sale of the lots is not made; (iv)
the properties are located in a lower income residential area; and (v)
increasing government fees and assessments for streets, schools, parks and
other infrastructure requirements could increase the cost of lots to the
company, thereby increasing the sales price of the lots which will delay
market absorption. No environmental or endangered species reports have been
prepared for the property.
ADDITIONAL SPECIFIC RISKS. There is a risk that (i) adequate funds will
not be available to finalize a tentative tract map on the parcels
(approximately $50,000); (ii) the project will not appeal to project
builders; and (iii) home financing at reasonable costs may not be available.
There is also a risk that the development and sale of lots or home may not be
profitable
ANTI-TAKEOVER PROVISIONS
Certain provisions of the charter documents may restrict changes in
control of the Company's management. These provisions may make it more
difficult or expensive for another party to acquire and exercise control of
the Company or to change its management, even if that change would be
beneficial to you. These provisions include:
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ADDITIONAL CLASSES OF SHARES. Under the company's certificate of
incorporation, subject to the receipt of fair value, the Board of Directors
may issue shares in other classes or series and fix the rights, powers and
limitations associated with such shares. Although the Board of Directors has
no present intention of doing so, it could issue a class or series that
could, depending on its terms, impede a merger, tender offer or other
transaction that you might believe is in your best interest or in which you
might receive a premium for your shares over the then current market price.
The issuance of such shares could also dilute your voting power.
STAGGERED BOARD. The Board of Directors is divided into three classes
serving staggered three year terms. This arrangement may affect your ability
to change control of the company, even if you believe such a change is in
your best interests.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The company's
certificate of incorporation, as well as Delaware law, prohibits certain
business combinations with owners of more than 15% of the outstanding voting
stock of the company ("interested stockholders") within the three year period
immediately prior to the date on which the interested stockholder became an
interested stockholder. These restrictions on certain business combinations
may deter potential purchasers who seek control of the company.
SUPERMAJORITY VOTES. Changes to the company's certificate of
incorporation which cover anti-takeover provisions require the approval of
two-thirds of the company's voting stock. This restriction also may deter
potential purchasers who seek control of the company.
IN ADDITION TO THE ANTI-TAKEOVER PROVISIONS, THE DELAWARE LAW, AS WELL
AS THE CHARTER DOCUMENTS, LIMIT THE LIABILITY OF DIRECTORS AND OFFICERS TO
SHAREHOLDERS. This limitation of liability may exceed the protections
National enjoys under the programs' servicing agreements and limit
shareholders' claims against management.
FAIRNESS TO INVESTORS IN THE ESPERANZA PROGRAM
Both procedurally and from a financial point of view, the company and
National believe the terms of the acquisition are fair as a whole and to the
investors in each of the programs. This determination is based on
consideration of the following positive and negative factors:
- the units offer an opportunity for individual investor liquidity
while the tenancy-in-common interests do not, however, there is no assurance
that the shares will have any liquidity, or that any liquid market that
develops will be sustained;
- while the number of units to be issued to reflect the exchange
value of a program is arbitrary, the trading price of the shares included in
the units initially is likely to be substantially below the $20 value
arbitrarily assigned to the units. In our opinion, the exchange values
offered to investors for their assets allow for an equitable allocation of
the [1,403,321] units ([1,380,175] units if only the "Trudy Pat" programs
participate) among the programs. The disparity between exchange values and
appraised values results from adding the value of program cash reserves and
other assets, if any, to appraised values and deducting program
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liabilities (principally accrued property taxes and other fees net of fees to
be forgiven by National);
- on completion of the acquisition the investors will hold over 80%
(over 94.7% if all units are sold in the concurrent offering and all of the
warrants included in the units to be issued in the Acquisition are exercised)
of the outstanding stock of the company. After the acquisition, a total of
[0.63]% of the outstanding stock of the Company will be held by Esperanza
investors. After the acquisition, founders of the company (principals,
employees, former employees and consultants of National) will hold less 20%.
Founders' shares were purchased for $.01 per share. Among the properties,
National and its principals will have forgiven over $3,800,000 of expenses and
accrued fees of which a total of approximately $2,148,000 was earned for asset
management and property management services after the loans defaulted and
before the Ownership Dates of the properties. The balance was earned after
foreclosure for asset and property management services and expenses. Of such
amount, $102,134 is attributable to fees owed by Esperanza investors. National
believes that the amount paid for the property management services is no
greater than the amount that a third party would charge;
- the current appraised value of the Esperanza real estate assets
($270,000) (as well as the real estate assets of the other programs) and the
fact that substantial financing is needed to further the property's
development;
- the probability that the transaction will have minimal, if any,
negative tax affect on investors. National believes there will likely be no
out-of-pocket tax cost to all, or the vast majority, of you;
- while conflicts of interest exist in the structuring of the
acquisition, the issuance of shares to the founders of the company and the
determination of management compensation and while you did not have
independent representation in the structuring of the acquisition, we believe
they have been counterbalanced by your opportunity to vote on the transaction
and the Fairness Opinion;
- while the Esperanza Program (as well as the other programs) were
originally formed to have a two to four year finite life which should have
ended between 1990 and 1992 and the investors expected to receive a return of
their investment from the original borrower, the company is an infinite life
entity which will not return the program investors' original investment based
on a sale or refinancing of the properties underlying the original programs.
However, after the borrowers defaulted on the "Trudy Pat" loans, the
investors became beneficial owners of the underlying properties with the need
to complete development, manage or otherwise ready the properties for sale.
Those endeavors had no fixed timetable and, thus, the finite life aspect of
their original investments was significantly changed. Therefore, the
infinite life aspect of the company is not viewed by National to be a
material change from the investors' CURRENT situation;
- the acquisition will cause fundamental changes in the business plan
of the Esperanza program. Rather than being focused on the development of a
single property for residential purposes, the company will be focused on the
management of at least seven and as many as ten properties. Thus, the poor
performance of a particular property may affect the company's operations as a
whole regardless of the performance of the other Esperanza property.
14
<PAGE>
Further, there will be no particular time when an Investor can expect its
interest to be automatically liquidated;
- the fact that the Esperanza property has deteriorated in value
since the original loan was made, no offers have been received to purchase
the property, and the investors have rejected one purchase offer;
- investors will not be able to vote on changes to or dispositions of
the Esperanza property or borrowing secured by that property. Those
decisions will be made by the Board of Directors or management of the
company. Further, as investors in a larger entity, relative voting power
will be diluted;
- future cash distributions will be based on the company's earnings
and the decision of the Board of Directors to pay dividends rather than the
performance or sale of the Esperanza property;
- investors voting against the acquisition will have no alternative
but to accept shares in the company if the acquisition is approved by holders
of a majority of the tenancy-in-common interests in each of the programs;
- the anti-takeover provisions of the company's charter documents
contain provisions that may have the effect of delaying or discouraging a
change in management which is not favored by the Board of Directors of the
company; and
- the Fairness Opinion rendered by Houlihan Valuation Advisers, an
independent valuation firm, which addresses only the allocation of the units
in the acquisition and not the amount of the consideration paid to program
investors in the acquisition as a whole. See "Background and Reasons for the
Acquisition" at page __ of the Prospectus.
National reviewed the arbitrary value you will receive in connection
with the acquisition and compared it with what you might receive if (i) the
Esperanza property were operated "as is" ($1,161 per $10,000 of Adjusted
Outstanding Investment), (ii) the Esperanza property was sold in a quick sale
in three months or less ($1,161 per $10,000 of Adjusted Outstanding
Investment), or (iii) the Esperanza property was sold at the appraised value,
net of program debt, used to determine the Esperanza exchange value ($3,239
per $10,000 of Adjusted Outstanding Investment). Based on that review, and
even acknowledging that, initially, the company's shares included in the
units issued in the acquisition would likely trade substantially below the
arbitrary $20 issuance value for the units, National believes that there is a
higher probability of realizing value from the Esperanza property through the
acquisition than through the other alternatives. This belief is based on the
expectation that some financing opportunities will become available based on
the form of the entity and the time pressure associated with forced sales or
liquidation will be relieved. See "Background and Reasons for the
Acquisition -- Comparison to Alternatives" and "Recommendation of National
and Fairness Determination" at pages __ and __ of the Prospectus.
15
<PAGE>
Based on the above factors and comparisons, National concluded that the
acquisition is fair, both substantively and procedurally.
THERE ARE NO MATERIAL DIFFERENCES BETWEEN THE FAIRNESS ANALYSIS FOR THIS
PROGRAM AND FOR ANY OF THE OTHER NINE PROGRAMS PROPOSED TO BE INCLUDED IN THE
ACQUISITION.
CALCULATION OF EXCHANGE VALUE
The Exchange Value of the Esperanza Program (as well as each of the
other Programs) is essentially the consideration at which the Company is
offering in exchange for the real estate assets, cash reserves, certain
liabilities and business of the Program. The value is reflected as a number
of units of the Company (in the case of the Esperanza Program, 10,818 units)
multiplied by an arbitrary $20 per unit value.
The Exchange Value for the Esperanza Program was calculated as follows:
appraised value of the Esperanza Program property at March 31, 1998, plus
book value of other Esperanza Program assets at August 31,1998, less Esperanza
Program liabilities at August 31, 1998.
The following table summarizes the calculation of the Exchange Value of
the Esperanza Program and the value assigned on $10,000 of Adjusted
Outstanding Investment:
<TABLE>
<CAPTION>
Value Assigned
Appraised Net Other to Program per
Value of Assets and Exchange $10,000 of Adjusted
Real Estate(1) + Liabilities(2) = Value Outstanding Investment
--------------- -------------- ---------- ------------------------
<S> <C> <C> <C>
$ 270,000 $[ (53,644)] $ [216,356] $ [3,701](3)
</TABLE>
- -----------
(1) Reflects independent appraisal as of March 1998.
(2) The following table quantifies the adjustments to appraised values made in
determining Esperanza property's Exchange Value as of August 31, 1998.
<TABLE>
<CAPTION>
Book Assets Book Liabilities Net Other Assets
(8/31/98)* - (8/31/98)* = and Liabilities
----------- ---------------- ----------------
<S> <C> <C>
$ 28,523 $ (81,897) $ (53,644)
</TABLE>
* See balance sheet of the Program in the financial statements
accompanying the Prospectus for details of book assets and book
liabilities. There is no mortgage debt on the Esperanza property.
(3) Equals [185] Company shares arbitrarily valued at $20 per unit.
ALLOCATION OF SHARES
The [1,403,321] shares of Company common stock being offered to
Investors in the Acquisition represent over 80% of the Company's shares (92.9%
if all the units are sold in the concurrent offering and 94.7% if all the
units are sold in the concurrent offering and all warrants in units issued in
the acquisition are exercised) which will be outstanding upon completion of
the Acquisition. The remaining shares will be held by management and other
16
<PAGE>
founders of the Company. Such shares will be allocated among the Programs
pro rata in accordance with Exchange Values. The Esperanza Program will be
allocated [10,818] shares.
The shares allocated to the Esperanza Program will be allocated among
Investors in the Program based on their respective pro rata investments in
the Program (taking into account assessments paid and unpaid, as well as
interest accrued to each Investor through the date beneficial ownership of
the Program's Property was taken for the Investors) as adjusted for voluntary
advances. An Investor in the Esperanza Program with an adjusted investment
amount of $10,000 will receive [185] units in the Company arbitrarily valued
at $20 per unit.
Neither National nor the Company's founders have any economic
interest in the Esperanza Program except for National's contractual right to
asset management fees.
The following table and its footnotes sets forth the amount owed by the
original borrower to the Esperanza Program (including accrued but unpaid
interest) plus the amount of assessments and advances paid by Investors at
August 31, 1998, appraised real estate value, Exchange Value of the Program,
the number and percentage of shares allocated to the Program, and the number
of shares and comparative value of the Company to be held by founders after
the Acquisition.
<TABLE>
<CAPTION>
% of Total
Shares to be
Outstanding
After the
Amount Real Estate Acquisition if
Owed plus Appraised Exchange No. of Shares All Programs
Name of Program Assessments Value Value(1) Allocated(1)(2) Participate
--------------- ----------- ----------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Esperanza $ 584,653 $ 270,000 $ [216,356] [10,818] [0.63]%
</TABLE>
(1) The founders of the Company which include members of Company management, as
well as certain employees, former employees of National and consultants to
the Company and the Programs, will hold a total of [323,631] Company shares
after the Acquisition (18.74% of the outstanding shares post-Acquisition,
17.48% if all the units are sold in the concurrent offering and 5.3% if all
the units are sold in the concurrent offering and all warrants in units
issued in the acquisition are exercised) which, if valued at $20 per
share, would have an aggregate value of $[6,472,620]. The Company was
formed, and shares were purchased by the founders for $.01 per share, prior
to making the Acquisition proposal. The shares to be retained by the
Company's founders were not determined based only on fees cancelled or to
be cancelled by National and its principals. Overall, National believed
that the Company's founders should hold less than 20% of the shares after
the Acquisition assuming none of the Units in the concurrent offering
are sold and none of the warrants are exercised. See "Dilution" at
page __ of the Prospectus. If the Acquisition is completed, the
following table sets forth the fees which National and its principals
have cancelled, or will cancel:
17
<PAGE>
<TABLE>
<CAPTION>
Previously To Be
Name of Program Cancelled Cancelled
------------- ---------
<S> <C> <C>
Sacramento/Delta Greens $ 500,000 $ -0-
Oceanside 601,125 261,273
Yosemite/Ahwahnee I 72,158 -0-
Yosemite/Ahwahnee II 1,157,867 124,250
Mori Point 461,589 -0-
Cypress Lakes 468,000 -0-
Palmdale (Joshua Ranch) -0- -0-
Esperanza 102,134 -0-
Stacey Rose A 64,293 -0-
Stacey Rose B 17,267 -0-
------------- --------
TOTAL $ 3,444,433 $385,523
------------- --------
------------- --------
</TABLE>
(2) Had the shares retained by the founders of the Company been allocated to
the founders based only on cancelled fees, [2.7]% of the total shares to
be owned by the Company's founders after the Acquisition ([8,630] shares
if all programs participate) would have been deemed allocated from this
Program.
HISTORICAL COMPENSATION TO NATIONAL/EFFECT OF ACQUISITION
The following table sets forth the compensation accrued by National, as
well as actually paid to National, during the years ended December 31, 1997,
1996 and 1995, and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
Incurred
Actually Incurred Actually Actually for Six
Incurred for Paid for for Year Paid for Incurred for Paid for Months Actually Paid
Year Ended Year Ended Ended Year Ended Year Ended Year Ended Ended in Six Months
Name of Program 12/31/95(1) 12/31/95(2) 12/31/96(1) 12/31/96(2) 12/31/97(1) 12/31/97(2) 6/30/98 Ended 6/30/98
----------------- ------------ ----------- ----------- ----------- ----------- ----------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Esperanza $5,000(2) $-0- $5,000(2) $-0- $5,000 (2) $-0- $2,500 $-0-
</TABLE>
(1) These amounts represent accrued asset management fees.
(2) Approximately $6,289 per year if the Acquisition had been completed during
the above periods including $3,270 of estimated salaries to be paid by the
Company to its officers and which were allocated to the Esperanza based on
Exchange Values. No cash would have been available to pay officers'
bonuses or dividends to shareholders.
18
<PAGE>
HISTORICAL CASH DISTRIBUTIONS TO INVESTORS/
EFFECT OF THE ACQUISITION
The following table sets forth the cash distributions made to Investors
during each of the years ended December 31, 1992, 1993, 1994, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
Prior to
1992 1992 1993 1994 1995 1996 1997 Total
---------- --------- -------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Esperanza
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest $ 130,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 130,000
</TABLE>
There have been no recent distributions to Investors. The Acquisition
is not expected to alter this distribution pattern.
FURTHER FINANCIAL INFORMATION
See the following portions of the Prospectus for further financial
information about the Sacramento/Delta Greens Program, as well as the others:
- "Selected Financial Information" at page __.
- "Management's Discussion and Analysis of Financial Condition and
Result of Operations" at page __.
- "Financial Statements" at page F-1.
19
<PAGE>
SUPPLEMENT TO CONSENT SOLICITATION STATEMENT/PROSPECTUS
OF
AMERICAN FAMILY HOLDINGS, INC.
PREPARED FOR INVESTORS IN
STACEY ROSE A PROGRAM
CAPITALIZED TERMS USED IN THIS SUPPLEMENT AND NOT DEFINED
HEREIN HAVE THE MEANING GIVEN TO THEM IN THE PROSPECTUS.
SEE "GLOSSARY" AT PAGE __ OF THE PROSPECTUS.
----------------------
YOU MUST READ THE ENTIRE CONSENT SOLICITATION STATEMENT/PROSPECTUS TO
FULLY UNDERSTAND THE ACQUISITION. This Supplement has been prepared to help
the Investors in the Stacey Rose A Program to understand how the Acquisition
described in the accompanying Prospectus will affect them. If completed, the
effects of the Acquisition may be different for Investors in the other
Programs. A separate supplement has been prepared for each of the other
Programs, copies of which may be obtained, without charge, by writing to
National Investors Financial, Inc., 4220 Von Karman Avenue, Suite 110,
Newport Beach, California 92660, Attention: Vivian Kennedy, or calling
1-800-590-7772.
As described in the accompanying Prospectus, American Family Holdings,
Inc. (the "Company") is offering units of its securities in exchange for the
assets (including cash reserves), certain liabilities and business activities
owned by Investors in seven former "Trudy Pat" programs and three other
programs managed by National Investors Financial, Inc. ("National"). For
this proposed Acquisition, the Company will issue an aggregate of
$[28,066,419] of units arbitrarily valued at $20 per unit. A unit consists
of one share of common stock plus warrants to purchase three additional
shares. [THE SHARES INCLUDED IN THE UNITS WILL BE LISTED FOR TRADING ON THE
___________ UNDER THE SYMBOL "___." THE WARRANTS WILL [NOT] BE LISTED FOR
TRADING.] The purpose of the transaction is to consolidate the operations of
the programs, improve the ability to sell or obtain financing for development
of the programs' properties, eliminate the assessment process, focus on
revenue-generating potential, improve efficient of operation in order to
reduce costs and increase profit potential, and provide the investors with
liquidity for their investments.
Of the [1,403,321] units to be issued by the Company in the Acquisition,
Investors in the Stacey Rose A Program will receive a total of [2,617] shares
or [229] shares per $10,000 of Adjusted Outstanding Investment. After the costs
of an outright sale of the property, and the payment of Program liabilities,
National does not believe any alternative would yield to Investors in the
Stacey Rose A Program an amount that is higher than the value of the Company
units to be received in the Acquisition. You may receive additional units if
your program's property is sold, and if before December 31, 1999, cash sale
proceeds (net of closing costs and interest) are received in excess of the
property's March 1998 appraisal value.
In each of the Programs, the Investors will vote on whether to approve the
Acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED IN THE
SEVEN TRUDY PAT" PROGRAMS MUST VOTE TO APPROVE THE ACQUISITION FOR IT TO TAKE
PLACE.
This solicitation commenced on _______, 1998 and expires at 5:00 p.m.,
Pacific Time, on __________, 1998 unless extended. Call 1-800-590-7772 with
questions.
MOST MATERIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will no longer have a
tenancy-in-common interest in your program's property. Instead, you will
hold shares in a publicly-traded real estate company and will not receive
liquidation proceeds when, or if, your program's property is sold. As an
investor in a publicly-traded company with many stockholders, you will have
relatively less voting power.
- - If the acquisition is approved, your investment will be subject to the
risks associated with residential development plus new risks associated with
a business which also operates a golf course and a recreational vehicle park,
and which plans to pursue the development of timeshare facilities, commercial
facilities, and a hotel/conference center.
- - If a trading market develops, the initial trading price for the stock
will likely be substantially below the arbitrary value of $20 per unit for
purposes of the acquisition. Thus, the value of the units you receive may be
less than you might receive if the property of your program were sold.
- - Principal stockholders of National and executive officers of the Company
will hold approximately (6.23% if all the units are sold in the concurrent
offering and 4.66% if all the units are sold in the concurrent offering and
all warrants issued in the acquisition are exercised) for which they paid
$0.01 per share and will receive annual cash compensation aggregating
$560,000 as officers and employees. National will be relieved of its
servicing and asset management obligations and will no longer earn servicing
and asset management fees of approximately $885,000 annually. However, the
Company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
- - No independent advisors represented you in structuring this transaction.
- - There can be no assurance that the transaction is not a taxable event.
If so, National believes a tax loss is the probable result for most of you.
- - The Company must have additional cash to fund its proposed operations.
If it cannot obtain such funding from the sale of certain of its properties,
the exercise of the warrants included in the units or the sale of additional
units, it will be no more successful than the programs have been individually
in completing the development of some or all of the properties.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE
ACQUISITION.
<PAGE>
MATERIAL RISKS AND DISADVANTAGES
A full description of the material risks of the Acquisition may be found
on pages [__] through [__] of the accompanying Prospectus. Those risks
include:
RISKS OF THE ACQUISITION
THERE WILL BE FUNDAMENTAL CHANGE IN THE NATURE OF YOUR INVESTMENT. If
the acquisition is completed, there will be a change in the nature of the
investment of each investor from holding a tenancy-in-common interest in real
estate to holding shares (and the right to buy additional shares) in an
on-going company, the assets of which may be changed from time to time
without approval of investors. If the acquisition is completed, investors
will be able to liquidate their investments only by selling their shares
[on the _____] or in private transactions, and they will not receive a return
of their investment in the form of liquidation proceeds through property
sales. If the acquisition is completed, investors will have an investment in
an entity that is larger than each of the programs and will thus lose
relative voting power. Investors will have an investment in a business which
also operates a golf course and a recreational vehicle park, and which plans
to pursue the development of timeshare facilities and a hotel/conference
center.
THE EXCHANGE VALUES OF THE PROGRAMS ARE NOT THE SAME AS THE POTENTIAL
SALES PRICE. Investors are subject to the risk that the exchange value of a
program does not reflect the price a program's assets might bring in a sale.
If the property of a program were to be sold, the net proceeds of the sale
and the amount finally distributed to an investor in that program may be more
or less than the exchange value. There is no assurance that the future value
of the shares and warrants received in the acquisition will be greater than
the most recent appraised value of the property.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. Initially, shares may
trade at prices substantially below the arbitrarily determined exchange value
of $20 per unit or the historical book value of the company's assets. There
is no guaranty that a liquid trading market will develop for the shares, or
be sustained. If a trading market develops for the shares, the price of
shares after the acquisition will likely decrease below the exchange value
per share of $20 due to a potentially large number of shares that investors
may sell immediately after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN STRUCTURING THE ACQUISITION. The
founders of the company, and specifically the principal shareholders of
National, as well as National itself, will be subject to conflicts of
interest. The principal shareholders and employees of National and the
company will hold approximately [16.35]% of the company's outstanding stock
(6.23% if all the units are sold in the concurrent offering and 4.66% if all
the units are sold in the concurrent offering and all warrants in units
issued in the acquisition are exercised) for which they paid $0.01 per
share. Other founders of the company will hold approximately [2.3]% of the
company's outstanding stock (0.88% if all the units are sold in the
concurrent offering and 0.66% if all such units are sold and all warrants
issued in the acquisition are exercised) for which they also paid $0.01 per
share. Thus, the investors' total ownership interests in the programs'
properties will be diluted by the equity interest in the company held by the
founders of the company. The principal stockholders of National and other
executive officers of the
2
<PAGE>
company will receive annual cash compensation aggregating $560,000 as
officers and employees of the company. National will be relieved of its
servicing and asset management obligations and will no longer earn asset
management or servicing related fees. However, despite the fact that
National will have forgiven over $3,800,000 of unpaid fees and expenses, the
company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not
favored by the board of directors. These provisions include a board of
directors with three classes serving staggered three year terms, the
inability to remove a particular director before the expiration of his or her
term without a two-thirds supermajority vote, and the inability to amend the
anti-takeover provisions of the charter documents without a similar vote.
Thus, if investors are unhappy with management's performance, it will be more
difficult to remove directors not favored by the investors.
NO INDEPENDENT PARTY WAS RETAINED BY NATIONAL TO NEGOTIATE ON BEHALF OF
THE INVESTORS. Therefore, terms of the acquisition may be less favorable to
investors and more favorable to founders of the company which included the
principal shareholders of National than if the acquisition had been subject
to arm's-length negotiation. Had an independent party negotiated on behalf
of each program, the terms of the acquisition may have been more favorable to
certain or all of the programs and fewer shares and less favorable employment
contracts may have been received by the founders of the company.
THE ACQUISITION MAY NOT BE A TAX-FREE TRANSACTION TO INVESTORS. Due to
uncertainties in the facts of this transaction, tax counsel is unable to
opine conclusively on the tax consequences of the acquisition to investors.
The acquisition may be taxable, if at all, only with respect to the
investors' receipt of warrants. Alternatively, if the acquisition is a fully
taxable transaction, an investor would recognize gain or loss in 1998 equal
to the difference between the investor's tax basis in his interest in a
program property, and the number of shares of the company received valued at
$20 per unit. If the acquisition is treated as fully taxable, National
believes most investors would recognize a tax loss.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the
acquisition, none of the properties will be subject to any liens other than
for property taxes. The board of directors could authorize borrowing by the
company the debt service for which may adversely affect the company's ability
to make distributions to shareholders. The company may incur full recourse
debt which exposes all of the assets of the company to repayment instead of
limited recourse debt which generally exposes specific properties for the
repayment of debt.
THE BOARD OF DIRECTORS MAY UNILATERALLY CHANGE INVESTMENT, FINANCING AND
CERTAIN OTHER POLICIES WITHOUT SHAREHOLDER APPROVAL. Although the board of
directors of the company intends to implement the business plan set forth
herein, the board will have the ability to change investment, financing and
other policies of the company without the consent of shareholders.
THERE WILL BE NO APPRAISAL OR SIMILAR RIGHTS FOR NONCONSENTING
INVESTORS. If you vote against the acquisition, and it is approved, you will
not be able to object to the acquisition and
3
<PAGE>
receive the appraised value of your tenancy-in-common interest in your
program's assets. You will have no choice other than to accept units for
your interests.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed over a year
ago to take part in the acquisition of your property. It does not have the
benefit of operating for a long time. This means that shares in the company
are much riskier than ownership of shares of established companies. If the
company had been operating as if it owned the properties which it desires to
acquire, it would have experienced losses to date.
THERE WILL BE FUNDAMENTAL CHANGES IN THE BUSINESS PLAN IF THE
ACQUISITION TAKES PLACE. Rather than being focused on a single property, the
company will be an infinite life entity focused on the management of the
properties of at least seven of the former "Trudy Pat" programs plus the
properties of other programs which elect to participate in the acquisition.
The effect of this on investors is two-fold. First, poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the other properties. Second, there will be no
particular time when an investor can expect that a sale of any of the
properties will result in cash distributions to him or her.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes
or sales of a particular property. Those decisions will be made by the board
of directors or management. In addition, you will have an investment in an
entity that is larger than each of the programs and, thus, you will lose
relative voting power.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular principal and interest payments on
their original investments, because of the borrowers' defaults there have
been no distributions from any of the programs, other than the Oceanside
program, in the past three years. Future cash distributions will be based on
the company's earnings and the decision of the board of directors to pay
dividends. Therefore, even if a property in which you formerly held an
interest were to perform well, there is no assurance that there would be cash
distributions to you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. Prior to the
dates that title to the properties securing the original program loans was
taken, National was entitled to an annual loan servicing fee equal to one
percent of the original loan amounts. When title to the properties was taken
on behalf of the programs, even though the loans no longer existed, National
continued to charge the same rate as the servicing fee for the asset
management services it provided to investors. The investors in each of the
programs had become the beneficial tenant-in-common owners of real estate,
most of which was undeveloped. While it had no obligation to do so, in order
to assist the beneficial owners in protecting their real estate assets and
readying them for sale or development, National assumed the duties of an
asset manager after title was taken to the properties. In this capacity,
National obtained information from investors about their preferences in
regard to development or sale of the properties, and facilitated the
assessment of investors to raise funds necessary to pay property taxes,
insurance and other costs of property ownership.
4
<PAGE>
The annual fees payable to National are currently $50,000 for
Sacramento/Delta Greens; $300,000 for Oceanside; $61,068 for
Yosemite/Ahwahnee I; $133,646 for Yosemite/Ahwahnee II; $100,000 for Mori
Point; $140,000 for Cypress Lakes; $150,000 for Palmdale/Joshua Ranch; $5,000
for Esperanza; $3,153 for Stacey Rose A; and $850 for Stacey Rose B.
In addition to the one percent fee, compensation has been earned for
property management services provided to the Oceanside program ($896,000
accrued since the date of ownership (November 1993) through June 30, 1998;
$876,000 actually paid) and Yosemite/Ahwahnee properties ($594,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervision of: entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside
and Yosemite/Ahwahnee projects; and contract negotiations and documentation.
To the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
In the future, compensation will be paid to officers of the company in
the form of salaries (aggregating $560,000 annually plus contractual bonus
opportunities and salary increases), stock options and other benefits. See
"Management Following the Acquisition -- Directors and Executive Officers
Compensation and Incentives" for details of stock options and other benefits.
These salaries and other forms of compensation will be payable to management
of the company even if one or more of the properties acquired in the
acquisition is subsequently sold.
HOLDERS OF MAJORITY OF TENANCY-IN-COMMON INTERESTS BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of outstanding
interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THAT THE EXCHANGE VALUES FOR THOSE
PROPERTIES COULD BE TOO LOW OR TOO HIGH. National reviewed the updated March
1998 appraisal of the Yosemite/Ahwahnee properties which reflected an
aggregate "as is" appraised value of $20,246,000 and the October 1996
appraisal which reflected an "as is" aggregate appraised value of $4,000,000.
The results of those appraisals clearly differed from each other, and, in
management's judgment, the difference could not be accounted for solely by
improving market conditions. Some of the parcels, including the golf course,
were subsequently sold, on June 5, 1998, to the Oceanside Program investors
to obtain working capital for the Yosemite/Ahwahnee programs. Based on its
review of all appraisals, National concluded that the properties currently
owned by the
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Yosemite/Ahwahnee I and II Programs have values of $5,486,000 ($1,782,950 and
$3,703,050, respectively), and the parcels currently owned by the Oceanside
Program have a value of $5,080,000. National believes its approach is
reasonable.
GENERAL REAL ESTATE RISKS
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent property
taxes are not timely paid, the company could lose one or more of the
properties to tax sales. Each of the programs' properties is subject to the
following delinquent property taxes as of August 31, 1998: Sacramento/Delta
Greens - approximately $27,000; Yosemite/Ahwahnee (combined) - approximately
$500,000; Mori Point - approximately $165,000; Cypress lakes - approximately
$204,000; Palmdale/Joshua Ranch - approximately $63,000; Esperanza -
approximately $20,000; and Stacey Rose (combined) - approximately $30,000.
Annual payments required for all the properties for current taxes (including
amounts currently due on five-year payment plans) total approximately
$549,000. In the case of Sacramento/Delta Greens, Yosemite/Ahwahnee, Mori
Point, Palmdale/Joshua Ranch and Stacey Rose properties, National has entered
into statutorily authorized 5-year payment plans with the applicable taxing
authorities.
CERTAIN ASSETS MUST BE SOLD TO RAISE WORKING CAPITAL. Unless a minimum
of approximately $[4,565,000] from sale of certain assets of the programs or
the sale of units in the concurrent offering or the exercise of warrants
become available, the company will not be able to proceed with its entire
business plan. The company will also need financing from other sources to
complete its plan. Financing sources are not predictable and interest rates
or other costs of financing may be prohibitive. Neither the programs nor the
company have received any commitment from other sources. In their current
tenancy-in-common structure, the programs cannot obtain traditional bank
financing.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL AND OTHER LAWS MAY REQUIRE
EXPENSIVE HAZARDOUS SUBSTANCE CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC
IMPROVEMENTS. We have not conducted any environmental audits on the
properties. As a result, there may be environmental liability to the company.
Local governments have required residential developers to pay assessments
for streets, schools and parks which increase the cost of development.
Increased costs can have a negative affect on the company's sale of
residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as
earthquakes and floods may be uninsurable or too expensive to insure. The
company does not plan to carry earthquake or flood insurance. If an
uninsured loss occurs, the company would lose capital as well as revenues,
and would still owe other debts related to the property affected, if any.
THE DEVELOPMENT OF ADDITIONAL PROJECTS MAY OCCUR. We may develop
additional projects in the future, although we have no immediate plans to do
so. Real estate development involves more risks than in the ownership and
operation of established projects. Financing may not be available on
favorable terms for development projects; construction may not be completed
on
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schedule or budget; long-term financing may not be available on completion
of construction; and sites may not be sold on profitable terms.
THE CALIFORNIA ECONOMY HAS FLUCTUATED BROADLY IN THE PAST FEW YEARS.
Initially, we will conduct all of our business in California. Our markets
have been affected by substantial fluctuations in local economic conditions,
interest rates, inflation, employment levels and regulations. California has
also experienced draught conditions, resulting in water conservation measures
and rationing. In the past, these conditions have caused local governments
to restrict residential development. California's climate and geology
present risks of natural disaster such as earthquakes and floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE
OWED $[1,818,684] BY THE COMPANY. This represents accrued fees and expenses
from the programs which National has not cancelled. This amount is due and
payable and the company intends to start paying it after the Acquisition, but
only from operating revenues, proceeds from the sale of assets or the
exercise of warrants, and not from working capital generated by the proceeds
of unit sales in the concurrent offering.
REAL ESTATE RISKS OF SACRAMENTO/DELTA GREENS
PERMITS TO DEVELOP THE PROPERTIES NEED TO BE OBTAINED. Construction of
the Sacramento/Delta Greens property will require approval of a new tentative
map, the filing of a final map and obtaining building permits from the city.
The tentative tract map process for the Sacramento/Delta Greens property
required that studies be conducted to identify any endangered species'
habitat on the property. Since some were identified, changes to the tentative
development plans have been made to reduce or eliminate any damage to the
habitat. A new tentative map needs to be approved by the City. The longer
this process takes, the longer it will be before any of the property is ready
for any construction, further development activity or sale.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS AT THE SACRAMENTO/DELTA GREENS
PROPERTY MAY CAUSE THE COMPANY TO INCUR SUBSTANTIAL CARRYING COSTS UNTIL THE
LOTS CAN BE SOLD. Changing market conditions may increase the difficulty of
selling the lots. If the company chooses to build homes on the lots, delays
in construction, the lack of reasonably priced construction or mortgage
financing, and the general California economy could lengthen the holding
period for the lots. This would mean a delay in realizing cash from the
business operations. The average carrying costs, including property taxes,
management and servicing related fees, for this property has averaged
approximately $10,000 per month over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, our properties may be sold at a loss. The location of the company's
lots, the presence of other competition, customer acceptance and pricing are
all factors affecting success. Competitors may have better financial,
managerial and other resources, affecting our ability to successfully
compete. Sacramento/Delta Greens represents over 5% of the assets of the
company.
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ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay the engineering costs required to mitigate endangered
species issues and pay for the planning and design expenses for the city to
approve a new tentative trace map (estimated by management to cost
approximately $25,000). Another risk is whether the lots to be developed
will appeal to builders and whether home financing will be available.
Finally, there is a risk that the development and sale of lots or homes will
be profitable.
Real Estate Risks of Yosemite/Ahwahnee Properties (including the golf
course and surrounding land which is owned by the Oceanside program investors).
PERMITS TO DEVELOP THE CONDOMINIUM-TYPE TIMESHARE ASPECT OF THE RESORT
HAVE NOT YET BEEN OBTAINED. The Yosemite/Ahwahnee property has a final map
on 32 remaining single family estate lots and a use permit for a 600 space
recreational vehicle park. Planning and development are underway for 100
additional recreational vehicle sites, as well as vacation villa timeshare
units. Additional planned usage such as traditional, attached timeshare
units will require extensive county and state approvals.
RISKS AFFECTING OPERATION OF A GOLF COURSE. Increased competition,
seasonality, weather and course conditions will affect the operations of the
company. While no new golf courses have opened near the Ahwahnee Golf
Course, new courses could increase the competition and reduce the rounds
played. Seasonal variations may require the company to supplement revenue at
the golf course to meet operating expenses. Weather can negatively affect
the turf grass and reduce the number of rounds played. Inflationary costs
may not be offset by increased dues. Also, golf's success depends on
discretionary spending by consumers, which may be vulnerable to regional and
economic conditions, as well as to pleasure or destination travel preferences
by visitors and tourists. All of these factors could reduce the amount of
money earned by the company.
The Yosemite/Ahwahnee golf course can be an important amenity which may
attract potential timeshare purchasers in the future. At this time, the
project does not rely on the golf course for its revenue. National estimates
that the value of the golf course will be less than 20% of the assets of the
company.
RESORT DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF REASONS AND COULD
RESULT IN LOSSES. In addition to normal real estate risks, financing is hard
to obtain, and the lodging industry can be unpredictable, seasonal and very
competitive. Without additional financing or capital, the company will not
be able to develop its resort projects as part of its growth strategy.
Economic conditions, changes in travel patterns, extreme weather conditions,
labor and other variable costs can all affect revenues and profits. For
example, Spring through Fall at the Yosemite/Ahwahnee property are the
periods of highest occupancy. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues.
RISKS RELATING TO TIMESHARE OPERATIONS. Certain factors affecting
timeshare operations could result in losses. Negative press surrounding the
remarketing of timeshares might negatively impact sales and operations. Also,
marketing costs are high relative to selling price which can reduce or
eliminate profits from the sale of timeshare interests.
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In addition, according to the American Resort Development Association,
there is a tendency for timeshare owners to default more often on their
timeshare loans then homebuyers who borrow to buy a home. If a buyer
defaults, we would incur costs in remarketing the timeshare.
The timeshare industry is extremely competitive and we may not be able
to secure development financing on acceptable terms.
Since the project is not yet permitted for traditional attached timeshare
units, there has been no allocation of assets. Should attached timeshare be
approved, the company anticipates that a significant portion of the revenue
of the company will be derived from sales of timeshare units.
RISKS RELATING TO RECREATIONAL VEHICLE PARK OPERATIONS. Risks relating
to recreational vehicle parks are substantially the same as those described
above for timeshare projects.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will
not be available to (i) make up for the current cash drain from operations
and maintenance of the golf course, clubhouse and current recreational
vehicle facilities (estimated by management at approximately $350,000)
annually and (ii) complete the construction of additional recreational
vehicle sites and obtain approvals for and construction of the first group of
vacation villa timeshare units (estimated by management to cost approximately
$3,000,000). There are also a risk that the operation of recreational
vehicle sites, timeshares and golf course activities will not be profitable.
REAL ESTATE RISKS OF MORI POINT PROPERTY
PERMITS TO DEVELOP THE PROPERTY HAVE NOT YET BEEN OBTAINED. If needed
permits for development are not obtained or reissued, the business plan for
the company will have to be revised. Additionally, the presence of two
endangered species on the Mori Point property increases the risks that
necessary approvals may not be received if an acceptable habitat mitigation
plan cannot be developed. The permitting process with the California Coastal
Commission and the City of Pacifica is expensive and time consuming. Mori
Point had a specific plan and tentative map approvals to build a
hotel/conference center which expired in 1991. These approvals must be
obtained or reinstated prior to construction on the property. Mori Point will
represent approximately 20% of the assets of the company.
HOTEL/CONFERENCE CENTER DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF
REASONS AND COULD RESULT IN LOSSES. In addition to normal real estate risks,
financing is hard to obtain, and the lodging industry can be unpredictable,
seasonal and very competitive. Without additional financing or capital, the
company will not be able to develop its hotel/conference center project as
part of its growth strategy. Economic conditions, changes in travel
patterns, extreme weather conditions, labor and other variable costs can all
affect revenues and profits. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues. At the hotel/conference center
property at Mori Point, we may be competing against well-known chains and
extended-stay inns.
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ADDITIONAL SPECIFIC RISKS. There is a risk that the city government
will not approve the property for its intended use. Capital to conduct
engineering and environmental studies in order to apply for and obtain
approvals for its use from the city is estimated to be approximately
$500,000. Capital will also be necessary for roads, utilities and other
infrastructure costs prior to construction. Finally, there is a risk that
the proposed hotel/conference center may not be profitable.
REAL ESTATE RISKS OF CYPRESS LAKES PROPERTY
THE VESTED TENTATIVE MAP WILL EXPIRE IN APRIL 1999 UNLESS RENEWED AND
THE BUILD OUT OF THE PROPERTY WILL BE EXPENSIVE. Due to being located in a
100-year flood plain, the property requires a levee to be constructed around
its perimeter which is very expensive to construct. Preliminary engineering
estimates indicate these costs to be more than $9,000,000. It may be
desirable to change the vesting tentative map if the costs can be reduced
significantly. While mere extension of the expiration date of the existing
vested tentative map is not expected to be controversial, any changes in the
existing plan could subject the project to public hearings which might result
in additional costs being placed on the project. This could further increase
the high front-end financial requirements. Additionally, such modifications
might not be approved.
Cypress Lakes is a proposed master-planned community and represents more
than 20% of the assets of the company. Joint venture partners would have to
be brought in by the Company to help with the large capital requirements of
such a large project in order to develop it. It may be difficult to find
substantial builder/developers who have the financial ability to purchase or
develop the project. Changing market conditions may increase the difficulty
in selling lots.
Should the company determine to build out the project, delays in
construction, reasonably priced mortgage and construction financing and the
local and general California economy could lengthen the holding period for
the lots. This would mean delays in realizing cash from the business
operations.
RISKS AFFECTING OPERATION OF A GOLF COURSE. When, and if, the golf
course is developed, it will face competition from the 15 golf courses within a
25-mile radius. Seasonality, weather and course conditions will affect the
operations of the company. Weather can negatively affect the turf grass and
reduce the number of rounds played. Inflationary costs may not be offset by
increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as
well as to pleasure or destination travel preferences by visitors and
tourists. All of these factors could reduce the amount of money earned by
the company.
RISKS OF RESIDENTIAL DEVELOPMENT. Totaling 1,330 lots, a large supply
of lots would be available and, due to the cyclical nature of the housing
industry, demand may fluctuate differently than supply. This could result in
needing to sell lots at a loss. Due to the size of the project, it could
take between six and ten years to complete, which would subject it to new
competitors entering the marketplace during the sales period. An
environmental impact report
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was obtained on the property. Any and all environmental concerns will be
mitigated as required in the vested tentative map conditions of approval. No
evidence of endangered species that would limit or preclude development of
the project have been found.
REAL ESTATE RISKS OF PALMDALE/JOSHUA RANCH PROPERTY
A FINAL TRACT MAP MUST BE RECORDED. After several years of effort by
National, the vested tentative map was approved by the City of Palmdale at a
hearing before the planning commission in early July 1998. A final recorded
map must be secured by National or a buyer in order to build on the property.
Final engineering, soils, utility and various improvement studies will need
to be conducted in order to record the final map.
PERMITS TO DEVELOP THE PROPERTY NEED TO BE OBTAINED. A final recorded
map, which could take nine to twelve months after starting the process, will
be required prior to construction. Due to the size of this project which
encompasses some 739.6 acres and is currently planned for 539 lots,
additional grading studies, soils investigation and utility planning needs to
be done which could negatively impact the cost of this large-scale
development.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Finding
builder/developers that have the financial strength to handle this size
project can be difficult. Changing market conditions, the lack of
reasonably-priced construction or mortgage financing and the general or local
market conditions could lengthen the holding period for lots. This would
mean a delay in realizing cash from business operations. The average
carrying costs, including property taxes, predevelopment and asset management
services for this property have averaged approximately $16,300 per month over
the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, the property may be sold at a loss. The location of the lots, the
presence of other competition, customer acceptance and pricing are all
factors affecting success. Competitors may have better financial, managerial
and other resources affecting the company's ability to successfully compete.
An environmental impact report was obtained on the property. Any and all
environmental concerns will be mitigated as required in the vested tentative
map conditions of approval. No evidence of endangered species that would
limit or preclude development of the project have been found.
Palmdale/Joshua Ranch is a proposed residential development and
represents about 10% of the assets of the Company.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay for or finance (i) engineering, soils and utility studies
which is estimated to cost approximately $140,000, and (ii) another risk is
whether the lots to be developed may appeal to project builders.
Palmdale/Joshua Ranch is a proposed residential development and represents
about 10% of the assets of the company.
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REAL ESTATE RISKS OF ESPERANZA PROPERTY
RISKS OF COMMERCIAL DEVELOPMENT. The material risks associated with the
development of the Esperanza Property are (i) as of August 31, 1998,
approximately $23,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the property for delinquent property
taxes; and (ii) despite a strong economy, rents and values for many retail
properties are expected to remain soft in 1998. Pressure on rents brought
about by over building, weakness in demand for space and store closures
caused by lagging profits are the forces causing a soft market. No
environmental or endangered species reports have been prepared for the
property.
ADDITIONAL SPECIFIC RISKS. Within the City of Victorville there are
approximately 3,250 acres zoned for commercial use, of which 60% remains
available for development. Victorville is home to the largest enclosed
regional shopping center between San Bernardino and Las Vegas, which is known
as The Mall of Victor Valley. These commercial sites represent significant
competition to the Esperanza project. There are more than 5,400 acres within
the city limits of Victorville zoned for light and heavy industrial use.
Nearly nine percent of this 5,400 acres of land is vacant and is available in
parcels ranging in size from one-half to five hundred acres.
REAL ESTATE RISKS OF STACEY ROSE PROPERTIES
RISKS OF RESIDENTIAL DEVELOPMENT. The material risks associated with
the development of the Stacey Rose Properties are (i) as of August 31, 1998,
approximately $30,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the Properties for delinquent property
taxes; (ii) it is estimated that it may cost about $50,000 to finalize a
tentative tract map on the parcels; (iii) a substantial, and potentially
expensive, sales and marketing effort will be necessary to sell homes
constructed on the properties if a bulk sale of the lots is not made; (iv)
the properties are located in a lower income residential area; and (v)
increasing government fees and assessments for streets, schools, parks and
other infrastructure requirements could increase the cost of lots to the
company, thereby increasing the sales price of the lots which will delay
market absorption. No environmental or endangered species reports have been
prepared for the property.
ADDITIONAL SPECIFIC RISKS. There is a risk that (i) adequate funds will
not be available to finalize a tentative tract map on the parcels
(approximately $50,000); (ii) the project will not appeal to project
builders; and (iii) home financing at reasonable costs may not be available.
There is also a risk that the development and sale of lots or home may not be
profitable
ANTI-TAKEOVER PROVISIONS
Certain provisions of the charter documents may restrict changes in
control of the Company's management. These provisions may make it more
difficult or expensive for another party to acquire and exercise control of
the Company or to change its management, even if that change would be
beneficial to you. These provisions include:
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ADDITIONAL CLASSES OF SHARES. Under the company's certificate of
incorporation, subject to the receipt of fair value, the Board of Directors
may issue shares in other classes or series and fix the rights, powers and
limitations associated with such shares. Although the Board of Directors has
no present intention of doing so, it could issue a class or series that
could, depending on its terms, impede a merger, tender offer or other
transaction that you might believe is in your best interest or in which you
might receive a premium for your shares over the then current market price.
The issuance of such shares could also dilute your voting power.
STAGGERED BOARD. The Board of Directors is divided into three classes
serving staggered three year terms. This arrangement may affect your ability
to change control of the company, even if you believe such a change is in
your best interests.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The company's
certificate of incorporation, as well as Delaware law, prohibits certain
business combinations with owners of more than 15% of the outstanding voting
stock of the company ("interested stockholders") within the three year period
immediately prior to the date on which the interested stockholder became an
interested stockholder. These restrictions on certain business combinations
may deter potential purchasers who seek control of the company.
SUPERMAJORITY VOTES. Changes to the company's certificate of
incorporation which cover anti-takeover provisions require the approval of
two-thirds of the company's voting stock. This restriction also may deter
potential purchasers who seek control of the company.
IN ADDITION TO THE ANTI-TAKEOVER PROVISIONS, THE DELAWARE LAW, AS WELL
AS THE CHARTER DOCUMENTS, LIMIT THE LIABILITY OF DIRECTORS AND OFFICERS TO
SHAREHOLDERS. This limitation of liability may exceed the protections
National enjoys under the programs' servicing agreements and limit
shareholders' claims against management.
FAIRNESS TO INVESTORS IN THE STACEY ROSE A PROGRAM
Both procedurally and from a financial point of view, the company and
National believe the terms of the acquisition are fair as a whole and to the
investors in each of the programs. This determination is based on
consideration of the following positive and negative factors:
- the units offer an opportunity for individual investor liquidity
while the tenancy-in-common interests do not, however, there is no assurance
that the shares will have any liquidity, or that any liquid market that
develops will be sustained;
- while the number of units to be issued to reflect the exchange
value of a program is arbitrary, the trading price of the shares included in
the units initially is likely to be substantially below the $20 value
arbitrarily assigned to the units. In our opinion, the exchange values
offered to investors for their assets allow for an equitable allocation of
the [1,403,321] units ([1,380,175] units if only the "Trudy Pat" programs
participate) among the programs. The disparity between exchange values and
appraised values results from adding the value of program cash reserves and
other assets, if any, to appraised values and deducting program
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liabilities (principally accrued property taxes and other fees net of fees to
be forgiven by National);
- on completion of the acquisition the investors will hold over 80%
(over 94.7% if all units are sold in the concurrent offering and all of the
warrants included in the units to be issued in the Acquisition are exercised)
of the outstanding stock of the company. After the acquisition, a total of
[0.15]% of the outstanding stock of the Company will be held by Stacey Rose A
investors. After the acquisition, founders of the company (principals,
employees, former employees and consultants of National) will hold less than
20%. Founders' shares were purchased for $.01 per share. Among the
properties, National and its principals will have forgiven over $3,800,000 of
expenses and accrued fees of which a total of approximately $2,148,000 was
earned for asset management and property management services after the loans
defaulted and before the Ownership Dates of the properties. The balance was
earned after foreclosure for asset and property management services and
expenses. Of such amount, $64,293 is attributable to fees owed by Stacey
Rose A investors. National believes that the amount paid for the property
management services is no greater than the amount that a third party would
charge;
- the current appraised value of the Stacey Rose A real estate assets
($67,936) (as well as the real estate assets of the other programs) and the
fact that financing is needed to further the property's development;
- the probability that the transaction will have minimal, if any,
negative tax affect on investors. National believes there will likely be no
out-of-pocket tax cost to all, or the vast majority, of you;
- while conflicts of interest exist in the structuring of the
acquisition, the issuance of shares to the founders of the company and the
determination of management compensation and while you did not have
independent representation in the structuring of the acquisition, we believe
they have been counterbalanced by your opportunity to vote on the transaction
and the Fairness Opinion;
- while the Stacey Rose A Program (as well as the other programs)
were originally formed to have a two to four year finite life which should
have ended between 1990 and 1992 and the investors expected to receive a
return of their investment from the original borrower, the company is an
infinite life entity which will not return the program investors' original
investment based on a sale or refinancing of the properties underlying the
original programs. However, after the borrowers defaulted on the "Trudy Pat"
loans, the investors became beneficial owners of the underlying properties
with the need to complete development, manage or otherwise ready the
properties for sale. Those endeavors had no fixed timetable and, thus, the
finite life aspect of their original investments was significantly changed.
Therefore, the infinite life aspect of the company is not viewed by National
to be a material change from the investors' CURRENT situation;
- the acquisition will cause fundamental changes in the business plan
of the Stacey Rose A Program. Rather than being focused on the development
of a single property for residential purposes, the company will be focused on
the management of at least seven and as many as ten properties. Thus, the
poor performance of a particular property may affect the company's operations
as a whole regardless of the performance of the Stacey Rose A property.
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Further, there will be no particular time when an Investor can expect its
interest to be automatically liquidated;
- the fact that the Victorville market is not yet attractive to
residential home builders;
- investors will not be able to vote on changes to or dispositions of
the Stacey Rose A property or borrowing secured by that property. Those
decisions will be made by the Board of Directors or management of the
company. Further, as investors in a larger entity, relative voting power will
be diluted;
- future cash distributions will be based on the company's earnings
and the decision of the Board of Directors to pay dividends rather than the
performance or sale of the Stacey Rose A property;
- investors voting against the acquisition will have no alternative
but to accept shares in the company if the acquisition is approved by holders
of a majority of the tenancy-in-common interests in each of the programs;
- the anti-takeover provisions of the company's charter documents
contain provisions that may have the effect of delaying or discouraging a
change in management which is not favored by the Board of Directors of the
company; and
- the Fairness Opinion rendered by Houlihan Valuation Advisers, an
independent valuation firm, which addresses only the allocation of the units
in the acquisition and not the amount of the consideration paid to program
investors in the acquisition as a whole. See "Background and Reasons for the
Acquisition" at page __ of the Prospectus.
National reviewed the arbitrary value you will receive in connection
with the acquisition and compared it with what you might receive if (i) the
Stacey Rose A property were operated "as is" ($1,313 per $10,000 of Adjusted
Outstanding Investment), (ii) the Stacey Rose A property was sold in a quick
sale in three months or less ($1,313 per $10,000 of Adjusted Outstanding
Investment), or (iii) the Stacey Rose A property was sold at the appraised
value, net of program debt, used to determine the Stacey Rose A exchange
value ($3,993 per $10,000 of Adjusted Outstanding Investment). Based on that
review, and even acknowledging that, initially, the company's shares included
in the units issued in the acquisition would likely trade substantially below
the arbitrary $20 issuance value for the units, National believes that there
is a higher probability of realizing value from the Stacey Rose A property
through the acquisition than through the other alternatives. This belief is
based on the expectation that some financing opportunities will become
available based on the form of the entity and the time pressure associated
with forced sales or liquidation will be relieved. See "Background and
Reasons for the Acquisition -- Comparison to Alternatives" and
"Recommendation of National and Fairness Determination" at pages __ and __ of
the Prospectus.
Based on the above factors and comparisons, National concluded that the
acquisition is fair, both substantively and procedurally.
15
<PAGE>
THERE ARE NO MATERIAL DIFFERENCES BETWEEN THE FAIRNESS ANALYSIS FOR THIS
PROGRAM AND FOR ANY OF THE OTHER NINE PROGRAMS PROPOSED TO BE INCLUDED IN THE
ACQUISITION.
CALCULATION OF EXCHANGE VALUE
The Exchange Value of the Stacey Rose A Program (as well as each of the
other Programs) is essentially the consideration at which the Company is
offering in exchange for the real estate assets, cash reserves, certain
liabilities and business of the Program. The value is reflected as a number
of units of the Company (in the case of the Stacey Rose A Program, 2,671
units) multiplied by an arbitrary $20 per unit value.
The Exchange Value for the Stacey Rose A Program was calculated as
follows: appraised value of the Stacey Rose A Program property at March 31,
1998, plus book value of other Stacey Rose A Program assets at August 31, 1998,
less Stacey Rose A Program liabilities at August 31, 1998.
The following table summarizes the calculation of the Exchange Value of
the Stacey Rose A Program and the value assigned on $10,000 of Adjusted
Outstanding Investment:
<TABLE>
<CAPTION>
Value Assigned
Appraised Net Other to Program per
Value of Assets and Exchange $10,000 of Adjusted
Real Estate(1) + Liabilities(2) = Value Outstanding Investment
-------------- -------------- ---------- ----------------------
<S> <C> <C> <C>
$ 67,936 $[ (15,591)] $ [52,345] $ [4,589](3)
</TABLE>
- -------------
(1) Reflects independent appraisal as of March 1998.
(2) The following table quantifies the adjustments to appraised values made in
determining Stacey Rose A property's Exchange Value as of August 31, 1998.
<TABLE>
<CAPTION>
Book Assets Book Liabilities Net Other Assets
(8/31/98)* - (8/31/98)* = and Liabilities
----------- ---------------- ----------------
<S> <C> <C>
$ 5,804 $ (21,395) $ (15,591)
</TABLE>
* See balance sheet of the Program in the financial statements
accompanying the Prospectus for details of book assets and book
liabilities. There is no mortgage debt on the Stacey Rose A property.
(3) Equals [229] Company shares arbitrarily valued at $20 per unit.
ALLOCATION OF SHARES
The [1,403,321] shares of Company common stock being offered to
Investors in the Acquisition represent over 80% of the Company's shares (92.9%
if all the units are sold in the concurrent offering and 94.7% if all the units
are sold in the concurrent offering and all warrants in units issued in the
acquisition are exercised) which will be outstanding upon completion of the
Acquisition. The remaining shares will be held by management and other
founders of the Company. Such shares will be allocated among the Programs
pro rata in accordance with Exchange Values. The Stacey Rose A Program will
be allocated [2,617] shares.
16
<PAGE>
The shares allocated to the Stacey Rose A Program will be allocated
among Investors in the Program based on their respective pro rata investments
in the Program (taking into account assessments paid and unpaid, as well as
interest accrued to each Investor through the date beneficial ownership of
the Program's Property was taken for the Investors) as adjusted for voluntary
advances. An Investor in the Stacey Rose A Program with an adjusted
investment amount of $10,000 will receive [229] units in the Company
arbitrarily valued at $20 per unit.
Neither National nor the Company's founders have any economic
interest in the Stacey Rose A Program except for National's contractual right
to asset management fees and the $4,247 of tenancy-in-common interests
purchased by National at the inception of the Program for which interests
National will receive units in the Acquisition pro rata with the other Stacey
Rose Investors. National will undertake not to exercise the warrants in the
units.
The following table and its footnotes sets forth the amount owed by the
original borrower to the Stacey Rose A Program (including accrued but unpaid
interest) plus the amount of assessments and advances paid by Investors at
August 31, 1998, appraised real estate value, Exchange Value of the Program,
the number and percentage of shares allocated to the Program, and the number of
shares and comparative value of the Company to be held by founders after the
Acquisition.
<TABLE>
<CAPTION>
% of Total
to be Shares
Outstanding
After the
Amount Real Estate Acquisition if
Owed plus Appraised Exchange No. of Shares All Programs
Name of Program Assessments Value Value(1) Allocated(1)(2) Participate
--------------- ----------- ----------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C>
Stacey Rose A $ 114,098 $ 67,949 $ [52,345] [2,617] [0.15]%
</TABLE>
- ------------
(1) The founders of the Company which include members of Company
management, as well as certain employees, former employees of National
and consultants to the Company and the Programs, will hold a total of
[323,631] Company shares after the Acquisition, (18.74% of the outstanding
shares post-Acquisition, 17.48% if all the units are sold in the concurrent
offering and 5.3% if all the units are sold in the concurrent offering and
all warrants in units issued in the acquisition are exercised) which, if
valued at $20 per share, would have an aggregate value of $[6,472,620].
The Company was formed, and shares were purchased by the founders for $.01
per share, prior to making the Acquisition proposal. The shares to be
retained by the Company's founders were not determined based only on fees
cancelled or to be cancelled by National and its principals. Overall,
National believed that the Company's founders should hold less than 20% of
the shares after the Acquisition assuming none of the Units in the
concurrent offering are sold and none of the warrants are exercised. See
"Dilution" at page __ of the Prospectus. If the Acquisition is completed,
the following table sets forth the fees which National and its principals
have cancelled, or will cancel:
17
<PAGE>
<TABLE>
<CAPTION>
Previously To Be
Name of Program Cancelled Cancelled
------------- -------------
<S> <C> <C>
Sacramento/Delta Greens $ 500,000 $ -0-
Oceanside 601,125 261,273
Yosemite/Ahwahnee I 72,158 -0-
Yosemite/Ahwahnee II 1,157,867 124,250
Mori Point 461,589 -0-
Cypress Lakes 468,000 -0-
Palmdale (Joshua Ranch) -0- -0-
Esperanza 102,134 -0-
Stacey Rose A 64,293 -0-
Stacey Rose B 17,267 -0-
------------ ------------
TOTAL $ 3,444,433 $ 385,523
------------ ------------
------------ ------------
</TABLE>
(2) Had the shares retained by the founders of the Company been allocated to
the founders based only on cancelled fees, [1.7]% of the total shares to
be owned by the Company's founders after the Acquisition ([5,433] shares
if all programs participate) would have been deemed allocated from this
Program.
HISTORICAL COMPENSATION TO NATIONAL/EFFECT OF ACQUISITION
The following table sets forth the compensation accrued by National, as
well as actually paid to National, during the years ended December 31, 1997,
1996 and 1995, and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
Incurred
Actually Incurred Actually Actually for Six
Incurred for Paid for for Year Paid for Incurred for Paid for Months Actually Paid
Year Ended Year Ended Ended Year Ended Year Ended Year Ended Ended in Six Months
Name of Program 12/31/95(1) 12/31/95(2) 12/31/96(1) 12/31/96(2) 12/31/97(1) 12/31/97(2) 6/30/98 Ended 6/30/98
--------------- ------------ ----------- ----------- ----------- ----------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stacey Rose A $850(2) $-0- $850(2) $-0- $850(2) $-0- $426 $-0-
</TABLE>
- -------------
(1) These amounts represent accrued asset management fees.
(2) Approximately $1,069 per year if the Acquisition had been completed during
the above periods including $556 of estimated salaries to be paid by the
Company to its officers and which were allocated to the Stacey Rose A
Program based on Exchange Values. No cash would have been available to pay
officers' bonuses or dividends to shareholders.
18
<PAGE>
HISTORICAL CASH DISTRIBUTIONS TO INVESTORS/
EFFECT OF THE ACQUISITION
The following table sets forth the cash distributions made to Investors
during each of the years ended December 31, 1992, 1993, 1994, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
Prior to
1992 1992 1993 1994 1995 1996 1997 Total
----------- ---------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stacey Rose A
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest $ 19,338 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 19,338
</TABLE>
There have been no recent distributions to Investors. The Acquisition
is not expected to alter this distribution pattern.
FURTHER FINANCIAL INFORMATION
See the following portions of the Prospectus for further financial
information about the Sacramento/Delta Greens Program, as well as the others:
- "Selected Financial Information" at page __.
- "Management's Discussion and Analysis of Financial Condition and
Result of Operations" at page __.
- "Financial Statements" at page F-1.
19
<PAGE>
SUPPLEMENT TO CONSENT SOLICITATION STATEMENT/PROSPECTUS
OF
AMERICAN FAMILY HOLDINGS, INC.
PREPARED FOR INVESTORS IN
STACEY ROSE B PROGRAM
CAPITALIZED TERMS USED IN THIS SUPPLEMENT AND NOT DEFINED
HEREIN HAVE THE MEANING GIVEN TO THEM IN THE PROSPECTUS.
SEE "GLOSSARY" AT PAGE __ OF THE PROSPECTUS.
--------------------------
YOU MUST READ THE ENTIRE CONSENT SOLICITATION STATEMENT/PROSPECTUS TO
FULLY UNDERSTAND THE ACQUISITION. This Supplement has been prepared to help
the Investors in the Stacey Rose B Program to understand how the Acquisition
described in the accompanying Prospectus will affect them. If completed, the
effects of the Acquisition may be different for Investors in the other
Programs. A separate supplement has been prepared for each of the other
Programs, copies of which may be obtained, without charge, by writing to
National Investors Financial, Inc., 4220 Von Karman Avenue, Suite 110,
Newport Beach, California 92660, Attention: Vivian Kennedy, or calling
1-800-590-7772.
As described in the accompanying Prospectus, American Family Holdings,
Inc. (the "Company") is offering units of its securities in exchange for the
assets (including cash reserves), certain liabilities and business activities
owned by Investors in seven former "Trudy Pat" programs and three other
programs managed by National Investors Financial, Inc. ("National"). For
this proposed Acquisition, the Company will issue an aggregate of
$[28,066,419] of units arbitrarily valued at $20 per unit. A unit consists
of one share of common stock plus warrants to purchase three additional
shares. [The shares included in the units will be listed for trading on the
___________ under the symbol "___." The warrants will [not] be listed for
trading.] The purpose of the transaction is to consolidate the operations of
the programs, improve the ability to sell or obtain financing for development
of the programs' properties, eliminate the assessment process, focus on
revenue-generating potential, improve efficient of operations in order to
reduce costs and increase profit potential, and provide the investors with
liquidity for their investments.
Of the [1,403,321] units to be issued by the Company in the Acquisition,
Investors in the Stacey Rose B Program will receive a total of [9,711] shares
or [228] shares per $10,000 of Adjusted Outstanding Investment. After the costs
of an outright sale of the property, and the payment of Program liabilities,
National does not believe any alternative would yield to Investors in the
Stacey Rose B Program an amount that is higher than the value of the Company
units to be received in the Acquisition. You may receive additional units if
your program's property is sold, and if before December 31, 1999, cash sale
proceeds (net of closing costs and interest) are received in excess of the
property's March 1998 appraisal value.
In each of the Programs, the Investors will vote on whether to approve the
Acquisition. INVESTORS HOLDING A MAJORITY OF THE AMOUNT INVESTED IN THE SEVEN
TRUDY PAT" PROGRAMS MUST VOTE TO APPROVE THE ACQUISITION FOR IT TO TAKE PLACE.
This solicitation commenced on _______, 1998 and expires at 5:00 p.m.,
Pacific Time, on __________, 1998 unless extended. Call 1-800-590-7772 with
questions.
MOST MATERIAL RISKS OF THE ACQUISITION:
- - If the acquisition is approved, you will no longer have a
tenancy-in-common interest in your program's property. Instead, you will
hold shares in a publicly-traded real estate company and will not receive
liquidation proceeds when, or if, your program's property is sold. As an
investor in a publicly-traded company with many stockholders, you will have
relatively less voting power.
- - If the acquisition is approved, your investment will be subject to the
risks associated with residential development plus new risks associated with
a business which also operates a golf course and a recreational vehicle park,
and which plans to pursue the development of timeshare facilities, commercial
facilities, and a hotel/conference center.
- - If a trading market develops, the initial trading price for the stock
will likely be substantially below the arbitrary value of $20 per unit for
purposes of the acquisition. Thus, the value of the units you receive may be
less than you might receive if the property of your program were sold.
- - Principal stockholders of National and executive officers of the Company
will hold approximately (6.23% if all the units are sold in the concurrent
offering and 4.66% if all the units are sold in the concurrent offering and
all warrants issued in the acquisition are exercised) for which they paid
$0.01 per share and will receive annual cash compensation aggregating
$560,000 as officers and employees. National will be relieved of its
servicing and asset management obligations and will no longer earn servicing
and asset management fees of approximately $885,000 annually. However, the
Company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
- - No independent advisors represented you in structuring this transaction.
- - There can be no assurance that the transaction is not a taxable event.
If so, National believes a tax loss is the probable result for most of you.
- - The Company must have additional cash to fund its proposed
operations. If it cannot obtain such funding from the sale of certain of its
properties, the exercise of the warrants included in the units or the sale of
additional units, it will be no more successful than the programs have been
individually in completing the development of some or all of the properties.
NATIONAL STRONGLY RECOMMENDS THAT ALL INVESTORS VOTE "YES" ON THE
ACQUISITION.
1
<PAGE>
MATERIAL RISKS AND DISADVANTAGES
A full description of the material risks of the Acquisition may be found
on pages [__] through [__] of the accompanying Prospectus. Those risks
include:
RISKS OF THE ACQUISITION
THERE WILL BE FUNDAMENTAL CHANGE IN THE NATURE OF YOUR INVESTMENT. If
the acquisition is completed, there will be a change in the nature of the
investment of each investor from holding a tenancy-in-common interest in real
estate to holding shares (and the right to buy additional shares) in an
on-going company, the assets of which may be changed from time to time
without approval of investors. If the acquisition is completed, investors
will be able to liquidate their investments only by selling their shares
[on the _____] or in private transactions, and they will not receive a return
of their investment in the form of liquidation proceeds through property
sales. If the acquisition is completed, investors will have an investment in
an entity that is larger than each of the programs and will thus lose
relative voting power. Investors will have an investment in a business which
also operates a golf course and a recreational vehicle park, and which plans
to pursue the development of timeshare facilities and a hotel/conference
center.
THE EXCHANGE VALUES OF THE PROGRAMS ARE NOT THE SAME AS THE POTENTIAL
SALES PRICE. Investors are subject to the risk that the exchange value of a
program does not reflect the price a program's assets might bring in a sale.
If the property of a program were to be sold, the net proceeds of the sale
and the amount finally distributed to an investor in that program may be more
or less than the exchange value. There is no assurance that the future value
of the shares and warrants received in the acquisition will be greater than
the most recent appraised value of the property.
THE TRADING PRICE FOR THE SHARES IS UNCERTAIN. Initially, shares may
trade at prices substantially below the arbitrarily determined exchange value
of $20 per unit or the historical book value of the company's assets. There
is no guaranty that a liquid trading market will develop for the shares, or
be sustained. If a trading market develops for the shares, the price of
shares after the acquisition will likely decrease below the exchange value
per share of $20 due to a potentially large number of shares that investors
may sell immediately after the acquisition.
THERE WERE CONFLICTS OF INTEREST IN STRUCTURING THE ACQUISITION. The
founders of the company, and specifically the principal shareholders of
National, as well as National itself, will be subject to conflicts of
interest. The principal shareholders and employees of National and the
company will hold approximately [16.35]% of the company's outstanding stock
(6.23% if all the units are sold in the concurrent offering and 0.66% if all
the units are sold in the concurrent offering and all warrants in units
issued in the acquisition are exercised) for which they paid $0.01 per share.
Other founders of the company will hold approximately [2.3]% of the
company's outstanding stock (0.88% if all the units are sold in the
concurrent offering and 0.66% if all such units are sold and all warrants
issued in the acquisition are exercised) for which they also paid $0.01 per
share. Thus, the investors' total ownership interests in the programs'
properties will be diluted by the equity interest in the company held by the
founders of the company. The principal stockholders of National and other
executive officers of the
2
<PAGE>
company will receive annual cash compensation aggregating $560,000 as
officers and employees of the company. National will be relieved of its
servicing and asset management obligations and will no longer earn asset
management or servicing related fees. However, despite the fact that
National will have forgiven over $3,800,000 of unpaid fees and expenses, the
company will still owe National over $1,800,000 of accrued but unpaid fees
and expenses.
The charter documents contain a number of provisions that may have the
affect of delaying or discouraging a change in management which is not
favored by the board of directors. These provisions include a board of
directors with three classes serving staggered three year terms, the
inability to remove a particular director before the expiration of his or her
term without a two-thirds supermajority vote, and the inability to amend the
anti-takeover provisions of the charter documents without a similar vote.
Thus, if investors are unhappy with management's performance, it will be more
difficult to remove directors not favored by the investors.
NO INDEPENDENT PARTY WAS RETAINED BY NATIONAL TO NEGOTIATE ON BEHALF OF
THE INVESTORS. Therefore, terms of the acquisition may be less favorable to
investors and more favorable to founders of the company which included the
principal shareholders of National than if the acquisition had been subject
to arm's-length negotiation. Had an independent party negotiated on behalf
of each program, the terms of the acquisition may have been more favorable to
certain or all of the programs and fewer shares and less favorable employment
contracts may have been received by the founders of the company.
THE ACQUISITION MAY NOT BE A TAX-FREE TRANSACTION TO INVESTORS. Due to
uncertainties in the facts of this transaction, tax counsel is unable to
opine conclusively on the tax consequences of the acquisition to investors.
The acquisition may be taxable, if at all, only with respect to the
investors' receipt of warrants. Alternatively, if the acquisition is a fully
taxable transaction, an investor would recognize gain or loss in 1998 equal
to the difference between the investor's tax basis in his interest in a
program property, and the number of shares of the company received valued at
$20 per unit. If the acquisition is treated as fully taxable, National
believes most investors would recognize a tax loss.
THE COMPANY MAY INCUR SIGNIFICANT ADDITIONAL DEBT. After the
acquisition, none of the properties will be subject to any liens other than
for property taxes. The board of directors could authorize borrowing by the
company the debt service for which may adversely affect the company's ability
to make distributions to shareholders. The company may incur full recourse
debt which exposes all of the assets of the company to repayment instead of
limited recourse debt which generally exposes specific properties for the
repayment of debt.
THE BOARD OF DIRECTORS MAY UNILATERALLY CHANGE INVESTMENT, FINANCING AND
CERTAIN OTHER POLICIES WITHOUT SHAREHOLDER APPROVAL. Although the board of
directors of the company intends to implement the business plan set forth
herein, the board will have the ability to change investment, financing and
other policies of the company without the consent of shareholders.
THERE WILL BE NO APPRAISAL OR SIMILAR RIGHTS FOR NONCONSENTING
INVESTORS. If you vote against the acquisition, and it is approved, you will
not be able to object to the acquisition and
3
<PAGE>
receive the appraised value of your tenancy-in-common interest in your
program's assets. You will have no choice other than to accept units for
your interests.
THE COMPANY HAS NO OPERATING HISTORY. The company was formed over a year
ago to take part in the acquisition of your property. It does not have the
benefit of operating for a long time. This means that shares in the company
are much riskier than ownership of shares of established companies. If the
company had been operating as if it owned the properties which it desires to
acquire, it would have experienced losses to date.
THERE WILL BE FUNDAMENTAL CHANGES IN THE BUSINESS PLAN IF THE
ACQUISITION TAKES PLACE. Rather than being focused on a single property, the
company will be an infinite life entity focused on the management of the
properties of at least seven of the former "Trudy Pat" programs plus the
properties of other programs which elect to participate in the acquisition.
The effect of this on investors is two-fold. First, poor performance of a
particular property may affect the company's operations as a whole regardless
of the performance of the other properties. Second, there will be no
particular time when an investor can expect that a sale of any of the
properties will result in cash distributions to him or her.
YOUR VOTING RIGHTS WILL CHANGE. You will not be able to vote on changes
or sales of a particular property. Those decisions will be made by the board
of directors or management. In addition, you will have an investment in an
entity that is larger than each of the programs and, thus, you will lose
relative voting power.
CASH DISTRIBUTION POLICIES WILL BE CHANGED. Despite the expectation of
investors that they would receive regular principal and interest payments on
their original investments, because of the borrowers' defaults there have
been no distributions from any of the programs, other than the Oceanside
program, in the past three years. Future cash distributions will be based on
the company's earnings and the decision of the board of directors to pay
dividends. Therefore, even if a property in which you formerly held an
interest were to perform well, there is no assurance that there would be cash
distributions to you.
THE METHOD OF MANAGEMENT COMPENSATION WILL BE CHANGED. Prior to the
dates that title to the properties securing the original program loans was
taken, National was entitled to an annual loan servicing fee equal to one
percent of the original loan amounts. When title to the properties was taken
on behalf of the programs, even though the loans no longer existed, National
continued to charge the same rate as the servicing fee for the asset
management services it provided to investors. The investors in each of the
programs had become the beneficial tenant-in-common owners of real estate,
most of which was undeveloped. While it had no obligation to do so, in order
to assist the beneficial owners in protecting their real estate assets and
readying them for sale or development, National assumed the duties of an
asset manager after title was taken to the properties. In this capacity,
National obtained information from investors about their preferences in
regard to development or sale of the properties, and facilitated the
assessment of investors to raise funds necessary to pay property taxes,
insurance and other costs of property ownership.
4
<PAGE>
The annual fees payable to National are currently $50,000 for
Sacramento/Delta Greens; $300,000 for Oceanside; $61,068 for
Yosemite/Ahwahnee I; $133,646 for Yosemite/Ahwahnee II; $100,000 for Mori
Point; $140,000 for Cypress Lakes; $150,000 for Palmdale/Joshua Ranch; $5,000
for Esperanza; $3,153 for Stacey Rose A; and $850 for Stacey Rose B.
In addition to the one percent fee, compensation has been earned for
property management services provided to the Oceanside program ($896,000
accrued since the date of ownership (November 1993) through June 30, 1998;
$876,000 actually paid) and Yosemite/Ahwahnee properties ($594,535 accrued
since the date of ownership (September 1995); $-0- actually paid) by officers
and employees of National in their capacities as officers and employees of
Oceanside Development, Inc. and Ahwahnee Golf Course & Resort, Inc. Those
property management services included, without limitation, solicitation,
engagement, coordination and supervision of: entitlement and permit
processing, environmental, engineering, planning, architectural,
construction, marketing, appraisal, legal, accounting and other experts as
needed for each project; due diligence on potential service providers;
assistance in presentations and applications for approvals to governmental
agencies; packaging and documenting the status of a project for potential
financing, sale or joint venture; supervising and managing the operational
activities for construction projects and daily operations for the Oceanside
and Yosemite/Ahwahnee projects; and contract negotiations and documentation.
To the extent similar property specific services were provided to the other
programs, they were provided without extra charge because the necessary
activities were less regular and less operationally intense.
In the future, compensation will be paid to officers of the company in
the form of salaries (aggregating $560,000 annually plus contractual bonus
opportunities and salary increases), stock options and other benefits. See
"Management Following the Acquisition -- Directors and Executive Officers
Compensation and Incentives" for details of stock options and other benefits.
These salaries and other forms of compensation will be payable to management
of the company even if one or more of the properties acquired in the
acquisition is subsequently sold.
HOLDERS OF MAJORITY OF TENANCY-IN-COMMON INTERESTS BIND A PROGRAM.
Approval of the acquisition by investors holding a majority of outstanding
interests in a program will bind all of that program's investors.
NATIONAL'S JUDGMENT REGARDING THE DIFFERENCES IN YOSEMITE/AHWAHNEE
APPRAISALS MAY BE INCORRECT WHICH MEANS THAT THE EXCHANGE VALUES FOR THOSE
PROPERTIES COULD BE TOO LOW OR TOO HIGH. National reviewed the updated March
1998 appraisal of the Yosemite/Ahwahnee properties which reflected an
aggregate "as is" appraised value of $20,246,000 and the October 1996
appraisal which reflected an "as is" aggregate appraised value of $4,000,000.
The results of those appraisals clearly differed from each other, and, in
management's judgment, the difference could not be accounted for solely by
improving market conditions. Some of the parcels, including the golf course,
were subsequently sold, on June 5, 1998, to the Oceanside Program investors
to obtain working capital for the Yosemite/Ahwahnee programs. Based on its
review of all appraisals, National concluded that the properties currently
owned by the
5
<PAGE>
Yosemite/Ahwahnee I and II Programs have values of $5,486,000 ($1,782,950 and
$3,703,050, respectively), and the parcels currently owned by the Oceanside
Program have a value of $5,080,000. National believes its approach is
reasonable.
GENERAL REAL ESTATE RISKS
THERE ARE SIGNIFICANT DELINQUENT PROPERTY TAXES. If delinquent property
taxes are not timely paid, the company could lose one or more of the
properties to tax sales. Each of the programs' properties is subject to the
following delinquent property taxes as of August 31, 1998: Sacramento/Delta
Greens - approximately $27,000; Yosemite/Ahwahnee (combined) - approximately
$500,000; Mori Point - approximately $165,000; Cypress lakes - approximately
$204,000; Palmdale/Joshua Ranch - approximately $63,000; Esperanza -
approximately $20,000; and Stacey Rose (combined) - approximately $30,000.
Annual payments required for all the properties for current taxes (including
amounts currently due on five-year payment plans) total approximately
$549,000. In the case of Sacramento/Delta Greens, Yosemite/Ahwahnee, Mori
Point, Palmdale/Joshua Ranch and Stacey Rose properties, National has entered
into statutorily authorized 5-year payment plans with the applicable taxing
authorities.
CERTAIN ASSETS MUST BE SOLD TO RAISE WORKING CAPITAL. Unless a minimum
of approximately $[4,565,000] from sale of certain assets of the programs or
the sale of units in the concurrent offering or the exercise of warrants
become available, the company will not be able to proceed with its entire
business plan. The company will also need financing from other sources to
complete its plan. Financing sources are not predictable and interest rates
or other costs of financing may be prohibitive. Neither the programs nor the
company have received any commitment from other sources. In their current
tenancy-in-common structure, the programs cannot obtain traditional bank
financing.
FEDERAL, STATE AND LOCAL ENVIRONMENTAL AND OTHER LAWS MAY REQUIRE
EXPENSIVE HAZARDOUS SUBSTANCE CLEAN-UP OR REMOVAL AS WELL AS EXPENSIVE PUBLIC
IMPROVEMENTS. We have not conducted any environmental audits on the
properties. As a result, there may be environmental liability to the company.
Local governments have required residential developers to pay assessments
for streets, schools and parks which increase the cost of development.
Increased costs can have a negative affect on the company's sale of
residential lots.
IF THERE IS AN UNINSURED LOSS, THE COMPANY COULD LOSE ITS INVESTMENT,
PROFITS OR CASH FLOW FROM A PROPERTY. The company will carry customary
insurance for its properties. Certain extraordinary losses such as
earthquakes and floods may be uninsurable or too expensive to insure. The
company does not plan to carry earthquake or flood insurance. If an
uninsured loss occurs, the company would lose capital as well as revenues,
and would still owe other debts related to the property affected, if any.
THE DEVELOPMENT OF ADDITIONAL PROJECTS MAY OCCUR. We may develop
additional projects in the future, although we have no immediate plans to do
so. Real estate development involves more risks than in the ownership and
operation of established projects. Financing may not be available on
favorable terms for development projects; construction may not be completed
on
6
<PAGE>
schedule or budget; long-term financing may not be available on completion of
construction; and sites may not be sold on profitable terms.
THE CALIFORNIA ECONOMY HAS FLUCTUATED BROADLY IN THE PAST FEW YEARS.
Initially, we will conduct all of our business in California. Our markets
have been affected by substantial fluctuations in local economic conditions,
interest rates, inflation, employment levels and regulations. California has
also experienced draught conditions, resulting in water conservation measures
and rationing. In the past, these conditions have caused local governments
to restrict residential development. California's climate and geology
present risks of natural disaster such as earthquakes and floods.
WHEN THE ACQUISITION IS COMPLETED, NATIONAL AND ITS PRINCIPALS WILL BE
OWED $[1,818,684] BY THE COMPANY. This represents accrued fees and expenses
from the programs which National has not cancelled. This amount is due and
payable and the company intends to start paying it after the Acquisition, but
only from operating revenues, proceeds from the sale of assets or the
exercise of warrants, and not from working capital generated by the proceeds
of unit sales in the concurrent offering.
REAL ESTATE RISKS OF SACRAMENTO/DELTA GREENS
PERMITS TO DEVELOP THE PROPERTIES NEED TO BE OBTAINED. Construction of
the Sacramento/Delta Greens property will require approval of a new tentative
map, the filing of a final map and obtaining building permits from the city.
The tentative tract map process for the Sacramento/Delta Greens property
required that studies be conducted to identify any endangered species'
habitat on the property. Since some were identified, changes to the tentative
development plans have been made to reduce or eliminate any damage to the
habitat. A new tentative map needs to be approved by the City. The longer
this process takes, the longer it will be before any of the property is ready
for any construction, further development activity or sale.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS AT THE SACRAMENTO/DELTA GREENS
PROPERTY MAY CAUSE THE COMPANY TO INCUR SUBSTANTIAL CARRYING COSTS UNTIL THE
LOTS CAN BE SOLD. Changing market conditions may increase the difficulty of
selling the lots. If the company chooses to build homes on the lots, delays
in construction, the lack of reasonably priced construction or mortgage
financing, and the general California economy could lengthen the holding
period for the lots. This would mean a delay in realizing cash from the
business operations. The average carrying costs, including property taxes,
management and servicing related fees, for this property has averaged
approximately $10,000 per month over the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, our properties may be sold at a loss. The location of the company's
lots, the presence of other competition, customer acceptance and pricing are
all factors affecting success. Competitors may have better financial,
managerial and other resources, affecting our ability to successfully
compete. Sacramento/Delta Greens represents over 5% of the assets of the
company.
7
<PAGE>
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay the engineering costs required to mitigate endangered
species issues and pay for the planning and design expenses for the city to
approve a new tentative trace map (estimated by management to cost
approximately $25,000). Another risk is whether the lots to be developed
will appeal to builders and whether home financing will be available.
Finally, there is a risk that the development and sale of lots or homes will
be profitable.
REAL ESTATE RISKS OF YOSEMITE/AHWAHNEE PROPERTIES (INCLUDING THE GOLF
COURSE AND SURROUNDING LAND WHICH IS OWNED BY THE OCEANSIDE PROGRAM INVESTORS)
PERMITS TO DEVELOP THE CONDOMINIUM-TYPE TIMESHARE ASPECT OF THE RESORT
HAVE NOT YET BEEN OBTAINED. The Yosemite/Ahwahnee property has a final map
on 32 remaining single family estate lots and a use permit for a 600 space
recreational vehicle park. Planning and development are underway for 100
additional recreational vehicle sites, as well as vacation villa timeshare
units. Additional planned usage such as traditional, attached timeshare
units will require extensive county and state approvals.
RISKS AFFECTING OPERATION OF A GOLF COURSE. Increased competition,
seasonality, weather and course conditions will affect the operations of the
company. While no new golf courses have opened near the Ahwahnee Golf
Course, new courses could increase the competition and reduce the rounds
played. Seasonal variations may require the company to supplement revenue at
the golf course to meet operating expenses. Weather can negatively affect
the turf grass and reduce the number of rounds played. Inflationary costs
may not be offset by increased dues. Also, golf's success depends on
discretionary spending by consumers, which may be vulnerable to regional and
economic conditions, as well as to pleasure or destination travel preferences
by visitors and tourists. All of these factors could reduce the amount of
money earned by the company.
The Yosemite/Ahwahnee golf course can be an important amenity which may
attract potential timeshare purchasers in the future. At this time, the
project does not rely on the golf course for its revenue. National estimates
that the value of the golf course will be less than 20% of the assets of the
company.
RESORT DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF REASONS AND COULD
RESULT IN LOSSES. In addition to normal real estate risks, financing is hard
to obtain, and the lodging industry can be unpredictable, seasonal and very
competitive. Without additional financing or capital, the company will not
be able to develop its resort projects as part of its growth strategy.
Economic conditions, changes in travel patterns, extreme weather conditions,
labor and other variable costs can all affect revenues and profits. For
example, Spring through Fall at the Yosemite/Ahwahnee property are the
periods of highest occupancy. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues.
RISKS RELATING TO TIMESHARE OPERATIONS. Certain factors affecting
timeshare operations could result in losses. Negative press surrounding the
remarketing of timeshares might negatively impact sales and operations. Also,
marketing costs are high relative to selling price which can reduce or
eliminate profits from the sale of timeshare interests.
8
<PAGE>
In addition, according to the American Resort Development Association,
there is a tendency for timeshare owners to default more often on their
timeshare loans then homebuyers who borrow to buy a home. If a buyer
defaults, we would incur costs in remarketing the timeshare.
The timeshare industry is extremely competitive and we may not be able
to secure development financing on acceptable terms.
Since the project is not yet permitted for traditional attached
timeshare units, there has been no allocation of assets. Should attached
timeshare be approved, the company anticipates that a significant portion of
the revenue of the company will be derived from sales of timeshare units.
RISKS RELATING TO RECREATIONAL VEHICLE PARK OPERATIONS. Risks relating
to recreational vehicle parks are substantially the same as those described
above for timeshare projects.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to (i) make up for the current cash drain from operations and
maintenance of the golf course, clubhouse and current recreational vehicle
facilities (estimated by management at approximately $350,000) annually and
(ii) complete the construction of additional recreational vehicle sites and
obtain approvals for and construction of the first group of vacation villa
timeshare units (estimated by management to cost approximately $3,000,000).
There are also a risk that the operation of recreational vehicle sites,
timeshares and golf course activities will not be profitable.
REAL ESTATE RISKS OF MORI POINT PROPERTY
PERMITS TO DEVELOP THE PROPERTY HAVE NOT YET BEEN OBTAINED. If needed
permits for development are not obtained or reissued, the business plan for
the company will have to be revised. Additionally, the presence
of two endangered species on the Mori Point property increases the risks that
necessary approvals may not be received if an acceptable habitat mitigation
plan cannot be developed. The permitting process with the California Coastal
Commission and the City of Pacifica is expensive and time consuming. Mori
Point had a specific plan and tentative map approvals to build a
hotel/conference center which expired in 1991. These approvals must be
obtained or reinstated prior to construction on the property. Mori Point will
represent approximately 20% of the assets of the company.
HOTEL/CONFERENCE CENTER DEVELOPMENT IS UNPREDICTABLE FOR A VARIETY OF
REASONS AND COULD RESULT IN LOSSES. In addition to normal real estate risks,
financing is hard to obtain, and the lodging industry can be unpredictable,
seasonal and very competitive. Without additional financing or capital, the
company will not be able to develop its hotel/conference center project as
part of its growth strategy. Economic conditions, changes in travel
patterns, extreme weather conditions, labor and other variable costs can all
affect revenues and profits. Seasonality can be expected to cause quarterly
fluctuations in the company's revenues. At the hotel/conference center
property at Mori Point, we may be competing against well-known chains and
extended-stay inns.
9
<PAGE>
ADDITIONAL SPECIFIC RISKS. There is a risk that the city government
will not approve the property for its intended use. Capital to conduct
engineering and environmental studies in order to apply for and obtain
approvals for its use from the city is estimated to be approximately
$500,000. Capital will also be necessary for roads, utilities and other
infrastructure costs prior to construction. Finally, there is a risk that
the proposed hotel/conference center may not be profitable.
REAL ESTATE RISKS OF CYPRESS LAKES PROPERTY
THE VESTED TENTATIVE MAP WILL EXPIRE IN APRIL 1999 UNLESS RENEWED AND
THE BUILD OUT OF THE PROPERTY WILL BE EXPENSIVE. Due to being located in a
100-year flood plain, the property requires a levee to be constructed around
its perimeter which is very expensive to construct. Preliminary engineering
estimates indicate these costs to be more than $9,000,000. It may be desirable
to change the vesting tentative map if the costs can be reduced
significantly. While mere extension of the expiration date of the existing
vested tentative map is not expected to be controversial, any changes in the
existing plan could subject the project to public hearings which might result
in additional costs being placed on the project. This could further increase
the high front-end financial requirements. Additionally, such modifications
might not be approved.
Cypress Lakes is a proposed master-planned community and represents more
than 20% of the assets of the company. Joint venture partners would have to
be brought in by the Company to help with the large capital requirements of
such a large project in order to develop it. It may be difficult to find
substantial builder/developers who have the financial ability to purchase or
develop the project. Changing market conditions may increase the difficulty
in selling lots.
Should the company determine to build out the project, delays in
construction, reasonably priced mortgage and construction financing and the
local and general California economy could lengthen the holding period for
the lots. This would mean delays in realizing cash from the business
operations.
RISKS AFFECTING OPERATION OF A GOLF COURSE. When, and if, the golf
course is developed, it will face competition from the 15 golf courses within
a 25-mile radius. Seasonality, weather and course conditions will affect
the operations of the company. Weather can negatively affect the turf grass
and reduce the number of rounds played. Inflationary costs may not be offset
by increased dues. Also, golf's success depends on discretionary spending by
consumers, which may be vulnerable to regional and economic conditions, as
well as to pleasure or destination travel preferences by visitors and
tourists. All of these factors could reduce the amount of money earned by
the company.
RISKS OF RESIDENTIAL DEVELOPMENT. Totaling 1,330 lots, a large supply
of lots would be available and, due to the cyclical nature of the housing
industry, demand may fluctuate differently than supply. This could result in
needing to sell lots at a loss. Due to the size of the project, it could
take between six and ten years to complete, which would subject it to new
competitors entering the marketplace during the sales period. An
environmental impact report
10
<PAGE>
was obtained on the property. Any and all environmental concerns will be
mitigated as required in the vested tentative map conditions of approval. No
evidence of endangered species that would limit or preclude development of
the project have been found.
REAL ESTATE RISKS OF PALMDALE/JOSHUA RANCH PROPERTY
A FINAL TRACT MAP MUST BE RECORDED. After several years of effort by
National, the vested tentative map was approved by the City of Palmdale at a
hearing before the planning commission in early July 1998. A final recorded
map must be secured by National or a buyer in order to build on the property.
Final engineering, soils, utility and various improvement studies will need
to be conducted in order to record the final map.
PERMITS TO DEVELOP THE PROPERTY NEED TO BE OBTAINED. A final recorded
map, which could take nine to twelve months after starting the process, will
be required prior to construction. Due to the size of this project which
encompasses some 739.6 acres and is currently planned for 539 lots,
additional grading studies, soils investigation and utility planning needs to
be done which could negatively impact the cost of this large-scale
development.
HOLDING AN INVENTORY OF RESIDENTIAL LOTS MAY CAUSE THE COMPANY TO INCUR
SUBSTANTIAL CARRYING COSTS UNTIL THE LOTS CAN BE SOLD. Finding
builder/developers that have the financial strength to handle this size
project can be difficult. Changing market conditions, the lack of
reasonably-priced construction or mortgage financing and the general or local
market conditions could lengthen the holding period for lots. This would
mean a delay in realizing cash from business operations. The average
carrying costs, including property taxes, predevelopment and asset management
services for this property have averaged approximately $16,300 per month over
the past three years.
RISKS OF RESIDENTIAL DEVELOPMENT. The market for residential real
estate is cyclical and the residential lot development industry is highly
competitive. If the demand for new lots does not keep pace with competitive
supply, the property may be sold at a loss. The location of the lots, the
presence of other competition, customer acceptance and pricing are all
factors affecting success. Competitors may have better financial, managerial
and other resources affecting the company's ability to successfully compete.
An environmental impact report was obtained on the property. Any and all
environmental concerns will be mitigated as required in the vested tentative
map conditions of approval. No evidence of endangered species that would
limit or preclude development of the project have been found.
Palmdale/Joshua Ranch is a proposed residential development and
represents about 10% of the assets of the Company.
ADDITIONAL SPECIFIC RISKS. There is a risk that adequate funds will not
be available to pay for or finance (i) engineering, soils and utility studies
which is estimated to cost approximately $140,000, and (ii) another risk is
whether the lots to be developed may appeal to project builders.
Palmdale/Joshua Ranch is a proposed residential development and represents
about 10% of the assets of the company.
11
<PAGE>
REAL ESTATE RISKS OF ESPERANZA PROPERTY
RISKS OF COMMERCIAL DEVELOPMENT. The material risks associated with the
development of the Esperanza Property are (i) as of August 31, 1998,
approximately $23,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the property for delinquent property
taxes; and (ii) despite a strong economy, rents and values for many retail
properties are expected to remain soft in 1998. Pressure on rents brought
about by over building, weakness in demand for space and store closures
caused by lagging profits are the forces causing a soft market. No
environmental or endangered species reports have been prepared for the
property.
ADDITIONAL SPECIFIC RISKS. Within the City of Victorville there are
approximately 3,250 acres zoned for commercial use, of which 60% remains
available for development. Victorville is home to the largest enclosed
regional shopping center between San Bernardino and Las Vegas, which is known
as The Mall of Victor Valley. These commercial sites represent significant
competition to the Esperanza project. There are more than 5,400 acres within
the city limits of Victorville zoned for light and heavy industrial use.
Nearly nine percent of this 5,400 acres of land is vacant and is available in
parcels ranging in size from one-half to five hundred acres.
REAL ESTATE RISKS OF STACEY ROSE PROPERTIES
RISKS OF RESIDENTIAL DEVELOPMENT. The material risks associated with
the development of the Stacey Rose Properties are (i) as of August 31, 1998,
approximately $30,000 of property taxes are delinquent and must be brought
current or a statutory five-year payment plan must be arranged with the
County of Riverside to avoid loss of the Properties for delinquent property
taxes; (ii) it is estimated that it may cost about $50,000 to finalize a
tentative tract map on the parcels; (iii) a substantial, and potentially
expensive, sales and marketing effort will be necessary to sell homes
constructed on the properties if a bulk sale of the lots is not made; (iv)
the properties are located in a lower income residential area; and (v)
increasing government fees and assessments for streets, schools, parks and
other infrastructure requirements could increase the cost of lots to the
company, thereby increasing the sales price of the lots which will delay
market absorption. No environmental or endangered species reports have been
prepared for the property.
ADDITIONAL SPECIFIC RISKS. There is a risk that (i) adequate funds will
not be available to finalize a tentative tract map on the parcels
(approximately $50,000); (ii) the project will not appeal to project
builders; and (iii) home financing at reasonable costs may not be available.
There is also a risk that the development and sale of lots or home may not be
profitable
ANTI-TAKEOVER PROVISIONS
Certain provisions of the charter documents may restrict changes in
control of the Company's management. These provisions may make it more
difficult or expensive for another party to acquire and exercise control of
the Company or to change its management, even if that change would be
beneficial to you. These provisions include:
12
<PAGE>
ADDITIONAL CLASSES OF SHARES. Under the company's certificate of
incorporation, subject to the receipt of fair value, the Board of Directors
may issue shares in other classes or series and fix the rights, powers and
limitations associated with such shares. Although the Board of Directors has
no present intention of doing so, it could issue a class or series that
could, depending on its terms, impede a merger, tender offer or other
transaction that you might believe is in your best interest or in which you
might receive a premium for your shares over the then current market price.
The issuance of such shares could also dilute your voting power.
STAGGERED BOARD. The Board of Directors is divided into three classes
serving staggered three year terms. This arrangement may affect your ability
to change control of the company, even if you believe such a change is in
your best interests.
RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS. The company's
certificate of incorporation, as well as Delaware law, prohibits certain
business combinations with owners of more than 15% of the outstanding voting
stock of the company ("interested stockholders") within the three year period
immediately prior to the date on which the interested stockholder became an
interested stockholder. These restrictions on certain business combinations
may deter potential purchasers who seek control of the company.
SUPERMAJORITY VOTES. Changes to the company's certificate of
incorporation which cover anti-takeover provisions require the approval of
two-thirds of the company's voting stock. This restriction also may deter
potential purchasers who seek control of the company.
In addition to the anti-takeover provisions, the Delaware law, as well
as the charter documents, limit the liability of directors and officers to
shareholders. This limitation of liability may exceed the protections
National enjoys under the programs' servicing agreements and limit
shareholders' claims against management.
FAIRNESS TO INVESTORS IN THE STACEY ROSE B PROGRAM
Both procedurally and from a financial point of view, the company and
National believe the terms of the acquisition are fair as a whole and to the
investors in each of the programs. This determination is based on
consideration of the following positive and negative factors:
- the units offer an opportunity for individual investor liquidity
while the tenancy-in-common interests do not, however, there is no assurance
that the shares will have any liquidity, or that any liquid market that
develops will be sustained;
- while the number of units to be issued to reflect the exchange
value of a program is arbitrary, the trading price of the shares included in
the units initially is likely to be substantially below the $20 value
arbitrarily assigned to the units. In our opinion, the exchange values
offered to investors for their assets allow for an equitable allocation of
the [1,403,321] units ([1,380,175] units if only the "Trudy Pat" programs
participate) among the programs. The disparity between exchange values and
appraised values results from adding the value of program cash reserves and
other assets, if any, to appraised values and deducting program
13
<PAGE>
liabilities (principally accrued property taxes and other fees net of fees to
be forgiven by National);
- on completion of the acquisition the investors will hold over 80%
(over 94.7% if all units are sold in the concurrent offering and all of the
warrants included in the warrants to be issued in the Acquisition are
exercised) of the outstanding stock of the company. After the acquisition, a
total of [0.56]% of the outstanding stock of the Company will be held by
Stacey Rose B investors. After the acquisition, founders of the company
(principals, employees, former employees and consultants of National) will
hold less than 20%. Founders' shares were purchased for $.01 per share.
Among the properties, National and its principals will have forgiven over
$3,800,000 of expenses and accrued fees of which a total of approximately
$2,148,000 was earned for asset management and property management services
after the loans defaulted and before the Ownership Dates for the properties.
The balance was earned after foreclosure for asset and property management
services and expenses. Of such amount, $17,267 is attributable to fees owed
by Stacey Rose B investors. National believes that the amount paid for the
property management services is no greater than the amount that a third party
would charge;
- the current appraised value of the Stacey Rose B real estate assets
($252,064) (as well as the real estate assets of the other programs) and the
fact that financing is needed to further the property's development;
- the probability that the transaction will have minimal, if any,
negative tax affect on investors. National believes there will likely be no
out-of-pocket tax cost to all, or the vast majority, of you;
- while conflicts of interest exist in the structuring of the
acquisition, the issuance of shares to the founders of the company and the
determination of management compensation and while you did not have
independent representation in the structuring of the acquisition, we believe
they have been counterbalanced by your opportunity to vote on the transaction
and the Fairness Opinion;
- while the Stacey Rose B Program (as well as the other programs)
were originally formed to have a two to four year finite life which should
have ended between 1990 and 1992 and the investors expected to receive a
return of their investment from the original borrower, the company is an
infinite life entity which will not return the program investors' original
investment based on a sale or refinancing of the properties underlying the
original programs. However, after the borrowers defaulted on the "Trudy Pat"
loans, the investors became beneficial owners of the underlying properties
with the need to complete development, manage or otherwise ready the
properties for sale. Those endeavors had no fixed timetable and, thus, the
finite life aspect of their original investments was significantly changed.
Therefore, the infinite life aspect of the company is not viewed by National
to be a material change from the investors' CURRENT situation;
- the acquisition will cause fundamental changes in the business plan
of the Stacey Rose B Program. Rather than being focused on the development
of a single property for residential purposes, the company will be focused on
the management of at least seven and as many as ten properties. Thus, the
poor performance of a particular property may affect the company's operations
as a whole regardless of the performance of the Stacey Rose B property.
14
<PAGE>
Further, there will be no particular time when an Investor can expect its
interest to be automatically liquidated;
- the fact that the Victorville market is not yet attractive to
residential home builders;
- investors will not be able to vote on changes to or dispositions of
the Stacey Rose B property or borrowing secured by that property. Those
decisions will be made by the Board of Directors or management of the
company. Further, as investors in a larger entity, relative voting power will
be diluted;
- future cash distributions will be based on the company's earnings
and the decision of the Board of Directors to pay dividends rather than the
performance or sale of the Stacey Rose B property;
- investors voting against the acquisition will have no alternative
but to accept shares in the company if the acquisition is approved by holders
of a majority of the tenancy-in-common interests in each of the programs;
- the anti-takeover provisions of the company's charter documents
contain provisions that may have the effect of delaying or discouraging a
change in management which is not favored by the Board of Directors of the
company; and
- the Fairness Opinion rendered by Houlihan Valuation Advisers, an
independent valuation firm, which addresses only the allocation of the units
in the acquisition and not the amount of the consideration paid to program
investors in the acquisition as a whole. See "Background and Reasons for the
Acquisition" at page __ of the Prospectus.
National reviewed the arbitrary value you will receive in connection
with the acquisition and compared it with what you might receive if (i) the
Stacey Rose B property were operated "as is" ($1,307 per $10,000 of Adjusted
Outstanding Investment), (ii) the Stacey Rose B property was sold in a quick
sale in three months or less ($1,307 per $10,000 of Adjusted Outstanding
Investment), or (iii) the Stacey Rose B property was sold at the appraised
value used to determine the Stacey Rose B exchange value ($3,975 per $10,000
of Adjusted Outstanding Investment). Based on that review, and even
acknowledging that, initially, the company's shares included in the units
issued in the acquisition would likely trade substantially below the
arbitrary $20 issuance value for the units, National believes that there is a
higher probability of realizing value from the Stacey Rose property through
the acquisition than through the other alternatives. This belief is based on
the expectation that some financing opportunities will become available based
on the form of the entity and the time pressure associated with forced sales
or liquidation will be relieved. See "Background and Reasons for the
Acquisition -- Comparison to Alternatives" and "Recommendation of National
and Fairness Determination" at pages __ and __ of the Prospectus.
Based on the above factors and comparisons, National concluded that the
acquisition is fair, both substantively and procedurally.
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<PAGE>
THERE ARE NO MATERIAL DIFFERENCES BETWEEN THE FAIRNESS ANALYSIS FOR THIS
PROGRAM AND FOR ANY OF THE OTHER NINE PROGRAMS PROPOSED TO BE INCLUDED IN THE
ACQUISITION.
CALCULATION OF EXCHANGE VALUE
The Exchange Value of the Stacey Rose B Program (as well as each of the
other Programs) is essentially the consideration at which the Company is
offering in exchange for the real estate assets, cash reserves, certain
liabilities and business of the Program. The value is reflected as a number
of units of the Company (in the case of the Stacey Rose B Program, 9,711
units) multiplied by an arbitrary $20 per unit value.
The Exchange Value for the Stacey Rose B Program was calculated as
follows: appraised value of the Stacey Rose B Program property at March 31,
1998, plus book value of other Stacey Rose B Program assets at August 31, 1998,
less Stacey Rose B Program liabilities at August 31, 1998.
The following table summarizes the calculation of the Exchange Value of
the Stacey Rose B Program and the value assigned on $10,000 of Adjusted
Outstanding Investment:
<TABLE>
<CAPTION>
Value Assigned
Appraised Net Other to Program per
Value of Assets and Exchange $10,000 of Adjusted
Real Estate(1) + Liabilities(2) = Value Outstanding Investment
-------------- -------------- ------------ ----------------------
<S> <C> <C> <C>
$ 252,064 $[ (57,847)] $ [194,217] $ [4,568](3)
</TABLE>
- ------------
(1) Reflects independent appraisal as of March 1998.
(2) The following table quantifies the adjustments to appraised values made in
determining Stacey Rose B property's Exchange Value as of August 31,1998.
<TABLE>
<CAPTION>
Book Assets - Book Liabilities = Net Other Assets
(8/31/98)* (8/31/98)* and Liabilities
------------ ---------------- ----------------
<S> <C> <C>
$ 21,535 $ (79,382) $ (57,847)
</TABLE>
* See balance sheet of the Program in the financial statements
accompanying the Prospectus for details of book assets and book
liabilities. There is no mortgage debt on the Stacey Rose B property.
(3) Equals [228] Company shares arbitrarily valued at $20 per unit.
ALLOCATION OF SHARES
The [1,403,321] shares of Company common stock being offered to
Investors in the Acquisition represent over 80% of the Company's shares (92.9%
if all the units are sold in the concurrent offering and 94.7% if all the units
are sold in the concurrent offering and all warrants in units issued in the
acquisition are exercised) which will be outstanding upon completion of
the Acquisition. The remaining shares will be held by management and other
founders of the Company. Such shares will be allocated among the Programs
pro rata in accordance with Exchange Values. The Stacey Rose B Program will
be allocated [9,711] shares.
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<PAGE>
The shares allocated to the Stacey Rose B Program will be allocated
among Investors in the Program based on their respective pro rata investments
in the Program (taking into account assessments paid and unpaid, as well as
interest accrued to each Investor through the date beneficial ownership of
the Program's Property was taken for the Investors) as adjusted for voluntary
advances. An Investor in the Stacey Rose B Program with an adjusted
investment amount of $10,000 will receive [228] units in the Company
arbitrarily valued at $20 per unit.
Neither National nor the Company's founders have any economic
interest in the Stacey Rose B Program except for National's contractual right
to asset management fees and the $15,753 of tenancy-in-common interests
purchased by National at the inception of the Program for which interests
National will receive units in the Acquisition pro rata with the other Stacey
Rose Investors. National will undertake not to exercise the warrants in the
units.
The following table and its footnotes sets forth the amount owed by the
original borrower to the Stacey Rose B Program (including accrued but unpaid
interest) plus the amount of assessments and advances paid by Investors at
August 31, 1998, appraised real estate value, Exchange Value of the Program,
the number and percentage of shares allocated to the Program, and the number
of shares and comparative value of the Company to be held by founders after
the Acquisition.
<TABLE>
<CAPTION>
% of Total
Shares to be
Outstanding
After the
Amount Real Estate Acquisition if
Owed plus Appraised Exchange No. of Shares All Programs
Name of Program Assessments Value Value(1) Allocated(1)(2) Participate
--------------- ----------- ----------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
Stacey Rose B $ 425,188 $ 252,064 $ [194,217] [9,711] [0.56]%
</TABLE>
- ------------
(1) The founders of the Company which include members of Company
management, as well as certain employees, former employees of National
and consultants to the Company and the Programs, will hold a total of
[323,631] Company shares after the Acquisition (18.74% of the
outstanding shares post-Acquisition, 17.48% if all the units are sold in
the concurrent offering and 5.3% if all the units are sold in the
concurrent offering and all warrants in units issued in the acquisition
are exercised) which, if valued at $20 per share, would have an
aggregate value of $[6,472,620]. The Company was formed, and shares
were purchased by the founders for $.01 per share, prior to making the
Acquisition proposal. The shares to be retained by the Company's
founders were not determined based only on fees cancelled or to be
cancelled by National and its principals. Overall, National believed
that the Company's founders should hold less than 20% of the shares
after the Acquisition assuming none of the Units in the concurrent
offering are sold and none of the warrants are exercised. See
"Dilution" at page __ of the Prospectus. If the Acquisition is
completed, the following table sets forth the fees which National and
its principals have cancelled, or will cancel:
17
<PAGE>
<TABLE>
<CAPTION>
Previously To Be
Name of Program Cancelled Cancelled
------------ ---------
<S> <C> <C>
Sacramento/Delta Greens $ 500,000 $ -0-
Oceanside 601,125 261,273
Yosemite/Ahwahnee I 72,158 -0-
Yosemite/Ahwahnee II 1,157,867 124,250
Mori Point 461,589 -0-
Cypress Lakes 468,000 -0-
Palmdale (Joshua Ranch) -0- -0-
Esperanza 102,134 -0-
Stacey Rose A 64,293 -0-
Stacey Rose B 17,267 -0-
----------- ---------
TOTAL $ 3,444,433 $ 385,523
----------- ---------
----------- ---------
</TABLE>
(2) Had the shares retained by the founders of the Company been
allocated to the founders based only on cancelled fees, [.45]% of the
total shares to be owned by the Company's founders after the Acquisition
([5,433] shares if all programs participate) would have been deemed
allocated from this Program.
HISTORICAL COMPENSATION TO NATIONAL/EFFECT OF ACQUISITION
The following table sets forth the compensation accrued by National, as
well as actually paid to National, during the years ended December 31, 1997,
1996 and 1995, and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
Incurred
Actually Incurred Actually Actually for Six
Incurred for Paid for for Year Paid for Incurred for Paid for Months Actually Paid
Year Ended Year Ended Ended Year Ended Year Ended Year Ended Ended in Six Months
Name of Program 12/31/95(1) 12/31/95(2) 12/31/96(1) 12/31/96(2) 12/31/97(1) 12/31/97(2) 6/30/98 Ended 6/30/98
--------------- ------------ ----------- ----------- ----------- ------------ ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stacey Rose B $3,153(2) $-0- $3,153(2) $-0- $3,153(2) $-0- $1,576 $-0-
</TABLE>
18
<PAGE>
- -------------
(1) These amounts represent accrued asset management fees.
(2) Approximately $3,953 per year if the Acquisition had been completed during
the above periods including $2,056 of estimated salaries to be paid by the
Company to its officers and which were allocated to the Sacramento/Delta
Greens Program based on Exchange Values. No cash would have been available
to pay officers' bonuses or dividends to shareholders.
HISTORICAL CASH DISTRIBUTIONS TO INVESTORS/
EFFECT OF THE ACQUISITION
The following table sets forth the cash distributions made to Investors
during each of the years ended December 31, 1992, 1993, 1994, 1995, 1996 and
1997:
<TABLE>
<CAPTION>
Prior to
1992 1992 1993 1994 1995 1996 1997 Total
--------- --------- --------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stacey Rose B
Principal $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Interest $ 64,899 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 64,899
</TABLE>
There have been no recent distributions to Investors. The Acquisition
is not expected to alter this distribution pattern.
FURTHER FINANCIAL INFORMATION
See the following portions of the Prospectus for further financial
information about the Sacramento/Delta Greens Program, as well as the others:
- "Selected Financial Information" at page __.
- "Management's Discussion and Analysis of Financial Condition and
Result of Operations" at page __.
- "Financial Statements" at page F-1.
19
<PAGE>
OFFICIAL INVESTOR BALLOT
[attach mailing label here The Primary Investor named on this
for each distinct investor] label is listed as a participant in one
or more of the Programs involved in the
Acquisition and is eligible to vote and
subscribe.
THE SOLICITATION OF VOTES EXPIRES AT 11:59 PM,
PACIFIC TIME, ON ___________, 1998, UNLESS EXTENDED (THE "EXPIRATION TIME").
Pursuant to the Prospectus dated _________, 1998 (the "Prospectus"), which
accompanied the original mailing of this Official Investor Ballot, American
Family Holdings, Inc. (the "Company") is proposing to acquire the assets,
(including, without limitation, real estate and cash reserves), certain
liabilities and business activities of the Programs (the "Acquisition") in
exchange for units of the Company's (the "Units"). The Acquisition requires
the approval of Investors holding a majority beneficial economic interest in
each of the Trudy Pat Programs. If a majority of Investors in any one of the
Trudy Pat Programs does not approve the Acquisition prior to the Expiration
Time, then the Acquisition will not occur. If the Acquisition is approved,
all Investors in each of the Programs approving the Acquisition are bound by
the vote of the majority that granted approval. Capitalized terms in this
Official Investor Ballot shall have the same meaning as in the accompanying
Prospectus.
NATIONAL RECOMMENDS A "YES" VOTE.
VOTING BALLOT (PLEASE INDICATE ONE CHOICE ONLY)
_____ YES! I vote to approve the Acquisition described in the
Prospectus, and, as part of that Acquisition, to receive
Units in the Company in exchange for my Adjusted
Outstanding Investment in the Program. I authorize
and instruct National to reconvey and extinguish on my
behalf all encumbrances against the Program's real estate in
which I have an interest.
_____ NO. I vote against the Acquisition. I have read and understand
the portions of the Prospectus which describe the
consequences to my investment in the Program if the
Acquisition does not occur.
_____ ABSTAIN. I abstain from voting. I understand that my abstention will
be counted as a vote AGAINST the Acquisition.
I represent and warrant that I (1) have received and reviewed the Prospectus
and the applicable Supplement, (2) understand that if the Acquisition is
completed, I will become a shareholder in the Company, (3) have full power
and authority to vote as an Investor pursuant to the Program's
tenancy-in-common agreement, (4) understand that if a voting selection is not
indicated, but this ballot is signed and delivered, I will be deemed to have
voted in favor of the Acquisition, and (5) that to the best of my knowledge,
when and if my interests in the property sold are transferred to the Company
in exchange for units, the Company will acquire good, marketable and
unencumbered title to them, free and clear of all liens, restrictions and
encumbrances, and that the interests in the property sold will not be subject
to any adverse claim other than property taxes. By voting in favor of the
Acquisition, I confirm that I am concurrently voting to terminate the
tenancy-in-common agreement and the servicing agreement which govern the
Program and I understand that the provisions of such agreement states that
such termination, if it occurs, will result in National being relieved from
any and all liabilities or responsibilities connected with the Program, and
that all amounts owing to National under the servicing agreement (less
amounts forgiven by National) shall remain owing to National and be assumed
by the Company. This vote, and all authority conferred herein, shall survive
my death or incapacity, and any of my obligations in connection with this
vote and subscription shall be binding upon my heirs, successors and assigns.
- ------------------------------------- ------------------------------
Signature of Primary Investor Date
- -------------------------------------
Print Name
Daytime Telephone Tax I.D. No.
------------------- -----------------
<PAGE>
INSTRUCTIONS TO INVESTORS ON HOW TO COMPLETE THE OFFICIAL INVESTOR BALLOT
STEPS TO COMPLETE THE INVESTOR BALLOT
1. Indicate your voting selection in the space provided on the ballot.
Select one choice only.
2. Sign the ballot, indicate the date, and print your name and the
taxpayer identification number associated with your investment. Also,
make sure to include your daytime phone number in case someone needs
to contact you.
SIGNATURES
The signature on the ballot must correspond with the name shown on the
label attached to the ballot and must match the signature on file with the
Program. Pursuant to the tenancy-in-common agreements governing the
Programs, if two or more persons jointly hold title to a beneficial interest
in a Program, then only the Primary Investor is entitled to sign the ballot
and cast votes for that interest. If the Investor signing the ballot is the
Primary Investor in more than one of the Programs involved in the
Acquisition, his/her vote will be recorded for all of the interests which
they are entitled to cast votes, unless the Investor acts in a fiduciary or
representative capacity for the separate interests, in which case separate
ballots bearing different labels will be required and provided to the
Investor.
If the ballot is being signed by a trustee, an executor, an
administrator, a guardian, an attorney-in-fact, an officer of a corporation,
an agent or another person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and must submit proper evidence
of their authority to so act, unless such evidence is already on file with
the Program.
Official Forms may be signed by a legal representative of a deceased or
legally disabled Investor, provided the legal representative has obtained the
necessary court authorizations and has furnished National with appropriate
copies of such authorizations, either prior to executing the Official Forms
or by enclosing them with the Forms.
SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
If the Shares are to be issued in a name other than that shown on the
label affixed to the ballot, or if the Shares are to be sent to someone or
someplace other than what is shown on the label affixed to the ballot,
contact the Investor Services department at National Investors Financial,
Inc. at 1-800-590-7772 for a special issuance letter. All special issuance
and delivery requests are subject to acceptance.
DELIVERY OF THE INVESTOR BALLOT
In order for a vote to be counted towards approval of the Acquisition, a
properly completed and duly executed ballot, along with any other documents
required pursuant to the ballot, these instructions, or the agreements
governing the Programs, must be received by National prior to the Expiration
Time. The method of delivering the ballot and related documents to
National's offices is at the Investor's election and risk, but delivery will
only be deemed to have been made when actually received by National. If an
Investor decides to use delivery by U.S. mail or by another common carrier,
it is recommended that the materials be sent a sufficient amount of time
prior to the Expiration Time to ensure timely delivery.
<PAGE>
REVOCATION OF A VOTE
If you have cast a vote and want to change it at any time prior to the
Expiration Time, you may revoke your previous vote by delivering a substitute
ballot to National along with a letter stating that the prior vote is revoked
and that the substitute ballot supersedes it. After the Expiration Time,
votes will no longer be revocable unless the Acquisition does not occur, in
which case all votes will be revoked automatically. Any notice of
revocation, to be effective, must indicate the beneficial interests to which
it relates and must be executed in the same manner as the ballot that
contained the vote which is subject to revocation.
TRANSFER OF INTERESTS
If you transfer your beneficial interests in a Program after the date
the solicitation begins but before the Expiration Time, then if time permits,
the Prospectus will be sent to the successor holder(s) of the interests.
Such a transfer will terminate your right to vote on the Acquisition or to
participate in the Offering, and any votes concerning the transferred
interests must be cast by the successor holder(s).
WHERE TO SEND YOUR INVESTOR BALLOT
Send your completed and duly executed ballot, along with any related
documents, to National Investors Financial, Inc., 4220 Von Karman Avenue,
Suite 110, Newport Beach, CA 92660. After determining that subscriptions are
valid, checks will be forwarded immediately to the Escrow Agent.
QUESTIONS OR ADDITIONAL MATERIALS:
Contact National at the above address or by calling 1-800-590-7772.
<PAGE>
PART II
INFORMATION NOT REQUIRED
IN PROSPECTUS
Item 20 Indemnification of Directors and Officers
Pursuant to the Registrant's Certificate of Incorporation and By-Laws and
pursuant to Section 145 of the Delaware General Corporation Law, directors,
officers and agents of the Registrant are entitled to indemnification for their
actions in respect of the Registrant to the fullest extent permitted by Delaware
law.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to officers, directors and controlling persons of the
Registrant pursuant to such provisions, or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
<TABLE>
Item 21 Exhibits and Financial Statement Schedules
<S> <C>
2.1 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Mori Point Property*
2.2 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Oceanside Property*
2.3 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Yosemite/Ahwahnee I and II Property*
2.4 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Delta Greens Property*
2.5 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Cypress Lakes Property*
2.6 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Esperanza Property*
2.7 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Stacey Rose at Victorville Property*
2.8 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Joshua Ranch Property.*
2.9 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Mori Point Property (Revised)
2.10 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Yosemite/Ahwahnee I and II Property
(Revised)
2.11 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Delta Greens Property (Revised)
2.12 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Cypress Lakes Property (Revised)
II-1
<PAGE>
2.13 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Esperanza Property (Revised)
2.14 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Stacey Rose at Victorville Property
(Revised)
2.15 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Joshua Ranch Property (Revised)
2.16 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Ahwahnee Golf Course and Country Club
Facilities
3.1 Certificate of Incorporation of American Family Holdings,
Inc.*
3.2 Certificate of Amendment of Certificate of Incorporation
before the Issuance of Stock*
3.3 By-Laws of American Family Holdings, Inc.*
4.1 Pages 1 through 4 of the Certificate of Incorporation of the
Company Filed as Exhibit 3.1 above defining the rights of
security holders are incorporated herein by this reference*
4.2 American Family Holdings, Inc. Warrant to Purchase Shares of
Common Stock
5.1 Opinion of Arter & Hadden LLP regarding legality of Shares*
5.2 Opinion of Arter & Hadden LLP regarding legality of Units
8.1 Form of Arter & Hadden LLP tax opinion*
8.2 Revised form of Arter & Hadden LLP tax opinion*
10.1 Signed Employment Agreement of David Lasker*
10.2 Signed Employment Agreement of James Orth*
10.3 Signed Employment Agreement of L.C. "Bob" Albertson, Jr.*
10.4 1997 Stock Option and Incentive Plan for Officers, Independent
Directors and Employees of American Family Holdings, Inc. and
Affiliates*
10.5 Form of Employment Agreement of Mark Kawanami*
21.1 Subsidiaries of the Registrant*
23.1 Consent of Arter & Hadden LLP as counsel contained in Exhibit
5.1*
23.2 Consent of BDO Seidman, LLP as independent accountants*
23.3 Consent of Houlihan Valuation Advisers*
23.4 Consent of David E. Lane, Inc. (re Delta Greens appraisal)*
23.5 Consent of Boznanski and Company (re Oceanside appraisal)*
23.6 Consent of Arnold Associates (re Yosemite/Ahwahnee
appraisals)*
23.7 Consent of PKF Consulting (re Mori Point appraisal)*
23.8 Consent of The Mentor Group, Inc. (re Yosemite/Ahwahnee
appraisal)*
23.9 Consent of BDO Seidman, LLP as independent accountants (re
Amendment No. 1)*
23.10 Consent of BDO Seidman, LLP, as independent accountants (re
Amendment No. 2)*
23.11 Consent of BDO Seidman, LLP, as independent accountants (re
Amendment No. 3)*
23.12 Consent of Houlihan Valuation Advisers (re Amendment No. 3)*
23.13 Consent of BDO Seidman, LLP, as independent accountants (re
Amendment No. 4)*
23.14 Consent of Houlihan Valuation Advisers (re Amendment No. 4)*
23.15 Consent of Likas & Associates (re Esperanza appraisal)*
II-2
<PAGE>
23.16 Consent of Likas & Associates (re Stacey Rose appraisals)*
23.17 Consent of Likas & Associates (re Palmdale/Joshua Ranch
appraisal)*
23.18 Consent of Sedway Group (re Cypress Lakes appraisal)*
23.19 Consent of PKF Consulting (re updated Mori Point appraisal)*
23.20 Consent of David E. Lane, Inc. (re updated Delta Greens
appraisal)*
23.21 Consent of Arnold Associates (re updated Yosemite/Ahwahnee
appraisals)*
23.22 Consent of BDO Seidman, LLP, as independent accountants (re
Amendment No. 5)*
23.23 Consent of Houlihan Valuation Advisers (re Amendment No. 5)*
23.24 Consent of BDO Seidman, LLP, as independent accountants (re
Amendment No. 6)
23.25 Consent of Houlihan Valuation Advisers (re Amendment No. 6)
23.26 Consent of Richard V. Speck & Associates (re Esperanza
appraisal)
23.27 Consent of Arter & Hadden LLP as contained in Exhibit 5.2
24.1 Power of Attorney (see signature page)*
27 Financial Data Schedule*
99.1 Appraisal Report "Delta Greens" Residential Subdivision,
Sacramento, California, value dated as of May 9, 1997*
99.2 Appraisal of Ahwahnee Golf Course and Resort, Madera County,
California, value dated as of May 1, 1997*
99.3 Complete, Self-Contained Appraisal 23 Finished Residential
Lots Being a Part of "Encore," Oceanside, California, value
dated as of March 31, 1997*
99.4 Complete, Self-Contained Appraisal Partially Finished
Residential Land 111 Residential Lots, "Symphony," Oceanside,
California, value dated as of May 15, 1997*
99.5 Appraisal of Fee Simple Estate in a 104.98 Acre Parcel
Designated for Hotel Development, Located at Mori Point in
Pacifica, California, value dated as of May 1, 1997*
99.6 Appraisal of Ahwahnee Resort and Country Club, value dated
October 10, 1996*
99.7 Schedule E to Prior Performance Schedules*
99.8 Revised Schedule E to Prior Performance Schedules*
99.9 Updated Appraisal of Fee Simple Estate in 104.98 Acre Parcel
Designated for Hotel Development, Located at Mori Point in
Pacifica, California, value dated as of March 31, 1998*
99.10 Complete, Self-Contained Appraisal of 539 Single-Family Lots
Situated within Joshua Ranch, Palmdale, California, value
dated as of March 31, 1998*
99.11 Appraisal Report Cypress lakes -- A Proposed Residential
Community with Golf Course, Contra Costa County, California,
value dated as of March 31, 1998*
II-3
<PAGE>
99.12 Complete, Self-Contained Appraisal of Esperanza at
Victorville, 6.12 Acres of Commercially Zoned Land,
Victorville, California, value dated as of March 31, 1998*
99.13 Complete, Self-Contained Appraisal of Stacey Rose at
Victorville, 32 Acres of Residentially Zoned Land,
Victorville, California, value dated as of March 31, 1998*
99.14 Updated Appraisal of "Delta Greens" Residential Subdivision,
Sacramento, California, value dated as of March 31, 1998*
99.15 Updated Appraisal Report of Ahwahnee Golf Course and Resort,
Madera County, California, value dated as of March 31, 1998*
</TABLE>
* Previously filed
** To be filed by amendment
Item 22 Undertakings
(a) Item 512 Undertakings.
(i) The undersigned Registrant hereby undertakes:
(A) to file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(1) to include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(2) to reflect in the Prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement; and
(3) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(B) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the official BONA
FIDE offer thereof.
(C) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
(ii) Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of competent jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(b) Other Part II, Form S-4, Undertakings.
(i) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the Prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first-class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the date of the request.
(ii) The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
Program being acquired involved therein, that was not the subject to and
included in the Registration Statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Newport Beach, State of California, on
October 6, 1998.
AMERICAN FAMILY HOLDINGS, INC.
By /s/ David G. Lasker
--------------------------------------
David G. Lasker,
Co-Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Co-Chairman of the Board,
President, Chief Financial
/s/ David G. Lasker Officer and Chief Accounting October 6, 1998
- --------------------------- Officer
David G. Lasker
Co-Chairman of the Board,
/s/ James N. Orth Chief Executive Officer and
- --------------------------- Secretary October 6, 1998
James N. Orth
L.C. "Bob" Albertson, Jr.* Executive Vice President and
- --------------------------- Director October 6, 1998
L.C. "Bob" Albertson, Jr.
Charles F. Hanson* October 6, 1998
- --------------------------- Director
Charles F. Hanson
Dudley Muth*
- --------------------------- Director October 6, 1998
Dudley Muth
John G. LeSieur, III*
- --------------------------- Director October 6, 1998
John G. LeSieur, III
*By /s/ David G. Lasker
------------------------------------------
David G. Lasker, Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
<S> <C>
2.1 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Mori Point Property*
2.2 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Oceanside Property*
2.3 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Yosemite/Ahwahnee I and II Property*
2.4 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Delta Greens Property*
2.5 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Cypress Lakes Property*
2.6 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Esperanza Property*
2.7 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Stacey Rose at Victorville Property*
2.8 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Joshua Ranch Property.*
2.9 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Mori Point Property (Revised)
2.10 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Yosemite/Ahwahnee I and II Property
(Revised)
2.11 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Delta Greens Property (Revised)
2.12 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Cypress Lakes Property (Revised)
2.13 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Esperanza Property (Revised)
2.14 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Stacey Rose at Victorville Property
(Revised)
2.15 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Joshua Ranch Property (Revised)
2.16 Form of Agreement of Purchase and Sale and Joint Escrow
Instructions for Ahwahnee Golf Course and Country Club
Facilities
3.1 Certificate of Incorporation of American Family Holdings,
Inc.*
3.2 Certificate of Amendment of Certificate of Incorporation
before the Issuance of Stock*
3.3 By-Laws of American Family Holdings, Inc.*
4.1 Pages 1 through 4 of the Certificate of Incorporation of the
Company Filed as Exhibit 3.1 above defining the rights of
security holders are incorporated herein by this reference*
4.2 American Family Holdings, Inc. Warrant to Purchase Shares of
Common Stock
5.1 Opinion of Arter & Hadden LLP regarding legality of Shares*
5.2 Opinion of Arter & Hadden LLP regarding legality of Units
<PAGE>
8.1 Form of Arter & Hadden LLP tax opinion*
8.2 Revised form of Arter & Hadden LLP tax opinion*
10.1 Signed Employment Agreement of David Lasker*
10.2 Signed Employment Agreement of James Orth*
10.3 Signed Employment Agreement of L.C. "Bob" Albertson, Jr.*
10.4 1997 Stock Option and Incentive Plan for Officers, Independent
Directors and Employees of American Family Holdings, Inc. and
Affiliates*
10.5 Form of Employment Agreement of Mark Kawanami*
21.1 Subsidiaries of the Registrant*
23.1 Consent of Arter & Hadden LLP as counsel contained in Exhibit
5.1*
23.2 Consent of BDO Seidman, LLP as independent accountants*
23.3 Consent of Houlihan Valuation Advisers*
23.4 Consent of David E. Lane, Inc. (re Delta Greens appraisal)*
23.5 Consent of Boznanski and Company (re Oceanside appraisal)*
23.6 Consent of Arnold Associates (re Yosemite/Ahwahnee
appraisals)*
23.7 Consent of PKF Consulting (re Mori Point appraisal)*
23.8 Consent of The Mentor Group, Inc. (re Yosemite/Ahwahnee
appraisal)*
23.9 Consent of BDO Seidman, LLP as independent accountants (re
Amendment No. 1)*
23.10 Consent of BDO Seidman, LLP, as independent accountants (re
Amendment No. 2)*
23.11 Consent of BDO Seidman, LLP, as independent accountants (re
Amendment No. 3)*
23.12 Consent of Houlihan Valuation Advisers (re Amendment No. 3)*
23.13 Consent of BDO Seidman, LLP, as independent accountants (re
Amendment No. 4)*
23.14 Consent of Houlihan Valuation Advisers (re Amendment No. 4)*
23.15 Consent of Likas & Associates (re Esperanza appraisal)*
23.16 Consent of Likas & Associates (re Stacey Rose appraisals)*
23.17 Consent of Likas & Associates (re Palmdale/Joshua Ranch
appraisal)*
23.18 Consent of Sedway Group (re Cypress Lakes appraisal)*
23.19 Consent of PKF Consulting (re updated Mori Point appraisal)*
23.20 Consent of David E. Lane, Inc. (re updated Delta Greens
appraisal)*
23.21 Consent of Arnold Associates (re updated Yosemite/Ahwahnee
appraisals)*
23.22 Consent of BDO Seidman, LLP, as independent accountants (re
Amendment No. 5)*
23.23 Consent of Houlihan Valuation Advisers (re Amendment No. 5)*
23.24 Consent of BDO Seidman, LLP, as independent accountants (re
Amendment No. 6)
23.25 Consent of Houlihan Valuation Advisers (re Amendment No. 6)
23.26 Consent of Richard V. Speck & Associates (re Esperanza
appraisal)
23.27 Consent of Arter & Hadden LLP as contained in Exhibit 5.2
24.1 Power of Attorney (see signature page)*
<PAGE>
27 Financial Data Schedule*
99.1 Appraisal Report "Delta Greens" Residential Subdivision,
Sacramento, California, value dated as of May 9, 1997*
99.2 Appraisal of Ahwahnee Golf Course and Resort, Madera County,
California, value dated as of May 1, 1997*
99.3 Complete, Self-Contained Appraisal 23 Finished Residential
Lots Being a Part of "Encore," Oceanside, California, value
dated as of March 31, 1997*
99.4 Complete, Self-Contained Appraisal Partially Finished
Residential Land 111 Residential Lots, "Symphony," Oceanside,
California, value dated as of May 15, 1997*
99.5 Appraisal of Fee Simple Estate in a 104.98 Acre Parcel
Designated for Hotel Development, Located at Mori Point in
Pacifica, California, value dated as of May 1, 1997*
99.6 Appraisal of Ahwahnee Resort and Country Club, value dated
October 10, 1996*
99.7 Schedule E to Prior Performance Schedules*
99.8 Revised Schedule E to Prior Performance Schedules*
99.9 Updated Appraisal of Fee Simple Estate in 104.98 Acre Parcel
Designated for Hotel Development, Located at Mori Point in
Pacifica, California, value dated as of March 31, 1998*
99.10 Complete, Self-Contained Appraisal of 539 Single-Family Lots
Situated within Joshua Ranch, Palmdale, California, value
dated as of March 31, 1998*
99.11 Appraisal Report Cypress Lakes -- A Proposed Residential
Community with Golf Course, Contra Costa County, California,
value dated as of March 31, 1998*
99.12 Complete, Self-Contained Appraisal of Esperanza at
Victorville, 6.12 Acres of Commercially Zoned Land,
Victorville, California, value dated as of March 31, 1998*
99.13 Complete, Self-Contained Appraisal of Stacey Rose at
Victorville, 32 Acres of Residentially Zoned Land,
Victorville, California, value dated as of March 31, 1998*
99.14 Updated Appraisal of "Delta Greens" Residential Subdivision,
Sacramento, California, value dated as of March 31, 1998*
99.15 Updated Appraisal Report of Ahwahnee Golf Course and Resort,
Madera County, California, value dated as of March 31, 1998*
</TABLE>
* Previously filed
** To be filed by amendment
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
NATIONAL INVESTORS FINANCIAL, INC.,
a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST,
AS SELLER
AND
MORI POINT DESTINATIONS, INC.,
a California corporation,
AS BUYER
RELATING TO
PROPERTY LOCATED IN
Pacifica, California
known as
"MORI POINT"
DATED AS OF
_____________ ___, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.1 PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.2 SUBSTANCE OF TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . .5
3. Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 EXCHANGE VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.2 ADDITIONAL CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . .5
4. Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5. Cancellation Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . .6
6. Deliveries to Escrow Holder . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.1 BY SELLER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.2 BY BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.3 BY BUYER AND SELLER. . . . . . . . . . . . . . . . . . . . . . . . . .7
7. Condition of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.1 PERMITTED EXCEPTIONS . . . . . . . . . . . . . . . . . . . . . . . . .7
7.2 TITLE PROVIDED BY SELLER . . . . . . . . . . . . . . . . . . . . . . .7
8. Conditions to the Close of Escrow . . . . . . . . . . . . . . . . . . . . . . . .7
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. . . . . . . . . . . . .7
8.1.1 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
8.1.2 Representations, Warranties and Covenants of Seller. . . . . .7
8.1.3 Seller's Deliveries. . . . . . . . . . . . . . . . . . . . . .8
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS . . . . . . . . . . . .8
9. Approval of Seller's Constituents . . . . . . . . . . . . . . . . . . . . . . . .8
10. Property "As-Is. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE . . . . . . . .9
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. Title Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13. Disbursements and Other Actions. . . . . . . . . . . . . . . . . . . . . . . . 13
13.1 ESCROW HOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.2 BY TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.3 POSSESSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
i
<PAGE>
14. Joint Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 13
14.1 AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.2 ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.3 DUE EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.4 VALID AND BINDING . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.5 BROKER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15. Seller's Warranties and Representations. . . . . . . . . . . . . . . . . . . . 14
15.1 NON-FOREIGN ENTITY. . . . . . . . . . . . . . . . . . . . . . . . . 14
15.2 HAZARDOUS SUBSTANCES. . . . . . . . . . . . . . . . . . . . . . . . 14
15.3 CLEAN-UP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.4 CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16. Pre-Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.1 NO TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.2 NO ALTERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.3 MAINTENANCE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.4 OBLIGATIONS UNDER CONTRACTS.. . . . . . . . . . . . . . . . . . . . 15
16.5 EXPENDITURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17. Condemnation and Destruction . . . . . . . . . . . . . . . . . . . . . . . . . 15
17.1 EMINENT DOMAIN OR TAKING. . . . . . . . . . . . . . . . . . . . . . 15
17.2 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . 16
18 Utilities and Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.1 UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.2 REFUNDABLE DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . 17
19. Mediation of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
20. Arbitration of Disputes: . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
22. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.1 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.2 PARTIAL INVALIDITY. . . . . . . . . . . . . . . . . . . . . . . . . 19
23.3 POSSESSION OF THE PROPERTY. . . . . . . . . . . . . . . . . . . . . 19
23.4 WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.5 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . 19
23.6 PROFESSIONAL FEES . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.7 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.8 TIME OF ESSENCE . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.9 CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.10 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.11 WEAR AND TEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.12 NO RECORDATION . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ii
<PAGE>
23.13 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.14 DISCLAIMER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.15 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
EXHIBITS
EXHIBIT A - Legal Description
EXHIBIT B - Form of Grant Deed
EXHIBIT C - FIRPTA Affidavit
EXHIBIT D - Assignment and Assumption
EXHIBIT E - Bill of Sale and General Assignment of Intangibles
iii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("AGREEMENT") is made and entered into as of ____________ __, 1998, by and
between NATIONAL INVESTORS FINANCIAL, INC., a California corporation, AS
TRUSTEE for NATIONAL INVESTORS LAND HOLDING TRUST ("SELLER"), and MORI POINT
DESTINATIONS, INC., a California corporation ("BUYER").
R E C I T A L S
A. Seller is the title holder of that certain unimproved real property
commonly known as "Mori Point", consisting of approximately 105 acres, located
in the County of San Mateo, State of California, as more particularly described
in EXHIBIT A attached hereto (the "Real Property"). Buyer is a wholly-owned
subsidiary of American Family Communities, Inc., a California corporation
("AFC").
B. Seller holds record title to the Real Property as agent of and for the
benefit of various investors who are the beneficiaries of National Investors
Land Holding Trust (the "Trust").
C. Seller desires to sell to Buyer and Buyer desires to purchase from
Seller the Property (as hereinafter defined) on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals, which Recitals
are incorporated herein by this reference, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, Buyer
and Seller agree as follows:
A G R E E M E N T
1. DEFINITIONS: For the purposes of this Agreement the following terms
will be defined as follows:
1.1 "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the actual
knowledge of David Lasker and James N. Orth without having conducted any
independent inquiry or inspection, and shall not include the knowledge of any
other persons or firms, it being understood and agreed by Buyer that neither
David Lasker nor James N. Orth is charged with knowledge of all of the acts
and/or omissions of predecessors in title to the Property or management of the
Property before Seller's acquisition of the Property and the Actual Knowledge of
Seller shall not include information or material which may be in the possession
of Seller generally, but of which neither David Lasker nor James N. Orth is
actually aware.
1.2 "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly-owned subsidiary of AFH.
<PAGE>
1.3 "AFH" means American Family Holdings, Inc., a Delaware corporation.
Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a wholly-owned
subsidiary of AFH.
1.4 "ASSIGNMENT" shall have the meaning given thereto in Section 6.1(d)
hereof.
1.5 "BILL OF SALE" shall have the meaning given thereto in Section 6.1(e)
hereof.
1.6 "CLOSING DATE" means ___________, 1998, unless an earlier date is
agreed to in a writing subsequent to this Agreement executed and delivered by
each of the parties hereto to the other, and is the last date on which the
Closing and Close of Escrow can occur, subject to extension as provided for
in this Agreement.
1.7 "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably in
this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the
county in which the Property is located.
1.8 "EFFECTIVE DATE" means the date hereof.
1.9 "ENVIRONMENTAL AUDIT" means any environmental audit, review or
testing of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.10 "ENVIRONMENTAL LAW" means any law, statute, ordinance or regulation
pertaining to health, industrial hygiene or the environment including,
without limitation, CERCLA (Comprehensive Environmental Response,
Compensation and Liability Act of 1980) and RCRA (Resources Conservation and
Recovery Act of 1976), as amended.
1.11 "ESCROW" shall have the meaning given thereto in Section 4 hereof.
1.12 "ESCROW HOLDER" means _______________________________, whose
address is _______________________________________________________________,
Attn: ___________________.
1.13 "EXCHANGE VALUE" is the adjusted appraised value of the Property
which takes into consideration various factors to balance the business value
of the Property within its present ownership structure.
1.14 "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.15 "GRANT DEED" shall have the meaning given thereto in Section 6.1(a)
hereof.
1.16 "HAZARDOUS SUBSTANCE" means any substance, material or waste which is
or becomes designated, classified or regulated as being "toxic" or "hazardous"
or a "pollutant" or
2
<PAGE>
which is or becomes similarly designated, classified or regulated, under any
Environmental Law, including asbestos, petroleum and petroleum products.
1.17 "IMPROVEMENTS" means any and all improvements and fixtures situated on
the Real Property.
1.18 "INVESTORS" means the beneficiaries of the Trust.
1.19 "INTANGIBLES" means all of Seller's right, title and interest in
and to all intangible property used, owned or issued solely and strictly in
connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract
rights, accounts receivable and other intangible property used in connection
with the ownership and operation of the Property; (ii) all licenses, permits,
certificates of occupancy, approvals, dedications and entitlements issued,
approved or granted by any governmental authorities having jurisdiction over
the Property; and (iii) all development rights, conditional use permits,
variances and other intangible rights, titles, interests and privileges owned
by Seller and related to or issued in connection with the Land and/or
Improvements, its use, occupancy, operation and development, but in no way
related to Seller's financial data or other proprietary information or other
property of Seller.
1.20 "NOTICES" will be sent as provided in Section 21 to:
Seller: National Investors Land Holding Trust
c/o National Investors Financial, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, CA 92660
Attn: Mr. David Lasker
Telephone: (949) 833-8600
Facsimile: (949) 752-9753
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, 34th Floor
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Buyer: Mori Point Destinations, Inc.
----------------------------------
----------------------------------
Attn:
-----------------------------
Telephone:
------------------------
Facsimile:
------------------------
3
<PAGE>
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, 34th Floor
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Escrow Holder:
----------------------------------
----------------------------------
----------------------------------
Attn:
-----------------------------
Telephone:
------------------------
Facsimile:
------------------------
1.21 "OPENING OF ESCROW" shall have the meaning given thereto in Section
4 hereof.
1.22 "OTHER ASSETS" means cash, cash equivalent, notes and other
negotiable instruments and any and all other assets in the possession or
control of Seller, the value of which is determined by possession, and any
other assets other than the Real Property, Personal Property or Intangibles
relating to the Real Property.
1.23 "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.24 "PERSONAL PROPERTY" means the equipment, furniture and fixtures,
books and records and other personal property, if any, owned by Seller and
located on the Property as of the Effective Date, including without
limitation, those items listed on SCHEDULE 1 to the Bill of Sale.
1.25 "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements , (iii) the Intangibles, (iv) the Personal Property and (v) the
Other Assets.
1.26 "PROSPECTUS" means the Consent Solicitation Statement/Prospectus
of Buyer.
1.27 "REAL PROPERTY" means that certain real property located in the County
of San Mateo, State of California and commonly known as "Mori Point" and more
particularly described in EXHIBIT A attached hereto. The Real Property consists
of approximately 105 acres of land including approximately 2,000 feet of beach
front.
1.28 "TITLE COMPANY" means ________________________________________.
1.29 "TITLE POLICY" shall have the meaning given thereto in Section 11
hereof.
4
<PAGE>
1.30 "TRANSFER AGENT" means _______________, who address is
__________________, Attn: ___________, Facsimile No. ___________.
1.31 "UNIT" means, collectively, one (1) share of common stock, plus
warrants to purchase three (3) additional shares of common stock, in AFH.
2. PURCHASE AND SALE:
2.1 PURCHASE AND SALE. Upon and subject to the terms and conditions
set forth in this Agreement, Seller agrees to sell to Buyer and Buyer agrees to
buy from Seller the Property, together with all easements, hereditaments,
entitlements (to the extent transferable) and appurtenances thereto. In
consideration of Seller's sale of the Property to Buyer, Buyer will (a) cause to
be delivered to the investors of Seller the Exchange Value in accordance with
Section 3, and (b) perform all of Buyer's other obligations hereunder.
2.2 SUBSTANCE OF TRANSACTIONS. Notwithstanding any other provision
of this Agreement, the transfer of the Property directly from Seller to Buyer is
for convenience purposes only to effect expeditiously the culmination of the
transfers set forth in this Section 2.2, and for all purposes hereunder it is
the intent of the parties that such transfer reflects the following transfers,
which shall occur in the following order: (i) all of the Investors, through
their approval of the transactions contemplated under this Agreement, contribute
all of their interests in the Property to AFH in exchange for Units, such Units
to be distributed to them pursuant to Sections 3 and 13.2 hereof; (ii) AFH
contributes the Property to AFC as a contribution to the capital of AFC; and
(iii) AFC contributes the Property to Buyer as a contribution to the capital of
Buyer. Seller's transfer of the Property directly to Buyer reflects Seller's
transfer of the Property from the Investors to AFH, from AFH to AFC, and from
AFC to the Buyer, in each instance in Seller's capacity as the agent of and on
behalf of such transferors.
3. CONSIDERATION:
3.1 EXCHANGE VALUE. In consideration for the sale of the Property to
Buyer, Buyer will deliver to Seller an amount equal to the Exchange Value for
the Property. The Exchange Value for the Property is $______________, which
shall be paid in the form of, and by issuance and delivery of, _____ Units to
the investors of Seller, to be distributed by the Transfer Agent at the Closing
outside of Escrow in accordance with Section 13.2 hereof. Upon the request of
any party hereto, whether made before or after the Closing, the parties hereto
will allocate the Exchange Value to the Real Property, Improvements, Personal
Property, Other Assets and the Intangibles.
3.2 ADDITIONAL CONSIDERATION. If, after the Close of Escrow, Buyer
completes the sale of the Property for a purchase price which exceeds the
appraised value of the Property, as set forth in the appraisal dated March, 1998
prepared by ____________________________ (the "Appraised Value"), Buyer will pay
to Seller an amount calculated pursuant to the terms of this Section 3.2, which
shall be paid in the form
5
<PAGE>
of, and by issuance and delivery of, an additional number of Units equal to
the quotient of the net cash proceeds (exclusive of interest on deferred
purchase price payments) received by Buyer for such sale on or before
December 31, 1999 up to 200% of the Appraised Value divided by $20. (For
example, if the Appraised Value of the Property was $1,750,000 and Buyer
received by December 31, 1999 net cash sale proceeds in the amount of
$3,600,000, then the maximum number of additional Units available for
allocation among Seller's investors would be $1,750,000 divided by $20 or
87,500 Units.)
4. ESCROW: Immediately upon execution of this Agreement, Buyer and
Seller will open an escrow (the "ESCROW") with the Escrow Holder by
delivering to Escrow Holder a fully executed copy of this Agreement (the
"OPENING OF ESCROW"). The purchase and sale of the Property will be
completed through the Escrow. Buyer and Seller agree to execute any
additional instructions consistent with this Agreement which are reasonably
required by the Escrow Holder. If there is a conflict between any printed
escrow instructions and this Agreement, the terms of this Agreement will
govern.
5. CANCELLATION FEES AND EXPENSES: If the Closing does not occur at
the time and in the manner provided in this Agreement because of the default
of one of the parties, the non-defaulting party has the right to cancel the
Escrow by written notice to the defaulting party and to the Escrow Holder.
All costs of cancellation, if any, will be paid by the defaulting party.
6. DELIVERIES TO ESCROW HOLDER:
6.1 BY SELLER. On or prior to the Closing Date, Seller will deliver or
cause to be delivered to Escrow Holder the following items:
(a) A Grant Deed ("GRANT DEED"), in the form attached to this
Agreement as EXHIBIT B, duly executed and acknowledged by Seller and in
recordable form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status attached to
this Agreement as EXHIBIT C ("FIRPTA CERTIFICATE"), duly executed by or
on behalf of Seller.
(c) A properly executed California Form RE 590 or other evidence
sufficient to establish that Buyer is not required to withhold any
portion of the Exchange Value pursuant to Sections 18805 and 26131 of
the California Revenue and Taxation Code ("FORM 590").
(d) An Assignment and Assumption of Agreements ("ASSIGNMENT") duly
executed by Seller in favor of Buyer in the form attached to this
Agreement as EXHIBIT D.
(e) A Bill of Sale and General Assignment of Intangibles in the
form attached to this Agreement as EXHIBIT E ("BILL OF SALE"), duly
executed by Seller and conveying all right, title and interest of Seller
in the Personal Property and the Intangibles to Buyer.
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(f) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Seller as
are reasonably required by Buyer or Escrow Holder or both in connection
with this transaction.
6.2 BY BUYER. On or prior to the Closing Date, Buyer will deliver or
cause to be delivered to Escrow Holder the following items:
(a) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Buyer as are
reasonably required by Seller or Escrow Holder or both in connection
with this transaction.
(b) Amounts due to pay costs and expenses as set forth in Section
12 hereof.
6.3 BY BUYER AND SELLER. Buyer and Seller will each deposit such other
instruments consistent with this Agreement as are reasonably required by Escrow
Holder or otherwise required to close escrow. In addition Seller and Buyer
hereby designate Escrow Holder as the "REPORTING PERSON" for the transaction
pursuant to Section 6045(e) of the Internal Revenue Code.
7. CONDITION OF TITLE:
7.1 PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple title to the
Property will be conveyed to Buyer by Seller by Grant Deed, subject only to the
following title matters ("PERMITTED EXCEPTIONS"):
(a) all property tax liens (whether or not payment of property taxes
are delinquent) and all other matters shown in that certain Amended
Commitment for Title Insurance effective [TO BE DETERMINED], issued by the
Title Company, bearing Order No.________; and
(b) matters affecting the condition of title to the Property created
by, at the request of or with the written consent of Buyer.
7.2 TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the
Property, and (b) Buyer shall rely solely on the Title Policy for protection
against any title defects.
8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following
conditions must be satisfied not later the earlier of the Closing Date or
such other period of time as may be specified below:
8.1.1 TITLE. As of the Closing, the Title Company will issue or have
committed to issue to Buyer the Title Policy described in Section 11.
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8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller
will have duly performed each and every agreement to be performed by
Seller hereunder and, subject to the provisions of Section 10, Seller's
express representations and warranties set forth in this Agreement will
be true and correct in all material respects as of the Closing Date.
However, notwithstanding anything to the contrary stated or implied in
this Section 8.1.2, Seller shall have no liability for the breach of any
representations, warranties or covenants set forth in this Agreement,
whether express or implied, absent a finding by a court of competent
jurisdiction that either David Lasker or James N. Orth or both of them
withheld information with respect thereto from Buyer or falsified
information delivered to and relied upon by Buyer and that such action
amounted to a violation of a representation or warranty set forth herein.
8.1.3 SELLER'S DELIVERIES. Seller will have delivered the items
described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the benefit
of Buyer and may be waived only by Buyer. At all times Buyer has the right
to waive any condition. Such waiver or waivers must be in writing to Seller.
If any conditions are not satisfied on or before the Closing Date, and Buyer
has not waived the unsatisfied conditions, Seller will not be deemed to be in
default (unless Seller has breached Sections 8.1.2 or 8.1.3 above) and
Buyer's sole remedy will be to terminate this Agreement.
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The Close of Escrow
and Seller's obligations with respect to this transaction are subject to the
following conditions precedent: (a) Buyer's delivery to Escrow Holder on or
before the Closing Date, of the items described in Section 6.2; (b) the
approval of such of Seller's constituents as Seller shall deem necessary or
advisable in its sole and absolute discretion as set forth in Section 9
hereof; (c) Buyer having duly performed each and every agreement to be
performed by Buyer hereunder; and (d) Buyer's representations, warranties and
covenants set forth in this Agreement, will be true and correct in all
material respects as of the Closing Date. The conditions set forth in this
Section 8.2 are solely for the benefit of Seller and may be waived only by
Seller, with such waiver or waivers to be in writing to Buyer. If any
conditions are not satisfied on or before the Closing Date, and Seller has
not waived the unsatisfied conditions, Buyer will not be deemed to be in
default (unless Buyer has breached Sections 8.2(a), (c) or (d) above) and
Seller's sole remedy will be to terminate the Agreement.
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9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise reasonable
diligence to obtain the approval of this transaction by such of the constituents
of Seller as Seller shall deem necessary or advisable, in its sole and absolute
discretion, and shall notify Buyer and Escrow Holder when such approvals have
been obtained. If Seller is not able to obtain such approvals from such
constituents on or before the date which is ____ days after the Effective Date,
or such later date as is mutually agreed to by Buyer and Seller, then Seller may
cancel this Agreement by notice to Buyer and Escrow Holder given prior to the
end of that time period, and in that event Seller shall pay all title and escrow
cancellation costs. Seller shall indemnify and hold Buyer harmless from any
claim, damage, loss, liability, action, settlement, including Buyer's reasonable
attorneys' fees suffered by Buyer and which results from or relates to the
Seller's securing approval of this transaction and transferring the Property to
Buyer pursuant to such approval.
10. PROPERTY "AS-IS":
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. BUYER
REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE OPPORTUNITY TO
INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS, IF ANY, AND
THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER HAVING MADE SUCH PERSONAL
EXAMINATION AND INSPECTION. BUYER AGREES THAT BUYER WILL ACCEPT THE PROPERTY,
IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT
LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT,
SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES, REPRESENTATIONS AND WARRANTIES
MADE BY SELLER ELSEWHERE HEREIN. NO PERSON ACTING ON BEHALF OF SELLER IS
AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT,
EXCEPT FOR THOSE REPRESENTATIONS, WARRANTIES, COVENANTS, INDEMNITIES AND
AGREEMENTS EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES
NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR
FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED
THEREFROM;
(B) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL
ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY
DEVELOPMENT OF THE PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;
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(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR
OF THE PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY,
INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS
REQUIRED TO DEVELOP THE PROPERTY;
(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION
WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE
GOVERNMENTAL AUTHORITY OR BODY;
(H) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR
MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION
OR LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO, THE ENDANGERED SPECIES ACT, TITLE III OF THE
AMERICANS WITH DISABILITIES ACT OF 1990 OR ANY OTHER LAW, RULE OR
REGULATION GOVERNING ACCESS BY DISABLED PERSONS, CALIFORNIA HEALTH &
SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL ACT, THE FEDERAL
RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL
PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF
1980, AS AMENDED, THE RESOURCES CONSERVATION AND RECOVERY ACT OF 1976,
THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS
MATERIALS TRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL ACT, AND
REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON,
UNDER, OR ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS,
INCLUDING ANY INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR
OTHER MATERIALS PREPARED BY OR ON BEHALF OF SELLER;
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(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR
SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND
SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR
FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS;
(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE
LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN
ALQUIST-PRIOLO SPECIAL STUDY ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING
ENTITLEMENTS AFFECTING THE PROPERTY;
(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF
STATE AND LOCAL GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE PROPERTY
INCLUDING, WITHOUT LIMITATION, THE CONSTRUCTION OF OFFSITE AND ONSITE
ROADS, UTILITIES AND OTHER IMPROVEMENTS; OR
(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE
PROPERTY EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN, INCLUDING
ANY AND ALL SUCH MATTERS REFERENCED, DISCUSSED OR DISCLOSED IN ANY
DOCUMENTS DELIVERED BY SELLER TO BUYER, IN ANY PUBLIC RECORDS OF ANY
GOVERNMENTAL AGENCY OR ENTITY OR UTILITY COMPANY, OR IN ANY OTHER
DOCUMENTS AVAILABLE TO BUYER.
(T) BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER
IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND ITS OWN
REVIEW OF ALL INFORMATION AND DOCUMENTATION CONCERNING THE PROPERTY,
AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER.
BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION MADE
AVAILABLE TO BUYER OR PROVIDED OR TO BE PROVIDED BY OR ON BEHALF OF
SELLER WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF
SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO
THE
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ACCURACY OR COMPLETENESS OF SUCH INFORMATION EXCEPT AS MAY
OTHERWISE BE PROVIDED HEREIN. BUYER AGREES TO FULLY AND
IRREVOCABLY RELEASE ALL SUCH SOURCES OF INFORMATION AND PREPARERS
OF INFORMATION AND DOCUMENTATION TO THE EXTENT SUCH SOURCES OR
PREPARERS ARE SELLER, OR ITS EMPLOYEES, OFFICERS, DIRECTORS,
REPRESENTATIVES, BENEFICIARIES, INVESTORS, AGENTS, SERVANTS,
ATTORNEYS, AFFILIATES, PARENT COMPANIES, SUBSIDIARIES, SUCCESSORS
OR ASSIGNS FROM ANY AND ALL CLAIMS, DAMAGES AND LIABILITIES ARISING
FROM SUCH INFORMATION OR DOCUMENTATION, EXCEPT IF AND TO THE EXTENT
THAT BUYER EMPLOYS SUCH SOURCES OR PREPARERS OF INFORMATION TO ACT
ON BEHALF OF BUYER, IN WHICH EVENT THE LIABILITY OF SUCH SOURCES OR
PREPARERS OF INFORMATION TO BUYER SHALL BE DETERMINED BY THEIR OWN
INDEPENDENT AGREEMENTS WITH BUYER, AND SELLER SHALL NOT BE LIABLE
FOR SUCH AGREEMENTS OR OBLIGATIONS. SELLER IS NOT LIABLE OR BOUND
IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR
INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION THEREOF,
FURNISHED BY ANY OF THE FOREGOING ENTITIES AND INDIVIDUALS OR ANY
OTHER INDIVIDUAL OR ENTITY.
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. Buyer acknowledges the disclosures expressly made by Seller in
this Agreement, the Prospectus and in correspondence from Seller, its
attorneys and/or its agents to Buyer, its attorneys and/or its agents.
Without limiting the generality of the foregoing, Buyer acknowledges that
Seller has disclosed the following: a portion of the Real Property contains
a breeding and habitat area for the San Francisco garter snake and the red
legged frog, both of which are classified as endangered species. Federal and
state law requires that permits be secured prior to development from both the
United States Fish and Wildlife Service and the California Department of Fish
and Game. The procurement of such permits will require, among other things,
the preparation and approval of a Habitat Conservation Plan which must be
approved by the United States Fish and Wildlife Service and California
Department of Fish and Game. An Environmental Audit currently is being
prepared in connection with the Habitat Conservation Plan. Buyer
acknowledges that it is likely that the Habitat Conservation Plan will
require a portion of the Real Property to be set aside from development and
to remain undeveloped.
11. TITLE INSURANCE: At the Close of Escrow, the Title Company will
issue to Buyer at Buyer's sole cost and expense an ALTA Standard Coverage Policy
(1990) with coverage in an amount equal to the appraised value of the Real
Property as determined by Buyer in its sole discretion, showing title to the
Real Property vested in Buyer, subject only to the Permitted Exceptions and the
standard printed exceptions and conditions in the policy of title insurance
("TITLE POLICY"). If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for the
extended coverage policy and the cost of any endorsements will be at Buyer's
sole cost and expense; however, Buyer's election to obtain an
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extended coverage policy will not delay the Closing and Buyer's inability to
obtain an extended coverage policy or any such endorsements will not be
deemed to be a failure of any condition to Closing.
12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) all escrow fees and costs;
(c) all city and county documentary transfer taxes;
(d) all document recording charges;
(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage
title policy, the cost of any required survey and, the cost of any
endorsements required by Buyer; and
(h) All other costs and expenses necessarily incurred to
close the transaction.
13. DISBURSEMENTS AND OTHER ACTIONS:
13.1 ESCROW HOLDER. At the Close of Escrow, Escrow Holder will promptly
undertake all of the following:
(a) Cause the Grant Deed (with documentary transfer tax
information to be affixed AFTER recording) to be recorded with the County
Recorder and obtain conformed copies thereof for distribution to Buyer and
Seller.
(b) Direct the Title Company to issue the Title Policy to Buyer
within 15 BUSINESS DAYS after Closing.
(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and any
other documents (or copies thereof) deposited into Escrow by Seller.
Deliver to Seller any other documents (or copies thereof) deposited into
Escrow by Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that
the Close of Escrow has occurred.
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13.2 BY TRANSFER AGENT. Promptly after the Close of Escrow, Transfer
Agent shall deliver all Units in payment of the Exchange Value for the Property
to the persons, at the addresses and in the amounts designated by Seller.
13.3 POSSESSION. Possession of the Other Assets in Seller's possession or
control and all other Property shall be delivered by Seller to Buyer at the
Close of Escrow.
14. JOINT REPRESENTATIONS AND WARRANTIES: In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other, provided that
liability for any breach is subject to Sections 8.1.2 and 23.13 hereof:
14.1 AUTHORITY. Each party has the legal power, right and authority to
enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
14.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering into of
this Agreement, the instruments referenced herein, and the consummation of this
transaction. Except as provided in Section 9, no further consent of any
partner, shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
14.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners, officers
or trustees of each party, if any, have the legal power, right, and actual
authority to bind each party to the terms and conditions of those documents.
14.4 VALID AND BINDING. This Agreement and all other documents required to
close this transaction are and will be valid, legally binding obligations of and
enforceable against each party in accordance with their terms, subject only to
applicable bankruptcy, insolvency, reorganization, moratorium laws or similar
laws or equitable principles affecting or limiting the rights of contracting
parties generally.
14.5 BROKER. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged by
them, respectively, in connection with any of the transactions contemplated by
this Agreement, or to its knowledge is in any way connected with any of such
transactions. Buyer will indemnify, save harmless and defend Seller from any
liability, cost, or expense arising out of or connected with any claim for any
commission or compensation made by any person or entity claiming to have been
retained or contacted by Buyer in connection with this transaction. Seller will
indemnify, save harmless and defend Buyer from any liability, cost, or expense
arising out of or connected with any claim for any commission or compensation
made by any person or entity claiming to have been retained or contacted by
Seller in connection with this transaction. This indemnity provision will
survive the Closing or any earlier termination of this Agreement.
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15. SELLER'S WARRANTIES AND REPRESENTATIONS: Seller makes the following
representations, and warranties and acknowledges that Buyer will rely on such
representations and warranties in acquiring the Property; provided that
liability for any breach is subject to Sections 8.1.2 and 23.13 hereof:
15.1 NON-FOREIGN ENTITY. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.
15.2 HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the date of
Seller's acquisition of the Property, no Hazardous Substances are now or have
been used, stored, generated or disposed of on or within the Property except in
the normal course of use and operation of the Property and in compliance with
all applicable Environmental Laws.
15.3 CLEAN-UP. To Seller's Actual Knowledge, since the date of Seller's
acquisition of the Property, there are and have been no federal, state or local
enforcement, clean-up, removal, remedial or other governmental or regulatory
actions instituted or completed affecting the Property, other than such other
matters as may otherwise be disclosed in any Environmental Audit or in any other
documents provided or made available to Buyer.
15.4 CLAIMS. To Seller's Actual Knowledge, there are no outstanding claims
that have been made by any third party against Seller relating to any Hazardous
Substances on or within the Property.
The provisions of this Section 15 shall no longer bind Seller if this
Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder does not occur.
16. PRE-CLOSING COVENANTS. So long as this Agreement remains in full
force and effect:
16.1 NO TRANSFERS. Without the prior written consent of Buyer, Seller will
not convey any interest in the Property and will not subject the Property to any
additional liens, encumbrances, covenants, conditions, easements, rights of way
or similar matters after the date of this Agreement, except as may be otherwise
provided for in this Agreement, which will not be eliminated prior to the Close
of Escrow.
16.2 NO ALTERATIONS. Seller will not make any material alterations to the
Property without Buyer's consent, which will not be unreasonably withheld or
delayed.
16.3 MAINTENANCE. Seller will maintain the Property in substantially the
same condition as it is in, as of the date of this Agreement, and manage the
Property in accordance with Seller's established practices.
16.4 OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all of the
obligations to be performed by Seller under any contracts affecting the
Property. Without prior written
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consent of Buyer, which will not be unreasonably withheld or delayed, Seller
will not enter into any contract or agreement providing for the provision of
goods or services to or with respect to the Property or the operation thereof
unless such contracts or agreements can be terminated without penalty by the
Closing Date. Seller will not enter into any leases for any portion of the
Property.
16.5 EXPENDITURES. Seller will incur only expenditures necessary for
the day-to-day operation and maintenance of the Property, and will not incur
capital expenditures or liabilities not in the ordinary course of business.
Seller shall retain all Other Assets in Seller's possession on or after the
date hereof except for payment of such permitted liabilities and expenditures.
17. CONDEMNATION AND DESTRUCTION:
17.1 EMINENT DOMAIN OR TAKING. If proceedings under a power of eminent
domain relating to the Property or any part thereof are commenced prior to Close
of Escrow, Seller will promptly inform Buyer in writing.
(a) If such proceedings involve the taking of title to all or a
material interest in the Property, Buyer may elect to terminate this
Agreement by notice in writing sent within 10 DAYS of Seller's written
notice to Buyer, in which case neither party will have any further
obligation to or rights against the other except any rights or
obligations of either party which are expressly stated to survive
termination of this Agreement.
(b) If the proceedings do not involve the taking of title to all or a
material interest in the Property, or if Buyer does not elect to
terminate this Agreement, this transaction will be consummated as
described herein and any award or settlement payable with respect to
such proceeding will be paid or assigned to Buyer upon Close of Escrow.
(c) If this sale is not consummated for any reason, any condemnation
award or settlement will belong to Seller.
17.2 DAMAGE OR DESTRUCTION. Except as provided in this Section, prior to
the Close of Escrow the entire risk of loss of damage by earthquake, flood,
landslide, fire or other casualty is borne and assumed by Seller. If, prior to
the Close of Escrow, any part of the Improvements is damaged or destroyed by
earthquake, flood, landslide, fire or other casualty, Seller will promptly
inform Buyer of such fact in writing and advise Buyer as to the extent of the
damage and whether it is, in Seller's reasonable opinion, "MATERIAL" or not
"MATERIAL".
(c) If such damage or destruction is "MATERIAL", Buyer has the
option to terminate this Agreement upon written notice to the Seller
given not later than 10 DAYS after receipt of Seller's written notice to
Buyer advising of such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any damage or
destruction to the Improvements where the cost of repair or replacement
is estimated to be more than 25% of the Exchange Value of the Property
and will take more than 60 DAYS to repair.
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(c) If this Agreement is so terminated, the provisions of Section 5
will govern.
(d) If Buyer does not elect to terminate this Agreement, or if the
casualty is not material, Seller will reduce the Exchange Value by the
value reasonably estimated by Seller to repair or restore the damaged
portion of the Improvements, less any sums expended by Seller to make
emergency repairs to the Improvements or the Property or otherwise
protect the physical condition of the Improvements or the Property, and
this transaction will close pursuant to the terms of this Agreement.
(e) If the damage is not material, Seller's notice to Buyer of the
damage or destruction will also set forth Seller's reduced Exchange
Value and Seller's allocation of value to the damaged portion of the
Improvements. If Buyer does not accept Seller's reduced Exchange Value,
Buyer's sole remedy will be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated
hereunder, all rights to insurance claims or proceeds in respect of
damage or destruction to the Improvements occurring prior to the Close
of Escrow will belong to Seller.
18. UTILITIES AND DEPOSITS:
18.1 UTILITIES. Seller will notify all utility companies servicing the
Property of the sale of the Property to Buyer and will notify the utility
companies that all utility bills henceforth are to be sent to Buyer. Buyer
shall be entitled to receive any and all refunds of all utility deposits held by
utility companies and Seller will assign to Buyer all of Seller's right, title
and interest in any such utility deposits.
18.2 REFUNDABLE DEPOSITS. To the extent there exists any refundable
deposits made in connection with the development of the Property prior to the
Closing ("Refundable Deposits"), Seller shall assign to Buyer all of Seller's
right, title and interest in and to such Refundable Deposits.
19. MEDIATION OF DISPUTES: No party to this Agreement shall initiate any
litigation against any other party to this Agreement concerning any controversy
or claim arising out of or relating to this Agreement or any agreements or
instruments relating hereto or delivered in connection herewith, including, but
not limited to, any claim based on or arising from an alleged tort, unless and
until (i) at least 60 days before the same shall be filed, a complete copy of
each of the summons and complaint (and/or any other documentation required to
initiate such litigation) to be filed by the complaining party shall have been
delivered to the other party or parties to any such dispute, and (ii) the
complaining party has made itself available to meet in Los Angeles, California
with the other party or parties for no more than 3 business days of non-binding
mediation. Until and unless such mediation has taken place, the complaining
party must give notice to the non-complaining party that it will, and then it
must, make itself available for such mediation during at
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least 20 business days during the 60 days before the date on which such
summons and complaint will be filed.
20. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO OR
DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY PARTY, BE DETERMINED
BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (9 U.S.C. SECTION
1 ET SEQ.) UNDER THE AUSPICES AND RULES OF THE AMERICAN ARBITRATION ASSOCIATION
("AAA"). THE AAA WILL BE INSTRUCTED BY EITHER OR BOTH PARTIES TO PREPARE A LIST
OF THREE (3) JUDGES WHO HAVE RETIRED FROM THE SUPERIOR COURT OF THE STATE OF
CALIFORNIA, A HIGHER CALIFORNIA COURT OR ANY FEDERAL COURT. WITHIN 10 DAYS OF
RECEIPT OF THE LIST, EACH PARTY MAY STRIKE 1 NAME FROM THE LIST. THE AAA WILL
THEN APPOINT THE ARBITRATOR FROM THE NAME(S) REMAINING ON THE LIST. THE
ARBITRATION WILL BE CONDUCTED IN SAN FRANCISCO, LOS ANGELES OR SAN DIEGO,
WHICHEVER IS THE CLOSEST CITY TO THE NEXUS OF THE DISPUTE. ANY CONTROVERSY IN
INTERPRETATION OR ENFORCEMENT OF THIS PROVISION OR WHETHER A DISPUTE IS
ARBITRABLE, WILL BE DETERMINED BY THE ARBITRATOR. JUDGMENT UPON THE AWARD
RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE
INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL RELIEF OR IN PURSUIT OF AN
ANCILLARY REMEDY DOES NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR BY
JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN
THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
Buyer's Initials ________ Seller's Initials _________
18
<PAGE>
21. NOTICES: All notices or other communications required or permitted
hereunder must be in writing, and must be personally delivered (including by
means of professional messenger service) or sent by overnight courier, or sent
by registered or certified mail, postage prepaid, return receipt requested to
the addresses set forth in Section 1 hereof. All notices sent by mail will be
deemed received 2 DAYS after the date of mailing and all notices sent by other
means permitted herein shall be deemed received on the earlier of the date
delivered or the date on which delivery is refused.
22. ASSIGNMENT: Neither party shall have the right to assign this
Agreement without the other party's prior written consent.
23. MISCELLANEOUS:
23.1 COUNTERPARTS. This Agreement may be executed in counterparts.
23.2 PARTIAL INVALIDITY. If any term or provision of this Agreement
will be deemed to be invalid or unenforceable to any extent, the remainder of
this Agreement will not be affected thereby, and each remaining term and
provision of this Agreement will be valid and be enforced to the fullest extent
permitted by law.
23.3 POSSESSION OF THE PROPERTY. Seller will deliver possession of
the Property to Buyer upon the Close of Escrow.
23.4 WAIVERS. No waiver of any breach of any covenant or provision
contained herein will be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision contained herein. No extension
of time for performance of any obligation or act will be deemed an extension of
the time for performance of any other obligation or act except those of the
waiving party, which will be extended by a period of time equal to the period of
the delay.
23.5 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and
inures to the benefit of the permitted successors and assigns of the parties
hereto.
23.6 PROFESSIONAL FEES. In the event of the bringing of any action,
arbitration or suit by a party hereto against another party hereunder by reason
of any breach of any of the covenants, agreements or provisions on the part of
the other party arising out of this Agreement, then in that event the prevailing
party will be entitled to have the recovery of and from the other party all
costs and expenses of the action, mediation or suit, actual attorneys' fees,
witness fees and any other professional fees resulting therefrom.
23.7 ENTIRE AGREEMENT. This Agreement (including all Exhibits
attached hereto) constitutes the entire contract between the parties hereto with
respect to the subject matter hereof and may not be modified except by an
instrument in writing signed by the party to be charged.
19
<PAGE>
23.8 IME OF ESSENCE. Seller and Buyer hereby acknowledge and agree
that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof.
23.9 CONSTRUCTION. Seller and Buyer and their respective advisors
believe that this Agreement is the product of all of their efforts, that it
expresses their agreement and that it should not be interpreted in favor of or
against either Buyer or Seller. The parties further agree that this Agreement
will be construed to effectuate the normal and reasonable expectations of a
sophisticated seller and buyer.
23.10 GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced
in accordance with the laws of the State of California.
23.11 WEAR AND TEAR. Buyer specifically acknowledges that Seller will
continue to use the Property in the course of its business and accepts the
fact that reasonable wear and tear will occur after the date of this
Agreement. Buyer specifically agrees that Seller is not responsible for
repairing such reasonable wear and tear and that Buyer is prohibited from
raising such wear and tear as a reason for not consummating this transaction
or for requesting a reduction in the Exchange Value.
23.12 NO RECORDATION. No memorandum or other document relating to this
Agreement will be recorded without the prior written consent of Seller, and
any such consent or approval will be conditioned upon Buyer providing Seller
with a quitclaim deed fully executed and acknowledged by Buyer, quitclaiming
any and all interests that it may have in the Property to Seller, which
quitclaim deed Seller may record in the event that this Agreement is
terminated or the transaction contemplated herein is not consummated.
23.13 SURVIVAL. All obligations of the parties contained herein which
by their terms do not arise until after the Close of Escrow and any other
provisions of this Agreement which by their terms survives the Close of
Escrow, shall survive the Close of Escrow. Notwithstanding anything to the
contrary contained in this Agreement, the representations and warranties
contained in this Agreement shall survive the Closing for a period of 1 year;
provided that any claims by one party hereto must be made in writing to the
other party within the 1 year period.
23.14 DISCLAIMER. Nothing herein creates any right or remedy for the
benefit of any person not a party hereto, nor creates a fiduciary
relationship, an agency or a partnership. All obligations of the parties
contained herein which by their terms do not arise until after the Close of
Escrow and any other provisions of this Agreement which by their terms
survives the Close of Escrow, shall survive the Close of Escrow.
23.15 WAIVER OF JURY TRIAL. EACH PARTY, ACTING WITH KNOWLEDGE OF ITS
RIGHTS AFTER A FULL OPPORTUNITY TO CONSULT WITH COUNSEL, VOLUNTARILY WAIVES
ALL RIGHTS TO TRIAL BY JURY IN ALL PROCEEDINGS FOR WHICH A TRIAL BY JURY
WOULD OTHERWISE BE AVAILABLE OR REQUIRED, AND WHICH
20
<PAGE>
INVOLVE ANY MATTER ARISING OUT OF OR CONNECTED WITH RIGHTS OR DUTIES UNDER,
OR ENFORCEMENT OR INTERPRETATION OF, THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year hereinabove written.
"SELLER": "BUYER":
NATIONAL INVESTORS FINANCIAL, MORI POINT DESTINATIONS, INC.,
INC., a California corporation, AS TRUSTEE a California corporation
for NATIONAL INVESTORS LAND
HOLDING TRUST
By: By:
------------------------------- -------------------------------
Its: Its:
------------------------------ ------------------------------
and and
By: By:
------------------------------- ------------------------------
Its: Its:
------------------------------ ------------------------------
Agreed to and accepted
by Escrow Holder:
By:
-------------------------------
Its:
------------------------------
21
X<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY,
WHEN RECORDED MAIL TO:
Arter & Hadden
725 South Figueroa Street, Suite 3400
Los Angeles, California 90017
Attn: Bruce H. Newman, Esq.
- --------------------------------------------------------------------------------
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a separate
statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
NATIONAL INVESTORS FINANCIAL, INC., a CALIFORNIA corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ("Grantor"), hereby grants to MORI POINT
DESTINATIONS, INC., a California corporation ("Grantee"), the real property in
the County of San Mateo, State of California, and described in EXHIBIT A
attached hereto and made a part hereof.
DATED: , 1997
---------------------
NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST
By:
-------------------------------
Its:
------------------------------
- ---------------
MAIL TAX STATEMENTS TO:
<PAGE>
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF_____________________)
On ____________________, before me, _____________________________________,
personally appeared ______________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
- ------------------------------
Notary Public in and for said
County and State [SEAL]
<PAGE>
Document No. ____________________ Date Recorded_________________
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
NOT BE MADE A PART OF THE PERMANENT RECORD
IN THE OFFICE OF THE COUNTY RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of___________________________
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
- ------------------------------------------
(as grantor)
and
- ------------------------------------------
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of__________________________.
The amount of tax due on the accompanying document is $_______________.
_________ Computed on full value of property conveyed, or
_________ Computed on full value less liens and encumbrances remaining at time
of sale.
- --------------------------------
- --------------------------------
By:
-----------------------------
Its:
----------------------------
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee
of a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a U.S. real property interest by NATIONAL
INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for NATIONAL
INVESTORS LAND HOLDING TRUST ("TRANSFEROR"), each of the undersigned hereby
certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is ________ ;
and
3. Transferor's office address is __________________________________
_________________________________, ___________________.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by transferee and that any false statement contained
herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he
has examined this certification and to the best of his knowledge and belief it
is true, correct and complete, and he further declares that he has authority to
sign the document on behalf of the Transferor.
NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST
By:
------------------------------------
Its:
-----------------------------------
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is
executed as of ______________, but effective as of the Effective Date (as
hereinafter defined), by and between NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for NATIONAL INVESTORS LAND HOLDING TRUST
("Assignor") and MORI POINT DESTINATIONS, INC., a California corporation
("Assignee"), with reference to the following facts:
RECITALS:
A. Assignor, as the agent of and for the benefit of various
investors, holds title to that certain real property commonly known as "Mori
Point", located in the County of San Mateo, State of California, as more
particularly described on Exhibit "A" attached hereto and incorporated herein by
reference (the "Property").
B. Concurrently herewith, Assignor has executed that certain Grant
Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to Assignee
all of its right, title and interest in and to all agreements relating to the
Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are by this reference incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the Property
which are set forth in Exhibit "B" attached hereto and made a part hereof
(collectively, the "Agreements"). The assignment provided for in this Section 1
is effective concurrently with the transfer of the Property from Assignor to
Assignee (the "Effective Date").
1
<PAGE>
2. ASSIGNEE'S ASSUMPTION. Assignee hereby accepts the assignment
from Assignor, assumes and agrees to perform all duties and obligations of
Assignor under the terms of the Agreements which are required to be performed on
or after the Effective Date.
4. DELIVERIES; REPORTS. On or before the Effective Date, Assignor
shall deliver to Assignee the original Agreements or if such original Agreements
are not in Assignor's possession, certified copies of such Agreements. Assignor
shall furnish and deliver to Assignee, promptly after receipt thereof,
duplicates or copies of all reports, notices, requests, demands, declarations,
certificates or other instruments hereafter received by Assignor and relating to
the Agreements. Assignee's address for receipt of the foregoing is __________
______________________________________________________________.
5. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may be
necessary to further assure to Assignee the rights assigned hereby and the full
benefits hereof and to preserve and protect this Assignment and all of the
rights, powers and remedies of Assignee provided for herein.
6. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto.
7. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
8. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written but effective as of the Effective
Date.
ASSIGNOR: NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST
By:
----------------------------------
Its:
---------------------------------
ASSIGNEE: MORI POINT DESTINATIONS, INC. a
California corporation
By:
----------------------------------
Its:
---------------------------------
2
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
3
<PAGE>
EXHIBIT "B"
CONTRACTS
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of
the ____ day of ___________________________, 1997 (this "Assignment"), by
NATIONAL INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ("Assignor") to MORI POINT DESTINATIONS,
INC. ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and
Sale and Joint Escrow Instructions dated ________, 1997 ("Agreement of Purchase
and Sale") under which Assignee has agreed to purchase from Assignor, that
certain real property and all buildings, structures and improvements on said
real property commonly identified as ____ __________________, _____________,
State of California and legally described on EXHIBIT A attached hereto (the
"Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all
intangible property used, owned or issued solely in connection with the
Property, including but not limited to, all licenses, permits, certificates of
occupancy, approvals, maps, dedications, subdivision maps and entitlements
issued, approved or granted by any governmental agencies or instrumentalities
having any jurisdiction over the Property (the "Authorities") or otherwise in
connection with the Property; all development rights, conditional use permits,
variances, "floor
<PAGE>
area ratio" development rights and other intangible rights, titles,
interests, privileges and appurtenances owned by Assignor and related to or
issued in connection with the Property and/or its use, occupancy, operation
and/or development; all licenses, consents, easements, rights of way, and
approvals required from private parties to make use of utilities and to
insure vehicular and pedestrian ingress and egress to the Property; and any
pending applications or requests as to any of the foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the construction,
reconstruction, maintenance, repair, or operation any improvements on the
Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the Improvements and the
personal property situated on the Property, including but not limited to those
made by or received from any third party with respect to any building, building
component, structure, fixture, machinery, equipment or material situated on,
contained in any building or other improvement situated on, or comprising a part
of any building or other improvement situated on any part of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's right,
title and interest in and to refundable deposits, bonds and other collateral
furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold, use,
sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from time
to time upon written request therefor, execute and deliver to Assignee, its
successors and assigns any new or confirmatory instruments and take such further
acts as Assignee may reasonably request to fully evidence the assignment
contained herein and to enable Assignee, its successors and assigns to fully
realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it has
not previously assigned or hypothecated its interest in the foregoing described
General Intangibles; however, Assignee shall have no claims or rights against
Assignor, and Assignor shall have no obligation or liability to Assignee for any
General Intangibles described herein which do not exist, or which Assignor does
not have the right to transfer to Assignee.
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
<PAGE>
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
_________, 1997.
NATIONAL INVESTORS FINANCIAL,
INC., a California corporation,
AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST
By:
--------------------------------
Its:
-------------------------------
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND AMONG
AHWAHNEE GOLF COURSE & RESORT, INC.,
a California corporation,
NATIONAL INVESTORS FINANCIAL, INC.,
a California corporation, as Trustee of
National Investors Land Holding Trust VIII,
and
NATIONAL INVESTORS FINANCIAL, INC.,
a California corporation, as Trustee of
National Investors Land Holding Trust IX,
COLLECTIVELY, AS SELLER,
AND
YOSEMITE WOODS FAMILY RESORT, INC.,
a California corporation,
AS BUYER
RELATING TO
PROPERTY LOCATED IN
Madera County, California
INCLUDING AN RV PARK AND SINGLE FAMILY LOTS
LOCATED WITHIN
"AHWAHNEE GOLF COURSE AND RESORT"
DATED AS OF
__________________ ___, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1. Purchase and Sale. . . . . . . . . . . . . . . . . . . . . . . 5
2.2. Substance of Transactions. . . . . . . . . . . . . . . . . . . 5
3. Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1. Exchange Value . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2. Additional Consideration . . . . . . . . . . . . . . . . . . . 6
4. Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Cancellation Fees and Expenses. . . . . . . . . . . . . . . . . . . . . 6
6. Deliveries to Escrow Holder . . . . . . . . . . . . . . . . . . . . . . 7
6.1. By Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2. By Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3. By Buyer and Seller. . . . . . . . . . . . . . . . . . . . . . 7
7. Condition of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1. Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . 8
7.2. Title Provided by Seller . . . . . . . . . . . . . . . . . . . 8
8. Conditions to the Close of Escrow . . . . . . . . . . . . . . . . . . . 8
8.1. Conditions Precedent to Buyer's Obligations. . . . . . . . . . 8
8.1.1. Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.1.2. Representations, Warranties and Covenants of Seller. . . . . . 8
8.1.3. Seller's Deliveries. . . . . . . . . . . . . . . . . . . . . . 8
8.2. Conditions Precedent to Seller's Obligations . . . . . . . . . 9
i
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<S> <C>
9. Approval of Seller's Constituents . . . . . . . . . . . . . . . . . . . 9
10. Property "As-Is". . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.1. NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. . . . . 9
10.2. Disclosures; Specific Acknowledgment Regarding Condition of
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. Title Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12. Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13. Disbursements and Other Actions . . . . . . . . . . . . . . . . . . . . 13
13.1. Escrow Holder. . . . . . . . . . . . . . . . . . . . . . . . . 13
13.2. By Transfer Agent. . . . . . . . . . . . . . . . . . . . . . . 13
13.3. Possession . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.4. Assumption of Liabilities. . . . . . . . . . . . . . . . . . . 13
14. Joint Representations and Warranties. . . . . . . . . . . . . . . . . . 13
14.1. Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.2. Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.3. Due Execution. . . . . . . . . . . . . . . . . . . . . . . . . 14
14.4. Valid and Binding. . . . . . . . . . . . . . . . . . . . . . . 14
14.5. Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15. Seller's Warranties and Representations . . . . . . . . . . . . . . . . 14
15.1. Non-Foreign Entity . . . . . . . . . . . . . . . . . . . . . . 14
15.2. Hazardous Substances . . . . . . . . . . . . . . . . . . . . . 14
15.3. Clean-up . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.4. Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.5. Memberships. . . . . . . . . . . . . . . . . . . . . . . . . . 15
16. Pre-Closing Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 15
ii
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Page
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<S> <C>
16.1. No Transfers . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.2. No Alterations . . . . . . . . . . . . . . . . . . . . . . . . 15
16.3. Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.4. Obligations Under Contracts. . . . . . . . . . . . . . . . . . 15
16.5. Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . 15
17. Condemnation and Destruction. . . . . . . . . . . . . . . . . . . . . . 16
17.1. Eminent Domain or Taking . . . . . . . . . . . . . . . . . . . 16
17.2. Damage or Destruction. . . . . . . . . . . . . . . . . . . . . 16
18. Utilities and Deposits. . . . . . . . . . . . . . . . . . . . . . . . . 17
18.1. Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.2. Refundable Deposits. . . . . . . . . . . . . . . . . . . . . . 17
19. Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
19.1. Termination of Employees . . . . . . . . . . . . . . . . . . . 17
19.2. No Agreements or Liability . . . . . . . . . . . . . . . . . . 18
19.3. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
20. Mediation of Disputes . . . . . . . . . . . . . . . . . . . . . . . . . 18
21. Arbitration of Disputes . . . . . . . . . . . . . . . . . . . . . . . . 18
22. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
24. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
24.1. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 20
24.2. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . 20
24.3. Possession of the Property . . . . . . . . . . . . . . . . . . 20
24.4. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
24.5. Successors and Assigns . . . . . . . . . . . . . . . . . . . . 20
iii
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Page
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24.6. Professional Fees. . . . . . . . . . . . . . . . . . . . . . . 20
24.7. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . 20
24.8. Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . 20
24.9. Construction . . . . . . . . . . . . . . . . . . . . . . . . . 20
24.10. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 21
24.11. Wear and Tear. . . . . . . . . . . . . . . . . . . . . . . . . 21
24.12. No Recordation . . . . . . . . . . . . . . . . . . . . . . . . 21
24.13. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
24.14. Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . 21
24.15. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
EXHIBIT A - Legal Description
EXHIBIT B - Form of Grant Deed
EXHIBIT C - FIRPTA Affidavit
EXHIBIT D - Assignment and Assumption
EXHIBIT E - Bill of Sale and General Assignment of Intangibles
EXHIBIT F - Membership Lists
EXHIBIT G - Payables to be Assumed By Buyer
iv
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("AGREEMENT") is made and entered into as of _______________ ___, 1998, by and
among AHWAHNEE GOLF COURSE & RESORT, INC., a California corporation (the
"COMPANY"), NATIONAL INVESTORS FINANCIAL, INC., a California corporation and a
licensed California real estate broker ("NIF"), as Trustee of National Investors
Land Holding Trust VIII ("TRUST VIII") and NIF, as Trustee of National Investors
Land Holding Trust IX ("TRUST IX") (the Company, NIF as Trustee for Trust VIII
and NIF as Trustee for Trust IX being referred to collectively as "SELLER"), and
YOSEMITE WOODS FAMILY RESORT, INC., a California corporation ("BUYER").
R E C I T A L S
A. Seller is the title holder and operator of property located
within the property commonly known as "Ahwahnee Golf Course and Resort", located
in the County of Madera, State of California, as more particularly described in
Exhibit A attached hereto (the "Real Property"). The Real Property includes,
among other things, a recreational vehicle park and lots for existing or
proposed single family dwellings. Buyer is a wholly-owned subsidiary of
American Family Communities, Inc., a California corporation ("AFC").
B. The Company operates and manages the Real Property as agent of
and for the benefit of the beneficiaries of Trust VIII and Trust IX,
respectively.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are incorporated herein by this reference, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, Buyer and
Seller agree as follows:
AGREEMENT
1. DEFINITIONS: For the purposes of this Agreement the following terms
will be defined as follows:
1.1. "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the actual
knowledge of David Lasker and James N. Orth without having conducted any
independent inquiry or inspection, and shall not include the knowledge of any
other persons or firms, it being understood and agreed by Buyer that neither
David Lasker nor James N. Orth is charged with knowledge of all of the acts
and/or omissions of predecessors in title to the Property or management of
the Property before Seller's acquisition of the Property and the Actual
Knowledge of Seller shall not include information or material which may be in
the possession of Seller generally, but of which neither David Lasker nor
James N. Orth is actually aware.
1.
<PAGE>
1.2. "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly-owned subsidiary of AFH.
1.3. "AFH" means American Family Holdings, Inc., a Delaware
corporation. Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a
wholly-owned subsidiary of AFH.
1.4. "ASSIGNMENT" shall have the meaning given thereto in Section
6.1(d) hereof.
1.5. "BILL OF SALE" shall have the meaning given thereto in Section
6.1(e) hereof.
1.6. "CLOSING DATE" means ___________, 1998, unless an earlier date is
agreed to in a writing subsequent to this Agreement executed and delivered by
each of the parties hereto to the other, and is the last date on which the
Closing and Close of Escrow can occur, subject to extension as provided for
in this Agreement.
1.7. "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably in
this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the
county in which the Property is located.
1.8. "EFFECTIVE DATE" means the date hereof.
1.9. "ENVIRONMENTAL AUDIT" means any environmental audit, review or
testing of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.10. "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment
including, without limitation, CERCLA (Comprehensive Environmental Response,
Compensation and Liability Act of 1980) and RCRA (Resources Conservation and
Recovery Act of 1976), as amended.
1.11. "ESCROW" shall have the meaning given thereto in Section 4 hereof.
1.12. "ESCROW HOLDER" means _________________________________________
__________________________________________________________________________ .
1.13. "EXCHANGE VALUE" is the adjusted appraised value of the Property
with respect to Parcel 1 and Parcel 2 respectively, which takes into
consideration various factors to balance the business value of the Property
with respect to Parcels 1 and 2 within their present ownership structure.
1.14. "EXHIBITS" means the following, each of which is attached hereto
and incorporated herein by this reference:
<TABLE>
<S> <C>
EXHIBIT A - Legal Description
EXHIBIT B - Form of Grant Deed
EXHIBIT C - FIRPTA Affidavit
2.
<PAGE>
EXHIBIT D - Assignment and Assumption
EXHIBIT E - Bill of Sale and General Assignment of Intangibles
EXHIBIT F - Membership Lists
EXHIBIT G - Payables to be Assumed By Buyer
</TABLE>
1.15. "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.16. "GRANT DEED" shall have the meaning given thereto in Section
6.1(a) hereof.
1.17. "HAZARDOUS SUBSTANCE" means any substance, material or waste which
is or becomes designated, classified or regulated as being "toxic" or
"hazardous" or a "pollutant" or which is or becomes similarly designated,
classified or regulated, under any Environmental Law, including asbestos,
petroleum and petroleum products.
1.18. "IMPROVEMENTS" means all improvements and fixtures situated on the
Real Property, including, without limitation, the RV Park.
1.19. "INTANGIBLES" means all of Seller's right, title and interest in
and to all intangible property used, owned or issued solely and strictly in
connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract
rights, accounts receivable and other intangible property used in connection
with the ownership and operation of the Property; (ii) all licenses, permits,
certificates of occupancy, approvals, dedications and entitlements issued,
approved or granted by any governmental authorities having jurisdiction over
the Property; (iii) all membership now in existence and unsold or unissued
memberships in the RV Park and all rights of Seller under the Membership
Bylaws of the RV Park; and(iv) all development rights, conditional use
permits, variances and other intangible rights, titles, interests and
privileges owned by Seller and related to or issued in connection with the
Land and/or Improvements, its use, occupancy, operation and development, but
in no way related to Seller's financial data or other proprietary information
or other property of Seller.
1.20. "INVESTORS" means the beneficiaries of Trust VIII and Trust IX.
1.21. "NOTICES" will be sent as provided in Section 22 to:
Seller: National Investors Financial, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, California 92660
Attn: Mr. David Lasker
Telephone: (949) 833-8600
Facsimile: (949) 752-9753
3.
<PAGE>
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, 34th Floor
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Buyer: Yosemite Woods Family Resort, Inc.
_____________________________
_____________________________
Attn:________________________
Telephone: _________________
Facsimile: _________________
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, 34th Floor
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Escrow Holder: _____________________________
_____________________________
_____________________________
Attn:________________________
Telephone: _________________
Facsimile: _________________
1.22. "OPENING OF ESCROW" shall have the meaning given thereto in
Section 4 hereof.
1.23. "OTHER ASSETS" means cash, cash equivalent, notes and other
negotiable instruments and any and all other assets in the possession or
control of Seller, the value of which is determined by possession, and any
other assets other than the Real Property, Personal Property or Intangibles
relating to the Real Property.
1.24. "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.25. "PERSONAL PROPERTY" means the equipment, furniture and fixtures,
supplies, books and records, Records, advertising materials, brochures,
literature, office supplies, stationery, equipment, inventory, tools,
appliances, display cases, and other tangible fixed assets existing on the
Closing Date on the Property, and all such other tangible fixed assets
existing on the Closing Date on the Property.
1.26. "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements, (iii) the Intangibles, (iv) the Personal Property, (v) the
Other Assets, and (vi) the Records.
4.
<PAGE>
1.27. "PROSPECTUS" means the Consent Solicitation Statement/Prospectus
of Buyer.
1.28. "REAL PROPERTY" means that certain real property located in the
County of Madera, State of California more particularly described in Exhibit
A attached hereto. The Real Property is further described in the Recitals to
this Agreement. The Real Property is adjacent to, and does not include, a
golf course and country club facilities.
1.29. "RECORDS" means the list of members of the RV Park, membership
account statements and such of Seller's books and records pertaining to the
Property including, without limitation, the RV Park and the Residential Lots.
1.30. "RESIDENTIAL LOTS" means developed and undeveloped lots for
single family dwellings located within Parcel 1 set forth on Exhibit A
attached hereto.
1.31. "RV PARK" means the recreational vehicle park consisting of
developed and undeveloped lots and six cabins, all located on a portion of
the Real Property and operated by Western Horizons.
1.32. "TITLE COMPANY" means __________________________________________.
1.33. "TITLE POLICY" shall have the meaning given thereto in Section 11
hereof.
1.34. "TRANSFER AGENT" means ____________________, who address is
__________________, Attn: ___________, Facsimile No. ___________.
1.35. "UNIT" means, collectively, one (1) share of common stock, plus
warrants to purchase three (3) additional shares of common stock, in AFH.
2. PURCHASE AND SALE:
2.1. PURCHASE AND SALE. Upon and subject to the terms and conditions
set forth in this Agreement, Seller agrees to sell to Buyer and Buyer agrees
to buy from Seller the Property, together with all easements, hereditaments,
entitlements (to the extent transferable) and appurtenances thereto. Buyer's
acquisition of the Property will be subject to liabilities only for current
payables incurred in the ordinary course of Seller's business, including the
Open Purchase Orders, and for property taxes all as set forth in Exhibit G.
All other liabilities of Seller, if any, are not assumed by Buyer and shall
remain the liability of Seller. In consideration of Seller's sale of the
Property to Buyer, Buyer will (a) deliver to the Investors the Exchange Value
in accordance with Section 3, and (b) perform all of Buyer's other
obligations hereunder.
2.2. Substance of Transactions. Notwithstanding any other provision of
this Agreement, the transfer of the Property directly from Seller to Buyer is
for convenience purposes only to effect expeditiously the culmination of the
transfers set forth in this Section 2.2, and for all purposes hereunder it is
the intent of the parties that such transfer reflects the following
transfers, which shall occur in the following order; (i) all of the
Investors, through their approval of the transactions contemplated under this
Agreement, contribute all of their interests in the Property to AFH in
exchange for Units, such Units to be distributed to them pursuant to Sections
5.
<PAGE>
3 and 13.2 hereof; (ii) AFH contributes the Property to AFC as a
contribution to the capital of AFC; and (iii) AFC contributes the Property
to Buyer as a contribution to the capital of Buyer. Seller's transfer of the
Property directly to Buyer reflects Seller's transfer of the Property from
the Investors to AFH, from AFH to AFC, and from AFC to the Buyer, in each
instance in Seller's capacity as the agent of and on behalf of such
transferors.
3. CONSIDERATION:
3.1. EXCHANGE VALUE. In consideration for the sale of the Property
to Buyer, Buyer will deliver to Seller an amount equal to the Exchange Value
for the Property. The Exchange Value for the ownership interests of the
Property with respect to Parcel 1 is $______________, and the Exchange Value
for the ownership interests of the Property with respect to Parcel 2 is
$______________, which shall be paid in the form of, and by issuance and
delivery of, ____ Units to the investors of Seller, to be distributed by the
Transfer Agent at the Closing outside of Escrow in accordance with Section
13.2 hereof. Upon the request of any party hereto, whether made before or
after the Closing, the parties hereto will allocate the Exchange Value to the
Real Property, the Improvements, the Intangibles, the Personal Property and
the Other Assets.
3.2. ADDITIONAL CONSIDERATION. If, after the Close of Escrow, Buyer
completes the sale of the Property for a purchase price which exceeds the
appraised value of the Property, as set forth in the appraisal dated March,
1998 prepared by ____________________________ (the "Appraised Value"), Buyer
will pay to Seller an amount calculated pursuant to the terms of this Section
3.2, which shall be paid in the form of, and by issuance and delivery of, an
additional number of Units equal to the quotient of the net cash proceeds
(exclusive of interest on deferred purchase price payments) received by
Buyer for such sale on or before December 31, 1999 up to 200% of the
Appraised Value divided by $20. (For example, if the Appraised Value of the
Property was $1,750,000 and Buyer received by December 31, 1999 net cash sale
proceeds in the amount of $3,600,000, then the maximum number of additional
Units available for allocation among Seller's investors would be $1,750,000
divided by $20 or 87,500 Units.)
4. ESCROW: Immediately upon execution of this Agreement, Buyer and
Seller will open an escrow (the "ESCROW") with the Escrow Holder by
delivering to Escrow Holder a fully executed copy of this Agreement (the
"OPENING OF ESCROW"). The purchase and sale of the Property will be
completed through the Escrow. Buyer and Seller agree to execute any
additional instructions consistent with this Agreement which are reasonably
required by the Escrow Holder. If there is a conflict between any printed
escrow instructions and this Agreement, the terms of this Agreement will
govern.
5. CANCELLATION FEES AND EXPENSES: If the Closing does not occur at
the time and in the manner provided in this Agreement because of the default
of one of the parties, the non-defaulting party has the right to cancel the
Escrow by written notice to the defaulting party and to the Escrow Holder.
All costs of cancellation, if any, will be paid by the defaulting party.
6.
<PAGE>
6. DELIVERIES TO ESCROW HOLDER:
6.1. BY SELLER. On or prior to the Closing Date, Seller will deliver or
cause to be delivered to Escrow Holder the following items:
(a) Two Grant Deeds ("GRANT DEEDS"), in the form attached to this
Agreement as Exhibit B, duly executed and acknowledged by NIF, as Trustee of
Trust VIII, and NIF, as Trustee for Trust IX, respectively, and in recordable
form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status attached to
this Agreement as Exhibit C ("FIRPTA CERTIFICATE"), duly executed by or on
behalf of Seller.
(c) A properly executed California Form RE 590 or other evidence
sufficient to establish that Buyer is not required to withhold any portion of
the Exchange Value pursuant to Sections 18805 and 26131 of the California
Revenue and Taxation Code ("FORM 590").
(d) An Assignment and Assumption of Agreements ("ASSIGNMENT") duly
executed by Seller in favor of Buyer in the form attached to this Agreement
as Exhibit D.
(e) If requested by Buyer, a quitclaim deed to the Property or any
portion thereof in favor of Buyer, duly executed and acknowledged by the
Company.
(f) A Bill of Sale and General Assignment of Intangibles in the
form attached to this Agreement as Exhibit E ("BILL OF SALE"), duly executed
by Seller and conveying all right, title and interest of Seller in the
Personal Property and the Intangibles to Buyer.
(g) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Seller as are
reasonably required by Buyer or Escrow Holder or both in connection with this
transaction.
6.2. BY BUYER. On or prior to the Closing Date, Buyer will deliver or
cause to be delivered to Escrow Holder the following items:
(a) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Buyer as are
reasonably required by Seller or Escrow Holder or both in connection with
this transaction.
(b) Amounts due to pay costs and expenses as set forth in Section
12 hereof.
6.3. BY BUYER AND SELLER. Buyer and Seller will each deposit such
other instruments consistent with this Agreement as are reasonably required
by Escrow Holder or otherwise required to close escrow. In addition Seller
and Buyer hereby designate Escrow Holder as the "REPORTING PERSON" for the
transaction pursuant to Section 6045(e) of the Internal Revenue Code.
7.
<PAGE>
7. CONDITION OF TITLE:
7.1. PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple title to
the Property will be conveyed to Buyer by Seller by Grant Deed, subject only
to the following title matters ("PERMITTED EXCEPTIONS"):
(a) all property tax liens (whether or not payments of property
taxes are delinquent) and all other matters shown in that certain Preliminary
Report dated as of _______________, issued by the Title Company, bearing
Order No. ________________, except Exception Nos. __________________________
_________________________________; and
(b) matters affecting the condition of title to the Property
created by, at the request of or with the written consent of Buyer.
7.2. TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the
Property, and (b) Buyer shall rely solely on the Title Policy for protection
against any title defects.
8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following
conditions must be satisfied not later the earlier of the Closing Date or
such other period of time as may be specified below:
8.1.1. TITLE. As of the Closing, the Title Company will issue
or have committed to issue to Buyer the title policy described in Section 11.
8.1.2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.
Seller will have duly performed each and every agreement to be performed by
seller hereunder and, subject to the provisions of Section 10, Seller's
express representations and warranties set forth in this Agreement will be
true and correct in all material respects as of the Closing Date. However,
notwithstanding anything to the contrary stated or implied in this Section
8.1.2, Seller shall have no liability for the breach of any representations,
warranties or covenants set forth in this Agreement, whether express or
implied, absent a finding by a court of competent jurisdiction that either
David Lasker or James N. Orth or both of them withheld information with
respect thereto from Buyer or falsified information delivered to and relied
upon by Buyer and that such action amounted to a violation of a
representation or warranty set forth herein.
8.1.3. SELLER'S DELIVERIES. Seller will have delivered the items
described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the
benefit of Buyer and may be waived only by Buyer. At all times buyer has the
right to waive any condition. Such waiver or waivers must be in writing to
Seller. If any conditions are not satisfied on or before the Closing Date, and
Buyer has not waived the unsatisfied conditions, Seller will not be deemed to
8.
<PAGE>
be in default (unless Seller has breached Sections 8.1.2 or 8.1.3 above) and
Buyer's sole remedy will be to terminate this Agreement.
8.2. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The close
of Escrow and Seller's obligations with respect to this transaction are
subject to the following conditions precedent: (a) Buyer's delivery to
Escrow Holder on or before the Closing Date, of the items described in
Section 6.2; (b) the approval of such of Seller's constituents as seller
shall deem necessary or advisable in its sole and absolute discretion as set
forth in Section 9 hereof; (c) Buyer having duly performed each and every
agreement to be performed by Buyer hereunder; and (d) Buyer's
representations, warranties and covenants set forth in this Agreement, will
be true and correct in all material respects as of the Closing Date. The
conditions set forth in this Section 8.2 are solely for the benefit of Seller
and may be waived only by Seller, with such waiver or waivers to be in
writing to Buyer. If any conditions are not satisfied on or before the
Closing Date, and Seller has not waived the unsatisfied conditions, Buyer
will not be deemed to be in default (unless Buyer has breached Sections
8.2(a), (c) or (d) above) and Seller's sole remedy will be to terminate the
Agreement.
9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise
reasonable diligence to obtain the approval of this transaction by such of
the constituents of Seller as Seller shall deem necessary or advisable, in
its sole and absolute discretion, and shall notify Buyer and Escrow Holder
when such approvals have been obtained. If Seller is not able to obtain such
approvals from such constituents on or before the date which is ____ days
after the Effective Date, or such later date as is mutually agreed to by
Buyer and Seller, then Seller may cancel this Agreement by notice to Buyer
and Escrow Holder given prior to the end of that time period, and in that
event Seller shall pay all title and escrow cancellation costs. Seller shall
indemnify and hold Buyer harmless from any claim, damage, loss, liability,
action, settlement, including Buyer's reasonable attorneys' fees suffered by
Buyer and which results from or relates to the Seller's securing approval of
this transaction and transferring the Property to Buyer pursuant to such
approval.
10. PROPERTY "AS-IS":
10.1. NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE.
BUYER REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE
OPPORTUNITY TO INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND
IMPROVEMENTS, IF ANY, AND THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER
HAVING MADE SUCH PERSONAL EXAMINATION AND INSPECTION. BUYER AGREES THAT
BUYER WILL ACCEPT THE PROPERTY, IN ITS THEN CONDITION AS-IS AND WITH ALL ITS
FAULTS, INCLUDING WITHOUT LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY
REFERENCED IN THIS AGREEMENT, SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES,
REPRESENTATIONS AND WARRANTIES MADE BY SELLER ELSEWHERE HEREIN. NO PERSON
ACTING ON BEHALF OF SELLER IS AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF,
BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT FOR THOSE REPRESENTATIONS,
WARRANTIES, COVENANTS, INDEMNITIES AND AGREEMENTS EXPRESSLY MADE BY SELLER IN
THIS AGREEMENT, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES
AND DISCLAIMS ANY
9.
<PAGE>
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF
ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR
WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED THEREFROM;
(B) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES
WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY DEVELOPMENT OF THE PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;
(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE
PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING WITHOUT
LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS REQUIRED TO DEVELOP
THE PROPERTY;
(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS,
RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR
BODY;
(H) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF
ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION OR LAND USE
LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING BUT NOT LIMITED TO,
THE ENDANGERED SPECIES ACT, TITLE III OF THE AMERICANS WITH DISABILITIES ACT OF
1990 OR ANY OTHER LAW, RULE OR REGULATION GOVERNING ACCESS BY DISABLED PERSONS,
CALIFORNIA HEALTH & SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL ACT, THE
FEDERAL RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL
PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, THE
RESOURCES CONSERVATION AND RECOVERY ACT OF 1976, THE CLEAN WATER ACT, THE SAFE
DRINKING WATER ACT, THE HAZARDOUS MATERIALS TRANSPORTATION ACT, THE TOXIC
SUBSTANCE CONTROL ACT, AND REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;
10.
<PAGE>
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON, UNDER, OR
ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS, INCLUDING ANY
INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR OTHER MATERIALS PREPARED BY
OR ON BEHALF OF SELLER;
(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR SPECIFICATIONS FOR
THE PROPERTY, INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVE BEEN OR MAY
BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR FUTURE APPLICABLE
ZONING OR BUILDING REQUIREMENTS;
(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE LOCATED ON OR
NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN ALQUIST-PRIOLO SPECIAL STUDY
ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING ENTITLEMENTS
AFFECTING THE PROPERTY;
(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF STATE AND LOCAL
GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE PROPERTY INCLUDING, WITHOUT
LIMITATION, THE CONSTRUCTION OF OFFSITE AND ONSITE ROADS, UTILITIES AND OTHER
IMPROVEMENTS; OR
(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE PROPERTY EXCEPT AS MAY
BE OTHERWISE EXPRESSLY STATED HEREIN, INCLUDING ANY AND ALL SUCH MATTERS
REFERENCED, DISCUSSED OR DISCLOSED IN ANY DOCUMENTS DELIVERED BY SELLER TO
BUYER, IN ANY PUBLIC RECORDS OF ANY GOVERNMENTAL AGENCY OR ENTITY OR UTILITY
COMPANY, OR IN ANY OTHER DOCUMENTS AVAILABLE TO BUYER.
BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER IS RELYING SOLELY ON ITS
OWN INVESTIGATION OF THE PROPERTY AND ITS OWN REVIEW OF ALL INFORMATION AND
DOCUMENTATION CONCERNING THE PROPERTY, AND NOT ON ANY INFORMATION PROVIDED OR TO
BE PROVIDED BY SELLER. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY
INFORMATION MADE AVAILABLE TO BUYER OR PROVIDED OR TO BE PROVIDED BY OR ON
BEHALF OF SELLER WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF
SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY
OR COMPLETENESS OF SUCH
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INFORMATION EXCEPT AS MAY OTHERWISE BE PROVIDED HEREIN. BUYER AGREES TO FULLY
AND IRREVOCABLY RELEASE ALL SUCH SOURCES OF INFORMATION AND PREPARERS OF
INFORMATION AND DOCUMENTATION TO THE EXTENT SUCH SOURCES OR PREPARERS ARE
SELLER, OR ITS EMPLOYEES, OFFICERS, DIRECTORS, REPRESENTATIVES,
BENEFICIARIES, INVESTORS, AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT
COMPANIES, SUBSIDIARIES, SUCCESSORS OR ASSIGNS FROM ANY AND ALL CLAIMS,
DAMAGES AND LIABILITIES ARISING FROM SUCH INFORMATION OR DOCUMENTATION,
EXCEPT IF AND TO THE EXTENT THAT BUYER EMPLOYS SUCH SOURCES OR PREPARERS OF
INFORMATION TO ACT ON BEHALF OF BUYER, IN WHICH EVENT THE LIABILITY OF SUCH
SOURCES OR PREPARERS OF INFORMATION TO BUYER SHALL BE DETERMINED BY THEIR OWN
INDEPENDENT AGREEMENTS WITH BUYER, AND SELLER SHALL NOT BE LIABLE FOR SUCH
AGREEMENTS OR OBLIGATIONS. SELLER IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY
ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO THE
PROPERTY, OR THE OPERATION THEREOF, FURNISHED BY ANY OF THE FOREGOING
ENTITIES AND INDIVIDUALS OR ANY OTHER INDIVIDUAL OR ENTITY.
10.2. DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. Buyer acknowledges the disclosures expressly made by Seller in
this Agreement, the Prospectus and in correspondence from Seller, its
attorneys and/or its agents to Buyer, its attorneys and/or its agents.
11. TITLE INSURANCE: At the Close of Escrow, the Title Company will
issue to Buyer at Buyer's sole cost and expense an ALTA Standard Coverage
Policy (1990) with coverage in an amount equal to the appraised value of the
Real Property as determined by Buyer in its sole discretion, showing title to
the real property vested in buyer, subject only to the permitted exceptions
and the standard printed exceptions and conditions in the policy of title
insurance ("TITLE POLICY"). If Buyer elects to obtain any additional
endorsements or an extended coverage policy, the additional premium and costs
of survey for the extended coverage policy and the cost of any endorsements
will be at Buyer's sole cost and expense; however, Buyer's election to obtain
an extended coverage policy will not delay the Closing and Buyer's inability
to obtain an extended coverage policy or any such endorsements will not be
deemed to be a failure of any condition to Closing.
12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) all escrow fees and costs;
(c) all city and county documentary transfer taxes;
(d) all document recording charges;
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(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage title
policy, the cost of any required survey and, the cost of any endorsements
required by Buyer; and
(H) All other costs and expenses necessarily incurred to close the
transaction.
13. DISBURSEMENTS AND OTHER ACTIONS:
13.1. ESCROW HOLDER. At the Close of Escrow, Escrow Holder will
promptly undertake all of the following:
(a) Cause the Grant Deeds (with documentary transfer tax
information to be affixed AFTER recording) to be recorded with the County
Recorder and obtain conformed copies thereof for distribution to Buyer and
Seller.
(b) Direct the Title Company to issue the Title Policy to Buyer
within 15 BUSINESS DAYS after Closing.
(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and any
other documents (or copies thereof) deposited into Escrow by Seller. Deliver
to Seller any other documents (or copies thereof) deposited into Escrow by
Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that the
Close of Escrow has occurred.
13.2. BY TRANSFER AGENT. Promptly after the Close of
Escrow, Transfer Agent shall deliver all Units in payment of the Exchange
Value for the Property to the persons, at the addresses and in the amounts
designated by Seller.
13.3. POSSESSION. Possession of the Other Assets in Seller's possession
or control, the Records and all other Property shall be delivered by Seller
to Buyer at the Close of Escrow.
13.4. ASSUMPTION OF LIABILITIES. All of Seller's accounts receivable
existing at the Closing shall become the property of, and shall be delivered
to, Buyer at the Close of Escrow. Any monies delivered to Seller after the
Close of Escrow shall be held by Seller in trust for the account of Buyer,
and Seller shall forthwith deliver such funds to Buyer. Buyer shall be
liable only for contracts expressly assumed by Buyer pursuant to the
Assignment attached hereto as Exhibit D, and only those current payables
existing at the Close of Escrow, including the Open Purchase Orders which are
listed on Exhibit G hereto, and shall be responsible for the payment thereof
following the Closing. Seller shall remain responsible for all liabilities
and payables not set forth on Exhibit G, or otherwise assumed by Buyer in
writing.
14. JOINT REPRESENTATIONS AND WARRANTIES: In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the
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parties each to the other, provided that liability for any breach is subject
to Sections 8.1.2 and 24.13 hereof:
14.1. AUTHORITY. Each party has the legal power, right and authority to
enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
14.2. ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering into
of this Agreement, the instruments referenced herein, and the consummation of
this transaction. Except as provided in Section 9, no further consent of any
partner, shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
14.3. DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners,
officers or trustees of each party, if any, have the legal power, right, and
actual authority to bind each party to the terms and conditions of those
documents.
14.4. VALID AND BINDING. This agreement and all other documents
required to close this transaction are and will be valid, legally binding
obligations of and enforceable against each party in accordance with their
terms, subject only to applicable bankruptcy, insolvency, reorganization,
moratorium laws or similar laws or equitable principles affecting or limiting
the rights of contracting parties generally.
14.5. BROKER. Seller represents and warrants to buyer, and buyer
represents and warrants to Seller, that no broker or finder has been engaged
by them, respectively, in connection with any of the transactions
contemplated by this Agreement, or to its knowledge is in any way connected
with any of such transactions. Buyer will indemnify, save harmless and
defend Seller from any liability, cost, or expense arising out of or
connected with any claim for any commission or compensation made by any
person or entity claiming to have been retained or contacted by Buyer in
connection with this transaction. Seller will indemnify, save harmless and
defend Buyer from any liability, cost, or expense arising out of or connected
with any claim for any commission or compensation made by any person or
entity claiming to have been retained or contacted by seller in connection
with this transaction. This indemnity provision will survive the Closing or
any earlier termination of this Agreement.
15. SELLER'S WARRANTIES AND REPRESENTATIONS: Seller makes the
following representations and warranties and acknowledges that buyer will
rely on such representations and warranties in acquiring the Property,
provided that liability for any breach is subject to Sections 8.1.2 and 24.13
hereof:
15.1. NON-FOREIGN ENTITY. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.
15.2. HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the
date of Seller's acquisition of the Property, no Hazardous Substances are now
or have been used, stored,
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generated or disposed of on or within the Property except in the normal
course of use and operation of the Property and in compliance with all
applicable Environmental Laws.
15.3. CLEAN-UP. To Seller's Actual Knowledge, since the date of
Seller's acquisition of the property, there are and have been no federal,
state or local enforcement, clean-up, removal, remedial or other governmental
or regulatory actions instituted or completed affecting the Property, other
than such other matters as may otherwise be disclosed in any Environmental
Audit or in any other documents provided or made available to Buyer.
15.4. CLAIMS. To Seller's Actual Knowledge, there are no outstanding
claims that have been made by any third party against seller relating to any
Hazardous Substances on or within the Property.
15.5. MEMBERSHIPS. To Seller's Actual Knowledge, the list of members
and the status of the payment of the membership dues for such members set
forth in Exhibit F hereto are true, accurate and complete in all material
respects.
The provisions of this Section 15 shall no longer bind Seller if
this Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder does not occur.
16. PRE-CLOSING COVENANTS. So long as this Agreement remains in full
force and effect:
16.1. NO TRANSFERS. Without the prior written consent of Buyer, Seller
will not convey any interest in the property and will not subject the
Property to any additional liens, encumbrances, covenants, conditions,
easements, rights of way or similar matters after the date of this Agreement,
except as may be otherwise provided for in this agreement, which will not be
eliminated prior to the Close of Escrow. Notwithstanding the foregoing,
Seller may continue to sell RV memberships in the regular course of business.
16.2. NO ALTERATIONS. Seller will not make any material alterations to
the Property without Buyer's consent, which will not be unreasonably withheld
or delayed.
16.3. MAINTENANCE. Seller will maintain the Property in substantially
the same condition as it is in, as of the date of this Agreement, and manage
the Property in accordance with Seller's established practices.
16.4. OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all
of the obligations to be performed by Seller under any contracts affecting
the Property. Without prior written consent of Buyer, which will not be
unreasonably withheld or delayed, Seller will not enter into any contract or
agreement providing for the provision of goods or services to or with respect
to the Property or the operation thereof unless such contracts or agreements
can be terminated without penalty by the closing date. Seller will not enter
into any leases for any portion of the property.
16.5. EXPENDITURES. Seller will incur only expenditures necessary for
the day-to-day operation and maintenance of the property, and will not incur
capital expenditures or liabilities
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not in the ordinary course of business. Seller shall retain all Other Assets
in Seller's possession on or after the date hereof except for payment of such
permitted liabilities and expenditures.
17. CONDEMNATION AND DESTRUCTION:
17.1. EMINENT DOMAIN OR TAKING. If proceedings under a power of
eminent domain relating to the Property or any part thereof are commenced
prior to Close of Escrow, Seller will promptly inform Buyer in writing.
(a) if such proceedings involve the taking of title to all or a
material interest in the Property, Buyer may elect to terminate this Agreement
by notice in writing sent within 10 DAYS of Seller's written notice to Buyer, in
which case neither party will have any further obligation to or rights against
the other except any rights or obligations of either party which are expressly
stated to survive termination of this Agreement.
(b) If the proceedings do not involve the taking of title to all or a
material interest in the Property, or if Buyer does not elect to terminate this
Agreement, this transaction will be consummated as described herein and any
award or settlement payable with respect to such proceeding will be paid or
assigned to Buyer upon Close of Escrow.
(c) If this sale is not consummated for any reason, any condemnation
award or settlement will belong to Seller.
17.2. DAMAGE OR DESTRUCTION. Except as provided in this Section,
prior to the Close of Escrow the entire risk of loss of damage by earthquake,
flood, landslide, fire or other casualty is borne and assumed by Seller. If,
prior to the Close of Escrow, any part of the Improvements is damaged or
destroyed by earthquake, flood, landslide, fire or other casualty, Seller
will promptly inform Buyer of such fact in writing and advise Buyer as to the
extent of the damage and whether it is, in Seller's reasonable opinion,
"MATERIAL" or not "MATERIAL".
(a) If such damage or destruction is "MATERIAL", Buyer has the
option to terminate this Agreement upon written notice to the Seller given
not later than 10 DAYS after receipt of Seller's written notice to Buyer
advising of such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any damage or
destruction to the Improvements where the cost of repair or replacement is
estimated to be more than 25% of the Exchange Value of the Property and will
take more than 60 DAYS to repair.
(c) If this Agreement is so terminated, the provisions of Section
5 will govern.
(d) If Buyer does not elect to terminate this Agreement, or if the
casualty is not material, Seller will reduce the Exchange Value by the value
reasonably estimated by Seller to repair or restore the damaged portion of
the Improvements, less any sums expended by Seller to make emergency repairs
to the Improvements or the Property or otherwise protect the physical
condition of the Improvements or the Property, and this transaction will
close pursuant to the terms of this Agreement.
16.
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(e) If the damage is not material, Seller's notice to Buyer of the
damage or destruction will also set forth Seller's reduced Exchange Value and
Seller's allocation of value to the damaged portion of the Improvements. If
Buyer does not accept Seller's reduced Exchange Value, Buyer's sole remedy
will be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated
hereunder, all rights to insurance claims or proceeds in respect of damage or
destruction to the Improvements occurring prior to the Close of Escrow will
belong to Seller.
18. UTILITIES AND DEPOSITS:
18.1. UTILITIES. Seller will notify all utility companies servicing
the Property of the sale of the Property to Buyer and will notify the utility
companies that all utility bills henceforth are to be sent to Buyer. Buyer
shall be entitled to receive any and all refunds of all utility deposits held
by utility companies and Seller will assign to Buyer all of Seller's right,
title and interest in any such utility deposits.
18.2. REFUNDABLE DEPOSITS. To the extent there exists any refundable
deposits made in connection with the development of the Property prior to the
Closing ("Refundable Deposits"), Seller shall assign to Buyer all of Seller's
right, title and interest in and to such Refundable Deposits.
19. EMPLOYEES:
19.1. TERMINATION OF EMPLOYEES.
(a) Effective no later than Closing, the Company will completely and
irrevocably terminate all agreements, contracts, arrangements, commitments and
other obligations pertaining to employment or in the nature of employment
contracts with all persons working at the Property, whether denominated as
"employees" or otherwise (the "Terminated Persons") (such terminations by Seller
are referred to collectively as the "Terminations").
(b) All wages, salary, accrued fringe benefits (including accrued
vacation pay), severance payments (if any), payments required by Consolidated
Omnibus Budget Reconciliation Act of 1986, as amended, and other liabilities,
compensation or amounts owed to Terminated Persons shall be fully paid by Seller
at or prior to Closing, except as follows:
(i) All Terminated Persons to whom Buyer is offering new
employment who are entitled to accrued vacation pay as of Closing shall be
given the option of (x) being paid their accrued vacation pay in cash by
Seller immediately after Closing, or (y) if they accept the offer of new
employment with Buyer, having a credit for their accrued vacation time
included as a fringe benefit to which they would be entitled upon commencing
employment with Buyer, subject to the policies and procedures of Buyer.
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(ii) Terminated Persons who elect the first option specified
in Section 5.1(b)(i) (or who do not accept the offer of new employment with
Buyer) shall be paid their accrued vacation pay by Seller immediately after
Closing.
(c) The notification to the employees of the option provided in
Section 19.1(a) shall be in a form mutually agreeable to Buyer and Seller.
(d) Seller shall grant Buyer reasonable opportunities to communicate
with all employees of the Company prior to the Closing for purposes of allowing
Buyer to convey offers of employment, for confirming the terms of such
employment, and for purposes related thereto.
19.2. NO AGREEMENTS OR LIABILITY. Buyer does not agree to adopt or
to continue in effect the terms and conditions of any collective bargaining
agreement between Seller and any labor organization or of any employment
contract between Seller and any employee of Seller. Buyer further does not
agree to retain any or all of the current employees of Seller or to maintain
existing staffing levels or job classifications. In the event that Buyer
decides to make offers of employment to any or all of the current Employees
of Seller, Buyer reserves the right to establish the terms of such offers of
employment and does not agree to maintain or continue in effect any or all of
the current terms and conditions of employment of such employees or to give
them seniority or service credit of any kind for their prior employment.
19.3. INDEMNITY. Seller shall indemnify and hold buyer harmless
from any liability, claims, costs, expenses, including attorney fees and
litigation costs, arising out of or related to the employment of the
terminated persons with Seller or arising out of or related to the
terminations.
20. MEDIATION OF DISPUTES: No party to this Agreement shall initiate
any litigation against any other party to this Agreement concerning any
controversy or claim arising out of or relating to this Agreement or any
agreements or instruments relating hereto or delivered in connection
herewith, including, but not limited to, any claim based on or arising from
an alleged tort, unless and until (i) at least 60 days before the same shall
be filed, a complete copy of each of the summons and complaint (and/or any
other documentation required to initiate such litigation) to be filed by the
complaining party shall have been delivered to the other party or parties to
any such dispute, and (ii) the complaining party has made itself available to
meet in Los Angeles, California with the other party or parties for no more
than 3 business days of non-binding mediation. Until and unless such
mediation has taken place, the complaining party must give notice to the
non-complaining party that it will, and then it must, make itself available
for such mediation during at least 20 business days during the 60 days before
the date on which such summons and complaint will be filed.
21. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING
HERETO OR DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY
PARTY, BE DETERMINED BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (9 U.S.C. SECTION 1 ET
18.
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SEQ.) UNDER THE AUSPICES AND RULES OF THE AMERICAN ARBITRATION ASSOCIATION
("AAA"). THE AAA WILL BE INSTRUCTED BY EITHER OR BOTH PARTIES TO PREPARE A
LIST OF THREE (3) JUDGES WHO HAVE RETIRED FROM THE SUPERIOR COURT OF THE
STATE OF CALIFORNIA, A HIGHER CALIFORNIA COURT OR ANY FEDERAL COURT. WITHIN
10 DAYS OF RECEIPT OF THE LIST, EACH PARTY MAY STRIKE 1 NAME FROM THE LIST.
THE AAA WILL THEN APPOINT THE ARBITRATOR FROM THE NAME(S) REMAINING ON THE
LIST. THE ARBITRATION WILL BE CONDUCTED IN SAN FRANCISCO, LOS ANGELES OR SAN
DIEGO, WHICHEVER IS THE CLOSEST CITY TO THE NEXUS OF THE DISPUTE. ANY
CONTROVERSY IN INTERPRETATION OR ENFORCEMENT OF THIS PROVISION OR WHETHER A
DISPUTE IS ARBITRABLE, WILL BE DETERMINED BY THE ARBITRATOR. JUDGMENT UPON
THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL
RELIEF OR IN PURSUIT OF AN ANCILLARY REMEDY DOES NOT CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR
CLAIM TO ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES'
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND
YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED
IN A COURT OR BY JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING
UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE
SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU
REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE
COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES'
PROVISION TO NEUTRAL ARBITRATION.
BUYER'S INITIALS ________ SELLER'S INITIALS _________
22. NOTICES: All notices or other communications required or permitted
hereunder must be in writing, and must be personally delivered (including by
means of professional messenger service) or sent by overnight courier, or
sent by registered or certified mail, postage prepaid, return receipt
requested to the addresses set forth in Section 1 hereof. All notices sent
by mail will be deemed received 2 days after the date of mailing and all
notices sent by other means permitted herein shall be deemed received on the
earlier of the date delivered or the date on which delivery is refused.
19.
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23. ASSIGNMENT: Neither party shall have the right to assign this
Agreement without the other party's prior written consent.
24. MISCELLANEOUS:
24.1. COUNTERPARTS. This Agreement may be executed in counterparts.
24.2. PARTIAL INVALIDITY. If any term or provision of this Agreement
will be deemed to be invalid or unenforceable to any extent, the remainder of
this Agreement will not be affected thereby, and each remaining term and
provision of this Agreement will be valid and be enforced to the fullest
extent permitted by law.
24.3. POSSESSION OF THE PROPERTY. SELLER WILL DELIVER POSSESSION OF
THE PROPERTY TO BUYER UPON THE CLOSE OF ESCROW.
24.4. WAIVERS. No waiver of any breach of any covenant or provision
contained herein will be deemed a waiver of any preceding or succeeding
breach thereof, or of any other covenant or provision contained herein. No
extension of time for performance of any obligation or act will be deemed an
extension of the time for performance of any other obligation or act except
those of the waiving party, which will be extended by a period of time equal
to the period of the delay.
24.5. SUCCESSORS AND ASSIGNS. This Agreement is binding upon and
inures to the benefit of the permitted successors and assigns of the parties
hereto.
24.6. PROFESSIONAL FEES. In the event of the bringing of any action,
arbitration or suit by a party hereto against another party hereunder by
reason of any breach of any of the covenants, agreements or provisions on the
part of the other party arising out of this Agreement, then in that event the
prevailing party will be entitled to have the recovery of and from the other
party all costs and expenses of the action, mediation or suit, actual
attorneys' fees, witness fees and any other professional fees resulting
therefrom.
24.7. ENTIRE AGREEMENT. This Agreement (including all Exhibits
attached hereto) constitutes the entire contract between the parties hereto
with respect to the subject matter hereof and may not be modified except by
an instrument in writing signed by the party to be charged.
24.8. TIME OF ESSENCE. Seller and Buyer hereby acknowledge and
agree that time is strictly of the essence with respect to each and every
term, condition, obligation and provision hereof.
24.9. CONSTRUCTION. Seller and Buyer and their respective advisors
believe that this Agreement is the product of all of their efforts, that it
expresses their agreement and that it should not be interpreted in favor of
or against either Buyer or Seller. The parties further agree that this
Agreement will be construed to effectuate the normal and reasonable
expectations of a sophisticated seller and buyer.
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24.10. GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced
in accordance with the laws of the State of California.
24.11. WEAR AND TEAR. Buyer specifically acknowledges that Seller
will continue to use the property in the course of its business and accepts
the fact that reasonable wear and tear will occur after the date of this
Agreement. Buyer specifically agrees that Seller is not responsible for
repairing such reasonable wear and tear and that Buyer is prohibited from
raising such wear and tear as a reason for not consummating this transaction
or for requesting a reduction in the Exchange Value.
24.12. NO RECORDATION. No memorandum or other document relating to
this Agreement will be recorded without the prior written consent of Seller,
and any such consent or approval will be conditioned upon buyer providing
Seller with a quitclaim deed fully executed and acknowledged by Buyer,
quitclaiming any and all interests that it may have in the property to
Seller, which quitclaim deed seller may record in the event that this
Agreement is terminated or the transaction contemplated herein is not
consummated.
24.13. SURVIVAL. All obligations of the parties contained herein
which by their terms do not arise until after the Close of Escrow and any
other provisions of this Agreement which by their terms survives the Close of
Escrow, shall survive the Close of Escrow. Notwithstanding anything to the
contrary contained in this Agreement, the representations and warranties
contained in this Agreement shall survive the Closing for a period of 1 year;
provided that any claims by one party hereto must be made in writing to the
other party within the 1 year period.
24.14. DISCLAIMER. Nothing herein creates any right or remedy for
the benefit of any person not a party hereto, nor creates a fiduciary
relationship, an agency or a partnership. All obligations of the parties
contained herein which by their terms do not arise until after the close of
Escrow and any other provisions of this Agreement which by their terms
survives the close of Escrow, shall survive the Close of Escrow.
24.15. WAIVER OF JURY TRIAL. EACH PARTY, ACTING WITH KNOWLEDGE OF
ITS RIGHTS AFTER A FULL OPPORTUNITY TO CONSULT WITH COUNSEL, VOLUNTARILY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ALL PROCEEDINGS FOR WHICH A TRIAL BY
JURY WOULD OTHERWISE BE AVAILABLE OR REQUIRED, AND WHICH INVOLVE ANY MATTER
ARISING OUT OF OR CONNECTED WITH RIGHTS OR DUTIES UNDER, OR ENFORCEMENT OR
INTERPRETATION OF, THIS AGREEMENT.
21.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year hereinabove written.
"SELLER": "BUYER":
NATIONAL INVESTORS FINANCIAL, INC., A YOSEMITE WOODS FAMILY RESORT, INC.,
CALIFORNIA CORPORATION, AS TRUSTEE OF A CALIFORNIA CORPORATION
NATIONAL INVESTORS LAND HOLDING TRUST
VIII
By: By:
--------------------------------- ------------------------
Its: Its:
--------------------------------- ------------------------
and
By:
------------------------
Its:
------------------------
NATIONAL INVESTORS FINANCIAL, INC., A
CALIFORNIA CORPORATION, AS TRUSTEE OF
NATIONAL INVESTORS LAND HOLDING TRUST IX
By:
-----------------------------------
Its:
----------------------------------
AHWAHNEE GOLF COURSE AND RESORT,
INC., A CALIFORNIA CORPORATION
By:
-----------------------------------
Its:
----------------------------------
Agreed to and accepted
by Escrow Holder:
- ----------------------------------------
By:
------------------------------------
Its:
-----------------------------------
22
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY,
WHEN RECORDED MAIL TO:
Arter & Hadden
725 South Figueroa Street, Suite 3400
Los Angeles, California 90017
Attn: Bruce H. Newman, Esq.
_______
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a separate
statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
_________________________ ("Grantor"), hereby grants to YOSEMITE WOODS FAMILY
RESORT, INC., A CALIFORNIA CORPORATION ("Grantee"), the real property in the
County of Madera, State of California, and described in Exhibit A attached
hereto and made a part hereof.
DATED: _____________________, 1997
-------------------------------------
-------------------------------------
By:
-------------------------------------
Its:
-------------------------------------
MAIL TAX STATEMENTS TO:
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF _______________)
On ____________________, before me _____________________________________,
personally appeared _______________________, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
- ----------------------------------
Notary Public in and for said
County and State [SEAL]
<PAGE>
Document No. ____________________ Date Recorded_________________
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
NOT BE MADE A PART OF THE PERMANENT RECORD
IN THE OFFICE OF THE COUNTY RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of __________________________
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
- ------------------------------------
(as grantor)
and
- ------------------------------------
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of__________________.
The amount of tax due on the accompanying document is $_______________.
_______ Computed on full value of property conveyed, or
_______ Computed on full value less liens and encumbrances remaining at time
of sale.
- ------------------------------------
- ------------------------------------
By:
--------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee
of a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a U.S. real property interest by
__________________________ ("TRANSFEROR"), each of the undersigned hereby
certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is ___________;
and
3. Transferor's office address is
_______________________________________, ___________________.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by transferee and that any false statement contained
herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he
has examined this certification and to the best of his knowledge and belief it
is true, correct and complete, and he further declares that he has authority to
sign the document on behalf of the Transferor.
------------------------------------
------------------------------------
By:
--------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is
executed as of ______________, but effective as of the Effective Date (as
hereinafter defined), by and among AHWAHNEE GOLF COURSE & RESORT, INC., a
California corporation (the "COMPANY"), NATIONAL INVESTORS FINANCIAL, INC., a
California corporation ("NIF"), as Trustee of National Investors Land Holding
Trust VIII ("TRUST VIII") and NIF, as Trustee of National Investors Land Holding
Trust IX ("TRUST IX") (the Company, NIF as Trustee for Trust VIII and NIF as
Trustee for Trust IX being referred to collectively as "ASSIGNOR"), and YOSEMITE
WOODS FAMILY RESORT, INC., a California corporation ("Assignee"), with reference
to the following facts:
RECITALS:
A. Assignor, as the agent of and for the benefit of various
investors, holds title to that certain real property which includes an RV Park
and unimproved and improved single family lots, located in the County of Madera,
State of California, as more particularly described on Exhibit "A" attached
hereto and incorporated herein by reference (the "Property"), holds title to the
Property.
B. Concurrently herewith, Assignor has executed that certain Grant
Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to Assignee
all of its right, title and interest in and to all agreements relating to the
Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are by this reference incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the Property
which are set forth in Exhibit "B" attached hereto and made a part hereof
(collectively, the "Agreements"). The assignment provided for in this
<PAGE>
Section 1 is effective concurrently with the transfer of the Property from
Assignor to Assignee (the "Effective Date").
2. ASSIGNEE'S ASSUMPTION AND INDEMNIFICATION. Assignee hereby
accepts the assignment from Assignor, assumes and agrees to perform all duties
and obligations of Assignor under the terms of the Agreements which are required
to be performed on or after the Effective Date and agrees to indemnify, defend
and hold harmless Assignor from any and all liability, loss, damage, claim, cost
and expense (including, without limitation, reasonable attorneys' fees and
costs) arising or accruing out of a failure of Assignee to perform its
obligations under the Agreements to be performed on and after the Effective
Date.
4. DELIVERIES; REPORTS. On or before the Effective Date,
Assignor shall deliver to Assignee the original Agreements or if such
original Agreements are not in Assignor's possession, certified copies of
such Agreements. Assignor shall furnish and deliver to Assignee, promptly
after receipt thereof, duplicates or copies of all reports, notices,
requests, demands, declarations, certificates or other instruments hereafter
received by Assignor and relating to the Agreements. Assignee's address for
receipt of the foregoing is_________________________________________________
________________________.
5. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may be
necessary to further assure to Assignee the rights assigned hereby and the full
benefits hereof and to preserve and protect this Assignment and all of the
rights, powers and remedies of Assignee provided for herein.
6. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto.
7. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
8. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written but effective as of the Effective
Date.
ASSIGNOR:
--------------------------------------
ASSIGNEE:
--------------------------------------
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
<PAGE>
EXHIBIT "B"
CONTRACTS
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of
the ____ day of ___________________________, 1997 (this "Assignment"), by
AHWAHNEE GOLF COURSE & RESORT, INC., a California corporation (the "COMPANY"),
NATIONAL INVESTORS FINANCIAL, INC., a California corporation ("NIF"), as Trustee
of National Investors Land Holding Trust VIII ("TRUST VIII") and NIF, as Trustee
of National Investors Land Holding Trust IX ("TRUST IX") (the Company, NIF as
Trustee for Trust VIII and NIF as Trustee for Trust IX being referred to
collectively as "ASSIGNOR"), to YOSEMITE WOODS FAMILY RESORT, INC., a California
corporation ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and
Sale and Joint Escrow Instructions dated ________, 1997 ("Agreement of Purchase
and Sale") under which Assignee has agreed to purchase from Assignor, that
certain real property and all buildings, structures and improvements on said
real property commonly identified as ______________________, _____________,
State of California and legally described on Exhibit A attached hereto (the
"Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all intangible
property used, owned or issued solely in connection with the Property, including
but not limited to, all licenses, permits, certificates of occupancy, approvals,
maps, dedications, subdivision
<PAGE>
maps and entitlements issued, approved or granted by any governmental
agencies or instrumentalities having any jurisdiction over the Property (the
"Authorities") or otherwise in connection with the Property; all development
rights, conditional use permits, variances, "floor area ratio" development
rights and other intangible rights, titles, interests, privileges and
appurtenances owned by Assignor and related to or issued in connection with
the Property and/or its use, occupancy, operation and/or development; all
licenses, consents, easements, rights of way, and approvals required from
private parties to make use of utilities and to insure vehicular and
pedestrian ingress and egress to the Property; and any pending applications
or requests as to any of the foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the construction,
reconstruction, maintenance, repair, or operation any improvements on the
Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the Improvements and the
personal property situated on the Property, including but not limited to those
made by or received from any third party with respect to any building, building
component, structure, fixture, machinery, equipment or material situated on,
contained in any building or other improvement situated on, or comprising a part
of any building or other improvement situated on any part of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's right,
title and interest in and to refundable deposits, bonds and other collateral
furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold, use,
sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from time
to time upon written request therefor, execute and deliver to Assignee, its
successors and assigns any new or confirmatory instruments and take such further
acts as Assignee may reasonably request to fully evidence the assignment
contained herein and to enable Assignee, its successors and assigns to fully
realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it
has not previously assigned or hypothecated its interest in the foregoing
described General Intangibles; however, Assignee shall have no claims or
rights against Assignor, and Assignor shall have no obligation or liability
to Assignee for any General Intangibles described herein which do not exist,
or which Assignor does not have the right to transfer to Assignee.
<PAGE>
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
_________, 1997.
------------------------------------
------------------------------------
By:
--------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT F
MEMBERSHIP LISTS
TYPE OF MEMBERSHIP MEMBER NAME STATUS OF DUES
TOTAL MEMBERS: ______
<PAGE>
EXHIBIT G
PAYABLES TO BE ASSUMED BY BUYER
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
NATIONAL INVESTORS LAND HOLDING TRUST IV,
AS SELLER
AND
DELTA GREENS HOMES, INC.,
a California corporation,
AS BUYER
RELATING TO
PROPERTY LOCATED IN
Sacramento, California
known as
"DELTA GREENS"
OR
"NORTH SHORES"
DATED AS OF
______________ ____, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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<S> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Substance of Transactions . . . . . . . . . . . . . . . . . . . . . 5
3. Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Exchange Value. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Additional Consideration. . . . . . . . . . . . . . . . . . . . . . 5
4. Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
i
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<S> <C>
5. Cancellation Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . 6
6. Deliveries to Escrow Holder . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 By Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 By Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 By Buyer and Seller . . . . . . . . . . . . . . . . . . . . . . . . 7
7. Condition of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.1 Permitted Exceptions. . . . . . . . . . . . . . . . . . . . . . . . 7
7.2 Title Provided by Seller. . . . . . . . . . . . . . . . . . . . . . 7
8. Conditions to the Close of Escrow . . . . . . . . . . . . . . . . . . . . 7
8.1 Conditions Precedent to Buyer's Obligations . . . . . . . . . . . . 7
8.1.1 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.1.2 Representations, Warranties and Covenants of Seller. . . . . 7
8.1.3 Seller's Deliveries. . . . . . . . . . . . . . . . . . . . . 8
8.2 Conditions Precedent to Seller's Obligations. . . . . . . . . . . . 8
9. Approval of Seller's Constituents . . . . . . . . . . . . . . . . . . . . 8
10. Property "As-Is. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.1 No Side Agreements Or Representations; As-Is Purchase. . . . . . . 9
10.2 Disclosures; Specific Acknowledgment Regarding Condition of
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. Title Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13. Disbursements and Other Actions. . . . . . . . . . . . . . . . . . . . . 13
13.1 Escrow Holder. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.2 By Transfer Agent. . . . . . . . . . . . . . . . . . . . . . . . . 13
13.3 Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14. Joint Representations and Warranties . . . . . . . . . . . . . . . . . . 13
14.1 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.2 Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.3 Due Execution. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.4 Valid and Binding. . . . . . . . . . . . . . . . . . . . . . . . . 14
14.5 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15. Seller's Warranties and Representations. . . . . . . . . . . . . . . . . 14
15.1 Non-Foreign Entity . . . . . . . . . . . . . . . . . . . . . . . . 14
15.2 Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . 14
15.3 Clean-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ii
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<S> <C>
15.4 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16. Pre-Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.1 No Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.2 No Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.3 Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.4 Obligations Under Contracts. . . . . . . . . . . . . . . . . . . . 15
16.5 Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17. Condemnation and Destruction . . . . . . . . . . . . . . . . . . . . . . 15
17.1 Eminent Domain or Taking . . . . . . . . . . . . . . . . . . . . . 15
17.2 Damage or Destruction. . . . . . . . . . . . . . . . . . . . . . . 16
18. Utilities and Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 16
18.1 Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
18.2 Refundable Deposits. . . . . . . . . . . . . . . . . . . . . . . . 17
19. Mediation of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . 17
20. Arbitration of Disputes: . . . . . . . . . . . . . . . . . . . . . . . . 17
21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
22. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23.1 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23.2 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . 18
23.3 Possession of the Property . . . . . . . . . . . . . . . . . . . . 18
23.4 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 19
23.6 Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . . 19
23.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.8 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.9 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.11 Wear and Tear . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.12 No Recordation. . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.13 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.14 Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
iii
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<S> <C>
23.15 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
EXHIBITS
EXHIBIT A - Legal Description
EXHIBIT B - Form of Deed
EXHIBIT C - Seller's FIRPTA Affidavit
EXHIBIT D - Assignment and Assumption
EXHIBIT E - Bill of Sale and General Assignment of Intangibles
iv
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("AGREEMENT") is made and entered into as of _____________ ___, 1998, by and
between NATIONAL INVESTORS LAND HOLDING TRUST IV ("SELLER") and DELTA GREENS
HOMES, INC., a California corporation ("BUYER").
R E C I T A L S
A. Seller is the title holder of that certain unimproved real property
commonly known as "Delta Greens" or "North Shores", consisting of approximately
121 acres, located in the City of Sacramento, County of Sacramento, State of
California, as more particularly described in EXHIBIT A attached hereto (the
"Real Property"). Buyer is a wholly owned subsidiary of American Family
Communities, Inc., a California corporation ("AFC").
B. Seller holds record title to the Real Property as agent of and for the
benefit of various investors who are the beneficiaries of National Investors
Trust IV (the "Trust").
C. Seller desires to sell to Buyer and Buyer desires to purchase from
Seller the Property (as hereinafter defined), including the Real Property, on
the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the foregoing Recitals, which Recitals
are incorporated herein by this reference, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, Buyer
and Seller agree as follows:
A G R E E M E N T
1. DEFINITIONS: For the purposes of this Agreement the following terms
will be defined as follows:
1.1 "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the actual
knowledge of David Lasker and James N. Orth without having conducted any
independent inquiry or inspection, and shall not include the knowledge of any
other persons or firms, it being understood and agreed by Buyer that neither
David Lasker nor James N. Orth is charged with knowledge of all of the acts
and/or omissions of predecessors in title to the Property or management of the
Property before Seller's acquisition of the Property and the Actual Knowledge of
Seller shall not include information or material which may be in the possession
of Seller generally, but of which neither David Lasker nor James N. Orth is
actually aware.
1
<PAGE>
1.2 "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly owned subsidiary of AFH.
1.3 "AFH" means American Family Holdings, Inc., a Delaware
corporation. Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a
wholly-owned subsidiary of AFH.
1.4 "ASSIGNMENT" shall have the meaning given thereto in
Section 6.1(d) hereof.
1.5 "BILL OF SALE" shall have the meaning given thereto in
Section 6.1(e) hereof.
1.6 "CLOSING DATE" means ___________, 1998, unless an earlier date is
agreed to in a writing subsequent to this Agreement executed and delivered by
each of the parties hereto to the other, and is the last date on which the
Closing and Close of Escrow can occur, subject to extension as provided for in
this Agreement.
1.7 "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably in
this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the county
in which the Property is located.
1.8 "EFFECTIVE DATE" means the date hereof.
1.9 "ENVIRONMENTAL AUDIT" means any environmental audit, review or
testing of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.10 "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment
including, without limitation, CERCLA (Comprehensive Environmental Response,
Compensation and Liability Act of 1980) and RCRA (Resources Conservation and
Recovery Act of 1976), as amended.
1.11 "ESCROW" shall have the meaning given thereto in Section 4
hereof.
1.12 "ESCROW HOLDER" means ___________
_____________________________________________________________________________.
1.13 "EXCHANGE VALUE" is the adjusted appraised value of the
Property, which takes into consideration various factors to balance the business
value of the Property within its present ownership structure.
1.14 "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.15 "GRANT DEED" shall have the meaning given thereto in
Section 6.1(a) hereof.
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1.16 "HAZARDOUS SUBSTANCE" means any substance, material or waste
which is or becomes designated, classified or regulated as being "toxic" or
"hazardous" or a "pollutant" or which is or becomes similarly designated,
classified or regulated, under any Environmental Law, including asbestos,
petroleum and petroleum products.
1.17 "IMPROVEMENTS" means any and all improvements and fixtures
situated on the Real Property.
1.18 "INVESTORS" means the beneficiaries of the Trust.
1.19 "INTANGIBLES" means all of Seller's right, title and interest in
and to all intangible property used, owned or issued solely and strictly in
connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract rights,
accounts receivable and other intangible property used in connection with the
ownership and operation of the Property; (ii) all licenses, permits,
certificates of occupancy, approvals, dedications and entitlements issued,
approved or granted by any governmental authorities having jurisdiction over the
Property; and (iii) all development rights, conditional use permits, variances
and other intangible rights, titles, interests and privileges owned by Seller
and related to or issued in connection with the Land and/or Improvements, its
use, occupancy, operation and development, but in no way related to Seller's
financial data or other proprietary information or other property of Seller.
1.20 "NOTICES" will be sent as provided in Section 21 to:
Seller: National Investors Land Holding Trust IV
c/o National Investors Financial, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, CA 92660
Attn: Mr. David Lasker
Telephone: (949) 833-8600
Facsimile: (949) 752-9753
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, 34th Floor
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Buyer: Delta Greens Homes, Inc.
__________________________
__________________________
Attn:_____________________
Telephone: ______________
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Facsimile: ______________
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, 34th Floor
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Escrow Holder: ________________________________
________________________________
________________________________
Attn: ____________________
Telephone: _______________
Facsimile: _______________
1.21 "OPENING OF ESCROW" shall have the meaning given thereto in
Section 4 hereof.
1.22 "OTHER ASSETS" means cash, cash equivalent, notes and other
negotiable instruments and any and all other assets in the possession or control
of Seller, the value of which is determined by possession, and any other assets
other than the Real Property, Personal Property or Intangibles relating to the
Real Property.
1.23 "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.24 "PERSONAL PROPERTY" means the equipment, furniture and fixtures,
books and records and other personal property, if any, owned by Seller and
located on the Property as of the Effective Date, including without limitation,
those items listed on SCHEDULE 1 to the Bill of Sale.
1.25 "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements , (iii) the Intangibles, (iv) the Personal Property and (v) the
Other Assets.
1.26 "PROSPECTUS" means the Consent Solicitation Statement/Prospectus
of Buyer.
1.27 "REAL PROPERTY" means that certain real property located in the
City and County of Sacramento, State of California and commonly known as "Delta
Greens" or "North Shores" and more particularly described in EXHIBIT A attached
hereto. The Real Property consists of approximately 121 acres of land, located
in the southwest portion of the City of Sacramento, east of Interstate 5 and
south of the Meadowview area.
1.28 "TITLE COMPANY" means _________________________________________.
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1.29 "TITLE POLICY" shall have the meaning given thereto in Section 11
hereof.
1.30 "TRANSFER AGENT" means _____________________, who address is
__________________, Attn: ___________, Facsimile No. ___________.
1.31 "UNIT" means, collectively, one (1) share of common stock, plus
warrants to purchase three (3) additional shares of common stock, in AFH.
2. PURCHASE AND SALE:
2.1 PURCHASE AND SALE. Upon and subject to the terms and conditions
set forth in this Agreement, Seller agrees to sell to Buyer and Buyer agrees to
buy from Seller the Property, together with all easements, hereditaments,
entitlements (to the extent transferable) and appurtenances thereto. In
consideration of Seller's sale of the Property to Buyer, Buyer will (a) cause to
be delivered to the investors of Seller the Exchange Value in accordance with
Section 3, and (b) perform all of Buyer's other obligations hereunder.
2.2 SUBSTANCE OF TRANSACTIONS. Notwithstanding any other provision
of this Agreement, the transfer of the Property directly from Seller to Buyer is
for convenience purposes only to effect expeditiously the culmination of the
transfers set forth in this Section 2.2, and for all purposes hereunder it is
the intent of the parties that such transfer reflects the following transfers,
which shall occur in the following order: (i) all of the Investors, through
their approval of the transactions contemplated under this Agreement, contribute
all of their interests in the Property to AFH in exchange for Units, such Units
to be distributed to them pursuant to Sections 3 and 13.2 hereof; (ii) AFH
contributes the Property to AFC as a contribution to the capital of AFC; and
(iii) AFC contributes the Property to Buyer as a contribution to the capital of
Buyer. Seller's transfer of the Property directly to Buyer reflects Seller's
transfer of the Property from the Investors to AFH, from AFH to AFC, and from
AFC to the Buyer, in each instance in Seller's capacity as the agent of and on
behalf of such transferors.
3. CONSIDERATION:
3.1 EXCHANGE VALUE. In consideration for the sale of the
Property to Buyer, Buyer will deliver to Seller an amount equal to the
Exchange Value for the Property. The Exchange Value for the Property is
$______________, which shall be paid in the form of, and by issuance and
delivery of, _____ Units to the investors of Seller, to be distributed by
the Transfer Agent at the Closing outside of Escrow in accordance with
Section 13.2 hereof. Upon the request of any party hereto, whether made
before or after the Closing, the parties hereto will allocate the Exchange
Value to the Real Property, Personal Property, Improvements, Other Assets and
the Intangibles.
3.2 ADDITIONAL CONSIDERATION. If, after the Close of Escrow, Buyer
completes the sale of the Property for a purchase price which exceeds the
appraised value of the Property, as set forth in the appraisal dated March, 1998
prepared by
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____________________________ (the "Appraised Value"), Buyer will pay
to Seller an amount calculated pursuant to the terms of this Section 3.2, which
shall be paid in the form of, and by issuance and delivery of, an additional
number of Units equal to the quotient of the net cash proceeds (exclusive of
interest on deferred purchase price payments) received by Buyer for such sale
on or before December 31, 1999 up to 200% of the Appraised Value divided by $20.
(For example, if the Appraised Value of the Property was $1,750,000 and Buyer
received by December 31, 1999 net cash sale proceeds in the amount of
$3,600,000, then the maximum number of additional Units available for allocation
among Seller's investors would be $1,750,000 divided by $20 or 87,500 Units.)
4. ESCROW: Immediately upon execution of this Agreement, Buyer and
Seller will open an escrow (the "ESCROW") with the Escrow Holder by delivering
to Escrow Holder a fully executed copy of this Agreement (the "OPENING OF
ESCROW"). The purchase and sale of the Property will be completed through the
Escrow. Buyer and Seller agree to execute any additional instructions
consistent with this Agreement which are reasonably required by the Escrow
Holder. If there is a conflict between any printed escrow instructions and this
Agreement, the terms of this Agreement will govern.
5. CANCELLATION FEES AND EXPENSES: If the Closing does not occur at
the time and in the manner provided in this Agreement because of the default of
one of the parties, the non-defaulting party has the right to cancel the Escrow
by written notice to the defaulting party and to the Escrow Holder. All costs
of cancellation, if any, will be paid by the defaulting party.
6. DELIVERIES TO ESCROW HOLDER:
6.1 BY SELLER. On or prior to the Closing Date, Seller will deliver
or cause to be delivered to Escrow Holder the following items:
(a) A Grant Deed ("GRANT DEED"), in the form attached to
this Agreement as EXHIBIT B, duly executed and acknowledged by Seller
and in recordable form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status
attached to this Agreement as EXHIBIT C ("FIRPTA CERTIFICATE"), duly
executed by or on behalf of Seller.
(c) A properly executed California Form RE 590 or other
evidence sufficient to establish that Buyer is not required to withhold
any portion of the Exchange Value pursuant to Sections 18805 and 26131
of the California Revenue and Taxation Code ("FORM 590").
(d) An Assignment and Assumption of Agreements
("ASSIGNMENT") duly executed by Seller in favor of Buyer in the form
attached to this Agreement as EXHIBIT D.
(e) A Bill of Sale and General Assignment of Intangibles in
the form attached to this Agreement as EXHIBIT E ("BILL OF SALE"), duly
executed by Seller and conveying all right, title and interest of Seller
in the Personal Property and the Intangibles to Buyer.
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(f) Such corporate resolutions, certificates of good
standing and/or other corporate or partnership documents relating to
Seller as are reasonably required by Buyer or Escrow Holder or both in
connection with this transaction.
6.2 BY BUYER. On or prior to the Closing Date, Buyer will deliver or
cause to be delivered to Escrow Holder the following items:
(a) Such corporate resolutions, certificates of good
standing and/or other corporate or partnership documents relating to
Buyer as are reasonably required by Seller or Escrow Holder or both in
connection with this transaction.
(b) Amounts due to pay costs and expenses as set forth in
Section 12 hereof.
6.3 BY BUYER AND SELLER. Buyer and Seller will each deposit such
other instruments consistent with this Agreement as are reasonably required
by Escrow Holder or otherwise required to close escrow. In addition Seller
and Buyer hereby designate Escrow Holder as the "REPORTING PERSON" for the
transaction pursuant to Section 6045(e) of the Internal Revenue Code.
7. CONDITION OF TITLE:
7.1 PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple title
to the Property will be conveyed to Buyer by Seller by Grant Deed, subject
only to the following title matters ("PERMITTED EXCEPTIONS"):
(a) all matters shown in that certain Amended Commitment for
Title Insurance effective _____________, issued by the Title Company,
bearing Order No. ________, except Exception No. 6 shall not show; and
(b) matters affecting the condition of title to the Property
created by, at the request of or with the written consent of Buyer.
7.2 TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the Property,
and (b) Buyer shall rely solely on the Title Policy for protection against any
title defects.
8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following
conditions must be satisfied not later the earlier of the Closing Date or
such other period of time as may be specified below:
8.11 Title. As of the Closing, the Title Company will issue or have
committed to issue to Buyer the Title Policy described in Section 11.
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8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller
will have duly performed each and every agreement to be performed by
Seller hereunder and, subject to the provisions of Section 10, Seller's
express representations and warranties set forth in this Agreement will
be true and correct in all material respects as of the Closing Date.
However, notwithstanding anything to the contrary stated or implied in
this Section 8.1.2, Seller shall have no liability for the breach of any
representations, warranties or covenants set forth in this Agreement,
whether express or implied, absent a finding by a court of competent
jurisdiction that either David Lasker or James N. Orth or both of them
withheld information with respect thereto from Buyer or falsified
information delivered to and relied upon by Buyer and that such action
amounted to a violation of a representation or warranty set forth herein.
8.1.3 SELLER'S DELIVERIES. Seller will have delivered the items
described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the benefit of
Buyer and may be waived only by Buyer. At all times Buyer has the right to
waive any condition. Such waiver or waivers must be in writing to Seller. If
any conditions are not satisfied on or before the Closing Date, and Buyer has
not waived the unsatisfied conditions, Seller will not be deemed to be in
default (unless Seller has breached Sections 8.1.2 or 8.1.3 above) and Buyer's
sole remedy will be to terminate this Agreement.
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The Close of Escrow and
Seller's obligations with respect to this transaction are subject to the
following conditions precedent: (a) Buyer's delivery to Escrow Holder on or
before the Closing Date, of the items described in Section 6.2; (b) the approval
of such of Seller's constituents as Seller shall deem necessary or advisable in
its sole and absolute discretion as set forth in Section 9 hereof; (c) Buyer
having duly performed each and every agreement to be performed by Buyer
hereunder; and (d) Buyer's representations, warranties and covenants set forth
in this Agreement, will be true and correct in all material respects as of the
Closing Date. The conditions set forth in this Section 8.2 are solely for the
benefit of Seller and may be waived only by Seller, with such waiver or waivers
to be in writing to Buyer. If any conditions are not satisfied on or before the
Closing Date, and Seller has not waived the unsatisfied conditions, Buyer will
not be deemed to be in default (unless Buyer has breached Sections 8.2(a),
(c) or (d) above) and Seller's sole remedy will be to terminate the Agreement.
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9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise
reasonable diligence to obtain the approval of this transaction by such of
the constituents of Seller as Seller shall deem necessary or advisable, in
its sole and absolute discretion, and shall notify Buyer and Escrow Holder
when such approvals have been obtained. If Seller is not able to obtain such
approvals from such constituents on or before the date which is ____ days
after the Effective Date, or such later date as is mutually agreed to by
Buyer and Seller, then Seller may cancel this Agreement by notice to Buyer
and Escrow Holder given prior to the end of that time period, and in that
event Seller shall pay all title and escrow cancellation costs. Seller shall
indemnify and hold Buyer harmless from any claim, damage, loss, liability,
action, settlement, including Buyer's reasonable attorneys' fees suffered by
Buyer and which results from or relates to the Seller's securing approval of
this transaction and transferring the Property to Buyer pursuant to such
approval.
10. PROPERTY "AS-IS":
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. BUYER
REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE OPPORTUNITY TO
INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS, IF ANY, AND
THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER HAVING MADE SUCH PERSONAL
EXAMINATION AND INSPECTION. BUYER AGREES THAT BUYER WILL ACCEPT THE PROPERTY,
IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT
LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT,
SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES, REPRESENTATIONS AND WARRANTIES
MADE BY SELLER ELSEWHERE HEREIN. NO PERSON ACTING ON BEHALF OF SELLER IS
AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT,
EXCEPT FOR THOSE REPRESENTATIONS, WARRANTIES, COVENANTS, INDEMNITIES AND
AGREEMENTS EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES
NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR
FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A ) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED
THEREFROM;
(b) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL
ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY
DEVELOPMENT OF THE PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;
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(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR
OF THE PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY,
INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS
REQUIRED TO DEVELOP THE PROPERTY;
(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION
WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE
GOVERNMENTAL AUTHORITY OR BODY;
(H) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR
MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION
OR LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO, THE ENDANGERED SPECIES ACT, TITLE III OF THE
AMERICANS WITH DISABILITIES ACT OF 1990 OR ANY OTHER LAW, RULE OR
REGULATION GOVERNING ACCESS BY DISABLED PERSONS, CALIFORNIA HEALTH &
SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL ACT, THE FEDERAL
RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL
PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF
1980, AS AMENDED, THE RESOURCES CONSERVATION AND RECOVERY ACT OF 1976,
THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS
MATERIALS TRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL ACT, AND
REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON,
UNDER, OR ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS,
INCLUDING ANY INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR
OTHER MATERIALS PREPARED BY OR ON BEHALF OF SELLER;
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(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR
SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND
SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR
FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS;
(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE
LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN
ALQUIST-PRIOLO SPECIAL STUDY ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING
ENTITLEMENTS AFFECTING THE PROPERTY;
(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF
STATE AND LOCAL GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE PROPERTY
INCLUDING, WITHOUT LIMITATION, THE CONSTRUCTION OF OFFSITE AND ONSITE
ROADS, UTILITIES AND OTHER IMPROVEMENTS; OR
(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE
PROPERTY EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN, INCLUDING
ANY AND ALL SUCH MATTERS REFERENCED, DISCUSSED OR DISCLOSED IN ANY
DOCUMENTS DELIVERED BY SELLER TO BUYER, IN ANY PUBLIC RECORDS OF ANY
GOVERNMENTAL AGENCY OR ENTITY OR UTILITY COMPANY, OR IN ANY OTHER
DOCUMENTS AVAILABLE TO BUYER.
(T) BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER IS
RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND ITS OWN
REVIEW OF ALL INFORMATION AND DOCUMENTATION CONCERNING THE PROPERTY,
AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER.
BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION MADE
AVAILABLE TO BUYER OR PROVIDED OR TO BE PROVIDED BY OR ON BEHALF OF
SELLER WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF
SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO
THE
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ACCURACY OR COMPLETENESS OF SUCH INFORMATION EXCEPT AS MAY
OTHERWISE BE PROVIDED HEREIN. BUYER AGREES TO FULLY AND IRREVOCABLY
RELEASE ALL SUCH SOURCES OF INFORMATION AND PREPARERS OF INFORMATION
AND DOCUMENTATION TO THE EXTENT SUCH SOURCES OR PREPARERS ARE SELLER,
OR ITS EMPLOYEES, OFFICERS, DIRECTORS, REPRESENTATIVES, BENEFICIARIES,
INVESTORS, AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT COMPANIES,
SUBSIDIARIES, SUCCESSORS OR ASSIGNS FROM ANY AND ALL CLAIMS, DAMAGES
AND LIABILITIES ARISING FROM SUCH INFORMATION OR DOCUMENTATION, EXCEPT
IF AND TO THE EXTENT THAT BUYER EMPLOYS SUCH SOURCES OR PREPARERS OF
INFORMATION TO ACT ON BEHALF OF BUYER, IN WHICH EVENT THE LIABILITY OF
SUCH SOURCES OR PREPARERS OF INFORMATION TO BUYER SHALL BE DETERMINED
BY THEIR OWN INDEPENDENT AGREEMENTS WITH BUYER, AND SELLER SHALL NOT
BE LIABLE FOR SUCH AGREEMENTS OR OBLIGATIONS. SELLER IS NOT LIABLE OR
BOUND IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS
OR INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION THEREOF,
FURNISHED BY ANY OF THE FOREGOING ENTITIES AND INDIVIDUALS OR ANY
OTHER INDIVIDUAL OR ENTITY.
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. Buyer acknowledges the disclosures expressly made by Seller in this
Agreement, the Prospectus and in correspondence from Seller, its attorneys
and/or its agents to Buyer, its attorneys and/or its agents.
11. TITLE INSURANCE: At the Close of Escrow, the Title Company will
issue to Buyer at Buyer's sole cost and expense an ALTA Standard Coverage Policy
(1990) with coverage in an amount equal to the appraised value of the Real
Property as determined by Buyer in its sole discretion, showing title to the
Real Property vested in Buyer, subject only to the Permitted Exceptions and the
standard printed exceptions and conditions in the policy of title insurance
("TITLE POLICY"). If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for the
extended coverage policy and the cost of any endorsements will be at Buyer's
sole cost and expense; however, Buyer's election to obtain an extended coverage
policy will not delay the Closing and Buyer's inability to obtain an extended
coverage policy or any such endorsements will not be deemed to be a failure of
any condition to Closing.
12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) All escrow fees and costs;
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(c) all city and county documentary transfer taxes;
(d) all document recording charges;
(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage title
policy, the cost of any required survey and, the cost of any endorsements
required by Buyer; and
(h) All other costs and expenses necessarily incurred to close the
transaction.
13. DISBURSEMENTS AND OTHER ACTIONS:
13.1 ESCROW HOLDER. At the Close of Escrow, Escrow Holder will promptly
undertake all of the following:
(a) Cause the Grant Deed (with documentary transfer tax
information to be affixed AFTER recording) to be recorded with the
County Recorder and obtain conformed copies thereof for distribution to
Buyer and Seller.
(b) Direct the Title Company to issue the Title Policy to Buyer
within 15 BUSINESS DAYS after Closing.
(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and any
other documents (or copies thereof) deposited into Escrow by Seller.
Deliver to Seller any other documents (or copies thereof) deposited into
Escrow by Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that the
Close of Escrow has occurred.
13.2 BY TRANSFER AGENT. Promptly after the Close of Escrow, Transfer
Agent shall deliver all Units in payment of the Exchange Value for the Property
to the persons, at the addresses and in the amounts designated by Seller.
13.3 POSSESSION. Possession of the Other Assets in Seller's possession or
control and all other Property shall be delivered by Seller to Buyer at the
Close of Escrow.
14. JOINT REPRESENTATIONS AND WARRANTIES: In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other, provided that
liability for any breach is subject to Sections 8.1.2 and 23.13 hereof:
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14.1 AUTHORITY. Each party has the legal power, right and authority
to enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
14.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering into of
this Agreement, the instruments referenced herein, and the consummation of this
transaction. Except as provided in Section 9, no further consent of any
partner, shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
14.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners, officers
or trustees of each party, if any, have the legal power, right, and actual
authority to bind each party to the terms and conditions of those documents.
14.4 VALID AND BINDING. This Agreement and all other documents required to
close this transaction are and will be valid, legally binding obligations of and
enforceable against each party in accordance with their terms, subject only to
applicable bankruptcy, insolvency, reorganization, moratorium laws or similar
laws or equitable principles affecting or limiting the rights of contracting
parties generally.
14.5 BROKER. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged by
them, respectively, in connection with any of the transactions contemplated by
this Agreement, or to its knowledge is in any way connected with any of such
transactions. Buyer will indemnify, save harmless and defend Seller from any
liability, cost, or expense arising out of or connected with any claim for any
commission or compensation made by any person or entity claiming to have been
retained or contacted by Buyer in connection with this transaction. Seller will
indemnify, save harmless and defend Buyer from any liability, cost, or expense
arising out of or connected with any claim for any commission or compensation
made by any person or entity claiming to have been retained or contacted by
Seller in connection with this transaction. This indemnity provision will
survive the Closing or any earlier termination of this Agreement.
15. SELLER'S WARRANTIES AND REPRESENTATIONS: Seller makes the following
representations, and warranties and acknowledges that Buyer will rely on such
representations and warranties in acquiring the Property; provided that
liability for any breach is subject to Sections 8.1.2 and 23.13 hereof:
15.1 NON-FOREIGN ENTITY. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.
15.2 HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the date of
Seller's acquisition of the Property, no Hazardous Substances are now or have
been used, stored, generated or disposed of on or within the Property except in
the normal course of use and operation of the Property and in compliance with
all applicable Environmental Laws.
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15.3 CLEAN-UP. To Seller's Actual Knowledge, since the date of Seller's
acquisition of the Property, there are and have been no federal, state or local
enforcement, clean-up, removal, remedial or other governmental or regulatory
actions instituted or completed affecting the Property, other than such other
matters as may otherwise be disclosed in any Environmental Audit or in any other
documents provided or made available to Buyer.
15.4 CLAIMS. To Seller's Actual Knowledge, there are no outstanding claims
that have been made by any third party against Seller relating to any Hazardous
Substances on or within the Property.
The provisions of this Section 15 shall no longer bind Seller if this
Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder does not occur.
16. PRE-CLOSING COVENANTS. So long as this Agreement remains in full
force and effect:
16.1 NO TRANSFERS. Without the prior written consent of Buyer, Seller will
not convey any interest in the Property and will not subject the Property to any
additional liens, encumbrances, covenants, conditions, easements, rights of way
or similar matters after the date of this Agreement, except as may be otherwise
provided for in this Agreement, which will not be eliminated prior to the Close
of Escrow.
16.2 NO ALTERATIONS. Seller will not make any material alterations to the
Property without Buyer's consent, which will not be unreasonably withheld or
delayed.
16.3 MAINTENANCE. Seller will maintain the Property in substantially the
same condition as it is in, as of the date of this Agreement, and manage the
Property in accordance with Seller's established practices.
16.4 OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all of the
obligations to be performed by Seller under any contracts affecting the
Property. Without prior written consent of Buyer, which will not be
unreasonably withheld or delayed, Seller will not enter into any contract or
agreement providing for the provision of goods or services to or with respect to
the Property or the operation thereof unless such contracts or agreements can be
terminated without penalty by the Closing Date. Seller will not enter into any
leases for any portion of the Property.
16.5 EXPENDITURES. Seller will incur only expenditures necessary for the
day-to-day operation and maintenance of the Property, and will not incur capital
expenditures or liabilities not in the ordinary course of business. Seller
shall retain all Other Assets in Seller's possession on or after the date hereof
except for payment of such permitted liabilities and expenditures.
15
<PAGE>
17. CONDEMNATION AND DESTRUCTION:
17.1 EMINENT DOMAIN OR TAKING. If proceedings under a power of eminent
domain relating to the Property or any part thereof are commenced prior to Close
of Escrow, Seller will promptly inform Buyer in writing.
(a) If such proceedings involve the taking of title to all or a
material interest in the Property, Buyer may elect to terminate this
Agreement by notice in writing sent within 10 DAYS of Seller's written
notice to Buyer, in which case neither party will have any further
obligation to or rights against the other except any rights or
obligations of either party which are expressly stated to survive
termination of this Agreement.
(b) If the proceedings do not involve the taking of title to all
or a material interest in the Property, or if Buyer does not elect to
terminate this Agreement, this transaction will be consummated as
described herein and any award or settlement payable with respect to
such proceeding will be paid or assigned to Buyer upon Close of Escrow.
(c) If this sale is not consummated for any reason, any
condemnation award or settlement will belong to Seller.
17.2 DAMAGE OR DESTRUCTION. Except as provided in this Section, prior to
the Close of Escrow the entire risk of loss of damage by earthquake, flood,
landslide, fire or other casualty is borne and assumed by Seller. If, prior to
the Close of Escrow, any part of the Improvements is damaged or destroyed by
earthquake, flood, landslide, fire or other casualty, Seller will promptly
inform Buyer of such fact in writing and advise Buyer as to the extent of the
damage and whether it is, in Seller's reasonable opinion, "MATERIAL" or not
"MATERIAL".
(a) If such damage or destruction is "MATERIAL", Buyer has the
option to terminate this Agreement upon written notice to the Seller
given not later than 10 DAYS after receipt of Seller's written notice to
Buyer advising of such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any damage or
destruction to the Improvements where the cost of repair or replacement
is estimated to be more than 25% of the Exchange Value of the Property
and will take more than 60 DAYS to repair.
(c) If this Agreement is so terminated, the provisions of
Section 5 will govern.
(d) If Buyer does not elect to terminate this Agreement, or if the
casualty is not material, Seller will reduce the Exchange Value by the
value reasonably estimated by Seller to repair or restore the damaged
portion of the Improvements, less any sums expended by Seller to make
emergency repairs to the Improvements or the Property or otherwise
protect the physical condition of the Improvements or the Property, and
this transaction will close pursuant to the terms of this Agreement.
16
<PAGE>
(e) If the damage is not material, Seller's notice to Buyer of the
damage or destruction will also set forth Seller's reduced Exchange
Value and Seller's allocation of value to the damaged portion of the
Improvements. If Buyer does not accept Seller's reduced Exchange Value,
Buyer's sole remedy will be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated
hereunder, all rights to insurance claims or proceeds in respect of
damage or destruction to the Improvements occurring prior to the Close
of Escrow will belong to Seller.
18. UTILITIES AND DEPOSITS:
18.1 UTILITIES . Seller will notify all utility companies servicing the
Property of the sale of the Property to Buyer and will notify the utility
companies that all utility bills henceforth are to be sent to Buyer. Buyer
shall be entitled to receive any and all refunds of all utility deposits held by
utility companies and Seller will assign to Buyer all of Seller's right, title
and interest in any such utility deposits.
18.2 REFUNDABLE DEPOSITS. To the extent there exists any refundable
deposits made in connection with the development of the Property prior to the
Closing ("Refundable Deposits"), Seller shall assign to Buyer all of Seller's
right, title and interest in and to such Refundable Deposits.
19. MEDIATION OF DISPUTES: No party to this Agreement shall initiate any
litigation against any other party to this Agreement concerning any controversy
or claim arising out of or relating to this Agreement or any agreements or
instruments relating hereto or delivered in connection herewith, including, but
not limited to, any claim based on or arising from an alleged tort, unless and
until (i) at least 60 days before the same shall be filed, a complete copy of
each of the summons and complaint (and/or any other documentation required to
initiate such litigation) to be filed by the complaining party shall have been
delivered to the other party or parties to any such dispute, and (ii) the
complaining party has made itself available to meet in Los Angeles, California
with the other party or parties for no more than 3 business days of non-binding
mediation. Until and unless such mediation has taken place, the complaining
party must give notice to the non-complaining party that it will, and then it
must, make itself available for such mediation during at least 20 business days
during the 60 days before the date on which such summons and complaint will be
filed.
20. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO OR
DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY PARTY, BE DETERMINED
BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (9 U.S.C. SECTION
1 ET SEQ.) UNDER THE AUSPICES AND RULES OF THE AMERICAN ARBITRATION ASSOCIATION
("AAA"). THE AAA WILL BE INSTRUCTED BY EITHER OR BOTH
17
<PAGE>
PARTIES TO PREPARE A LIST OF THREE (3) JUDGES WHO HAVE RETIRED FROM THE
SUPERIOR COURT OF THE STATE OF CALIFORNIA, A HIGHER CALIFORNIA COURT OR ANY
FEDERAL COURT. WITHIN 10 DAYS OF RECEIPT OF THE LIST, EACH PARTY MAY STRIKE
1 NAME FROM THE LIST. THE AAA WILL THEN APPOINT THE ARBITRATOR FROM THE
NAME(S) REMAINING ON THE LIST. THE ARBITRATION WILL BE CONDUCTED IN SAN
FRANCISCO, LOS ANGELES OR SAN DIEGO, WHICHEVER IS THE CLOSEST CITY TO THE
NEXUS OF THE DISPUTE. ANY CONTROVERSY IN INTERPRETATION OR ENFORCEMENT OF
THIS PROVISION OR WHETHER A DISPUTE IS ARBITRABLE, WILL BE DETERMINED BY THE
ARBITRATOR. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF
AN ACTION FOR JUDICIAL RELIEF OR IN PURSUIT OF AN ANCILLARY REMEDY DOES NOT
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO
SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR BY
JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN
THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
Buyer's Initials ________ Seller's Initials _________
21. NOTICES: All notices or other communications required or permitted
hereunder must be in writing, and must be personally delivered (including by
means of professional messenger service) or sent by overnight courier, or sent
by registered or certified mail, postage prepaid, return receipt requested to
the addresses set forth in Section 1 hereof. All notices sent by mail will be
deemed received 2 DAYS after the date of mailing and all notices sent by other
means permitted herein shall be deemed received on the earlier of the date
delivered or the date on which delivery is refused.
22. ASSIGNMENT: Neither party shall have the right to assign this
Agreement without the other party's prior written consent.
18
<PAGE>
23. MISCELLANEOUS:
23.1 COUNTERPARTS. This Agreement may be executed in counterparts.
23.2 PARTIAL INVALIDITY. If any term or provision of this Agreement
will be deemed to be invalid or unenforceable to any extent, the remainder of
this Agreement will not be affected thereby, and each remaining term and
provision of this Agreement will be valid and be enforced to the fullest extent
permitted by law.
23.3 POSSESSION OF THE PROPERTY. Seller will deliver possession of
the Property to Buyer upon the Close of Escrow.
23.4 WAIVERS. No waiver of any breach of any covenant or provision
contained herein will be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision contained herein. No extension
of time for performance of any obligation or act will be deemed an extension of
the time for performance of any other obligation or act except those of the
waiving party, which will be extended by a period of time equal to the period of
the delay.
23.5 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and
inures to the benefit of the permitted successors and assigns of the parties
hereto.
23.6 PROFESSIONAL FEES. In the event of the bringing of any action,
arbitration or suit by a party hereto against another party hereunder by reason
of any breach of any of the covenants, agreements or provisions on the part of
the other party arising out of this Agreement, then in that event the prevailing
party will be entitled to have the recovery of and from the other party all
costs and expenses of the action, mediation or suit, actual attorneys' fees,
witness fees and any other professional fees resulting therefrom.
23.7 ENTIRE AGREEMENT. This Agreement (including all Exhibits
attached hereto) constitutes the entire contract between the parties hereto with
respect to the subject matter hereof and may not be modified except by an
instrument in writing signed by the party to be charged.
23.8 TIME OF ESSENCE. Seller and Buyer hereby acknowledge and agree
that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof.
23.9 CONSTRUCTION. Seller and Buyer and their respective advisors
believe that this Agreement is the product of all of their efforts, that it
expresses their agreement and that it should not be interpreted in favor of or
against either Buyer or Seller. The parties further agree that this Agreement
will be construed to effectuate the normal and reasonable expectations of a
sophisticated seller and buyer.
19
<PAGE>
23.10 GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced
in accordance with the laws of the State of California.
23.11 WEAR AND TEAR. Buyer specifically acknowledges that Seller
will continue to use the Property in the course of its business and accepts
the fact that reasonable wear and tear will occur after the date of this
Agreement. Buyer specifically agrees that Seller is not responsible for
repairing such reasonable wear and tear and that Buyer is prohibited from
raising such wear and tear as a reason for not consummating this transaction
or for requesting a reduction in the Exchange Value.
23.12 NO RECORDATION. No memorandum or other document relating to
this Agreement will be recorded without the prior written consent of Seller,
and any such consent or approval will be conditioned upon Buyer providing
Seller with a quitclaim deed fully executed and acknowledged by Buyer,
quitclaiming any and all interests that it may have in the Property to
Seller, which quitclaim deed Seller may record in the event that this
Agreement is terminated or the transaction contemplated herein is not
consummated.
23.13 SURVIVAL. All obligations of the parties contained herein
which by their terms do not arise until after the Close of Escrow and any
other provisions of this Agreement which by their terms survives the Close of
Escrow, shall survive the Close of Escrow. Notwithstanding anything to the
contrary contained in this Agreement, the representations and warranties
contained in this Agreement shall survive the Closing for a period of 1 year;
provided that any claims by one party hereto must be made in writing to the
other party within the 1 year period.
23.14 DISCLAIMER. Nothing herein creates any right or remedy for
the benefit of any person not a party hereto, nor creates a fiduciary
relationship, an agency or a partnership. All obligations of the parties
contained herein which by their terms do not arise until after the Close of
Escrow and any other provisions of this Agreement which by their terms survives
the Close of Escrow, shall survive the Close of Escrow.
23.15 WAIVER OF JURY TRIAL. EACH PARTY, ACTING WITH KNOWLEDGE OF
ITS RIGHTS AFTER A FULL OPPORTUNITY TO CONSULT WITH COUNSEL, VOLUNTARILY WAIVES
ALL RIGHTS TO TRIAL BY JURY IN ALL PROCEEDINGS FOR WHICH A TRIAL BY JURY WOULD
OTHERWISE BE AVAILABLE OR REQUIRED, AND WHICH INVOLVE ANY MATTER ARISING OUT OF
OR CONNECTED WITH RIGHTS OR DUTIES UNDER, OR ENFORCEMENT OR INTERPRETATION OF,
THIS AGREEMENT.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year hereinabove written.
"SELLER": "BUYER":
NATIONAL INVESTORS LAND HOLDING IV DELTA GREENS HOMES, INC.,
a California corporation
By: By:
----------------------------- -----------------------------
Its: Its:
---------------------------- ----------------------------
and and
By: By:
----------------------------- -----------------------------
Its: Its:
---------------------------- ----------------------------
Agreed to and accepted
by Escrow Holder:
By:
------------------------------
Its:
-----------------------------
21
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY,
WHEN RECORDED MAIL TO:
Arter & Hadden
725 South Figueroa Street, Suite 3400
Los Angeles, California 90017
Attn: Bruce H. Newman, Esq.
_____________________________________________________________________________
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a
separate statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
NATIONAL INVESTORS LAND HOLDING TRUST IV ("Grantor") hereby grants to DELTA
GREENS HOMES, INC., a California corporation ("Grantee"), the real property
in the County of Sacramento, State of California, and described in EXHIBIT A
attached hereto and made a part hereof.
DATED:_____________________, 1997
NATIONAL INVESTORS LAND HOLDING
TRUST IV
By:
----------------------------
Its:
---------------------------
- ------------
MAIL TAX STATEMENTS TO:
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
)ss.
COUNTY OF _________________ )
On ____________________, before me, _____________________________________,
personally appeared ______________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
- -------------------------------
Notary Public in and for said
County and State [SEAL]
<PAGE>
Document No. ____________________ Date Recorded_________________
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
NOT BE MADE A PART OF THE PERMANENT RECORD
IN THE OFFICE OF THE COUNTY RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of ____________________
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
- -----------------------------------
(as grantor)
and
- -----------------------------------
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of _________________.
The amount of tax due on the accompanying document is $_______________.
_____ Computed on full value of property conveyed, or
_____ Computed on full value less liens and encumbrances remaining at time
of sale.
- -----------------------------------
- -----------------------------------
By:
-------------------------------
Its:
------------------------------
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a
transferee of a U.S. real property interest must withhold tax if the
transferor is a foreign person. To inform the transferee that withholding of
tax is not required upon the disposition of a U.S. real property interest by
NATIONAL INVESTORS LAND HOLDING TRUST IV ("TRANSFEROR"), each of the
undersigned hereby certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is ____________;
and
3. Transferor's office address is__________________________________,
___________________.
Transferor understands that this certification may be disclosed to
the Internal Revenue Service by transferee and that any false statement
contained herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he
has examined this certification and to the best of his knowledge and belief
it is true, correct and complete, and he further declares that he has
authority to sign the document on behalf of the Transferor.
NATIONAL INVESTORS LAND HOLDING
TRUST IV
By:
-------------------------------
Its:
------------------------------
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is
executed as of ______________, but effective as of the Effective Date (as
hereinafter defined), by and between NATIONAL INVESTORS LAND HOLDING TRUST IV
("Assignor") and DELTA GREENS HOMES, INC., a California corporation
("Assignee"), with reference to the following facts:
RECITALS:
A. Assignor, as the agent of and for the benefit of various
investors, holds title to that certain real property commonly known as "DELTA
GREENS" or "NORTH SHORES", located in the City of Sacramento, County of
Sacramento, State of California, as more particularly described on Exhibit
"A" attached hereto and incorporated herein by reference (the "Property").
B. Concurrently herewith, Assignor has executed that certain
Grant Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to
Assignee all of its right, title and interest in and to all agreements
relating to the Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are by this reference incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the
Property which are set forth in Exhibit "B" attached hereto and made a part
hereof (collectively, the "Agreements"). The assignment provided for in this
Section 1 is effective concurrently with the transfer of the Property from
Assignor to Assignee (the "Effective Date").
1
<PAGE>
2. ASSIGNEE'S ASSUMPTION. Assignee hereby accepts the assignment
from Assignor, assumes and agrees to perform all duties and obligations of
Assignor under the terms of the Agreements which are required to be performed
on or after the Effective Date.
4. DELIVERIES; REPORTS. On or before the Effective Date,
Assignor shall deliver to Assignee the original Agreements or if such
original Agreements are not in Assignor's possession, certified copies of
such Agreements. Assignor shall furnish and deliver to Assignee, promptly
after receipt thereof, duplicates or copies of all reports, notices,
requests, demands, declarations, certificates or other instruments hereafter
received by Assignor and relating to the Agreements. Assignee's address for
receipt of the foregoing is _________________________________________________
___________________________________.
5. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may
be necessary to further assure to Assignee the rights assigned hereby and the
full benefits hereof and to preserve and protect this Assignment and all of
the rights, powers and remedies of Assignee provided for herein.
6. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors and assigns of the respective
parties hereto.
7. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
8. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written but effective as of the
Effective Date.
ASSIGNOR: NATIONAL INVESTORS LAND HOLDING
TRUST IV
By:
----------------------------------
Its:
---------------------------------
ASSIGNEE: DELTA GREENS HOMES, INC., a California
corporation
By:
----------------------------------
Its:
---------------------------------
2
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
3
<PAGE>
EXHIBIT "B"
CONTRACTS
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of
the ____ day of ___________________________, 1997 (this "Assignment"), by
NATIONAL INVESTORS LAND HOLDING TRUST IV ("Assignor") to DELTA GREENS HOMES,
INC. ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and
Sale and Joint Escrow Instructions dated ________, 1997 ("Agreement of Purchase
and Sale") under which Assignee has agreed to purchase from Assignor, that
certain real property and all buildings, structures and improvements on said
real property commonly identified as ____ __________________, _____________,
State of California and legally described on EXHIBIT A attached hereto (the
"Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all
intangible property used, owned or issued solely in connection with the
Property, including but not limited to, all licenses, permits, certificates of
occupancy, approvals, maps, dedications, subdivision maps and entitlements
issued, approved or granted by any governmental agencies or instrumentalities
having any jurisdiction over the Property (the "Authorities") or otherwise in
connection with the Property; all development rights, conditional use permits,
variances, "floor area ratio" development rights and other intangible rights,
titles, interests, privileges and
i
<PAGE>
appurtenances owned by Assignor and related to or issued in connection with
the Property and/or its use, occupancy, operation and/or development; all
licenses, consents, easements, rights of way, and approvals required from
private parties to make use of utilities and to insure vehicular and
pedestrian ingress and egress to the Property; and any pending applications
or requests as to any of the foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the construction,
reconstruction, maintenance, repair, or operation any improvements on the
Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the Improvements and the
personal property situated on the Property, including but not limited to those
made by or received from any third party with respect to any building, building
component, structure, fixture, machinery, equipment or material situated on,
contained in any building or other improvement situated on, or comprising a part
of any building or other improvement situated on any part of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's right,
title and interest in and to refundable deposits, bonds and other collateral
furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold, use,
sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from time
to time upon written request therefor, execute and deliver to Assignee, its
successors and assigns any new or confirmatory instruments and take such further
acts as Assignee may reasonably request to fully evidence the assignment
contained herein and to enable Assignee, its successors and assigns to fully
realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it has
not previously assigned or hypothecated its interest in the foregoing described
General Intangibles; however, Assignee shall have no claims or rights against
Assignor, and Assignor shall have no obligation or liability to Assignee for any
General Intangibles described herein which do not exist, or which Assignor does
not have the right to transfer to Assignee.
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
ii
<PAGE>
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
_________, 1997.
NATIONAL INVESTORS LAND HOLDING
TRUST IV
By:
----------------------------------
Its:
----------------------------------
iii
<PAGE>
Ex 2.12
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
NATIONAL INVESTORS FINANCIAL, INC.,
a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___,
AS SELLER,
AND
CYPRESS LAKES, INC.,
a California corporation,
AS BUYER
RELATING TO
PROPERTY LOCATED IN
Contra Costa County, California
known as
"CYPRESS LAKES AND COUNTRY CLUB"
DATED AS OF
__________________, 1998
<PAGE>
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1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.1 Purchase and Sale. . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.2 Substance of Transactions. . . . . . . . . . . . . . . . . . . . . . .5
3. Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 Exchange Value . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.2 Additional Consideration . . . . . . . . . . . . . . . . . . . . . . .5
4. Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5. Cancellation Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . .6
6. Deliveries to Escrow Holder . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.1 By Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.2 By Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
6.3 By Buyer and Seller. . . . . . . . . . . . . . . . . . . . . . . . . .7
7. Condition of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.1 Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . . . . .7
7.2 Title Provided by Seller . . . . . . . . . . . . . . . . . . . . . . .7
8. Conditions to the Close of Escrow . . . . . . . . . . . . . . . . . . . . . . . .8
8.1 Conditions Precedent to Buyer's Obligations. . . . . . . . . . . . . .8
8.1.1 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
8.1.2 Representations, Warranties and Covenants of Seller. . . . . . .8
8.1.3 Seller's Deliveries. . . . . . . . . . . . . . . . . . . . . . .8
8.2 Conditions Precedent to Seller's Obligations . . . . . . . . . . . . .8
9. Approval of Seller's Constituents . . . . . . . . . . . . . . . . . . . . . . . .9
10. Property "As-Is. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
10.1 No Side Agreements Or Representations; As-Is Purchase . . . . . . . .9
10.2 Disclosures; Specific Acknowledgment Regarding Condition of
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. Title Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13. Disbursements and Other Actions. . . . . . . . . . . . . . . . . . . . . . . . 13
13.1 Escrow Holder.. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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13.2 By Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.3 Possession.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14. Joint Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 14
14.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.2 Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.3 Due Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.4 Valid and Binding . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.5 Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15. Seller's Warranties and Representations. . . . . . . . . . . . . . . . . . . . 14
15.1 Non-Foreign Entity. . . . . . . . . . . . . . . . . . . . . . . . . 14
15.2 Hazardous Substances. . . . . . . . . . . . . . . . . . . . . . . . 15
15.3 Clean-up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.4 Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16. Pre-Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.1 No Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.2 No Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.3 Maintenance.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.4 Obligations Under Contracts.. . . . . . . . . . . . . . . . . . . . 15
16.5 Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17. Condemnation and Destruction . . . . . . . . . . . . . . . . . . . . . . . . . 16
17.1 Eminent Domain or Taking. . . . . . . . . . . . . . . . . . . . . . 16
17.2 Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . 16
18. Utilities and Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.1 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.2 Refundable Deposits . . . . . . . . . . . . . . . . . . . . . . . . 17
19. Mediation of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
20. Arbitration of Disputes: . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
22. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.1 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.2 Partial Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . 19
23.3 Possession of the Property. . . . . . . . . . . . . . . . . . . . . 19
23.4 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.5 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 19
23.6 Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.7 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.8 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.9 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.10 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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23.11 Wear and Tear. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.12 No Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.14 Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.15 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . 20
EXHIBITS
EXHIBIT A - Legal Description
EXHIBIT B - Form of Grant Deed
EXHIBIT C - FIRPTA Affidavit
EXHIBIT D - Assignment and Assumption
EXHIBIT E - Bill of Sale and General Assignment of Intangibles
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AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("AGREEMENT") is made and entered into as of ____________ __, 1998, by and
between NATIONAL INVESTORS FINANCIAL, INC., a California corporation, AS
TRUSTEE for NATIONAL INVESTORS LAND HOLDING TRUST ___ ("Seller"), and CYPRESS
LAKES, INC., a California corporation ("BUYER").
R E C I T A L S
A. Seller is the owner of that certain unimproved real property commonly
known as "Cypress Lakes and Country Club", consisting of approximately 686
acres, located in the County of Contra Costa, State of California, as more
particularly described in Exhibit A attached hereto (the "Real Property").
B. Seller holds record title to the Real Property as agent of and for the
benefit of various investors who are the beneficiaries of National Investors
Land Holding Trust ____ (the "Trust").
C. Seller desires to sell to Buyer and Buyer desires to purchase from
Seller the Property (as hereinafter defined) on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals, which Recitals
are incorporated herein by this reference, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, Buyer
and Seller agree as follows:
A G R E E M E N T
1. DEFINITIONS: For the purposes of this Agreement the following terms
will be defined as follows:
1.1 "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the actual
knowledge of David Lasker and James N. Orth without having conducted any
independent inquiry or inspection, and shall not include the knowledge of any
other persons or firms, it being understood and agreed by Buyer that neither
David Lasker nor James N. Orth is charged with knowledge of all of the acts
and/or omissions of predecessors in title to the Property or management of the
Property before Seller's acquisition of the Property and the Actual Knowledge of
Seller shall not include information or material which may be in the possession
of Seller generally, but of which neither David Lasker nor James N. Orth is
actually aware.
1.2 "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly-owned subsidiary of AFH.
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1.3 "AFH" means American Family Holdings, Inc., a Delaware corporation.
Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a wholly-owned
subsidiary of AFH.
1.4 "ASSIGNMENT" shall have the meaning given thereto in
Section 6.1(d) hereof.
1.5 "BILL OF SALE" shall have the meaning given thereto in
Section 6.1(e) hereof.
1.6 "CLOSING DATE" means ___________, 1998, unless an earlier date is
agreed to in a writing subsequent to this Agreement executed and delivered by
each of the parties hereto to the other, and is the last date on which the
Closing and Close of Escrow can occur, subject to extension as provided for in
this Agreement.
1.7 "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably in
this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the county
in which the Property is located.
1.8 "EFFECTIVE DATE" means the date hereof.
1.9 "ENVIRONMENTAL AUDIT" means any environmental audit, review or
testing of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.10 "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment
including, without limitation, CERCLA (Comprehensive Environmental Response,
Compensation and Liability Act of 1980) and RCRA (Resources Conservation and
Recovery Act of 1976), as amended.
1.11 "ESCROW" shall have the meaning given thereto in Section 4
hereof.
1.12 "ESCROW HOLDER" means _______________________________, whose
address is _______________________________________________________________,
Attn.: ___________________.
1.13 "EXCHANGE VALUE" is the adjusted appraised value of the Property
which takes into consideration various factors to balance the business value of
the Property within its present ownership structure.
1.14 "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.15 "GRANT DEED" shall have the meaning given thereto in Section 6.1(a)
hereof.
1.16 "HAZARDOUS SUBSTANCE" means any substance, material or waste which is
or becomes designated, classified or regulated as being "toxic" or "hazardous"
or a "pollutant" or
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which is or becomes similarly designated, classified or regulated, under any
Environmental Law, including asbestos, petroleum and petroleum products.
1.17 "IMPROVEMENTS" means any and all improvements and fixtures situated on
the Real Property.
1.18 "INVESTORS" means the beneficiaries of the Trust.
1.19 "INTANGIBLES" means all of Seller's right, title and interest in
and to all intangible property used, owned or issued solely and strictly in
connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract rights,
accounts receivable and other intangible property used in connection with the
ownership and operation of the Property; (ii) all licenses, permits,
certificates of occupancy, approvals, dedications and entitlements issued,
approved or granted by any governmental authorities having jurisdiction over the
Property; and (iii) all development rights, conditional use permits, variances
and other intangible rights, titles, interests and privileges owned by Seller
and related to or issued in connection with the Land and/or Improvements, its
use, occupancy, operation and development, but in no way related to Seller's
financial data or other proprietary information or other property of Seller.
1.20 "NOTICES" will be sent as provided in Section 21 to:
Seller: National Investors Land Holding Trust
c/o National Investors Financial, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, CA 92660
Attn.: Mr. David Lasker
Telephone: (949) 833-8600
Facsimile: (949) 752-9753
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, CA 90017
Attn.: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
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Buyer: Cypress Lakes, Inc.
______________________
______________________
Attn.:__________________
Telephone: _____________
Facsimile: ______________
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, CA 90017
Attn.: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Escrow Holder: __________________________________
__________________________________
__________________________________
Attn.: ___________________
Telephone: ________________________
Facsimile: ________________________
1.21 "OPENING OF ESCROW" shall have the meaning given thereto in
Section 4 hereof.
1.22 "OTHER ASSETS" means cash, cash equivalent, notes and other
negotiable instruments and any and all other assets in the possession or control
of Seller, the value of which is determined by possession, and any other assets
other than the Real Property, Personal Property or Intangibles relating to the
Real Property.
1.23 "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.24 "PERSONAL PROPERTY" means the equipment, furniture and fixtures,
books and records and other personal property, if any, owned by Seller and
located on the Property as of the Effective Date, including without limitation,
those items listed on SCHEDULE 1 to the Bill of Sale.
1.25 "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements , (iii) the Intangibles, (iv) the Personal Property and (v) the
Other Assets.
1.26 "PROSPECTUS" means the Consent Solicitation Statement/Prospectus
of Buyer.
1.27 "REAL PROPERTY" means that certain real property located in the County
of Contra Costa, State of California and commonly known as "Cypress Lakes and
Country Club" and more particularly described in EXHIBIT A attached hereto. The
Real Property also is described in the Recitals hereof.
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1.28 "TITLE COMPANY" means ________________________________________.
1.29 "TITLE POLICY" shall have the meaning given thereto in Section 11
hereof.
1.30 "TRANSFER AGENT" means _____________________, who address is
__________________, Attn.: ___________, Facsimile No. ___________.
1.31 "UNIT" means, collectively, one (1) share of common stock, plus
warrants to purchase three (3) additional shares of common stock, in AFH.
2. PURCHASE AND SALE:
2.1 PURCHASE AND SALE. Upon and subject to the terms and conditions
set forth in this Agreement, Seller agrees to sell to Buyer and Buyer agrees to
buy from Seller the Property, together with all easements, hereditaments,
entitlements (to the extent transferable) and appurtenances thereto. In
consideration of Seller's sale of the Property to Buyer, Buyer will (a) cause to
be delivered to the investors of Seller the Exchange Value in accordance with
Section 3, and (b) perform all of Buyer's other obligations hereunder.
2.2 SUBSTANCE OF TRANSACTIONS. Notwithstanding any other provision
of this Agreement, the transfer of the Property directly from Seller to Buyer is
for convenience purposes only to effect expeditiously the culmination of the
transfers set forth in this Section 2.2, and for all purposes hereunder it is
the intent of the parties that such transfer reflects the following transfers,
which shall occur in the following order: (i) all of the Investors, through
their approval of the transactions contemplated under this Agreement, contribute
all of their interests in the Property to AFH in exchange for Units, such Units
to be distributed to them pursuant to Sections 3 and 13.2 hereof; (ii) AFH
contributes the Property to AFC as a contribution to the capital of AFC; and
(iii) AFC contributes the Property to Buyer as a contribution to the capital of
Buyer. Seller's transfer of the Property directly to Buyer reflects Seller's
transfer of the Property from the Investors to AFH, from AFH to AFC, and from
AFC to the Buyer, in each instance in Seller's capacity as the agent of and on
behalf of such transferors.
3. CONSIDERATION:
3.1 EXCHANGE VALUE. In consideration for the sale of the Property to
Buyer, Buyer will deliver to Seller an amount equal to the Exchange Value for
the Property. The Exchange Value for the Property is $______________, which
shall be paid in the form of, and by issuance and delivery of, _____ Units to
the investors of Seller, to be distributed by the Transfer Agent at the Closing
outside of Escrow in accordance with Section 13.2 hereof. Upon the request of
any party hereto, whether made before or after the Closing, the parties hereto
will allocate the Exchange Value to the Real Property, Improvements, Personal
Property, Other Assets and the Intangibles.
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3.2 ADDITIONAL CONSIDERATION. If, after the Close of Escrow,
Buyer completes the sale of the Property for a purchase price which exceeds
the appraised value of the Property, as set forth in the appraisal dated
March, 1998 prepared by ____________________________ (the "Appraised Value"),
Buyer will pay to Seller an amount calculated pursuant to the terms of this
Section 3.2, which shall be paid in the form of, and by issuance and delivery
of, an additional number of Units equal to the quotient of the net cash
proceeds (exclusive of interest on deferred purchase price payments)
received by Buyer for such sale on or before December 31, 1999 up to 200% of
the Appraised Value divided by $20. (For example, if the Appraised Value of
the Property was $1,750,000 and Buyer received by December 31, 1999 net cash
sale proceeds in the amount of $3,600,000, then the maximum number of
additional Units available for allocation among Seller's investors would be
$1,750,000 divided by $20 or 87,500 Units.)
4. ESCROW: Immediately upon execution of this Agreement, Buyer and
Seller will open an escrow (the "ESCROW") with the Escrow Holder by delivering
to Escrow Holder a fully executed copy of this Agreement (the "OPENING OF
ESCROW"). The purchase and sale of the Property will be completed through the
Escrow. Buyer and Seller agree to execute any additional instructions
consistent with this Agreement which are reasonably required by the Escrow
Holder. If there is a conflict between any printed escrow instructions and this
Agreement, the terms of this Agreement will govern.
5. CANCELLATION FEES AND EXPENSES: If the Closing does not occur at
the time and in the manner provided in this Agreement because of the default of
one of the parties, the non-defaulting party has the right to cancel the Escrow
by written notice to the defaulting party and to the Escrow Holder. All costs
of cancellation, if any, will be paid by the defaulting party.
6. DELIVERIES TO ESCROW HOLDER:
6.1 BY SELLER. On or prior to the Closing Date, Seller will deliver
or cause to be delivered to Escrow Holder the following items:
(a) A Grant Deed ("GRANT DEED"), in the form attached to this
Agreement as EXHIBIT B, duly executed and acknowledged by Seller and
in recordable form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status attached to
this Agreement as EXHIBIT C ("FIRPTA CERTIFICATE"), duly executed by
or on behalf of Seller.
(c) A properly executed California Form RE 590 or other evidence
sufficient to establish that Buyer is not required to withhold any
portion of the Exchange Value pursuant to Sections 18805 and 26131 of
the California Revenue and Taxation Code ("FORM 590").
(d) An Assignment and Assumption of Agreements ("ASSIGNMENT") duly
executed by Seller in favor of Buyer in the form attached to this
Agreement as EXHIBIT D.
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(e) A Bill of Sale and General Assignment of Intangibles in the
form attached to this Agreement as EXHIBIT E ("BILL OF SALE"), duly
executed by Seller and conveying all right, title and interest of
Seller in the Personal Property and the Intangibles to Buyer.
(f) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Seller
as are reasonably required by Buyer or Escrow Holder or both in
connection with this transaction.
6.2 BY BUYER. On or prior to the Closing Date, Buyer will deliver or
cause to be delivered to Escrow Holder the following items:
(a) Such corporate resolutions, certificates of good standing and/or
other corporate or partnership documents relating to Buyer as are
reasonably required by Seller or Escrow Holder or both in connection
with this transaction.
(b) Amounts due to pay costs and expenses as set forth in Section
12 hereof.
6.3 BY BUYER AND SELLER. Buyer and Seller will each deposit such other
instruments consistent with this Agreement as are reasonably required by Escrow
Holder or otherwise required to close escrow. In addition Seller and Buyer
hereby designate Escrow Holder as the "REPORTING PERSON" for the transaction
pursuant to Section 6045(e) of the Internal Revenue Code.
7. CONDITION OF TITLE:
7.1 PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple title to the
Property will be conveyed to Buyer by Seller by Grant Deed, subject only to the
following title matters ("PERMITTED EXCEPTIONS"):
(a) all property tax liens (whether or not payment of property taxes
are delinquent) and all other matters shown in that certain Commitment for
Title Insurance effective _______________, issued by the Title Company,
bearing Order No.________; and
(b) matters affecting the condition of title to the Property created
by, at the request of or with the written consent of Buyer.
7.2 TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the Property,
and (b) Buyer shall rely solely on the Title Policy for protection against any
title defects.
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8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following conditions
must be satisfied not later the earlier of the Closing Date or such other period
of time as may be specified below:
8.1.1 TITLE. As of the Closing, the Title Company will issue or have
committed to issue to Buyer the Title Policy described in Section 11.
8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller
will have duly performed each and every agreement to be performed by
Seller hereunder and, subject to the provisions of Section 10, Seller's
express representations and warranties set forth in this Agreement will
be true and correct in all material respects as of the Closing Date.
However, notwithstanding anything to the contrary stated or implied in
this Section 8.1.2, Seller shall have no liability for the breach of any
representations, warranties or covenants set forth in this Agreement,
whether express or implied, absent a finding by a court of competent
jurisdiction that either David Lasker or James N. Orth or both of them
withheld information with respect thereto from Buyer or falsified
information delivered to and relied upon by Buyer and that such action
amounted to a violation of a representation or warranty set forth herein.
8.1.3 SELLER'S DELIVERIES. Seller will have delivered the items
described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the benefit of
Buyer and may be waived only by Buyer. At all times Buyer has the right to
waive any condition. Such waiver or waivers must be in writing to Seller. If
any conditions are not satisfied on or before the Closing Date, and Buyer has
not waived the unsatisfied conditions, Seller will not be deemed to be in
default (unless Seller has breached Sections 8.1.2 or 8.1.3 above) and Buyer's
sole remedy will be to terminate this Agreement.
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The Close of Escrow and
Seller's obligations with respect to this transaction are subject to the
following conditions precedent: (a) Buyer's delivery to Escrow Holder on or
before the Closing Date, of the items described in Section 6.2; (b) the approval
of such of Seller's constituents as Seller shall deem necessary or advisable in
its sole and absolute discretion as set forth in Section 9 hereof; (c) Buyer
having duly performed each and every agreement to be performed by Buyer
hereunder; and (d) Buyer's representations, warranties and covenants set forth
in this Agreement, will be true and correct in all material respects as of the
Closing Date. The conditions set forth in this Section 8.2 are solely for the
benefit of Seller and may be waived only by Seller, with such waiver or waivers
to be in writing to Buyer. If any conditions are not satisfied on or before the
Closing Date, and Seller has not waived the unsatisfied conditions, Buyer will
not be deemed to be in default (unless Buyer has breached Sections 8.2(a),
(c) or (d) above) and Seller's sole remedy will be to terminate the Agreement.
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9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise reasonable
diligence to obtain the approval of this transaction by such of the constituents
of Seller as Seller shall deem necessary or advisable, in its sole and absolute
discretion, and shall notify Buyer and Escrow Holder when such approvals have
been obtained. If Seller is not able to obtain such approvals from such
constituents on or before the date which is ____ days after the Effective Date,
or such later date as is mutually agreed to by Buyer and Seller, then Seller may
cancel this Agreement by notice to Buyer and Escrow Holder given prior to the
end of that time period, and in that event Seller shall pay all title and escrow
cancellation costs. Seller shall indemnify and hold Buyer harmless from any
claim, damage, loss, liability, action, settlement, including Buyer's reasonable
attorneys' fees suffered by Buyer and which results from or relates to the
Seller's securing approval of this transaction and transferring the Property to
Buyer pursuant to such approval.
10. PROPERTY "AS-IS":
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. BUYER
REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE OPPORTUNITY TO
INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS, IF ANY, AND
THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER HAVING MADE SUCH PERSONAL
EXAMINATION AND INSPECTION. BUYER AGREES THAT BUYER WILL ACCEPT THE PROPERTY,
IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT
LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT,
SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES, REPRESENTATIONS AND WARRANTIES
MADE BY SELLER ELSEWHERE HEREIN. NO PERSON ACTING ON BEHALF OF SELLER IS
AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT,
EXCEPT FOR THOSE REPRESENTATIONS, WARRANTIES, COVENANTS, INDEMNITIES AND
AGREEMENTS EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES
NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR
FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED
THEREFROM;
(B) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL
ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY
DEVELOPMENT OF THE PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;
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(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR
OF THE PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY,
INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS
REQUIRED TO DEVELOP THE PROPERTY;
(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION
WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE
GOVERNMENTAL AUTHORITY OR BODY;
(H) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR
MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION
OR LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO, THE ENDANGERED SPECIES ACT, TITLE III OF THE
AMERICANS WITH DISABILITIES ACT OF 1990 OR ANY OTHER LAW, RULE OR
REGULATION GOVERNING ACCESS BY DISABLED PERSONS, CALIFORNIA HEALTH &
SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL ACT, THE FEDERAL
RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL
PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF
1980, AS AMENDED, THE RESOURCES CONSERVATION AND RECOVERY ACT OF 1976,
THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS
MATERIALS TRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL ACT, AND
REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON,
UNDER, OR ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS,
INCLUDING ANY INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR
OTHER MATERIALS PREPARED BY OR ON BEHALF OF SELLER;
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(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR
SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND
SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR
FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS;
(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE
LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN
ALQUIST-PRIOLO SPECIAL STUDY ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING
ENTITLEMENTS AFFECTING THE PROPERTY;
(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF
STATE AND LOCAL GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE PROPERTY
INCLUDING, WITHOUT LIMITATION, THE CONSTRUCTION OF OFFSITE AND ONSITE
ROADS, UTILITIES AND OTHER IMPROVEMENTS; OR
(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE
PROPERTY EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN, INCLUDING
ANY AND ALL SUCH MATTERS REFERENCED, DISCUSSED OR DISCLOSED IN ANY
DOCUMENTS DELIVERED BY SELLER TO BUYER, IN ANY PUBLIC RECORDS OF ANY
GOVERNMENTAL AGENCY OR ENTITY OR UTILITY COMPANY, OR IN ANY OTHER
DOCUMENTS AVAILABLE TO BUYER.
(T) BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER
IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND ITS OWN
REVIEW OF ALL INFORMATION AND DOCUMENTATION CONCERNING THE PROPERTY,
AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER.
BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION MADE
AVAILABLE TO BUYER OR PROVIDED OR TO BE PROVIDED BY OR ON BEHALF OF
SELLER WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF
SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO
THE
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ACCURACY OR COMPLETENESS OF SUCH INFORMATION EXCEPT AS MAY
OTHERWISE BE PROVIDED HEREIN. BUYER AGREES TO FULLY AND
IRREVOCABLY RELEASE ALL SUCH SOURCES OF INFORMATION AND PREPARERS
OF INFORMATION AND DOCUMENTATION TO THE EXTENT SUCH SOURCES OR
PREPARERS ARE SELLER, OR ITS EMPLOYEES, OFFICERS, DIRECTORS,
REPRESENTATIVES, BENEFICIARIES, INVESTORS, AGENTS, SERVANTS,
ATTORNEYS, AFFILIATES, PARENT COMPANIES, SUBSIDIARIES, SUCCESSORS
OR ASSIGNS FROM ANY AND ALL CLAIMS, DAMAGES AND LIABILITIES ARISING
FROM SUCH INFORMATION OR DOCUMENTATION, EXCEPT IF AND TO THE EXTENT
THAT BUYER EMPLOYS SUCH SOURCES OR PREPARERS OF INFORMATION TO ACT
ON BEHALF OF BUYER, IN WHICH EVENT THE LIABILITY OF SUCH SOURCES OR
PREPARERS OF INFORMATION TO BUYER SHALL BE DETERMINED BY THEIR OWN
INDEPENDENT AGREEMENTS WITH BUYER, AND SELLER SHALL NOT BE LIABLE
FOR SUCH AGREEMENTS OR OBLIGATIONS. SELLER IS NOT LIABLE OR BOUND
IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR
INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION THEREOF,
FURNISHED BY ANY OF THE FOREGOING ENTITIES AND INDIVIDUALS OR ANY
OTHER INDIVIDUAL OR ENTITY.
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. Buyer acknowledges the disclosures expressly made by Seller in this
Agreement, the Prospectus and in correspondence from Seller, its attorneys
and/or its agents to Buyer, its attorneys and/or its agents. Without limiting
the generality of the foregoing, Buyer acknowledges that (a) the County of
Contra Costa has approved a vesting tentative map no. 7562 (the "Vesting
Tentative Map"), which allows for construction of 1,330 single family
residences, an 18-hole golf course, clubhouse, tennis courts, swimming pools,
lakes and channels, parks, wetlands, a school and a fire station on the
Property; and (b) such Vesting Tentative Map expires on April 15, 1999. Seller
makes no representation and warranty as to whether such Vesting Tentative Map
can be extended.
11. TITLE INSURANCE: At the Close of Escrow, the Title Company will
issue to Buyer at Buyer's sole cost and expense an ALTA Standard Coverage Policy
(1990) with coverage in an amount equal to the appraised value of the Real
Property as determined by Buyer in its sole discretion, showing title to the
Real Property vested in Buyer, subject only to the Permitted Exceptions and the
standard printed exceptions and conditions in the policy of title insurance
("TITLE POLICY"). If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for the
extended coverage policy and the cost of any endorsements will be at Buyer's
sole cost and expense; however, Buyer's election to obtain an extended coverage
policy will not delay the Closing and Buyer's inability to obtain an extended
coverage policy or any such endorsements will not be deemed to be a failure of
any condition to Closing.
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12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) all escrow fees and costs;
(c) all city and county documentary transfer taxes;
(d) all document recording charges;
(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage
title policy, the cost of any required survey and, the cost of any
endorsements required by Buyer; and
(h) All other costs and expenses necessarily incurred to
close the transaction.
13. DISBURSEMENTS AND OTHER ACTIONS:
13.1 ESCROW HOLDER. At the Close of Escrow, Escrow Holder will
promptly undertake all of the following:
(a) Cause the Grant Deed (with documentary transfer tax
information to be affixed AFTER recording) to be recorded with the
County Recorder and obtain conformed copies thereof for distribution to
Buyer and Seller.
(b) Direct the Title Company to issue the Title Policy to
Buyer within 15 BUSINESS DAYS after Closing.
(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and
any other documents (or copies thereof) deposited into Escrow by Seller.
Deliver to Seller any other documents (or copies thereof) deposited
into Escrow by Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that
the Close of Escrow has occurred.
13.2 BY TRANSFER AGENT. Promptly after the Close of Escrow, Transfer
Agent shall deliver all Units in payment of the Exchange Value for the Property
to the persons, at the addresses and in the amounts designated by Seller.
13.3 POSSESSION. Possession of the Other Assets in Seller's possession or
control and all other Property shall be delivered by Seller to Buyer at the
Close of Escrow.
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14. JOINT REPRESENTATIONS AND WARRANTIES: In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other, provided
that liability for any breach is subject to Sections 8.1.2 and 23.13 hereof:
14.1 AUTHORITY. Each party has the legal power, right and authority to
enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
14.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering into
of this Agreement, the instruments referenced herein, and the consummation of
this transaction. Except as provided in Section 9, no further consent of any
partner, shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
14.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners,
officers or trustees of each party, if any, have the legal power, right, and
actual authority to bind each party to the terms and conditions of those
documents.
14.4 VALID AND BINDING. This Agreement and all other documents
required to close this transaction are and will be valid, legally binding
obligations of and enforceable against each party in accordance with their
terms, subject only to applicable bankruptcy, insolvency, reorganization,
moratorium laws or similar laws or equitable principles affecting or limiting
the rights of contracting parties generally.
14.5 BROKER. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged
by them, respectively, in connection with any of the transactions
contemplated by this Agreement, or to its knowledge is in any way connected
with any of such transactions. Buyer will indemnify, save harmless and
defend Seller from any liability, cost, or expense arising out of or
connected with any claim for any commission or compensation made by any
person or entity claiming to have been retained or contacted by Buyer in
connection with this transaction. Seller will indemnify, save harmless and
defend Buyer from any liability, cost, or expense arising out of or connected
with any claim for any commission or compensation made by any person or
entity claiming to have been retained or contacted by Seller in connection
with this transaction. This indemnity provision will survive the Closing or
any earlier termination of this Agreement.
15. SELLER'S WARRANTIES AND REPRESENTATIONS: Seller makes the
following representations, and warranties and acknowledges that Buyer will
rely on such representations and warranties in acquiring the Property;
provided that liability for any breach is subject to to Sections 8.1.2 and
23.13 hereof:
15.1 NON-FOREIGN ENTITY. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.
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15.2 HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the
date of Seller's acquisition of the Property, no Hazardous Substances are now
or have been used, stored, generated or disposed of on or within the Property
except in the normal course of use and operation of the Property and in
compliance with all applicable Environmental Laws.
15.3 CLEAN-UP. To Seller's Actual Knowledge, since the date of
Seller's acquisition of the Property, there are and have been no federal,
state or local enforcement, clean-up, removal, remedial or other governmental
or regulatory actions instituted or completed affecting the Property, other
than such other matters as may otherwise be disclosed in any Environmental
Audit or in any other documents provided or made available to Buyer.
15.4 CLAIMS. To Seller's Actual Knowledge, there are no outstanding
claims that have been made by any third party against Seller relating to any
Hazardous Substances on or within the Property.
The provisions of this Section 15 shall no longer bind Seller if
this Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder does not occur.
16. PRE-CLOSING COVENANTS. So long as this Agreement remains in full
force and effect:
16.1 NO TRANSFERS. Without the prior written consent of Buyer, Seller
will not convey any interest in the Property and will not subject the
Property to any additional liens, encumbrances, covenants, conditions,
easements, rights of way or similar matters after the date of this Agreement,
except as may be otherwise provided for in this Agreement, which will not be
eliminated prior to the Close of Escrow.
16.2 NO ALTERATIONS. Seller will not make any material alterations to
the Property without Buyer's consent, which will not be unreasonably withheld
or delayed.
16.3 MAINTENANCE. Seller will maintain the Property in substantially
the same condition as it is in, as of the date of this Agreement, and manage
the Property in accordance with Seller's established practices.
16.4 OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all of
the obligations to be performed by Seller under any contracts affecting the
Property. Without prior written consent of Buyer, which will not be
unreasonably withheld or delayed, Seller will not enter into any contract or
agreement providing for the provision of goods or services to or with respect
to the Property or the operation thereof unless such contracts or agreements
can be terminated without penalty by the Closing Date. Seller will not enter
into any leases for any portion of the Property.
16.5 EXPENDITURES. Seller will incur only expenditures necessary for
the day-to-day operation and maintenance of the Property, and will not incur
capital expenditures or liabilities
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not in the ordinary course of business. Seller shall retain all Other Assets
in Seller's possession on or after the date hereof except for payment of such
permitted liabilities and expenditures.
17. CONDEMNATION AND DESTRUCTION:
17.1 EMINENT DOMAIN OR TAKING. If proceedings under a power of eminent
domain relating to the Property or any part thereof are commenced prior to
Close of Escrow, Seller will promptly inform Buyer in writing.
(a) If such proceedings involve the taking of title to all or a
material interest in the Property, Buyer may elect to terminate this
Agreement by notice in writing sent within 10 DAYS of Seller's written
notice to Buyer, in which case neither party will have any further
obligation to or rights against the other except any rights or
obligations of either party which are expressly stated to survive
termination of this Agreement.
(b) If the proceedings do not involve the taking of title to
all or a material interest in the Property, or if Buyer does not elect
to terminate this Agreement, this transaction will be consummated as
described herein and any award or settlement payable with respect to
such proceeding will be paid or assigned to Buyer upon Close of Escrow.
(c) If this sale is not consummated for any reason, any condemnation
award or settlement will belong to Seller.
17.2 DAMAGE OR DESTRUCTION. Except as provided in this Section,
prior to the Close of Escrow the entire risk of loss of damage by
earthquake, flood, landslide, fire or other casualty is borne and
assumed by Seller. If, prior to the Close of Escrow, any part of the
Improvements is damaged or destroyed by earthquake, flood, landslide,
fire or other casualty, Seller will promptly inform Buyer of such fact
in writing and advise Buyer as to the extent of the damage and whether
it is, in Seller's reasonable opinion, "MATERIAL" or not "MATERIAL".
(a) If such damage or destruction is "MATERIAL", Buyer has
the option to terminate this Agreement upon written notice to the Seller
given not later than 10 DAYS after receipt of Seller's written notice to
Buyer advising of such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any
damage or destruction to the Improvements where the cost of repair or
replacement is estimated to be more than 25% of the Exchange Value of
the Property and will take more than 60 DAYS to repair.
(c) If this Agreement is so terminated, the provisions of Section 5
will govern.
(d) If Buyer does not elect to terminate this Agreement, or
if the casualty is not material, Seller will reduce the Exchange Value
by the value reasonably estimated by Seller to repair or restore the
damaged portion of the Improvements, less any sums expended by Seller to
make emergency repairs to the Improvements or the Property or otherwise
protect
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the physical condition of the Improvements or the Property, and this
transaction will close pursuant to the terms of this Agreement.
(e) If the damage is not material, Seller's notice to Buyer
of the damage or destruction will also set forth Seller's reduced
Exchange Value and Seller's allocation of value to the damaged portion
of the Improvements. If Buyer does not accept Seller's reduced Exchange
Value, Buyer's sole remedy will be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated
hereunder, all rights to insurance claims or proceeds in respect of
damage or destruction to the Improvements occurring prior to the Close
of Escrow will belong to Seller.
18. UTILITIES AND DEPOSITS:
18.1 UTILITIES. Seller will notify all utility companies
servicing the Property of the sale of the Property to Buyer and will
notify the utility companies that all utility bills henceforth are to be
sent to Buyer. Buyer shall be entitled to receive any and all refunds
of all utility deposits held by utility companies and Seller will assign
to Buyer all of Seller's right, title and interest in any such utility
deposits.
18.2 REFUNDABLE DEPOSITS. To the extent there exists any refundable
deposits made in connection with the development of the Property prior to the
Closing ("Refundable Deposits"), Seller shall assign to Buyer all of Seller's
right, title and interest in and to such Refundable Deposits.
19. MEDIATION OF DISPUTES: No party to this Agreement shall initiate
any litigation against any other party to this Agreement concerning any
controversy or claim arising out of or relating to this Agreement or any
agreements or instruments relating hereto or delivered in connection
herewith, including, but not limited to, any claim based on or arising from
an alleged tort, unless and until (i) at least 60 days before the same shall
be filed, a complete copy of each of the summons and complaint (and/or any
other documentation required to initiate such litigation) to be filed by the
complaining party shall have been delivered to the other party or parties to
any such dispute, and (ii) the complaining party has made itself available to
meet in Los Angeles, California with the other party or parties for no more
than 3 business days of non-binding mediation. Until and unless such
mediation has taken place, the complaining party must give notice to the
non-complaining party that it will, and then it must, make itself available
for such mediation during at least 20 business days during the 60 days before
the date on which such summons and complaint will be filed.
20. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING
HERETO OR DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY
PARTY, BE DETERMINED BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (9 U.S.C. SECTION 1 ET
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SEQ.) UNDER THE AUSPICES AND RULES OF THE AMERICAN ARBITRATION ASSOCIATION
("AAA"). THE AAA WILL BE INSTRUCTED BY EITHER OR BOTH PARTIES TO PREPARE A
LIST OF THREE (3) JUDGES WHO HAVE RETIRED FROM THE SUPERIOR COURT OF THE
STATE OF CALIFORNIA, A HIGHER CALIFORNIA COURT OR ANY FEDERAL COURT. WITHIN
10 DAYS OF RECEIPT OF THE LIST, EACH PARTY MAY STRIKE 1 NAME FROM THE LIST.
THE AAA WILL THEN APPOINT THE ARBITRATOR FROM THE NAME(S) REMAINING ON THE
LIST. THE ARBITRATION WILL BE CONDUCTED IN SAN FRANCISCO, LOS ANGELES OR SAN
DIEGO, WHICHEVER IS THE CLOSEST CITY TO THE NEXUS OF THE DISPUTE. ANY
CONTROVERSY IN INTERPRETATION OR ENFORCEMENT OF THIS PROVISION OR WHETHER A
DISPUTE IS ARBITRABLE, WILL BE DETERMINED BY THE ARBITRATOR. JUDGMENT UPON
THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN ACTION FOR JUDICIAL
RELIEF OR IN PURSUIT OF AN ANCILLARY REMEDY DOES NOT CONSTITUTE A WAIVER OF
THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR
CLAIM TO ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES'
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND
YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED
IN A COURT OR BY JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING
UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE
SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU
REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE
COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES'
PROVISION TO NEUTRAL ARBITRATION.
Buyer's Initials ________ Seller's Initials _________
21. NOTICES: All notices or other communications required or
permitted hereunder must be in writing, and must be personally delivered
(including by means of professional messenger service) or sent by overnight
courier, or sent by registered or certified mail, postage prepaid, return
receipt requested to the addresses set forth in Section 1 hereof. All
notices sent by mail will be deemed received 2 DAYS after the date of mailing
and all notices sent by other means permitted herein shall be deemed received
on the earlier of the date delivered or the date on which delivery is refused.
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22. ASSIGNMENT: Neither party shall have the right to assign this
Agreement without the other party's prior written consent.
23. MISCELLANEOUS:
23.1 COUNTERPARTS. This Agreement may be executed in counterparts.
23.2 PARTIAL INVALIDITY. If any term or provision of this
Agreement will be deemed to be invalid or unenforceable to any extent, the
remainder of this Agreement will not be affected thereby, and each remaining
term and provision of this Agreement will be valid and be enforced to the
fullest extent permitted by law.
23.3 POSSESSION OF THE PROPERTY. Seller will deliver possession of
the Property to Buyer upon the Close of Escrow.
23.4 WAIVERS. No waiver of any breach of any covenant or provision
contained herein will be deemed a waiver of any preceding or succeeding
breach thereof, or of any other covenant or provision contained herein. No
extension of time for performance of any obligation or act will be deemed an
extension of the time for performance of any other obligation or act except
those of the waiving party, which will be extended by a period of time equal
to the period of the delay.
23.5 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and
inures to the benefit of the permitted successors and assigns of the parties
hereto.
23.6 PROFESSIONAL FEES. In the event of the bringing of any
action, arbitration or suit by a party hereto against another party hereunder
by reason of any breach of any of the covenants, agreements or provisions on
the part of the other party arising out of this Agreement, then in that event
the prevailing party will be entitled to have the recovery of and from the
other party all costs and expenses of the action, mediation or suit, actual
attorneys' fees, witness fees and any other professional fees resulting
therefrom.
23.7 ENTIRE AGREEMENT. This Agreement (including all Exhibits
attached hereto) constitutes the entire contract between the parties hereto
with respect to the subject matter hereof and may not be modified except by
an instrument in writing signed by the party to be charged.
23.8 TIME OF ESSENCE. Seller and Buyer hereby acknowledge and
agree that time is strictly of the essence with respect to each and every
term, condition, obligation and provision hereof.
23.9 CONSTRUCTION. Seller and Buyer and their respective advisors
believe that this Agreement is the product of all of their efforts, that it
expresses their agreement and that it should not be interpreted in favor of
or against either Buyer or Seller. The parties further agree that this
Agreement will be construed to effectuate the normal and reasonable
expectations of a sophisticated seller and buyer.
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23.10 GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced
in accordance with the laws of the State of California.
23.11 WEAR AND TEAR. Buyer specifically acknowledges that
Seller will continue to use the Property in the course of its business and
accepts the fact that reasonable wear and tear will occur after the date of
this Agreement. Buyer specifically agrees that Seller is not responsible for
repairing such reasonable wear and tear and that Buyer is prohibited from
raising such wear and tear as a reason for not consummating this transaction
or for requesting a reduction in the Exchange Value.
23.12 NO RECORDATION. No memorandum or other document relating
to this Agreement will be recorded without the prior written consent of
Seller, and any such consent or approval will be conditioned upon Buyer
providing Seller with a quitclaim deed fully executed and acknowledged by
Buyer, quitclaiming any and all interests that it may have in the Property to
Seller, which quitclaim deed Seller may record in the event that this
Agreement is terminated or the transaction contemplated herein is not
consummated.
23.13 SURVIVAL. All obligations of the parties contained
herein which by their terms do not arise until after the Close of Escrow and
any other provisions of this Agreement which by their terms survives the
Close of Escrow, shall survive the Close of Escrow. Notwithstanding anything
to the contrary contained in this Agreement, the representations and
warranties contained in this Agreement shall survive the Closing for a period
of 1 year; provided that any claims by one party hereto must be made in
writing to the other party within the 1 year period.
23.14 DISCLAIMER. Nothing herein creates any right or remedy
for the benefit of any person not a party hereto, nor creates a fiduciary
relationship, an agency or a partnership.
23.15 WAIVER OF JURY TRIAL. EACH PARTY, ACTING WITH KNOWLEDGE
OF ITS RIGHTS AFTER A FULL OPPORTUNITY TO CONSULT WITH COUNSEL, VOLUNTARILY
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ALL PROCEEDINGS FOR WHICH A TRIAL BY
JURY WOULD OTHERWISE BE AVAILABLE OR REQUIRED, AND WHICH INVOLVE ANY MATTER
ARISING OUT OF OR CONNECTED WITH RIGHTS OR DUTIES UNDER, OR ENFORCEMENT OR
INTERPRETATION OF, THIS AGREEMENT.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year hereinabove written.
"SELLER": "BUYER":
NATIONAL INVESTORS FINANCIAL, CYPRESS LAKES, INC.,
INC., a California corporation, AS TRUSTEE a California corporation
for NATIONAL INVESTORS LAND
HOLDING TRUST ___
By: By:
------------------------------- ---------------------------
Its: Its:
------------------------------- ---------------------------
and and
By: By:
------------------------------- ---------------------------
Its: Its:
------------------------------- ---------------------------
Agreed to and accepted
by Escrow Holder:
By:
-------------------------------
Its:
-------------------------------
21
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY:
WHEN RECORDED MAIL TO:
Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, California 90017
Attn.: Bruce H. Newman, Esq.
- ----------------------------------------------------------------------------
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a separate
statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
NATIONAL INVESTORS FINANCIAL, INC., a CALIFORNIA corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ("Grantor"), hereby grants to CYPRESS
LAKES, INC., a California corporation ("Grantee"), the real property in the
County of Contra Costa, State of California, and described in EXHIBIT A attached
hereto and made a part hereof.
DATED: , 1998
-------------------
NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST __
By:
---------------------------------
Its:
---------------------------------
By:
---------------------------------
Its:
---------------------------------
- -------------
MAIL TAX STATEMENTS TO:
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
---------------
On ____________________, before me, _____________________________________,
personally appeared ______________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
- -------------------------------
Notary Public in and for said
County and State [SEAL]
<PAGE>
Document No. ____________________ Date Recorded_________________
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
NOT BE MADE A PART OF THE PERMANENT RECORD
IN THE OFFICE OF THE COUNTY RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of
-------------------
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
- -----------------------------------------
(as grantor)
and
- -----------------------------------------
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of ____________________.
The amount of tax due on the accompanying document is $_______________.
____ Computed on full value of property conveyed, or
____ Computed on full value less liens and encumbrances remaining at time
of sale.
- --------------------------------
- --------------------------------
By:
---------------------------
Its:
---------------------------
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee
of a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a U.S. real property interest by NATIONAL
INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for NATIONAL
INVESTORS LAND HOLDING TRUST ____ ("TRANSFEROR"), each of the undersigned hereby
certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is __________;
and
3. Transferor's office address is________________________________,
___________________.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by transferee and that any false statement contained
herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he
has examined this certification and to the best of his knowledge and belief it
is true, correct and complete, and he further declares that he has authority to
sign the document on behalf of the Transferor.
NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___
By:
--------------------------------
Its:
-------------------------------
By:
--------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is
executed as of ______________, but effective as of the Effective Date (as
hereinafter defined), by and between NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for NATIONAL INVESTORS LAND HOLDING TRUST
___ ("Assignor"), and CYPRESS LAKES, INC., a California corporation
("Assignee"), with reference to the following facts:
RECITALS:
A. Assignor, as the agent of and for the benefit of various
investors, holds title to that certain real property commonly known as "Cypress
Lakes and Country Club", located in the County of Contra Costa, State of
California, as more particularly described on Exhibit "A" attached hereto and
incorporated herein by reference (the "Property").
B. Concurrently herewith, Assignor has executed that certain Grant
Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to Assignee
all of its right, title and interest in and to all agreements relating to the
Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are by this reference incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the Property
which are set forth in Exhibit "B" attached hereto and made a part hereof
(collectively, the "Agreements"). The assignment provided for in this Section 1
is effective concurrently with the transfer of the Property from Assignor to
Assignee (the "Effective Date").
<PAGE>
2. ASSIGNEE'S ASSUMPTION. Assignee hereby accepts the assignment
from Assignor, assumes and agrees to perform all duties and obligations of
Assignor under the terms of the Agreements which are required to be performed on
or after the Effective Date.
3. DELIVERIES; REPORTS. On or before the Effective Date, Assignor
shall deliver to Assignee the original Agreements or if such original Agreements
are not in Assignor's possession, certified copies of such Agreements. Assignor
shall furnish and deliver to Assignee, promptly after receipt thereof,
duplicates or copies of all reports, notices, requests, demands, declarations,
certificates or other instruments hereafter received by Assignor and relating to
the Agreements. Assignee's address for receipt of the foregoing is____________
______________________________________________________________.
4. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may be
necessary to further assure to Assignee the rights assigned hereby and the full
benefits hereof and to preserve and protect this Assignment and all of the
rights, powers and remedies of Assignee provided for herein.
5. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto.
6. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
7. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written but effective as of the Effective
Date.
ASSIGNOR: NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST ___
By:
----------------------------------
Its:
---------------------------------
By:
----------------------------------
Its:
---------------------------------
ASSIGNEE: CYPRESS LAKES, INC.,
a California corporation
By:
----------------------------------
Its:
---------------------------------
By:
----------------------------------
Its:
---------------------------------
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of
the ____ day of ___________________________, 1998 (this "Assignment"), by
NATIONAL INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___ ("Assignor") to CYPRESS LAKES, INC., a
California corporation ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and
Sale and Joint Escrow Instructions dated ________, 1998 ("Agreement of Purchase
and Sale") under which Assignee has agreed to purchase from Assignor, that
certain real property and any and all buildings, structures and improvements on
said real property commonly identified as "Cypress Lakes and Country Club",
located in the County of Contra Costa, State of California and legally described
on EXHIBIT A attached hereto (the "Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all
intangible property used, owned or issued solely in connection with the
Property, including but not limited to, all licenses, permits, certificates of
occupancy, approvals, maps, dedications, subdivision maps and entitlements
issued, approved or granted by any governmental agencies or instrumentalities
having any jurisdiction over the Property (the "Authorities") or otherwise in
<PAGE>
connection with the Property; all development rights, conditional use permits,
variances, "floor area ratio" development rights and other intangible rights,
titles, interests, privileges and appurtenances owned by Assignor and related to
or issued in connection with the Property and/or its use, occupancy, operation
and/or development; all licenses, consents, easements, rights of way, and
approvals required from private parties to make use of utilities and to insure
vehicular and pedestrian ingress and egress to the Property; and any pending
applications or requests as to any of the foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the construction,
reconstruction, maintenance, repair, or operation any improvements on the
Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the Improvements and the
personal property situated on the Property, including but not limited to those
made by or received from any third party with respect to any building, building
component, structure, fixture, machinery, equipment or material situated on,
contained in any building or other improvement situated on, or comprising a part
of any building or other improvement situated on any part of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's right,
title and interest in and to refundable deposits, bonds and other collateral
furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold, use,
sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from time
to time upon written request therefor, execute and deliver to Assignee, its
successors and assigns any new or confirmatory instruments and take such further
acts as Assignee may reasonably request to fully evidence the assignment
contained herein and to enable Assignee, its successors and assigns to fully
realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it has
not previously assigned or hypothecated its interest in the foregoing described
General Intangibles; however, Assignee shall have no claims or rights against
Assignor, and Assignor shall have no obligation or liability to Assignee for any
General Intangibles described herein which do not exist, or which Assignor does
not have the right to transfer to Assignee.
<PAGE>
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
_________, 1998.
NATIONAL INVESTORS FINANCIAL, INC.,
a California corporation, AS TRUSTEE
for NATIONAL INVESTORS LAND HOLDING
TRUST ___
By:
----------------------------------
Its:
---------------------------------
By:
----------------------------------
Its:
---------------------------------
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
NATIONAL INVESTORS FINANCIAL, INC.,
a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___,
AS SELLER,
AND
ESPERANZA, INC.,
a California corporation,
AS BUYER
RELATING TO
PROPERTY LOCATED IN
Victorville, California
known as
"ESPERANZA AT VICTORVILLE"
DATED AS OF
__________________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Purchase and Sale. . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Substance of Transactions. . . . . . . . . . . . . . . . . . . . . . 5
3. Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Exchange Value . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Additional Consideration . . . . . . . . . . . . . . . . . . . . . . 6
4. Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Cancellation Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 6
6. Deliveries to Escrow Holder . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 By Seller. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 By Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 By Buyer and Seller. . . . . . . . . . . . . . . . . . . . . . . . . 7
7. Condition of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.1 Permitted Exceptions . . . . . . . . . . . . . . . . . . . . . . . . 7
7.2 Title Provided by Seller . . . . . . . . . . . . . . . . . . . . . . 7
8. Conditions to the Close of Escrow . . . . . . . . . . . . . . . . . . . . . . . 8
8.1 Conditions Precedent to Buyer's Obligations. . . . . . . . . . . . . 8
8.1.1 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.1.2 Representations, Warranties and Covenants of Seller. . . . . . . . . . . . . 8
8.1.3 Seller's Deliveries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2 Conditions Precedent to Seller's Obligations . . . . . . . . . . . . 8
9. Approval of Seller's Constituents . . . . . . . . . . . . . . . . . . . . . . . 9
10. Property "As-Is" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE.. . . . . . . 9
10.2 Disclosures; Specific Acknowledgment Regarding Condition of
Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. Title Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13. Disbursements and Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.1 Escrow Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.2 By Transfer Agent . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
13.3 Possession. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14. Joint Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 13
14.1 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.2 Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.3 Due Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.4 Valid and Binding . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.5 Broker. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15. Seller's Warranties and Representations. . . . . . . . . . . . . . . . . . . . 14
15.1 Non-Foreign Entity. . . . . . . . . . . . . . . . . . . . . . . . . 14
15.2 Hazardous Substances. . . . . . . . . . . . . . . . . . . . . . . . 14
15.3 Clean-up. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.4 Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16. Pre-Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.1 No Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.2 No Alterations. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.3 Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.4 Obligations Under Contracts.. . . . . . . . . . . . . . . . . . . . 15
16.5 Expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17. Condemnation and Destruction . . . . . . . . . . . . . . . . . . . . . . . . . 15
17.1 Eminent Domain or Taking. . . . . . . . . . . . . . . . . . . . . . 15
17.2 Damage or Destruction . . . . . . . . . . . . . . . . . . . . . . . 16
18. Utilities and Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.1 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.2 Refundable Deposits . . . . . . . . . . . . . . . . . . . . . . . . 17
19. Mediation of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
20. Arbitration of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
22. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.1 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.2 Partial Invalidity. . . . . . . . . . . . . . . . . . . . . . . . . 19
23.3 Possession of the Property. . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
23.4 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.5 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . 19
23.6 Professional Fees . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.7 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.8 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.9 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.10 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.11 Wear and Tear. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.12 No Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.14 Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.15 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
EXHIBITS
EXHIBIT A - Legal Description
EXHIBIT B - Form of Grant Deed
EXHIBIT C - FIRPTA Affidavit
EXHIBIT D - Assignment and Assumption
EXHIBIT E - Bill of Sale and General Assignment of Intangibles
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("AGREEMENT") is made and entered into as of ____________ __, 1998, by and
between NATIONAL INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE
for NATIONAL INVESTORS LAND HOLDING TRUST ___ ("Seller"), and ESPERANZA, INC., a
California corporation ("BUYER").
R E C I T A L S
A. Seller is the owner of that certain unimproved real property commonly
known as "Esperanza at Victorville", consisting of approximately 6.12 acres,
located in the City of Victorville, County of San Bernardino, State of
California, as more particularly described in Exhibit A attached hereto (the
"Real Property").
B. Seller holds record title to the Real Property as agent of and for the
benefit of various investors who are the beneficiaries of National Investors
Land Holding Trust ____ (the "Trust").
C. Seller desires to sell to Buyer and Buyer desires to purchase from
Seller the Property (as hereinafter defined) on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals, which Recitals
are incorporated herein by this reference, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, Buyer
and Seller agree as follows:
A G R E E M E N T
1. DEFINITIONS: For the purposes of this Agreement the following
terms will be defined as follows:
1.1 "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the
actual knowledge of David Lasker and James N. Orth without having conducted
any independent inquiry or inspection, and shall not include the knowledge of
any other persons or firms, it being understood and agreed by Buyer that
neither David Lasker nor James N. Orth is charged with knowledge of all of
the acts and/or omissions of predecessors in title to the Property or
management of the Property before Seller's acquisition of the Property and
the Actual Knowledge of Seller shall not include information or material
which may be in the possession of Seller generally, but of which neither
David Lasker nor James N. Orth is actually aware.
1.2 "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly-owned subsidiary of AFH.
1
<PAGE>
1.3 "AFH" means American Family Holdings, Inc., a Delaware
corporation. Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a
wholly-owned subsidiary of AFH.
1.4 "ASSIGNMENT" shall have the meaning given thereto in
Section 6.1(d) hereof.
1.5 "BILL OF SALE" shall have the meaning given thereto in
Section 6.1(e) hereof.
1.6 "CLOSING DATE" means ___________, 1998, unless an earlier date is
agreed to in a writing subsequent to this Agreement executed and delivered by
each of the parties hereto to the other, and is the last date on which the
Closing and Close of Escrow can occur, subject to extension as provided for in
this Agreement.
1.7 "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably in
this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the county
in which the Property is located.
1.8 "EFFECTIVE DATE" means the date hereof.
1.9 "ENVIRONMENTAL AUDIT" means any environmental audit, review or
testing of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.10 "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment
including, without limitation, CERCLA (Comprehensive Environmental Response,
Compensation and Liability Act of 1980) and RCRA (Resources Conservation and
Recovery Act of 1976), as amended.
1.11 "ESCROW" shall have the meaning given thereto in Section 4
hereof.
1.12 "ESCROW HOLDER" means _______________________________, whose
address is _______________________________________________________________,
Attn.: ___________________.
1.13 "EXCHANGE VALUE" is the adjusted appraised value of the Property
which takes into consideration various factors to balance the business value of
the Property within its present ownership structure.
1.14 "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.15 "GRANT DEED" shall have the meaning given thereto in Section
6.1(a) hereof.
1.16 "HAZARDOUS SUBSTANCE" means any substance, material or waste
which is or becomes designated, classified or regulated as being "toxic" or
"hazardous" or a "pollutant" or
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which is or becomes similarly designated, classified or regulated, under any
Environmental Law, including asbestos, petroleum and petroleum products.
1.17 "IMPROVEMENTS" means any and all improvements and fixtures
situated on the Real Property.
1.18 "INVESTORS" means the beneficiaries of the Trust.
1.19 "INTANGIBLES" means all of Seller's right, title and interest in
and to all intangible property used, owned or issued solely and strictly in
connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract rights,
accounts receivable and other intangible property used in connection with the
ownership and operation of the Property; (ii) all licenses, permits,
certificates of occupancy, approvals, dedications and entitlements issued,
approved or granted by any governmental authorities having jurisdiction over the
Property; and (iii) all development rights, conditional use permits, variances
and other intangible rights, titles, interests and privileges owned by Seller
and related to or issued in connection with the Land and/or Improvements, its
use, occupancy, operation and development, but in no way related to Seller's
financial data or other proprietary information or other property of Seller.
1.20 "NOTICES" will be sent as provided in Section 21 to:
Seller: National Investors Land Holding Trust
c/o National Investors Financial, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, CA 92660
Attn.: Mr. David Lasker
Telephone: (949) 833-8600
Facsimile: (949) 752-9753
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, CA 90017
Attn.: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
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Buyer: Esperanza, Inc.
______________________
______________________
Attn.:__________________
Telephone: _____________
Facsimile: ______________
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, CA 90017
Attn.: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Escrow Holder: __________________________________
__________________________________
__________________________________
Attn.: ___________________
Telephone: ________________________
Facsimile: ________________________
1.21 "OPENING OF ESCROW" shall have the meaning given thereto in
Section 4 hereof.
1.22 "OTHER ASSETS" means cash, cash equivalent, notes and other
negotiable instruments and any and all other assets in the possession or control
of Seller, the value of which is determined by possession, and any other assets
other than the Real Property, Personal Property or Intangibles relating to the
Real Property.
1.23 "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.24 "PERSONAL PROPERTY" means the equipment, furniture and fixtures,
books and records and other personal property, if any, owned by Seller and
located on the Property as of the Effective Date, including without limitation,
those items listed on SCHEDULE 1 to the Bill of Sale.
1.25 "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements , (iii) the Intangibles, (iv) the Personal Property and (v) the
Other Assets.
1.26 "PROSPECTUS" means the Consent Solicitation Statement/Prospectus
of Buyer.
1.27 "REAL PROPERTY" means that certain real property located in
the City of Victorville, County of San Bernardino, State of California and
commonly known as "Esperanza at Victorville" and more particularly described
in EXHIBIT A attached hereto. The Real Property also is described in the
Recitals hereof.
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1.28 "TITLE COMPANY" means ________________________________________.
1.29 "TITLE POLICY" shall have the meaning given thereto in Section 11
hereof.
1.30 "TRANSFER AGENT" means , who address is
__________________, Attn.: ___________, Facsimile No. ___________.
1.31 "UNIT" means, collectively, one (1) share of common stock, plus
warrants to purchase three (3) additional shares of common stock, in AFH.
2. PURCHASE AND SALE:
2.1 PURCHASE AND SALE. Upon and subject to the terms and conditions
set forth in this Agreement, Seller agrees to sell to Buyer and Buyer agrees to
buy from Seller the Property, together with all easements, hereditaments,
entitlements (to the extent transferable) and appurtenances thereto. In
consideration of Seller's sale of the Property to Buyer, Buyer will (a) cause to
be delivered to the investors of Seller the Exchange Value in accordance with
Section 3, and (b) perform all of Buyer's other obligations hereunder.
2.2 SUBSTANCE OF TRANSACTIONS. Notwithstanding any other provision
of this Agreement, the transfer of the Property directly from Seller to Buyer is
for convenience purposes only to effect expeditiously the culmination of the
transfers set forth in this Section 2.2, and for all purposes hereunder it is
the intent of the parties that such transfer reflects the following transfers,
which shall occur in the following order: (i) all of the Investors, through
their approval of the transactions contemplated under this Agreement, contribute
all of their interests in the Property to AFH in exchange for Units, such Units
to be distributed to them pursuant to Sections 3 and 13.2 hereof; (ii) AFH
contributes the Property to AFC as a contribution to the capital of AFC; and
(iii) AFC contributes the Property to Buyer as a contribution to the capital of
Buyer. Seller's transfer of the Property directly to Buyer reflects Seller's
transfer of the Property from the Investors to AFH, from AFH to AFC, and from
AFC to the Buyer, in each instance in Seller's capacity as the agent of and on
behalf of such transferors.
3. CONSIDERATION:
3.1 EXCHANGE VALUE. In consideration for the sale of the Property to
Buyer, Buyer will deliver to Seller an amount equal to the Exchange Value for
the Property. The Exchange Value for the Property is $______________, which
shall be paid in the form of, and by issuance and delivery of, ______ Units to
the investors of Seller, to be distributed by the Transfer Agent at the Closing
outside of Escrow in accordance with Section 13.2 hereof. Upon the request of
any party hereto, whether made before or after the Closing, the parties hereto
will allocate the Exchange Value to the Real Property, Improvements, Personal
Property, Other Assets and the Intangibles.
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3.2 ADDITIONAL CONSIDERATION. If, after the Close of Escrow,
Buyer completes the sale of the Property for a purchase price which exceeds
the appraised value of the Property, as set forth in the appraisal dated
March, 1998 prepared by ____________________________ (the "Appraised Value"),
Buyer will pay to Seller an amount calculated pursuant to the terms of this
Section 3.2, which shall be paid in the form of, and by issuance and delivery
of, an additional number of Units equal to the quotient of the net cash
proceeds (exclusive of interest on deferred purchase price payments)
received by Buyer for such sale on or before December 31, 1999 up to 200% of
the Appraised Value divided by $20. (For example, if the Appraised Value of
the Property was $1,750,000 and Buyer received by December 31, 1999 net cash
sale proceeds in the amount of $3,600,000, then the maximum number of
additional Units available for allocation among Seller's investors would be
$1,750,000 divided by $20 or 87,500 Units.)
4. ESCROW: Immediately upon execution of this Agreement, Buyer and
Seller will open an escrow (the "ESCROW") with the Escrow Holder by delivering
to Escrow Holder a fully executed copy of this Agreement (the "OPENING OF
ESCROW"). The purchase and sale of the Property will be completed through the
Escrow. Buyer and Seller agree to execute any additional instructions
consistent with this Agreement which are reasonably required by the Escrow
Holder. If there is a conflict between any printed escrow instructions and this
Agreement, the terms of this Agreement will govern.
5. CANCELLATION FEES AND EXPENSES: If the Closing does not occur at
the time and in the manner provided in this Agreement because of the default of
one of the parties, the non-defaulting party has the right to cancel the Escrow
by written notice to the defaulting party and to the Escrow Holder. All costs
of cancellation, if any, will be paid by the defaulting party.
6. DELIVERIES TO ESCROW HOLDER:
6.1 BY SELLER. On or prior to the Closing Date, Seller will deliver
or cause to be delivered to Escrow Holder the following items:
(a) A Grant Deed ("GRANT DEED"), in the form attached to this
Agreement as EXHIBIT B, duly executed and acknowledged by Seller and in
recordable form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status attached
to this Agreement as EXHIBIT C ("FIRPTA CERTIFICATE"), duly executed by or
on behalf of Seller.
(c) A properly executed California Form RE 590 or other
evidence sufficient to establish that Buyer is not required to withhold any
portion of the Exchange Value pursuant to Sections 18805 and 26131 of the
California Revenue and Taxation Code ("FORM 590").
(d) An Assignment and Assumption of Agreements ("ASSIGNMENT")
duly executed by Seller in favor of Buyer in the form attached to this
Agreement as EXHIBIT D.
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(e) A Bill of Sale and General Assignment of Intangibles in the
form attached to this Agreement as EXHIBIT E ("BILL OF SALE"), duly
executed by Seller and conveying all right, title and interest of Seller in
the Personal Property and the Intangibles to Buyer.
(f) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Seller as are
reasonably required by Buyer or Escrow Holder or both in connection with
this transaction.
6.2 BY BUYER. On or prior to the Closing Date, Buyer will deliver or
cause to be delivered to Escrow Holder the following items:
(a) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Buyer as are
reasonably required by Seller or Escrow Holder or both in connection with
this transaction.
(b) Amounts due to pay costs and expenses as set forth in
Section 12 hereof.
6.3 BY BUYER AND SELLER. Buyer and Seller will each deposit such
other instruments consistent with this Agreement as are reasonably required by
Escrow Holder or otherwise required to close escrow. In addition Seller and
Buyer hereby designate Escrow Holder as the "REPORTING PERSON" for the
transaction pursuant to Section 6045(e) of the Internal Revenue Code.
7. CONDITION OF TITLE:
7.1 PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple title
to the Property will be conveyed to Buyer by Seller by Grant Deed, subject
only to the following title matters ("PERMITTED EXCEPTIONS"):
(a) all property tax liens (whether or not payment of property
taxes are delinquent) and all other matters shown in that certain
Commitment for Title Insurance effective _______________, issued by the
Title Company, bearing Order No.________; and
(b) matters affecting the condition of title to the Property
created by, at the request of or with the written consent of Buyer.
7.2 TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the Property,
and (b) Buyer shall rely solely on the Title Policy for protection against any
title defects.
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8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following
conditions must be satisfied not later the earlier of the Closing Date or
such other period of time as may be specified below:
8.1.1 TITLE. As of the Closing, the Title Company will issue or
have committed to issue to Buyer the Title Policy described in Section 11.
8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.
Seller will have duly performed each and every agreement to be performed by
Seller hereunder and, subject to the provisions of Section 10, Seller's
express representations and warranties set forth in this Agreement will be
true and correct in all material respects as of the Closing Date. However,
notwithstanding anything to the contrary stated or implied in this Section
8.1.2, Seller shall have no liability for the breach of any
representations, warranties or covenants set forth in this Agreement,
whether express or implied, absent a finding by a court of competent
jurisdiction that either David Lasker or James N. Orth or both of them
withheld information with respect thereto from Buyer or falsified
information delivered to and relied upon by Buyer and that such action
amounted to a violation of a representation or warranty set forth herein.
8.1.3 SELLER'S DELIVERIES. Seller will have delivered the
items described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the benefit of
Buyer and may be waived only by Buyer. At all times Buyer has the right to
waive any condition. Such waiver or waivers must be in writing to Seller. If
any conditions are not satisfied on or before the Closing Date, and Buyer has
not waived the unsatisfied conditions, Seller will not be deemed to be in
default (unless Seller has breached Sections 8.1.2 or 8.1.3 above) and Buyer's
sole remedy will be to terminate this Agreement.
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The Close of
Escrow and Seller's obligations with respect to this transaction are subject to
the following conditions precedent: (a) Buyer's delivery to Escrow Holder on or
before the Closing Date, of the items described in Section 6.2; (b) the approval
of such of Seller's constituents as Seller shall deem necessary or advisable in
its sole and absolute discretion as set forth in Section 9 hereof; (c) Buyer
having duly performed each and every agreement to be performed by Buyer
hereunder; and (d) Buyer's representations, warranties and covenants set forth
in this Agreement, will be true and correct in all material respects as of the
Closing Date. The conditions set forth in this Section 8.2 are solely for the
benefit of Seller and may be waived only by Seller, with such waiver or waivers
to be in writing to Buyer. If any conditions are not satisfied on or before the
Closing Date, and Seller has not waived the unsatisfied conditions, Buyer will
not be deemed to be in default (unless Buyer has breached Sections 8.2(a), (c)
or (d) above) and Seller's sole remedy will be to terminate the Agreement.
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9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise
reasonable diligence to obtain the approval of this transaction by such of
the constituents of Seller as Seller shall deem necessary or advisable, in
its sole and absolute discretion, and shall notify Buyer and Escrow Holder
when such approvals have been obtained. If Seller is not able to obtain such
approvals from such constituents on or before the date which is ____ days
after the Effective Date, or such later date as is mutually agreed to by
Buyer and Seller, then Seller may cancel this Agreement by notice to Buyer
and Escrow Holder given prior to the end of that time period, and in that
event Seller shall pay all title and escrow cancellation costs. Seller shall
indemnify and hold Buyer harmless from any claim, damage, loss, liability,
action, settlement, including Buyer's reasonable attorneys' fees suffered by
Buyer and which results from or relates to the Seller's securing approval of
this transaction and transferring the Property to Buyer pursuant to such
approval.
10. PROPERTY "AS-IS":
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. BUYER
REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE OPPORTUNITY TO
INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS, IF ANY, AND
THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER HAVING MADE SUCH PERSONAL
EXAMINATION AND INSPECTION. BUYER AGREES THAT BUYER WILL ACCEPT THE PROPERTY,
IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT
LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT,
SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES, REPRESENTATIONS AND WARRANTIES
MADE BY SELLER ELSEWHERE HEREIN. NO PERSON ACTING ON BEHALF OF SELLER IS
AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT,
EXCEPT FOR THOSE REPRESENTATIONS, WARRANTIES, COVENANTS, INDEMNITIES AND
AGREEMENTS EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES
NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR
FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED
THEREFROM;
(B) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL
ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY
DEVELOPMENT OF THE PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;
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(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR
OF THE PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY,
INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS
REQUIRED TO DEVELOP THE PROPERTY;
(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION
WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE
GOVERNMENTAL AUTHORITY OR BODY;
(H) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR
MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION
OR LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO, THE ENDANGERED SPECIES ACT, TITLE III OF THE
AMERICANS WITH DISABILITIES ACT OF 1990 OR ANY OTHER LAW, RULE OR
REGULATION GOVERNING ACCESS BY DISABLED PERSONS, CALIFORNIA HEALTH &
SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL ACT, THE FEDERAL
RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL
PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF
1980, AS AMENDED, THE RESOURCES CONSERVATION AND RECOVERY ACT OF 1976,
THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS
MATERIALS TRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL ACT, AND
REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON,
UNDER, OR ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS,
INCLUDING ANY INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR
OTHER MATERIALS PREPARED BY OR ON BEHALF OF SELLER;
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(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR
SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND
SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR
FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS;
(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE
LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN
ALQUIST-PRIOLO SPECIAL STUDY ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING
ENTITLEMENTS AFFECTING THE PROPERTY;
(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF
STATE AND LOCAL GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE PROPERTY
INCLUDING, WITHOUT LIMITATION, THE CONSTRUCTION OF OFFSITE AND ONSITE
ROADS, UTILITIES AND OTHER IMPROVEMENTS; OR
(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE
PROPERTY EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN, INCLUDING
ANY AND ALL SUCH MATTERS REFERENCED, DISCUSSED OR DISCLOSED IN ANY
DOCUMENTS DELIVERED BY SELLER TO BUYER, IN ANY PUBLIC RECORDS OF ANY
GOVERNMENTAL AGENCY OR ENTITY OR UTILITY COMPANY, OR IN ANY OTHER
DOCUMENTS AVAILABLE TO BUYER.
(T) BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER
IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND ITS OWN
REVIEW OF ALL INFORMATION AND DOCUMENTATION CONCERNING THE PROPERTY,
AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER.
BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION MADE
AVAILABLE TO BUYER OR PROVIDED OR TO BE PROVIDED BY OR ON BEHALF OF
SELLER WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF
SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO
THE
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ACCURACY OR COMPLETENESS OF SUCH INFORMATION EXCEPT AS MAY
OTHERWISE BE PROVIDED HEREIN. BUYER AGREES TO FULLY AND
IRREVOCABLY RELEASE ALL SUCH SOURCES OF INFORMATION AND PREPARERS
OF INFORMATION AND DOCUMENTATION TO THE EXTENT SUCH SOURCES OR
PREPARERS ARE SELLER, OR ITS EMPLOYEES, OFFICERS, DIRECTORS,
REPRESENTATIVES, BENEFICIARIES, INVESTORS, AGENTS, SERVANTS,
ATTORNEYS, AFFILIATES, PARENT COMPANIES, SUBSIDIARIES, SUCCESSORS
OR ASSIGNS FROM ANY AND ALL CLAIMS, DAMAGES AND LIABILITIES ARISING
FROM SUCH INFORMATION OR DOCUMENTATION, EXCEPT IF AND TO THE EXTENT
THAT BUYER EMPLOYS SUCH SOURCES OR PREPARERS OF INFORMATION TO ACT
ON BEHALF OF BUYER, IN WHICH EVENT THE LIABILITY OF SUCH SOURCES OR
PREPARERS OF INFORMATION TO BUYER SHALL BE DETERMINED BY THEIR OWN
INDEPENDENT AGREEMENTS WITH BUYER, AND SELLER SHALL NOT BE LIABLE
FOR SUCH AGREEMENTS OR OBLIGATIONS. SELLER IS NOT LIABLE OR BOUND
IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR
INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION THEREOF,
FURNISHED BY ANY OF THE FOREGOING ENTITIES AND INDIVIDUALS OR ANY
OTHER INDIVIDUAL OR ENTITY.
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. Buyer acknowledges the disclosures expressly made by Seller in this
Agreement, the Prospectus and in correspondence from Seller, its attorneys
and/or its agents to Buyer, its attorneys and/or its agents.
11. TITLE INSURANCE: At the Close of Escrow, the Title Company will
issue to Buyer at Buyer's sole cost and expense an ALTA Standard Coverage Policy
(1990) with coverage in an amount equal to the appraised value of the Real
Property as determined by Buyer in its sole discretion, showing title to the
Real Property vested in Buyer, subject only to the Permitted Exceptions and the
standard printed exceptions and conditions in the policy of title insurance
("TITLE POLICY"). If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for the
extended coverage policy and the cost of any endorsements will be at Buyer's
sole cost and expense; however, Buyer's election to obtain an extended coverage
policy will not delay the Closing and Buyer's inability to obtain an extended
coverage policy or any such endorsements will not be deemed to be a failure of
any condition to Closing.
12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) all escrow fees and costs;
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(c) all city and county documentary transfer taxes;
(d) all document recording charges;
(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage
title policy, the cost of any required survey and, the cost of any
endorsements required by Buyer; and
(h) All other costs and expenses necessarily incurred to close
the transaction.
13. DISBURSEMENTS AND OTHER ACTIONS:
13.1 ESCROW HOLDER. At the Close of Escrow, Escrow Holder will
promptly undertake all of the following:
(a) Cause the Grant Deed (with documentary transfer tax
information to be affixed AFTER recording) to be recorded with the County
Recorder and obtain conformed copies thereof for distribution to Buyer and
Seller.
(b) Direct the Title Company to issue the Title Policy to Buyer
within 15 BUSINESS DAYS after Closing.
(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and any
other documents (or copies thereof) deposited into Escrow by Seller.
Deliver to Seller any other documents (or copies thereof) deposited into
Escrow by Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that the
Close of Escrow has occurred.
13.2 BY TRANSFER AGENT. Promptly after the Close of Escrow,
Transfer Agent shall deliver all Units in payment of the Exchange Value for
the Property to the persons, at the addresses and in the amounts designated
by Seller.
13.3 POSSESSION. Possession of the Other Assets in Seller's
possession or control and all other Property shall be delivered by Seller to
Buyer at the Close of Escrow.
14. JOINT REPRESENTATIONS AND WARRANTIES: In addition to any
express agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other, provided
that liability for any breach is subject to Sections 8.1.2 and 23.13 hereof:
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14.1 AUTHORITY. Each party has the legal power, right and authority
to enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
14.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering into of
this Agreement, the instruments referenced herein, and the consummation of this
transaction. Except as provided in Section 9, no further consent of any
partner, shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
14.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners, officers
or trustees of each party, if any, have the legal power, right, and actual
authority to bind each party to the terms and conditions of those documents.
14.4 VALID AND BINDING. This Agreement and all other documents
required to close this transaction are and will be valid, legally binding
obligations of and enforceable against each party in accordance with their
terms, subject only to applicable bankruptcy, insolvency, reorganization,
moratorium laws or similar laws or equitable principles affecting or limiting
the rights of contracting parties generally.
14.5 BROKER. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged by
them, respectively, in connection with any of the transactions contemplated by
this Agreement, or to its knowledge is in any way connected with any of such
transactions. Buyer will indemnify, save harmless and defend Seller from any
liability, cost, or expense arising out of or connected with any claim for any
commission or compensation made by any person or entity claiming to have been
retained or contacted by Buyer in connection with this transaction. Seller will
indemnify, save harmless and defend Buyer from any liability, cost, or expense
arising out of or connected with any claim for any commission or compensation
made by any person or entity claiming to have been retained or contacted by
Seller in connection with this transaction. This indemnity provision will
survive the Closing or any earlier termination of this Agreement.
15. SELLER'S WARRANTIES AND REPRESENTATIONS: Seller makes the
following representations, and warranties and acknowledges that Buyer will
rely on such representations and warranties in acquiring the Property;
provided that liability for any breach is subject to Sections 8.1.2 and 23.13
hereof:
15.1 NON-FOREIGN ENTITY. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.
15.2 HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the
date of Seller's acquisition of the Property, no Hazardous Substances are now
or have been used, stored, generated or disposed of on or within the Property
except in the normal course of use and operation of the Property and in
compliance with all applicable Environmental Laws.
14
<PAGE>
15.3 CLEAN-UP. To Seller's Actual Knowledge, since the date of
Seller's acquisition of the Property, there are and have been no federal,
state or local enforcement, clean-up, removal, remedial or other governmental
or regulatory actions instituted or completed affecting the Property, other
than such other matters as may otherwise be disclosed in any Environmental
Audit or in any other documents provided or made available to Buyer.
15.4 CLAIMS. To Seller's Actual Knowledge, there are no
outstanding claims that have been made by any third party against Seller
relating to any Hazardous Substances on or within the Property.
The provisions of this Section 15 shall no longer bind Seller if this
Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder does not occur.
16. PRE-CLOSING COVENANTS. So long as this Agreement remains in full
force and effect:
16.1 NO TRANSFERS. Without the prior written consent of Buyer,
Seller will not convey any interest in the Property and will not subject the
Property to any additional liens, encumbrances, covenants, conditions,
easements, rights of way or similar matters after the date of this Agreement,
except as may be otherwise provided for in this Agreement, which will not be
eliminated prior to the Close of Escrow.
16.2 NO ALTERATIONS. Seller will not make any material alterations
to the Property without Buyer's consent, which will not be unreasonably
withheld or delayed.
16.3 MAINTENANCE. Seller will maintain the Property in
substantially the same condition as it is in, as of the date of this
Agreement, and manage the Property in accordance with Seller's established
practices.
16.4 OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all
of the obligations to be performed by Seller under any contracts affecting
the Property. Without prior written consent of Buyer, which will not be
unreasonably withheld or delayed, Seller will not enter into any contract or
agreement providing for the provision of goods or services to or with respect
to the Property or the operation thereof unless such contracts or agreements
can be terminated without penalty by the Closing Date. Seller will not enter
into any leases for any portion of the Property.
16.5 EXPENDITURES. Seller will incur only expenditures necessary
for the day-to-day operation and maintenance of the Property, and will not
incur capital expenditures or liabilities not in the ordinary course of
business. Seller shall retain all Other Assets in Seller's possession on or
after the date hereof except for payment of such permitted liabilities and
expenditures.
15
<PAGE>
17. CONDEMNATION AND DESTRUCTION:
17.1 EMINENT DOMAIN OR TAKING. If proceedings under a power of
eminent domain relating to the Property or any part thereof are commenced
prior to Close of Escrow, Seller will promptly inform Buyer in writing.
(a) If such proceedings involve the taking of title to all or a
material interest in the Property, Buyer may elect to terminate this
Agreement by notice in writing sent within 10 DAYS of Seller's written
notice to Buyer, in which case neither party will have any further
obligation to or rights against the other except any rights or
obligations of either party which are expressly stated to survive
termination of this Agreement.
(b) If the proceedings do not involve the taking of title to all or a
material interest in the Property, or if Buyer does not elect to terminate
this Agreement, this transaction will be consummated as described herein
and any award or settlement payable with respect to such proceeding will
be paid or assigned to Buyer upon Close of Escrow.
(c) If this sale is not consummated for any reason, any condemnation
award or settlement will belong to Seller.
17.2 DAMAGE OR DESTRUCTION. Except as provided in this Section,
prior to the Close of Escrow the entire risk of loss of damage by earthquake,
flood, landslide, fire or other casualty is borne and assumed by Seller. If,
prior to the Close of Escrow, any part of the Improvements is damaged or
destroyed by earthquake, flood, landslide, fire or other casualty, Seller
will promptly inform Buyer of such fact in writing and advise Buyer as to the
extent of the damage and whether it is, in Seller's reasonable opinion,
"MATERIAL" or not "MATERIAL".
(a) If such damage or destruction is "MATERIAL", Buyer has the option
to terminate this Agreement upon written notice to the Seller given not
later than 10 DAYS after receipt of Seller's written notice to Buyer
advising of such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any damage or
destruction to the Improvements where the cost of repair or replacement is
estimated to be more than 25% of the Exchange Value of the Property and
will take more than 60 DAYS to repair.
(c) If this Agreement is so terminated, the provisions of Section 5
will govern.
(d) If Buyer does not elect to terminate this Agreement, or if the
casualty is not material, Seller will reduce the Exchange Value by the
value reasonably estimated by Seller to repair or restore the damaged
portion of the Improvements, less any sums expended by Seller to make
emergency repairs to the Improvements or the Property or otherwise
protect the physical condition of the Improvements or the Property, and
this transaction will close pursuant to the terms of this Agreement.
<PAGE>
(e) If the damage is not material, Seller's notice to Buyer of the
damage or destruction will also set forth Seller's reduced Exchange
Value and Seller's allocation of value to the damaged portion of the
Improvements. If Buyer does not accept Seller's reduced Exchange Value,
Buyer's sole remedy will be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated hereunder,
all rights to insurance claims or proceeds in respect of damage or
destruction to the Improvements occurring prior to the Close of Escrow will
belong to Seller.
18. UTILITIES AND DEPOSITS:
18.1 UTILITIES. Seller will notify all utility companies servicing the
Property of the sale of the Property to Buyer and will notify the utility
companies that all utility bills henceforth are to be sent to Buyer. Buyer
shall be entitled to receive any and all refunds of all utility deposits held by
utility companies and Seller will assign to Buyer all of Seller's right, title
and interest in any such utility deposits.
18.2 REFUNDABLE DEPOSITS. To the extent there exists any refundable
deposits made in connection with the development of the Property prior to the
Closing ("Refundable Deposits"), Seller shall assign to Buyer all of Seller's
right, title and interest in and to such Refundable Deposits.
19. MEDIATION OF DISPUTES: No party to this Agreement shall initiate any
litigation against any other party to this Agreement concerning any controversy
or claim arising out of or relating to this Agreement or any agreements or
instruments relating hereto or delivered in connection herewith, including, but
not limited to, any claim based on or arising from an alleged tort, unless and
until (i) at least 60 days before the same shall be filed, a complete copy of
each of the summons and complaint (and/or any other documentation required to
initiate such litigation) to be filed by the complaining party shall have been
delivered to the other party or parties to any such dispute, and (ii) the
complaining party has made itself available to meet in Los Angeles, California
with the other party or parties for no more than 3 business days of non-binding
mediation. Until and unless such mediation has taken place, the complaining
party must give notice to the non-complaining party that it will, and then it
must, make itself available for such mediation during at least 20 business days
during the 60 days before the date on which such summons and complaint will be
filed.
20. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO OR
DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY PARTY, BE DETERMINED
BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (9 U.S.C. SECTION
1 ET SEQ.) UNDER THE AUSPICES AND RULES OF THE AMERICAN ARBITRATION ASSOCIATION
("AAA"). THE AAA WILL BE INSTRUCTED BY EITHER OR BOTH PARTIES TO PREPARE A LIST
OF THREE (3) JUDGES WHO HAVE RETIRED FROM
<PAGE>
THE SUPERIOR COURT OF THE STATE OF CALIFORNIA, A HIGHER CALIFORNIA COURT OR
ANY FEDERAL COURT. WITHIN 10 DAYS OF RECEIPT OF THE LIST, EACH PARTY MAY
STRIKE 1 NAME FROM THE LIST. THE AAA WILL THEN APPOINT THE ARBITRATOR FROM
THE NAME(S) REMAINING ON THE LIST. THE ARBITRATION WILL BE CONDUCTED IN SAN
FRANCISCO, LOS ANGELES OR SAN DIEGO, WHICHEVER IS THE CLOSEST CITY TO THE
NEXUS OF THE DISPUTE. ANY CONTROVERSY IN INTERPRETATION OR ENFORCEMENT OF
THIS PROVISION OR WHETHER A DISPUTE IS ARBITRABLE, WILL BE DETERMINED BY THE
ARBITRATOR. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF
AN ACTION FOR JUDICIAL RELIEF OR IN PURSUIT OF AN ANCILLARY REMEDY DOES NOT
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO
SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION
DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING
UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR BY
JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL
RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN
THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION
AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE
AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS
ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
Buyer's Initials ________ Seller's Initials _________
21. NOTICES: All notices or other communications required or
permitted hereunder must be in writing, and must be personally delivered
(including by means of professional messenger service) or sent by overnight
courier, or sent by registered or certified mail, postage prepaid, return
receipt requested to the addresses set forth in Section 1 hereof. All
notices sent by mail will be deemed received 2 DAYS after the date of mailing
and all notices sent by other means permitted herein shall be deemed received
on the earlier of the date delivered or the date on which delivery is refused.
22. ASSIGNMENT: Neither party shall have the right to assign this
Agreement without the other party's prior written consent.
<PAGE>
23. MISCELLANEOUS:
23.1 COUNTERPARTS. This Agreement may be executed in counterparts.
23.2 PARTIAL INVALIDITY. If any term or provision of this Agreement
will be deemed to be invalid or unenforceable to any extent, the remainder of
this Agreement will not be affected thereby, and each remaining term and
provision of this Agreement will be valid and be enforced to the fullest extent
permitted by law.
23.3 POSSESSION OF THE PROPERTY. Seller will deliver possession of
the Property to Buyer upon the Close of Escrow.
23.4 WAIVERS. No waiver of any breach of any covenant or provision
contained herein will be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision contained herein. No extension
of time for performance of any obligation or act will be deemed an extension of
the time for performance of any other obligation or act except those of the
waiving party, which will be extended by a period of time equal to the period of
the delay.
23.5 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and
inures to the benefit of the permitted successors and assigns of the parties
hereto.
23.6 PROFESSIONAL FEES. In the event of the bringing of any action,
arbitration or suit by a party hereto against another party hereunder by reason
of any breach of any of the covenants, agreements or provisions on the part of
the other party arising out of this Agreement, then in that event the prevailing
party will be entitled to have the recovery of and from the other party all
costs and expenses of the action, mediation or suit, actual attorneys' fees,
witness fees and any other professional fees resulting therefrom.
23.7 ENTIRE AGREEMENT. This Agreement (including all Exhibits
attached hereto) constitutes the entire contract between the parties hereto with
respect to the subject matter hereof and may not be modified except by an
instrument in writing signed by the party to be charged.
23.8 TIME OF ESSENCE. Seller and Buyer hereby acknowledge and agree
that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof.
23.9 CONSTRUCTION. Seller and Buyer and their respective advisors
believe that this Agreement is the product of all of their efforts, that it
expresses their agreement and that it should not be interpreted in favor of or
against either Buyer or Seller. The parties further agree that this Agreement
will be construed to effectuate the normal and reasonable expectations of a
sophisticated seller and buyer.
23.10 GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced in
accordance with the laws of the State of California.
<PAGE>
23.11 WEAR AND TEAR. Buyer specifically acknowledges that Seller
will continue to use the Property in the course of its business and accepts the
fact that reasonable wear and tear will occur after the date of this Agreement.
Buyer specifically agrees that Seller is not responsible for repairing such
reasonable wear and tear and that Buyer is prohibited from raising such wear and
tear as a reason for not consummating this transaction or for requesting a
reduction in the Exchange Value.
23.12 NO RECORDATION. No memorandum or other document relating to
this Agreement will be recorded without the prior written consent of Seller, and
any such consent or approval will be conditioned upon Buyer providing Seller
with a quitclaim deed fully executed and acknowledged by Buyer, quitclaiming any
and all interests that it may have in the Property to Seller, which quitclaim
deed Seller may record in the event that this Agreement is terminated or the
transaction contemplated herein is not consummated.
23.13 SURVIVAL. All obligations of the parties contained herein
which by their terms do not arise until after the Close of Escrow and any other
provisions of this Agreement which by their terms survives the Close of Escrow,
shall survive the Close of Escrow. Notwithstanding anything to the contrary
contained in this Agreement, the representations and warranties contained in
this Agreement shall survive the Closing for a period of 1 year; provided that
any claims by one party hereto must be made in writing to the other party within
the 1 year period.
23.14 DISCLAIMER. Nothing herein creates any right or remedy for
the benefit of any person not a party hereto, nor creates a fiduciary
relationship, an agency or a partnership.
23.15 WAIVER OF JURY TRIAL. EACH PARTY, ACTING WITH KNOWLEDGE OF
ITS RIGHTS AFTER A FULL OPPORTUNITY TO CONSULT WITH COUNSEL, VOLUNTARILY WAIVES
ALL RIGHTS TO TRIAL BY JURY IN ALL PROCEEDINGS FOR WHICH A TRIAL BY JURY WOULD
OTHERWISE BE AVAILABLE OR REQUIRED, AND WHICH INVOLVE ANY MATTER ARISING OUT OF
OR CONNECTED WITH RIGHTS OR DUTIES UNDER, OR ENFORCEMENT OR INTERPRETATION OF,
THIS AGREEMENT.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year hereinabove written.
"SELLER": "BUYER":
NATIONAL INVESTORS FINANCIAL, ESPERANZA, INC.,
INC., a California corporation, AS TRUSTEE a California corporation
for NATIONAL INVESTORS LAND
HOLDING TRUST ___
By: By:
--------------------------- ---------------------------
Its: Its:
-------------------------- --------------------------
and and
By: By:
--------------------------- ---------------------------
Its: Its:
-------------------------- --------------------------
Agreed to and accepted
by Escrow Holder:
By:
---------------------------
Its:
--------------------------
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY:
WHEN RECORDED MAIL TO:
Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, California 90017
Attn.: Bruce H. Newman, Esq.
- ------------------------------------------------------------------------------
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a separate
statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
NATIONAL INVESTORS FINANCIAL, INC., a CALIFORNIA corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ("Grantor"), hereby grants to ESPERANZA,
INC., a California corporation ("Grantee"), the real property in the County of
San Bernardino, State of California, and described in EXHIBIT A attached hereto
and made a part hereof.
DATED: , 1998
-------------------
NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST __
By:
---------------------------
Its:
--------------------------
By:
---------------------------
Its:
--------------------------
MAIL TAX STATEMENTS TO:
<PAGE>
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
-------------------- )
On ____________________, before me, _____________________________________,
personally appeared ______________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
- ------------------------------
Notary Public in and for said
County and State [SEAL]
<PAGE>
Document No. Date Recorded
-------------------- ----------------
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
NOT BE MADE A PART OF THE PERMANENT RECORD
IN THE OFFICE OF THE COUNTY RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of
---------------------
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
- ------------------------------------------
(as grantor)
and
- ------------------------------------------
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of ___________________.
The amount of tax due on the accompanying document is $_______________.
Computed on full value of property conveyed, or
- ------
Computed on full value less liens and encumbrances remaining at time
of sale.
- ------
- -----------------------------------
- -----------------------------------
By:
--------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee
of a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a U.S. real property interest by NATIONAL
INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for NATIONAL
INVESTORS LAND HOLDING TRUST ("TRANSFEROR"), each of the undersigned hereby
certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is ________; and
3. Transferor's office address is________________________________,
___________________.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by transferee and that any false statement contained
herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he
has examined this certification and to the best of his knowledge and belief it
is true, correct and complete, and he further declares that he has authority to
sign the document on behalf of the Transferor.
NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___
By:
-----------------------------
Its:
-----------------------------
By:
-----------------------------
Its:
-----------------------------
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is
executed as of ______________, but effective as of the Effective Date (as
hereinafter defined), by and between NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for NATIONAL INVESTORS LAND HOLDING TRUST ___
("Assignor"), and ESPERANZA, INC., a California corporation ("Assignee"), with
reference to the following facts:
RECITALS:
A. Assignor, as the agent of and for the benefit of various
investors, holds title to that certain real property commonly known as
"Esperanza at Victorville", located in the County of San Bernardino, State of
California, as more particularly described on Exhibit "A" attached hereto and
incorporated herein by reference (the "Property").
B. Concurrently herewith, Assignor has executed that certain Grant
Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to Assignee
all of its right, title and interest in and to all agreements relating to the
Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are by this reference incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the Property
which are set forth in Exhibit "B" attached hereto and made a part hereof
(collectively, the "Agreements"). The assignment provided for in this Section 1
is effective concurrently with the transfer of the Property from Assignor to
Assignee (the "Effective Date").
i
<PAGE>
2. ASSIGNEE'S ASSUMPTION. Assignee hereby accepts the assignment
from Assignor, assumes and agrees to perform all duties and obligations of
Assignor under the terms of the Agreements which are required to be performed on
or after the Effective Date.
3. DELIVERIES; REPORTS. On or before the Effective Date, Assignor
shall deliver to Assignee the original Agreements or if such original Agreements
are not in Assignor's possession, certified copies of such Agreements. Assignor
shall furnish and deliver to Assignee, promptly after receipt thereof,
duplicates or copies of all reports, notices, requests, demands, declarations,
certificates or other instruments hereafter received by Assignor and relating to
the Agreements. Assignee's address for receipt of the foregoing is __________
______________________________________________________________.
4. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may be
necessary to further assure to Assignee the rights assigned hereby and the full
benefits hereof and to preserve and protect this Assignment and all of the
rights, powers and remedies of Assignee provided for herein.
5. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto.
6. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
7. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
ii
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written but effective as of the Effective
Date.
ASSIGNOR: NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST ___
By:
-----------------------------
Its:
-----------------------------
By:
-----------------------------
Its:
-----------------------------
ASSIGNEE: ESPERANZA, INC.,
a California corporation
By:
-----------------------------
Its:
-----------------------------
By:
-----------------------------
Its:
-----------------------------
iii
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of
the ____ day of ___________________________, 1998 (this "Assignment"), by
NATIONAL INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___ ("Assignor") to ESPERANZA, INC., a
California corporation ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and
Sale and Joint Escrow Instructions dated ________, 1998 ("Agreement of Purchase
and Sale") under which Assignee has agreed to purchase from Assignor, that
certain real property and any and all buildings, structures and improvements on
said real property commonly identified as "Esperanza at Victorville", located in
the County of San Bernardino, State of California and legally described on
EXHIBIT A attached hereto (the "Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all
intangible property used, owned or issued solely in connection with the
Property, including but not limited to, all licenses, permits, certificates of
occupancy, approvals, maps, dedications, subdivision maps and entitlements
issued, approved or granted by any governmental agencies or instrumentalities
having any jurisdiction over the Property (the "Authorities") or otherwise in
i
<PAGE>
connection with the Property; all development rights, conditional use permits,
variances, "floor area ratio" development rights and other intangible rights,
titles, interests, privileges and appurtenances owned by Assignor and related to
or issued in connection with the Property and/or its use, occupancy, operation
and/or development; all licenses, consents, easements, rights of way, and
approvals required from private parties to make use of utilities and to insure
vehicular and pedestrian ingress and egress to the Property; and any pending
applications or requests as to any of the foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the construction,
reconstruction, maintenance, repair, or operation any improvements on the
Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the Improvements and the
personal property situated on the Property, including but not limited to those
made by or received from any third party with respect to any building, building
component, structure, fixture, machinery, equipment or material situated on,
contained in any building or other improvement situated on, or comprising a part
of any building or other improvement situated on any part of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's right,
title and interest in and to refundable deposits, bonds and other collateral
furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold, use,
sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from time
to time upon written request therefor, execute and deliver to Assignee, its
successors and assigns any new or confirmatory instruments and take such further
acts as Assignee may reasonably request to fully evidence the assignment
contained herein and to enable Assignee, its successors and assigns to fully
realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it has
not previously assigned or hypothecated its interest in the foregoing described
General Intangibles; however, Assignee shall have no claims or rights against
Assignor, and Assignor shall have no obligation or liability to Assignee for any
General Intangibles described herein which do not exist, or which Assignor does
not have the right to transfer to Assignee.
ii
<PAGE>
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
_________, 1998.
NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___
By:
-----------------------------
Its:
-----------------------------
By:
-----------------------------
Its:
-----------------------------
iii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
NATIONAL INVESTORS FINANCIAL, INC.,
a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___,
AS SELLER,
AND
VICTORVILLE HOMES, INC.,
a California corporation,
AS BUYER
RELATING TO
PROPERTY LOCATED IN
Victorville, California
known as
"STACEY ROSE AT VICTORVILLE"
DATED AS OF
__________________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.1 PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.2 SUBSTANCE OF TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . .5
3. Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.1 EXCHANGE VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
3.2 ADDITIONAL CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . .5
4. Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
5. Cancellation Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . .6
6. Deliveries to Escrow Holder . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.1 BY SELLER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.2 BY BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6.3 BY BUYER AND SELLER. . . . . . . . . . . . . . . . . . . . . . . . . .7
7. Condition of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
7.1 PERMITTED EXCEPTIONS . . . . . . . . . . . . . . . . . . . . . . . . .7
7.2 TITLE PROVIDED BY SELLER . . . . . . . . . . . . . . . . . . . . . . .7
8. Conditions to the Close of Escrow . . . . . . . . . . . . . . . . . . . . . . . .7
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. . . . . . . . . . . . . .7
8.1.1 TITLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. . . . . . .7
8.1.3 SELLER'S DELIVERIES. . . . . . . . . . . . . . . . . . . . . . .8
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS . . . . . . . . . . . . .8
9. Approval of Seller's Constituents . . . . . . . . . . . . . . . . . . . . . . . .8
10. Property "As-Is" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE . . . . . . . .9
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. Title Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
13. Disbursements and Other Actions. . . . . . . . . . . . . . . . . . . . . . . . 13
13.1 ESCROW HOLDER.. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.2 BY TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . 13
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13.3 POSSESSION.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14. Joint Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 13
14.1 AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.2 ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.3 DUE EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14.4 VALID AND BINDING . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.5 BROKER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15. Seller's Warranties and Representations. . . . . . . . . . . . . . . . . . . . 14
15.1 NON-FOREIGN ENTITY. . . . . . . . . . . . . . . . . . . . . . . . . 14
15.2 HAZARDOUS SUBSTANCES. . . . . . . . . . . . . . . . . . . . . . . . 14
15.3 CLEAN-UP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15.4 CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
16. Pre-Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.1 NO TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.2 NO ALTERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.3 MAINTENANCE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.4 OBLIGATIONS UNDER CONTRACTS.. . . . . . . . . . . . . . . . . . . . 15
16.5 EXPENDITURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17. Condemnation and Destruction . . . . . . . . . . . . . . . . . . . . . . . . . 15
17.1 EMINENT DOMAIN OR TAKING. . . . . . . . . . . . . . . . . . . . . . 15
17.2 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . 16
18 Utilities and Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
18.1 UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
18.2 REFUNDABLE DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . 17
19. Mediation of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
20. Arbitration of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
22. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23.1 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23.2 PARTIAL INVALIDITY. . . . . . . . . . . . . . . . . . . . . . . . . 18
23.3 POSSESSION OF THE PROPERTY. . . . . . . . . . . . . . . . . . . . . 18
23.4 WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23.5 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . 19
23.6 PROFESSIONAL FEES . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.7 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.8 TIME OF ESSENCE . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.9 CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.10 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.11 WEAR AND TEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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23.12 NO RECORDATION . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.13 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.14 DISCLAIMER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.15 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
EXHIBITS
EXHIBIT A - Legal Description
EXHIBIT B - Form of Grant Deed
EXHIBIT C - FIRPTA Affidavit
EXHIBIT D - Assignment and Assumption
EXHIBIT E - Bill of Sale and General Assignment of Intangibles
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<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("AGREEMENT") is made and entered into as of ____________ __, 1998, by and
between NATIONAL INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE
for NATIONAL INVESTORS LAND HOLDING TRUST ___ ("SELLER"), and VICTORVILLE HOMES,
INC., a California corporation ("BUYER").
R E C I T A L S
A. Seller is the owner of that certain unimproved real property commonly
known as "Stacey Rose at Victorville", consisting of approximately 32 acres,
located in the City of Victorville, County of San Bernardino, State of
California, as more particularly described in Exhibit A attached hereto (the
"Real Property").
B. Seller holds record title to the Real Property as agent of and for the
benefit of various investors who are the beneficiaries of National Investors
Land Holding Trust ____ (the "Trust").
C. Seller desires to sell to Buyer and Buyer desires to purchase from
Seller the Property (as hereinafter defined) on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals, which Recitals
are incorporated herein by this reference, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, Buyer
and Seller agree as follows:
A G R E E M E N T
1. DEFINITIONS: For the purposes of this Agreement the following terms
will be defined as follows:
1.1 "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the actual
knowledge of David Lasker and James N. Orth without having conducted any
independent inquiry or inspection, and shall not include the knowledge of any
other persons or firms, it being understood and agreed by Buyer that neither
David Lasker nor James N. Orth is charged with knowledge of all of the acts
and/or omissions of predecessors in title to the Property or management of the
Property before Seller's acquisition of the Property and the Actual Knowledge of
Seller shall not include information or material which may be in the possession
of Seller generally, but of which neither David Lasker nor James N. Orth is
actually aware.
1.2 "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly-owned subsidiary of AFH.
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<PAGE>
1.3 "AFH" means American Family Holdings, Inc., a Delaware corporation.
Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a wholly-owned
subsidiary of AFH.
1.4 "ASSIGNMENT" shall have the meaning given thereto in Section 6.1(d)
hereof.
1.5 "BILL OF SALE" shall have the meaning given thereto in Section
6.1(e) hereof.
1.6 "CLOSING DATE" means ___________, 1998, unless an earlier date is
agreed to in a writing subsequent to this Agreement executed and delivered by
each of the parties hereto to the other, and is the last date on which the
Closing and Close of Escrow can occur, subject to extension as provided for
in this Agreement.
1.7 "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably in
this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the
county in which the Property is located.
1.8 "EFFECTIVE DATE" means the date hereof.
1.9 "ENVIRONMENTAL AUDIT" means any environmental audit, review or
testing of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.10 "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment
including, without limitation, CERCLA (Comprehensive Environmental Response,
Compensation and Liability Act of 1980) and RCRA (Resources Conservation and
Recovery Act of 1976), as amended.
1.11 "ESCROW" shall have the meaning given thereto in Section 4 hereof.
1.12 "ESCROW HOLDER" means _______________________________, whose
address is _______________________________________________________________,
Attn.: ___________________.
1.13 "EXCHANGE VALUE" is the adjusted appraised value of the Property
which takes into consideration various factors to balance the business value
of the Property within its present ownership structure.
1.14 "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.15 "GRANT DEED" shall have the meaning given thereto in Section 6.1(a)
hereof.
1.16 "HAZARDOUS SUBSTANCE" means any substance, material or waste
which is or becomes designated, classified or regulated as being "toxic" or
"hazardous" or a "pollutant" or
2
<PAGE>
which is or becomes similarly designated, classified or regulated, under any
Environmental Law, including asbestos, petroleum and petroleum products.
1.17 "IMPROVEMENTS" means any and all improvements and fixtures
situated on the Real Property.
1.18 "INVESTORS" means the beneficiaries of the Trust.
1.19 "INTANGIBLES" means all of Seller's right, title and interest in
and to all intangible property used, owned or issued solely and strictly in
connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract rights,
accounts receivable and other intangible property used in connection with the
ownership and operation of the Property; (ii) all licenses, permits,
certificates of occupancy, approvals, dedications and entitlements issued,
approved or granted by any governmental authorities having jurisdiction over the
Property; and (iii) all development rights, conditional use permits, variances
and other intangible rights, titles, interests and privileges owned by Seller
and related to or issued in connection with the Land and/or Improvements, its
use, occupancy, operation and development, but in no way related to Seller's
financial data or other proprietary information or other property of Seller.
1.20 "NOTICES" will be sent as provided in Section 21 to:
Seller: National Investors Land Holding Trust
c/o National Investors Financial, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, CA 92660
Attn.: Mr. David Lasker
Telephone: (949) 833-8600
Facsimile: (949) 752-9753
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, CA 90017
Attn.: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Buyer: Victorville Homes, Inc.
__________________________
__________________________
Attn.:____________________
Telephone: ______________
Facsimile: ______________
3
<PAGE>
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, CA 90017
Attn.: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Escrow Holder: __________________________________
__________________________________
__________________________________
Attn.: __________________________
Telephone: ______________________
Facsimile: _____________________
1.21 "OPENING OF ESCROW" shall have the meaning given thereto in
Section 4 hereof.
1.22 "OTHER ASSETS" means cash, cash equivalent, notes and other
negotiable instruments and any and all other assets in the possession or
control of Seller, the value of which is determined by possession, and any
other assets other than the Real Property, Personal Property or Intangibles
relating to the Real Property.
1.23 "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.24 "PERSONAL PROPERTY" means the equipment, furniture and fixtures,
books and records and other personal property, if any, owned by Seller and
located on the Property as of the Effective Date, including without limitation,
those items listed on SCHEDULE 1 to the Bill of Sale.
1.25 "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements , (iii) the Intangibles, (iv) the Personal Property and (v) the
Other Assets.
1.26 "PROSPECTUS" means the Consent Solicitation Statement/Prospectus
of Buyer.
1.27 "REAL PROPERTY" means that certain real property located in the City
of Victorville, County of San Bernardino, State of California and commonly known
as "Stacey Rose at Victorville" and more particularly described in EXHIBIT A
attached hereto. The Real Property also is described in the Recitals hereof.
1.28 "TITLE COMPANY" means ________________________________________.
1.29 "TITLE POLICY" shall have the meaning given thereto in Section 11
hereof.
1.30 "TRANSFER AGENT" means ________________, who address is
__________________, Attn.: ___________, Facsimile No. ___________.
4
<PAGE>
1.31 "UNIT" means, collectively, one (1) share of common stock, plus
warrants to purchase three (3) additional shares of common stock, in AFH.
2. PURCHASE AND SALE:
2.1 PURCHASE AND SALE. Upon and subject to the terms and conditions
set forth in this Agreement, Seller agrees to sell to Buyer and Buyer agrees to
buy from Seller the Property, together with all easements, hereditaments,
entitlements (to the extent transferable) and appurtenances thereto. In
consideration of Seller's sale of the Property to Buyer, Buyer will (a) cause to
be delivered to the investors of Seller the Exchange Value in accordance with
Section 3, and (b) perform all of Buyer's other obligations hereunder.
2.2 SUBSTANCE OF TRANSACTIONS. Notwithstanding any other provision
of this Agreement, the transfer of the Property directly from Seller to Buyer is
for convenience purposes only to effect expeditiously the culmination of the
transfers set forth in this Section 2.2, and for all purposes hereunder it is
the intent of the parties that such transfer reflects the following transfers,
which shall occur in the following order: (i) all of the Investors, through
their approval of the transactions contemplated under this Agreement, contribute
all of their interests in the Property to AFH in exchange for Units, such Units
to be distributed to them pursuant to Sections 3 and 13.2 hereof; (ii) AFH
contributes the Property to AFC as a contribution to the capital of AFC; and
(iii) AFC contributes the Property to Buyer as a contribution to the capital of
Buyer. Seller's transfer of the Property directly to Buyer reflects Seller's
transfer of the Property from the Investors to AFH, from AFH to AFC, and from
AFC to the Buyer, in each instance in Seller's capacity as the agent of and on
behalf of such transferors.
3. CONSIDERATION:
3.1 EXCHANGE VALUE. In consideration for the sale of the Property to
Buyer, Buyer will deliver to Seller an amount equal to the Exchange Value for
the Property. The Exchange Value for the Property is $______________, which
shall be paid in the form of, and by issuance and delivery of, _____ Units to
the investors of Seller, to be distributed by the Transfer Agent at the Closing
outside of Escrow in accordance with Section 13.2 hereof. Upon the request of
any party hereto, whether made before or after the Closing, the parties hereto
will allocate the Exchange Value to the Real Property, Improvements, Personal
Property, Other Assets and the Intangibles.
3.2 ADDITIONAL CONSIDERATION. If, after the Close of Escrow, Buyer
completes the sale of the Property for a purchase price which exceeds the
appraised value of the Property, as set forth in the appraisal dated March, 1998
prepared by ____________________________ (the "Appraised Value"), Buyer will pay
to Seller an amount calculated pursuant to the terms of this Section 3.2, which
shall be paid in the form of, and by issuance and delivery of, an additional
number of Units equal to the quotient of the net cash proceeds (exclusive of
interest on deferred purchase price payments) received by Buyer for such sale
on or before December 31, 1999 up to 200% of the Appraised Value
5
<PAGE>
divided by $20. (For example, if the Appraised Value of the Property was
$1,750,000 and Buyer received by December 31, 1999 net cash sale proceeds in
the amount of $3,600,000, then the maximum number of additional Units
available for allocation among Seller's investors would be $1,750,000 divided
by $20 or 87,500 Units.)
4. ESCROW: Immediately upon execution of this Agreement, Buyer and
Seller will open an escrow (the "ESCROW") with the Escrow Holder by delivering
to Escrow Holder a fully executed copy of this Agreement (the "OPENING OF
ESCROW"). The purchase and sale of the Property will be completed through the
Escrow. Buyer and Seller agree to execute any additional instructions
consistent with this Agreement which are reasonably required by the Escrow
Holder. If there is a conflict between any printed escrow instructions and this
Agreement, the terms of this Agreement will govern.
5. CANCELLATION FEES AND EXPENSES: If the Closing does not occur at
the time and in the manner provided in this Agreement because of the default of
one of the parties, the non-defaulting party has the right to cancel the Escrow
by written notice to the defaulting party and to the Escrow Holder. All costs
of cancellation, if any, will be paid by the defaulting party.
6. DELIVERIES TO ESCROW HOLDER:
6.1 BY SELLER. On or prior to the Closing Date, Seller will deliver
or cause to be delivered to Escrow Holder the following items:
(a) A Grant Deed ("GRANT DEED"), in the form attached to this
Agreement as EXHIBIT B, duly executed and acknowledged by Seller and in
recordable form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status attached to
this Agreement as EXHIBIT C ("FIRPTA CERTIFICATE"), duly executed by or
on behalf of Seller.
(c) A properly executed California Form RE 590 or other evidence
sufficient to establish that Buyer is not required to withhold any portion
of the Exchange Value pursuant to Sections 18805 and 26131 of the
California Revenue and Taxation Code ("FORM 590").
(d) An Assignment and Assumption of Agreements ("ASSIGNMENT") duly
executed by Seller in favor of Buyer in the form attached to this Agreement
as EXHIBIT D.
(e) A Bill of Sale and General Assignment of Intangibles in the form
attached to this Agreement as EXHIBIT E ("BILL OF SALE"), duly executed by
Seller and conveying all right, title and interest of Seller in the
Personal Property and the Intangibles to Buyer.
(f) Such corporate resolutions, certificates of good standing and/or
other corporate or partnership documents relating to Seller as are
reasonably required by Buyer or Escrow Holder or both in connection with
this transaction.
6
<PAGE>
6.2 BY BUYER. On or prior to the Closing Date, Buyer will deliver or
cause to be delivered to Escrow Holder the following items:
(a) Such corporate resolutions, certificates of good standing and/or
other corporate or partnership documents relating to Buyer as are
reasonably required by Seller or Escrow Holder or both in connection with
this transaction.
(b) Amounts due to pay costs and expenses as set forth in Section 12
hereof.
6.3 BY BUYER AND SELLER. Buyer and Seller will each deposit such other
instruments consistent with this Agreement as are reasonably required by Escrow
Holder or otherwise required to close escrow. In addition Seller and Buyer
hereby designate Escrow Holder as the "REPORTING PERSON" for the transaction
pursuant to Section 6045(e) of the Internal Revenue Code.
7. CONDITION OF TITLE:
7.1 PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple title to
the Property will be conveyed to Buyer by Seller by Grant Deed, subject only to
the following title matters ("PERMITTED EXCEPTIONS"):
(a) all property tax liens (whether or not payment of property taxes
are delinquent) and all other matters shown in that certain Commitment for
Title Insurance effective _______________, issued by the Title Company,
bearing Order No.________; and
(b) matters affecting the condition of title to the Property created
by, at the request of or with the written consent of Buyer.
7.2 TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the Property,
and (b) Buyer shall rely solely on the Title Policy for protection against any
title defects.
8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following
conditions must be satisfied not later the earlier of the Closing Date or
such other period of time as may be specified below:
8.1.1 TITLE. As of the Closing, the Title Company will issue or have
committed to issue to Buyer the Title Policy described in Section 11.
8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller
will have duly performed each and every agreement to be performed by
Seller hereunder and, subject to the provisions of Section 10, Seller's
express representations and warranties set forth in
7
<PAGE>
this Agreement will be true and correct in all material respects as of
the Closing Date. However, notwithstanding anything to the contrary
stated or implied in this Section 8.1.2, Seller shall have no liability
for the breach of any representations, warranties or covenants set forth
in this Agreement, whether express or implied, absent a finding by a
court of competent jurisdiction that either David Lasker or James N.
Orth or both of them withheld information with respect thereto from
Buyer or falsified information delivered to and relied upon by Buyer and
that such action amounted to a violation of a representation or warranty
set forth herein.
8.1.3 SELLER'S DELIVERIES. Seller will have delivered the items
described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the benefit of
Buyer and may be waived only by Buyer. At all times Buyer has the right to
waive any condition. Such waiver or waivers must be in writing to Seller. If
any conditions are not satisfied on or before the Closing Date, and Buyer has
not waived the unsatisfied conditions, Seller will not be deemed to be in
default (unless Seller has breached Sections 8.1.2 or 8.1.3 above) and Buyer's
sole remedy will be to terminate this Agreement.
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The Close of Escrow and
Seller's obligations with respect to this transaction are subject to the
following conditions precedent: (a) Buyer's delivery to Escrow Holder on or
before the Closing Date, of the items described in Section 6.2; (b) the approval
of such of Seller's constituents as Seller shall deem necessary or advisable in
its sole and absolute discretion as set forth in Section 9 hereof; (c) Buyer
having duly performed each and every agreement to be performed by Buyer
hereunder; and (d) Buyer's representations, warranties and covenants set forth
in this Agreement, will be true and correct in all material respects as of the
Closing Date. The conditions set forth in this Section 8.2 are solely for the
benefit of Seller and may be waived only by Seller, with such waiver or waivers
to be in writing to Buyer. If any conditions are not satisfied on or before the
Closing Date, and Seller has not waived the unsatisfied conditions, Buyer will
not be deemed to be in default (unless Buyer has breached Sections 8.2(a), (c)
or (d) above) and Seller's sole remedy will be to terminate the Agreement.
9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise reasonable
diligence to obtain the approval of this transaction by such of the constituents
of Seller as Seller shall deem necessary or advisable, in its sole and absolute
discretion, and shall notify Buyer and Escrow Holder when such approvals have
been obtained. If Seller is not able to obtain such approvals from such
constituents on or before the date which is ____ days after the Effective Date,
or such later date as is mutually agreed to by Buyer and Seller, then Seller may
cancel this Agreement by notice to Buyer and Escrow Holder given prior to the
end of that time period, and in that event Seller shall pay all title and escrow
cancellation costs. Seller shall indemnify and hold Buyer harmless from any
claim, damage, loss, liability, action, settlement, including Buyer's reasonable
attorneys' fees suffered by Buyer and which results from or relates to the
Seller's securing approval of this transaction and transferring the Property to
Buyer pursuant to such approval.
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10. PROPERTY "AS-IS":
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. BUYER
REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE OPPORTUNITY TO
INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS, IF ANY, AND
THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER HAVING MADE SUCH PERSONAL
EXAMINATION AND INSPECTION. BUYER AGREES THAT BUYER WILL ACCEPT THE PROPERTY,
IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT
LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT,
SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES, REPRESENTATIONS AND WARRANTIES
MADE BY SELLER ELSEWHERE HEREIN. NO PERSON ACTING ON BEHALF OF SELLER IS
AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT,
EXCEPT FOR THOSE REPRESENTATIONS, WARRANTIES, COVENANTS, INDEMNITIES AND
AGREEMENTS EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES
NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR
FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED
THEREFROM;
(B) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES
AND USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY DEVELOPMENT OF
THE PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;
(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR
OF THE PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY,
INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS
REQUIRED TO DEVELOP THE PROPERTY;
(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION
WITH ANY LAWS, RULES, ORDINANCES OR
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REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY;
(H) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR
MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION
OR LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO, THE ENDANGERED SPECIES ACT, TITLE III OF THE
AMERICANS WITH DISABILITIES ACT OF 1990 OR ANY OTHER LAW, RULE OR
REGULATION GOVERNING ACCESS BY DISABLED PERSONS, CALIFORNIA HEALTH &
SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL ACT, THE FEDERAL
RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL
PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF
1980, AS AMENDED, THE RESOURCES CONSERVATION AND RECOVERY ACT OF 1976,
THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS
MATERIALS TRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL ACT, AND
REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON,
UNDER, OR ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS,
INCLUDING ANY INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR
OTHER MATERIALS PREPARED BY OR ON BEHALF OF SELLER;
(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR
SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND
SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR
FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS;
(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
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(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE
LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN
ALQUIST-PRIOLO SPECIAL STUDY ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING
ENTITLEMENTS AFFECTING THE PROPERTY;
(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF
STATE AND LOCAL GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE PROPERTY
INCLUDING, WITHOUT LIMITATION, THE CONSTRUCTION OF OFFSITE AND ONSITE
ROADS, UTILITIES AND OTHER IMPROVEMENTS; OR
(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE PROPERTY
EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN, INCLUDING
ANY AND ALL SUCH MATTERS REFERENCED, DISCUSSED OR DISCLOSED IN ANY
DOCUMENTS DELIVERED BY SELLER TO BUYER, IN ANY PUBLIC RECORDS OF ANY
GOVERNMENTAL AGENCY OR ENTITY OR UTILITY COMPANY, OR IN ANY OTHER
DOCUMENTS AVAILABLE TO BUYER.
(T) BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER
IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND ITS OWN
REVIEW OF ALL INFORMATION AND DOCUMENTATION CONCERNING THE PROPERTY,
AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER.
BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION MADE
AVAILABLE TO BUYER OR PROVIDED OR TO BE PROVIDED BY OR ON BEHALF OF
SELLER WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF
SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO
THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION EXCEPT AS MAY
OTHERWISE BE PROVIDED HEREIN. BUYER AGREES TO FULLY AND IRREVOCABLY
RELEASE ALL SUCH SOURCES OF INFORMATION AND PREPARERS OF INFORMATION
AND DOCUMENTATION TO THE EXTENT SUCH SOURCES OR PREPARERS ARE SELLER,
OR ITS EMPLOYEES, OFFICERS, DIRECTORS, REPRESENTATIVES, BENEFICIARIES,
INVESTORS, AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT COMPANIES,
SUBSIDIARIES, SUCCESSORS OR ASSIGNS FROM ANY AND ALL CLAIMS, DAMAGES
AND LIABILITIES ARISING FROM SUCH INFORMATION OR DOCUMENTATION, EXCEPT
IF AND TO THE EXTENT THAT BUYER EMPLOYS SUCH SOURCES OR PREPARERS OF
INFORMATION TO ACT ON BEHALF OF BUYER, IN
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WHICH EVENT THE LIABILITY OF SUCH SOURCES OR PREPARERS OF INFORMATION
TO BUYER SHALL BE DETERMINED BY THEIR OWN INDEPENDENT AGREEMENTS WITH
BUYER, AND SELLER SHALL NOT BE LIABLE FOR SUCH AGREEMENTS OR
OBLIGATIONS. SELLER IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY ORAL
OR WRITTEN STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO
THE PROPERTY, OR THE OPERATION THEREOF, FURNISHED BY ANY OF THE
FOREGOING ENTITIES AND INDIVIDUALS OR ANY OTHER INDIVIDUAL OR ENTITY.
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. Buyer acknowledges the disclosures expressly made by Seller in this
Agreement, the Prospectus and in correspondence from Seller, its attorneys
and/or its agents to Buyer, its attorneys and/or its agents.
11. TITLE INSURANCE: At the Close of Escrow, the Title Company will
issue to Buyer at Buyer's sole cost and expense an ALTA Standard Coverage Policy
(1990) with coverage in an amount equal to the appraised value of the Real
Property as determined by Buyer in its sole discretion, showing title to the
Real Property vested in Buyer, subject only to the Permitted Exceptions and the
standard printed exceptions and conditions in the policy of title insurance
("TITLE POLICY"). If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for the
extended coverage policy and the cost of any endorsements will be at Buyer's
sole cost and expense; however, Buyer's election to obtain an extended coverage
policy will not delay the Closing and Buyer's inability to obtain an extended
coverage policy or any such endorsements will not be deemed to be a failure of
any condition to Closing.
12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) all escrow fees and costs;
(c) all city and county documentary transfer taxes;
(d) all document recording charges;
(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage title
policy, the cost of any required survey and, the cost of any endorsements
required by Buyer; and
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(h) All other costs and expenses necessarily incurred to close the
transaction.
13. DISBURSEMENTS AND OTHER ACTIONS:
13.1 ESCROW HOLDER. At the Close of Escrow, Escrow Holder will promptly
undertake all of the following:
(a) Cause the Grant Deed (with documentary transfer tax information
to be affixed AFTER recording) to be recorded with the County Recorder and
obtain conformed copies thereof for distribution to Buyer and Seller.
(b) Direct the Title Company to issue the Title Policy to Buyer
within 15 BUSINESS DAYS after Closing.
(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and any
other documents (or copies thereof) deposited into Escrow by Seller.
Deliver to Seller any other documents (or copies thereof) deposited into
Escrow by Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that the
Close of Escrow has occurred.
13.2 BY TRANSFER AGENT. Promptly after the Close of Escrow, Transfer
Agent shall deliver all Units in payment of the Exchange Value for the Property
to the persons, at the addresses and in the amounts designated by Seller.
13.3 POSSESSION. Possession of the Other Assets in Seller's possession or
control and all other Property shall be delivered by Seller to Buyer at the
Close of Escrow.
14. JOINT REPRESENTATIONS AND WARRANTIES: In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other, provided that
liability for any breach is subject to Sections 8.1.2 and 23.13 hereof:
14.1 AUTHORITY. Each party has the legal power, right and authority to
enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
14.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering into of
this Agreement, the instruments referenced herein, and the consummation of this
transaction. Except as provided in Section 9, no further consent of any
partner, shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
14.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners, officers
or trustees of each party, if any, have the legal power, right, and actual
authority to bind each party to the terms and conditions of those documents.
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14.4 VALID AND BINDING. This Agreement and all other documents
required to close this transaction are and will be valid, legally binding
obligations of and enforceable against each party in accordance with their
terms, subject only to applicable bankruptcy, insolvency, reorganization,
moratorium laws or similar laws or equitable principles affecting or limiting
the rights of contracting parties generally.
14.5 BROKER. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged
by them, respectively, in connection with any of the transactions
contemplated by this Agreement, or to its knowledge is in any way connected
with any of such transactions. Buyer will indemnify, save harmless and
defend Seller from any liability, cost, or expense arising out of or
connected with any claim for any commission or compensation made by any
person or entity claiming to have been retained or contacted by Buyer in
connection with this transaction. Seller will indemnify, save harmless and
defend Buyer from any liability, cost, or expense arising out of or connected
with any claim for any commission or compensation made by any person or
entity claiming to have been retained or contacted by Seller in connection
with this transaction. This indemnity provision will survive the Closing or
any earlier termination of this Agreement.
15. SELLER'S WARRANTIES AND REPRESENTATIONS: Seller makes the
following representations, and warranties and acknowledges that Buyer will
rely on such representations and warranties in acquiring the Property;
provided that liability for any breach is subject to Sections 8.1.2 and 23.13
hereof:
15.1 NON-FOREIGN ENTITY. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.
15.2 HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the
date of Seller's acquisition of the Property, no Hazardous Substances are now
or have been used, stored, generated or disposed of on or within the Property
except in the normal course of use and operation of the Property and in
compliance with all applicable Environmental Laws.
15.3 CLEAN-UP. To Seller's Actual Knowledge, since the date of Seller's
acquisition of the Property, there are and have been no federal, state or local
enforcement, clean-up, removal, remedial or other governmental or regulatory
actions instituted or completed affecting the Property, other than such other
matters as may otherwise be disclosed in any Environmental Audit or in any other
documents provided or made available to Buyer.
15.4 CLAIMS. To Seller's Actual Knowledge, there are no outstanding
claims that have been made by any third party against Seller relating to any
Hazardous Substances on or within the Property.
The provisions of this Section 15 shall no longer bind Seller if
this Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder does not occur.
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16. PRE-CLOSING COVENANTS. So long as this Agreement remains in full
force and effect:
16.1 NO TRANSFERS. Without the prior written consent of Buyer, Seller
will not convey any interest in the Property and will not subject the
Property to any additional liens, encumbrances, covenants, conditions,
easements, rights of way or similar matters after the date of this Agreement,
except as may be otherwise provided for in this Agreement, which will not be
eliminated prior to the Close of Escrow.
16.2 NO ALTERATIONS. Seller will not make any material alterations to
the Property without Buyer's consent, which will not be unreasonably withheld
or delayed.
16.3 MAINTENANCE. Seller will maintain the Property in substantially the
same condition as it is in, as of the date of this Agreement, and manage the
Property in accordance with Seller's established practices.
16.4 OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all of the
obligations to be performed by Seller under any contracts affecting the
Property. Without prior written consent of Buyer, which will not be
unreasonably withheld or delayed, Seller will not enter into any contract or
agreement providing for the provision of goods or services to or with respect to
the Property or the operation thereof unless such contracts or agreements can be
terminated without penalty by the Closing Date. Seller will not enter into any
leases for any portion of the Property.
16.5 EXPENDITURES. Seller will incur only expenditures necessary for
the day-to-day operation and maintenance of the Property, and will not incur
capital expenditures or liabilities not in the ordinary course of business.
Seller shall retain all Other Assets in Seller's possession on or after the
date hereof except for payment of such permitted liabilities and expenditures.
17. CONDEMNATION AND DESTRUCTION:
17.1 EMINENT DOMAIN OR TAKING. If proceedings under a power of eminent
domain relating to the Property or any part thereof are commenced prior to
Close of Escrow, Seller will promptly inform Buyer in writing.
(a) If such proceedings involve the taking of title to all or a
material interest in the Property, Buyer may elect to terminate this
Agreement by notice in writing sent within 10 DAYS of Seller's written
notice to Buyer, in which case neither party will have any further
obligation to or rights against the other except any rights or obligations
of either party which are expressly stated to survive termination of this
Agreement.
(b) If the proceedings do not involve the taking of title to all or
a material interest in the Property, or if Buyer does not elect to
terminate this Agreement, this transaction will be consummated as described
herein and any award or settlement payable with respect to such proceeding
will be paid or assigned to Buyer upon Close of Escrow.
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(c) If this sale is not consummated for any reason, any condemnation
award or settlement will belong to Seller.
17.2 DAMAGE OR DESTRUCTION. Except as provided in this Section, prior
to the Close of Escrow the entire risk of loss of damage by earthquake,
flood, landslide, fire or other casualty is borne and assumed by Seller. If,
prior to the Close of Escrow, any part of the Improvements is damaged or
destroyed by earthquake, flood, landslide, fire or other casualty, Seller
will promptly inform Buyer of such fact in writing and advise Buyer as to the
extent of the damage and whether it is, in Seller's reasonable opinion,
"MATERIAL" or not "MATERIAL".
(a) If such damage or destruction is "MATERIAL", Buyer has the
option to terminate this Agreement upon written notice to the Seller given
not later than 10 DAYS after receipt of Seller's written notice to Buyer
advising of such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any damage or
destruction to the Improvements where the cost of repair or replacement is
estimated to be more than 25% of the Exchange Value of the Property and
will take more than 60 DAYS to repair.
(c) If this Agreement is so terminated, the provisions of Section 5
will govern.
(d) If Buyer does not elect to terminate this Agreement, or if the
casualty is not material, Seller will reduce the Exchange Value by the
value reasonably estimated by Seller to repair or restore the damaged
portion of the Improvements, less any sums expended by Seller to make
emergency repairs to the Improvements or the Property or otherwise protect
the physical condition of the Improvements or the Property, and this
transaction will close pursuant to the terms of this Agreement.
(e) If the damage is not material, Seller's notice to Buyer of the
damage or destruction will also set forth Seller's reduced Exchange Value
and Seller's allocation of value to the damaged portion of the
Improvements. If Buyer does not accept Seller's reduced Exchange Value,
Buyer's sole remedy will be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated
hereunder, all rights to insurance claims or proceeds in respect of damage
or destruction to the Improvements occurring prior to the Close of Escrow
will belong to Seller.
18. UTILITIES AND DEPOSITS:
18.1 UTILITIES. Seller will notify all utility companies servicing the
Property of the sale of the Property to Buyer and will notify the utility
companies that all utility bills henceforth are to be sent to Buyer. Buyer
shall be entitled to receive any and all refunds of all utility deposits held by
utility companies and Seller will assign to Buyer all of Seller's right, title
and interest in any such utility deposits.
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18.2 REFUNDABLE DEPOSITS. To the extent there exists any refundable
deposits made in connection with the development of the Property prior to the
Closing ("Refundable Deposits"), Seller shall assign to Buyer all of Seller's
right, title and interest in and to such Refundable Deposits.
19. MEDIATION OF DISPUTES: No party to this Agreement shall initiate
any litigation against any other party to this Agreement concerning any
controversy or claim arising out of or relating to this Agreement or any
agreements or instruments relating hereto or delivered in connection
herewith, including, but not limited to, any claim based on or arising from
an alleged tort, unless and until (i) at least 60 days before the same shall
be filed, a complete copy of each of the summons and complaint (and/or any
other documentation required to initiate such litigation) to be filed by the
complaining party shall have been delivered to the other party or parties to
any such dispute, and (ii) the complaining party has made itself available to
meet in Los Angeles, California with the other party or parties for no more
than 3 business days of non-binding mediation. Until and unless such
mediation has taken place, the complaining party must give notice to the
non-complaining party that it will, and then it must, make itself available
for such mediation during at least 20 business days during the 60 days before
the date on which such summons and complaint will be filed.
20. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING
HERETO OR DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY
PARTY, BE DETERMINED BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (9 U.S.C. SECTION 1 ET SEQ.) UNDER THE AUSPICES AND RULES OF
THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THE AAA WILL BE INSTRUCTED BY
EITHER OR BOTH PARTIES TO PREPARE A LIST OF THREE (3) JUDGES WHO HAVE RETIRED
FROM THE SUPERIOR COURT OF THE STATE OF CALIFORNIA, A HIGHER CALIFORNIA COURT
OR ANY FEDERAL COURT. WITHIN 10 DAYS OF RECEIPT OF THE LIST, EACH PARTY MAY
STRIKE 1 NAME FROM THE LIST. THE AAA WILL THEN APPOINT THE ARBITRATOR FROM
THE NAME(S) REMAINING ON THE LIST. THE ARBITRATION WILL BE CONDUCTED IN SAN
FRANCISCO, LOS ANGELES OR SAN DIEGO, WHICHEVER IS THE CLOSEST CITY TO THE
NEXUS OF THE DISPUTE. ANY CONTROVERSY IN INTERPRETATION OR ENFORCEMENT OF
THIS PROVISION OR WHETHER A DISPUTE IS ARBITRABLE, WILL BE DETERMINED BY THE
ARBITRATOR. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF
AN ACTION FOR JUDICIAL RELIEF OR IN PURSUIT OF AN ANCILLARY REMEDY DOES NOT
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO
SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION
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OF DISPUTES' PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY
CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE
DISPUTE LITIGATED IN A COURT OR BY JURY TRIAL. BY INITIALING IN THE SPACE
BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS
SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS
PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE
CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION
PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING
OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO
NEUTRAL ARBITRATION.
Buyer's Initials ________ Seller's Initials _________
21. NOTICES: All notices or other communications required or
permitted hereunder must be in writing, and must be personally delivered
(including by means of professional messenger service) or sent by overnight
courier, or sent by registered or certified mail, postage prepaid, return
receipt requested to the addresses set forth in Section 1 hereof. All
notices sent by mail will be deemed received 2 DAYS after the date of mailing
and all notices sent by other means permitted herein shall be deemed received
on the earlier of the date delivered or the date on which delivery is refused.
22. ASSIGNMENT: Neither party shall have the right to assign this
Agreement without the other party's prior written consent.
23. MISCELLANEOUS:
23.1 COUNTERPARTS. This Agreement may be executed in counterparts.
23.2 PARTIAL INVALIDITY. If any term or provision of this Agreement
will be deemed to be invalid or unenforceable to any extent, the remainder of
this Agreement will not be affected thereby, and each remaining term and
provision of this Agreement will be valid and be enforced to the fullest
extent permitted by law.
23.3 POSSESSION OF THE PROPERTY. Seller will deliver possession of the
Property to Buyer upon the Close of Escrow.
23.4 WAIVERS. No waiver of any breach of any covenant or provision
contained herein will be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision contained herein. No extension
of time for performance of any obligation or act will be deemed an extension of
the time for performance of any other obligation or act except those of the
waiving party, which will be extended by a period of time equal to the period of
the delay.
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23.5 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures
to the benefit of the permitted successors and assigns of the parties hereto.
23.6 PROFESSIONAL FEES. In the event of the bringing of any action,
arbitration or suit by a party hereto against another party hereunder by
reason of any breach of any of the covenants, agreements or provisions on the
part of the other party arising out of this Agreement, then in that event the
prevailing party will be entitled to have the recovery of and from the other
party all costs and expenses of the action, mediation or suit, actual
attorneys' fees, witness fees and any other professional fees resulting
therefrom.
23.7 ENTIRE AGREEMENT. This Agreement (including all Exhibits attached
hereto) constitutes the entire contract between the parties hereto with
respect to the subject matter hereof and may not be modified except by an
instrument in writing signed by the party to be charged.
23.8 TIME OF ESSENCE. Seller and Buyer hereby acknowledge and agree
that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof.
23.9 CONSTRUCTION. Seller and Buyer and their respective advisors
believe that this Agreement is the product of all of their efforts, that it
expresses their agreement and that it should not be interpreted in favor of
or against either Buyer or Seller. The parties further agree that this
Agreement will be construed to effectuate the normal and reasonable
expectations of a sophisticated seller and buyer.
23.10 GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced
in accordance with the laws of the State of California.
23.11 WEAR AND TEAR. Buyer specifically acknowledges that Seller will
continue to use the Property in the course of its business and accepts the
fact that reasonable wear and tear will occur after the date of this
Agreement. Buyer specifically agrees that Seller is not responsible for
repairing such reasonable wear and tear and that Buyer is prohibited from
raising such wear and tear as a reason for not consummating this transaction
or for requesting a reduction in the Exchange Value.
23.12 NO RECORDATION. No memorandum or other document relating to this
Agreement will be recorded without the prior written consent of Seller, and
any such consent or approval will be conditioned upon Buyer providing Seller
with a quitclaim deed fully executed and acknowledged by Buyer, quitclaiming
any and all interests that it may have in the Property to Seller, which
quitclaim deed Seller may record in the event that this Agreement is
terminated or the transaction contemplated herein is not consummated.
19
<PAGE>
23.13 SURVIVAL. All obligations of the parties contained herein which
by their terms do not arise until after the Close of Escrow and any other
provisions of this Agreement which by their terms survives the Close of
Escrow, shall survive the Close of Escrow. Notwithstanding anything to the
contrary contained in this Agreement, the representations and warranties
contained in this Agreement shall survive the Closing for a period of 1 year;
provided that any claims by one party hereto must be made in writing to the
other party within the 1 year period.
23.14 DISCLAIMER. Nothing herein creates any right or remedy for the
benefit of any person not a party hereto, nor creates a fiduciary
relationship, an agency or a partnership.
23.15 WAIVER OF JURY TRIAL. EACH PARTY, ACTING WITH KNOWLEDGE OF ITS
RIGHTS AFTER A FULL OPPORTUNITY TO CONSULT WITH COUNSEL, VOLUNTARILY WAIVES
ALL RIGHTS TO TRIAL BY JURY IN ALL PROCEEDINGS FOR WHICH A TRIAL BY JURY
WOULD OTHERWISE BE AVAILABLE OR REQUIRED, AND WHICH INVOLVE ANY MATTER
ARISING OUT OF OR CONNECTED WITH RIGHTS OR DUTIES UNDER, OR ENFORCEMENT OR
INTERPRETATION OF, THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year hereinabove written.
"SELLER": "BUYER":
NATIONAL INVESTORS FINANCIAL, VICTORVILLE HOMES, INC.,
INC., a California corporation, AS TRUSTEE a California corporation
for NATIONAL INVESTORS LAND
HOLDING TRUST ___
By: By:
---------------------------- ----------------------------
Its: Its:
---------------------------- ----------------------------
and and
By: By:
---------------------------- ----------------------------
Its: Its:
---------------------------- ----------------------------
20
<PAGE>
Agreed to and accepted
by Escrow Holder:
By:
-----------------------------
Its:
-----------------------------
21
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY:
WHEN RECORDED MAIL TO:
Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, California 90017
Attn.: Bruce H. Newman, Esq.
_______________________________________________________________________________
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a
separate statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
NATIONAL INVESTORS FINANCIAL, INC., a CALIFORNIA corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ("Grantor"), hereby grants to VICTORVILLE
HOMES, INC., a California corporation ("Grantee"), the real property in the
County of San Bernardino, State of California, and described in EXHIBIT A
attached hereto and made a part hereof.
DATED: _______________, 1998
NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST __
By:
---------------------------
Its:
---------------------------
By:
---------------------------
Its:
---------------------------
__________
MAIL TAX STATEMENTS TO:
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF _____________________ )
On ____________________, before me, _____________________________________,
personally appeared ______________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
- -------------------------------
Notary Public in and for said
County and State [SEAL]
<PAGE>
Document No. ____________________ Date Recorded_________________
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
NOT BE MADE A PART OF THE PERMANENT RECORD
IN THE OFFICE OF THE COUNTY RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of __________________________
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
- -----------------------------------------
(as grantor)
and
- -----------------------------------------
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of ___________________________.
The amount of tax due on the accompanying document is $_______________.
______ Computed on full value of property conveyed, or
______ Computed on full value less liens and encumbrances remaining at time
of sale.
- -----------------------------------
- -----------------------------------
By:
---------------------------
Its:
---------------------------
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee
of a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a U.S. real property interest by NATIONAL
INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for NATIONAL
INVESTORS LAND HOLDING TRUST ("TRANSFEROR"), each of the undersigned hereby
certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is ________; and
3. Transferor's office address is__________________________________,
___________________.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by transferee and that any false statement contained
herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he
has examined this certification and to the best of his knowledge and belief it
is true, correct and complete, and he further declares that he has authority to
sign the document on behalf of the Transferor.
NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___
By:
---------------------------
Its:
---------------------------
By:
---------------------------
Its:
---------------------------
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is
executed as of ______________, but effective as of the Effective Date (as
hereinafter defined), by and between NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for NATIONAL INVESTORS LAND HOLDING TRUST ___
("Assignor") and VICTORVILLE HOMES, INC., a California corporation ("Assignee"),
with reference to the following facts:
RECITALS:
A. Assignor, as the agent of and for the benefit of various
investors, holds title to that certain real property commonly known as "Stacey
Rose at Victorville ", located in the County of San Bernardino, State of
California, as more particularly described on Exhibit "A" attached hereto and
incorporated herein by reference (the "Property").
B. Concurrently herewith, Assignor has executed that certain Grant
Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to Assignee
all of its right, title and interest in and to all agreements relating to the
Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are by this reference incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the Property
which are set forth in Exhibit "B" attached hereto and made a part hereof
(collectively, the "Agreements"). The assignment provided for in this Section 1
is effective concurrently with the transfer of the Property from Assignor to
Assignee (the "Effective Date").
<PAGE>
2. ASSIGNEE'S ASSUMPTION. Assignee hereby accepts the assignment
from Assignor, assumes and agrees to perform all duties and obligations of
Assignor under the terms of the Agreements which are required to be performed on
or after the Effective Date.
3. DELIVERIES; REPORTS. On or before the Effective Date, Assignor
shall deliver to Assignee the original Agreements or if such original Agreements
are not in Assignor's possession, certified copies of such Agreements. Assignor
shall furnish and deliver to Assignee, promptly after receipt thereof,
duplicates or copies of all reports, notices, requests, demands, declarations,
certificates or other instruments hereafter received by Assignor and relating to
the Agreements. Assignee's address for receipt of the foregoing is ____________
______________________________________________________________________.
4. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may be
necessary to further assure to Assignee the rights assigned hereby and the full
benefits hereof and to preserve and protect this Assignment and all of the
rights, powers and remedies of Assignee provided for herein.
5. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto.
6. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
7. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written but effective as of the Effective
Date.
ASSIGNOR: NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST ___
By:
--------------------------------
Its:
--------------------------------
By:
--------------------------------
Its:
--------------------------------
ASSIGNEE: VICTORVILLE HOMES, INC.,
a California corporation
By:
--------------------------------
Its:
--------------------------------
By:
--------------------------------
Its:
--------------------------------
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of
the ____ day of ___________________________, 1998 (this "Assignment"), by
NATIONAL INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___ ("Assignor") to VICTORVILLE HOMES,
INC., a California corporation ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and
Sale and Joint Escrow Instructions dated ________, 1998 ("Agreement of Purchase
and Sale") under which Assignee has agreed to purchase from Assignor, that
certain real property and any and all buildings, structures and improvements on
said real property commonly identified as "Stacey Rose at Victorville", located
in the County of San Bernardino, State of California and legally described on
EXHIBIT A attached hereto (the "Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all
intangible property used, owned or issued solely in connection with the
Property, including but not limited to, all licenses, permits, certificates of
occupancy, approvals, maps, dedications, subdivision maps and entitlements
issued, approved or granted by any governmental agencies or
<PAGE>
instrumentalities having any jurisdiction over the Property (the
"Authorities") or otherwise in connection with the Property; all development
rights, conditional use permits, variances, "floor area ratio" development
rights and other intangible rights, titles, interests, privileges and
appurtenances owned by Assignor and related to or issued in connection with
the Property and/or its use, occupancy, operation and/or development; all
licenses, consents, easements, rights of way, and approvals required from
private parties to make use of utilities and to insure vehicular and
pedestrian ingress and egress to the Property; and any pending applications
or requests as to any of the foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the construction,
reconstruction, maintenance, repair, or operation any improvements on the
Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the Improvements and the
personal property situated on the Property, including but not limited to those
made by or received from any third party with respect to any building, building
component, structure, fixture, machinery, equipment or material situated on,
contained in any building or other improvement situated on, or comprising a part
of any building or other improvement situated on any part of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's right,
title and interest in and to refundable deposits, bonds and other collateral
furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold, use,
sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from time
to time upon written request therefor, execute and deliver to Assignee, its
successors and assigns any new or confirmatory instruments and take such further
acts as Assignee may reasonably request to fully evidence the assignment
contained herein and to enable Assignee, its successors and assigns to fully
realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it has
not previously assigned or hypothecated its interest in the foregoing described
General Intangibles; however, Assignee shall have no claims or rights against
Assignor, and Assignor shall have no obligation or liability to Assignee for any
General Intangibles described herein which do not exist, or which Assignor does
not have the right to transfer to Assignee.
<PAGE>
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
_________, 1998.
NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___
By:
--------------------------------
Its:
--------------------------------
By:
--------------------------------
Its:
--------------------------------
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
NATIONAL INVESTORS FINANCIAL, INC.,
a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___,
AS SELLER,
AND
PALMDALE/JOSHUA RANCH, INC.,
a California corporation,
AS BUYER
RELATING TO
PROPERTY LOCATED IN
Palmdale, California
known as
"JOSHUA RANCH"
DATED AS OF
__________________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 SUBSTANCE OF TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . . 5
3. Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 EXCHANGE VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 ADDITIONAL CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . 5
4. Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5. Cancellation Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 6
6. Deliveries to Escrow Holder . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 BY SELLER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 BY BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 BY BUYER AND SELLER. . . . . . . . . . . . . . . . . . . . . . . . . 7
7. Condition of Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.1 PERMITTED EXCEPTIONS . . . . . . . . . . . . . . . . . . . . . . . . 7
7.2 TITLE PROVIDED BY SELLER . . . . . . . . . . . . . . . . . . . . . . 7
8. Conditions to the Close of Escrow . . . . . . . . . . . . . . . . . . . . . . . 7
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. . . . . . . . . . . . 7
8.1.1 TITLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. . . . . 7
8.1.3 SELLER'S DELIVERIES. . . . . . . . . . . . . . . . . . . . . 8
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS . . . . . . . . . . . 8
9. Approval of Seller's Constituents . . . . . . . . . . . . . . . . . . . . . . . 9
10. Property "As-Is. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE . . . . . . . 9
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
11. Title Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
12. Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
13. Disbursements and Other Actions. . . . . . . . . . . . . . . . . . . . . . . . 13
13.1 ESCROW HOLDER.. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.2 BY TRANSFER AGENT . . . . . . . . . . . . . . . . . . . . . . . . . 13
13.3 POSSESSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
14. Joint Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 14
14.1 AUTHORITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.2 ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.3 DUE EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.4 VALID AND BINDING . . . . . . . . . . . . . . . . . . . . . . . . . 14
14.5 BROKER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
15. Seller's Warranties and Representations. . . . . . . . . . . . . . . . . . . . 14
15.1 NON-FOREIGN ENTITY. . . . . . . . . . . . . . . . . . . . . . . . . 14
15.2 HAZARDOUS SUBSTANCES. . . . . . . . . . . . . . . . . . . . . . . . 15
15.3 CLEAN-UP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
15.4 CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16. Pre-Closing Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.1 NO TRANSFERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.2 NO ALTERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.3 MAINTENANCE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
16.4 OBLIGATIONS UNDER CONTRACTS.. . . . . . . . . . . . . . . . . . . . 15
16.5 EXPENDITURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
17. Condemnation and Destruction . . . . . . . . . . . . . . . . . . . . . . . . . 16
17.1 EMINENT DOMAIN OR TAKING. . . . . . . . . . . . . . . . . . . . . . 16
17.2 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . 16
18 Utilities and Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.1 UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
18.2 REFUNDABLE DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . 17
19. Mediation of Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
20. Arbitration of Disputes: . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
21. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
22. Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
23. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.1 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.2 PARTIAL INVALIDITY. . . . . . . . . . . . . . . . . . . . . . . . . 19
23.3 POSSESSION OF THE PROPERTY. . . . . . . . . . . . . . . . . . . . . 19
23.4 WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.5 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . 19
23.6 PROFESSIONAL FEES . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.7 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
23.8 TIME OF ESSENCE . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.9 CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
23.10 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.11 WEAR AND TEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.12 NO RECORDATION . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.13 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.14 DISCLAIMER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
23.15 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . 20
EXHIBITS
EXHIBIT A - Legal Description
EXHIBIT B - Form of Grant Deed
EXHIBIT C - FIRPTA Affidavit
EXHIBIT D - Assignment and Assumption
EXHIBIT E - Bill of Sale and General Assignment of Intangibles
</TABLE>
iii
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("AGREEMENT") is made and entered into as of ____________ __, 1998, by and
between NATIONAL INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE
for NATIONAL INVESTORS LAND HOLDING TRUST ___ ("SELLER"), and PALMDALE/JOSHUA
RANCH, INC., a California corporation ("BUYER").
R E C I T A L S
A. Seller is the owner of that certain unimproved real property commonly
known as "Joshua Ranch", consisting of approximately 794 acres, including 472
acres of open space and proposed streets, located at the Northwest Quadrant of
Elizabeth Road and the California Aqueduct, in the City of Palmdale, County of
Los Angeles, State of California, as more particularly described in Exhibit A
attached hereto (the "Real Property"). The Real Property consists of 539
proposed single family lots pursuant to a vesting tentative tract map.
B. Seller holds record title to the Real Property as agent of and for the
benefit of various investors who are the beneficiaries of National Investors
Land Holding Trust ____ (the "Trust").
C. Seller desires to sell to Buyer and Buyer desires to purchase from
Seller the Property (as hereinafter defined) on the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals, which Recitals
are incorporated herein by this reference, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, Buyer
and Seller agree as follows:
A G R E E M E N T
1. DEFINITIONS: For the purposes of this Agreement the following
terms will be defined as follows:
1.1 "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the actual
knowledge of David Lasker and James N. Orth without having conducted any
independent inquiry or inspection, and shall not include the knowledge of any
other persons or firms, it being understood and agreed by Buyer that neither
David Lasker nor James N. Orth is charged with knowledge of all of the acts
and/or omissions of predecessors in title to the Property or management of the
Property before Seller's acquisition of the Property and the Actual Knowledge of
Seller shall not include information or material which may be in the possession
of Seller generally, but of which neither David Lasker nor James N. Orth is
actually aware.
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1.2 "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly-owned subsidiary of AFH.
1.3 "AFH" means American Family Holdings, Inc., a Delaware
corporation. Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a
wholly-owned subsidiary of AFH.
1.4 "ASSIGNMENT" shall have the meaning given thereto in
Section 6.1(d) hereof.
1.5 "BILL OF SALE" shall have the meaning given thereto in
Section 6.1(e) hereof.
1.6 "CLOSING DATE" means ___________, 1998, unless an earlier date is
agreed to in a writing subsequent to this Agreement executed and delivered by
each of the parties hereto to the other, and is the last date on which the
Closing and Close of Escrow can occur, subject to extension as provided for in
this Agreement.
1.7 "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably in
this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the county
in which the Property is located.
1.8 "EFFECTIVE DATE" means the date hereof.
1.9 "ENVIRONMENTAL AUDIT" means any environmental audit, review or
testing of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.10 "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment
including, without limitation, CERCLA (Comprehensive Environmental Response,
Compensation and Liability Act of 1980) and RCRA (Resources Conservation and
Recovery Act of 1976), as amended.
1.11 "ESCROW" shall have the meaning given thereto in Section 4
hereof.
1.12 "ESCROW HOLDER" means _______________________________, whose
address is _______________________________________________________________,
Attn.: ___________________.
1.13 "EXCHANGE VALUE" is the adjusted appraised value of the Property
which takes into consideration various factors to balance the business value of
the Property within its present ownership structure.
1.14 "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.15 "GRANT DEED" shall have the meaning given thereto in Section
6.1(a) hereof.
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1.16 "HAZARDOUS SUBSTANCE" means any substance, material or waste
which is or becomes designated, classified or regulated as being "toxic" or
"hazardous" or a "pollutant" or which is or becomes similarly designated,
classified or regulated, under any Environmental Law, including asbestos,
petroleum and petroleum products.
1.17 "IMPROVEMENTS" means any and all improvements and fixtures
situated on the Real Property.
1.18 "INVESTORS" means the beneficiaries of the Trust.
1.19 "INTANGIBLES" means all of Seller's right, title and interest in
and to all intangible property used, owned or issued solely and strictly in
connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract rights,
accounts receivable and other intangible property used in connection with the
ownership and operation of the Property; (ii) all licenses, permits,
certificates of occupancy, approvals, dedications and entitlements issued,
approved or granted by any governmental authorities having jurisdiction over the
Property; and (iii) all development rights, conditional use permits, variances
and other intangible rights, titles, interests and privileges owned by Seller
and related to or issued in connection with the Land and/or Improvements, its
use, occupancy, operation and development, but in no way related to Seller's
financial data or other proprietary information or other property of Seller.
1.20 "NOTICES" will be sent as provided in Section 21 to:
Seller: National Investors Land Holding Trust
c/o National Investors Financial, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, CA 92660
Attn.: Mr. David Lasker
Telephone: (949) 833-8600
Facsimile: (949) 752-9753
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, CA 90017
Attn.: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Buyer: Palmdale/Joshua Ranch, Inc.
______________________
______________________
Attn.:__________________
Telephone: _____________
Facsimile: ______________
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with a copy to: Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, CA 90017
Attn.: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Escrow Holder: __________________________________
__________________________________
__________________________________
Attn.: ___________________
Telephone: ________________________
Facsimile: ________________________
1.21 "OPENING OF ESCROW" shall have the meaning given thereto in
Section 4 hereof.
1.22 "OTHER ASSETS" means cash, cash equivalent, notes and other
negotiable instruments and any and all other assets in the possession or control
of Seller, the value of which is determined by possession, and any other assets
other than the Real Property, Personal Property or Intangibles relating to the
Real Property.
1.23 "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.24 "PERSONAL PROPERTY" means the equipment, furniture and fixtures,
books and records and other personal property, if any, owned by Seller and
located on the Property as of the Effective Date, including without limitation,
those items listed on SCHEDULE 1 to the Bill of Sale.
1.25 "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements, (iii) the Intangibles, (iv) the Personal Property and (v) the
Other Assets.
1.26 "PROSPECTUS" means the Consent Solicitation Statement/Prospectus
of Buyer.
1.27 "REAL PROPERTY" means that certain real property located in the
City of Palmdale, County of Los Angeles, State of California and commonly
known as "Joshua Ranch" and more particularly described in EXHIBIT A attached
hereto. The Real Property also is described in the Recitals hereof.
1.28 "TITLE COMPANY" means ________________________________________.
1.29 "TITLE POLICY" shall have the meaning given thereto in Section 11
hereof.
1.30 "TRANSFER AGENT" means _____________________, who address is
__________________, Attn.: ___________, Facsimile No. ___________.
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1.31 "UNIT" means, collectively, one (1) share of common stock, plus
warrants to purchase three (3) additional shares of common stock, in AFH.
2. PURCHASE AND SALE:
2.1 PURCHASE AND SALE. Upon and subject to the terms and conditions
set forth in this Agreement, Seller agrees to sell to Buyer and Buyer agrees to
buy from Seller the Property, together with all easements, hereditaments,
entitlements (to the extent transferable) and appurtenances thereto. In
consideration of Seller's sale of the Property to Buyer, Buyer will (a) cause to
be delivered to the investors of Seller the Exchange Value in accordance with
Section 3, and (b) perform all of Buyer's other obligations hereunder.
2.2 SUBSTANCE OF TRANSACTIONS. Notwithstanding any other provision
of this Agreement, the transfer of the Property directly from Seller to Buyer is
for convenience purposes only to effect expeditiously the culmination of the
transfers set forth in this Section 2.2, and for all purposes hereunder it is
the intent of the parties that such transfer reflects the following transfers,
which shall occur in the following order: (i) all of the Investors, through
their approval of the transactions contemplated under this Agreement, contribute
all of their interests in the Property to AFH in exchange for Units, such Units
to be distributed to them pursuant to Sections 3 and 13.2 hereof; (ii) AFH
contributes the Property to AFC as a contribution to the capital of AFC; and
(iii) AFC contributes the Property to Buyer as a contribution to the capital of
Buyer. Seller's transfer of the Property directly to Buyer reflects Seller's
transfer of the Property from the Investors to AFH, from AFH to AFC, and from
AFC to the Buyer, in each instance in Seller's capacity as the agent of and on
behalf of such transferors.
3. CONSIDERATION:
3.1 EXCHANGE VALUE. In consideration for the sale of the Property to
Buyer, Buyer will deliver to Seller an amount equal to the Exchange Value for
the Property. The Exchange Value for the Property is $______________, which
shall be paid in the form of, and by issuance and delivery of, _____ Units to
the investors of Seller, to be distributed by the Transfer Agent at the Closing
outside of Escrow in accordance with Section 13.2 hereof. Upon the request of
any party hereto, whether made before or after the Closing, the parties hereto
will allocate the Exchange Value to the Real Property, Improvements, Personal
Property, Other Assets and the Intangibles.
3.2 ADDITIONAL CONSIDERATION. If, after the Close of Escrow, Buyer
completes the sale of the Property for a purchase price which exceeds the
appraised value of the Property, as set forth in the appraisal dated March, 1998
prepared by ____________________________ (the "Appraised Value"), Buyer will pay
to Seller an amount calculated pursuant to the terms of this Section 3.2, which
shall be paid in the form of, and by issuance and delivery of, an additional
number of Units equal to the quotient of the net cash proceeds (exclusive of
interest on deferred purchase price payments) received
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by Buyer for such sale on or before December 31, 1999 up to 200% of the
Appraised Value divided by $20. (For example, if the Appraised Value of the
Property was $1,750,000 and Buyer received by December 31, 1999 net cash sale
proceeds in the amount of $3,600,000, then the maximum number of additional
Units available for allocation among Seller's investors would be $1,750,000
divided by $20 or 87,500 Units.)
4. ESCROW: Immediately upon execution of this Agreement, Buyer and
Seller will open an escrow (the "ESCROW") with the Escrow Holder by delivering
to Escrow Holder a fully executed copy of this Agreement (the "OPENING OF
ESCROW"). The purchase and sale of the Property will be completed through the
Escrow. Buyer and Seller agree to execute any additional instructions
consistent with this Agreement which are reasonably required by the Escrow
Holder. If there is a conflict between any printed escrow instructions and this
Agreement, the terms of this Agreement will govern.
5. CANCELLATION FEES AND EXPENSES: If the Closing does not occur at
the time and in the manner provided in this Agreement because of the default of
one of the parties, the non-defaulting party has the right to cancel the Escrow
by written notice to the defaulting party and to the Escrow Holder. All costs
of cancellation, if any, will be paid by the defaulting party.
6. DELIVERIES TO ESCROW HOLDER:
6.1 BY SELLER. On or prior to the Closing Date, Seller will deliver
or cause to be delivered to Escrow Holder the following items:
(a) A Grant Deed ("GRANT DEED"), in the form attached to this
Agreement as EXHIBIT B, duly executed and acknowledged by Seller and in
recordable form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status attached
to this Agreement as EXHIBIT C ("FIRPTA CERTIFICATE"), duly executed by or
on behalf of Seller.
(c) A properly executed California Form RE 590 or other
evidence sufficient to establish that Buyer is not required to withhold any
portion of the Exchange Value pursuant to Sections 18805 and 26131 of the
California Revenue and Taxation Code ("FORM 590").
(d) An Assignment and Assumption of Agreements ("ASSIGNMENT")
duly executed by Seller in favor of Buyer in the form attached to this
Agreement as EXHIBIT D.
(e) A Bill of Sale and General Assignment of Intangibles in the
form attached to this Agreement as EXHIBIT E ("BILL OF SALE"), duly
executed by Seller and conveying all right, title and interest of Seller in
the Personal Property and the Intangibles to Buyer.
(f) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Seller as are
reasonably required by Buyer or Escrow Holder or both in connection with
this transaction.
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6.2 BY BUYER. On or prior to the Closing Date, Buyer will deliver or
cause to be delivered to Escrow Holder the following items:
(a) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Buyer as are
reasonably required by Seller or Escrow Holder or both in connection with
this transaction.
(b) Amounts due to pay costs and expenses as set forth in
Section 12 hereof.
6.3 BY BUYER AND SELLER. Buyer and Seller will each deposit such
other instruments consistent with this Agreement as are reasonably required
by Escrow Holder or otherwise required to close escrow. In addition Seller
and Buyer hereby designate Escrow Holder as the "REPORTING PERSON" for the
transaction pursuant to Section 6045(e) of the Internal Revenue Code.
7. CONDITION OF TITLE:
7.1 PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple
title to the Property will be conveyed to Buyer by Seller by Grant Deed,
subject only to the following title matters ("PERMITTED EXCEPTIONS"):
(a) all property tax liens (whether or not payment of property
taxes are delinquent) and all other matters shown in that certain
Commitment for Title Insurance effective _______________, issued by the
Title Company, bearing Order No.________; and
(b) matters affecting the condition of title to the Property
created by, at the request of or with the written consent of Buyer.
7.2 TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the Property,
and (b) Buyer shall rely solely on the Title Policy for protection against any
title defects.
8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following
conditions must be satisfied not later the earlier of the Closing Date or
such other period of time as may be specified below:
8.1.1 TITLE. As of the Closing, the Title Company will issue or
have committed to issue to Buyer the Title Policy described in Section 11.
8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.
Seller will have duly performed each and every agreement to be performed by
Seller hereunder and, subject to
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the provisions of Section 10, Seller's express representations and
warranties set forth in this Agreement will be true and correct in all
material respects as of the Closing Date. However, notwithstanding
anything to the contrary stated or implied in this Section 8.1.2, Seller
shall have no liability for the breach of any representations, warranties
or covenants set forth in this Agreement, whether express or implied,
absent a finding by a court of competent jurisdiction that either David
Lasker or James N. Orth or both of them withheld information with respect
thereto from Buyer or falsified information delivered to and relied upon
by Buyer and that such action amounted to a violation of a representation
or warranty set forth herein.
8.1.3 SELLER'S DELIVERIES. Seller will have delivered the items
described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the benefit of
Buyer and may be waived only by Buyer. At all times Buyer has the right to
waive any condition. Such waiver or waivers must be in writing to Seller. If
any conditions are not satisfied on or before the Closing Date, and Buyer has
not waived the unsatisfied conditions, Seller will not be deemed to be in
default (unless Seller has breached Sections 8.1.2 or 8.1.3 above) and Buyer's
sole remedy will be to terminate this Agreement.
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The Close of
Escrow and Seller's obligations with respect to this transaction are subject
to the following conditions precedent: (a) Buyer's delivery to Escrow Holder
on or before the Closing Date, of the items described in Section 6.2; (b) the
approval of such of Seller's constituents as Seller shall deem necessary or
advisable in its sole and absolute discretion as set forth in Section 9
hereof; (c) Buyer having duly performed each and every agreement to be
performed by Buyer hereunder; and (d) Buyer's representations, warranties and
covenants set forth in this Agreement, will be true and correct in all
material respects as of the Closing Date. The conditions set forth in this
Section 8.2 are solely for the benefit of Seller and may be waived only by
Seller, with such waiver or waivers to be in writing to Buyer. If any
conditions are not satisfied on or before the Closing Date, and Seller has
not waived the unsatisfied conditions, Buyer will not be deemed to be in
default (unless Buyer has breached Sections 8.2(a), (c) or (d) above) and
Seller's sole remedy will be to terminate the Agreement.
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9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise reasonable
diligence to obtain the approval of this transaction by such of the constituents
of Seller as Seller shall deem necessary or advisable, in its sole and absolute
discretion, and shall notify Buyer and Escrow Holder when such approvals have
been obtained. If Seller is not able to obtain such approvals from such
constituents on or before the date which is ____ days after the Effective Date,
or such later date as is mutually agreed to by Buyer and Seller, then Seller may
cancel this Agreement by notice to Buyer and Escrow Holder given prior to the
end of that time period, and in that event Seller shall pay all title and escrow
cancellation costs. Seller shall indemnify and hold Buyer harmless from any
claim, damage, loss, liability, action, settlement, including Buyer's reasonable
attorneys' fees suffered by Buyer and which results from or relates to the
Seller's securing approval of this transaction and transferring the Property to
Buyer pursuant to such approval.
10. PROPERTY "AS-IS":
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. BUYER
REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE OPPORTUNITY TO
INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS, IF ANY, AND
THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER HAVING MADE SUCH PERSONAL
EXAMINATION AND INSPECTION. BUYER AGREES THAT BUYER WILL ACCEPT THE PROPERTY,
IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS, INCLUDING WITHOUT
LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS AGREEMENT,
SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES, REPRESENTATIONS AND WARRANTIES
MADE BY SELLER ELSEWHERE HEREIN. NO PERSON ACTING ON BEHALF OF SELLER IS
AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND AGREES THAT,
EXCEPT FOR THOSE REPRESENTATIONS, WARRANTIES, COVENANTS, INDEMNITIES AND
AGREEMENTS EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES
NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR
FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED
THEREFROM;
(B) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES
AND USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY DEVELOPMENT OF
THE PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY,
PROFITABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;
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(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR
OF THE PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY,
INCLUDING WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS
REQUIRED TO DEVELOP THE PROPERTY;
(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION
WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE
GOVERNMENTAL AUTHORITY OR BODY;
(H) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR
MATERIALS, IF ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION
OR LAND USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING
BUT NOT LIMITED TO, THE ENDANGERED SPECIES ACT, TITLE III OF THE
AMERICANS WITH DISABILITIES ACT OF 1990 OR ANY OTHER LAW, RULE OR
REGULATION GOVERNING ACCESS BY DISABLED PERSONS, CALIFORNIA HEALTH &
SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL ACT, THE FEDERAL
RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL
PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE
COMPREHENSIVE ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF
1980, AS AMENDED, THE RESOURCES CONSERVATION AND RECOVERY ACT OF 1976,
THE CLEAN WATER ACT, THE SAFE DRINKING WATER ACT, THE HAZARDOUS
MATERIALS TRANSPORTATION ACT, THE TOXIC SUBSTANCE CONTROL ACT, AND
REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON,
UNDER, OR ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS,
INCLUDING ANY INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR
OTHER MATERIALS PREPARED BY OR ON BEHALF OF SELLER;
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(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR
SPECIFICATIONS FOR THE PROPERTY, INCLUDING ANY PLANS AND
SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR
FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS;
(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE
LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN
ALQUIST-PRIOLO SPECIAL STUDY ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING
ENTITLEMENTS AFFECTING THE PROPERTY;
(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF
STATE AND LOCAL GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE PROPERTY
INCLUDING, WITHOUT LIMITATION, THE CONSTRUCTION OF OFFSITE AND ONSITE
ROADS, UTILITIES AND OTHER IMPROVEMENTS; OR
(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE
PROPERTY EXCEPT AS MAY BE OTHERWISE EXPRESSLY STATED HEREIN, INCLUDING
ANY AND ALL SUCH MATTERS REFERENCED, DISCUSSED OR DISCLOSED IN ANY
DOCUMENTS DELIVERED BY SELLER TO BUYER, IN ANY PUBLIC RECORDS OF ANY
GOVERNMENTAL AGENCY OR ENTITY OR UTILITY COMPANY, OR IN ANY OTHER
DOCUMENTS AVAILABLE TO BUYER.
(T) BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER
IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTY AND ITS OWN
REVIEW OF ALL INFORMATION AND DOCUMENTATION CONCERNING THE PROPERTY,
AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER.
BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION MADE
AVAILABLE TO BUYER OR PROVIDED OR TO BE PROVIDED BY OR ON BEHALF OF
SELLER WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF
SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO
THE
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ACCURACY OR COMPLETENESS OF SUCH INFORMATION EXCEPT AS MAY
OTHERWISE BE PROVIDED HEREIN. BUYER AGREES TO FULLY AND IRREVOCABLY
RELEASE ALL SUCH SOURCES OF INFORMATION AND PREPARERS OF INFORMATION
AND DOCUMENTATION TO THE EXTENT SUCH SOURCES OR PREPARERS ARE SELLER,
OR ITS EMPLOYEES, OFFICERS, DIRECTORS, REPRESENTATIVES, BENEFICIARIES,
INVESTORS, AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT COMPANIES,
SUBSIDIARIES, SUCCESSORS OR ASSIGNS FROM ANY AND ALL CLAIMS, DAMAGES
AND LIABILITIES ARISING FROM SUCH INFORMATION OR DOCUMENTATION, EXCEPT
IF AND TO THE EXTENT THAT BUYER EMPLOYS SUCH SOURCES OR PREPARERS OF
INFORMATION TO ACT ON BEHALF OF BUYER, IN WHICH EVENT THE LIABILITY OF
SUCH SOURCES OR PREPARERS OF INFORMATION TO BUYER SHALL BE DETERMINED
BY THEIR OWN INDEPENDENT AGREEMENTS WITH BUYER, AND SELLER SHALL NOT
BE LIABLE FOR SUCH AGREEMENTS OR OBLIGATIONS. SELLER IS NOT LIABLE OR
BOUND IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS
OR INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION THEREOF,
FURNISHED BY ANY OF THE FOREGOING ENTITIES AND INDIVIDUALS OR ANY
OTHER INDIVIDUAL OR ENTITY.
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. Buyer acknowledges the disclosures expressly made by Seller in this
Agreement, the Prospectus and in correspondence from Seller, its attorneys
and/or its agents to Buyer, its attorneys and/or its agents.
11. TITLE INSURANCE: At the Close of Escrow, the Title Company will
issue to Buyer at Buyer's sole cost and expense an ALTA Standard Coverage Policy
(1990) with coverage in an amount equal to the appraised value of the Real
Property as determined by Buyer in its sole discretion, showing title to the
Real Property vested in Buyer, subject only to the Permitted Exceptions and the
standard printed exceptions and conditions in the policy of title insurance
("TITLE POLICY"). If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for the
extended coverage policy and the cost of any endorsements will be at Buyer's
sole cost and expense; however, Buyer's election to obtain an extended coverage
policy will not delay the Closing and Buyer's inability to obtain an extended
coverage policy or any such endorsements will not be deemed to be a failure of
any condition to Closing.
12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) all escrow fees and costs;
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(c) all city and county documentary transfer taxes;
(d) all document recording charges;
(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage
title policy, the cost of any required survey and, the cost of any
endorsements required by Buyer; and
(h) All other costs and expenses necessarily incurred to
close the transaction.
13. DISBURSEMENTS AND OTHER ACTIONS:
13.1 ESCROW HOLDER. At the Close of Escrow, Escrow Holder will
promptly undertake all of the following:
(a) Cause the Grant Deed (with documentary transfer tax
information to be affixed AFTER recording) to be recorded with the
County Recorder and obtain conformed copies thereof for distribution to
Buyer and Seller.
(b) Direct the Title Company to issue the Title Policy to Buyer
within 15 BUSINESS DAYS after Closing.
(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and
any other documents (or copies thereof) deposited into Escrow by Seller.
Deliver to Seller any other documents (or copies thereof) deposited
into Escrow by Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that
the Close of Escrow has occurred.
13.2 BY TRANSFER AGENT. Promptly after the Close of Escrow,
Transfer Agent shall deliver all Units in payment of the Exchange Value for
the Property to the persons, at the addresses and in the amounts designated
by Seller.
13.3 POSSESSION. Possession of the Other Assets in Seller's
possession or control and all other Property shall be delivered by Seller to
Buyer at the Close of Escrow.
14. JOINT REPRESENTATIONS AND WARRANTIES: In addition to any
express agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other, provided
that liability for any breach is subject to Sections 8.1.2 and 23.13 hereof:
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14.1 AUTHORITY. Each party has the legal power, right and
authority to enter into this Agreement and the instruments referenced herein,
and to consummate this transaction.
14.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering into of
this Agreement, the instruments referenced herein, and the consummation of this
transaction. Except as provided in Section 9, no further consent of any
partner, shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
14.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners, officers
or trustees of each party, if any, have the legal power, right, and actual
authority to bind each party to the terms and conditions of those documents.
14.4 VALID AND BINDING. This Agreement and all other documents
required to close this transaction are and will be valid, legally binding
obligations of and enforceable against each party in accordance with their
terms, subject only to applicable bankruptcy, insolvency, reorganization,
moratorium laws or similar laws or equitable principles affecting or limiting
the rights of contracting parties generally.
14.5 BROKER. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged by
them, respectively, in connection with any of the transactions contemplated by
this Agreement, or to its knowledge is in any way connected with any of such
transactions. Buyer will indemnify, save harmless and defend Seller from any
liability, cost, or expense arising out of or connected with any claim for any
commission or compensation made by any person or entity claiming to have been
retained or contacted by Buyer in connection with this transaction. Seller will
indemnify, save harmless and defend Buyer from any liability, cost, or expense
arising out of or connected with any claim for any commission or compensation
made by any person or entity claiming to have been retained or contacted by
Seller in connection with this transaction. This indemnity provision will
survive the Closing or any earlier termination of this Agreement.
15. SELLER'S WARRANTIES AND REPRESENTATIONS: Seller makes the
following representations, and warranties and acknowledges that Buyer will
rely on such representations and warranties in acquiring the Property;
provided that liability for any breach is subject Sections 8.1.2 and 23.13
hereof:
15.1 NON-FOREIGN ENTITY. Seller is not a "foreign person" within the
meaning of Section 1445(f)(3) of the Internal Revenue Code.
15.2 HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the
date of Seller's acquisition of the Property, no Hazardous Substances are now
or have been used, stored, generated or disposed of on or within the Property
except in the normal course of use and operation of the Property and in
compliance with all applicable Environmental Laws.
14
<PAGE>
15.3 CLEAN-UP. To Seller's Actual Knowledge, since the date of
Seller's acquisition of the Property, there are and have been no federal,
state or local enforcement, clean-up, removal, remedial or other governmental
or regulatory actions instituted or completed affecting the Property, other
than such other matters as may otherwise be disclosed in any Environmental
Audit or in any other documents provided or made available to Buyer.
15.4 CLAIMS. To Seller's Actual Knowledge, there are no
outstanding claims that have been made by any third party against Seller
relating to any Hazardous Substances on or within the Property.
The provisions of this Section 15 shall no longer bind Seller
if this Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder does not occur.
16. PRE-CLOSING COVENANTS. So long as this Agreement remains in
full force and effect:
16.1 NO TRANSFERS. Without the prior written consent of Buyer,
Seller will not convey any interest in the Property and will not subject the
Property to any additional liens, encumbrances, covenants, conditions,
easements, rights of way or similar matters after the date of this Agreement,
except as may be otherwise provided for in this Agreement, which will not be
eliminated prior to the Close of Escrow.
16.2 NO ALTERATIONS. Seller will not make any material alterations
to the Property without Buyer's consent, which will not be unreasonably
withheld or delayed.
16.3 MAINTENANCE. Seller will maintain the Property in
substantially the same condition as it is in, as of the date of this
Agreement, and manage the Property in accordance with Seller's established
practices.
16.4 OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all
of the obligations to be performed by Seller under any contracts affecting
the Property. Without prior written consent of Buyer, which will not be
unreasonably withheld or delayed, Seller will not enter into any contract or
agreement providing for the provision of goods or services to or with respect
to the Property or the operation thereof unless such contracts or agreements
can be terminated without penalty by the Closing Date. Seller will not enter
into any leases for any portion of the Property.
16.5 EXPENDITURES. Seller will incur only expenditures necessary
for the day-to-day operation and maintenance of the Property, and will not
incur capital expenditures or liabilities not in the ordinary course of
business. Seller shall retain all Other Assets in Seller's possession on or
after the date hereof except for payment of such permitted liabilities and
expenditures.
15
<PAGE>
17. CONDEMNATION AND DESTRUCTION:
17.1 EMINENT DOMAIN OR TAKING. If proceedings under a power of
eminent domain relating to the Property or any part thereof are commenced
prior to Close of Escrow, Seller will promptly inform Buyer in writing.
(a) If such proceedings involve the taking of title to all or a
material interest in the Property, Buyer may elect to terminate this
Agreement by notice in writing sent within 10 DAYS of Seller's written
notice to Buyer, in which case neither party will have any further
obligation to or rights against the other except any rights or
obligations of either party which are expressly stated to survive
termination of this Agreement.
(b) If the proceedings do not involve the taking of title to
all or a material interest in the Property, or if Buyer does not elect
to terminate this Agreement, this transaction will be consummated as
described herein and any award or settlement payable with respect to
such proceeding will be paid or assigned to Buyer upon Close of Escrow.
(c) If this sale is not consummated for any reason, any
condemnation award or settlement will belong to Seller.
17.2 DAMAGE OR DESTRUCTION. Except as provided in this Section,
prior to the Close of Escrow the entire risk of loss of damage by earthquake,
flood, landslide, fire or other casualty is borne and assumed by Seller. If,
prior to the Close of Escrow, any part of the Improvements is damaged or
destroyed by earthquake, flood, landslide, fire or other casualty, Seller
will promptly inform Buyer of such fact in writing and advise Buyer as to the
extent of the damage and whether it is, in Seller's reasonable opinion,
"MATERIAL" or not "MATERIAL".
(a) If such damage or destruction is "MATERIAL", Buyer has
the option to terminate this Agreement upon written notice to the Seller
given not later than 10 DAYS after receipt of Seller's written notice to
Buyer advising of such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any damage
or destruction to the Improvements where the cost of repair or
replacement is estimated to be more than 25% of the Exchange Value of
the Property and will take more than 60 DAYS to repair.
(c) If this Agreement is so terminated, the provisions of
Section 5 will govern.
(d) If Buyer does not elect to terminate this Agreement, or if
the casualty is not material, Seller will reduce the Exchange Value by
the value reasonably estimated by Seller to repair or restore the
damaged portion of the Improvements, less any sums expended by Seller to
make emergency repairs to the Improvements or the Property or otherwise
protect the physical condition of the Improvements or the Property, and
this transaction will close pursuant to the terms of this Agreement.
16
<PAGE>
(e) If the damage is not material, Seller's notice to Buyer
of the damage or destruction will also set forth Seller's reduced
Exchange Value and Seller's allocation of value to the damaged portion
of the Improvements. If Buyer does not accept Seller's reduced Exchange
Value, Buyer's sole remedy will be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated
hereunder, all rights to insurance claims or proceeds in respect of
damage or destruction to the Improvements occurring prior to the Close
of Escrow will belong to Seller.
18. UTILITIES AND DEPOSITS:
18.1 UTILITIES. Seller will notify all utility companies
servicing the Property of the sale of the Property to Buyer and will notify
the utility companies that all utility bills henceforth are to be sent to
Buyer. Buyer shall be entitled to receive any and all refunds of all utility
deposits held by utility companies and Seller will assign to Buyer all of
Seller's right, title and interest in any such utility deposits.
18.2 REFUNDABLE DEPOSITS. To the extent there exists any
refundable deposits made in connection with the development of the Property
prior to the Closing ("Refundable Deposits"), Seller shall assign to Buyer
all of Seller's right, title and interest in and to such Refundable Deposits.
19. MEDIATION OF DISPUTES: No party to this Agreement shall
initiate any litigation against any other party to this Agreement concerning
any controversy or claim arising out of or relating to this Agreement or any
agreements or instruments relating hereto or delivered in connection
herewith, including, but not limited to, any claim based on or arising from
an alleged tort, unless and until (i) at least 60 days before the same shall
be filed, a complete copy of each of the summons and complaint (and/or any
other documentation required to initiate such litigation) to be filed by the
complaining party shall have been delivered to the other party or parties to
any such dispute, and (ii) the complaining party has made itself available to
meet in Los Angeles, California with the other party or parties for no more
than 3 business days of non-binding mediation. Until and unless such
mediation has taken place, the complaining party must give notice to the
non-complaining party that it will, and then it must, make itself available
for such mediation during at least 20 business days during the 60 days before
the date on which such summons and complaint will be filed.
20. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING
HERETO OR DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY
PARTY, BE DETERMINED BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (9 U.S.C. SECTION 1 ET SEQ.) UNDER THE AUSPICES AND RULES OF
THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THE AAA WILL BE INSTRUCTED BY
EITHER OR BOTH
17
<PAGE>
PARTIES TO PREPARE A LIST OF THREE (3) JUDGES WHO HAVE RETIRED FROM THE
SUPERIOR COURT OF THE STATE OF CALIFORNIA, A HIGHER CALIFORNIA COURT OR ANY
FEDERAL COURT. WITHIN 10 DAYS OF RECEIPT OF THE LIST, EACH PARTY MAY STRIKE
1 NAME FROM THE LIST. THE AAA WILL THEN APPOINT THE ARBITRATOR FROM THE
NAME(S) REMAINING ON THE LIST. THE ARBITRATION WILL BE CONDUCTED IN SAN
FRANCISCO, LOS ANGELES OR SAN DIEGO, WHICHEVER IS THE CLOSEST CITY TO THE
NEXUS OF THE DISPUTE. ANY CONTROVERSY IN INTERPRETATION OR ENFORCEMENT OF
THIS PROVISION OR WHETHER A DISPUTE IS ARBITRABLE, WILL BE DETERMINED BY THE
ARBITRATOR. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF
AN ACTION FOR JUDICIAL RELIEF OR IN PURSUIT OF AN ANCILLARY REMEDY DOES NOT
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO
SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES'
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND
YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED
IN A COURT OR BY JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING
UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE
SPECIFICALLY INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU
REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE
COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL
PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES'
PROVISION TO NEUTRAL ARBITRATION.
Buyer's Initials ________ Seller's Initials _________
21. NOTICES: All notices or other communications required or
permitted hereunder must be in writing, and must be personally delivered
(including by means of professional messenger service) or sent by overnight
courier, or sent by registered or certified mail, postage prepaid, return
receipt requested to the addresses set forth in Section 1 hereof. All
notices sent by mail will be deemed received 2 DAYS after the date of mailing
and all notices sent by other means permitted herein shall be deemed received
on the earlier of the date delivered or the date on which delivery is refused.
22. ASSIGNMENT: Neither party shall have the right to assign this
Agreement without the other party's prior written consent.
18
<PAGE>
23. MISCELLANEOUS:
23.1 COUNTERPARTS. This Agreement may be executed in counterparts.
23.2 PARTIAL INVALIDITY. If any term or provision of this Agreement
will be deemed to be invalid or unenforceable to any extent, the remainder of
this Agreement will not be affected thereby, and each remaining term and
provision of this Agreement will be valid and be enforced to the fullest extent
permitted by law.
23.3 POSSESSION OF THE PROPERTY. Seller will deliver possession of
the Property to Buyer upon the Close of Escrow.
23.4 WAIVERS. No waiver of any breach of any covenant or provision
contained herein will be deemed a waiver of any preceding or succeeding breach
thereof, or of any other covenant or provision contained herein. No extension
of time for performance of any obligation or act will be deemed an extension of
the time for performance of any other obligation or act except those of the
waiving party, which will be extended by a period of time equal to the period of
the delay.
23.5 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and
inures to the benefit of the permitted successors and assigns of the parties
hereto.
23.6 PROFESSIONAL FEES. In the event of the bringing of any action,
arbitration or suit by a party hereto against another party hereunder by reason
of any breach of any of the covenants, agreements or provisions on the part of
the other party arising out of this Agreement, then in that event the prevailing
party will be entitled to have the recovery of and from the other party all
costs and expenses of the action, mediation or suit, actual attorneys' fees,
witness fees and any other professional fees resulting therefrom.
23.7 ENTIRE AGREEMENT. This Agreement (including all Exhibits
attached hereto) constitutes the entire contract between the parties hereto with
respect to the subject matter hereof and may not be modified except by an
instrument in writing signed by the party to be charged.
23.8 TIME OF ESSENCE. Seller and Buyer hereby acknowledge and agree
that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof.
23.9 CONSTRUCTION. Seller and Buyer and their respective advisors
believe that this Agreement is the product of all of their efforts, that it
expresses their agreement and that it should not be interpreted in favor of or
against either Buyer or Seller. The parties further agree that this Agreement
will be construed to effectuate the normal and reasonable expectations of a
sophisticated seller and buyer.
19
<PAGE>
23.10 GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced in
accordance with the laws of the State of California.
23.11 WEAR AND TEAR. Buyer specifically acknowledges that Seller
will continue to use the Property in the course of its business and accepts the
fact that reasonable wear and tear will occur after the date of this Agreement.
Buyer specifically agrees that Seller is not responsible for repairing such
reasonable wear and tear and that Buyer is prohibited from raising such wear and
tear as a reason for not consummating this transaction or for requesting a
reduction in the Exchange Value.
23.12 NO RECORDATION. No memorandum or other document relating to
this Agreement will be recorded without the prior written consent of Seller, and
any such consent or approval will be conditioned upon Buyer providing Seller
with a quitclaim deed fully executed and acknowledged by Buyer, quitclaiming any
and all interests that it may have in the Property to Seller, which quitclaim
deed Seller may record in the event that this Agreement is terminated or the
transaction contemplated herein is not consummated.
23.13 SURVIVAL. All obligations of the parties contained herein
which by their terms do not arise until after the Close of Escrow and any
other provisions of this Agreement which by their terms survives the Close of
Escrow, shall survive the Close of Escrow. Notwithstanding anything to the
contrary contained in this Agreement, the representations and warranties
contained in this Agreement shall survive the Closing for a period of 1 year;
provided that any claims by one party hereto must be made in writing to the
other party within the 1 year period.
23.14 DISCLAIMER. Nothing herein creates any right or remedy for
the benefit of any person not a party hereto, nor creates a fiduciary
relationship, an agency or a partnership.
23.15 WAIVER OF JURY TRIAL. EACH PARTY, ACTING WITH KNOWLEDGE OF
ITS RIGHTS AFTER A FULL OPPORTUNITY TO CONSULT WITH COUNSEL, VOLUNTARILY WAIVES
ALL RIGHTS TO TRIAL BY JURY IN ALL PROCEEDINGS FOR WHICH A TRIAL BY JURY WOULD
OTHERWISE BE AVAILABLE OR REQUIRED, AND WHICH INVOLVE ANY MATTER ARISING OUT OF
OR CONNECTED WITH RIGHTS OR DUTIES UNDER, OR ENFORCEMENT OR INTERPRETATION OF,
THIS AGREEMENT.
20
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year hereinabove written.
"SELLER": "BUYER":
NATIONAL INVESTORS FINANCIAL, PALMDALE/JOSHUA RANCH, INC.,
INC., a California corporation, AS TRUSTEE a California corporation
for NATIONAL INVESTORS LAND
HOLDING TRUST ___
By: By:
------------------------- -------------------------
Its: Its:
------------------------- -------------------------
and and
By: By:
------------------------- -------------------------
Its: Its:
------------------------- -------------------------
Agreed to and accepted
by Escrow Holder:
By:
-------------------------
Its:
-------------------------
21
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY:
WHEN RECORDED MAIL TO:
Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, California 90017
Attn.: Bruce H. Newman, Esq.
- -------------------------------------------------------------------------------
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a separate
statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
NATIONAL INVESTORS FINANCIAL, INC., a CALIFORNIA corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ("Grantor"), hereby grants to
PALMDALE/JOSHUA RANCH, INC., a California corporation ("Grantee"), the real
property in the County of Los Angeles, State of California, and described in
EXHIBIT A attached hereto and made a part hereof.
DATED: , 1998
------------------
NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST __
By:
----------------------------
Its:
----------------------------
By:
----------------------------
Its:
----------------------------
- -----------
MAIL TAX STATEMENTS TO:
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF )
------------------- )
On ____________________, before me, _____________________________________,
personally appeared ______________________________, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person(s) whose
name(s) is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
- -------------------------------
Notary Public in and for said
County and State [SEAL]
<PAGE>
Document No. ____________________ Date Recorded_________________
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION
NOT BE MADE A PART OF THE PERMANENT RECORD
IN THE OFFICE OF THE COUNTY RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of
----------------------
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
- -------------------------------------------
(as grantor)
and
- -------------------------------------------
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of __________________.
The amount of tax due on the accompanying document is $______________.
_____ Computed on full value of property conveyed, or
_____ Computed on full value less liens and encumbrances remaining at time
of sale.
- -------------------------------------------
- -------------------------------------------
By:
-------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee
of a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a U.S. real property interest by NATIONAL
INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for NATIONAL
INVESTORS LAND HOLDING TRUST ("TRANSFEROR"), each of the undersigned hereby
certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is ________; and
3. Transferor's office address is ________________________________,
___________________.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by transferee and that any false statement contained
herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he
has examined this certification and to the best of his knowledge and belief it
is true, correct and complete, and he further declares that he has authority to
sign the document on behalf of the Transferor.
NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___
By:
----------------------------
Its:
----------------------------
By:
----------------------------
Its:
----------------------------
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is executed as
of ______________, but effective as of the Effective Date (as hereinafter
defined), by and between NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS LAND HOLDING TRUST ___
("Assignor") and PALMDALE/JOSHUA RANCH, INC., a California corporation
("Assignee"), with reference to the following facts:
RECITALS:
A. Assignor, as the agent of and for the benefit of various
investors, holds title to that certain real property commonly known as "Joshua
Ranch ", located in the County of Los Angeles, State of California, as more
particularly described on Exhibit "A" attached hereto and incorporated herein by
reference (the "Property").
B. Concurrently herewith, Assignor has executed that certain Grant
Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to Assignee
all of its right, title and interest in and to all agreements relating to the
Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which
Recitals are by this reference incorporated herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the Property
which are set forth in Exhibit "B" attached hereto and made a part hereof
(collectively, the "Agreements"). The assignment provided for in this Section 1
is effective concurrently with the transfer of the Property from Assignor to
Assignee (the "Effective Date").
<PAGE>
2. ASSIGNEE'S ASSUMPTION. Assignee hereby accepts the assignment
from Assignor, assumes and agrees to perform all duties and obligations of
Assignor under the terms of the Agreements which are required to be performed on
or after the Effective Date.
4. DELIVERIES; REPORTS. On or before the Effective Date, Assignor
shall deliver to Assignee the original Agreements or if such original Agreements
are not in Assignor's possession, certified copies of such Agreements. Assignor
shall furnish and deliver to Assignee, promptly after receipt thereof,
duplicates or copies of all reports, notices, requests, demands, declarations,
certificates or other instruments hereafter received by Assignor and relating to
the Agreements. Assignee's address for receipt of the foregoing is ____________
______________________________________________________________.
5. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may be
necessary to further assure to Assignee the rights assigned hereby and the full
benefits hereof and to preserve and protect this Assignment and all of the
rights, powers and remedies of Assignee provided for herein.
6. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon
and inure to the benefit of the successors and assigns of the respective parties
hereto.
7. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
8. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment as of the date first above written but effective as of the Effective
Date.
ASSIGNOR: NATIONAL INVESTORS FINANCIAL, INC., a California
corporation, AS TRUSTEE for NATIONAL INVESTORS
LAND HOLDING TRUST ___
By:
---------------------------------
Its:
---------------------------------
By:
---------------------------------
Its:
---------------------------------
ASSIGNEE: PALMDALE/JOSHUA RANCH, INC., a
California corporation
By:
----------------------------------
Its:
---------------------------------
By:
---------------------------------
Its:
---------------------------------
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of
the ____ day of ___________________________, 1998 (this "Assignment"), by
NATIONAL INVESTORS FINANCIAL, INC., a California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___ ("Assignor") to PALMDALE/JOSHUA RANCH,
INC., a California corporation ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and
Sale and Joint Escrow Instructions dated ________, 1998 ("Agreement of Purchase
and Sale") under which Assignee has agreed to purchase from Assignor, that
certain real property and any and all buildings, structures and improvements on
said real property commonly identified as "Joshua Ranch", located in the County
of Los Angeles, State of California and legally described on EXHIBIT A attached
hereto (the "Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all
intangible property used, owned or issued solely in connection with the
Property, including but not limited to, all licenses, permits, certificates of
occupancy, approvals, maps, dedications, subdivision maps and entitlements
issued, approved or granted by any governmental agencies or instrumentalities
having any jurisdiction over the Property (the "Authorities") or otherwise in
<PAGE>
connection with the Property; all development rights, conditional use permits,
variances, "floor area ratio" development rights and other intangible rights,
titles, interests, privileges and appurtenances owned by Assignor and related to
or issued in connection with the Property and/or its use, occupancy, operation
and/or development; all licenses, consents, easements, rights of way, and
approvals required from private parties to make use of utilities and to insure
vehicular and pedestrian ingress and egress to the Property; and any pending
applications or requests as to any of the foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the construction,
reconstruction, maintenance, repair, or operation any improvements on the
Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the Improvements and the
personal property situated on the Property, including but not limited to those
made by or received from any third party with respect to any building, building
component, structure, fixture, machinery, equipment or material situated on,
contained in any building or other improvement situated on, or comprising a part
of any building or other improvement situated on any part of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's right,
title and interest in and to refundable deposits, bonds and other collateral
furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold, use,
sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from time
to time upon written request therefor, execute and deliver to Assignee, its
successors and assigns any new or confirmatory instruments and take such further
acts as Assignee may reasonably request to fully evidence the assignment
contained herein and to enable Assignee, its successors and assigns to fully
realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it has
not previously assigned or hypothecated its interest in the foregoing described
General Intangibles; however, Assignee shall have no claims or rights against
Assignor, and Assignor shall have no obligation or liability to Assignee for any
General Intangibles described herein which do not exist, or which Assignor does
not have the right to transfer to Assignee.
<PAGE>
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
_________, 1998.
NATIONAL INVESTORS FINANCIAL, INC., a
California corporation, AS TRUSTEE for
NATIONAL INVESTORS LAND HOLDING TRUST ___
By:
----------------------------------
Its:
----------------------------------
By:
----------------------------------
Its:
----------------------------------
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
BY AND AMONG
AHWAHNEE GOLF COURSE & RESORT, INC.,
a California corporation,
OCEANSIDE DEVELOPMENT, INC.,
a California corporation,
COLLECTIVELY, AS SELLER,
AND
YOSEMITE WOODS FAMILY RESORT, INC.,
a California corporation,
AS BUYER
RELATING TO
THE GOLF COURSE AND COUNTRY CLUB FACILITIES
LOCATED IN
Madera County, California
known as
"AHWAHNEE GOLF COURSE AND RESORT"
DATED AS OF
_______________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Substance of Transactions . . . . . . . . . . . . . . . . . . . . . 6
3. CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Exchange Value. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Additional Consideration. . . . . . . . . . . . . . . . . . . . . . 6
4. ESCROW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. CANCELLATION OF FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . 7
6. DELIVERIES TO ESCROW HOLDER . . . . . . . . . . . . . . . . . . . . . . . 7
6.1 By Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 By Buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.3 By Buyer and Seller.. . . . . . . . . . . . . . . . . . . . . . . . 8
7. CONDITION OF TITLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 Permitted Exceptions. . . . . . . . . . . . . . . . . . . . . . . . 8
7.2 Title Provided by Seller. . . . . . . . . . . . . . . . . . . . . . 8
8. CONDITIONS TO THE CLOSE OF ESCROW . . . . . . . . . . . . . . . . . . . . 8
8.1 Conditions Precedent to Buyer's Obligations . . . . . . . . . . . . 8
8.1.1 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.1.2 Representations, Warranties and Covenants of Seller . . . . . 9
8.1.3 Seller's Deliveries . . . . . . . . . . . . . . . . . . . . . 9
8.2 Conditions Precedent to Seller's Obligations. . . . . . . . . . . . 9
i
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9. APPROVAL OF SELLER'S CONSTITUENTS . . . . . . . . . . . . . . . . . . . . 9
10. PROPERTY "AS-IS" . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
10.1 No Side Agreements Or Representations; As-Is Purchase. . . . . . .10
10.2 Disclosures; Specific Acknowledgment Regarding Condition of
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
11. TITLE INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
12. COSTS AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . .13
13. DISBURSEMENTS AND OTHER ACTIONS. . . . . . . . . . . . . . . . . . . . .13
13.1 Escrow Holder. . . . . . . . . . . . . . . . . . . . . . . . . . .13
13.2 By Transfer Agent. . . . . . . . . . . . . . . . . . . . . . . . .14
13.3 Possession . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
13.4 Assumption of Liabilities. . . . . . . . . . . . . . . . . . . . .14
14. JOINT REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . .14
14.1 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
14.2 Actions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
14.3 Due Execution. . . . . . . . . . . . . . . . . . . . . . . . . . .14
14.4 Valid and Binding. . . . . . . . . . . . . . . . . . . . . . . . .15
14.5 Broker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
15. SELLER'S WARRANTIES AND REPRESENTATIONS. . . . . . . . . . . . . . . . .15
15.1 Non-Foreign Entity . . . . . . . . . . . . . . . . . . . . . . . .15
15.2 Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . .15
15.3 Clean-up . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
15.4 Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
15.5 Memberships. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
16. PRE-CLOSING COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . .16
ii
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16.1 No Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . .16
16.2 No Alterations . . . . . . . . . . . . . . . . . . . . . . . . . .16
16.3 Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
16.4 Obligations Under Contracts. . . . . . . . . . . . . . . . . . . .16
16.5 Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . .16
17. CONDEMNATION AND DESTRUCTION . . . . . . . . . . . . . . . . . . . . . .16
17.1 Eminent Domain or Taking . . . . . . . . . . . . . . . . . . . . .16
17.2 Damage or Destruction. . . . . . . . . . . . . . . . . . . . . . .17
18. UTILITIES AND DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . .17
18.1 Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
18.2 Refundable Deposits. . . . . . . . . . . . . . . . . . . . . . . .18
19. EMPLOYEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
19.1 Termination of Employees . . . . . . . . . . . . . . . . . . . . .18
19.2 No Agreements or Liability . . . . . . . . . . . . . . . . . . . .18
19.3 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
20. MEDIATION OF DISPUTES. . . . . . . . . . . . . . . . . . . . . . . . . .19
21. ARBITRATION OF DISPUTES. . . . . . . . . . . . . . . . . . . . . . . . .19
22. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
23. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
24. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
24.1 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . .20
24.2 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . .20
24.3 Possession of the Property . . . . . . . . . . . . . . . . . . . .20
24.4 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
24.5 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . .21
iii
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24.6 Professional Fees. . . . . . . . . . . . . . . . . . . . . . . . .21
24.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . .21
24.8 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . .21
24.9 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . .21
24.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . .21
24.11 Wear and Tear . . . . . . . . . . . . . . . . . . . . . . . . . .21
24.12 No Recordation. . . . . . . . . . . . . . . . . . . . . . . . . .21
24.13 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
24.14 Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . .22
24.15 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . .22
EXHIBIT A LEGAL DESCRIPTION . . . . . . . . . . . . . . . . . . . . . . . .24
EXHIBIT B FORM OF DEED . . . . . . . . . . . . . . . . . . . . . . . . . . .25
EXHIBIT C Seller's FIRPTA Affidavit. . . . . . . . . . . . . . . . . . . . .28
EXHIBIT D ASSIGNMENT AND ASSUMPTION OF AGREEMENTS . . . . . . . . . . . . .29
EXHIBIT E BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES . . . . . . . .31
EXHIBIT F MEMBERSHIP LISTS. . . . . . . . . . . . . . . . . . . . . . . . .34
EXHIBIT G PAYABLES TO BE ASSUMED BY BUYER. . . . . . . . . . . . . . . . . .35
</TABLE>
iv
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND JOINT ESCROW INSTRUCTIONS
THIS AGREEMENT OF PURCHASE AND SALE AND JOINT ESCROW INSTRUCTIONS
("AGREEMENT") is made and entered into as of __________________, 1998, by and
among AHWAHNEE GOLF COURSE & RESORT, INC., a California corporation (the
"COMPANY"), OCEANSIDE DEVELOPMENT, INC., a California corporation
("OCEANSIDE") (the Company and Oceanside being referred to collectively as
"SELLER"), and YOSEMITE WOODS FAMILY RESORT, INC., a California corporation
("BUYER").
RECITALS
A. Oceanside is the title holder of property located within "Ahwahnee
Golf Course and Resort", located in the County of Madera, State of California,
as more particularly described in Exhibit A attached hereto (the "Real
Property"). The Real Property includes, among other things, a non-proprietary
golf and country club. Buyer is a wholly-owned subsidiary of American Family
Communities, Inc., a California corporation ("AFC").
B. The Company operates and manages the Property.
NOW, THEREFORE, in consideration of the foregoing Recitals, which Recitals
are incorporated herein by this reference, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, Buyer and Seller
agree as follows:
AGREEMENT
1. DEFINITIONS: For the purposes of this Agreement the following
terms will be defined as follows:
1.1 "ACTUAL KNOWLEDGE OF SELLER" means and is limited to the actual
knowledge of David Lasker and James N. Orth without having conducted any
independent inquiry or inspection, and shall not include the knowledge of any
other persons or firms, it being understood and agreed by Buyer that neither
David Lasker nor James N. Orth is charged with knowledge of all of the acts
and/or omissions of predecessors in title to the Property or management of
the Property before Seller's acquisition of the Property and the Actual
Knowledge of Seller shall not include information or material which may be in
the possession of Seller generally, but of which neither David Lasker nor
James N. Orth is actually aware.
1.2 "AFC" means American Family Communities, Inc., a California
corporation, which is a wholly-owned subsidiary of AFH.
1.3 "AFH" means American Family Holdings, Inc., a Delaware
corporation. Buyer is a wholly-owned subsidiary of AFC, which, in turn, is a
wholly-owned subsidiary of AFH.
1.
<PAGE>
1.4 "ASSIGNMENT" shall have the meaning given thereto in Section
6.1(d) hereof.
1.5 "BILL OF SALE" shall have the meaning given thereto in Section
6.1(e) hereof.
1.6 "CLOSING DATE" means _____________________, 1998, unless an
earlier date is agreed to in a writing subsequent to this Agreement executed
and delivered by each of the parties hereto to the other, and is the last
date on which the Closing and Close of Escrow can occur, subject to extension
as provided for in this Agreement.
1.7 "CLOSING" and "CLOSE OF ESCROW" are terms used interchangeably
in this Agreement. The Closing or the Close of Escrow will be deemed to have
occurred when the Grant Deed is recorded in the official records of the
county in which the Property is located.
1.8 "COUNTRY CLUB FACILITIES" means the golf course and clubhouse
facilities located on a portion of the Property, consisting generally of an
18-hole golf course, a clubhouse consisting of approximately square feet of
space, a pro shop and restaurant and banquet facilities which accommodate up
to 250 people.
1.9 "COUNTRY CLUB PROPERTY" means that portion of the Property on
which the Country Club Facilities are located.
1.10 "EFFECTIVE DATE" means the date hereof.
1.11 "ENVIRONMENTAL AUDIT" means any environmental audit, review or
testing of the Property performed by Buyer or any third party or consultant
engaged by Buyer to conduct such study.
1.12 "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment
including, without limitation, CERCLA (Comprehensive Environmental Response,
Compensation and Liability Act of 1980) and RCRA (Resources Conservation and
Recovery Act of 1976), as amended.
1.13 "ESCROW" shall have the meaning given thereto in Section 4
hereof.
1.14 "ESCROW HOLDER" means _________________________________________
________________________________________________________________
1.15 "EXCHANGE VALUE" is the adjusted appraised value of the
Property which takes into consideration various factors to balance the
business value of the Property within their present ownership structure.
2.
<PAGE>
1.16 "EXHIBITS" means the following, each of which is attached
hereto and incorporated herein by this reference:
EXHIBIT A - Legal Description
EXHIBIT B - Form of Grant Deed
EXHIBIT C - FIRPTA Affidavit
EXHIBIT D - Assignment and Assumption
EXHIBIT E - Bill of Sale and General Assignment of Intangibles
EXHIBIT F - Membership Lists
EXHIBIT G - Payables to be Assumed By Buyer
1.17 "FIRPTA CERTIFICATE" shall have the meaning given thereto in
Section 6.1(b) hereof.
1.18 "GRANT DEED" shall have the meaning given thereto in Section
6.1(a) hereof.
1.19 "HAZARDOUS SUBSTANCE" means any substance, material or waste
which is or becomes designated, classified or regulated as being "toxic" or
"hazardous" or a "pollutant" or which is or becomes similarly designated,
classified or regulated, under any Environmental Law, including asbestos,
petroleum and petroleum products.
1.20 "IMPROVEMENTS" means all improvements and fixtures situated on
the Real Property, including, without limitation, the Country Club Facilities.
1.21 "INTANGIBLES" means all of Seller's right, title and interest
in and to all intangible property used, owned or issued solely and strictly
in connection with the Real Property, Improvements and Personal Property,
including, but not limited to: (i) trade names and trademarks, contract
rights, accounts receivable and other intangible property used in connection
with the ownership and operation of the Property; (ii) all licenses other
than the Liquor License, permits, certificates of occupancy, approvals,
dedications and entitlements issued, approved or granted by any governmental
authorities having jurisdiction over the Property; (iii) all membership now
in existence and unsold or unissued memberships in the Country Club
Facilities and all rights of Seller under the Membership Bylaws of the
Country Club Facilities; and (iv) all development rights, conditional use
permits, variances and other intangible rights, titles, interests and
privileges owned by Seller and related to or issued in connection with the
Land and/or Improvements, its use, occupancy, operation and development, but
in no way related to Seller's financial data or other proprietary information
or other property of Seller. The Intangibles do not include the Liquor
License.
1.22 "INVESTORS" means the constituent owners of Seller.
3.
<PAGE>
1.23 "LIQUOR LICENSE" means the general on-sale liquor license held
by David Englert for the service of liquor on and from the Country Club
Facilities, as well as the related furniture, fixtures and inventory and the
operating agreement and/or lease between the holder of the Liquor License and
the Seller.
1.24 "NOTICES" will be sent as provided in Section 22 to:
Seller: Oceanside Development, Inc.
4675 MacArthur Court, Suite 1240
Newport Beach, California 92660
Attn: Mr. David Lasker
Telephone: (949) 833-8600
Facsimile: (949) 752-9753
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, 34th Floor
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Buyer: Yosemite Woods Family Resort, Inc.
______________________________________
______________________________________
Attn: ________________________________
Telephone: ___________________________
Facsimile: ___________________________
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, 34th Floor
Los Angeles, CA 90017
Attn: Bruce H. Newman, Esq.
Telephone: (213) 430-3000
Facsimile: (213) 617-9255
Escrow Holder: ______________________________________
______________________________________
______________________________________
Attn: ________________________________
Telephone: __________________________
Facsimile: __________________________
1.25 "OPENING OF ESCROW" shall have the meaning given thereto in
Section 4 hereof.
4.
<PAGE>
1.26 "OTHER ASSETS" means cash, cash equivalent, notes and other
negotiable instruments and any and all other assets in the possession or
control of Seller, the value of which is determined by possession, and any
other assets other than the Real Property, Personal Property or Intangibles
relating to the Real Property.
1.27 "PERMITTED EXCEPTIONS" shall have the meaning given thereto in
Section 7.1 hereof.
1.28 "PERSONAL PROPERTY" means the equipment, furniture and
fixtures, supplies, books and records, Records, advertising materials,
brochures, literature, office supplies, stationery, equipment, inventory,
golf carts, golf course maintenance vehicles, rental golf clubs, tools,
linens, silverware, glassware, china, kitchen utensils, serving pieces,
decorations, appliances, display cases, and other tangible fixed assets
existing on the Closing Date on the Property, and clothing items, golf balls
and golfing supplies, golf clubs and golf bags, tennis supplies and all other
soft goods and materials held for sale by the pro shop located on the Country
Club Property and all such other tangible fixed assets existing on the
Closing Date on the Country Club Facilities and on the remainder of the
Property.
1.29 "PROPERTY" means collectively, (i) the Real Property, (ii) the
Improvements, (iii) the Intangibles, (iv) the Personal Property, (v) the
Other Assets, and (vi) the Records.
1.30 "PROSPECTUS" means the Consent Solicitation
Statement/Prospectus of Buyer.
1.31 "REAL PROPERTY" means that certain real property located in the
County of Madera, State of California and commonly known as "Ahwahnee Golf
Course and Resort" and more particularly described in Exhibit A attached
hereto. The Real Property is further described in the Recitals to this
Agreement.
1.32 "RECORDS" means the list of members of the Country Club
Facilities, the membership account statements and such of Seller's books and
records pertaining to the Property including, without limitation, the Country
Club Facilities.
1.33 "TITLE COMPANY" means ________________________________.
1.34 "TITLE POLICY" shall have the meaning given thereto in Section
11 hereof.
1.35 "TRANSFER AGENT" means _________________________, who address is
______________________, Attn: ______________, Facsimile No. __________________.
1.36 "UNIT" means, collectively, one (1) share of common stock, plus
warrants to purchase three (3) additional shares of common stock, in AFH.
2. PURCHASE AND SALE:
2.1 PURCHASE AND SALE. Upon and subject to the terms and
conditions set forth in this Agreement, Seller agrees to sell to Buyer and
Buyer agrees to buy from Seller the Property,
5.
<PAGE>
together with all easements, hereditaments, entitlements (to the extent
transferable) and appurtenances thereto. Buyer's acquisition of the Property
will be subject to liabilities only for current payables incurred in the
ordinary course of Seller's business, including the Open Purchase Orders, and
for property taxes all as set forth in Exhibit G. All other liabilities of
Seller, if any, are not assumed by Buyer and shall remain the liability of
Seller. In consideration of Seller's sale of the Property to Buyer, Buyer
will (a) deliver to the Investors the Exchange Value in accordance with
Section 3, and (b) perform all of Buyer's other obligations hereunder. This
purchase and sale contemplated by this Agreement expressly excludes the
purchase, sale or transfer of the Liquor License and the related furniture,
fixtures and inventory associated therewith. Notwithstanding the foregoing,
at the Close of Escrow, Seller will assign to Buyer its right, title and
interest in and to the operating agreement and/or lease with the holder of
the Liquor License.
2.2 SUBSTANCE OF TRANSACTIONS. Notwithstanding any other provision
of this Agreement, the transfer of the Property directly from Seller to Buyer
is for convenience purposes only to effect expeditiously the culmination of
the transfers set forth in this Section 2.2, and for all purposes hereunder
it is the intent of the parties that such transfer reflects the following
transfers, which shall occur in the following order; (i) all of the
Investors, through their approval of the transactions contemplated under this
Agreement, contribute all of their interests in the Property to AFH in
exchange for Units, such Units to be distributed to them pursuant to Sections
3 and 13.2 hereof; (ii) AFH contributes the Property to AFC as a
contribution to the capital of AFC; and (iii) AFC contributes the Property to
Buyer as a contribution to the capital of Buyer. Seller's transfer of the
Property directly to Buyer reflects Seller's transfer of the Property from
the Investors to AFH, from AFH to AFC, and from AFC to the Buyer, in each
instance in Seller's capacity as the agent of and on behalf of such
transferors.
3. CONSIDERATION:
3.1 EXCHANGE VALUE. In consideration for the sale of the Property
to Buyer, Buyer will deliver to Seller an amount equal to the Exchange Value
for the Property. The Exchange Value for the ownership interests of the
Property is $______________ which shall be paid in the form of, and by
issuance and delivery of __________ Units to the investors of Seller, to be
distributed by the Transfer Agent at the Closing outside of Escrow in
accordance with Section 13.2 hereof. Upon the request of any party hereto,
whether made before or after the Closing, the parties hereto will allocate
the Exchange Value to the Real Property, the Improvements, the Intangibles,
the Personal Property and the Other Assets.
3.2 ADDITIONAL CONSIDERATION. If, after the Close of Escrow, Buyer
completes the sale of the Property for a purchase price which exceeds the
appraised value of the Property, as set forth in the appraisal dated March,
1998 prepared by ________________________ (the "Appraised Value"), Buyer will
pay to Seller an amount calculated pursuant to the terms of this Section 3.2,
which shall be paid in the form of, and by issuance and delivery of, an
additional number of Units equal to the quotient of the net cash proceeds
(exclusive of interest on deferred purchase price payments) received by Buyer
for such sale on or before December 31, 1999 up to 200% of the Appraised
Value divided by $20. (For example, if the Appraised Value of the Property was
6.
<PAGE>
$1,750,000 and Buyer received by December 31, 1999 net cash sale proceeds in
the amount of $3,600,000, then the maximum number of additional Units
available for allocation among Seller's investors would be $1,750,000 divided
by $20 or 87,500 Units.)
4. ESCROW: Immediately upon execution of this Agreement, Buyer
and Seller will open an escrow (the "ESCROW") with the Escrow Holder by
delivering to Escrow Holder a fully executed copy of this Agreement (the
"OPENING OF ESCROW"). The purchase and sale of the Property will be
completed through the Escrow. Buyer and Seller agree to execute any
additional instructions consistent with this Agreement which are reasonably
required by the Escrow Holder. If there is a conflict between any printed
escrow instructions and this Agreement, the terms of this Agreement will
govern.
5. CANCELLATION OF FEES AND EXPENSES: If the Closing does not
occur at the time and in the manner provided in this Agreement because of the
default of one of the parties, the non-defaulting party has the right to
cancel the Escrow by written notice to the defaulting party and to the Escrow
Holder. All costs of cancellation, if any, will be paid by the defaulting
party.
6. DELIVERIES TO ESCROW HOLDER:
6.1 BY SELLER. On or prior to the Closing Date, Seller will
deliver or cause to be delivered to Escrow Holder the following items:
(a) Two Grant Deeds ("GRANT DEEDS"), in the form attached to
this Agreement as Exhibit B, duly executed and acknowledged by Oceanside, and
in recordable form, conveying the Property to Buyer.
(b) A Transferor's Certificate of Non-Foreign Status attached
to this Agreement as Exhibit C ("FIRPTA CERTIFICATE"), duly executed by or on
behalf of Seller.
(c) A properly executed California Form RE 590 or other
evidence sufficient to establish that Buyer is not required to withhold any
portion of the Exchange Value pursuant to Sections 18805 and 26131 of the
California Revenue and Taxation Code ("Form 590").
(d) An Assignment and Assumption of Agreements ("Assignment")
duly executed by Seller in favor of Buyer in the form attached to this
Agreement as Exhibit D.
(e) If requested by Buyer, a quitclaim deed to the Property
or any portion thereof in favor of Buyer, duly executed and acknowledged by
the Company.
(f) A Bill of Sale and General Assignment of Intangibles in
the form attached to this Agreement as Exhibit E ("BILL OF SALE"), duly
executed by Seller and conveying all right, title and interest of Seller in
the Personal Property and the Intangibles to Buyer.
(g) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Seller as are
reasonably required by Buyer or Escrow Holder or both in connection with this
transaction.
7.
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6.2 BY BUYER. On or prior to the Closing Date, Buyer will deliver
or cause to be delivered to Escrow Holder the following items:
(a) Such corporate resolutions, certificates of good standing
and/or other corporate or partnership documents relating to Buyer as are
reasonably required by Seller or Escrow Holder or both in connection with
this transaction.
(b) Amounts due to pay costs and expenses as set forth in
Section 12 hereof.
6.3 BY BUYER AND SELLER. Buyer and Seller will each deposit such
other instruments consistent with this Agreement as are reasonably required
by Escrow Holder or otherwise required to close escrow. In addition Seller
and Buyer hereby designate Escrow Holder as the "REPORTING PERSON" for the
transaction pursuant to Section 6045(e) of the Internal Revenue Code.
7. CONDITION OF TITLE:
7.1 PERMITTED EXCEPTIONS. At the Close of Escrow, fee simple title
to the Property will be conveyed to Buyer by Seller by Grant Deed, subject
only to the following title matters ("Permitted Exceptions"):
(a) all property tax liens (whether or not payments of
property taxes are delinquent) and all other matters shown in that certain
preliminary report dated as of _________________, issued by the title
company, bearing Order No. ________ except Exception Nos. __________________
except that deeds of trust and leases will not be deemed permitted exceptions
and such deeds of trust must be reconveyed and such leases must be terminated
at or before the Closing; and
(b) matters affecting the condition of title to the Property
created by, at the request of or with the written consent of Buyer.
7.2 TITLE PROVIDED BY SELLER. The parties agree that (a) except as
specifically provided in the Grant Deed or implied by law, Seller makes no
express or implied warranties regarding the condition of title to the
Property, and (b) Buyer shall rely solely on the Title Policy for protection
against any title defects.
8. CONDITIONS TO THE CLOSE OF ESCROW:
8.1 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The following
conditions must be satisfied not later the earlier of the Closing Date or
such other period of time as may be specified below:
8.1.1 TITLE. As of the Closing, the Title Company will issue
or have committed to issue to Buyer the Title Policy described in Section 11.
8.
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8.1.2 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER.
Seller will have duly performed each and every agreement to be performed by
Seller hereunder and, subject to the provisions of Section 10, Seller's
express representations and warranties set forth in this Agreement will be
true and correct in all material respects as of the Closing Date. However,
notwithstanding anything to the contrary stated or implied in this Section
8.1.2, Seller shall have no liability for the breach of any representations,
warranties or covenants set forth in this Agreement, whether express or
implied, absent a finding by a court of competent jurisdiction that either
David Lasker or James N. Orth or both of them withheld information with
respect thereto from Buyer or falsified information delivered to and relied
upon by Buyer and that such action amounted to a violation of a
representation or warranty set forth herein.
8.1.3 SELLER'S DELIVERIES. Seller will have delivered the
items described in Section 6.1.
The conditions set forth in this Section 8.1 are solely for the benefit of
Buyer and may be waived only by Buyer. At all times Buyer has the right to
waive any condition. Such waiver or waivers must be in writing to Seller. If
any conditions are not satisfied on or before the Closing Date, and Buyer has
not waived the unsatisfied conditions, Seller will not be deemed to be in
default (unless Seller has breached Sections 8.1.2 or 8.1.3 above) and Buyer's
sole remedy will be to terminate this Agreement.
8.2 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The Close of
Escrow and Seller's obligations with respect to this transaction are subject
to the following conditions precedent: (a) Buyer's delivery to Escrow Holder
on or before the Closing Date, of the items described in Section 6.2; (b) the
approval of such of Seller's constituents as Seller shall deem necessary or
advisable in its sole and absolute discretion as set forth in Section 9
hereof, (c) Buyer having duly performed each and every agreement to be
performed by Buyer hereunder; and (d) Buyer's representations, warranties and
covenants set forth in this Agreement, will be true and correct in all
material respects as of the Closing Date. The conditions set forth in this
Section 8.2 are solely for the benefit of Seller and may be waived only by
Seller, with such waiver or waivers to be in writing to Buyer. If any
conditions are not satisfied on or before the Closing Date, and Seller has
not waived the unsatisfied conditions, Buyer will not be deemed to be in
default (unless Buyer has breached Sections 8.2(a), (c) or (d) above) and
Seller's sole remedy will be to terminate the Agreement.
9. APPROVAL OF SELLER'S CONSTITUENTS: Seller shall exercise
reasonable diligence to obtain the approval of this transaction by such of
the constituents of Seller as Seller shall deem necessary or advisable, in
its sole and absolute discretion, and shall notify Buyer and Escrow Holder
when such approvals have been obtained. If Seller is not able to obtain such
approvals from such constituents on or before the date which is _____ days
after the Effective Date, or such later date as is mutually agreed to by
Buyer and Seller, then Seller may cancel this Agreement by notice to Buyer
and Escrow Holder given prior to the end of that time period, and in that
event Seller shall pay all title and escrow cancellation costs. Seller shall
indemnify and hold Buyer
9.
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harmless from any claim, damage, loss, liability, action, settlement,
including Buyer's reasonable attorneys' fees suffered by Buyer and which
results from or relates to the Seller's securing approval of this transaction
and transferring the Property to Buyer pursuant to such approval.
10. PROPERTY "AS-IS":
10.1 NO SIDE AGREEMENTS OR REPRESENTATIONS; AS-IS PURCHASE. BUYER
REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT BUYER HAD THE OPPORTUNITY
TO INDEPENDENTLY AND PERSONALLY INSPECT THE PROPERTY AND IMPROVEMENTS, IF
ANY, AND THAT BUYER HAS ENTERED INTO THIS AGREEMENT AFTER HAVING MADE SUCH
PERSONAL EXAMINATION AND INSPECTION. BUYER AGREES THAT BUYER WILL ACCEPT THE
PROPERTY, IN ITS THEN CONDITION AS-IS AND WITH ALL ITS FAULTS, INCLUDING
WITHOUT LIMITATION, ANY FAULTS AND CONDITIONS SPECIFICALLY REFERENCED IN THIS
AGREEMENT, SUBJECT TO THE EXPRESS COVENANTS, INDEMNITIES, REPRESENTATIONS AND
WARRANTIES MADE BY SELLER ELSEWHERE HEREIN. NO PERSON ACTING ON BEHALF OF
SELLER IS AUTHORIZED TO MAKE, AND BY EXECUTION HEREOF, BUYER ACKNOWLEDGES AND
AGREES THAT, EXCEPT FOR THOSE REPRESENTATIONS, WARRANTIES, COVENANTS,
INDEMNITIES AND AGREEMENTS EXPRESSLY MADE BY SELLER IN THIS AGREEMENT, SELLER
HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY NEGATES AND DISCLAIMS ANY
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF
ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR
WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO:
(A) THE VALUE OF THE PROPERTY OR THE INCOME TO BE DERIVED THEREFROM;
(B) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND
USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING ANY DEVELOPMENT OF THE
PROPERTY;
(C) THE HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY;
(D) THE MANNER, QUALITY, STATE OF REPAIR OR LACK OF REPAIR OF THE
PROPERTY;
(E) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING
WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(F) THE TYPE, AVAILABILITY OR COST OF ANY ENTITLEMENTS REQUIRED TO
DEVELOP THE PROPERTY;
10.
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(G) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY
LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY
OR BODY;
(H) THE MANNER, CONDITION OR QUALITY OF THE CONSTRUCTION OR MATERIALS,
IF ANY, INCORPORATED INTO THE PROPERTY;
(I) COMPLIANCE WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION OR LAND
USE LAWS, RULES, REGULATION, ORDERS OR REQUIREMENTS, INCLUDING BUT NOT LIMITED
TO, THE ENDANGERED SPECIES ACT, TITLE III OF THE AMERICANS WITH DISABILITIES ACT
OF 1990 OR ANY OTHER LAW, RULE OR REGULATION GOVERNING ACCESS BY DISABLED
PERSONS, CALIFORNIA HEALTH & SAFETY CODE, THE FEDERAL WATER POLLUTION CONTROL
ACT, THE FEDERAL RESOURCE CONSERVATION AND RECOVERY ACT, THE U.S. ENVIRONMENTAL
PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE COMPENSATION AND LIABILITY ACT OF 1980, AS AMENDED, THE
RESOURCES CONSERVATION AND RECOVERY ACT OF 1976, THE CLEAN WATER ACT, THE SAFE
DRINKING WATER ACT, THE HAZARDOUS MATERIALS TRANSPORTATION ACT, THE TOXIC
SUBSTANCE CONTROL ACT, AND REGULATIONS PROMULGATED UNDER ANY OF THE FOREGOING;
(J) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON, UNDER, OR
ADJACENT TO THE PROPERTY;
(K) THE CONTENT, COMPLETENESS OR ACCURACY OF ANY MATERIALS, INCLUDING
ANY INFORMATIONAL PACKAGE, COST TO COMPLETE ESTIMATE OR OTHER MATERIALS PREPARED
BY OR ON BEHALF OF SELLER;
(L) THE CONFORMITY OF THE IMPROVEMENTS TO ANY PLANS OR SPECIFICATIONS
FOR THE PROPERTY, INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVE BEEN OR
MAY BE PROVIDED TO BUYER;
(M) THE CONFORMITY OF THE PROPERTY TO PAST, CURRENT OR FUTURE
APPLICABLE ZONING OR BUILDING REQUIREMENTS;
(N) DEFICIENCY OF ANY UNDERSHORING;
(O) DEFICIENCY OF ANY DRAINAGE;
(P) THE FACT THAT ALL OR A PORTION OF THE PROPERTY MAY BE LOCATED ON
OR NEAR AN EARTHQUAKE FAULT LINE OR LOCATED IN AN ALQUIST-PRIOLO SPECIAL STUDY
ZONE;
(Q) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING ENTITLEMENTS
AFFECTING THE PROPERTY;
11.
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(R) ANY AND ALL REQUIREMENTS OR CONDITIONS OF APPROVAL OF STATE AND
LOCAL GOVERNMENTAL AGENCIES FOR DEVELOPMENT OF THE PROPERTY INCLUDING, WITHOUT
LIMITATION, THE CONSTRUCTION OF OFFSITE AND ONSITE ROADS, UTILITIES AND OTHER
IMPROVEMENTS; OR
(S) WITH RESPECT TO ANY OTHER MATTER CONCERNING THE PROPERTY EXCEPT AS
MAY BE OTHERWISE EXPRESSLY STATED HEREIN, INCLUDING ANY AND ALL SUCH MATTERS
REFERENCED, DISCUSSED OR DISCLOSED IN ANY DOCUMENTS DELIVERED BY SELLER TO
BUYER, IN ANY PUBLIC RECORDS OF ANY GOVERNMENTAL AGENCY OR ENTITY OR UTILITY
COMPANY, OR IN ANY OTHER DOCUMENTS AVAILABLE TO BUYER.
BUYER FURTHER ACKNOWLEDGES AND AGREES THAT BUYER IS RELYING SOLELY ON ITS
OWN INVESTIGATION OF THE PROPERTY AND ITS OWN REVIEW OF ALL INFORMATION AND
DOCUMENTATION CONCERNING THE PROPERTY, AND NOT ON ANY INFORMATION PROVIDED OR TO
BE PROVIDED BY SELLER. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY
INFORMATION MADE AVAILABLE TO BUYER OR PROVIDED OR TO BE PROVIDED BY OR ON
BEHALF OF SELLER WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A VARIETY OF
SOURCES AND THAT SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION AND MAKES NO REPRESENTATIONS AS TO THE ACCURACY
OR COMPLETENESS OF SUCH INFORMATION EXCEPT AS MAY OTHERWISE BE PROVIDED HEREIN.
BUYER AGREES TO FULLY AND IRREVOCABLY RELEASE ALL SUCH SOURCES OF INFORMATION
AND PREPARERS OF INFORMATION AND DOCUMENTATION TO THE EXTENT SUCH SOURCES OR
PREPARERS ARE SELLER, OR ITS EMPLOYEES, OFFICERS, DIRECTORS, REPRESENTATIVES,
BENEFICIARIES, INVESTORS, AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT
COMPANIES, SUBSIDIARIES, SUCCESSORS OR ASSIGNS FROM ANY AND ALL CLAIMS, DAMAGES
AND LIABILITIES ARISING FROM SUCH INFORMATION OR DOCUMENTATION, EXCEPT IF AND TO
THE EXTENT THAT BUYER EMPLOYS SUCH SOURCES OR PREPARERS OF INFORMATION TO ACT ON
BEHALF OF BUYER, IN WHICH EVENT THE LIABILITY OF SUCH SOURCES OR PREPARERS OF
INFORMATION TO BUYER SHALL BE DETERMINED BY THEIR OWN INDEPENDENT AGREEMENTS
WITH BUYER, AND SELLER SHALL NOT BE LIABLE FOR SUCH AGREEMENTS OR OBLIGATIONS.
SELLER IS NOT LIABLE OR BOUND IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS,
REPRESENTATIONS OR INFORMATION PERTAINING TO THE PROPERTY, OR THE OPERATION
THEREOF, FURNISHED BY ANY OF THE FOREGOING ENTITIES AND INDIVIDUALS OR ANY OTHER
INDIVIDUAL OR ENTITY.
10.2 DISCLOSURES; SPECIFIC ACKNOWLEDGMENT REGARDING CONDITION OF
PROPERTY. Buyer acknowledges the disclosures expressly made by Seller in this
Agreement, the Prospectus and in correspondence from Seller, its attorneys
and/or its agents to Buyer, its attorneys and/or its agents.
12.
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11. TITLE INSURANCE: At the Close of Escrow, the Title Company
will issue to Buyer at Buyer's sole cost and expense an ALTA Standard
Coverage Policy (1990) with coverage in an amount equal to the appraised
value of the Real Property as determined by Buyer in its sole discretion,
showing title to the Real Property vested in Buyer, subject only to the
Permitted exceptions and the standard printed exceptions and conditions in
the policy of title insurance ("TITLE POLICY"). If Buyer elects to obtain
any additional endorsements or an extended coverage policy, the additional
premium and costs of survey for the extended coverage policy and the cost of
any endorsements will be at Buyer's sole cost and expense; however, Buyer's
election to obtain an extended coverage policy will not delay the Closing and
Buyer's inability to obtain an extended coverage policy or any such
endorsements will not be deemed to be a failure of any condition to Closing.
12. COSTS AND EXPENSES: Buyer will pay the costs of Closing the
transaction as follows:
(a) all premiums for the Title Policy;
(b) all escrow fees and costs;
(c) all city and county documentary transfer taxes;
(d) all document recording charges;
(e) all sales taxes;
(f) one half of all escrow fees and costs;
(g) the entire additional cost of any ALTA extended coverage
title policy, the cost of any required survey and, the cost of any
endorsements required by Buyer; and
(h) All other costs and expenses necessarily incurred to
close the transaction.
13. DISBURSEMENTS AND OTHER ACTIONS:
13.1 ESCROW HOLDER. At the Close of Escrow, Escrow Holder will
promptly undertake all of the following:
(a) Cause the Grant Deeds (with documentary transfer tax
information to be affixed after recording) to be recorded with the County
Recorder and obtain conformed copies thereof for distribution to Buyer and
Seller.
(b) Direct the Title Company to issue the Title Policy to
Buyer within 15 business days after Closing.
13.
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(c) Deliver to Buyer the FIRPTA Certificate, the Form 590 and
any other documents (or copies thereof) deposited into Escrow by Seller.
Deliver to Seller any other documents (or copies thereof) deposited into
Escrow by Buyer.
(d) Notify the Transfer Agent by telephone and facsimile that
the Close of Escrow has occurred.
13.2 BY TRANSFER AGENT. Promptly after the Close of Escrow,
Transfer Agent shall deliver all Units in payment of the Exchange Value for
the Property to the persons, at the addresses and in the amounts designated
by Seller.
13.3 POSSESSION. Possession of the Other Assets in Seller's
possession or control, the Records and all other Property shall be delivered
by Seller to Buyer at the Close of Escrow.
13.4 ASSUMPTION OF LIABILITIES. All of Seller's accounts receivable
existing at the Closing shall become the property of, and shall be delivered
to, Buyer at the Close of Escrow. Any moneys delivered to Seller after the
Close of Escrow shall be held by Seller in trust for the account of Buyer,
and Seller shall forthwith deliver such funds to Buyer. Buyer shall be
liable only for contracts expressly assumed by Buyer pursuant to the
Assignment attached hereto as Exhibit D, and only those current payables
existing at the Close of Escrow, including the Open Purchase Orders which are
listed on Exhibit G hereto, and shall be responsible for the payment thereof
following the Closing. Seller shall remain responsible for all liabilities
and payables not set forth on Exhibit G, or otherwise assumed by Buyer in
writing.
14. JOINT REPRESENTATIONS AND WARRANTIES. In addition to any
express agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other, provided
that liability for any breach is subject to Sections 8.1.2 and 24.13 hereof:
14.1 AUTHORITY. Each party has the legal power, right and authority
to enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
14.2 ACTIONS. All requisite action (corporate, trust, partnership
or otherwise) has been taken by each party in connection with the entering
into of this Agreement, the instruments referenced herein, and the
consummation of this transaction. Except as provided in Section 9, no
further consent of any partner, shareholder, creditor, investor, judicial or
administrative body, governmental authority or other party is required.
14.3 DUE EXECUTION. The individuals executing this Agreement and
the instruments referenced herein on behalf of each party and the partners,
officers or trustees of each party, if any, have the legal power, right, and
actual authority to bind each party to the terms and conditions of those
documents.
14.
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14.4 VALID AND BINDING. This Agreement and all other documents
required to close this transaction are and will be valid, legally binding
obligations of and enforceable against each party in accordance with their
terms, subject only to applicable bankruptcy, insolvency, reorganization,
moratorium laws or similar laws or equitable principles affecting or limiting
the rights of contracting parties generally.
14.5 BROKER. Seller represents and warrants to Buyer, and Buyer
represents and warrants to Seller, that no broker or finder has been engaged
by them, respectively, in connection with any of the transactions
contemplated by this Agreement, or to its knowledge is in any way connected
with any of such transactions. Buyer will indemnify, save harmless and
defend Seller from any liability, cost, or expense arising out of or
connected with any claim for any commission or compensation made by any
person or entity claiming to have been retained or contacted by Buyer in
connection with this transaction. Seller will indemnify, save harmless and
defend Buyer from any liability, cost, or expense arising out of or connected
with any claim for any commission or compensation made by any person or
entity claiming to have been retained or contacted by Seller in connection
with this transaction. This indemnity provision will survive the Closing or
any earlier termination of this Agreement.
15. SELLER'S WARRANTIES AND REPRESENTATIONS. Seller makes the
following representations and warranties and acknowledges that Buyer will
rely on such representations and warranties in acquiring the Property,
provided that liability for any breach is subject to Sections 8.1.2 and 24.13
hereof:
15.1 NON-FOREIGN ENTITY. Seller is not a "foreign person" within
the meaning of Section 1445(f)(3) of the Internal Revenue Code.
15.2 HAZARDOUS SUBSTANCES. To Seller's Actual Knowledge, since the
date of Seller's acquisition of the Property, no Hazardous Substances are now
or have been used, stored, generated or disposed of on or within the Property
except in the normal course of use and operation of the Property and in
compliance with all applicable Environmental Laws.
15.3 CLEAN-UP. To Seller's Actual Knowledge, since the date of
Seller's acquisition of the Property, there are and have been no federal,
state or local enforcement, clean-up, removal, remedial or other governmental
or regulatory actions instituted or completed affecting the Property, other
than such other matters as may otherwise be disclosed in any Environmental
Audit or in any other documents provided or made available to Buyer.
15.4 CLAIMS. To Seller's Actual Knowledge, there are no outstanding
claims that have been made by any third party against Seller relating to any
Hazardous Substances on or within the Property.
15.5 MEMBERSHIPS. To Seller's Actual Knowledge, the list of members
and the status of the payment of the membership dues for such members set
forth in Exhibit F hereto are true, accurate and complete in all material
respects.
15.
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The provisions of this Section 15 shall no longer bind Seller if this
Agreement expires or is terminated for any reason, or if the Closing
contemplated hereunder does not occur.
16. PRE-CLOSING COVENANTS. So long as this Agreement remains in
full force and effect:
16.1 NO TRANSFERS. Without the prior written consent of Buyer,
Seller will not convey any interest in the Property and will not subject the
Property to any additional liens, encumbrances, covenants, conditions,
easements, rights of way or similar matters after the date of this Agreement,
except as may be otherwise provided for in this Agreement, which will not be
eliminated prior to the Close of Escrow. Notwithstanding the foregoing,
Seller may continue to sell golf course in the regular course of business.
16.2 NO ALTERATIONS. Seller will not make any material alterations
to the Property without Buyer's consent, which will not be unreasonably
withheld or delayed.
16.3 MAINTENANCE. Seller will maintain the Property in
substantially the same condition as it is in, as of the date of this
Agreement, and manage the Property in accordance with Seller's established
practices.
16.4 OBLIGATIONS UNDER CONTRACTS. Seller will keep and perform all
of the obligations to be performed by Seller under any contracts affecting
the Property. Without prior written consent of Buyer, which will not be
unreasonably withheld or delayed, Seller will not enter into any contract or
agreement providing for the provision of goods or services to or with respect
to the Property or the operation thereof unless such contracts or agreements
can be terminated without penalty by the Closing Date. Seller will not enter
into any new leases for any portion of the Property.
16.5 EXPENDITURES. Seller will incur only expenditures necessary
for the day-to-day operation and maintenance of the Property, and will not
incur capital expenditures or liabilities not in the ordinary course of
business. Seller shall retain all Other Assets in Seller's possession on or
after the date hereof except for payment of such permitted liabilities and
expenditures.
17. CONDEMNATION AND DESTRUCTION.
17.1 EMINENT DOMAIN OR TAKING. If proceedings under a power of
eminent domain relating to the Property or any part thereof are commenced
prior to Close of Escrow, Seller will promptly inform Buyer in writing.
(a) If such proceedings involve the taking of title to all or
a material interest in the Property, Buyer may elect to terminate this
agreement by notice in writing sent within 10 DAYS of Seller's written notice
to Buyer, in which case neither party will have any further obligation to or
rights against the other except any rights or obligations of either party
which are expressly stated to survive termination of this Agreement.
16.
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(b) If the proceedings do not involve the taking of title to all
or a material interest in the Property, or if Buyer does not elect to
terminate this Agreement, this transaction will be consummated as described
herein and any award or settlement payable with respect to such proceeding
will be paid or assigned to Buyer upon Close of Escrow.
(c) If this sale is not consummated for any reason, any
condemnation award or settlement will belong to Seller.
17.2 DAMAGE OR DESTRUCTION. Except as provided in this Section,
prior to the Close of Escrow the entire risk of loss of damage by earthquake,
flood, landslide, fire or other casualty is borne and assumed by Seller. If,
prior to the Close of Escrow, any part of the improvements is damaged or
destroyed by earthquake, flood, landslide, fire or other casualty, Seller
will promptly inform Buyer of such fact in writing and advise Buyer as to the
extent of the damage and whether it is, in Seller's reasonable opinion,
"MATERIAL" or not "MATERIAL".
(a) If such damage or destruction is "MATERIAL", Buyer has the
option to terminate this Agreement upon written notice to the Seller given
not later than 10 DAYS after receipt of Seller's written notice to Buyer
advising of such damage or destruction.
(b) For purposes hereof, "MATERIAL" is deemed to be any damage
or destruction to the Improvements where the cost of repair or replacement is
estimated to be more than 25% of the Exchange Value of the Property and will
take more than 60 DAYS to repair.
(c) If this Agreement is so terminated, the provisions of
Section 5 will govern.
(d) If Buyer does not elect to terminate this Agreement, or if
the casualty is not material, Seller will reduce the Exchange Value by the
value reasonably estimated by Seller to repair or restore the damaged portion
of the improvements, less any sums expended by Seller to make emergency
repairs to the Improvements or the Property or otherwise protect the physical
condition of the Improvements or the Property, and this transaction will
close pursuant to the terms of this Agreement.
(e) If the damage is not material, Seller's notice to Buyer of
the damage or destruction will also set forth Seller's reduced Exchange Value
and Seller's allocation of value to the damaged portion of the Improvements.
If Buyer does not accept Seller's reduced Exchange Value, Buyer's sole remedy
will be to terminate this Agreement.
(f) Whether or not the sale of the Property is consummated
hereunder, all rights to insurance claims or proceeds in respect of damage or
destruction to the Improvements occurring prior to the Close of Escrow will
belong to Seller.
18. UTILITIES AND DEPOSITS:
18.1 UTILITIES. Seller will notify all utility companies servicing
the Property of the sale of the Property to Buyer and will notify the utility
companies that all utility bills henceforth are to be sent to Buyer. Buyer
shall be entitled to receive any and all refunds of all utility deposits
17.
<PAGE>
held by utility companies and Seller will assign to Buyer all of Seller's
right, title and interest in any such utility deposits.
18.2 REFUNDABLE DEPOSITS. To the extent there exists any refundable
deposits made in connection with the development of the Property prior to the
Closing ("Refundable Deposits"), Seller shall assign to Buyer all of Seller's
right, title and interest in and to such Refundable Deposits.
19. EMPLOYEES:
19.1 TERMINATION OF EMPLOYEES.
(a) Effective no later than Closing, the Company will
completely and irrevocably terminate all agreements, contracts, arrangements,
commitments and other obligations pertaining to employment or in the nature
of employment contracts with all persons working at the Property, whether
denominated as "employees" or otherwise (the "Terminated Persons") (such
terminations by Seller are referred to collectively as the "Terminations").
(b) All wages, salary, accrued fringe benefits (including
accrued vacation pay), severance payments (if any), payments required by
Consolidated Omnibus Budget Reconciliation Act of 1986, as amended, and other
liabilities, compensation or amounts owed to Terminated Persons shall be
fully paid by Seller at or prior to Closing, except as follows:
(i) All Terminated Persons to whom Buyer is offering new
employment who are entitled to accrued vacation pay as of Closing shall be
given the option of (x) being paid their accrued vacation pay in cash by
Seller immediately after Closing, or (y) if they accept the offer of new
employment with Buyer, having a credit for their accrued vacation time
included as a fringe benefit to which they would be entitled upon commencing
employment with Buyer, subject to the policies and procedures of Buyer.
(ii) Terminated Persons who elect the first option
specified in Section 5.1 (b)(i) (or who do not accept the offer of new
employment with Buyer) shall be paid their accrued vacation pay by Seller
immediately after Closing.
(c) The notification to the employees of the option provided
in Section 19.1(a) shall be in a form mutually agreeable to Buyer and Seller.
(d) Seller shall grant Buyer reasonable opportunities to
communicate with all employees of the Company prior to the Closing for
purposes of allowing Buyer to convey offers of employment, for confirming the
terms of such employment, and for purposes related thereto.
19.2 NO AGREEMENTS OR LIABILITY. Buyer does not agree to adopt or
to continue in effect the terms and conditions of any collective bargaining
agreement between Seller and any labor organization or of any employment
contract between Seller and any employee of Seller. Buyer further does not
agree to retain any or all of the current employees of Seller or to maintain
existing staffing levels or job classifications. In the event that Buyer
decides to make offers of
18.
<PAGE>
employment to any or all of the current employees of seller, Buyer reserves
the right to establish the terms of such offers of employment and does not
agree to maintain or continue in effect any or all of the current terms and
conditions of employment of such employees or to give them seniority or
service credit of any kind for their prior employment.
19.3 INDEMNITY. Seller shall indemnify and hold buyer harmless from
any liability, claims, costs, expenses, including attorney fees and
litigation costs, arising out of or related to the employment of the
Terminated Persons with Seller or arising out of or related to the
Terminations.
20. MEDIATION OF DISPUTES: No party to this Agreement shall
initiate any litigation against any other party to this Agreement concerning,
any controversy or claim arising out of or relating to this Agreement or any
agreements or instruments relating hereto or delivered in connection
herewith, including, but not limited to, any claim based on or arising from
an alleged tort, unless and until (i) at least 60 days before the same shall
be filed, a complete copy of each of the summons and complaint (and/or any
other documentation required to initiate such litigation) to be filed by the
complaining party shall have been delivered to the other party or parties to
any such dispute, and (ii) the complaining party has made itself available to
meet in Los Angeles, California with the other party or parties for no more
than 3 business days of non-binding mediation. Until and unless such
mediation has taken place, the complaining party must give notice to the
non-complaining party that it will, and then it must, make itself available
for such mediation during at least 20 business days during the 60 days before
the date on which such summons and complaint will be filed.
21. ARBITRATION OF DISPUTES: ANY CONTROVERSY OR CLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR INSTRUMENTS RELATING
HERETO OR DELIVERED IN CONNECTION HEREWITH, INCLUDING, BUT NOT LIMITED TO A
CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT WILL, AT THE REQUEST OF ANY
PARTY, BE DETERMINED BY ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (9 U.S.C. SECTION 1 ET SEQ.) UNDER THE AUSPICES AND RULES OF
THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THE AAA WILL BE INSTRUCTED BY
EITHER OR BOTH PARTIES TO PREPARE A LIST OF THREE (3) JUDGES WHO HAVE RETIRED
FROM THE SUPERIOR COURT OF THE STATE OF CALIFORNIA, A HIGHER CALIFORNIA COURT
OR ANY FEDERAL COURT. WITHIN 10 DAYS OF RECEIPT OF THE LIST, EACH PARTY MAY
STRIKE 1 NAME FROM THE LIST. THE AAA WILL THEN APPOINT THE ARBITRATOR FROM
THE NAME(S) REMAINING ON THE LIST. THE ARBITRATION WILL BE CONDUCTED IN SAN
FRANCISCO, LOS ANGELES OR SAN DIEGO, WHICHEVER IS THE CLOSEST CITY TO THE
NEXUS OF THE DISPUTE. ANY CONTROVERSY IN INTERPRETATION OR ENFORCEMENT OF
THIS PROVISION OR WHETHER A DISPUTE IS ARBITRABLE, WILL BE DETERMINED BY THE
ARBITRATOR. JUDGMENT UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF
AN ACTION FOR JUDICIAL RELIEF OR IN PURSUIT OF AN ANCILLARY REMEDY DOES NOT
CONSTITUTE A WAIVER OF THE RIGHT OF ANY
19.
<PAGE>
PARTY, INCLUDING THE PLAINTIFF, TO SUBMIT THE CONTROVERSY OR CLAIM TO
ARBITRATION.
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES'
PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU
ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A
COURT OR BY JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR
JUDICIAL RIGHTS TO DISCOVERY AND APPEAL UNLESS SUCH RIGHTS ARE SPECIFICALLY
INCLUDED IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE-
UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT
TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THE ARBITRATION OF DISPUTE PROVISION TO
NEUTRAL ARBITRATION.
Buyer's Initials Seller's Initials
--------- ----------
22. NOTICES: All notices or other communications required or
permitted hereunder must be in writing, and must be personally delivered
(including by means of professional messenger service) or sent by overnight
courier, or sent by registered or certified mail, postage prepaid, return
receipt requested to the addresses set forth in Section 1 hereof All notices
sent by mail will be deemed received 2 days after the date of mailing and all
notices sent by other means permitted herein shall be deemed received on the
earlier of the date delivered or the date on which delivery is refused.
23. ASSIGNMENT: Neither party shall have the right to assign this
Agreement without the other party's prior written consent.
24. MISCELLANEOUS:
24.1 COUNTERPARTS. This Agreement may be executed in counterparts.
24.2 PARTIAL INVALIDITY. If any term or provision of this Agreement
will be deemed to be invalid or unenforceable to any extent, the remainder of
this Agreement will not be affected thereby, and each remaining term and
provision of this Agreement will be valid and be enforced to the fullest
extent permitted by law.
24.3 POSSESSION OF THE PROPERTY. Seller will deliver possession of
the Property to Buyer upon the Close of Escrow.
20.
<PAGE>
24.4 WAIVERS. No waiver of any breach of any covenant or provision
contained herein will be deemed a waiver of any preceding or succeeding
breach thereof, or of any other covenant or provision contained herein. No
extension of time for performance of any obligation or act will be deemed an
extension of the time for performance of any other obligation or act except
those of the waiving party, which will be extended by a period of time equal
to the period of the delay.
24.5 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and
inures to the benefit of the permitted successors and assigns of the parties
hereto.
24.6 PROFESSIONAL FEES. In the event of the bringing of any action,
arbitration or suit by a party hereto against another party hereunder by
reason of any breach of any of the covenants, agreements or provisions on the
part of the other party arising out of this Agreement, then in that event the
prevailing party will be entitled to have the recovery of and from the other
party all costs and expenses of the action, mediation or suit, actual
attorneys' fees, witness fees and any other professional fees resulting
therefrom.
24.7 ENTIRE AGREEMENT. This Agreement (including all Exhibits
attached hereto) constitutes the entire contract between the parties hereto
with respect to the subject matter hereof and may not be modified except by
an instrument in writing signed by the party to be charged.
24.8 TIME OF ESSENCE. Seller and Buyer hereby acknowledge and agree
that time is strictly of the essence with respect to each and every term,
condition, obligation and provision hereof.
24.9 CONSTRUCTION. Seller and Buyer and their respective advisors
believe that this Agreement is the product of all of their efforts, that it
expresses their agreement and that it should not be interpreted in favor of
or against either Buyer or Seller. The parties further agree that this
Agreement will be construed to effectuate the normal and reasonable
expectations of a sophisticated seller and buyer.
24.10 GOVERNING LAW. The parties hereto expressly agree that this
Agreement will be governed by, interpreted under, and construed and enforced
in accordance with the laws of the State of California.
24.11 WEAR AND TEAR. Buyer specifically acknowledges that seller
will continue to use the Property in the course of its business and accepts
the fact that reasonable wear and tear will occur after the date of this
Agreement. Buyer specifically agrees that Seller is not responsible for
repairing such reasonable wear and tear and that Buyer is prohibited from
raising such wear and tear as a reason for not consummating this transaction
or for requesting a reduction in the Exchange Value.
24.12 NO RECORDATION. NO memorandum or other document relating to
this Agreement will be recorded without the prior written consent of Seller,
and any such consent or approval will be conditioned upon Buyer providing
Seller with a quitclaim deed fully executed and
21.
<PAGE>
acknowledged by Buyer, quitclaiming any and all interests that it may have in
the Property to Seller, which quitclaim deed Seller may record in the event
that this Agreement is terminated or the transaction contemplated herein is
not consummated.
24.13 SURVIVAL. All obligations of the parties contained herein
which by their terms do not arise until after the Close of Escrow and any
other provisions of this Agreement which by their terms survives the Close of
Escrow, shall survive the Close of Escrow. Notwithstanding anything to the
contrary contained in this Agreement, the representations and warranties
contained in this Agreement shall survive the Closing for a period of 1 year;
provided that any claims by one party hereto must be made in writing to the
other party within the 1 year period.
24.14 DISCLAIMER. Nothing herein creates any right or remedy for the
benefit of any person not a party hereto, nor creates a fiduciary
relationship, an agency or a partnership. All obligations of the parties
contained herein which by their terms do not arise until after the Close of
Escrow and any other provisions of this Agreement which by their terms
survives the Close of Escrow, shall survive the Close of Escrow.
24.15 WAIVER OF JURY TRIAL. EACH PARTY, ACTING WITH KNOWLEDGE OF ITS
RIGHTS AFTER A FULL OPPORTUNITY TO CONSULT WITH COUNSEL, VOLUNTARILY WAIVES
ALL RIGHTS TO TRIAL BY JURY IN ALL PROCEEDINGS FOR WHICH A TRIAL BY JURY
WOULD OTHERWISE BE AVAILABLE OR REQUIRED, AND WHICH INVOLVE ANY MATTER
ARISING OUT OF OR CONNECTED WITH RIGHTS OR DUTIES UNDER, OR ENFORCEMENT OR
INTERPRETATION OF, THIS AGREEMENT.
22.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year hereinabove written.
"SELLER": "BUYER":
OCEANSIDE DEVELOPMENT, INC., A YOSEMITE WOODS FAMILY RESORT, INC., A
CALIFORNIA CORPORATION CALIFORNIA CORPORATION
By: By:
--------------------------------- ---------------------------------
Its: Its:
--------------------------------- ---------------------------------
By: By:
--------------------------------- ---------------------------------
Its: Its:
--------------------------------- ---------------------------------
AHWAHNEE GOLF COURSE AND RESORT, INC.,
A CALIFORNIA CORPORATION
By:
---------------------------------
Its:
---------------------------------
Agreed to and accepted by Escrow
Holder:
---------------------------------
By:
---------------------------------
Its:
---------------------------------
23.
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
24.
<PAGE>
EXHIBIT B
FORM OF DEED
RECORDING REQUESTED BY,
WHEN RECORDED MAIL TO:
Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, California 90017
Attn: Bruce H. Newman, Esq.
_____________________________________
(Above Space For Recorder's Use Only)
GRANT DEED
In accordance with Section 11932 of the California Revenue and Taxation
Code, Grantor has declared the amount of transfer tax which is due by a separate
statement which is not being recorded with this Grant Deed.
FOR A VALUABLE CONSIDERATION, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED,
_________________________ ("Grantor"), hereby grants to YOSEMITE WOODS FAMILY
RESORT, INC., A CALIFORNIA CORPORATION ("Grantee"), the real property in the
County of Madera, State of California, and described in Exhibit A attached
hereto and made a part hereof
DATED: _____________________, 1998
----------------------------
----------------------------
By:
------------------------
Its:
------------------------
MAIL TAX STATEMENTS TO:
25.
<PAGE>
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
) ss.
COUNTY OF ____________________)
On ________________, before me ______________________________________,
personally appeared ___________________, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
- ----------------------------------
Notary Public in and for said
County and State [SEAL]
26.
<PAGE>
Document No. ________________________ Date Recorded_______________________
STATEMENT OF TAX DUE AND REQUEST THAT TAX DECLARATION NOT BE MADE
A PART OF THE PERMANENT RECORD IN THE OFFICE OF THE COUNTY
RECORDER
(Pursuant to Section 11932 R&T Code)
To: Registrar-Recorder
County of ________________
Request is hereby made in accordance with the provisions of the Documentary
Transfer Tax Act that the amount of tax due not be shown on the original
document which names:
- -------------------------------------
(as grantor)
and
- -------------------------------------
(as grantee)
Property described in the accompanying document is located in
( ) unincorporated area or (x) City of _________________________.
The amount of tax due on the accompanying document is $______________.
_______ Computed on full value of property conveyed, or
_______ Computed on full value less liens and encumbrances remaining at
time of sale.
- -------------------------------------
- -------------------------------------
By:
---------------------------------
Its:
---------------------------------
27.
<PAGE>
EXHIBIT C
Seller's FIRPTA Affidavit
CERTIFICATION OF NON-FOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee of
a U.S. real property interest must withhold tax if the transferor is a
foreign person. To inform the transferee that withholding of tax is not
required upon the disposition of a U.S. real property interest by
_____________________________ ("TRANSFEROR"), each of the undersigned hereby
certifies the following on behalf of Transferor:
1. Transferor is not a foreign corporation, foreign partnership,
foreign trust and foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Transferor's U.S. employer identification number is
_________________; and
3. Transferor's office address is _______________________________,
_________________________________.
Transferor understands that this certification may be disclosed to the
Internal Revenue Service by transferee and that any false statement contained
herein could be punished by fine, imprisonment or both.
Under penalties of perjury each of the undersigned declares that he has
examined this certification and to the best of his knowledge and belief it is
true, correct and complete, and he further declares that he has authority to
sign the document on behalf of the Transferor.
----------------------------
----------------------------
By:
------------------------
Its:
------------------------
28.
<PAGE>
EXHIBIT D
ASSIGNMENT AND ASSUMPTION
OF
AGREEMENTS
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENTS (this "Assignment") is executed as
of ___________, but effective as of the Effective Date (as hereinafter defined),
by and among AHWAHNEE GOLF COURSE & RESORT, INC., a California corporation (the
"COMPANY"), OCEANSIDE DEVELOPMENT, INC., a California corporation ("Oceanside")
(the Company and Oceanside being referred to collectively as "ASSIGNOR"), and
YOSEMITE WOODS FAMILY RESORT, INC., a California corporation ("Assignee"), with
reference to the following facts:
RECITALS:
A. Assignor holds title to that certain real property commonly known
as "Ahwahnee Golf Course and Resort", located in the County of Madera, State of
California, as more particularly described on Exhibit "A" attached hereto and
incorporated herein by reference (the "Property"), holds title to the Property.
B. Concurrently herewith, Assignor has executed that certain Grant
Deed conveying and granting to Assignee the Property.
C. As part of the transfer and conveyance of the Property to
Assignee, Assignor has agreed to transfer, assign, grant and convey to Assignee
all of its right, title and interest in and to all agreements relating to the
Property, on the terms and conditions herein contained.
NOW, THEREFORE, in consideration of the foregoing Recitals, which Recitals
are by this reference incorporated herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. ASSIGNMENT. Assignor hereby grants, assigns, transfers, sets
over, sells, conveys and delivers to Assignee all of Assignor's right, title,
interest, benefits and privileges under the agreements relating to the Property
which are set forth in Exhibit "B" attached hereto and made a part hereof
(collectively, the "Agreements"). The assignment provided for in this Section 1
is effective concurrently with the transfer of the Property from Assignor to
Assignee (the "Effective Date").
2. ASSIGNEE'S ASSUMPTION AND INDEMNIFICATION. Assignee hereby
accepts the assignment from Assignor, assumes and agrees to perform all duties
and obligations of Assignor under the terms of the Agreements which are required
to be performed on or after the Effective Date and agrees to indemnify, defend
and hold harmless Assignor from any and all liability, loss, damage, claim, cost
and expense (including, without limitation, reasonable attorneys' fees and
29.
<PAGE>
costs) arising or accruing out of a failure of Assignee to perform its
obligations under the Agreements to be performed on and after the Effective
Date.
3. DELIVERIES; REPORTS. On or before the Effective Date, Assignor
shall deliver to Assignee the original Agreements or if such original Agreements
are not in Assignor's possession, certified copies of such Agreements. Assignor
shall furnish and deliver to Assignee, promptly after receipt thereof,
duplicates or copies of all reports, notices, requests, demands, declarations,
certificates or other instruments hereafter received by Assignor and relating to
the Agreements. Assignee's address for receipt of the foregoing is
________________________ ____________________________________________________.
4. FURTHER ASSURANCES. Assignor and Assignee shall execute,
acknowledge and deliver all such instruments and take all such action as may be
necessary to further assure to Assignee the rights assigned hereby and the full
benefits hereof and to preserve and protect this Assignment and all of the
rights, powers and remedies of Assignee provided for herein.
5. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon and
inure to the benefit of the successors and assigns of the respective parties
hereto.
6. GOVERNING LAW. This Assignment shall be governed by, and
construed in accordance with, the laws of the State of California.
7. COUNTERPARTS. This Assignment may be executed in several
counterparts, each of which shall be an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment as
of the date first above written but effective as of the Effective Date.
ASSIGNOR:
ASSIGNEE:
30.
<PAGE>
EXHIBIT E
BILL OF SALE AND GENERAL ASSIGNMENT OF INTANGIBLES
This Bill of Sale and General Assignment of Intangibles is made as of the
____day of ________________, 1997 (this "Assignment"), by AHWAHNEE GOLF COURSE &
RESORT, INC., a California corporation (the "COMPANY"), OCEANSIDE DEVELOPMENT,
INC., a California corporation ("OCEANSIDE"), (the Company and Oceanside being
referred to collectively as "ASSIGNOR"), to YOSEMITE WOODS FAMILY RESORT, INC.,
a California corporation ("Assignee").
R E C I T A L
Assignee and Assignor have entered into an Agreement of Purchase and Sale and
Joint Escrow Instructions dated ___________________, 1998 ("Agreement of
Purchase and Sale") under which Assignee has agreed to purchase from Assignor,
that certain real property and all buildings, structures and improvements on
said real property commonly identified as _______________, ___________________,
State of California and legally described on Exhibit A attached hereto (the
"Property").
TERMS AND CONDITIONS
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all personal property of Seller, if any, located on
and used in connection with the operation of the improvements on the Property
(the "Personal Property"). Buyer accepts such Personal Property in its "AS-IS"
condition and "WITH ALL FAULTS". Seller specifically disclaims all express or
implied warranties regarding the existence or condition of, or title to, such
Personal Property, including without limitation the implied warranties of
merchantability and suitability for a particular purpose.
2. Assignor hereby assigns, transfers and sets over unto Assignee,
its successors and assigns, all of its right, title and interest in and to the
following ("General Intangibles") if, and only to the extent, that the General
Intangibles exist and Assignor has the right to so transfer them:
(A) All of Assignor's right, title and interest in and to all
intangible property used, owned or issued solely in connection with the
property, including but not limited to, all licenses, permits, certificates
of occupancy, approvals, maps, dedications, subdivision maps and entitlements
issued, approved or granted by any governmental agencies or instrumentalities
having any jurisdiction over the Property (the "Authorities") or otherwise in
connection with the
31.
<PAGE>
Property; all development rights, conditional use permits, variances, "floor
area ratio" development rights and other intangible rights, titles,
interests, privileges and appurtenances owned by Assignor and related to or
issued in connection with the Property and/or its use, occupancy, operation
and/or development; all licenses, consents, easements, rights of way, and
approvals required from private parties to make use of utilities and to
insure vehicular and pedestrian ingress and egress to the Property; and any
pending applications or requests as to any of the foregoing;
(B) All building plans, specifications and drawings,
engineering, and other documents prepared in connection with the
construction, reconstruction, maintenance, repair, or operation any
improvements on the Property (the "Improvements");
(C) All warranties and guarantees relating to the workmanship,
construction, installation materials, and design of the improvements and the
personal property situated on the Property, including but not limited to
those made by or received from any third party with respect to any building,
building component, structure, fixture, machinery, equipment or material
situated on, contained in any building or other improvement situated on, or
comprising a part of any building or other improvement situated on any part
of the Property;
(D) All rights, claims or awards benefiting the Property;
(E) All prepaid fees and fee credits, and all of Seller's
right, title and interest in and to refundable deposits, bonds and other
collateral furnished in connection with development of the Property; and
(F) All rights and general intangibles now owned by Assignor
solely in connection with the Property and any improvement and/or fixture
located on the Property, including, without limitation, the rights to hold,
use, sell and transfer the Property and Improvements and general intangibles.
3. Assignor hereby covenants that it will, at any time and from
time to time upon written request therefor, execute and deliver to Assignee,
its successors and assigns any new or confirmatory instruments and take such
further acts as Assignee may reasonably request to fully evidence the
assignment contained herein and to enable Assignee, its successors and
assigns to fully realize and enjoy the rights and interests assigned hereby.
4. Assignee hereby accepts the foregoing assignment.
5. Assignor hereby represents and warrants to Assignee that it has
not previously assigned or hypothecated its interest in the foregoing described
General Intangibles; however, Assignee shall have no claims or rights against
Assignor, and Assignor shall have no obligation or liability to Assignee for any
General Intangibles described herein which do not exist, or which Assignor does
not have the right to transfer to Assignee.
32.
<PAGE>
6. This Assignment shall be binding upon and inure to the benefit of
the legal representatives, assigns, or successors in interest of the Assignor
and Assignee.
IN WITNESS WHEREOF, the Assignor has executed this Assignment as of
__________________, 1997.
---------------------------------
---------------------------------
By:
--------------------------------
Its:
--------------------------------
33.
<PAGE>
EXHIBIT F
MEMBERSHIP LISTS
1. Golf Course.
------------
Type of Membership Member Name Status of Dues
TOTAL MEMBERS: _______
34.
<PAGE>
EXHIBIT G
PAYABLES TO BE ASSUMED BY BUYER
35.
<PAGE>
EXHIBIT 4.2
AMERICAN FAMILY HOLDINGS, INC.
(A Delaware Corporation)
Warrant to Purchase
Shares of Common Stock
1. GRANT OF WARRANT. For value received, American Family Holdings, Inc.,
a Delaware corporation ("Company"), hereby grants to _______________ or his
registered assigns ("Holder"), the right to purchase from the Company
("Warrant") _____ shares ("Shares") of Company Common Stock, $0.001 par value,
("Common Stock"). The per share exercise price for such Warrant shall be 80% of
the Average Trading Price for the Common Stock on the trading date of the
Warrant first becomes exercisable ("Exercise Price"). For purposes of this
Agreement, the term "Average Trading Price" means the average of the closing
trading prices for the Common Stock for the 20 consecutive trading days (whether
or not trades actually occur on such dates) prior to the date the Warrants first
become exercisable.
2. RIGHT AND MANNER OF EXERCISE. This Warrant shall be exercisable for a
20 trading day period commencing on the first trading day of the first full week
after the six month anniversary of the Issuance Date (as herein defined) (the
"Exercise Period"). The Holder may elect to exercise this Warrant anytime
during the Exercise Period only as to all or any of the Shares by delivering
written notice of exercise to the Company (as provided in Section 11) in the
form attached hereto as Exhibit A accompanied by a certified or bank cashier's
check in an amount equal to the Exercise Price, as such may have been adjusted
pursuant to the terms of this Agreement, multiplied by the number of Shares
being purchased. For purposes of this Agreement the term "Issuance Date" shall
mean fifth business day after the consummation of the Acquisition described in
the prospectus included in the Company's Registration Statement on Form S-4
filed by the Company with the U.S. Securities and Exchange Commission in October
1997.
3. RESERVATION AND AVAILABILITY OF SHARES. The Company will at all times
reserve and keep available, free from preemptive rights, out of the aggregate of
its authorized but unissued shares of Common Stock for the purpose of enabling
it to satisfy any obligation to issue Shares upon exercise of this Warrant the
full number of Shares deliverable upon the exercise or conversion of the entire
outstanding amount of this Warrant. Before taking any action which would cause
an adjustment pursuant to Section 5 reducing the Exercise Price, the Company
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid and
non-assessable Shares at the Exercise Price as so adjusted. The Company
covenants that all Shares which may be issued upon exercise of this Warrant
will, upon issue, be fully paid and non-assessable and free from all taxes
liens, charges security interests with respect to the issue thereof
4. ISSUANCE OF SHARES AND NEW WARRANT. If the purchase rights evidenced
by this Warrant are exercised, one or more certificates for the Shares shall be
issued as soon as practicable thereafter to the Holder exercising such rights.
Upon such issuance, this Warrant will be cancelled and, if appropriate, reissued
reflecting the remaining number of Shares which may be purchased upon exercise
of the balance of this Warrant.
5. ADJUSTMENT OF EXERCISE PRICE/ANTI-DILUTION. The Exercise Price and
the number and kind of securities purchasable upon the exercise of this Warrant
shall be subject to adjustment from time to time upon the happening of the
events enumerated in this Section 5.
5.1. STOCK SPLITS AND COMBINATIONS. If the Company shall at any time
subdivide or combine its outstanding Common Stock, or fix a record date for
payment of a dividend in Common Stock or other securities of the Company
exercisable, convertible or exchangeable for Common Stock (in which latter event
the maximum number of shares of Common Stock issuable upon the exercise,
conversion or exchange of such securities shall be deemed to have been
distributed), after that subdivision, combination or dividend, the number of
Shares shall be adjusted to that number of Shares which is determined by (A)
multiplying the number of shares of Common Stock purchasable immediately prior
to such adjustment by the Exercise Price in effect immediately prior to such
adjustment, and then (B) dividing that product by the Exercise Price in effect
immediately after such adjustment. If the Company shall at any time subdivide
the outstanding shares of Common Stock or fix a record date for payment of a
dividend in Common Stock or other securities exercisable, convertible or
exchangeable into shares of Common Stock, the Exercise Price then in effect
immediately before that subdivision or dividend shall be proportionately
decreased, and, if the Company shall at any time combine the outstanding shares
of Common Stock, then the
<PAGE>
Exercise Price in effect immediately before that combination shall be
proportionately increased. Any adjustment under this Section 5.1 shall
become effective at the close of business on the date the subdivision or
combination becomes effective or the dividend is distributed.
5.2 RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If the Shares
issuable upon exercise of the Warrant shall be changed into the same or a
different number of shares of any other class or classes of securities, whether
by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination or payment of dividend of securities provided for
above), the Holder of this Warrant shall, on its exercise, be entitled to
purchase for the same aggregate consideration, in lieu of the Shares which the
Holder would have become entitled to purchase but for such change, a number of
shares of such other class or classes of securities which such Holder would have
been entitled to receive as the holder of that number of Shares subject to
purchase by the Holder on exercise of this Warrant immediately before that
change.
5.3 REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. If
at any time there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, payment of dividend, reclassification or
exchange of Common Stock provided for above), or merger or consolidation of the
Company with or into another corporation, or the sale of the Company's
properties and assets as, or substantially as, an entirety to any other person,
then, as a part of such reorganization, merger, consolidation or sale, lawful
provision shall be made so that the Holder of this Warrant shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
in this Warrant and upon payment of the Exercise Price then in effect, the
number of Shares or other securities or property of the Company, or of the
successor corporation resulting from such merger or consolidation, to which a
Holder of the Shares issuable upon exercise of this Warrant would have been
entitled in such capital reorganization, merger, or consolidation or sale if
this Warrant had been exercised immediately before that capital reorganization,
merger, consolidation, or sale. In any such case, appropriate adjustment (as
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant with respect to the rights and
interests of the Holder of this Warrant after the reorganization, merger,
consolidation, or sale such that the provisions of this Warrant (including
adjustment of the Exercise Price then in effect and number and kind of
securities purchasable upon exercise of this Warrant) shall be applicable after
that event in relation to any securities purchasable after that event upon
exercise of this Warrant.
5.4 MINIMUM EXERCISE PRICE ADJUSTMENT. No adjustment in the Exercise
Price shall be required unless such adjustment would require an increase or
decrease of at least one-half of one percent (0.005) or more of the Exercise
Price, provided, however, that any adjustments which by reason of this
Subsection 5.4 are not required to be made shall carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 5
shall be made to the nearest cent or to the nearest one-hundredth of a Share as
the case may be.
6. NOTICES TO HOLDER. Upon any adjustment of the Exercise Price pursuant
to Section 5, the Company within 20 days thereafter shall cause to be given to
the Holder pursuant to Section 11 hereof written notice of such adjustment,
which notice shall set forth a brief statement of the facts requiring such
adjustment and set forth the computation by which such adjustment was made.
Where appropriate, such notice may be given in advance and included as a part of
the notice required to be mailed under the other provisions of this Section 6.
In the event of any of the following:
6.1 the Company shall authorize the issuance to its holders of shares
of Common Stock of rights or warrants to subscribe for or purchase shares of
Common Stock or of any other subscription rights or warrants; or
6.2 the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets (other than
cash dividends not exceeding $0.01 per share of Common Stock payable during any
three-month period or distributions or dividends payable in shares of Common
Stock); or
6.3 any consolidation or merger to which the Company is a party and
for which approval of any shareholder of the Company is required, or of the
conveyance or transfer of the properties and assets of the Company as, or
substantially as, an entirety, or of any reclassification or change of
outstanding shares of Common Stock issuable upon exercise of this Warrant (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination); or
6.4 the voluntary or involuntary dissolution, liquidation or winding
up of the Company; or
2
<PAGE>
6.5 the Company proposes to take any action (other than actions of
the character described in Subsection 5.1 except as required under Subsection
6.3 above) which would require an adjustment of the Exercise Price pursuant
to Section 5;
then the Company shall cause to be given to the Holder, at least 20 days (or ten
days in any case specified in Subsections 6.1 or 6.2 above) prior to the
applicable record date hereinafter specified, a written notice stating (i) the
date as of which the holders of record of shares of Common Stock to be entitled
to receive any such rights, warrants, or distribution is to be determined, or
(ii) the date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation, or winding up is expected to become effective, and the
date as of which it is that holders of record of shares of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property, if any, deliverable upon such reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation, or winding up. The failure to
give the notice required by this Section 6 or any defect therein shall not
affect the legality or validity of any distribution, right, warrant,
consolidation, merger, conveyance, merger, dissolution, liquidation, or winding
up, or the vote upon any such action.
7. TRANSFERS. The holder acknowledges that this Warrant and the Common
Stock underlying this Warrant have been registered with the Securities and
Exchange Commission (the "SEC") under the Securities Act of 1933, as amended
(the "Act").
8. FRACTIONAL SHARES. No fractional shares of Common Stock shall be
issued in connection with any exercise of this Warrant. In lieu of the issuance
of such fractional share, the Company shall make a cash payment equal to the
then fair market value of such fractional share as determined in good faith by
the Company's Board of Directors.
9. PRIVILEGE OF STOCK OWNERSHIP. The Holder shall for all purposes be
deemed to have become the holder of record of Shares issued upon an exercise of
this Warrant on, and the certificate evidencing such Shares shall be dated, the
date upon which the holder presents to the Company a notice of an intent to
exercise this Warrant pursuant to Section 2 together with a certified or bank
cashier's check for the Exercise Price. Prior to exercise of this Warrant, the
holder shall not be entitled to any rights as a shareholder of the Company,
including (without limitation) the right to vote, receive dividends or other
distributions, exercise preemptive rights or be notified of shareholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company except as
otherwise provided herein.
10. SUCCESSORS AND ASSIGNS. The terms and provisions of this Warrant
shall inure to the benefit of, and be binding upon the Company and the Holder
hereof and their respective successors and assigns.
11. NOTICES. All notices, requests, demands and other communications
(collectively, "Notices") under this Warrant shall be in writing and shall be
deemed to have been duly given on the date of service if served personally on
the party to whom Notice is to be given, or on the third business day after the
date of mailing if mailed to the party to whom Notice is to be given, by first
class mail, registered to the Holder, at his address as shown in the Company
records; and if to the Company, at its principal office. Any party may change
its address for purposes of this Section by giving the other party written
Notice of the new address in the manner set forth above.
12. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to principles
of conflicts of laws.
13. LOSS OR MUTILATION OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company regarding the loss, theft, mutilation or destruction
of this Warrant and upon delivery of appropriate indemnification with respect
thereto or upon surrender or cancellation of the mutilated Warrant, the Company
will make and deliver to the Holder a new Warrant of like tenor.
3
<PAGE>
14. AMENDMENTS. The Company may amend this Warrant without the consent of
Holders to cure ambiguities or to add provisions that enhance the rights of all
Holders, provided that the Company may not amend this Warrant to increase the
number of Shares issuable upon its exercise. Adjustments pursuant to Section 5
hereof shall not be deemed amendments for this purpose.
Dated: _______________, 199__ AMERICAN FAMILY HOLDINGS, INC.
By
--------------------------
David G. Lasker, President
By
--------------------------
James N. Orth, Secretary
4
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned sell(s), assign(s), and transfer(s) unto
_______________________, of ___________________________, the right to purchase
__________ Shares evidenced by the within Warrant, and does hereby irrevocable
constitute and appoint __________________ to transfer such right on the books of
the Company, with full power of substitution.
DATED: ______________________, 199_
- -----------------------------------
SIGNATURE
- -------------------------------------------------------------------------------
NOTICE:
The signature to this Assignment must correspond with the name as written
upon the face of the within Warrant, in every particular, without alteration
or enlargement or any change whatsoever.
5
<PAGE>
EXHIBIT A
EXERCISE NOTICE
AMERICAN FAMILY HOLDINGS, INC.
4220 Von Karman Avenue
Suite 110
Newport Beach, California 92660
Gentlemen:
The undersigned hereby elects to purchase, pursuant to the provisions of
the American Family Holdings, Inc. Warrant dated ______________, 1998 held by
the undersigned, _____ shares of the Common Stock of American Family Holdings,
Inc.
A certified or cashier's check as payment of the purchase price of
$__________ per share of Common Stock (based on the average closing market price
of the Common Stock as defined in the Warrant) in U.S. funds required under such
Warrant accompanies this Exercise Notice.
DATED: _____________________ , 1999
Signature: __________________________
Address: __________________________
__________________________
Tax I.D. No. __________________________
<PAGE>
EXHIBIT 5.2
[Arter & Hadden LLP letterhead]
October 6, 1998
66944/66608
American Family Holdings, Inc.
4220 Von Karman Avenue
Suite 110
Newport Beach, California 92660
Re: REGISTRATION STATEMENT ON FORM S-4
Gentlemen:
We have acted as special counsel to American Family Holdings, Inc. (the
"Company") in connection with the preparation and filing with the Securities
and Exchange Commission under the Securities Act of 1933, as amended, of a
Registration Statement on Form S-4 (the "Registration Statement") relating to
the public offering by the Company of up to 2,783,372 units, each unit
consisting of one share of Common Stock and warrants to purchase three shares
of Common Stock for a per share purchase price equal to 80% of the average
closing market price for the 20 trading days before exercise, and the public
offering by the Company of the 8,350,116 shares of Common Stock underlying
the warrants which are a part of the units.
In so acting, we have examined and relied upon the original or copies,
certified or otherwise identified to our satisfaction, of such corporate
records, documents, certificates, and other instruments, and such factual
information otherwise supplied to us by the Company as in our judgment are
necessary or appropriate to enable us to render the opinion expressed below.
On the basis of and subject to the foregoing, we are of the opinion the
units, when issued and sold pursuant to the Registration Statement and
Prospectus, will, under the laws of the State of Delaware, upon payment
therefor in accordance with the terms of the Registration Statement and the
Prospectus, be duly and validly issued, fully paid, and non-assessable. We
consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the headings "Federal Income Tax
Consequences" and "Legal Matters" in the Preliminary Prospectus forming a
part of the Registration Statement.
Very truly yours,
/s/ Arter & Hadden LLP
<PAGE>
EXHIBIT 23.24
CONSENT OF INDEPENDENT AUDITORS
To the Stockholders and Directors of
American Family Holdings, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-4 of our report dated July 17, 1998,
relating to the financial statement of American Family Holdings, Inc., as of
June 30, 1998; and our reports dated February 24, 1998 relating to the
financial statements of the Oceanside Program, the Yosemite/Ahwahnee
Programs, the Mori Point Program' the Sacramento/Delta Greens Program, the
Cypress Lakes Program, the Palmdale/Joshua Ranch Program, the Esperanza
Program and the Stacey Rose Programs for each of the two years in the period
ended December 31, 1997, which are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus
BDO Seidman, LLP
/s/ BDO Seidman, LLP
Los Angeles, California
October 6, 1998
<PAGE>
EXHIBIT 23.25
CONSENT
The undersigned hereby consents to the filing of its Fairness Opinion as
an exhibit to the registration statement on Form S-4 filed by American Family
Holdings, Inc. with the Securities and Exchange Commission (the "Registration
Statement") and to the reference to us under the caption "Appraisals and
Fairness Opinion" in the prospectus which is a part of the Registration
Statement.
Dated: October 6, 1998
HOULIHAN VALUATION ADVISORS
By /s/ Bret Tack
----------------------------------------
Print Name Bret Tack
--------------------------------
Title Principal
-------------------------------------
<PAGE>
Exhibit 23.26
CONSENT
The undersigned hereby consents to the filing of its real estate
appraisals for the property identified below as an exhibit to the
registration statement on Form S-4 filed by American Family Holdings, Inc.
with the Securities and Exchange Commission (the "Registration Statement")
and to the reference to us under the caption "Appraisals and Fairness
Opinion" in the prospectus which is a part of the Registration Statement.
Dated: September 4, 1998
Property: Stacey Rose A and B RICHARD V . SPECK & ASSOCIATES
By /s/ Richard V. Speck
----------------------------------
Print Name Richard V. Speck
--------------------------
Title Owner
-------------------------------
