SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
..............................REAL-EQUITY PARTNERS.............................
(Name of registrant as specified in its charter)
...............................................................................
(Name of person(s) filing proxy statement if other than the registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
. . . . .Units of Limited Partnership Interest...................
2) Aggregate number of securities to which transaction applies:
. . . . .30,000 Units............................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined): . .
. . .$552....................................................
4) Proposed maximum aggregate value of transaction: . . . .
.$16,720,992.............................................
5) Total fee paid:
. . . . .$3,344..................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No:
3) Filing Party:
4) Date Filed:
767376.6
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REAL-EQUITY PARTNERS
9090 Wilshire Boulevard
Beverly Hills, California 90211
___________ __, 1998
To the Limited Partners:
National Partnership Investments Corp., the managing general partner
("NAPICO" or the "Managing General Partner") of REAL-Equity Partners (the
"Partnership" or "REP"), is writing to recommend, and seek your consent to, a
proposed sale of the five real estate properties owned by the Partnership (the
"Properties") to JH Real Estate Partners, Inc., a California corporation, and
American Apartment Communities III, L.P., a Delaware limited partnership
(collectively, the "Buyers"), neither of which are affiliated with the
Partnership or the Managing General Partner. The transactions by which the
Partnership proposes to sell the Properties to the Buyers is hereinafter
referred to as the "Sale." If the Sale is consummated, it will result in a
dissolution of the Partnership under the terms of the Partnership Agreement.
In evaluating the proposed Sale, the Limited Partners should note that:
o Based upon a purchase price for the Properties of $31,900,000 and
the assumption of certain indebtedness, it is anticipated that the
Partnership will make an aggregate distribution to Limited
Partners of approximately $16,553,782, or $552 per unit. The
distribution amount is anticipated to be sufficient to pay any
federal and state income taxes incurred in connection with the
Sale and Limited Partners may be able to utilize suspended passive
losses to offset their tax liabilities. In connection with the
Sale, the Partnership will pre-pay or assign its $14,443,323 of
mortgage indebtedness in connection with the Sale. The units were
sold at an original cost of $1,000 per unit.
o The Managing General Partner believes that now may be an opportune
time for the Partnership to sell the Properties.
o The terms of the Sale have been negotiated at arm's length.
o Robert A. Stanger & Co., Inc., a recognized independent investment
banking firm, has determined that, subject to the assumptions,
limitations and qualifications contained in its opinion, the
Purchase Price to be received by the Partnership for the
Properties in the Sale is fair from a financial point of view to
the Limited Partners.
o The Managing General Partner believes that selling the
Partnership's entire portfolio of real estate assets in a single
transaction (as opposed to a series of individual sales) will
enable the Partnership to reduce transaction expenses and dispose
of its portfolio in an expedited time frame.
There are certain risk factors that the Limited Partners should
consider in evaluating the proposed Sale, such as:
o As a result of the Sale, the Partnership will forego any potential
benefits of continuing to own the Properties.
o The Sale and liquidation of the Partnership will have a tax impact
on Limited Partners. For Limited Partners who have been able to
use all of the passive losses generated by the Partnership on a
current
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basis, the Sale should result in a net cash distribution, after
payment of tax liabilities, of $384 per Unit in excess of the
federal and state income taxes that would be due in connection
with the Sale.
On July 29, 1998, the Partnership filed a preliminary consent
solicitation statement with the Securities and Exchange Commission regarding a
proposed sale of the Properties to an affiliate of the Managing General Partner
for a purchase price of $24,876,300, $10,432,977 of which was to be payable in
cash and $14,443,323 through the assumption of certain mortgage indebtedness.
On August 14, 1998, JH Real Estate Partners, Inc. of Anaheim,
California contacted the Partnership to express its interest in acquiring the
Properties. After satisfactorily demonstrating its ability to finance the
proposed transaction, JH Real Estate Partners commenced a due diligence review
of the Properties. As of September 25, 1998, the affiliate of the Managing
General Partners withdrew its offer of $24,876,300 and the Partnership entered
into a purchase and sale agreement with the Buyers that included a purchase
price of $31,900,000 and the assumption of certain indebtedness. The terms of
the Sale were determined in arm's-length negotiations between the Partnership
and the Buyers.
Under the terms of the Partnership's Amended and Restated Certificate
and Agreement of Limited Partnership, a copy of which was included as an exhibit
to the offering materials Limited Partners received in connection with their
investments in the Partnership, the Partnership is obligated to pay the Managing
General Partner a fee for services rendered to the Partnership in connection
with the selection, purchase, development and management of the Properties (the
"Deferred Acquisition Fee"). The Partnership Agreement provides that
distributions of the Deferred Acquisition Fee will cease upon the distribution
made with respect to the 15th year of the Partnership term, which the
Partnership Agreement states commenced September 9, 1981 with the filing of the
Partnership's Certificate and Agreement of Limited Partnership with the Recorder
of Los Angeles County, California. However, it is the position of the Managing
General Partner that the Partnership's term did not commence until the admission
of Limited Partners in connection with the Partnership's offering of Units
through E.F. Hutton and, as a result, remains due and payable. Although the
Managing General Partner believes that the Partnership is required to pay the
Deferred Acquisition Fee in connection with the Sale, it is seeking the consent
of the Limited Partners to the payment of such Fee. As of December 31, 1997, a
Deferred Acquisition Fee of $735,685 was due and payable to the Managing General
Partner. The payment of the Deferred Acquisition Fee will be paid out of the
proceeds of the Sale and will reduce the Limited Partners' distributions from
$576 to $552 per Unit. The Managing General Partner is requesting that Limited
Partners approve both the Sale and the payment of the Deferred Acquisition Fee.
Approval of the proposed Sale will be deemed to include approval of the Deferred
Acquisition Fee.
Consummation of the Sale is subject to the approval of a
majority-in-interest of the Limited Partners. If the Limited Partners do not
approve the Sale, the Partnership will most likely retain ownership of the
Properties.
We urge you to carefully read the enclosed Consent Solicitation
Statement in order to vote your interests. YOUR VOTE IS IMPORTANT. BECAUSE
APPROVAL REQUIRES THE AFFIRMATIVE VOTE OF A MAJORITY OF THE OUTSTANDING UNITS OF
LIMITED PARTNERSHIP INTEREST, FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A
VOTE AGAINST THE SALE. To be sure your vote is represented, please sign, date
and return the enclosed consent as promptly as possible.
The proposed Sale is fully described in the enclosed Consent
Solicitation Statement. Please read the enclosed materials carefully, then
return your signed consent form either by facsimile to 303-705-6171 or in the
enclosed envelope on or before ________ __, 1998.
767376.6
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If you have any questions, please do not hesitate to contact MacKenzie
Partners, the Partnership's consent solicitation agent, toll free at
800-322-2885 or collect at 212-929-5500.
Very truly yours,
National Partnership Investments Corp.
767376.6
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<PAGE>
REAL-EQUITY PARTNERS
9090 Wilshire Boulevard
Beverly Hills, California 90211
________ __, 1998
CONSENT SOLICITATION STATEMENT
On the terms described in this Consent Solicitation Statement, National
Partnership Investments Corp. the managing general partner ("NAPICO" or the
"Managing General Partner"), of REAL-Equity Partners, a California limited
partnership (the "Partnership" or "REP"), is seeking the consent of the Limited
Partners of the Partnership to the sale of the five real estate properties owned
by Partnership (the "Properties") to JH Real Estate Partners, Inc., a California
corporation, and American Apartment Communities III, L.P., a Delaware limited
partnership (collectively, the "Buyers"), for a purchase price of $31,900,000
(the "Purchase Price"). The transaction by which the Partnership proposes to
sell the Properties to the Buyers is hereinafter referred to as the "Sale."
Each of the Properties is a conventional multi-unit residential
apartment complex. The mortgage on one of the Properties is insured by the
United States Department of Housing and Urban Development ("HUD") and during the
period for which the mortgage is so insured, its rents will be subject to
regulation by HUD.
It is anticipated that the Partnership will make a distribution to
Limited Partners of approximately $552 per unit of limited partnership interest
in the Partnership from the net proceeds of the Sale. If the Sale is
consummated, it will result in a dissolution of the Partnership under the terms
of the Partnership Agreement.
The Sale is conditioned upon approval of a majority in interest of the
Limited Partners of the Partnership. Under the Partnership Agreement and
California law, Limited Partners do not have dissenters' rights of appraisal. If
the Sale is approved by a majority-in-interest of the Limited Partners, all
Limited Partners, both those voting in favor of the Sale and those not voting in
favor, will be entitled to receive the resulting cash distributions.
The Managing General Partner has approved the Sale, has concluded that
the Sale, including the Purchase Price for the Properties, is fair to the
Limited Partners and recommends that the Limited Partners consent to the Sale.
National Partnership Investments Associates II, a California limited
partnership ("NPIA II"), is the non- managing General Partner of the
Partnership. Pursuant to an agreement between NAPICO and NPIA II, NAPICO is
responsible for the performance of any duties required to be performed by the
General Partners and has sole and final discretion to manage and control the
business of the Partnership and make all decisions relating thereto. NPIA II has
not participated in the management of the Partnership, or in decisions made by
the Partnership in connection with the proposed Sale. NPIA II has not taken a
position with respect to the Sale nor has it participated in the preparation of
this Consent Solicitation Statement.
This Consent Solicitation Statement and the accompanying form of
Consent of Limited Partner are first being mailed to Limited Partners on or
about ________ __, 1998.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS SOLICITATION OF CONSENTS EXPIRES
NO LATER THAN 11:59 P.M. EASTERN TIME
ON ________ __, 1998, UNLESS EXTENDED.
767376.6
<PAGE>
TABLE OF CONTENTS
Page
I. SUMMARY OF CONSENT SOLICITATION STATEMENT..................................1
The Partnership.......................................................1
The Sale..............................................................1
Potential Benefits of the Sale........................................2
Potential Adverse Effects of the Sale.................................3
Limited Partner Approval..............................................3
Third-Party Opinion...................................................4
Recommendation of the Managing General Partner; Fairness..............4
Summary Financial Information.........................................5
Transaction Expenses..................................................6
Voting Procedures.....................................................6
II. THE SALE..................................................................6
Background and Reasons for the Sale...................................6
Acquisition Agreement.................................................7
Transaction Costs.....................................................8
Distribution of Sale Proceeds; Accounting Treatment...................8
Fairness Opinion......................................................9
Recommendation of the Managing General Partner; Fairness.............13
III. THE PARTNERSHIP.........................................................13
General..............................................................13
The Properties.......................................................14
Market for Partnership Interests and Related Security Holder Matters.16
Distribution History.................................................17
Year 2000 Information................................................18
IV. SELECTED FINANCIAL INFORMATION...........................................19
V. FEDERAL INCOME TAX CONSEQUENCES...........................................20
VI. LEGAL PROCEEDINGS .......................................................21
VII. LIMITED PARTNERS CONSENT PROCEDURE......................................22
Distribution of Solicitation Materials...............................22
Voting Procedures and Consents.......................................22
Completion Instructions..............................................23
Withdrawal and Change of Election Rights.............................23
No Dissenters' Rights of Appraisal...................................23
Solicitation of Consents.............................................24
VIII. IMPORTANT NOTE.........................................................24
767376.6
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ANNEXES
Annex A - Fairness Opinion of Robert A. Stanger & Co., Inc.
Annex B - The Partnership's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
Annex C - The Partnership's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
767376.6
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AVAILABLE INFORMATION
REAL-Equity Partners is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, consent solicitation statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, consent solicitation statements and other information filed with the
Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices, Seven World Trade Center,
13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. In addition, the Commission
maintains a site on the World Wide Web portion of the Internet that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov. Copies of the latest Annual Report on Form 10-K and
Quarterly Report on Form 10-Q may also be obtained from NAPICO without charge.
All requests should be made in writing to National Partnership Investments
Corp., 9090 Wilshire Boulevard, Suite 201, Beverly Hills, California 90211;
Attention: Investor Services; Telephone 800-666-6274.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Partnership
are incorporated by reference in this Consent Solicitation Statement:
Annual Report on Form 10-K of the Partnership for the fiscal year ended
December 31, 1997.
Quarterly Report on Form 10-Q of the Partnership for the quarter ended
June 30, 1998.
Current Report on Form 8-K of the Partnership dated March 9, 1998.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Consent
Solicitation Statement to the extent that a statement contained herein modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Consent Solicitation Statement.
No person is authorized to give any information or to make any
representation not contained in this Consent Solicitation Statement in
connection with the solicitation of proxies made hereby, and, if given or made,
any such information or representation should not be relied upon as having been
authorized by the Partnership or any other person. The delivery of this Consent
Solicitation Statement shall not, under any circumstances, create any
implication that there has been no change in the information set forth herein or
in the affairs of the Partnership since the date of this Consent Solicitation
Statement.
767376.6
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I. SUMMARY OF CONSENT SOLICITATION STATEMENT
The following summary is intended to provide only highlights of the
materials contained in this Consent Solicitation Statement. This summary is not
intended to be a complete statement of all material features of the proposed
Sale and is qualified in its entirety by the more detailed information contained
herein. Cross references in the summary are to the indicated captions or
portions of this Consent Solicitation Statement.
The Partnership
REAL-Equity Partners is a California limited partnership, the general
partners of which are National Partnership Investments Corp. and National
Partnership Investments Associates II, a California limited partnership.
The Partnership holds title to five Properties. Each of the Properties
is a conventional multi-unit apartment complex. The mortgage on one of the
Properties is insured by HUD. During the period for which the mortgage is so
insured, its rents will be subject to regulation by HUD. Four of the Properties
are located in California and one is located in Nevada. See "THE PARTNERSHIP -
The Properties."
The Partnership maintains offices at 9090 Wilshire Boulevard, Beverly
Hills, California 90211 (310-278-2191). The Partnership was organized as a
California limited partnership on September 9, 1981. See "THE PARTNERSHIP."
The Sale
The Partnership proposes to sell the Properties to the Buyers for a
Purchase Price of $31,900,000. Under the terms of the Partnership Agreement, the
Sale will result in the dissolution of the Partnership. It is the intention of
the Managing General Partner to liquidate the Partnership in accordance with its
Amended and Restated Certificate and Agreement of Limited Partnership (the
"Partnership Agreement") following the consummation of the Sale.
Neither the Partnership nor the Managing General Partner is affiliated
with the Buyers. The address of JH Real Estate Partners, Inc. is 600 City
Parkway West, Suite 730, Orange, California 92862, Attention: Hugo F. Aviles,
714-712-9400. The address of American Apartment Communities III, Inc. is 21 W.
Broad Street, 11th Floor, Columbus, Ohio 43215, 614-220-8900.
The aggregate consideration for the Properties is $31,900,000, and the
assumption of the mortgage indebtedness encumbering the Arbor Glen Property. The
Sale will enable the Partnership to pre-pay or assign all of the $14,443,323 of
mortgage indebtedness encumbering the Properties. The net proceeds of the Sale
will be distributed to the Limited and General Partners in accordance with the
cash distribution provisions of the Partnership Agreement. See "THE
SALE--Distribution of Sale Proceeds" for a summary of the cash distribution
rules applicable to such distributions. Limited Partners are expected to receive
a distribution of approximately $552 in cash per unit. The units (the "Units"),
each of which represents one limited partnership interest, were originally sold
for $1,000 per Unit. All of the Partnership's expenses incurred in connection
with the Sale will be borne by the Partnership.
The distribution of $552 per Unit is anticipated to be sufficient to
pay the federal and state income taxes that would be due in connection with the
Sale, assuming that Limited Partners have suspended passive losses of $297 per
Unit from the Partnership that could be deducted in full against such Limited
Partners' ordinary income and assuming such Limited Partner has sufficient
taxable income taxed at federal tax rates of 39.6% on ordinary income and 25% on
long-term capital gain attributable to depreciation (and assuming an effective
5% state tax). For Limited Partners who do not have sufficient taxable income to
be taxed at a 39.6% marginal federal rate or who have other losses available to
deduct against their taxable income and therefore could not fully utilize such
suspended passive losses to offset their ordinary income, the Sale could result
in a lower net cash distribution. For Limited
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Partners who have been able to use all of the passive losses generated by the
Partnership on a current basis, the Sale should result in a net cash
distribution of $516 per Unit after payment of their tax liability. Each Limited
Partner is urged to consult his, her or its own tax advisor for a more detailed
explanation of the specific tax consequences to such Limited Partner from the
Sale.
Under the terms of the Partnership Agreement, the Partnership is
obligated to pay the Managing General Partner a fee for services rendered to the
Partnership in connection with the selection, purchase, development and
management of the Properties (the "Deferred Acquisition Fee"). The Partnership
Agreement provides that distributions of the Deferred Acquisition Fee will cease
upon the distribution made with respect to the 15th year of the Partnership
term, which the Partnership Agreement states commenced September 9, 1981 with
the filing of the Partnership's Certificate and Agreement of Limited Partnership
with the Recorder of Los Angeles County, California. However, it is the position
of the Managing General Partner that the Partnership's term did not commence
until the admission of Limited Partners in connection with the Partnership's
offering of Units through E.F. Hutton and, as a result, remains due and payable.
Although the Managing General Partner believes that the Partnership is required
to pay the Deferred Acquisition Fee in connection with the Sale, it is seeking
the consent of the Limited Partners to the payment of such Fee. As of December
31, 1997, a Deferred Acquisition Fee of $735,685 was due and payable to the
Managing General Partner. The payment of the Deferred Acquisition Fee will be
paid out of the proceeds of the Sale and will reduce the Limited Partners'
distributions from $576 to $552 per Unit. The Managing General Partner requests
that Limited Partners approve both the Sale and the payment of the Deferred
Acquisition Fee. Approval of the proposed Sale will be deemed to include
approval of the Deferred Acquisition Fee. If approved, NAPICO and NPIA II, the
General Partners, will be entitled to receive distributions in connection with
the Sale of $910,252 in the aggregate.
The Sale, including payment of the Deferred Acquisition Fee to the
Managing General Partner, is conditioned upon approval of a majority-in-interest
of the Limited Partners of the Partnership.
Potential Benefits of the Sale
The Managing General Partner believes that the Sale achieves the
Partnership's investment objectives for the following reasons:
o Receipt of Cash. The Sale will result in a cash distribution of
$552 per Unit to Limited Partners, which amount is anticipated to
be sufficient to pay any federal and state income taxes that would
be payable in connection with the Sale, assuming (i) that Limited
Partners have suspended passive losses of $297 per Unit from the
Partnership; (ii) that such losses are available to offset
ordinary income taxed at the 39.6% marginal federal rate and (iii)
federal and state effective capital gains rates of 25% and 5%,
respectively. For a discussion of the bases of these assumptions,
see "FEDERAL INCOME TAX CONSEQUENCES." If the Sale is not
completed, there can be no assurance that the Partnership will be
able to make distributions at the current rate or that the
Partnership will be able to make any future distributions.
o Third Party Fairness Opinion. Robert A. Stanger & Co., Inc.
("Stanger"), an independent, nationally recognized real estate
investment banking firm, has been engaged by the Partnership to
render an opinion (the "Fairness Opinion") to the Partnership as
to the fairness, from a financial point of view, to Limited
Partners of the Purchase Price to be received by the Partnership
for the Properties in the Sale. Stanger has conducted certain
reviews described herein and has concluded, subject to the
assumptions, qualifications and limitations contained in its
opinion, that the Purchase Price to be received for the Properties
in the Sale is fair, from a financial point of view, to Limited
Partners. See "THE SALE-- Fairness Opinion."
o Eliminating the Risks of Real Estate Investing. Continued
ownership of the Properties subjects the Partnership to continued
risks inherent in real estate ownership, such as national and
local economic
767376.6
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trends, supply and demand factors in the local property market,
the cost of operating and maintaining the physical condition of
the Properties and the cost and availability of financing for
prospective buyers of the Properties. No assurance can be given
that a prospective buyer would be willing to pay an amount equal
to or greater than the Purchase Price for the Properties in the
future.
o Attractive Sale Terms. The Managing General Partner believes that
the Purchase Price for the Properties is fair to the Limited
Partners and, based on its experience in the real estate industry,
believes that it exceeds the price that the Partnership would be
likely to receive in a sale to a third party or parties.
o Reduced Transaction Costs. The Partnership will not be required to
pay brokerage commissions in connection with the Sale, which would
typically be paid when selling real property to third parties. As
a result, the Sale is likely to produce a higher cash distribution
to Limited Partners than a comparable sale to another unaffiliated
third party. In addition, the Managing General Partner believes
that selling the Partnership's portfolio of real estate assets in
a single transaction (as opposed to a series of individual sales)
will enable the Partnership to dispose of its portfolio in an
expedited time frame and provide additional transaction cost
savings, although the Partnership will pay certain expenses, such
as the costs of environmental inspections and costs relating to
proxy solicitation and fairness opinions which may be higher than
comparable expenses in a transaction with another unaffiliated
third party. See "THE SALE-- Transaction Costs" for a schedule of
the costs the Partnership is expected to incur in connection with
the Sale.
Potential Adverse Effects of the Sale
Limited Partners should also consider the following risk factors in
determining whether to approve or disapprove the Sale:
o Loss of Opportunity to Benefit from Future Events. It is possible
that the future performance of the Properties will improve or that
prospective buyers may be willing to pay more for the Properties
in the future. It is possible that Limited Partners might earn a
higher return on their investment if the Partnership retained
ownership of the Properties. By approving the Sale, Limited
Partners will also be foregoing certain current benefits of
ownership of the Properties, such as continuing distributions. See
"THE SALE -- Background and Reasons for the Sale."
o No Solicitation of Third Party Offers. The Managing General
Partner has not solicited offers from third parties to acquire the
Properties. There is no assurance that the Managing General
Partner would not be able to obtain higher or better offers for
the Properties if such offers were to be solicited from
independent third parties.
o Tax Consequences. The Sale will have a tax impact on Limited
Partners, producing a long-term capital gain of approximately $536
per Unit. In addition, the Sale will produce ordinary income
attributable to accelerated depreciation recapture of
approximately $16 per Unit. For Limited Partners who have been
able to use all of the passive losses generated by the Partnership
on a current basis, the Sale should result in a net cash
distribution of $384 per Unit after payment of their tax
liability. Limited Partners who have available all of the
suspended passive losses generated by the Partnership, but whose
ordinary income is not taxed at the 39.6% marginal federal rate,
may receive a lower net cash distribution made in connection with
the Sale. For a discussion of the tax impact of the Sale, and the
Partnership's assumptions and the bases therefor, see "FEDERAL
INCOME TAX CONSEQUENCES." THE SPECIFIC TAX IMPACT OF THE SALE ON
LIMITED PARTNERS SHOULD BE DETERMINED BY LIMITED PARTNERS IN
CONSULTATION WITH THEIR TAX ADVISORS.
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o No Dissenter's Rights. Under the Partnership Agreement and
California law, Limited Partners do not have dissenters' rights of
appraisal.
Limited Partner Approval
The Managing General Partner is seeking the consent of the Limited
Partners to the Sale. If a majority-in-interest of the Limited Partners do not
approve the Sale, there will be no change in its investment objectives, policies
and restrictions and the Partnership will continue to be operated in accordance
with the terms of the Partnership Agreement. The Partnership will bear the costs
of the consent solicitation process whether or not the Sale is approved or
ultimately consummated.
Third-Party Opinion
The Partnership has obtained from Stanger, a recognized independent
real estate investment banking firm, an opinion that the Purchase Price to be
received by the Partnership for the Properties in the Sale is fair to the
Limited Partners from a financial point of view. In the course of preparing its
Fairness Opinion, Stanger conducted such reviews as it deemed appropriate and
discussed its methodology, analysis and conclusions with the Managing General
Partner. The Fairness Opinion, which is subject to certain assumptions,
qualifications and limitations, is attached hereto as Exhibit A. Stanger has no
obligation to update the Fairness Opinion on the basis of subsequent events.
Stanger will be paid an aggregate fee by the Partnership of $55,500, plus $4,100
per Property, or an aggregate of approximately $76,000. No portion of Stanger's
fee is contingent upon consummation of the Sale. See "THE SALE-- Fairness
Opinion" and "--Potential Adverse Effects of the Sale--No Appraisals; Limits on
Fairness Opinion."
Recommendation of the Managing General Partner; Fairness
The Managing General Partner believes that the Sale is fair from a
financial point of view and in the best interests of the Limited Partners. In
addition, the Managing General Partner reviewed (but did not specifically adopt)
the Fairness Opinion. Accordingly, the Managing General Partner has approved the
Sale and recommends that it be approved by the Limited Partners.
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Summary Financial Information
The following table sets forth selected historical financial and
operating data of the Partnership for the fiscal years ended December 31, 1997,
1996, 1995, 1994, 1993 and for the six months ended June 30, 1998. The following
information should be read in conjunction with the Partnership's Annual Report
on Form 10-K and Quarterly Report on Form 10-Q, which are attached hereto as
Annexes B and C, respectively.
The selected historical financial and operating data of the Partnership
for the six-month periods ended June 30, 1998 and June 30, 1997 are derived from
unaudited consolidated financial statements of the Partnership which, in the
opinion of the Managing General Partner, include all adjustments (consisting
only of normal recurring items unless otherwise disclosed) necessary for a fair
presentation of the Partnership's financial position and results of operations.
The results set forth for the six-month periods ended June 30, 1998 and June 30,
1997 are not necessarily indicative of results to be expected for a full year.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
-------------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1998 1997
------------- ------------- ------------------------- ------------ ------------ --------------
Partnership
Operations
Interest Income $ $ $ $ $ $ $
105,777 89,711 49,476 37,710 12,779 28,185 75,391
Operating Expenses 355,249 158,460 185,584 226,208 353,825 156,240 131,802
------------- ------------- ------------------------- ------------ ------------ --------------
Income (Loss) from (249,472) (68,749) (136,108) (188,498) (341,046) (128,055) (56,411)
Partnership
Operations
------------- ------------- ------------------------- ------------ ------------ --------------
Rental Operations
Revenues 4,925,227 4,935,895 5,486,329 5,678,656 5,463,671 2,530,407 2,427,278
Expenses 4,921,727 4,942,160 5,675,071 6,514,923 5,402,010 4,177,214 2,491,664
------------- ------------- ------------------------- ------------
Income (Loss) from 3,500 (6,265) (188,742) (836,267) 61,661 (107,362) (64,386)
Rental
Operations
Gain on Foreclosure -- 259,088 -- -- -- -- --
of
Rental Property
Net Income (Loss) $ (245,972) $ 184,074 $ (324,850)$ (1,024,765) $ (279,385) $ (235,417) $ (120,797)
============= ============= ========================= ============ ============ ==============
Net Income (Loss)
allocated to
Limited Partners $(243,512) $ 182,234 $ (321,601)$ (1,014,517) $ (276,591) $ (233,063) $ (119,589)
============= ============= ========================= ============ ============ ==============
Net Income (Loss)
per Limited
Partnership
Interest $ (8) $ 6 $ (11) $ (34) $ (9) $ (8) $ (4)
============= ============= ========================= ============ ============ ==============
Total assets $ 20,791,123 $ 22,049,995 $ 26,365,792 $ 26,668,029 $ 27,182,103 $ 20,296,242 $ 21,281,493
============= ============= ========================= ============ ============ ==============
Mortgage Notes
Payable $ 14,443,323 $ 14,064,914 $17,747,363 $17,959,940 $15,517,461 $14,320,565 $ 14,562,880
============= ============= ========================= ============ ============ ==============
Cash Distribution
per Limited
Partnership
Interest $ 20.00 $ 10.00 $ -- $ 15.00 $ 10.00 $ 5.00 $ 10.00
============= ============= ========================= ============ ============ ==============
Partners' Equity $ 4,562,631 $ 6,309,459 $ 6,425,385 $ 6,750,235 $ 8,225,000 $ 4,177,214 $ 5,021,140
============= ============= ========================= ============ ============ ==============
Limited Partners'
Equity $ 6,184,431 $ 7,027,943 $ 7,145,709 $ 7,467,310 $ 8,931,827 $ 5,801,369 $ 6,608,354
============= ============= ========================= ============ ============ ==============
Limited Partners'
Equity per
Limited Partnership
Interest $ 206 $ 234 $ 238 $ 249 $ 298 $ 193 $ 220
============= ============= ========================= ============ ============ ==============
</TABLE>
Transaction Expenses
The Partnership will bear its direct costs relating to the Sale,
including customary closing costs such as the seller's portion of title
insurance and escrow fees, and the costs incurred in connection with this
solicitation of consents. The aggregate amount of such costs is expected to be
approximately $247,000, which the Partnership expects to pay using cash
equivalents held by the Partnership. The transaction costs will be borne by the
Partnership as they are incurred, whether or not the Sale is approved by the
Limited Partners or ultimately consummated.
The Managing General Partner believes that, under the terms of the
Partnership Agreement, the Partnership is obligated to the Managing General
Partner for the Deferred Acquisition Fee for services rendered to the
Partnership in connection with the selection, purchase, development and
management of the Properties. As of December 31, 1997, $735,685 of the Deferred
Acquisition Fee was due and payable to the Managing General Partner, all of
which will be paid out of the proceeds of the Sale.
Voting Procedures
This Consent Solicitation Statement outlines the procedures to be
followed by Limited Partners in order to consent to the Sale. A form of Consent
of Limited Partner (a "Consent") is attached hereto. These procedures must be
strictly followed in order for the instructions of a Limited Partner as marked
on such Limited Partner's Consent to be effective. The following is a summary of
certain of these procedures:
1. A Limited Partner may make his or her election on the Consent only
during the solicitation period commencing upon the date of delivery of this
Consent Solicitation Statement and continuing until the earlier of (i)
___________, 1998 or such later date as may be determined by the Managing
General Partner and (ii) the date upon which the Managing General Partner
determines that a Majority Vote has been obtained (the "Solicitation Period").
2. Limited Partners are encouraged to return a properly completed and
executed Consent in the enclosed envelope prior to the expiration of the
Solicitation Period.
3. A Consent delivered by a Limited Partner may be changed prior to the
expiration of the Solicitation Period by delivering to the Partnership a
substitute Consent, properly completed and executed, together with a letter
indicating that the Limited Partner's prior Consent has been revoked.
4. The Sale and each of the proposed Amendment are being submitted to
the Limited Partners as separate resolutions. Limited Partners must approve the
proposed Sale and the proposed Amendment in order to allow consummation of the
Sale.
5. A Limited Partner submitting a signed but unmarked Consent will be
deemed to have voted FOR the Partnership's participation in the Sale.
II. THE SALE
Background and Reasons for the Sale
On July 29, 1998, the Partnership filed a preliminary consent
solicitation statement with the Securities and Exchange Commission regarding a
proposed sale of the Properties to an affiliate of the Managing General Partner
for a purchase price of $24,876,300, $10,432,977 of which was to be payable in
cash and $14,443,323 through the assumption of certain mortgage indebtedness.
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On August 14, 1998, JH Real Estate Partners, Inc. of Anaheim,
California contacted the Partnership to express its interest in acquiring the
Properties. After satisfactorily demonstrating its ability to finance the
proposed transaction, JH Real Estate Partners commenced a due diligence review
of the Properties. As of September 25, 1998, the affiliate of the Managing
General Partners withdrew its offer of $24,876,300 and the Partnership entered
into a purchase and sale agreement with the Buyers that included a purchase
price of $31,900,000. The terms of the Sale were determined in arm's-length
negotiations between the Partnership and the Buyers. Consummation of the Sale is
subject to the approval of a majority-in-interest of the Limited Partners.
The Managing General Partner believes that it is in the best interests
of the Partnership to sell its interests in the Properties. Limited Partners
realized an aggregate of approximately $24.00 per Unit in current passive
activity rental losses for 1997. In addition, Limited Partners realized
approximately $4.29 per Unit in interest income for 1997.
Pursuant to the terms of the Partnership Agreement, the Sale will
result in the dissolution of the Partnership.
Acquisition Agreement
The Partnership has entered into a purchase and sale agreement with the
Buyers. The purchase and sale agreement sets forth the terms and conditions
under which the Partnership and the Buyers are obligated to proceed with the
Sale and sets forth certain other agreements of such parties with respect to the
Sale.
Consideration. The purchase and sale agreement provides for a purchase
price of $31,000,000 for the Properties.
Representations and Warranties. The Partnership has not made any
representations and warranties to the Buyers in the purchase and sale agreement
with respect to the Properties, and the Properties will be sold "as is." In
addition, the Buyers will assume certain mortgage indebtedness in connection
with the Sale.
Conditions. The purchase and sale agreement includes a number of
conditions to the Buyer's obligation to consummate the Sale, including the
receipt of any required third-party consents to the Sale and that no material
adverse change shall have occurred with respect to a Property.
Amendment and Closing. The Partnership and the Buyers may mutually
agree to amend the terms of the purchase and sale agreement in a manner which,
in the good faith judgment of the Managing General Partner (consistent with the
Managing General Partner's fiduciary duty to the Partnership and the Limited
Partners), does not materially reduce the benefits to be received by the Limited
Partners from the Sale without resoliciting the consent of the Limited Partners.
Approval of the proposed Sale by the Limited Partners will be deemed to include
authorization of the Managing General Partner to (i) execute on behalf of the
Partnership such amendments, instruments and documents as shall be necessary to
effectuate the Sale, and (ii) make modifications to the terms of the proposed
Sale that, in good faith determination of the managing General Partners, are in
the best interests of the Limited Partners. If the closing does not occur by
December 31, 1998 the purchase and sale agreement will be terminated.
767376.6
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Transaction Costs
The transaction costs incurred in connection with the Sale will be
borne by the Partnership as they are incurred, whether or not the Sale is
approved by the Limited Partners or ultimately consummated. The Managing General
Partner estimates that the transaction costs will be as follows:
Accounting .............................................. $ 50,000
Legal ................................................... 50,000
Escrow Costs (seller's portion).......................... 25,000
Title Policy (seller's portion).......................... 35,000
Stanger Fairness Opinion................................. 76,000
Consent Solicitation Costs............................... 6,000
Miscellaneous Costs...................................... 5,000
------------
Total.................................................... $ 247,000
========
The General Partners will receive a distribution of approximately
$174,567 for their interests in the Partnership in connection with the Sale,
plus $735,685 in consideration of the Deferred Acquisition Fee.
Distribution of Sale Proceeds; Accounting Treatment
Following the Sale it is anticipated that the Partnership's affairs
will be wound up and the Partnership will be liquidated. After the payment of
all liabilities and expenses, the consideration to be paid to the Partnership
for the Properties will be allocated and distributed among Limited and General
Partners in accordance with the cash distribution rules set forth in the
Partnership Agreement. Pursuant to the Partnership Agreement, net distribution
proceeds are distributable as follows:
o Proceeds from the liquidation of the partnership shall be
distributed first to creditors in the order of priority as
provided for by law, second to the setting up of such reserves as
the General Partners deem necessary, and third to the Limited and
General Partners as set forth below: (a) first to the General
Partners in an amount equal to any fees owed to the General
Partners under the Partnership Agreement that have not yet been
paid, including the Deferred Acquisition Fee; (b) next, 99% to the
Limited Partners and 1% to the General Partners until the Limited
Partners have received an amount equal to their adjusted capital
accounts plus an amount equal to a cumulative non-compounded
6%annual return on their aggregate adjusted capital accounts from
time to time (which annual return shall, with respect to each
Limited Partner, be calculated commencing with the fiscal quarter
after termination of the offering, and shall be reduced by any
cash distributions actually distributed to such Limited Partner or
predecessor in interest); and (c) the balance, if any, 85% to the
Limited Partners and 15% to the General Partners: provided, that
upon dissolution of the Partnership, such balance, if any, shall
be distributed to the Limited Partners and the General Partners in
proportion to their respective positive account balances.
Based on the distribution priority in the Partnership Agreement, and
assuming the net proceeds of the Sale are $16,720,992, the Limited Partners will
be entitled to receive $16,553,782 in cash ($552 per Unit). NAPICO and NPIA II
will be entitled to receive a distribution in connection with the Sale of
$174,567. In addition, the Partnership will pay, using available cash on hand,
approximately $736,000 to the Managing General Partner in connection with the
unpaid Deferred Acquisition Fee. The Deferred Acquisition Fee is for services
rendered to the Partnership in connection with the selection, purchase,
development and management of the Properties. The
767376.6
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<PAGE>
Partnership will also distribute any cash reserves remaining after winding down
its operations and liquidating after the Sale. Such reserves are expected to be
insignificant.
Fairness Opinion
Stanger, an independent investment banking firm, was engaged by the
Managing General Partner to conduct an analysis and to render an opinion as to
whether the Purchase Price to be paid to the Partnership for the Properties in
the Sale is fair, from a financial point of view, to the Limited Partners. The
Managing General Partner selected Stanger because of its experience in providing
similar services to other parties in connection with real estate merger and sale
transactions and Stanger's experience and reputation in connection with real
estate partnerships and real estate assets. No other investment banking firm was
engaged to provide, or has provided, any report, analysis or opinion relating to
the fairness of the Sale.
Stanger has advised the Partnership that, subject to the assumptions,
limitations and qualifications contained in its Fairness Opinion, the Purchase
Price to be paid to the Partnership for the Properties in the proposed Sale is
fair, from a financial point of view, to the Limited Partners. The full text of
the Fairness Opinion, which contains a description of the matters considered and
the assumptions, limitations and qualifications made, is set forth as Exhibit A
hereto and should be read in its entirety. The summary set forth herein does not
purport to be a complete description of the review performed by Stanger in
rendering the Fairness Opinion. Arriving at a fairness opinion is a complex
process not necessarily susceptible to partial analysis or amenable to summary
description.
Except for certain assumptions described more fully below which the
Partnership advised Stanger that it would be reasonable to make, the Partnership
imposed no conditions or limitations on the scope of Stanger's investigation or
the methods and procedures to be followed in rendering the Fairness Opinion. See
"-- Fairness Opinion -- Assumptions, Limitations and Qualifications." The
Partnership has agreed to indemnify Stanger against certain liabilities arising
out of Stanger's engagement to prepare and deliver the Fairness Opinion.
Experience. Since its founding in 1978, Stanger and its affiliates have
provided information, research, investment banking and consulting services to
clients located throughout the United States, including major New York Stock
Exchange member firms, insurance companies and over 70 companies engaged in the
management and operation of partnerships and real estate investment trusts. The
investment banking activities of Stanger include financial advisory and fairness
opinion services, asset and securities valuations, industry and company research
and analysis, litigation support and expert witness services, and due diligence
investigations in connection with both publicly registered and privately placed
securities transactions.
Stanger, as part of its investment banking business, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers, acquisitions, reorganizations and for estate, tax, corporate and other
purposes. Stanger's valuation practice principally involves partnerships,
partnership securities and the assets typically held through partnerships, such
as real estate, oil and gas reserves, cable television systems and equipment
leasing assets. Stanger was selected because of its experience and reputation in
connection with real estate partnerships, real estate assets and mergers and
acquisitions.
Summary of Materials Considered. In the course of Stanger's analysis to
render its opinion, Stanger reviewed: (i) a draft of this Consent Solicitation
Statement in substantially the form which will be distributed to Limited
Partners; (ii) the Partnership's annual reports on Form 10-K for the years ended
December 31, 1995, 1996 and 1997 and the Partnership's quarterly report on Form
10-Q for the six-month period ended June 30, 1998, which reports the
Partnership's management has indicated to be the most current available
financial statements; (iii) descriptive information concerning the Properties
provided by management, including location, number of units and unit mix, age,
and amenities; (iv) summary historical operating statements for the Properties
for the years ended December 31, 1995, 1996 and 1997 and year-to-date through
September 1998; (v) operating budgets for the Properties for 1998, as prepared
by the Managing General Partner; (vi) information regarding market rental rates
and conditions for apartment properties in the general market area of the
Properties and other information relating
767376.6
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<PAGE>
to acquisition criteria for apartment properties; (vii) the February 1998
Property appraisals; (viii) a schedule of projected capital expenditures and
deferred maintenance for the Properties as prepared by the Managing General
Partner; (ix) a draft of the purchase and sale agreement between the Partnership
and the Buyers in substantially final form; and (x) conducted other studies,
analysis and inquiries as Stanger deemed appropriate.
In addition, Stanger discussed with management of the Partnership and
the Managing General Partner the market conditions for apartment properties,
conditions in the market for sales/acquisitions of properties similar to those
owned by the Partnership, historical, current and projected operations and
performance of the Properties, the physical condition of the Properties
including any deferred maintenance, and other factors influencing value of the
Properties. Stanger also performed site inspections of the Properties, reviewed
local real estate market conditions, and discussed with property management
personnel conditions in local apartment rental markets and market conditions for
sales and acquisitions of properties similar to the Properties.
Summary of Reviews. The following is a summary of the material reviews
conducted by Stanger in connection with and in support of its Fairness Opinion.
The summary of the opinion and reviews of Stanger set forth in this Consent
Solicitation Statement is qualified in its entirety by reference to the full
text of such opinion.
In preparing its Fairness Opinion, Stanger performed site inspections
of the Properties during December 1997. In the course of the site visits, the
physical facilities of the Properties were observed, current rental and
occupancy information for the Properties were obtained, current local market
conditions were reviewed, a sample of similar properties were identified, and
local property management personnel were interviewed concerning the Properties
and local market conditions. Stanger also reviewed and relied upon information
provided by the Partnership and the Managing General Partner, including, but not
limited to, financial schedules of historical and current rental rates,
occupancies, income, expenses, reserve requirements, cash flow and related
financial information; property descriptive information including unit mix; and
information relating to any required capital expenditures and any deferred
maintenance.
Stanger also reviewed historical operating statements for the
Properties for 1995, 1996, 1997 and year-to-date through September 1998, the
operating budget for 1998 for each Property, as prepared by the Managing General
Partner and discussed with management the current and anticipated operating
results of the Properties.
In addition, Stanger interviewed management personnel of the
Partnership. Such interviews included discussions of conditions in the local
market, economic and development trends affecting the Properties, historical and
budgeted operating revenues and expenses and occupancies and the physical
condition of the Properties (including any deferred maintenance and other
factors affecting the physical condition of the improvements), projected capital
expenditures and building improvements, and expectations of management regarding
the impact of various regulatory factors and proposed changes on the operating
results of the Properties.
Stanger also reviewed the acquisition criteria used by owners and
investors in the type of real estate owned by the Partnership, utilizing
available published information and information derived from interviews
conducted by Stanger with various real estate owners and investors.
Summary of Analysis. Based in part on the above reviews, Stanger then
performed a discounted cash flow analysis (a "DCF Analysis") of the Properties.
The DCF Analysis involved the following steps.
During its site visits to each Property, Stanger conducted local market
research, including the identification and assessment of relative quality (e.g.,
condition, location amenities, etc.) of similar multi-family properties in the
competitive market area of each Property and the collection of rental rate
information for various apartment unit sizes (e.g., efficiency, one-bedroom,
two-bedroom, etc.) for such Properties. In addition, Stanger reviewed
information provided by the Managing General Partner and management of the
Properties concerning the terms of the HUD rental rate restrictions and the
rental rates allowed for each type of apartment for the single Property subject
to such HUD rental rate restrictions.
767376.6
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<PAGE>
Utilizing the above information, Stanger determined the gross potential
rent for each Property based on the number and type of apartment units in each
Property and the estimated market rental rates the Property would likely obtain
based on review of the rates charged at similar properties in the local market
and considering the current HUD rental rate restrictions at the one Property
subject to such restrictions.
Stanger also reviewed historical and budgeted gross income and income
from ancillary sources for each Property in the portfolio in light of market
trends and competitive conditions in each Property's local market. Stanger also
reviewed summary information concerning occupancy rates for each of the
Properties.
After assessing the above factors, Stanger estimated each Property's
effective gross income based upon estimated gross potential rent and estimates
of ancillary income and occupancy. Expenses were estimated based on historical
and budgeted operating expenses, discussions with management, and certain
industry expense information. Estimated property operating expenses, including
recurring replacement reserves, were then deducted from effective gross income
to arrive at each Property's estimated net operating income. Expenses relating
solely to investor reporting and other expenses not related to the properties
were excluded from the analysis.
Stanger then discounted to present value the estimated cash flows from
the continued operation of each of the Properties during a holding period equal
to ten years. Income and expense escalators utilized in the analysis were based
on parameters cited by investors, owners and managers of similar properties,
market factors, and historical and budgeted results for each Property. Effective
rental income escalators generally ranged from approximately 3.0% to 3.5% per
year during the holding period. Effective expense escalators generally ranged
from approximately 2.9% to 3.0% per year.
As part of its DCF Analysis, Stanger then estimated the residual values
of the Properties by utilizing a direct capitalization technique. The estimated
net operating income after replacement reserves in the eleventh year of
operations was capitalized utilizing terminal capitalization rates ranging from
9.0% to 10.0% and the resulting value was reduced by estimated sales costs of
3%.
The resulting annual cash flows and the residual value, after deduction
of estimated costs of sale, for each Property were then discounted to present
value assuming the Properties were free-and-clear of mortgage debt utilizing
discount rates ranging from 11.00% to 12.00%.
Stanger observed that the range of estimated value of the portfolio of
Properties resulting from the above-referenced analysis was $29,140,000 to
$31,730,000 and that the Purchase Price of $31,900,000 was above this range of
value. The above-referenced value range excludes any reductions in value related
to capital expenditure requirements to cure deferred maintenance. Stanger
further observed that the Properties are being sold to the Buyers in an "as is"
condition.
Stanger concluded that the range of estimated value of the portfolio of
Properties resulting from the DCF Analysis supported its opinion as to the
fairness of the Purchase Price from a financial point of view.
Due to the uncertainty in establishing many of the values cited above,
Stanger established a range of estimated values. The estimated values are based
in part on information provided to Stanger in the context of rendering the
fairness opinion, and there can be no assurance that the same conditions
analyzed by Stanger in arriving at the estimates cited herein would exist at the
time of consummation of the Sale. In addition, the estimated values cited above
are based on a variety of assumptions that relate, among other things, to (i)
each Property's revenues, expenses, and cash flow; (ii) the capitalization rates
that would be used by prospective buyers; (iii) ranges of residual values of the
Properties; (iv) selling costs; and (v) appropriate discount rates to apply to
estimated cash flows and residual values in computing the discounted present
value of such cash flows and residual values. Actual results may vary from those
utilized in the above analysis based on numerous factors, including interest
rate fluctuations, changes in capitalization rates used by prospective
purchasers, tax law changes, supply/demand conditions for similar properties,
changes in the availability of capital, changes in the regulations or HUD's
767376.6
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<PAGE>
interpretations of existing and/or new regulations relating to the single
Property currently operating under HUD rental rate restrictions.
Stanger also reviewed the February 1998 Property appraisals conducted
by an independent third party. Stanger observed that the appraised value of the
Properties was $27,200,000 and that the appraisals explicitly excluded
reductions in value related to capital expenditure requirements to cure deferred
maintenance at the Properties. Stanger further observed that the appraisals were
prepared for the Partnership's internal asset management purposes and were not
obtained in connection with the evaluation of the Sale.
Conclusions. Stanger concluded, based upon its analysis of the
foregoing and the assumptions, qualifications and limitations stated below, as
of the date of the Fairness Opinion, that the Purchase Price to be paid to the
Partnership for the Properties is fair to the Limited Partners from a financial
point of view.
Assumptions, Limitations and Qualifications. In rendering the Fairness
Opinion, Stanger relied upon and assumed, without independent verification, the
accuracy and completeness of all financial information and data, and all other
reports and information contained in this Consent Solicitation Statement or that
were provided, made available, or otherwise communicated to Stanger by the
Partnership, the Managing General Partner and/or its affiliates, or the
management of the Properties. Stanger has not performed an independent
appraisal, structural or engineering study or environmental study of the assets
and liabilities of the Partnership. Stanger relied upon the representations of
the Managing General Partner and its affiliates, and the management of the
Properties concerning, among other things, any environmental liabilities and
deferred maintenance and estimated capital expenditure and replacement reserve
requirements. Stanger also relied upon the assurance of the Partnership, the
Managing General Partner and its affiliates, and the management of the
Properties that any financial statements, budgets, capital expenditures and
deferred maintenance estimates, mortgage debt, value estimates and other
information contained in this Consent Solicitation Statement or provided or
communicated to Stanger were reasonably prepared and adjusted on bases
consistent with actual historical experience and reflect the best currently
available estimates and good faith judgments; that no material changes have
occurred in the value of the Properties or other information reviewed between
the date of such information provided and the date of the Fairness Opinion; that
the Partnership, the Managing General Partner and its affiliates, and the
management of the Properties are not aware of any information or facts that
would cause the information supplied to Stanger to be incomplete or misleading
in any material respect; and that the highest and best use of the Properties is
as improved.
Stanger was not requested to, and therefore did not: (i) select the
method of determining the Purchase Price offered in connection with the Sale or
participate in the negotiation of the Purchase Price or terms of the Sale; (ii)
make any recommendation to the Partnership or its partners with respect to
whether to approve or reject the proposed Sale; or (iii) express any opinion as
to (a) the tax consequences of the proposed Sale to the Limited Partners, (b)
the terms of the Partnership Agreement, or the terms of any agreements or
contracts between the Partnership and the Buyers, (c) the Managing General
Partner's business decision to effect the proposed Sale, (d) any adjustments
made by the Managing General Partner to the Purchase Price to determine the net
amounts distributable to the Limited Partners, including but not limited to,
balance sheet adjustments to reflect the Managing General Partner's estimate of
the value of current and projected net working capital balances and cash and
reserve accounts (including debt service and mortgage escrow amounts and
operating and replacement reserves and the income therefrom) of the Partnership,
the payment of the Deferred Acquisition Fee and other expenses and fees
associated with the Sale, or (e) alternatives to the proposed Sale.
Stanger is not expressing any opinion as to the fairness of any terms
of the proposed Sale other than the Purchase Price of the Properties paid to the
Partnership. Stanger's opinion is based on business, economic, real estate and
capital market, and other conditions as of the date of its analysis and
addresses the proposed Sale in the context of information available as of the
date of its analysis. Events occurring after such date and before the closing of
the proposed Sale of the Properties to the Buyers could affect the Properties or
the assumptions used in preparing the Fairness Opinion. Stanger has no
obligation to update the Fairness Opinion on the basis of subsequent events.
767376.6
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<PAGE>
In connection with preparing the Fairness Opinion, Stanger 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
Exhibit A.
Compensation and Material Relationships. Stanger has been retained by
the Managing General Partner and its affiliates to provide fairness opinions to
certain partnerships affiliated with the Managing General Partner in connection
with the formation of a real estate investment trust. Stanger will be paid an
aggregate fee by the Partnership and the partnerships participating in the
formation of the real estate investment trust of up to approximately $455,000,
plus $4,100 per property reviewed. The portion of the fee allocable to the
Partnership with regard to the Sale is approximately $55,500, plus $4,100 per
Property, or an aggregate of approximately $76,000. In addition, Stanger is
entitled to reimbursement for reasonable legal, travel and out-of-pocket
expenses incurred in making site visits and preparing the Fairness Opinion,
subject to an aggregate maximum of up to approximately $1,000, plus $600 per
Property, and is entitled to indemnification against certain liabilities,
including certain liabilities under federal securities laws. No portion of
Stanger's fee is contingent upon consummation of the Sale.
Recommendation of the Managing General Partner; Fairness
The recommendation of the Managing General Partner in favor of the Sale
is based upon its belief that the Sale is fair to the Limited Partners for,
among others, the following reasons: (a) its belief that the terms and
conditions of the Sale, including the Purchase Price, are fair to the Limited
Partners of the Partnership; (b) its belief that the alternatives available to
the Partnership are not as attractive to the Limited Partners as the Sale; (c)
its belief that now may be an opportune time for the Partnership to sell the
Properties, given current conditions in the real estate and capital markets; and
(d) its belief that the Purchase Price represents the highest amount that a
third party would offer the Partnership for the Properties. The Managing General
Partner did not attempt to market the Properties to any third parties.
The Purchase Price of $31,900,000 was determined as a result of
arm's-length negotiations and it exceeded the proposed purchase price offered by
affiliates of the Managing General Partner, which the Managing General Partner
believed was fair. The Managing General Partner believes that the Purchase Price
is fair and reasonable and exceeds the price that the Partnership would likely
receive if the Properties were to be marketed to a third party or parties. Due
to changes in the tax laws pursuant to which losses of the Partnership are
treated as passive losses and can only be deducted against passive income, most
Limited Partners are not realizing material tax benefits from continuing to own
their limited partnership interests.
III. THE PARTNERSHIP
General
The Partnership is a limited partnership that was formed under the laws
of the State of California on September 9, 1981. On September 27, 1983, the
Partnership offered 30,000 Units, each Unit consisting of one limited
partnership interest in the Partnership, at $1,000 per Unit through an offering
managed by E.F. Hutton & Company Inc. As of May 12, 1998 there were 30,000
limited partnership interests in the Partnership outstanding.
The Managing General Partner of the Partnership is NAPICO. The business
of the Partnership is conducted primarily by NAPICO. NPIA II is the non-managing
General Partner of the Partnership. Pursuant to an agreement between NAPICO and
NPIA II, NAPICO has the primary responsibility for the performance of any duties
required to be performed by the General Partners and, in general, has sole and
final discretion to manage and control the business of the Partnership and make
all decisions relating thereto. NPIA II has not participated in the management
of the Partnership, or in decisions made by the Partnership in connection with
the proposed Sale. NPIA II has not taken a position with respect to the Sale nor
has it participated in the preparation of this Consent Solicitation Statement.
The Partnership has no employees of its own.
767376.6
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<PAGE>
Casden Investment Corporation owns 100 percent of NAPICO's stock. The
current members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce
E. Nelson, Alan I. Casden and Henry C. Casden. Alan I. Casden is the sole
director and stockholder of Casden Investment Corporation and, accordingly,
controls NAPICO.
The original objectives of the Partnership were to own and operate the
Properties (and certain other real estate assets) for investment so as to (i)
generate cash distributions for Limited Partners from operations of the
Properties, of which all or a portion of would be a return of capital or "tax
sheltered"; (ii) provide protection for the Partnership's capital investments;
and (iii) provide capital gains through appreciation, and equity build up
through principal reduction of mortgage loans on the properties over a period of
five to seven years.
The Partnership holds interests in five Properties, each of which is a
conventional multi-unit apartment complex. The mortgage on one of the Properties
is insured by HUD. During the period for which the mortgage is so insured, its
rents will be subject to regulation by HUD.
The Properties in which the Partnership has invested generated $3,500
in income to the Partnership in 1997, before Partnership expenses of
approximately $355,249 and interest income of $105,777. At December 31, 1997,
the Partnership had a cash reserve of $1,354,289.
The Properties
During 1997, all of the Properties in which the Partnership had
invested were substantially rented. The following is a schedule of the status,
as of December 31, 1997, of the Properties owned by the Partnership.
No. of Percentage of
Name & Location Units Units Occupied Total Units
Arbor Glenn 208 195 94%
West Covina, CA
Park Creek 123 112 91%
- - - ---------- --- --- ---
Canoga Park, CA
- - - -----------------
Warner Willows I 74 74 100%
- - - ---------------- -- -- ----
Woodland Hills, CA
- - - --------------------
Warner Willows II 73 70 96%
- - - ----------------- -- -- ---
Woodland Hills, CA
- - - --------------------
Willowbrook Apartments 183 175 96%
- - - ---------------------- --- --- ---
Reno, NV
- - - ----------
_________________ ____ _____
- - - ----------------- ------- -----
Total 661 626 95%
- - - ----- ----- ----- -----
The Properties range in age from 17 to 25 years. Routine repair,
maintenance and capital expenditures made out of operating cash reserves by the
Partnership amounted to approximately $1,781,359 in the aggregate for the year
ended December 31 1997. Due to the age of the Properties, capital expenditures
are expected to increase progressively over the remaining useful lives of the
Properties. In addition, recent engineering studies of the Properties performed
by the Managing General Partner indicate that the Properties require immediate
capital expenditures of approximately $3,000,000 in order to maintain the
Properties' competitive position their respective markets.
Each of the five Properties is encumbered by a mortgage note. The
outstanding principal balance as of December 31, 1997 were as follows:
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Arbor Glen $ 5,574,398
Park Creek 1,280,984
Warner Willows I 2,715,447
Warner Willows II 2,654,098
Willowbrook 2,218,396
---------
$14,443,323
===========
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The following is a summary of the operating budgets for the Properties
for 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Arbor Glen Park Creek Warner Willows I Warner Willows II Willowbrook
---------- ---------- ---------------- ----------------- -----------
Gross Potential Income $ 1,686,600 $ 874,704 $ 756,660 $ 735,060 $1,431,252
Vacancy & Concessions (84,330) (133,387) (37,836) (36,753) (82,761)
Bad Debt Expense (15,120) (14,244) (13,320) (22,572) (8,400)
------------- ------------- ------------- ---------------- ------------
Net Rental Income 1,587,150 727,073 705,504 675,735 1,340,091
Total Other Income 61,704 39,492 17,400 22,980 42,780
------------- ------------- ------------- ---------------- ------------
Total Revenue 1,648,854 766,565 722,904 698,715 1,382,871
------------- ------------- ------------- ---------------- ------------
Payroll 127,235 107,294 66,057 65,955 194,093
Utilities 166,560 61,716 59,136 54,996 231,269
Grounds and Pool 98,892 23,460 32,460 28,584 34,750
Repairs and Maintenance 121,504 63,144 39,693 45,991 60,590
Taxes and Insurance 205,917 100,058 77,515 74,566 141,884
Rental Expense 20,304 8,832 6,384 6,384 12,120
General Administrative 120,612 59,700 51,829 45,616 113,113
------------- ------------- ------------- ---------------- ------------
Total Operating Expenses 861,024 424,204 333,074 322,092 787,819
------------- ------------- ------------- ---------------- ------------
Net Operating Income 787,830 342,361 389,830 376,623 595,052
Total Capital Expenditures 172,181 63,690 19,080 19,080 214,601
------------- ------------- ------------- ---------------- ------------
Net Cash Flow Before Debt-Service 615,649 278,671 370,750 357,543 380,451
Total Debt Service 548,764 164,051 330,836 319,629 234,842
------------- ------------- ------------- ---------------- ------------
Net Cash Flow $ 66,885 $ 114,620 $ 39,914 $ 37,914 $ 145,609
============== =========== ============== ================ ===========
</TABLE>
Market for Partnership Interests and Related Security Holder Matters
Limited partnership interests in the Partnership were sold through a
public offering managed by an affiliate of the predecessor of Lehman Brothers
Inc., and are not traded on a national securities exchange or listed for
quotation on the Nasdaq Stock Market. There is no established trading market for
Units and it is not anticipated that any market will develop for the purchase
and sale of the Units. Pursuant to the Partnership Agreement, Units may be
transferred only with the written consent of the Managing General Partner,
unless the proposed transfer is to a member of the family of the transferring
Limited Partner, a trust set up for the benefit of the Limited Partner's family,
or a corporation or other entity in which the Limited Partner has a majority
interest. At June 30, 1998, there were 2,781 registered holders of Units in the
Partnership. None of the Units are beneficially owned by the Managing General
Partner or its affiliates.
No established trading market for the Units was ever expected to
develop and the sales transactions for the Units have been limited and sporadic.
On March 9, 1998, the Limited Partners received an unsolicited offer from a
third party to purchase up to 3.3% of the outstanding Units at a purchase price
of $300.00 per Unit. On May 15, 1998, the Limited Partners received an
unsolicited offer from a third party to purchase 4.9% of the outstanding Units
at a purchase price of $350.00 per Unit.
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The following table sets forth the quarterly high and low sales prices
for the Units for each quarterly period during the last two years (including
transfers made in connection with unsolicited tender offers).
High Low
Fourth Quarter 1996 $215.00 $50.00
First Quarter 1997 $242.00 $176.00
Second Quarter 1997 $263.00 $195.00
Third Quarter 1997 $287.04 $140.50
Fourth Quarter 1997 $265.00 $142.00
First Quarter 1998 $287.00 $227.00
Second Quarter 1998 $300.00 $150.00
Third Quarter 1998 $350.00 $245.00
The Managing General Partner monitors transfers of the Units (a)
because the admission of a substitute limited partner requires the consent of
the Managing General Partner under the Partnership Agreement, and (b) in order
to track compliance with safe harbor provisions under the Securities Act to
avoid treatment as a "publicly traded partnership" for tax purposes. While the
Partnership requests to be provided with the price at which a transfer is being
made, and the Partnership receives some information regarding the price at which
secondary sale transactions in the Units have been effectuated, the Managing
General Partner does not maintain comprehensive information regarding the
activities of all broker/dealers and others known to facilitate from time to
time, or on a regular basis, secondary sales of the Units. It should be noted
that some transactions may not be reflected on the records of the Partnership.
It is not known to what extent Unit sales transactions are between buyers and
willing sellers, each having access to relevant information regarding the
financial affairs of the Partnerships, expected value of their assets, and their
prospects for the future. Many Unit sales transactions are believed to be
distressed sales where sellers are highly motivated to dispose of the Units and
willing to accept substantial discounts from what might otherwise be regarded as
the fair value of the interest being sold, to facilitate the sales. The prices
paid recently for Units generally do not reflect the current market of the
Partnerships' assets, nor are they indicative of total return, since prior cash
distributions and tax benefits received by the original investor are not
reflected in the price. Nonetheless, notwithstanding these qualifications, the
Unit sales prices, to the extent that the reported data are reliable, are
indicative of the prices at which the Units have recently been sold. None of the
Unit sales transactions have involved the Managing General Partner or its
affiliates.
The Partnership is not aware of any person that holds 5% or more of the
Units. Neither NAPICO nor its officers and directors hold any Units.
Distribution History
It was the intention of the Partnership that distributions of net cash
from operations be made quarterly, pro rata, in proportion to the number of
Units held. From November 1994 through May 1996, distributions to Limited
Partners were not made due to the Partnership's setting aside funds for losses
incurred as a result of the January 17, 1994 Northridge earthquake. The
Partnership made distributions of $600,000 and $300,000 to the Limited Partners
in 1997 and 1996, respectively. In addition, total distributions of $900,856
were made to NAPICO in 1997 consisting of $834,188 related to prior years and
$66,668 related to 1997. Under the terms of the Partnership Agreement, cash
available for distribution is to be allocated 90 percent to the Limited Partners
as a group and 10 percent to the General Partners. Based on cash distributions
made to the Limited Partners as of December 31, 1996, $834,188 was due to the
General Partners as their 10% percent share of cash available for distribution.
This amount was paid to the General Partners in February 1997. Future
distributions will depend in part on the operating results of the Properties and
will be impacted significantly by anticipated capital expenditures to cure
certain items of deferred maintenance, including roof and wall repairs and
repairs relating to earthquake damage.
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<PAGE>
In the case of the sale or refinancing of the property, the General
Partners are entitled to receive 1% of the net proceeds from the sale or
refinancing until the Limited Partners have received an amount equal to their
adjusted capital value (as defined in the Partnership Agreement) plus cumulative
distributions (including net cash from operations) equal to a non-compounded 6%
annual distribution with respect to their adjusted capital value, after which
the General Partners shall receive 15% of the balance of any net proceeds from
sale or refinancing. In addition, the Partnership will pay, using available cash
on hand, approximately $736,000 to the Managing General Partner in connection
with the Deferred Acquisition Fees. The Deferred Acquisition Fee is for services
rendered to the Partnership in connection with the selection, purchase,
development and management of the Properties. Income and losses are allocated
99% to Limited Partners and 1% to the General Partners.
There are no regulatory or legal restrictions on the Partnership's
current or future ability to pay distributions, however, the rental rates of one
of the Properties are subject to HUD regulation during the period that the
mortgage of such Property is insured by HUD.
Year 2000 Information
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that no
significant actions are required to be taken by the Partnership to address the
issue and that the impact of the Year 2000 computer systems issue will not
materially affect the Partnership's future operating results or financial
condition. Due to the nature of its operations and its relationships with third
parties, the Partnership does not anticipate having to make any material
expenditures related to the Year 2000 computer systems issue.
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<PAGE>
IV. SELECTED FINANCIAL INFORMATION
The following table sets forth selected historical financial and
operating data of the Partnership for the fiscal years ended December 31, 1997,
1996, 1995, 1994, 1993 and for the six months ended June 30, 1998. The following
information should be read in conjunction with the Partnership's Annual Report
on Form 10-K and Quarterly Report on Form 10-Q, which are attached hereto as
Annexes B and C, respectively.
The selected historical financial and operating data of the Partnership
for the six-month periods ended June 30, 1998 and June 30, 1997 are derived from
unaudited consolidated financial statements of the Partnership which, in the
opinion of the Managing General Partner, include all adjustments (consisting
only of normal recurring items unless otherwise disclosed) necessary for a fair
presentation of the Partnership's financial position and results of operations.
The results set forth for the six-month periods ended June 30, 1998 and June 30,
1997 are not necessarily indicative of results to be expected for a full year.
<TABLE>
<CAPTION>
Year Ended December 31, Six Months Ended June 30,
--------------------------------------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1994 1993 1998 1997
------------ ----------- ----------- ----------- ------------ ------------ -----------
Partnership Operations
Interest Income............ $ 105,777 $ 89,711 $ 49,476 $ 37,710 $ 12,779 $ 28,185 $ 75,391
Operating Expenses......... 355,249 158,460 185,584 226,208 353,825 156,240 131,802
------------ ----------- ----------- ----------- ------------ ------------ -----------
Income (Loss) from
Partnership Operations.... (249,472) (68,749) (136,108) (188,498) (341,046) (128,055) (56,411)
------------ ----------- ----------- ----------- ------------ ------------ -----------
Rental Operations
Revenues 4,925,227 4,935,895 5,486,329 5,678,656 5,463,671 2,530,407 2,427,278
Expenses 4,921,727 4,942,160 5,675,071 6,514,923 5,402,010 4,177,214 2,491,664
------------- ------------- ------------ ------------- ------------ ------------- ------------
Income (Loss) from
Rental Operations 3,500 (6,265) (188,742) (836,267) 61,661 (107,362) (64,386)
------------- ------------- ------------ ------------- ------------ ------------- ------------
Gain on Foreclosure of
Rental Property -- 259,088 -- -- -- -- --
------------- ------------- ------------ ------------- ------------ ------------- ------------
Net Income (Loss) $ (245,972) $ 184,074 $ (324,850) $ (1,024,765) $ (279,385) $ (235,417) $ (120,797)
============= ============= ============ ============= ============ ============= ============
Net Income (Loss)
allocated to
Limited Partners $ (243,512) $ 182,234 $ (321,601) $(1,014,517) $ (276,591) $ (233,063) $ (119,589)
============= ============= ============ ============= ============ ============= ============
Net Income (Loss)
per Limited
Partnership Interest $ (8) $ 6 $ (11) $ (34) $ (9) $ (8) $ (4)
============= ============= ============ ============= ============ ============= ============
Total assets $ 20,791,123 $ 22,049,995 $ 26,365,792 $ 26,668,029 $ 27,182,103 $ 20,296,242 $ 21,281,493
============= ============= ============ ============= ============ ============= ============
Mortgage Notes Payable $ 14,443,323 $ 14,064,914 $ 17,747,363 $ 17,959,940 $ 15,517,461 $ 14,320,565 $ 14,562,880
============= ============= ============ ============= ============ ============= ============
Cash Distribution per
Limited Partnership
Interest $ 20.00 $ 10.00 $ __ $ 15.00 $ 10.00 $ 5.00 $ 10.00
============= ============= ============ ============= ============ ============= ============
Partners' Equity $ 4,562,631 $ 6,309,459 $ 6,425,385 $ 6,750,235 $ 8,225,000 $ 4,177,214 $ 5,021,140
============= ============= ============ ============= ============ ============= ============
Limited Partners'
Equity $ 6,184,431 $ 7,027,943 $ 7,145,709 $ 7,467,310 $ 8,931,827 $ 5,801,369 $ 6,608,354
============= ============= ============ ============= ============ ============= ============
Limited Partners'
Equity per Limited
Partnership Interest $ 206 $ 234 $ 238 $ 249 $ 298 $ 193 $ 220
============= ============= ============ ============= ============ ============= ============
</TABLE>
767376.6
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<PAGE>
V. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material tax consequences relating to
the proposed Sale and the distribution of approximately $552 per Unit to the
Limited Partners. However, each Limited Partner is urged to consult his, her or
its own tax advisor for a more detailed explanation of the specific tax
consequences to such Limited Partner from the Sale.
Upon consummation of the Sale, and subject to the passive activity
rules described below, each Limited Partner will recognize his, her or its share
of the taxable gain of the Partnership to the extent that the sum of (i) the
cash, plus (ii) the fair market value of any property received by the
Partnership on the Sale plus (iii) the outstanding principal amount of the
Partnership's nonrecourse indebtedness, exceeds the Partnership's adjusted basis
for the Properties. Gain realized by the Partnership on the Sale will generally
be a Section 1231 gain (i.e., long-term capital gain, except for the portion
thereof which is taxable as ordinary income due to depreciation recapture). A
Partner's share of gains and losses from Section 1231 transactions from all
sources would be netted and would be taxed as capital gains or constitute
ordinary losses, as the case may be. A net Section 1231 gain for a taxable year
will be treated as capital gain only to the extent such gain exceeds the net
Section 1231 losses for the five most recent prior taxable years not previously
recaptured. Any gain attributable to a Limited Partner's share of depreciation
recapture will be taxed at ordinary income rates.
The taxable income realized by each Limited Partner by reason of the
Sale should be characterized as income from a "passive activity" and may be
offset by a Limited Partner's available "passive activity losses" (including
suspended losses). Under the Tax Reform Act of 1986 (the "1986 Act") losses from
passive activities may only be offset against income from passive activities or
may be deducted in full when the taxpayer disposes of the passive activity from
which the loss arose. However, pursuant to a transitional rule contained in the
1986 Act, a certain percentage of losses from a passive activity which was held
by the taxpayer on the date of the enactment of the 1986 Act (i.e., October 22,
1986) and at all times thereafter was permitted to offset any type of income
during the years 1987 through 1990.
It is estimated that as a consequence of the Sale, each Limited Partner
will have taxable income equal to approximately $552 per Unit, of which $536
will constitute long-term capital gain and $16 of which will be ordinary income
due to recapture of accelerated depreciation. The income tax consequences of the
Sale to any Limited Partner depends in large part upon the amount of losses that
were allocated to such Limited Partner by the Partnership and the amount of such
losses which were applied by such Limited Partner to offset his or her taxable
income. If a Limited Partner has not utilized any of the passive activity losses
allocated to such Limited Partner in excess of those amounts permitted under the
transitional rule relief described above, the Limited Partner will realize net
cash in excess of any federal and state taxes of approximately $516 per Unit.
Because passive losses are only deductible against passive income after 1986
(subject to the transitional rules described above), the Managing General
Partner does not have any basis for determining the amount of such passive
losses which have previously been utilized by Limited Partners. The anticipated
cash distribution of approximately $552 per Unit would be sufficient to pay the
federal and state tax liability arising from the Sale.
The net tax liability was calculated assuming a federal capital gains
rate of 25%, (the current capital gains rate for the portion of net Section 1231
gain attributable to unrecaptured depreciation not otherwise taxed as ordinary
income) and assuming an effective state tax rate of 5%, and that Limited
Partners have suspended passive losses of $297 per Unit from the Partnership
(which is the amount of passive losses that a Limited Partner would have it had
it not utilized any of its passive losses (except to the extent permitted under
the transitional rule)). The net tax liability was calculated by deducting from
the tax payable on the gain from the sale the tax benefit resulting from the
ability to deduct the suspended passive losses against ordinary income assuming
that the Limited Partner has sufficient ordinary income which would otherwise
have been taxed at the 39.6% marginal tax rate for federal income tax purposes
to fully utilize such losses at such rate, and assuming a state income tax rate
of 5%. In addition to assuming federal income tax rates, the calculation of
income tax liability of a Limited Partner assumes that such
767376.6
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<PAGE>
Limited Partner has no net Section 1231 losses for the five most recent prior
taxable years. If this latter assumption is not applicable to a Limited Partner,
the income tax liability of such Limited Partner could increase because certain
income would be taxed at ordinary, instead of capital gains tax rates. Limited
Partners are advised to consult with their own tax advisors for specific
application of the tax rules where the above-described assumption is not
applicable. The foregoing does not take into consideration the effect of any
local tax liabilities that may be applicable to the Sale.
While the financial circumstances of the Limited Partners may vary
considerably, the Managing General Partner believes it is reasonable to assume
that the majority of the current Limited Partners will be in the highest federal
tax bracket in 1998. The Managing General Partner believes that while state tax
rates vary from state-to- state, the effective average state tax rate for
individuals who itemize deductions is approximately 5%. The Managing General
Partner calculated the tax benefit from the suspended passive losses at 44.6%
(39.6% federal rate plus a 5% effective state rate).
To the extent that a Limited Partner was able to utilize more passive
activity losses than were available under the transitional rules (e.g., because
such Limited Partner had passive income from other sources) to offset his, her
or its taxable income, the estimated federal income tax liability of such
Limited Partner would substantially increase. Thus, for example, if a Limited
Partner had no suspended passive activity losses to carry forward, it is
estimated that such Limited Partner would have a federal and state income tax
liability equal to approximately $168 per Unit. Accordingly, net cash received
by such Limited Partners in connection with the Sale is anticipated to be
approximately $384 per Unit. In addition, to the extent that a Limited Partner
does not have sufficient ordinary income taxed at a 39.6% marginal rate to fully
utilize the suspended passive losses against such income, the Limited Partner's
net tax benefits from the Sale would be reduced and the Limited Partner is
likely to receive a lower net cash distribution.
BECAUSE IT IS IMPOSSIBLE TO KNOW THE AMOUNT OF LOSSES ANY LIMITED
PARTNER HAS APPLIED TO OFFSET HIS, HER OR ITS TAXABLE INCOME, THE GENERAL
PARTNERS CANNOT ESTIMATE THE INCOME TAX LIABILITY OF EACH LIMITED PARTNER
ARISING FROM THE SALE, THEREFORE, EACH LIMITED PARTNER SHOULD CONSULT HIS, HER
OR ITS TAX ADVISOR CONCERNING THE INCOME TAX CONSEQUENCES OF CONSENTING TO THE
SALE WITH RESPECT TO SUCH LIMITED PARTNER'S OWN TAX SITUATION.
VI. LEGAL PROCEEDINGS
On June 25, 1997, the Commission settled administrative proceedings
against NAPICO, three members of NAPICO's senior management and three affiliated
entities for their roles in two separate series of securities laws allegations.
In connection therewith, the Commission ordered certain NAPICO-related persons
and entities to cease and desist from committing or causing securities law
violations and ordered NPEI, a brokerage firm affiliated with NAPICO, to undergo
a review of certain of its policies and procedures and pay a $100,000 penalty.
The first series of securities law allegations involved a "part or
none" private placement offering of interests in National Corporate Tax Credit
Fund ("Corporate Fund"). The offering was to take place in phases, with the
first phase closing after the sale of five units, priced at $1 million each. The
Commission found that, in June 1992, NAPICO accomplished the closing of the
first phase through the use of a non-bona fide investor. The Commission found
that NAPICO and the Corporate Fund thereby violated Section 10(b) of the
Exchange Act and Rule 10b-9, provisions that prohibit misrepresentations in
connection with "all or none" or "part or none" offerings. The Corporate Fund
offering continued in 1992 and 1993, and the offering documents distributed to
potential investors contained no disclosure related to this transaction, which
the Commission found was in violation of Sections 17(a)(2) and (3) of the
Securities Act, which prohibit material misrepresentations or omissions in
connection with the offer and sale of securities. The Commission found that Alan
I. Casden, Vice Chairman of NAPICO's Board of Directors
767376.6
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<PAGE>
and NAPICO's beneficial owner; Charles H. Boxenbaum, Chairman of NAPICO's Board
of Directors; and Bruce E. Nelson, NAPICO's President, caused these violations.
The second series of violations involved a NAPICO-controlled public
partnership called Century HillCreste Apartment Investors ("HillCreste").
HillCreste was required to file annual and quarterly reports with the
Commission. The Commission found that HillCreste failed to disclose in its
reports filed with the Commission from 1991 through 1993 that HillCreste's cash
was used to pay the expenses of other properties that were managed by an
affiliated property management company, including properties syndicated by
entities affiliated with Casden or NAPICO. The Commission found that these
disclosure failures by HillCreste violated Sections 17(a)(2) and (3) of the
Securities Act, Sections 13(a) and Rules 13a-1, 13a-13 and 12(b)(2) thereunder,
which prohibit material misrepresentations or omissions in periodic reports
filed with the Commission. The Commission found that the failure of HillCreste
to maintain adequate internal controls to prevent these transactions from being
improperly recorded violated Sections 13(b)(2)(A) and (B) of the Exchange Act,
books and records provisions of the federal securities laws. The Commission
found Alan Casden to have caused HillCreste's violations of these provisions.
NAPICO, NPEI, Corporate Fund, HillCreste, Mr. Casden, Mr. Boxenbaum and
Mr. Nelson all consented to the above relief without admitting or denying the
findings in the Commission's order.
VII. LIMITED PARTNERS CONSENT PROCEDURE
Distribution of Solicitation Materials
This Consent Solicitation Statement and the related Consent are first
being mailed to Limited Partners on or about ________ __, 1998. Only Limited
Partners of record on ___________, 1998 (the "Record Date") will be given notice
of, and allowed to give their consent regarding, the matters addressed in this
Consent Solicitation Statement.
This Consent Solicitation Statement, together with the Consent and the
letter from the Managing General Partner, constitute the Solicitation Materials
to be distributed to the Limited Partners to obtain their votes for or against
the Sale. The Solicitation Period is the time frame during which Limited
Partners may vote for or against the Sale. The Solicitation Period will commence
upon the date of delivery of this Consent Solicitation Statement and will
continue until the earlier of (i) _________, 1998 or such later date as may be
determined by the Managing General Partner and (ii) the date upon which the
Managing General Partner determines that a Majority Vote has been obtained. At
its discretion, the Managing General Partner may elect to extend the
Solicitation Period. Under no circumstances will the Solicitation Period be
extended beyond ______________, 1998. Any Consents delivered to the Partnership
prior to the termination of the Solicitation Period will be effective provided
that such Consents have been properly completed, signed and delivered.
As permitted by the Partnership Agreement, the Partnership has not
scheduled a special meeting of the Limited Partners to discuss the Solicitation
Materials or the terms of the Sale.
Voting Procedures and Consents
Limited Partners of record as of the Record Date will receive notice
of, and be entitled to vote, with respect to the Sale.
The Consent included in the Solicitation Materials constitutes the
ballot to be used by Limited Partners in casting their votes for or against the
Sale. By marking this ballot, the Limited Partner may either vote "for,"
"against" or "abstain" as to the Partnership's participation in the Sale. Once a
Limited Partner has voted, he may not revoke his vote unless he submits a second
Consent, properly signed and completed, together with a letter indicating that
this prior Consent has been revoked, and such second Consent is received by
Gemisys Corporation
767376.6
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<PAGE>
(the "Tabulator") prior to expiration of the Solicitation Period. See
"Withdrawal and Change of Election Rights" below.
The Sale will not be completed unless it is approved by a Majority
Vote. See "THE SALE -- Conditions" for a discussion of the other conditions
precedent to the Sale. BECAUSE APPROVAL REQUIRES THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE OUTSTANDING UNITS OF LIMITED PARTNERSHIP INTEREST, FAILURE TO
VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE SALE.
Any Limited Partner who returns his Consent signed but does not specify
"for," "against" or "abstain" will be deemed to have voted "for" the Sale.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the Consent will be determined by the
Tabulators, whose determination will be final and binding. The Tabulator
reserves the absolute right to reject any or all Consents that are not in proper
form or the acceptance of which, in the opinion of the Managing General
Partner's counsel, would be unlawful. The Tabulator also reserves the right to
waive any irregularities or conditions of the Consent as to particular Units.
Unless waived, any irregularities in connection with the Consents must be cured
within such time as the Tabulator shall determine. The Partnership, the Managing
General Partner and the Tabulator shall be under no duty to give notification of
defects in such Consents or shall incur liabilities for failure to give such
notification. The delivery of the Consents will not be deemed to have been made
until such irregularities have been cured or waived.
Completion Instructions
Each Limited Partner is requested to complete and execute the Consent
in accordance with the instructions contained therein. For his Consent to be
effective, each Limited Partner must deliver his Consent to the Tabulator at any
time prior to the termination of the Solicitation Period to the Partnership at
the following address:
Gemisys Corporation
7103 South Revere Parkway
Englewood, Colorado 80112
A pre-addressed stamped envelope for return of the Consent has been
included with the Solicitation Materials. Limited Partners may also telecopy an
executed copy of this Consent to the Partnership at Tabulator at 303-705-6171.
The Consents will be effective only upon actual receipt by the Partnership. The
method of delivery of the Consent to the Partnership is at the election and risk
of the Limited Partner, but if such delivery is by mail it is suggested that the
mailing be made sufficiently in advance of _______ __, 1998 to permit delivery
to the Partnership on or before such date.
Withdrawal and Change of Election Rights
Consents may be withdrawn at any time prior to the expiration of the
Solicitation Period. In addition, subsequent to submission of his Consent but
prior to expiration of the Solicitation Period, a Limited Partner may change his
vote in favor of or against the Sale. For a withdrawal or change in vote to be
effective, a written or facsimile transmission notice of withdrawal or change in
vote must be timely received by the Tabulator at its address set forth under
"Completion Instructions" above and must specify the name of the person having
executed the Consent to be withdrawn or vote changed and the name of the
registered holder if different from that of the person who executed the Consent.
No Dissenters' Rights of Appraisal
Under the Partnership Agreement and California law, Limited Partners do
not have dissenters' rights of appraisal. If the Sale is approved by a Majority
Vote, and the other conditions to consummation of the Sale are
767376.6
-22-
<PAGE>
satisfied, all Limited Partners, both those voting in favor of the Sale and
those not voting in favor, will be entitled to receive the resulting cash
distributions.
Solicitation of Consents
The Managing General Partner and its officers, directors and employees
may assist in the solicitation of consents and in providing information to
Limited Partners in connection with any questions they may have with respect to
this Consent Solicitation Statement and the voting procedures. Such persons and
entities will be reimbursed by the Partnership for out of pocket expenses in
connection with such services. The Partnership may also engage third parties to
assist with the solicitation of Consents and pay fees and reimburse the expenses
of such persons.
YOUR CONSENT IS IMPORTANT. PLEASE MARK, SIGN, AND DATE THE ENCLOSED
CONSENT AND RETURN IT IN THE ENCLOSED SELF-ADDRESSED, STAMPED ENVELOPE PROMPTLY.
If you have any questions about the consent procedure or require
assistance, please contact: MacKenzie Partners, the Partnership's consent
solicitation agent, toll free at 800-322-2885 or collect at 212- 929-5500.
VIII. IMPORTANT NOTE
It is important that Consents be returned promptly. Limited Partners
are urged to complete, sign and date the accompanying form of Consent and mail
it in the enclosed envelope, which requires no postage if mailed in the United
States, so that their vote may be recorded.
_________ ___, 1998
767376.6
-23-
<PAGE>
REAL-EQUITY PARTNERS
9090 WILSHIRE BOULEVARD
BEVERLY HILLS, CALIFORNIA 90211
THIS CONSENT IS SOLICITED BY THE MANAGING GENERAL PARTNER
OF REAL-EQUITY PARTNERS
CONSENT OF LIMITED PARTNER
The undersigned hereby gives written notice to the Partnership that,
with respect to the proposal to sell all of the Partnership's real estate assets
to JH Real Estate Partners, Inc., a California corporation, and American
Apartment Communities III, L.P., a Delaware limited partnership, and to
authorize the Managing General Partner to take any and all actions that may be
required in connection therewith, including the payment of the Deferred
Acquisition Fee and the execution on behalf of the Partnership of such
amendments, instruments and documents as shall be necessary to effectuate the
Sale, the undersigned votes all of his, her or its units of limited partnership
interest as indicated below:
FOR AGAINST ABSTAIN
|_| |_| |_|
The undersigned acknowledges receipt from the Managing General Partner
of the Consent Solicitation Statement dated _________ __, 1998.
Dated: _____________, 199_
_______________________________
Signature
-------------------------------
Print Name
-------------------------------
Signature (if held jointly)
-------------------------------
Print Name
-------------------------------
Title
Please sign exactly as name appears hereon. When
units are held by joint tenants, both should sign.
When signing as an attorney, as executor,
administrator, trustee or guardian, please give
full title of such. If a corporation, please sign
name by President or other authorized officer. If
a partnership, please sign in partnership name by
authorized person.
PLEASE RETURN THIS FORM BY 5:00 P.M. (NEW YORK CITY TIME) ON ________
[__], 1998.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT BY FACSIMILE TO
303-705-6171 OR BY USING THE ENCLOSED PREPAID ENVELOPE. IF YOU HAVE ANY
QUESTIONS, PLEASE CALL 800-322-2885.
A LIMITED PARTNER SUBMITTING A SIGNED BUT UNMARKED CONSENT WILL BE
DEEMED TO HAVE VOTED IN FAVOR OF THE SALE.
767376.6
AGREEMENT OF PURCHASE AND SALE
AND ESCROW INSTRUCTIONS
(The REP Fund Portfolio)
THIS AGREEMENT OF PURCHASE AND SALE AND ESCROW INSTRUCTIONS (this
"Agreement") is made as of September 25, 1998, by and between REAL-EQUITY
PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP ("Seller"), as seller, and JH REAL
ESTATE PARTNERS, INC., a California corporation, and AMERICAN APARTMENT
COMMUNITIES III, L.P., a Delaware limited partnership, (collectively, the
"Buyer"), collectively as buyer.
RECITALS
A. Seller owns an interest in the Properties (as defined below).
B. Buyer desires to purchase, and Seller is willing to sell, all of
Seller's right, title and interest in the Properties on the terms and conditions
of this Agreement.
NOW THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Buyer and Seller agree as follows:
AGREEMENT
1. Certain Basic Definitions. For purposes of this Agreement, the following
terms shall have the following definitions:
1.1 "Buyer's Address" means:
JH Real Estate Partners, Inc.
600 City Parkway West, Suite 730
Orange, California 92868
Tel: (714) 712-9400
Fax: (714) 712-9404
Attention: Hugo F. Aviles
and
American Apartment Communities, III, L.P.
c/o American Apartment Communities III, Inc.
21 W. Broad Street, 11th Floor
Columbus, Ohio 43215
Attention: Legal/Executive Department
753900.8
<PAGE>
Tel: (614) 220-8900
Fax: (614) 220-8912
1.2 "Closing Date" means November 15, 1998, subject to extension
pursuant to Section 3.2.1, or, once so extended, any earlier date to which Buyer
and Seller mutually agree.
1.3 "Deposit" means the amount of Two Million and No/100 Dollars
($2,000,000.00) and all interest accrued thereon.
1.4 "Escrow Holder" means First American Title Company of Los Angeles.
1.5 "Escrow Holder's Address" means:
First American Title Company of Los Angeles
520 North Central Avenue
Glendale, California 91203
Attention: Ms. Tricia Pewthers
Tel: (818) 242-5800
Fax: (818) 244-8832
1.6 "Purchase Price" means the sum of THIRTY-ONE MILLION NINE HUNDRED
THOUSAND AND NO/100 DOLLARS ($31,900,000.00).
1.7 "Seller's Address" means:
REAL-Equity Partners
c/o National Partnership Investment Corp.
9090 Wilshire Boulevard, 2nd Floor
Beverly Hills, California 90212
Attention: Henry Casden
Tel: (310) 278-2191
Fax: (310) 278-6835
1.8 "Title Company" means First American Title Company of Los Angeles.
2. Sale of Properties: Purchase Price.
2.1 Sale of Properties. Subject to the terms, covenants and conditions
of this Agreement, Seller shall sell to Buyer, and Buyer shall purchase from
Seller, all of Seller's right, title and interest in and to the following:
(a) the following five (5) parcels of real property, (i) three
(3) of which are located at, respectively, (X) 3610 S. Nogales, West Covina,
California, (Y) 8609 DeSoto Ave., Canoga Park, California, and (Z) 4050 Baker
Lane, Reno, Nevada, and (ii) two (2) of which are located at 21616 Califa St.,
Woodland Hills, California, and all of which are more
753900.8 -2-
<PAGE>
particularly and collectively described on Exhibit "A" attached hereto (each, a
"Parcel" and collectively, the "Parcels");
(b) all buildings and other improvements located on,
respectively, each such Parcel, including, without limitation, the rental
apartment complex located on each such Parcel (collectively, the
"Improvements");
(c) all right, title and interest of Seller in and to any
equipment, machinery or other property which is affixed to the Improvements that
are located on the each Parcel so as to constitute fixtures under California law
(each individual Parcel, together with the Improvements and fixtures that are
located thereon, is collectively referred to herein as the "Parcel Real
Property");
(d) all right, title and interest of Seller in and to all
furniture, furnishings, decorations and other tangible personal property now
existing and located upon each Parcel, but excluding tangible personal property
owned by tenants of each such Parcel under the Tenant Leases (as defined below)
that are applicable thereto (collectively, the "Personal Property") (with
respect to each Parcel, the Parcel Real Property and the Personal Property that
is located thereon, are collectively referred to herein as the "Parcel Property"
and the Parcel Property of all five (5) Parcels are collectively referred to
herein as the "Properties" and, without limiting the foregoing, all references
herein to the "Properties" shall be deemed also to include a reference to each
Parcel Property, regardless of whether or not specified); and
(e) all right, title and interest of Seller in and to (a) the
leases that (i) with respect to each Parcel, relate to the rent roll to be
attached as Schedule 1 to the various General Assignments (as defined in Section
3.8.2) relating to each such Parcel, and (ii) hereafter entered into by Seller
pursuant to Section 4 (all such leases are collectively referred to herein as
the "Tenant Leases"), (b) the Security Deposits and the Contracts and Documents
(each as defined in the form of the General Assignments attached hereto as
Exhibit "C").
2.2 Purchase Price. The Purchase Price shall be payable as follows:
2.2.1 Deposit. Buyer shall deliver the Deposit to Escrow Holder
concurrently with the execution hereof by Buyer, and the Deposit shall be deemed
to be an earnest money deposit of Buyer. If (i) this Agreement is terminated
pursuant to and in accordance with Section 7, (ii) the Close of Escrow does not
occur as a result of the failure of a condition contained in Section 3.3 which
is not due, in whole or in part, to the fault, negligence or wilful misconduct
of Buyer, or (iii) Buyer terminates this Agreement pursuant to Section 10.2,
Escrow Holder shall deliver the Deposit to Buyer. If this Agreement is
terminated for any other reason other than as set forth in the preceding
sentence, Escrow Holder shall deliver the Deposit to Seller pursuant to Section
10.1.
2.2.2 Balance. Buyer shall deposit into Escrow an amount ("Cash
Balance"), in immediately available federal funds equal to the Purchase Price,
minus the Deposit,
753900.8 -3-
<PAGE>
and plus the amount of any credits due or any items chargeable to Buyer under
this Agreement. Buyer shall deposit the Cash Balance into Escrow in the form of
immediately available federal funds no later than one (1) business day before
the Closing Date or such earlier date as Escrow Holder may reasonably require
under applicable law such that Escrow Holder will be in a position to disburse
the cash proceeds to Seller on the Closing Date.
3. Escrow; Closing Conditions.
3.1 Escrow.
3.1.1 Opening of Escrow. Upon the execution of this Agreement by
Buyer and Seller, and the acceptance of this Agreement by Escrow Holder in
writing, this Agreement shall constitute the joint escrow instructions of Buyer
and Seller to Escrow Holder to open an escrow ("Escrow") for the consummation of
the sale of Seller's interest in the Properties to Buyer pursuant to the terms
of this Agreement. Upon Escrow Holder's receipt of the Deposit and Escrow
Holder's written acceptance of this Agreement, Escrow Holder is authorized to
act in accordance with the terms of this Agreement. Buyer and Seller shall
execute Escrow Holder's general escrow instructions upon request; provided,
however, that if there is any conflict or inconsistency between such general
escrow instructions and this Agreement, this Agreement shall control.
3.1.2 Investment of Deposit. Escrow Holder shall invest the
Deposit in insured money market accounts, certificates of deposit, United States
Treasury Bills or such other instruments as Buyer and Seller may mutually and
reasonably instruct Escrow Holder from time to time; provided, however, that all
such investments shall be federally insured or insured and maintained in an
account at an institution with offices in Los Angeles County, California, where
such account or accounts will be maintained. At the Closing, the Deposit shall
be credited against the Purchase Price. In the event that the sale of all of the
Properties is not consummated for any reason, then the Deposit shall be held and
disbursed in accordance with this Agreement.
3.2 Closing Date. The Escrow shall close (the "Closing" or the "Close
of Escrow") on the Closing Date, provided that all conditions to the Close of
Escrow set forth in this Agreement have been satisfied or waived in writing by
the party intended to be benefitted thereby.
3.2.1 Extension of Closing Date. If Seller does not receive, on
or prior to November 15, 1998, evidence that is reasonably sufficient to confirm
that Seller has obtained the Limited Partner Approval (as defined in Section
3.3.3), then the Closing Date shall be extended from day to day until the date
which is three (3) business days after the date on which Seller obtains the
Limited Partner Approval and delivers to Buyer and to Escrow Holder written
notice thereof; provided, however, that if Seller does not obtain the Limited
Partner Approval on or prior to December 15, 1998, Seller shall have the right
to terminate this Agreement by delivering to Buyer and to Escrow Holder written
notice of such election to terminate by Seller, except that, if the review,
comment and revision period applicable to the review by the Securities and
Exchange Commission (the "SEC") of Seller's consent solicitation statement and
materials
753900.8 -4-
<PAGE>
exceeds ten (10) days, said December 15, 1998 date shall be extended
automatically by such number of days in excess of ten (10) required to obtain
SEC clearance; provided further, however, in no event shall said December 15,
1998 date be extended beyond December 31, 1998 or shall Seller extend this
Agreement beyond December 31, 1998. Without limiting the foregoing and
commencing upon execution and delivery of this Agreement, Seller agrees to use
prompt and good faith efforts to file with the SEC a consent solicitation
statement relating to the sale of the Properties as contemplated by this
Agreement, and in any event to make such filing within thirty (30) days of such
execution and delivery. If the SEC clears such consent solicitation statement,
Seller shall, within ten (10) days of Seller's receipt of such SEC clearance,
deliver such cleared consent solicitation statement to the limited partners of
Seller.
3.3 Buyer's Conditions to Closing. The Close of Escrow is subject to
and contingent on the satisfaction of the following conditions or the waiver of
the same by Buyer in writing:
3.3.1 Title Commitment. The Title Company's commitment to issue
the Buyer's Title Policies complying with the requirements of Section 3.8.4
below.
3.3.2 Seller's Representations and Warranties. All
representations and warranties of Seller contained in this Agreement shall be
true and correct in all material respects.
3.3.3 Limited Partner Approval. Seller shall have obtained the
approval of a majority-in-interest of the limited partners of Seller to the sale
contemplated hereby and any waiting period required for such approval to become
final shall have expired (the "Limited Partner Approval").
3.4 Property Records and Condition. Each of Buyer and Seller hereby
acknowledges and agrees that Seller does not make any representation or
warranty, express or implied, as to the accuracy or completeness of any
information delivered by Seller to Buyer or any of Buyer's representatives or
otherwise contained in Seller's files, including, without limitation, any
environmental audit or report, and that Seller has provided all such materials
as a courtesy to Buyer and without any obligation of Seller whatsoever. Buyer
acknowledges that Seller and Seller's affiliates and other representatives shall
have no responsibility for the contents and accuracy of the disclosures or other
information included in such materials and Buyer agrees that the obligations of
Seller in connection with Buyer's purchase of the Properties shall be governed
by this Agreement irrespective of the contents of any such disclosures or the
timing or delivery thereof. Buyer shall have no right to terminate this
Agreement for any matter which Buyer has heretofore or may hereafter discover in
connection with any of the Properties, including any tests, studies,
investigations, or inspections with respect thereto or any documents provided by
Seller.
3.5 Termination. This Agreement shall automatically terminate if the
Close of Escrow has not occurred by the Closing Date. Notwithstanding anything
in this Agreement to the contrary, if Seller does not obtain the Limited Partner
Approval (as defined in Section 3.3.3)on
753900.8 -5-
<PAGE>
or prior to the date that is thirty (30) days after the date on which Seller
commences the solicitation of its limited partners with respect thereto, Seller
shall have the right, but not the obligation, to terminate this Agreement by
delivering to the Buyer and to the Escrow Holder written notice of its election
to do so and Escrow Holder shall, upon its receipt of such written notice,
deliver the Deposit to the Buyer. Upon termination of this Agreement pursuant to
this Section 3.5 or pursuant to Section 7: (a) each party shall promptly execute
and deliver to Escrow Holder such documents as Escrow Holder may reasonably
require to evidence such termination; (b) Escrow Holder shall return all
documents to the respective parties who delivered such documents to Escrow; (c)
Escrow Holder shall return the Deposit to the party entitled thereto pursuant to
the terms of this Agreement; (d) Buyer and Seller shall each pay one half (1/2)
of the Escrow Holder's fees and escrow cancellation fees, if any; (e) Buyer
shall return to Seller all Due Diligence Materials in Buyer's possession
relating to the Properties; and (f) the respective obligations of Buyer and
Seller under this Agreement shall terminate.
3.6 Due Diligence.
3.6.1 Preliminary Title Commitment. In connection with the
Properties, Buyer has received and reviewed each of the four (4) following title
commitments, copies of which are attached hereto as Exhibit "F," each issued by
the Title Company, and a copy of all of the underlying documents referenced
therein (collectively, the "Commitments"): (i) dated August 25, 1998 (Commitment
No. 198379RB), (ii) dated September 3, 1998 (Commitment No. 9827135-53), (iii)
dated September 3, 1998 (Commitment No. 9827136-53), and (iv) dated September 3,
1998 (Commitment No. 98277137-53). Buyer hereby approves the exceptions to title
that are shown on each of the Commitments attached hereto as Exhibit "F" but
have not been crossed-out in the attached mark-ups of the Commitments; provided,
however, that notwithstanding (a) the tax exceptions set forth in item number 1
of Schedule B, Section 1 of each of Commitment Nos. 9827135-53, 9827136-53 and
98277137-53, and item number 5 of Commitment No. 198379RB, taxes shall be
pro-rated between Buyer and Seller in accordance with Section 3.13.1, and (b)
the delinquent sewer service charges set forth in item number 6 of Commitment
No. 198379RB, sewer charges shall be pro-rated between Buyer and Seller in
accordance with Section 3.13.4.
3.6.2 Inspection. Buyer hereby acknowledges and agrees that Buyer
has, prior to the date of this Agreement, inspected the physical, legal,
environmental, land use, zoning, title and other conditions of the Properties,
and all records, documents, instruments and other information relating thereto,
as Buyer deems and has deemed necessary, appropriate and/or advisable in
connection therewith, and hereby approves and accepts the same. Buyer
acknowledges that: (i) Buyer has conducted such surveys, tests, studies,
investigations and inspections, and made such boring, percolation, geologic,
environmental and soils tests and other studies of the Properties as Buyer deems
necessary, appropriate and/or advisable; and (ii) Seller has provided Buyer with
adequate opportunity to make such surveys, tests, studies, investigations and
inspections of the Properties (including an inspection for zoning, land use,
environmental and other laws, regulations and restrictions) as Buyer has, in
Buyer's discretion, deemed necessary, appropriate and/or advisable as a
condition precedent to Buyer's purchase of the Properties and to determine the
physical, environmental and land use characteristics of the Properties
(including,
753900.8 -6-
<PAGE>
without limitation, its subsurface) and its suitability for Buyer's intended
use. Buyer has reviewed and hereby approves all matters relating to the
Properties including, without limitation, the following due diligence items
(collectively, the "Due Diligence Materials"): (a) a rent roll relating to the
Tenant Leases will be attached as Schedule 1 to the various General Assignments;
(b) all agreements, documents and other information that bind the Properties or
otherwise affect the operation or use of the Properties, and (c) all plans,
documents, agreements and other records of any governmental entities, districts
and utilities regarding the Properties or otherwise impacting, restricting, or
affecting the use of the Properties.
3.7 Seller's Conditions to Closing. The obligations of Seller to
consummate the transactions provided for herein are subject to and contingent
upon the satisfaction of the following conditions or the waiver of same by
Seller in writing:
3.7.1 Buyer's Representations and Warranties. All representations
and warranties of Buyer contained in this Agreement shall be true and correct in
all material respects as of the date made and as of the Close of Escrow, with
each such representation and warranty having the same effect as though such
representation and warranty was made by Buyer as of the date hereof and as of
the Close of Escrow.
3.7.2 Covenants. Buyer shall have substantially performed and
satisfied all agreements and covenants required hereby to be performed by Buyer
prior to or at the Close of Escrow.
3.7.3 Limited Partner Approval. Seller shall have obtained the
Limited Partner Approval.
3.8 Title and Title Insurance.
3.8.1 Deeds. Seller shall, pursuant to a separate grant deed for
each Parcel Real Property in the form of Exhibit "B" (collectively, the
"Deeds"), convey its interest in each Parcel Real Property to Buyer.
3.8.2 General Assignment. Seller shall, pursuant to a separate
assignment for each Parcel Property in the form of Exhibit "C" (collectively,
the "General Assignments"), assign to Buyer, without recourse of any kind,
Seller's right, title and interest, if any, in and to (a) any plans,
specifications, licenses, permits, entitlements, surveys, maps, agreements and
contracts relating to each Parcel Property, subject to any rights of consent as
provided therein (provided, however, that Seller shall, prior to any such
assignment and upon the written instruction of Buyer, terminate any contracts
that (i) bind any of the Properties (or otherwise would bind Buyer after the
Closing) and (ii) have been entered into by Seller or an affiliate of Seller,
but not including any contract that relates to cable television access rights,
the rights under which Seller and its affiliates have assigned to third parties
unaffiliated with Seller), (b) the Tenant Leases, and (c) the Security Deposits,
each as they relate to such Parcel Property.
753900.8 -7-
<PAGE>
3.8.3 Bill of Sale. Seller shall, pursuant to a separate Bill of
Sale for each Parcel Property in the form of Exhibit "D" (collectively, the
"Bills of Sale"), quitclaim, without recourse, all of Seller's right, title and
interest, if any, in and to the Personal Property owned by Seller and used in
the operation of such Parcel Property.
3.8.4 Buyer's Title Policies. At the Close of Escrow, Escrow
Holder shall cause the Title Company to issue to Buyer, with respect to each
Parcel Real Property, a CLTA standard-coverage owner's policy of title insurance
(collectively, the "Buyer's Title Policies") which:
(a) shall be written with liability in the amount of the
Purchase Price; and
(b) shall insure title to each such Parcel Real Property, to
be vested in Buyer, subject only to the following exceptions ("Permitted
Exceptions"): (i) the standard printed exceptions set forth in the Title
Company's form of title policy; (ii) general and special real property taxes and
assessments for the current fiscal year which are not yet delinquent; (iii) the
exceptions approved by Buyer pursuant to Section 3.6.1 above; (iv) any covenant,
condition, restriction, right, right of way, easement of record, or encroachment
that does not materially and adversely affect the value of such Parcel Real
Property as of the date of this Agreement or the continued use of such Parcel
Property for the purpose for which it is being used as of the date of this
Agreement; (v) applicable zoning and use regulations of any applicable
governmental authority; (vi) rights of tenants under Tenant Leases, as tenants
only, without any option to purchase or right of first refusal for all or any
portion of such Parcel Property; (vii) any mechanic's or other liens to the
extent arising out of Buyer's entry upon the Parcel Property; and (viii) any
matters or encroachments that would be revealed by a survey or inspection of
Parcel Property.
3.8.5 Termination of Collateral Security Agreement. Seller shall
obtain and deposit with Escrow Holder a quitclaim release or a quitclaim
termination statement applicable to the "Memorandum of Collateral Security
Assignment" and any document described therein, which is shown as item 9 in
Commitment No. 9827137.
3.9 Closing Costs and Charges.
3.9.1 Seller's Costs. Seller shall pay all documentary transfer,
stamp, sales, and other taxes and recording fees relating to the transfer of
each Parcel Property.
3.9.2 Buyer's Costs. Except with respect to the costs to be paid
by Seller as set forth in Section 3.9.1, Buyer shall pay all costs relating to
Buyer's purchase of each Parcel Property pursuant to this Agreement, including
(a) all of the Escrow Holder's fee and other costs of the Escrow; (b) all costs
relating to or arising out of any of the four (4) Buyer's Title Policies, and
(c) all costs and expenses incurred by Buyer in connection with its due
diligence investigation and inspection of each Parcel Property.
753900.8 -8-
<PAGE>
3.10 Deposit of Documents and Funds by Seller. Not later than two (2)
business days prior to the Closing Date, Seller shall deposit the following
items into Escrow, each of which shall be duly executed and, where appropriate,
acknowledged by Seller:
3.10.1 Five (5) Deeds, each relating to one (1) of the Real
Property Parcels;
3.10.2 The Certification of Non-Foreign Status in the form of
Exhibit "E" ("Certification");
3.10.3 A counterpart of each of the five (5) General Assignments,
each relating to one (1) Property Parcel;
3.10.4 Five (5) Bills of Sale, each relating to one (1) Property
Parcel; and
3.10.5 Other documents that may reasonably be required by Escrow
Holder to close the Escrow in accordance with this Agreement.
3.11 Deposit of Documents and Funds by Buyer. Not later than one (1)
business day prior to the Closing Date, Buyer shall deposit the following items
into Escrow:
3.11.1 The Cash Balance;
3.11.2 Five (5) executed counterparts of the General Assignments,
each relating to one (1) Property Parcel; and
3.11.3 All other funds and documents as may reasonably be
required by Escrow Holder to close the Escrow in accordance with this Agreement.
3.12 Delivery of Documents and Funds at Closing. Provided that all
conditions to closing set forth in this Agreement have been satisfied or, as to
any condition not satisfied, waived by the party intended to be benefitted
thereby, on the Closing Date Escrow Holder shall conduct the closing by
recording or distributing the following documents and funds in the following
manner:
3.12.1 Recorded Documents. Record each of the Deeds in the
Official Records of the County in which the Parcel described therein is located;
3.12.2 Buyer's Documents. Deliver to Buyer: (a) the four (4)
original Buyer's Title Policies, each relating to a different Parcel Real
Property; (b) the original Certification executed by Seller; (c) the five (5)
original counterparts of the General Assignments executed by Seller, each
relating to one (1) Parcel Property; and (d) the five (5) original Bills of Sale
executed by Seller, each relating to one (1) Parcel Property;
753900.8 -9-
<PAGE>
3.12.3 Seller's Documents. Deliver to Seller an executed original
counterpart of the five (5) General Assignments, each relating to one (1) Parcel
Property, and a copy of every document delivered to Buyer; and
3.12.4 Purchase Price. Deliver to Seller the Purchase Price and
such other funds, if any, as may be due to Seller by reason of credits under
this Agreement, less all items chargeable to Seller under this Agreement.
3.13 Prorations and Adjustments.
3.13.1 Taxes. Escrow Holder shall prorate all non-delinquent real
property taxes, and all current installments of assessments on each Parcel, as
of the Close of Escrow for the current fiscal year based on the most current
official real property tax information available from the County Assessor's
office where the Parcel is located or other assessing authorities. If real
property tax and assessment figures for the current fiscal year are not
available, real property taxes shall be prorated based on the real property
taxes for the previous fiscal year. Seller shall pay any real property taxes
attributable to the period of Seller's ownership of such Parcel. Seller reserves
the right to meet with governmental officials and to contest any reassessment
concerning or affecting Seller's obligations under this Section 3.13.1.
3.13.2 Rent. Escrow Holder shall prorate rental income and all
other amounts paid by tenants under the Tenant Leases. Delinquent rents shall
not be prorated; provided, however, that if Buyer receives any rental payment
after the Closing which represents rent that was delinquent as of the Closing,
Buyer shall pay such delinquent rent to Seller within ten (10) days after
receipt thereof.
3.13.3 Security Deposits. Buyer shall receive a credit against
the Purchase Price in an amount equal to the amount of all unapplied and
unrefunded tenant security deposits received by Seller in connection with the
Tenant Leases (the "Security Deposits").
3.13.4 Utilities and Other Expenses. Seller shall notify all
water, sewer, gas, electric and other utility companies servicing the Properties
(collectively, "Utility Companies") of the sale of the Properties to Buyer and
shall request that all Utility Companies send Seller a final bill for the period
ending on the last day prior to the Close of Escrow. Buyer shall notify all
Utility Companies servicing the Properties that as of the Close of Escrow, Buyer
shall own the Properties and that all utility bills for the period commencing on
the Close of Escrow are to be sent to Buyer. If any of the Utility Companies
sends Seller or Buyer a bill for a period in which the Close of Escrow occurs,
Buyer and Seller shall prorate such bills outside the Escrow. In connection with
such proration, it shall be presumed that utility charges were uniformly
incurred during the billing period.
3.13.5 Prorations. All prorations shall be made as of the Close
of Escrow on the basis of the actual days of the month in which the Close of
Escrow occurs.
753900.8 10-
<PAGE>
4. Leasing and Operation. From the date of this Agreement through the
Closing Date, Seller shall (i) have the right to enter into leases affecting the
Properties in the ordinary course of its business and upon terms that are
substantially consistent with the past leasing practices of Seller and (ii)
operate the Properties in a manner that is consistent with its past operation of
the Properties.
5. Delivery and Possession. Seller shall deliver possession of the
Properties to Buyer at the Close of Escrow, subject to the Permitted Exceptions
and rights of tenants under the Tenant Leases.
6. Commissions. Buyer and Seller each represent and warrant to the other
that there are no commissions, finder's fees or brokerage fees arising out of
the transactions contemplated by this Agreement. Buyer shall indemnify and hold
Seller harmless from and against any and all liabilities, claims, demands,
damages, costs and expenses, including, without limitation, reasonable
attorneys' fees and court costs, in connection with claims for any such
commissions, finders' fees or brokerage fees arising out of Buyer's conduct or
the inaccuracy of the foregoing representation and/or warranty of Buyer. Seller
shall indemnify and hold Buyer harmless from and against any and all
liabilities, claims, demands, costs and expenses, including, without limitation,
reasonable attorneys' fees and costs in connection with claims for any such
commissions, finders' fees or brokerage fees arising out of Seller's conduct or
the inaccuracy of the foregoing representation and/or warranty of Seller. The
obligations of Buyer and Seller under this Section 6 shall survive the Close of
Escrow or earlier termination of this Agreement.
7. Damage or Destruction: Condemnation.
7.1 Damage or Destruction. At all times after the date of this
Agreement (the "Execution Date") and prior to the Closing, and notwithstanding
the pendency of this Agreement, the entire risk of loss or damage by earthquake,
flood, landslide, fire, hurricane, tornado or other casualty to the Properties
shall be borne and assumed by Seller. If, at any time after the Execution Date
and prior to the Closing, any material part of the Properties is damaged or
destroyed by earthquake, flood, landslide, fire, hurricane, tornado or other
casualty, Seller shall notify Buyer in writing of such fact. In such event,
Buyer shall have the option to terminate this Agreement upon written notice to
Seller given not later than ten (10) business days after Buyer's receipt of such
notice from Seller. Upon such termination, the Deposit shall be returned to
Buyer, the parties shall equally share the cancellation charges of Escrow Holder
and Title Company, and neither party shall have any further rights or
obligations hereunder, other than pursuant to any provision hereof which
expressly survives the termination of this Agreement. Buyer shall have no right
to terminate this Agreement as a result of any nonmaterial damage or destruction
of the Properties. If Buyer does not elect or has no right to terminate this
Agreement, Seller shall assign and turn over to Buyer at the Closing, and Buyer
shall be entitled to receive and keep, all insurance proceeds payable with
respect to such damage or destruction (which shall then be repaired or not at
Buyer's option and cost).
7.2 Condemnation. If, after the Execution Date and prior to the
Closing, all or any material portion of the Properties is taken by condemnation
or eminent domain (or is the
753900.8 -11-
<PAGE>
subject of a pending or contemplated taking which has not been consummated),
Seller shall notify Buyer of such fact in writing. In such event, Buyer shall
have the option to terminate this Agreement upon written notice to Seller given
not later than ten (10) business days after Buyer's receipt of such notice from
Seller. Upon such termination, the Deposit shall be returned to Buyer, the
parties shall equally share the cancellation charges of Escrow Holder and Title
Company, and neither party shall have any further rights or obligations
hereunder, other than pursuant to any provision hereof which expressly survives
the termination of this Agreement. Buyer shall have no right to terminate this
Agreement as a result of any nonmaterial taking of any portion of the
Properties. If Buyer does not elect or has no right to terminate this Agreement,
Seller shall assign and turn over to Buyer at the Closing, and Buyer shall be
entitled to receive and keep, all awards for the taking by condemnation and
Buyer shall be deemed to have accepted the Properties subject to the taking
without reduction in the Purchase Price.
7.3 Materiality. For the purposes of this Section 7, (a) a damage or
destruction shall be deemed to be material if the total cost to repair such
damage or destruction (the "Damage Amount"), and (b) any condemnation shall be
deemed to be material if (i) the value of the Properties following the
condemnation is diminished by more than One Million Dollars ($1,000,000) (as
reasonably determined by Seller's appraiser or the condemning authority).
8. Seller's Representations and Warranties. It is expressly understood and
agreed that all liability of Seller for breach of the representations and
warranties contained in this Section 8 shall terminate if no written claim of
breach, specifying the representation or warranty allegedly breached and the
supporting evidence for the alleged breach, shall be delivered to Seller on or
prior to the date which is sixty (60) days following the Closing Date. Seller
represents and warrants to Buyer that as of the date of this Agreement and as of
the Closing Date:
8.1 Seller is duly organized, validly existing, and in good standing
under the laws of the state of its formation;
8.2 Subject to Seller obtaining the Limited Partner Approval, Seller
and National Partnership Investments Corp., a California corporation, acting
alone on behalf of Seller, has the full power and authority to execute, deliver
and perform its obligations under this Agreement; and
8.3 This Agreement and all agreements, instruments and documents
herein provided to be executed by Seller are, and as of the Closing shall be,
duly authorized, executed and delivered by Seller and binding upon Seller.
9. Buyer's Representations and Warranties. Buyer represents and warrants
the following to Seller, both as of the date of this Agreement and as of the
Closing Date:
9.1 Buyer is duly organized, validly existing, and in good standing
under the laws of the state of its formation;
753900.8 -12-
<PAGE>
9.2 Buyer has the full power and authority to execute, deliver and
perform Buyer's obligations under this Agreement;
9.3 This Agreement and all agreements, instruments and documents
herein provided to be executed by Buyer are, and as of the Closing shall be,
duly authorized, executed and delivered by, and are and shall be binding upon,
Buyer; and
9.4 Buyer hereby represents that Buyer, and each constituent member of
Buyer, are sophisticated real estate investors and have had a sufficient
opportunity to conduct a satisfactory and appropriate due diligence
investigation.
10. Default.
10.1 LIQUIDATED DAMAGES - DEPOSIT. IN THE EVENT THAT THE CLOSING FAILS
TO OCCUR AS A RESULT OF A DEFAULT BY BUYER IN THE PERFORMANCE OF ITS OBLIGATIONS
UNDER THIS AGREEMENT, BUYER AND SELLER AGREE THAT SELLER'S ACTUAL DAMAGES WOULD
BE IMPRACTICABLE OR EXTREMELY DIFFICULT TO ASCERTAIN. THE PARTIES THEREFORE
AGREE THAT IN THE EVENT THAT THE CLOSING FAILS TO OCCUR AS A RESULT OF THE
DEFAULT BY BUYER IN THE PERFORMANCE OF ITS OBLIGATIONS HEREUNDER, SELLER, AS
SELLER'S SOLE AND EXCLUSIVE REMEDY, IS ENTITLED TO LIQUIDATED DAMAGES IN THE
AMOUNT OF ALL OF THE DEPOSIT. IN THE EVENT THAT THE CLOSING FAILS TO OCCUR AS A
RESULT OF BUYER'S DEFAULT, THEN, UPON NOTICE BY SELLER TO BUYER AND ESCROW
HOLDER TO THAT EFFECT, (A) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
BUYER AND SELLER HEREUNDER AND THE ESCROW CREATED HEREBY SHALL TERMINATE, (B)
ESCROW HOLDER SHALL, AND IS HEREBY AUTHORIZED AND INSTRUCTED TO, RETURN PROMPTLY
TO BUYER AND SELLER ALL DOCUMENTS AND INSTRUMENTS TO THE PARTIES WHO DEPOSITED
THE SAME, (C) ESCROW HOLDER SHALL DELIVER TO SELLER, PURSUANT TO SELLER'S
INSTRUCTIONS, THE DEPOSIT, AND THE SAME SHALL BE THE FULL, AGREED AND LIQUIDATED
DAMAGES, AND (D) ALL TITLE AND ESCROW CANCELLATION CHARGES SHALL BE CHARGED TO
BUYER; PROVIDED, HOWEVER, THAT THE FOREGOING SHALL NOT LIMIT SELLER'S RIGHTS OR
REMEDIES (1) WITH RESPECT TO THE OBLIGATIONS OF BUYER UNDER SECTIONS 6, 12, 25,
AND 29 HEREOF, (2) WITH RESPECT TO THOSE RIGHTS AND OBLIGATIONS THAT, BY THEIR
TERMS, SURVIVE THE TERMINATION OF THIS AGREEMENT, AND (3) TO RECOVER ATTORNEYS'
FEES INCURRED BY SELLER IN THE EVENT THAT BUYER DISPUTES ANY TERMINATION BY
SELLER HEREUNDER, OR DISPUTES OR INTERFERES WITH ANY ATTEMPT BY SELLER TO CAUSE
ESCROW HOLDER TO RELEASE THE DEPOSIT TO SELLER, AND IT IS SUBSEQUENTLY
DETERMINED THAT, AS APPLICABLE, SELLER IS RIGHTFULLY ENTITLED TO TERMINATE THIS
AGREEMENT OR ENTITLED TO RECEIVE SUCH DEPOSIT.
753900.8 -13-
<PAGE>
SELLER AND BUYER ACKNOWLEDGE THAT THEY HAVE READ AND UNDERSTAND THE
PROVISIONS OF THIS SECTION 10.1, AND BY THEIR INITIALS IMMEDIATELY BELOW AGREE
TO BE BOUND BY ITS TERMS.
- - - -------------------------- ------------------------
SELLER'S INITIALS BUYER'S INITIALS
10.2 Buyer's Pre-Closing Remedies. In the event Seller fails to
perform any act required to be performed by Seller pursuant to this Agreement on
or before the Closing, then Buyer shall execute and deliver to Seller written
notice of such breach, which notice shall set forth complete information about
the nature of the breach. Seller shall have a period of ten (10) business days
to cure such breach. If such breach remains uncured beyond the ten (10) business
day period described above, then Buyer's sole and exclusive remedy shall be
either: (a) to cancel this Agreement, in which event Escrow Holder shall return
the Deposit to Buyer, or (b) to specifically enforce the provisions of this
Agreement; provided, however, that at the time of filing the complaint, Buyer
shall deposit with the Escrow Holder the amount of the Purchase Price inclusive
of the Deposit.
10.3 No Contesting Liquidated Damages. As material consideration to
each party's agreement to the liquidated damages provisions stated above, each
party hereby agrees to waive any and all rights whatsoever to contest the
validity of the liquidated damage provisions for any reason whatsoever,
including, but not limited to, that such provision was unreasonable under
circumstances existing at the time this Agreement was made.
10.4 Post-Closing Remedies of Seller. If after the Closing Buyer fails
to perform its obligations which expressly survive the Closing pursuant to this
Agreement, then Seller may exercise any remedies available to it at law or in
equity, in any order it deems appropriate in its sole and absolute discretion,
including, but not limited to, seeking specific performance or damages. In such
event, the liquidated damages provisions contained in Section 10.1 shall not
limit Seller's damages.
11. Waiver of Trial by Jury. Seller and Buyer, to the extent they may
legally do so, hereby expressly waive any right to trial by jury of any claim,
demand, action, cause of action, or proceeding arising under or with respect to
this Agreement, or in any way connected with, or related to, or incidental to,
the dealings of the parties hereto with respect to this Agreement or the
transactions related hereto or thereto, in each case whether now existing or
hereafter arising, and irrespective of whether sounding in contract, tort, or
otherwise. To the extent they may legally do so, Seller and Buyer hereby agree
that any such claim, demand, action, cause of action, or proceeding shall be
decided by a court trial without a jury and that any party hereto may file an
original counterpart or a copy of this Agreement, including this Section, with
any court as written evidence of the consent of the other party or parties
hereto to waiver of its or their right to trial by jury, whether pursuant to
Section 631 of the California Code of Civil Procedure or otherwise.
753900.8 -14-
<PAGE>
12. Attorney's Fees. If any action or proceeding is commenced by either
party to enforce their rights under this Agreement or to collect damages as a
result of the breach of any of the provisions of this Agreement, the prevailing
party in such action or proceeding, including any bankruptcy, insolvency or
appellate proceedings, shall be entitled to recover all reasonable costs and
expenses, including, without limitation, reasonable attorneys' fees and court
costs, in addition to any other relief awarded by the court.
13. Notices. All notices, demands, approvals, and other communications
provided for in this Agreement shall be in writing and shall be effective upon
the earliest of the following to occur: (a) when hand delivered to the
recipient; (b) one (1) business day after deposit with a nationally recognized
overnight-guaranteed delivery service; or (c) three (3) business days after
deposit in a sealed envelope in the United States mail, postage prepaid by
registered or certified mail, return receipt requested, addressed to the
recipient as set forth in Section 1 above. All notices to Buyer shall be sent to
Buyer's address with a copy to Arnold & Porter, 777 South Figueroa, 44th Floor,
Los Angeles, California, (Fax: 213/243-4199), Attn: Richard C. Smith, Esq. All
notices to Seller shall be sent to Seller's Address, with a copy to Battle
Fowler LLP, 2049 Century Park East, Suite 2350, Los Angeles, California 90067
(Fax: 310/277-0336), Attn: Bruce C. Geyer, Esq. All notices to Escrow Holder
shall be sent to Escrow Holder's Address. If the date on which any notice to be
given hereunder falls on a Saturday, Sunday or legal holiday, then such date
shall automatically be extended to the next business day immediately following
such Saturday, Sunday or legal holiday. The foregoing addresses may be changed
by written notice given in accordance with this Section.
14. Amendment; Complete Agreement. All amendments and supplements to this
Agreement must be in writing and executed by Buyer and Seller. This Agreement
contains the entire agreement and understanding between Buyer and Seller
concerning the subject matter of this Agreement and supersedes all prior
agreements, terms, understandings, conditions, representations and warranties,
whether written or oral, made by Buyer or Seller concerning the Properties, and
all other matters which are the subject of this Agreement. This Agreement has
been drafted through a joint effort of the parties and their counsel and,
therefore, shall not be construed in favor of or against either of the parties.
15. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California.
16. Severability. If any provision of this Agreement or application thereof
to any person or circumstance shall to any extent be invalid or unenforceable,
the remainder of this Agreement (including the application of such provision to
persons or circumstances other than those to which it is held invalid or
unenforceable) shall not be affected thereby, and each provision of this
Agreement shall be valid and enforced to the fullest extent permitted by law.
17. Counterparts, Headings and Defined Terms. This Agreement may be
executed in counterparts, each of which shall be an original, but all of which
together shall constitute one agreement. The headings to sections of this
Agreement are for convenient reference only and shall not be used in
interpreting this Agreement.
753900.8 -15-
<PAGE>
18. Time of the Essence. Time is of the essence of this Agreement.
19. Waiver. No waiver by Buyer or Seller of any of the terms or conditions
of this Agreement or any of their respective rights under this Agreement shall
be effective unless such waiver is in writing and signed by the party charged
with the waiver.
20. Third Parties. This Agreement is entered into for the sole benefit of
Buyer and Seller and their respective permitted successors and assigns. No party
other than Buyer and Seller and such permitted successors and assigns shall have
any right of action under or rights or remedies by reason of this Agreement.
21. Additional Documents. Each party agrees to perform any further acts and
to execute and deliver such further documents which may be reasonably necessary
to carry out the terms of this Agreement.
22. Condition of Properties. Buyer represents and warrants that, as
specified in Section 3.6.2 hereof, Buyer has inspected and conducted tests and
studies of the Properties, and that Buyer is familiar with the general condition
of the Properties. Buyer understands and acknowledges that the Properties may be
subject to earthquake, fire, floods, erosion, high water table, dangerous
underground soil conditions, hazardous materials and similar occurrences that
may alter its condition or affect its suitability for any proposed use. Seller
shall have no responsibility or liability with respect to any such occurrence.
Buyer represents and warrants that Buyer is acting, and will act, only upon
information obtained by Buyer directly from Buyer's own inspection of the
Properties. Notwithstanding anything to the contrary contained in this
Agreement, the suitability or lack of suitability of the Properties for any
proposed or intended use, or availability or lack of availability of (a) permits
or approvals of governmental or regulatory authorities, or (b) easements,
licenses or other rights with respect to any such proposed or intended use of
the Properties shall not affect the rights or obligations of the Buyer
hereunder.
23. Properties "AS IS".
23.1 No Side Agreements or Representations. No person acting on behalf
of Seller is authorized to make, and by execution hereof Buyer acknowledges that
no person has made, any representation, agreement, statement, warranty,
guarantee or promise regarding the Properties or the transaction contemplated
herein or the zoning, construction, physical condition or other status of the
Properties except as may be expressly set forth in this Agreement. No
representation, warranty, agreement, statement, guarantee or promise, if any,
made by any person acting on behalf of Seller which is not contained in this
Agreement will be valid or binding on Seller.
23.2 "AS IS" CONDITION. BUYER ACKNOWLEDGES AND AGREES THAT 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,
753900.8 -16-
<PAGE>
OF, AS TO, CONCERNING OR WITH RESPECT TO (I) VALUE; (II) THE INCOME TO BE
DERIVED FROM THE PROPERTIES; (III) THE SUITABILITY OF THE PROPERTIES FOR ANY AND
ALL ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON, INCLUDING THE
POSSIBILITIES FOR FUTURE DEVELOPMENT AND OPERATION OF THE PROPERTIES; (IV) THE
HABITABILITY, MERCHANTABILITY, MARKETABILITY, PROFITABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OF THE PROPERTIES; (V) THE MANNER, QUALITY, STATE OF REPAIR
OR LACK OF REPAIR OF THE PROPERTIES; (VI) THE NATURE, QUALITY OR CONDITION OF
THE PROPERTIES, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY;
(VII) THE COMPLIANCE OF OR BY THE PROPERTIES OR ITS OPERATION WITH ANY LAWS,
RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR
BODY; (VIII) THE MANNER OR QUALITY OF THE CONSTRUCTION OR MATERIALS, IF ANY,
INCORPORATED INTO THE PROPERTIES; (IX) COMPLIANCE WITH ANY ENVIRONMENTAL
PROTECTION, POLLUTION OR LAND USE LAWS, RULES, REGULATION, ORDERS OR
REQUIREMENTS; (X) THE PRESENCE OR ABSENCE OF HAZARDOUS MATERIALS AT, ON, UNDER,
OR ADJACENT TO THE PROPERTIES; (XI) THE CONTENT, COMPLETENESS OR ACCURACY OF THE
DUE DILIGENCE MATERIALS OR COMMITMENTS REGARDING TITLE; (XII) THE CONFORMITY OF
ANY OF THE IMPROVEMENTS TO ANY PLANS OR SPECIFICATIONS FOR THE PROPERTIES,
INCLUDING ANY PLANS AND SPECIFICATIONS THAT MAY HAVE BEEN OR MAY BE PROVIDED TO
BUYER BY SELLER OR OTHERWISE; (XIII) THE CONFORMITY OF THE PROPERTIES TO PAST,
CURRENT OR FUTURE APPLICABLE ZONING OR BUILDING REQUIREMENTS; (XIV) DEFICIENCY
OF ANY UNDERSHORING; (XV) DEFICIENCY OF ANY DRAINAGE; (XVI) THE FACT THAT ALL OR
A PORTION OF THE PROPERTIES MAY BE LOCATED ON OR NEAR AN EARTHQUAKE FAULT LINE;
(XVII) THE EXISTENCE OF VESTED LAND USE, ZONING OR BUILDING ENTITLEMENTS
AFFECTING THE PROPERTIES; OR (XVIII) WITH RESPECT TO ANY OTHER MATTER. BUYER
FURTHER ACKNOWLEDGES AND AGREES THAT HAVING BEEN GIVEN THE OPPORTUNITY TO
INSPECT THE PROPERTIES AND REVIEW INFORMATION AND DOCUMENTATION AFFECTING THE
PROPERTIES, BUYER IS RELYING SOLELY ON ITS OWN INVESTIGATION OF THE PROPERTIES
AND REVIEW OF SUCH INFORMATION AND DOCUMENTATION, 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 PROPERTIES 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. ANY SUCH INFORMATION PROVIDED BY SELLER IS
AS A COURTESY TO BUYER. BUYER DOES, AND HEREBY AGREES TO, FULLY AND IRREVOCABLY
RELEASE SELLER AND ITS AFFILIATES AND ALL OTHER SOURCES OF INFORMATION AND
PREPARERS OF INFORMATION AND DOCUMENTATION AFFECTING THE PROPERTIES WHICH WERE
RETAINED BY SELLER, FROM ANY AND ALL CLAIMS
753900.8 -17-
<PAGE>
THAT BUYER OR ANY OF ITS AFFILIATES MAY NOW HAVE OR HEREAFTER ACQUIRE AGAINST
SELLER, ANY SUCH AFFILIATE, AND/OR ANY SUCH SOURCES OR PREPARERS OF INFORMATION
FOR ANY COSTS, LOSS, LIABILITY, DAMAGE, EXPENSE, DEMAND, ACTION OR CAUSE OF
ACTION ARISING FROM SUCH INFORMATION OR DOCUMENTATION. SELLER IS NOT LIABLE OR
BOUND IN ANY MANNER BY ANY ORAL OR WRITTEN STATEMENTS, REPRESENTATIONS OR
INFORMATION PERTAINING TO THE PROPERTIES, OR THE OPERATION THEREOF, FURNISHED BY
ANY REAL ESTATE BROKER, AGENT, EMPLOYEE, SERVANT OR OTHER PERSON. BUYER FURTHER
ACKNOWLEDGES AND AGREES THAT TO THE MAXIMUM EXTENT PERMITTED BY LAW, THE SALE OF
THE PROPERTIES AS PROVIDED FOR HEREIN IS MADE ON AN "AS IS" CONDITION AND BASIS
WITH ALL FAULTS, AND THAT SELLER HAS NO OBLIGATIONS TO MAKE REPAIRS,
REPLACEMENTS OR IMPROVEMENTS EXCEPT AS MAY OTHERWISE BE EXPRESSLY STATED HEREIN.
BUYER REPRESENTS, WARRANTS AND COVENANTS TO SELLER THAT, EXCEPT FOR SELLER'S
EXPRESS REPRESENTATIONS AND WARRANTIES SPECIFIED IN THIS AGREEMENT, BUYER IS
RELYING SOLELY UPON BUYER'S OWN INVESTIGATION OF THE PROPERTIES.
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SELLER'S INITIALS BUYER'S INITIALS
24. Release. Buyer hereby acknowledges that it shall, and hereby does, rely
solely upon Buyer's own knowledge of the Properties based on its investigation
and inspection thereof in determining the Property's physical condition. Buyer
and anyone claiming by, through or under Buyer hereby waives its right to
recover from and fully and irrevocably releases Seller, its partners, employees,
officers, directors, representatives, agents, servants, attorneys, affiliates,
parent, subsidiaries, successors and assigns, and all persons, firms,
corporations and organizations in its behalf ("Released Parties") from any and
all claims that it may now have or hereafter acquire against any of the Released
Parties for any costs, loss, liability, damage, expenses, demand, action or
cause of action arising from or related to any construction defects, errors,
omissions or other conditions, latent or otherwise, including environmental
matters and hazardous substances, affecting the Properties or any portion
thereof. This release includes claims of which Buyer is presently unaware or
which Buyer does not presently suspect to exist which, if known by Buyer, would
materially affect Buyer's release to Seller pursuant to this Agreement.
WITH RESPECT TO THE FOREGOING, AND THE RELEASES SET FORTH IN SECTION
23, BUYER SPECIFICALLY ACKNOWLEDGES THAT IT IS AWARE OF AND FAMILIAR WITH THE
PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542 WHICH PROVIDES AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED THIS SETTLEMENT WITH THE DEBTOR."
753900.8 -18-
<PAGE>
EACH OF THE UNDERSIGNED BUYER, BEING AWARE OF THE FOREGOING, HEREBY EXPRESSLY
WAIVES AND RELINQUISHES ALL RIGHTS AND BENEFITS IT MAY HAVE THEREUNDER AS WELL
AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.
- - - -------------------------- ------------------------
SELLER'S INITIALS BUYER'S INITIALS
25. Indemnification. Buyer shall indemnify, defend, protect and hold
harmless Seller and Seller's partners, and each of their respective partners,
affiliates, subsidiaries, directors, officers, participants, attorneys,
employees, consultants and agents, from and against any and all damages,
demands, losses, liabilities, costs or expenses whatsoever (including attorneys'
fees and costs) and claims therefor, including, without limitation, any claims
by third party, including, without limitation, investigatory expenses or
clean-up environmental costs (collectively, "Claims"), whether direct or
indirect, known or unknown, or foreseen or unforeseen, which may arise from or
be related to or in any way connected with (a) any inaccuracy in any
representation or warranty made by Buyer in this Agreement, (b) Buyer's breach
of any covenant or agreement contained in this Agreement, (c) Buyer's activities
on or ownership of the Properties after the Close of Escrow, (d) the physical
condition of the Properties or any other aspect of the Properties, no matter
whether earlier discoverable or not and any effort of Buyer and/or Buyer's
contractors to correct the same, regardless of how such Claim arises, including,
but not limited to, the acts or omissions of Buyer or its employees, agents,
suppliers or contractors; provided, however, that Buyer's obligation of
indemnity pursuant to this subsection (d) of this Section 25 shall not be
operable to the extent that any such Claims arise due to the actions of Seller
or affiliates of Seller. Buyer's obligation of indemnity under this Section 25
shall survive the Close of Escrow and shall not be merged with any of the
respective Deeds.
26. Assignment. Except as permitted pursuant to this Section 26, (a) Buyer
shall neither assign its rights nor delegate its obligations hereunder without
obtaining Seller's prior written consent, which may be withheld in Seller's sole
discretion, (b) in no event shall any assignment relieve Buyer from its
obligations under this Agreement, and (c) any purported or attempted assignment
in violation of this Section 26 shall be void and of no effect. Notwithstanding
the foregoing sentence, Buyer may, without Seller's consent, assign its rights
under this Agreement to any entity controlled by, or that controls, Buyer or an
affiliate of Buyer, subject to such assignee's assumption in writing of all
Buyer's obligations under this Agreement; provided, however, that no such
assignment, whether with or without Seller's consent, shall operate to release
Buyer or alter Buyer's primary liability to perform the obligations of Buyer
under this Agreement.
27. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the heirs, successors and permitted assigns of the parties
hereto. In no event shall Buyer have any right to delay or postpone the Close of
Escrow to create a partnership,
753900.8 -19-
<PAGE>
corporation or other form of business association or to obtain financing to
acquire title to the Properties or for any other reason not specified in this
Agreement.
28. Exhibits. Each reference to a Section or an Exhibit in this Agreement
shall mean the sections of this Agreement and the exhibits that are attached to
this Agreement, unless the context requires otherwise. Each such exhibit hereby
is incorporated herein by this reference.
29. Duty of Confidentiality. Each of Buyer and Seller represents and
warrants to the other that it shall keep all information and/or reports obtained
from the other, or related to or connected with the Properties, or any portion
thereof, the other party, or the transaction described in this Agreement,
confidential and will not disclose any such information to any person or entity
without obtaining the prior written consent of the other party, which consent
shall not be unreasonably withheld, conditioned or delayed; provided, however,
that the foregoing shall not limit such party from disclosing any such
information to (i) its respective consultants, counsel, advisors, financiers, or
accountants, or any of the parties, and their respective counsel, that Buyer
and/or Seller must communicate with in connection with Buyer's acquisition of
the Properties; provided, however, that such party shall inform the recipient of
such information of its confidential nature, (ii) Seller's limited partners for
the purpose of soliciting their consent to the sale of the Properties, as
contemplated by this Agreement, and/or (iii) such persons as such party
reasonably deems necessary or advisable to comply with applicable laws and/or
court orders or to obtain necessary governmental licenses or permits.
30. Business Day. If the Closing Date or the day for performance of any act
required under this Agreement falls on a Saturday, Sunday or legal holiday, then
the Closing Date or the day for such performance, as the case may be, shall be
the next following regular business day.
31. Recording. This Agreement shall not be recorded and the act of
recording by Buyer shall be an act of default hereunder by Buyer.
32. Limitation of Liability of Seller and its Affiliates. Notwithstanding
Section 3.3.3, Seller shall have no liability whatsoever to Buyer or otherwise
if the Limited Partner Approval is not obtained and Buyer's only remedy with
respect thereto shall be to receive the Deposit pursuant to Section 2.2.1.
Without limiting the foregoing, no limited partner of Seller, nor any of its
respective beneficiaries, shareholders, partners, officers, agents, employees,
heirs, successors or assigns shall have any personal liability of any kind or
nature for or by reason of any matter or thing whatsoever under, in connection
with, arising out of or in any way related to this Agreement and the
transactions contemplated herein, and Buyer hereby waives for itself and anyone
who may claim by, through or under Buyer any and all rights to sue or recover on
account of any such alleged personal liability.
33. Joint and Several Liability of Buyer. The obligations of Buyer
hereunder shall be joint and several.
34. Pay-Off of Existing Indebtedness. Notwithstanding anything in this
Agreement to the contrary, Buyer shall, on or prior to the Closing Date, take
all actions, and
753900.8 -20-
<PAGE>
obtain all consents, if any, that may be necessary or appropriate to enable
Buyer to take title to any of the Properties, including, to the extent required
but without limitation, any consents required or reasonably necessary pursuant
to the terms of that certain Regulatory Agreement For Multi-Family Housing
Projects recorded on November 24, 1971 in Book 595, Page 115, as Document No.
226777 in the Official Records of the County Recorder of Washoe County, State of
Nevada, as described at item number 10 of Commitment No. 198379RB. Each of Buyer
and Seller shall pay any and all costs, fees and expenses incurred by it in
connection with the foregoing and no such costs, fees or expenses shall be
credited against the Purchase Price; provided, however, that (i) Seller shall be
obligated to obtain, concurrent with the Closing, a release and reconveyance of
each of the deeds of trust that are crossed-out in the Commitments that are
attached hereto as Exhibit "F" (collectively, the "Deeds of Trust"), except that
Buyer agrees to assume or, if not assumable, to take title subject to the loan
and deed of trust in favor of Chase Manhattan Bank, in the original principal
amount of $5,600,000, which encumbers the Arbor Glen Apartment project in West
Covina, California, (ii) Seller shall pay any and all prepayment penalties
imposed by any lender as a result of the pay-off of any liens secured by any of
the Deeds of Trust, except the Chase Manhattan Bank loan described in (i) of
this Section 34, (iii) Seller shall use reasonable efforts in assisting Buyer in
obtaining all consents necessary or appropriate to enable Seller to transfer the
Properties to Buyer pursuant to the terms of this Agreement, and (iv) if Buyer
fails or is unable to deliver the balance of the Purchase Price to Escrow Holder
on or before the Closing Date, Buyer shall have no right to terminate this
Agreement and such failure or inability shall constitute a default hereunder.
35. Facsimile Execution. A party to this Agreement may execute and deliver
this Agreement by executing a counterpart of the signature pages hereto and
sending a copy thereof to the other parties to this Agreement by facsimile
transmission at the facsimile number described in Section 1 for such party. Any
party who executes and delivers this Agreement by facsimile transmission shall
deliver four (4) manually executed copies of such signature page to each other
party to this Agreement within three (3) Business Days after such facsimile
transmission (but failure to do so shall not affect the validity of such party's
execution and delivery by facsimile transmission). This Agreement shall not be
effective or binding on any party to this Agreement for any purpose unless and
until such party has executed and delivered a counterpart signature page to this
Agreement to the other parties to this Agreement.
753900.8 -21-
<PAGE>
IN WITNESS WHEREOF, Buyer and Seller do hereby execute this Agreement
as of the date first written above.
SELLER: REAL-EQUITY PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
By: National Partnership Investments Corp.,
its general partner
By: _____________________________
Name: _______________________
Title: ______________________
BUYER: JH REAL ESTATE PARTNERS, INC.,
a California corporation
By: _____________________________
Name: _______________________
Title: ______________________
AMERICAN APARTMENT COMMUNITIES III, L.P.,
a Delaware limited partnership
By: American Apartment Communities III, Inc.,
a Maryland corporation
its general partner
By: _____________________________
Name:________________________
Title:_______________________
[signatures continued on following page]
753900.8 -22-
<PAGE>
ACCEPTANCE BY ESCROW HOLDER
ESCROW HOLDER ACKNOWLEDGES RECEIPT
OF THE FOREGOING AGREEMENT AND
ACCEPTS THE INSTRUCTIONS CONTAINED THEREIN:
Dated: ___________ ___, 1998
FIRST AMERICAN TITLE COMPANY OF LOS ANGELES
By: ____________________________
Name: ______________________
Title:______________________
[end of signatures]
753900.8 -23-
<PAGE>
EXHIBIT LIST
EXHIBIT "A" - Legal Description Of Each Parcel
EXHIBIT "B" - Form of Deed
EXHIBIT "C" - Form of General Assignment
EXHIBIT "D" - Form of Bill of Sale
EXHIBIT "E" - Non-Foreign Certificate
EXHIBIT "F" - Copies of Marked-Up Commitments
753900.8
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION OF EACH PARCEL
1. 3610 S. Nogales, West Covina, California.
2. 8609 DeSoto Ave., Canoga Park, California.
3. 4050 Baker Lane, Reno, Nevada.
4. 2616 Califa St., Woodland Hills, California (Parcel 1 of 2).
5. 2616 Califa St., Woodland Hills, California (Parcel 2 of 2).
753900.8
<PAGE>
EXHIBIT "B"
FORM OF DEED
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
Battle Fowler LLP
2049 Century Park East, Suite 2350
Los Angeles, California 90067
Attention: Bruce C. Geyer, Esq.
Parcel Description: _________________
(Space Above This Line For Recorder's Use)
- - - --------------------------------------------------------------------------------
GRANT DEED
A.P.N. ______________
The undersigned Grantor declares:
Documentary transfer tax is: ___________________________
( ) Computed on full value of property conveyed, or
( ) Computed on full value less value of liens and encumbrances remaining
at time of sale. ( ) Unincorporated area.
FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged,
REAL-EQUITY PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP ("Grantor"), has granted,
sold and conveyed, and by these presents does hereby grant, sell, and convey,
unto ________________, a ________________ ("Grantee"), that certain real
property located in the City of ______________, County of _______________, State
of ____________, as more particularly described in Exhibit "A" attached hereto
and incorporated herein by this reference (the "Land"), together with all right,
title and interest of Grantor in and to all buildings, improvements and
appurtenances now located or hereafter constructed on the Land.
Grantor hereby further grants to Grantee all of Grantor's right, title
and interest in and to all easements, privileges and rights appurtenant to the
Land and pertaining or held and enjoyed in connection therewith and all of
Grantor's right, title and interest in and to any land lying in the bed, if any,
of any street, alley, road or avenue to the centerline thereof in front of, or
adjoining the Land. The grants herein are all subject to non-delinquent taxes
and assessments and all other matters of record or evident from an inspection or
survey of the Land.
753900.8
<PAGE>
IN WITNESS WHEREOF, Grantor has executed this Grant Deed as of
____________ __, 1998.
GRANTOR: REAL-EQUITY PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
By: National Partnership Investments Corp.,
its general partner
By: _____________________________
Name: _______________________
Title: ______________________
753900.8 -2-
<PAGE>
STATE OF CALIFORNIA )
COUNTY OF ____________ )
On the __ day of ___________ __, 1998, before me, _______________, a
notary public in and for the State, 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 Signature
(Seal)
753900.8 -3-
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
753900.8 -4-
<PAGE>
EXHIBIT "C"
FORM OF GENERAL ASSIGNMENT
GENERAL ASSIGNMENT
(Parcel: ___________)
THIS GENERAL ASSIGNMENT (this "Assignment") is dated as of ___________
__, 1998 and is executed by REAL-EQUITY PARTNERS, A CALIFORNIA LIMITED
PARTNERSHIP ("Seller"), in favor of __________________, a _________________
("Buyer"), with reference to the following facts:
A. Seller, as seller, and JH Real Estate Partners, Inc. and American
Apartment Communities III, L.P., a Delaware limited partnership (collectively,
"Buyer"), collectively as buyer, are parties to that certain Agreement of
Purchase and Sale and Escrow Instructions dated as of September 25, 1998 (the
"Purchase Agreement"), in which Seller has agreed to sell the real property
described in Exhibit "A" attached thereto and the improvements located thereon
(collectively, the "Property").
B. Pursuant to the Purchase Agreement, Seller has agreed to assign,
without recourse, to __________, a _______________ (which entity Buyer has
informed Seller is Buyer's assignee under the Purchase Agreement), all of
Seller's right, title and interest if any, in and to (i) any plans,
specifications, reports, licenses, permits, entitlements, surveys, maps,
agreements and contracts relating to the Property in Seller's possession
(collectively, the "Contracts and Documents") subject to any rights of consent
as provided therein, (ii) all leases and occupancy agreements affecting the
Property and any amendments or modifications thereto, including the leases that
relate to the rent roll set forth on Schedule 1 attached hereto (collectively,
the "Leases"), and (iii) all unrefunded and unapplied security deposits made
under the Leases, also as set forth in Schedule 1 attached hereto (the "Security
Deposits").
THEREFORE, for valuable consideration, Seller and Buyer agree as
follows:
1. Assignment. Seller hereby assigns, sells and transfers to
Buyer, without recourse and without representation or warranty (except for the
express representations and warranties contained in the Purchase Agreement,
which shall remain in effect until and to the extent provided in the Purchase
Agreement), all of Seller's right, title and interest, if any, in and to the
Contracts and Documents, subject to any rights of consent as provided therein,
the Leases, and the Security Deposits.
2. Assumption. Buyer hereby assumes all of the benefits and
burdens of the Leases, the Security Deposits and the Contracts and Documents and
agrees to perform all of the covenants and obligations of lessor under the
Leases and any obligations of Seller under such Contracts and Documents. Buyer
further agrees to indemnify, defend and hold Seller harmless from and against
any and all cost, loss, harm or damage which may arise under the Leases,
Security Deposits and the Contracts and Documents after the date hereof.
753900.8 -2-
<PAGE>
3. Counterparts. This Assignment may be executed in counterparts,
each of which shall be deemed an original, and both of which together shall
constitute one and the same instrument.
4. Miscellaneous. This Assignment shall be binding on the parties
and their respective successors and assigns. The headings to paragraphs of this
Assignment are for convenient reference only and shall not be used in
interpreting this Assignment.
5. California Law. This Assignment shall be governed by and
interpreted in accordance with the laws of the State of California.
SELLER: REAL-EQUITY PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
By: National Partnership Investments Corp.,
its general partner
By: _____________________________
Name: _______________________
Title: ______________________
BUYER: _________________________________________,
_________________________________________
By: ________________________________
Name:__________________________
Title:_________________________
[end of signatures]
<PAGE>
SCHEDULE TO GENERAL ASSIGNMENT
Schedule 1: Rent Roll, including Security Deposits
-3-
<PAGE>
EXHIBIT "D"
FORM OF BILL OF SALE
BILL OF SALE
(Parcel _____________)
Reference is made to that certain Agreement of Purchase and Sale and
Escrow Instructions ("Purchase Agreement"), dated as of September 25, 1998 by
and among JH Real Estate Partners, Inc. and American Apartment Communities III,
L.P., a Delaware limited partnership ("Buyer"), collectively as buyer, and
REAL-Equity Partners, A California Limited Partnership, as seller.
For valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, REAL-EQUITY PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP
("Seller"), in connection with the sale pursuant to the Purchase Agreement of
certain real property located in the City of ______________, County of
______________, State of ______________, as more particularly described in
Exhibit "A" attached hereto, hereby quitclaims and transfers to
________________, a ________________, which Buyer has informed Seller is the
assignee of Buyer under the Purchase Agreement, without recourse to Seller and
without any representation or warranty whatsoever (except for the express
representations and warranties contained in the Purchase Agreement that shall
remain in effect until and to the extent provided in the Purchase Agreement),
all of Seller's right, title and interest, if any, in and to the personal
property ("Personal Property") described on Exhibit "B" attached hereto and by
this reference incorporated herein.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale as of
________ __, 1998.
SELLER: REAL-EQUITY PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
By: National Partnership Investments Corp.,
its general partner
By: _____________________________
Name: _______________________
Title: _______________________
[end of signatures]
-1-
<PAGE>
SCHEDULE OF EXHIBITS TO BILL OF SALE
Exhibit "A" Legal description
Exhibit "B" Schedule of Personal Property
-2-
<PAGE>
EXHIBIT "E"
NON-FOREIGN CERTIFICATE
1. Section 1445 of the Internal Revenue Code of 1986, as amended (the
"IRC"), provides that a transferee of a United States real property interest
must withhold tax if the transferor is a foreign person. Section 18662 of the
California Revenue and Taxation Code provides that a transferee of an interest
in California real property must withhold tax if the transferor is not a
California resident.
2. To inform __________________, a ____________ ("Transferee"), as
assignee of JH Real Estate Partners, Inc. and American Apartment Communities
III, L.P., a Delaware limited partnership (collectively, "Buyer"), collectively
as buyer, under that certain Agreement of Purchase and Sale and Escrow
Instructions ("Purchase Agreement"), dated as of September 25, 1998 by and among
Buyer, as buyer, and REAL-Equity Partners, A California Limited Partnership
("Transferor"), as seller, that withholding of tax is not required upon the
disposition by Transferor of five (5) separate parcels of real property located
at, respectively, (i) 3610 S. Nogales, West Covina, California, (ii) 8609 DeSoto
Ave., Canoga Park, California, (iii) 4050 Baker Lane, Reno, Nevada, (iv) and two
(2) parcels located at 2616 Califa St., Woodland Hills, California, each as more
particularly described in Exhibit "A" attached hereto (collectively, the
"Property"), the undersigned Transferor hereby swears, affirms, certifies and
declares the following:
A. Transferor is not a foreign person, foreign corporation,
foreign partnership, foreign trust, or foreign estate (as those terms are
defined in the IRC and Income Tax Regulations).
B. Transferor's federal taxpayer identification number is
95-3881219.
C. Transferor is a limited partnership.
D. Transferor's office address is:
REAL-Equity Partners
c/o National Partnership Investment Corp.
9090 Wilshire Boulevard, 2nd Floor
Beverly Hills, California 90212
Attention: Henry Casden
Fax: (310) 278-6835
[remainder of page intentionally left blank]
3. Transferor understands that this certification may be
disclosed to the Internal Revenue Service and/or the California Franchise Board
by Transferee and that any false statement contained herein could be punished by
fine, imprisonment, or both.
-1-
<PAGE>
Executed as of _____________ __, 1998
TRANSFEROR: REAL-EQUITY PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
By: National Partnership Investments Corp.,
its general partner
By: _____________________________
Name: _______________________
Title: _______________________
[end of signatures]
-2-
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
1. 3610 S. Nogales, West Covina, California.
2. 8609 DeSoto Ave., Canoga Park, California.
3. 4050 Baker Lane, Reno, Nevada.
4. 2616 Califa St., Woodland Hills, California (Parcel 1 of 2).
5. 2616 Califa St., Woodland Hills, California (Parcel 2 of 2).
-1-
<PAGE>
EXHIBIT "F"
COPIES OF MARKED-UP COMMITMENTS
-1-
<PAGE>
AGREEMENT OF PURCHASE AND SALE
AND ESCROW INSTRUCTIONS
By and Between
REAL-EQUITY PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP,
as Seller
and
JH REAL ESTATE PARTNERS, INC.,
a California corporation
and
AMERICAN APARTMENT COMMUNITIES III, L.P.,
a Delaware limited partnership,
collectively as Buyer
Dated as of September 25, 1998
<PAGE>
FORM OF OPINION
REAL - Equity Partners
9090 Wilshire Boulevard
Beverly Hills, California 90211
Gentlemen:
You have advised us that REAL - Equity Partners (the "Partnership"),
National Partnership Investments Corp., ("NAPICO") and National Partnership
Investments Associates II, the general partners (the "General Partners") of the
Partnership are contemplating a transaction (the "Sale") in which the
Partnership will sell its five apartment properties, listed in Exhibit I, (the
"Properties") to JH Real Estate Partners, Inc. and American Apartment
Communities III, L.P. (collectively, the "Buyer") subject to, among other
matters, the requisite approval of the limited partners (the "Limited Partners")
of the Partnership. You have also informed us that the Buyer is not affiliated
with the Partnership or the General Partners.
You have further advised us that in connection with the proposed Sale,
the Properties will be sold to the Buyer for $31,900,000 (the "Purchase Price").
You have requested that Robert A. Stanger & Co., Inc. ("Stanger")
provide to the Partnership an opinion as to whether the Purchase Price to be
received by the Partnership for the Properties in connection with the Sale is
fair to the Limited Partners from a financial point of view.
In the course of our analysis for rendering this opinion, we have,
among other things:
o Reviewed a draft of the consent solicitation statement (the
"Consent") related to the Sale in a form the Partnership's
management has represented to be substantially the same as
will be distributed to the Limited Partners;
o Reviewed the Partnership's annual reports on Form 10-K filed
with the Securities and Exchange Commission for the years
ended December 31, 1995, 1996 and 1997, and the quarterly
report on Form 10-Q for the six-month period ending June 30,
1998, which the Partnership's management has indicated to be
the most current financial statements;
o Reviewed descriptive information concerning the Properties,
including location, number of units and unit mix, age and
amenities;
772915.1
1
<PAGE>
o Reviewed summary historical operating statements for the
Properties for the years ended December 31, 1995, 1996 and
1997 and the nine months ending September 30, 1998;
o Reviewed the 1998 operating budgets for the Properties
prepared by the Partnership's management;
o Discussed with management of the Partnership and NAPICO the
conditions in the local market for apartment properties;
conditions in the market for sales/acquisitions of properties
similar to that owned by the Partnership; historical, current
and projected operations and performance of the Properties;
the physical condition of the Properties including any
deferred maintenance; and other factors influencing the value
of the Properties;
o Performed site visits of the Properties;
o Reviewed data concerning, and discussed with management, the
local real estate rental market conditions in the markets of
the Properties, and reviewed available information relating to
acquisition criteria for income-producing properties similar
to the Properties;
o Reviewed the February 1998 appraisals of the Properties which
were prepared for internal asset management purposes, and
management's estimate of immediate capital expenditure
requirements/deferred maintenance for the Properties; and
o Reviewed a draft of the purchase and sale agreement between
the Partnership and the Buyer, which the Partnership's
management has informed us is in substantially the form which
will be used to consummate the sale.
o Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial
information and management reports and data, and all other reports and
information that were provided, made available or otherwise communicated to us
by the Partnership, the General Partners and their affiliates, or the management
of the Properties. We have not performed an independent appraisal, structural or
engineering study or environmental study of the assets and liabilities of the
Partnership. We have relied upon the representations of the Partnership, the
General Partners and their affiliates and management of the Properties
concerning, among other things, any environmental liabilities and deferred
maintenance and estimated capital expenditure requirements. We have also relied
upon the assurance of the Partnership, the General Partners and their
affiliates, and the management of the Properties that any pro forma financial
statements, projections, budgets, forecasts, deferred
772915.1
2
<PAGE>
maintenance and capital expenditure estimates, value estimates and other
information contained in the Consent or otherwise provided or communicated to us
were reasonably prepared on bases consistent with actual historical experience
and reflect the best currently available estimates and good faith judgments;
that no material changes have occurred in the value of the Properties or other
information reviewed between the date such information was provided and the date
of this letter; that the Partnership, the General Partners and their affiliates,
and the management of the Properties are not aware of any information or facts
that would cause the information supplied to us to be incomplete or misleading
in any material respect; that the highest and best use of the Properties is as
improved; and that all calculations and projections were made in accordance with
the terms of the Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement").
We have not been requested to, and therefore did not: (i) select the
method of determining the Purchase Price offered to the Partnership in the Sale
or participate in the negotiation of the Purchase Price or terms of the Sale;
(ii) make any recommendation to the Partnership or its partners, including the
Limited Partners, with respect to whether to approve or reject the proposed
Sale; (iii) express any opinion as to (a) the tax consequences of the proposed
Sale to the Limited Partners, (b) the terms of the Partnership Agreement or of
any agreements or contracts between the Partnership and the Buyer, (c) the
General Partners' business decision to effect the proposed Sale, (d) the
adjustments made by the General Partners to the Purchase Price to arrive at net
amounts distributable to the partners, including but not limited to, balance
sheet adjustments to reflect the General Partners' estimates of the value of
other assets and liabilities of the Partnership, the payment of any deferred
acquisition fee to the General Partners and other expenses and fees associated
with the proposed Sale, and (e) alternatives to the proposed Sale. We are not
expressing any opinion as to the fairness of any terms of the proposed Sale
other than the Purchase Price to be received by the Partnership for the
Properties.
Our opinion is based on business, economic, real estate and capital
market, and other conditions as they existed and could be evaluated as of the
date of our analysis and addresses the proposed Sale in the context of
information available as of the date of our analysis. Events occurring after
that date could affect the Properties or the assumptions used in preparing this
opinion.
Based upon and subject to the foregoing, it is our opinion that as of
the date of this letter the Purchase Price to be received by the Partnership for
the Properties in connection with the Sale is fair to the Limited Partners from
a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
772915.1
3
<PAGE>
Shrewsbury, New Jersey
____________, 1998
EXHIBIT 1
REAL - Equity Partners
LISTING OF PROPERTIES
Property Location
- - - ----------------------- ----------------------
Arbor Glen West Covina, CA
Park Creek Canoga Park, CA
Warner Willows I Woodland Hills, CA
Warner Willows II Woodland Hills, CA
Willowbrook Reno, NV
772915.1
4
