SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1996
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-15528
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BALCOR PENSION INVESTORS-VII
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(Exact name of registrant as specified in its charter)
Illinois 36-3390487
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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<PAGE>
BALCOR PENSION INVESTORS -VII
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
June 30, 1996 and December 31, 1995
(UNAUDITED)
ASSETS
1996 1995
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Cash and cash equivalents $ 7,441,264 $ 8,595,511
Escrow deposits 86,464 80,519
Accounts and accrued interest receivable 231,897 188,638
Prepaid expenses 353,158 120,902
Deferred expenses, net of accumulated
amortization of $164,984 in 1996 and
$151,560 in 1995 82,272 95,696
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8,195,055 9,081,266
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Real estate held for sale (net of
allowance of $4,537,000 in 1996 and 1995) 84,985,386 85,099,286
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84,985,386 85,099,286
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$ 93,180,441 $ 94,180,552
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 307,103 $ 249,632
Due to affiliates 44,653 26,616
Accrued real estate taxes 351,350 281,776
Security deposits 431,098 410,618
Mortgage note payable 4,859,155 4,887,630
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Total liabilities 5,993,359 5,856,272
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Affiliates' participation in joint ventures 21,940,036 21,748,967
Limited Partners' capital (461,470
Interests issued and
outstanding) 67,174,775 68,469,893
General Partner's deficit (1,927,729) (1,894,580)
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Total partners' capital 65,247,046 66,575,313
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$ 93,180,441 $ 94,180,552
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The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS -VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the six months ended June 30, 1996 and 1995
(UNAUDITED)
1996 1995
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Income:
Interest on loans
receivable, net of
amortization of loan
application and processing
fees of $156,676 in 1995 $ 292,509
Income from operations of
real estate held for sale $ 4,071,460 3,429,808
Interest on short-term
investments 209,564 362,561
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Total income 4,281,024 4,084,878
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Expenses:
Administrative 476,594 345,910
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Total expenses 476,594 345,910
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Income before affiliates'
participation in income
of joint ventures 3,804,430 3,738,968
Affiliates' participation in
income of joint ventures (1,059,456) (703,040)
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Net income $ 2,744,974 $ 3,035,928
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Net income allocated to
General Partner $ 274,497 $ 303,593
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Net income allocated to
Limited Partners $ 2,470,477 $ 2,732,335
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Net income per Limited
Partnership Interest
(461,470 issued and
outstanding) $ 5.35 $ 5.92
============= =============
Distributions to General Partner $ 307,646 $ 205,098
============= =============
Distributions to Limited Partners $ 3,765,595 $ 3,299,511
============= =============
Distributions per Limited Partnership
Interest $ 8.16 $ 7.15
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS -VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended June 30, 1996 and 1995
(UNAUDITED)
1996 1995
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Income:
Interest on loans
receivable, net of
amortization of loan
application and processing
fees of $145,552 in 1995 $ 136,788
Income from operations of
real estate held for sale $ 1,867,479 1,670,051
Interest on short-term
investments 97,886 182,601
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Total income 1,965,365 1,989,440
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Expenses:
Administrative 337,881 193,771
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Total expenses 337,881 193,771
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Income before affiliates'
participation in income
of joint ventures 1,627,484 1,795,669
Affiliates' participation in
income of joint ventures (495,437) (335,392)
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Net income $ 1,132,047 $ 1,460,277
============= =============
Net income allocated to
General Partner $ 113,204 $ 146,028
============= =============
Net income allocated to
Limited Partners $ 1,018,843 $ 1,314,249
============= =============
Net income per Limited
Partnership Interest
(461,470 issued and
outstanding) $ 2.20 $ 2.85
============= =============
Distribution to General Partner $ 153,823 $ 102,549
============= =============
Distribution to Limited Partners $ 2,381,185 $ 922,940
============= =============
Distribution per Limited Partnership
Interest $ 5.16 $ 2.00
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS -VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the six months ended June 30, 1996 and 1995
(UNAUDITED)
1996 1995
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Operating activities:
Net income $ 2,744,974 $ 3,035,928
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Affiliates'
participation in
income of joint ventures 1,059,456 703,040
Amortization of
deferred expenses 13,424 13,425
Amortization of loan
application and
processing fees 156,676
Net change in:
Escrow deposits (5,945) (42,742)
Accounts and accrued
interest receivable (43,259) 17,608
Prepaid expense (232,256) (239,032)
Accounts payable 57,471 (38,564)
Due to affiliates 18,037 (59,569)
Accrued liabilities 69,574 79,464
Security deposits 20,480 (1,902)
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Net cash provided by
operating activities 3,701,956 3,624,332
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Investing activity:
Proceeds relating to land
condemnation 113,900
Costs incurred in connection
with real estate acquired
through foreclosure (229,111)
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Net cash provided by or used
in investing activity 113,900 (229,111)
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Financing activities:
Distributions to Limited
Partners (3,765,595) (3,299,511)
Distributions to General
Partner (307,646) (205,098)
Distributions to joint
venture partners -
affiliates (868,387) (644,658)
<PAGE>
Principal payments on
mortgage note payable (28,475) (26,527)
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Net cash used in financing
activities (4,970,103) (4,175,794)
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Net change in cash and cash
equivalents (1,154,247) (780,573)
Cash and cash equivalents at
beginning of year 8,595,511 13,194,808
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Cash and cash equivalents at
end of period $ 7,441,264 $ 12,414,235
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the six months and quarter
ended June 30, 1996, and all such adjustments are of a normal and recurring
nature.
2. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates for the six
months and quarter ended June 30, 1996 are:
Paid
-----------------------
Six Months Quarter Payable
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Mortgage servicing fees $26,984 $26,984 $2,453
Reimbursement of expenses to
the General Partner, at cost 68,748 49,740 42,200
3. Contingency:
A proposed settlement has been reached with respect to the class action
complaint, Paul Williams and Beverly Kennedy, et al, v. Balcor Pension
Investors, et al. between counsel for the Class and counsel for the defendants.
A final hearing on the proposed settlement is expected to be held in November
1996. The General Partner does not believe that the proposed settlement will
have a material adverse impact on the Partnership.
4. Subsequent Events:
(a) In July 1996, the Partnership paid $1,384,410 ($3.00 per Interest) to the
holders of Limited Partnership Interests representing the regular quarterly
distribution of available Cash Flow for the second quarter of 1996.
(b) The Sand Pebble Village Apartments - Phase I was owned by a joint venture
consisting of the Partnership and an affiliate. The Partnership and the
affiliate hold participating percentages in the joint venture of 55.36% and
44.64%, respectively. In August 1996, the joint venture sold the property in an
all cash sale for $19,411,765. From the proceeds of the sale, the joint venture
paid $431,822 in selling costs. The Partnership will recognize no gain or loss
on the sale of this property for financial statement purposes, however, the
Partnership will recognize a recovery of a previously established allowance of
$2,080,943 in connection with the sale of this property during the third
quarter of 1996, of which $928,933 is the minority joint venture partner's
share.
<PAGE>
(c) The Sand Pebble Village Apartments - Phase II was owned by a joint venture
consisting of the Partnership and an affiliate. The Partnership and the
affiliate hold participating percentages in the joint venture of 55.36% and
44.64%, respectively. In August 1996, the joint venture sold the property in an
all cash sale for $12,088,235. From the proceeds of the sale, the joint venture
paid $4,859,155 to the third party mortgage holder in full satisfaction of the
first mortgage loan, and paid $272,701 in selling costs. For financial
statement purposes, the Partnership will recognize a gain during the third
quarter of 1996 of $2,458,085 from the sale of this property, of which
$1,097,289 is the minority joint venture partner's share.
<PAGE>
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors - VII (the "Partnership") is a limited partnership
formed in 1985 to invest principally in first mortgage loans. The Partnership
raised $115,367,500 from sales of Limited Partnership Interests and utilized
these proceeds to fund eight loans. As of June 30, 1996, one loan remained
outstanding in the Partnership's portfolio, and the Partnership owned six
properties; however, the Whispering Hills loan is accounted for as real estate
held for sale. The Sand Pebble Village Apartments - Phases I and II were
subsequently sold in August 1996.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1995 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
- ---------------------
A decrease in interest income on short-term investments, an increase in
Partnership administrative expenses and the cessation of interest income on the
Jonathan's Landing Apartments loan receivable due to the July 1995 foreclosure
were partially offset by additional income generated from the operations of
Jonathan's Landing Apartments, net of the affiliate's participation in this
income. As a result, net income decreased slightly during the six months and
quarter ended June 30, 1996 as compared to the same periods in 1995. Further
discussion of the Partnership's operations is summarized below.
1996 Compared to 1995
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1996 and 1995 refer
to both the quarter and six months ended June 30, 1996 and 1995.
The foreclosure of the Jonathan's Landing Apartments loan in July 1995 resulted
in the cessation of interest income on loans receivable during 1996 as compared
to 1995.
Income from operations of real estate held for sale represents the net
operations of seven properties. Original funds advanced by the Partnership
total approximately $77,360,000 for these seven properties. The Partnership
acquired the Jonathan's Landing Apartments in July 1995, which generated income
during 1996. This was the primary reason for the increase in income from
operations of real estate held for sale during 1996 as compared to 1995.
As a result of lower average cash balances resulting from special distributions
made to the Limited Partners in July 1995 and April 1996, interest income on
short-term investments decreased during 1996 when compared to 1995.
<PAGE>
The Partnership incurred higher legal, consulting and postage costs in
connection with its response to a tender offer during the second quarter of
1996. As a result, administrative expense increased during 1996 as compared to
1995.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties. Determinations of fair
value are made periodically on the basis of assessments of property operations.
Determinations of fair value represent estimates based on many variables which
affect the value of real estate, including economic and demographic conditions.
The Partnership did not recognize any provisions during 1996 or 1995.
The Jonathan's Landing Apartments is one of the properties owned by the
Partnership through a joint venture with an affiliate. As a result of income
recognized from operations of the property which was acquired through
foreclosure in July 1995, affiliates' participation in income from joint
ventures increased during 1996 as compared to 1995.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $1,154,000 as
of June 30, 1996, when compared to December 31, 1995. Cash flow of
approximately $3,702,000 was provided by operating activities consisting of
cash flow from the operations of the Partnership's properties and interest
income earned on short-term investments, net of the payment of administrative
expenses. Cash received from investing activity of $113,900 relates to proceeds
received in connection with the land condemnation settlement at Butler Plaza.
Financing activities consisted primarily of distributions to Partners of
approximately $4,073,000, distributions to joint venture partners of
approximately $868,000 and principal payments on mortgage note payable of
approximately $29,000.
The Partnership defines cash flow generated from its properties as an amount
equal to the property's revenue receipts less property related expenditures,
which include debt service payments. Sand Pebble Village Apartments - Phase II
is the only property that has underlying debt. All of the Partnership's
properties generated positive cash flow during 1996 and 1995.
As of June 30, 1996, the occupancy rates of the Partnership's residential
properties ranged from 94% to 96%. The occupancy rates at the U.S. West Direct
Center Office Building and the Butler Plaza Shopping Center were 98% and 82%,
respectively. Many rental markets continue to remain extremely competitive;
therefore, the General Partner's goals are to maintain high occupancy levels
while increasing rents where possible and to monitor and control operating
expenses and capital improvement requirements at the properties.
The Partnership was awarded $303,300 in connection with the condemnation of a
parcel of land at Butler Plaza, of which the Partnership has received $113,900
in 1996. The proceeds are recorded as a reduction of the carrying value of the
property in the financial statements. The Partnership anticipates receiving the
remaining proceeds during 1996.
<PAGE>
The Sand Pebble Village Apartments - Phase I was owned by a joint venture
consisting of the Partnership and an affiliate. In August 1996, the joint
venture sold the property in an all cash sale for $19,411,765. From the
proceeds of the sale, the joint venture paid $431,822 in selling costs. The net
proceeds of the sale were $18,979,943 of which $10,507,296 was the
Partnership's share. The Partnership expects to make a distribution from these
proceeds to the Limited Partners in October 1996. See Note 4 of Notes to
Financial Statements for additional information.
The Sand Pebble Village Apartments - Phase II was owned by a joint venture
consisting of the Partnership and an affiliate. In August 1996, the joint
venture sold the property in an all cash sale for $12,088,235. From the
proceeds of the sale, the joint venture paid $4,859,155 to the third party
mortgage holder in full satisfaction of the first mortgage loan, paid $145,775
of prepayment penalties and paid $272,701 in selling costs. The net proceeds of
the sale were $6,810,604 of which $3,770,350 was the Partnership's share. The
Partnership expects to make a distribution from these proceeds to the Limited
Partners in October 1996. See Note 4 of Notes to Financial Statements for
additional information.
The General Partner believes that the market for multifamily housing properties
is favorable to sellers of these properties. As described above, the
Partnership and an affiliate sold the Sand Pebble Village Phases I and II
apartment complexes in August 1996. Currently, the Partnership has entered into
a contract to sell the Hickory Creek Apartments for a sale price of $14,300,000
and is currently marketing one of its remaining residential properties for
sale. Additionally, the General Partner is exploring the sale of its commercial
properties. The General Partner examines each property individually by property
type and market in determining the optimal time to sell each property.
In June 1996, Heitman/JMB Advisory Corporation, an unaffiliated third party,
initiated discussions with the General Partner for a potential sale of all of
the remaining properties of the Partnership. These discussions did not result
in any agreement of terms between the parties, and it is unlikely at this time
that a sale of the Partnership's assets to them will be consummated. This will
not affect the Partnership's strategy as described in the preceding paragraph.
Changing interest rates can impact real estate values in several ways.
Generally, declining interest rates may lower the cost of capital allowing
buyers to pay more for a property whereas rising interest rates may increase
the cost of capital and lower the price of real estate.
In July 1996, the Partnership paid $1,384,410 ($3.00 per Interest) to the
holders of Limited Partnership Interests representing the regular quarterly
distribution of available Cash Flow for the second quarter of 1996. The regular
quarterly distribution level remained unchanged from the amount distributed for
the first quarter of 1996. In July 1996, the Partnership also paid $115,367 to
the General Partner as its share of the Cash Flow distributed for the second
quarter of 1996 and $38,456 as its contribution to the Early Investment
Incentive Fund. Including the July 1996 distribution, Limited Partners have
received $111.56 of Cash Flow from operations and a return of Original Capital
of $38.49, totaling $150.05 per $250 Interest.
<PAGE>
The Partnership expects to continue making cash distributions to Limited
Partners from the Cash Flow generated by property operations and proceeds from
future property sales less administrative expenses. The General Partner
believes the Partnership has retained an appropriate amount of working capital
to meet cash or liquidity requirements which may occur.
During the six months ended June 30, 1996, the General Partner used amounts
placed in the Early Investment Incentive Fund to repurchase 930 Interests from
Limited Partners at a cost of $156,676.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices
depending on general or local economic conditions. In the long-term, inflation
will increase operating costs and replacement costs and may lead to increased
rental revenues and real estate values.
<PAGE>
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Williams class action
- ---------------------
With respect to the class action complaint, Paul Williams and Beverly Kennedy,
et al. vs. Balcor Pension Investors, et al. (U.S. District Court, Northern
District of Illinois, Case No.: 90 C 0726), the ongoing settlement discussions
among the parties have resulted in a proposed settlement between counsel for
the Class and counsel for defendants. A draft notice including a description of
the terms of the proposed settlement is attached as Exhibit 99. A final hearing
to determine the fairness, reasonableness and adequacy of the proposed
settlement will be held on November 20, 1996 at 11:00 a.m. Copies of the
proposed settlement agreement may be inspected at the office of the Clerk of
the Court of the United States District Court for the Northern District of
Illinois located at 219 South Dearborn, Chicago, Illinois 60604.
Proposed Class and Derivative Action Lawsuits
- ---------------------------------------------
On May 22, 1996, a proposed class and derivative action complaint was filed,
Chipain vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 05299) (the "Chipain Case"), naming the General Partner and the
general partners (together, the "Balcor Defendants") of nine other limited
partnerships sponsored by The Balcor Company (together, with the Partnership,
the "Affiliated Partnerships") as defendants. Additional defendants were
Insignia Management Group ("Insignia") and Walton Street Capital Acquisition
II, LLC ("Walton") and certain of their affiliates and principals
(collectively, the "Walton and Insignia Defendants"). The complaint alleged,
among other things, that the tender offers for the purchase of limited
partnership interests in the Affiliated Partnerships made by a joint venture
consisting of affiliates of Insignia and Walton were coercive and unfair.
The Walton and Insignia Defendants filed motions to dismiss the complaint,
which were granted on June 5, 1996. The plaintiffs filed an amended complaint,
which all defendants then moved to dismiss. On June 18, 1996, the court
dismissed the complaint in its entirety as to the Walton and Insignia
Defendants and as to the Balcor Defendants on all counts on which dismissal was
sought.
On June 14, 1996, a second proposed class and derivative action complaint was
filed in Chancery Court, Dee vs. Walton Street Capital Acquisition II, LLC
(Case No. 96 CH 06283) (the "Dee Case"). On July 1, 1996, a proposed class
action complaint was filed in the same court, Anderson vs. Balcor Mortgage
Advisors (Case No. 96 CH 06884) (the "Anderson Case"). An amended complaint
consolidating the Dee and Anderson Cases (the "Dee/Anderson Case") was filed on
<PAGE>
July 25, 1996. The same day, the plaintiffs in the Chipain Case withdrew their
complaint. The Dee/Anderson Case names the Balcor Defendants, the Affiliated
Partnerships, and the Walton and Insignia Defendants, as defendants. The
complaint seeks to assert class and derivative claims against the Walton and
Insignia Defendants and alleges that, in connection with the tender offers, the
Walton and Insignia Defendants misused the General Partner's and Insignia's
fiduciary positions and knowledge in breach of the Walton and Insignia
Defendants fiduciary duty and in violation of the Illinois Securities and
Consumer Fraud Acts. The plaintiffs request certification as a class and
derivative action, unspecified compensatory damages and rescission of the
tender offers.
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. Management of each of the Balcor Defendants
believes they have meritorious defenses to contest the claims. It is not
determinable at this time whether or not an unfavorable decision in this action
would have a material adverse impact on the Partnership.
Item 5. Other Information
- ------------------------------
Sand Pebble Village I Apartments
- --------------------------------
As previously reported, on June 28, 1996, a joint venture ("Joint Venture")
consisting of the Partnership and an affiliate contracted to sell Sand Pebble
Village I Apartments, Riverside, California to an unaffiliated party, RREEF
America L.L.C., a Delaware limited liability company, for a sale price of
$19,411,765. The sale closed on August 1, 1996. From the proceeds of the sale,
the Joint Venture paid $242,647 to an unaffiliated party as a brokerage
commission and closing costs of $43,587. An affiliate of the third party
providing property management services for the property received a fee of
$145,588 for services rendered in connection with the sale. The Joint Venture
received the remaining proceeds of $18,979,943, of which $10,507,296 represents
the Partnership's share.
Sand Pebble Village II Apartments
- ---------------------------------
As previously reported, on June 28, 1996, the joint venture ("Joint Venture")
consisting of the Partnership and an affiliate contracted to sell Sand Pebble
Village II Apartments, Riverside, California to an unaffiliated party, RREEF
America L.L.C., a Delaware limited liability company, for a sale price of
$12,088,235. The sale closed on August 1, 1996. From the proceeds of the sale,
the Joint Venture paid the outstanding balance of the first mortgage loan of
$4,859,155, prepayment penalties of $145,775, closing costs of $30,936 and a
brokerage commission of $151,103 to an unaffiliated party. An affiliate of the
third party providing property management services for the property received a
fee of $90,662 for services rendered in connection with the sale. The Joint
Venture received the remaining proceeds of $6,810,604, of which $3,770,350
represents the Partnership's share.
<PAGE>
Hickory Creek Apartments
- ------------------------
The Partnership funded a $12,350,000 first mortgage loan collateralized by the
Hickory Creek Apartments, Columbus, Ohio in two installments of $4,800,000 and
$7,550,000 in September 1986 and August 1988, respectively. In March 1994, the
Partnership obtained title to the property through foreclosure.
On August 12, 1996, the Partnership contracted to sell the property for a sale
price of $14,300,000 to an unaffiliated party, American Apartment Communities
II, L.P., a Delaware limited partnership. The purchaser has deposited $200,000
into an escrow account as earnest money and will pay the remaining $14,100,000
at closing, which is scheduled for September 11, 1996. From the proceeds of the
sale, the Partnership will pay $214,500 to an unaffiliated party as a brokerage
commission and a fee of $107,250 to an affiliate of the third party providing
property management services for the property for services rendered in
connection with the sale. The Partnership will receive the remaining proceeds
of approximately $13,978,250, less closing costs. Of the net sale proceeds, an
amount not to exceed $250,000 will be retained by the Partnership and will not
be available for use or distribution by the Partnership until 180 days after
the closing. Neither the General Partner nor any affiliate will receive a
brokerage commission in connection with the sale of the property. The General
Partner will be reimbursed by the Partnership for actual expenses incurred in
connection with the sale.
The closing is subject to the satisfaction of numerous terms and conditions.
There can be no assurance that all of the terms and conditions will be complied
with and, therefore, it is possible the sale of the property may not occur.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(4) Form of Subscription Agreement previously filed as Exhibit 4.1 to Amendment
No. 1 to the Registrant's Registration Statement on Form S-11 dated March 6,
1986 (Registration No. 33-01630) and Form of Confirmation regarding Interests
in the Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form
10-Q for the quarter ended June 30, 1992 (Commission File No. 0-15528) are
incorporated herein by reference.
(10) Material Contracts:
(a) Agreement of Sale and attachments thereto relating to the sale of Sand
Pebble Village Apartments - Phase I previously filed as Exhibit (2)(a) to the
Registrant's Current Report on Form 8-K dated June 28, 1996, is incorporated
herein by reference.
(b) Agreement of Sale and attachments thereto relating to the sale of Sand
Pebble Village Apartments - Phase II previously filed as Exhibit (2)(b) to the
Registrant's Current Report on Form 8-K dated June 28, 1996, is incorporated
herein by reference.
<PAGE>
(c) Agreement of Sale and attachments thereto relating to the sale of Hickory
Creek Apartments is attached hereto.
(27) Financial Data Schedule of the Registrant for the six-month period ended
June 30, 1996 is attached hereto.
(99) Form of Notice of Proposed Class Action Settlement and Hearing relating to
Paul Williams and Beverly Kennedy, et al. vs. Balcor Pension Investors et al.
(b) Reports on Form 8-K: A Current Report on Form 8-K dated June 28, 1996, was
filed reporting the contracts to sell the Sand Pebble Village Apartments -
Phases I and II in Riverside, California.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-VII
By: /s/ Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors-VII, the General Partner
By: /s/ Brian D. Parker
-----------------------------
Brian D. Parker
Senior Vice President, and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors-VII,
the General Partner
Date: August 14, 1996
---------------------------
<PAGE>
AGREEMENT OF SALE
THIS AGREEMENT OF SALE (this "Agreement"), is entered into as of the 12th
day of August, 1996, (the "Effective Date") by and between American Apartment
Communities II, L.P., a Delaware limited partnership ("Purchaser"), and Hickory
Creek Limited Partnership, an Illinois limited partnership ("Seller").
W I T N E S S E T H:
1. PURCHASE AND SALE. Purchaser agrees to purchase and Seller agrees to sell
at the price of Fourteen Million Three Hundred Thousand And No/100 Dollars
($14,300,000) (the "Purchase Price"), the following described property
(collectively, the "Property"):
1.1. that certain tract of real estate containing a 372-unit apartment
complex commonly known as Hickory Creek Apartments, located at Columbus, Ohio
and which is more particularly described in the attached Exhibit A, together
with all easements, covenants, agreements, rights and appurtenances thereto,
all buildings, structures, fixtures, facilities, installations and other
improvements situated thereon and all of Seller's right, title and interest in
all public ways adjoining the same, if any (collectively, the "Premises"); and
1.2. all of Seller's right, title and interest in and to furniture,
furnishings, fixtures, equipment, machinery, maintenance vehicles and
equipment, tools, parts, recreational equipment and other personalty of every
kind and description situated in, on, over and under the Premises or used in
connection therewith, which is not owned by tenants under the Leases (as such
term is hereinafter defined), together with all replacements and substitutions
therefor made after the date hereof (collectively, the "Personal Property"), as
set forth on Exhibit B attached hereto; and
1.3. to the extent in Seller's possession, all existing surveys, blue
prints, drawings, plans and specifications (including, without limitations,
structural, HVAC, mechanical and plumbing plans and specifications) and other
documentation for or with respect to the Property and all market, demographic
and geographic data and appraisals currently in Seller's possession; all
available tenant lists and data, booklets, manuals and promotional and
advertising materials concerning the Property or any part thereof to the extent
in Seller's possession; and such other existing books, records and documents
used in connection with the operation of the Property or any part thereof as
are in Seller's possession; and
1.4. all of Seller's right, title and interest to and under the leases set
forth on Exhibit L between the Seller as landlord and tenants of the apartment
units (hereinafter collectively called the "Leases"); and
1.5. all of Seller's right, title and interest to and under the service
contracts set forth on Exhibit H.
<PAGE>
2. PURCHASE PRICE. The Purchase Price shall be paid by Purchaser as follows:
2.1. Upon the execution of this Agreement, the sum of One Hundred
Thousand and No/100 Dollars ($100,000) (the "Initial Earnest Money") to be held
in escrow by and in accordance with the provisions of the Escrow Agreement
("Escrow Agreement") attached hereto as Exhibit C; and
2.2. Provided that this Agreement is not terminated in accordance with the
provisions of Paragraph 8.1 hereof, on August 12, 1996 Purchaser shall deposit
an additional sum of One Hundred Thousand and No/100 Dollars ($100,000) (the
"Additional Earnest Money") to be held in Escrow by and in accordance with the
provisions of the Escrow Agreement (the Initial Earnest Money and the
Additional Earnest Money, if and when deposited, shall hereinafter be referred
to as the "Earnest Money"); and
2.3. On the "Closing Date" (hereinafter defined), the balance of the
Purchase Price, adjusted in accordance with the prorations, by federally wired
"immediately available" funds, on or before 11:00 a.m Chicago time.
3. OPERATION OF PROPERTY THROUGH CLOSING.
3.1. Through the Closing Date, Seller shall manage and operate the
Property in the normal course of business. Seller agrees that from the
Effective Date to the Closing Date, all new tenant leases entered into by
Seller as landlord shall be for terms not exceeding 1 year. Seller shall keep
all present insurance in full force and effect and pay all premiums in
connection therewith.
3.2. Upon written request by Purchaser, at Closing Seller will deliver a
notice of termination to present management and staff of the Premises,
terminating the management and staff as of the date specified by Purchaser in
the notice.
4. TITLE COMMITMENT AND SURVEY.
4.1. Attached hereto as Exhibit D is a copy of a title commitment for an
owner's standard title insurance policy issued by Lawyer's Title Insurance
Corporation (hereinafter referred to as "Title Insurer") dated April 3, 1996
for the Property (the "Title Commitment"). For purposes of this Agreement,
"Permitted Exceptions" shall mean: (a) the general printed exceptions contained
in the standard title policy to be issued by Title Insurer based on the Title
Commitment; (b) general real estate taxes, association assessments, special
assessments, special district taxes and related charges not yet due and
payable; (c) matters shown on the "Existing Survey" (hereinafter defined); (d)
matters caused by the actions of Purchaser; and (e) the title exceptions set
forth in Schedule B of the Title Commitment as Numbers 7 through 17 inclusive,
to the extent that same affect the Property. All other exceptions to title
shall be referred to as "Unpermitted Exceptions". The Title Commitment shall
be conclusive evidence of title as therein shown as to all matters to be
insured by the title policy, subject only to the exceptions therein stated. On
the Closing Date, Title Insurer shall deliver to Purchaser a standard title
policy in conformance with the previously delivered Title Commitment, subject
to Permitted Exceptions and Unpermitted Exceptions waived by Purchaser (the
"Title Policy"). Purchaser shall pay for the costs of the Title Commitment and
Title Policy and any endorsements thereto.
<PAGE>
Seller shall pay the cost of extended coverage on the Title Policy. The Title
Commitment shall be accompanied by legible copies of all documents of record
referred to in the Title Commitment.
4.2. Purchaser has received a survey of the Property prepared by Evans
Mechwart Hambleton & Tilton, Inc., dated August 18, 1986, revised September 4,
1986, and further revised August 24, 1988 (the "Existing Survey"). Seller
shall pay for the costs of updating the Existing Survey. Seller shall deliver
the updated survey (the "Updated Survey") to Purchaser within 15 days after the
date hereof, certified to Purchaser, Purchaser's Lender and the Title Company,
and made in accordance with the most recent Minimum Standard Detail Requirement
for ALTA/ACSM Land Title Surveys. Notwithstanding the foregoing, Purchaser
shall pay any costs incurred for the Updated Survey in connection with its
request for any additional detail, above and beyond the most recent Minimum
Standard Detail Requirement for ALTA/ACSM Land Title Surveys. Purchaser hereby
acknowledges that all matters disclosed by the Existing Survey are acceptable
to Purchaser.
4.3. The obligation of Purchaser and Seller to pay various costs set forth
in Paragraphs 4.1 and 4.2 shall survive the termination of this Agreement.
5. PAYMENT OF CLOSING COSTS. In addition to the costs set forth in
Paragraphs 4.1 and 4.2, Seller shall pay for the costs of the documentary or
transfer stamps to be paid with reference to the "Deed" (hereinafter defined)
and all other stamps, intangible, transfer, documentary, recording, sales tax
and surtax imposed by law with reference to any other sale documents delivered
in connection with the sale of the Property to Purchaser and all other charges
of the Title Insurer in connection with this transaction. Seller and Purchaser
shall each pay their respective attorney's fees incurred with respect to the
closing.
6. CONDITION OF TITLE.
6.1. If, prior to "Closing" (as hereinafter defined), a date-down to the
Title Commitment or the Updated Survey discloses any new Unpermitted Exception,
Seller shall have thirty (30) days from the date of the date-down to the Title
Commitment or the Updated Survey, as applicable, at Seller's expense, to (i)
bond over, cure and/or have any Unpermitted Exceptions which, in the aggregate,
do not exceed $25,000.00, removed from the Title Commitment or to have the
Title Insurer commit to insure against loss or damage that may be occasioned by
such Unpermitted Exceptions, or (ii) have the right, but not the obligation, to
bond over, cure and/or have any Unpermitted Exceptions which, in the aggregate,
equal or exceed $25,000.00, removed from the Title Commitment or to have the
Title Insurer commit to insure against loss or damage that may be occasioned by
such Unpermitted Exceptions. In such event, the time of Closing shall be
delayed, if necessary, to give effect to said aforementioned time periods. If
Seller fails to cure or have said Unpermitted Exception removed or have the
Title Insurer commit to insure as specified above within said thirty (30) day
period or if Seller elects not to exercise its rights under (ii) in the
preceding sentence, Purchaser may terminate this Agreement upon notice to
Seller within five (5) days after the expiration of said thirty (30) day
period. Absent notice from Purchaser to Seller in accordance with the
preceding sentence, Purchaser shall be deemed to have elected to take title
<PAGE>
subject to said Unpermitted Exception in which case Seller shall credit
Purchaser with $25,000.00 against the Purchase Price at Closing. If Purchaser
terminates this Agreement in accordance with the terms of this Paragraph 6.1,
this Agreement shall become null and void without further action of the parties
and all Earnest Money theretofore deposited into the escrow by Purchaser
together with any interest accrued thereon, shall be returned to Purchaser, and
neither party shall have any further liability to the other, except for
Purchaser's obligation to indemnify Seller and restore the Property, as more
fully set forth in Paragraph 8.
6.2. Seller agrees to convey fee simple title to the Property to
Purchaser by special warranty deed (the "Deed") in recordable form subject only
to the Permitted Exceptions and any Unpermitted Exceptions waived by Purchaser.
7. CONDEMNATION, EMINENT DOMAIN, DAMAGE AND CASUALTY.
7.1. Except as provided in the indemnity provisions contained in
Paragraph 8.1 of this Agreement, Seller shall bear all risk of loss with
respect to the Property up to the earlier of the dates upon which either
possession or title is transferred to Purchaser in accordance with this
Agreement. Notwithstanding the foregoing, in the event of damage to the
Property by fire or other casualty prior to the Closing Date, repair of which
would cost less than or equal to $100,000.00 (as determined by Seller in good
faith) Purchaser shall not have the right to terminate its obligations under
this Agreement by reason thereof, but Seller shall have the right to elect to
either repair and restore the Property (in which case the Closing Date shall be
extended until completion of such restoration) or to assign and transfer to
Purchaser on the Closing Date all of Seller's right, title and interest in and
to all insurance proceeds paid or payable to Seller on account of such fire or
casualty and Seller shall pay to Purchaser at the Closing the amount of
Seller's insurance deductible. Seller shall promptly notify Purchaser in
writing of any such fire or other casualty and Seller's determination of the
cost to repair the damage caused thereby. In the event of damage to the
Property by fire or other casualty prior to the Closing Date, repair of which
would cost in excess of $100,000.00 (as determined by Seller in good faith),
then this Agreement may be terminated at the option of Purchaser, which option
shall be exercised, if at all, by Purchaser's written notice thereof to Seller
within ten (10) business days after Purchaser receives written notice of such
fire or other casualty and Seller's determination of the amount of such
damages, and upon the exercise of such option by Purchaser this Agreement shall
become null and void, the Earnest Money deposited by Purchaser shall be
returned to Purchaser together with interest thereon, and neither party shall
have any further liability or obligations hereunder. In the event that
Purchaser does not exercise the option set forth in the preceding sentence, the
Closing shall take place on the Closing Date and Seller shall assign and
transfer to Purchaser on the Closing Date all of Seller's right, title and
interest in and to all insurance proceeds paid or payable to Seller on account
of the fire or casualty by executing and delivering to Purchaser at Closing all
required proofs of loss, assignments of claims and proceeds, and other similar
items and Seller shall pay to Purchaser at the Closing the amount of Seller's
insurance deductible.
<PAGE>
7.2. If between the date of this Agreement and the Closing Date, any
condemnation or eminent domain proceedings are initiated which might result in
the taking of any part of the Property or the taking or closing of any right of
access to the Property, Seller shall immediately notify Purchaser of such
occurrence. In the event that the taking of any part of the Property shall:
(i) materially impair access to the Property; (ii) cause any material
non-compliance with any applicable law, ordinance, rule or regulation of any
federal, state or local authority or governmental agencies having jurisdiction
over the Property or any portion thereof; or (iii) materially and adversely
impair the use of the Property as it is currently being operated (hereinafter
collectively referred to as a "Material Event"), Purchaser may:
7.2.1. terminate this Agreement by written notice to Seller, in
which event the Earnest Money deposited by Purchaser, together with interest
thereon, shall be returned to Purchaser and all rights and obligations of the
parties hereunder with respect to the closing of this transaction will cease;
or
7.2.2. proceed with the Closing, in which event Seller shall assign
to Purchaser all of Seller's right, title and interest in and to any award made
in connection with such condemnation or eminent domain proceedings.
7.3. Purchaser shall then notify Seller, within five (5) business days
after Purchaser's receipt of Seller's notice, whether Purchaser elects to
exercise its rights under Paragraph 7.2.1 or Paragraph 7.2.2. Closing shall be
delayed, if necessary, until Purchaser makes such election. If Purchaser fails
to make an election within such five (5) business day period, Purchaser shall
be deemed to have elected to exercise its rights under Paragraph 7.2.2. If
between the date of this Agreement and the Closing Date, any condemnation or
eminent domain proceedings are initiated which do not constitute a Material
Event, Purchaser shall be required to proceed with the Closing, in which event
Seller shall assign to Purchaser all of Seller's right, title and interest in
and to any award made in connection with such condemnation or eminent domain
proceedings.
8. INSPECTION AND AS-IS CONDITION.
8.1. During the period commencing on June 17, 1996 and ending at 5:00
p.m. Chicago time on August 12, 1996 (said period being herein referred to as
the "Inspection Period"), Purchaser and the agents, engineers, employees,
contractors and surveyors retained by Purchaser may enter upon the Property, at
any reasonable time and upon reasonable prior notice to Seller, to inspect the
Property, including a review of leases located at the Property, and to conduct
and prepare such studies, tests and surveys as Purchaser may deem reasonably
necessary and appropriate. In connection with Purchaser's review of the
Property, Seller has delivered to Purchaser, and Purchaser acknowledges receipt
of, copies of the current rent roll for the Property, the most recent tax and
insurance bills, utility account numbers, service contracts, and unaudited year
end 1995 and year-to-date 1996 operating statements.
All of the foregoing tests, investigations and studies to be conducted
under this Paragraph 8.1 by Purchaser shall be at Purchaser's sole cost and
expense and Purchaser shall restore the Property to the condition existing
<PAGE>
prior to the performance of such tests or investigations by or on behalf of
Purchaser. Purchaser shall defend, indemnify and hold Seller and any
affiliate, parent of Seller, and all shareholders, employees, officers and
directors of Seller or Seller's affiliate or parent (hereinafter collectively
referred to as "Affiliate of Seller") harmless from any and all liability, cost
and expense (including without limitation, reasonable attorney's fees, court
costs and costs of appeal) suffered or incurred by Seller or Affiliates of
Seller for injury to persons or property caused by Purchaser's investigations
and inspection of the Property. Purchaser shall undertake its obligation to
defend set forth in the preceding sentence using attorneys selected by Seller.
Prior to commencing any such tests, studies and investigations, Purchaser
shall furnish to Seller a certificate of insurance evidencing comprehensive
general public liability insurance insuring the person, firm or entity
performing such tests, studies and investigations and listing Seller and
Purchaser as additional insureds thereunder.
If Purchaser is dissatisfied with the results of the tests, studies or
investigations performed or information received pursuant to this Paragraph
8.1, Purchaser shall have the right to terminate this Agreement by giving
written notice of such termination to Seller at any time prior to the
expiration of the Inspection Period. If written notice is not received by
Seller pursuant to this Paragraph 8.1 prior to the expiration of the Inspection
Period, then the right of Purchaser to terminate this Agreement pursuant to
this Paragraph 8.1 shall be waived. If Purchaser terminates this Agreement by
written notice to Seller prior to the expiration of the Inspection Period: (i)
Purchaser shall promptly deliver to Seller copies of all studies, reports and
other investigations prepared by third parties and obtained by Purchaser in
connection with its due diligence during the Inspection Period; and (ii) the
Earnest Money deposited by Purchaser shall be immediately paid to Purchaser,
together with any interest earned thereon, and neither Purchaser nor Seller
shall have any right, obligation or liability under this Agreement, except for
Purchaser's obligation to indemnify Seller and restore the Property, as more
fully set forth in this Paragraph 8.1. Notwithstanding anything contained
herein to the contrary, the terms of this Paragraph 8.1, shall survive the
Closing and the delivery of the Deed and termination of this Agreement.
8.2. Purchaser acknowledges and agrees that it will be purchasing the
Property and the Personal Property based solely upon its inspections and
investigations of the Property and the Personal Property, and that Purchaser
will be purchasing the Property and the Personal Property "AS IS" and "WITH ALL
FAULTS", based upon the condition of the Property and the Personal Property as
of the date of this Agreement, wear and tear and loss by fire or other casualty
or condemnation excepted. Without limiting the foregoing, Purchaser
acknowledges that, except as may otherwise be specifically set forth elsewhere
in this Agreement, neither Seller nor its consultants, brokers or agents have
made any representations or warranties of any kind upon which Purchaser is
relying as to any matters concerning the Property or the Personal Property,
including, but not limited to, the condition of the land or any improvements
comprising the Property, the existence or non-existence of "Hazardous
Materials" (as hereinafter defined), economic projections or market studies
concerning the Property, any development rights, taxes, bonds, covenants,
conditions and restrictions affecting the Property, water or water rights,
<PAGE>
topography, drainage, soil, subsoil of the Property, the utilities serving the
Property or any zoning or building laws, rules or regulations or "Environmental
Laws" (hereinafter defined) affecting the Property. Seller makes no
representation or warranty that the Property complies with Title III of the
Americans with Disabilities Act or any fire code or building code. Purchaser
hereby releases Seller and the Affiliates of Seller from any and all liability
in connection with any claims which Purchaser may have against Seller or the
Affiliates of Seller, and Purchaser hereby agrees not to assert any claims for
contribution, cost recovery or otherwise, against Seller or the Affiliates of
Seller, relating directly or indirectly to the existence of asbestos or
Hazardous Materials on, or environmental conditions of, the Property, whether
known or unknown. As used herein, "Environmental Laws" means all federal,
state and local statutes, codes, regulations, rules, ordinances, orders,
standards, permits, licenses, policies and requirements (including consent
decrees, judicial decisions and administrative orders) relating to the
protection, preservation, remediation or conservation of the environment or
worker health or safety, all as amended or reauthorized, or as hereafter
amended or reauthorized, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.
Section 9601 et seq., the Resource Conservation and Recovery Act of 1976
("RCRA"), 42 U.S.C. Section 6901 et seq., the Emergency Planning and Community
Right-to-Know Act ("Right-to-Know Act"), 42 U.S.C. Section 11001 et seq., the
Clean Air Act ("CAA"), 42 U.S.C. Section 7401 et seq., the Federal Water
Pollution Control Act ("Clean Water Act"), 33 U.S.C. Section 1251 et seq., the
Toxic Substances Control Act ("TSCA"), 15 U.S.C. Section 2601 et seq., the Safe
Drinking Water Act ("Safe Drinking Water Act"), 42 U.S.C. Section 300f et seq.,
the Atomic Energy Act ("AEA"), 42 U.S.C. Section 2011 et seq., the Occupational
Safety and Health Act ("OSHA"), 29 U.S.C. Section 651 et seq., and the
Hazardous Materials Transportation Act (the "Transportation Act"), 49 U.S.C.
Section 1802 et seq. As used herein, "Hazardous Materials" means:
(1) "hazardous substances," as defined by CERCLA; (2) "hazardous wastes," as
defined by RCRA; (3) any radioactive material including, without limitation,
any source, special nuclear or by-product material, as defined by AEA; (4)
asbestos in any form or condition; (5) polychlorinated biphenyls; and (6) any
other material, substance or waste to which liability or standards of conduct
may be imposed under any Environmental Laws. Notwithstanding anything
contained herein to the contrary, the terms of this Paragraph 8.2 shall survive
the Closing and the delivery of the Deed and termination of this Agreement.
8.3. Seller has provided to Purchaser certain unaudited historical
financial information regarding the Property relating to certain periods of
time in which Seller owned the Property. Seller and Purchaser hereby
acknowledge that such information has been provided to Purchaser at Purchaser's
request solely as illustrative material. Except as set forth in Paragraph
17.2, Seller makes no representation or warranty regarding such material and
Seller makes no representation or warranty regarding Purchaser's ability to
achieve similar financial or other results with respect to the operations of
the Property, it being acknowledged by Purchaser that Seller's operation of the
Property and allocations of revenues or expenses may be vastly different than
Purchaser may be able to attain. Purchaser acknowledges that it is a
sophisticated and experienced purchaser of real estate and further that
Purchaser has relied upon its own investigation and inquiry with respect to the
<PAGE>
operation of the Property and, except as set forth in Paragraph 17.2, releases
Seller and the Affiliates of Seller from any liability with respect to such
historical information. Notwithstanding anything contained herein to the
contrary, the terms of this Paragraph 8.3 shall survive the Closing and the
delivery of the Deed and termination of this Agreement.
8.4. Seller has provided to Purchaser the following existing report:
Report of Phase I Environmental Site Assessment and Limited Asbestos Survey
prepared by Law Associates, Inc., Project Number 13912178-0, dated January 21,
1992 ("Existing Report"). Seller makes no representation or warranty
concerning the accuracy or completeness of the Existing Report. Purchaser
hereby releases Seller and the Affiliates of Seller from any liability
whatsoever with respect to the Existing Report, or, including, without
limitation, the matters set forth in the Existing Report, and the accuracy
and/or completeness of the Existing Report. Furthermore, Purchaser
acknowledges that it will be purchasing the Property with all faults disclosed
in the Existing Report. Notwithstanding anything contained herein to the
contrary, the terms of this Paragraph 8.4 shall survive the Closing and the
delivery of the Deeds and termination of this Agreement.
8.5. In the event that Purchaser does not terminate this Agreement in
accordance with the provisions of Paragraph 8.1 hereof, and does not deposit
the Additional Earnest Money into Escrow on or before August 12, 1996,
Purchaser shall be deemed to be in default under this Agreement and Seller
shall be entitled to retain the Initial Earnest Money together with all
interest accrued thereon and this Agreement shall become null and void without
further action of the parties and neither party shall have any further
liability to the other, except for Purchaser's obligation to indemnify Seller
and restore the Property as more fully set forth in Paragraph 8.
9. CLOSING. The closing of this transaction (the "Closing") shall be on
September 11, 1996 (the "Closing Date"), at the office of Title Insurer's
agent, Charter Title Insurance Company, Columbus, Ohio, at which time Seller
shall deliver possession of the Property to Purchaser. This transaction shall
be closed through an escrow with Title Insurer, in accordance with the general
provisions of the usual and customary form of deed and money escrow for similar
transactions in Ohio, or at the option of either party, the Closing shall be a
"New York style" closing at which the Purchaser shall wire the Purchase Price
to Title Insurer on the Closing Date and prior to the release of the Purchase
Price to Seller, Purchaser shall receive the Title Policy or marked up
commitment dated the date of the Closing Date. In the event of a New York
style closing, Seller shall deliver to Title Insurer any customary affidavit in
connection with a New York style closing. All closing and escrow fees shall be
divided equally between the parties hereto.
10. CLOSING DOCUMENTS.
10.1. At least 24 hours prior to the Closing Date, Seller shall submit to
Purchaser for approval the documents and instruments listed in subparagraph
10.2.7, as well as a joint closing statement. On the closing date, Purchaser
and Seller shall execute and deliver to one another a joint closing statement.
In addition, Purchaser shall deliver to Seller the balance of the Purchase
Price, an assumption of the documents set forth in Paragraph 10.2.3 and 10.2.4
and such other documents as may be reasonably required by the Title Insurer in
order to consummate the transaction as set forth in this Agreement.
<PAGE>
10.2. On the Closing Date, Seller shall deliver to Purchaser the
following:
10.2.1. the Deed (in the form of Exhibit E attached hereto),
subject to Permitted Exceptions and those Unpermitted Exceptions waived by
Purchaser, sufficient to transfer and convey to Purchaser fee simple title to
the Premises;
10.2.2. a bill of sale sufficient to transfer to Purchaser title to
the Personal Property (in the form of Exhibit F attached hereto);
10.2.3. assignment and assumption of intangible property (in the
form attached hereto as Exhibit G), including, without limitation, the service
contracts listed in Exhibit H;
10.2.4. an assignment and assumption of tenant leases and security
deposits (in the form attached hereto as Exhibit I);
10.2.5. non-foreign affidavit (in the form of Exhibit J attached
hereto);
10.2.6. original, and/or copies of, leases affecting the Property to
the extent in Seller's possession or control, and any and all documents
referred to in Paragraph 1.3 (to be delivered at the Property);
10.2.7. all documents and instruments reasonably required by the
Title Insurer to issue the Title Policy;
10.2.8. possession of the Property to Purchaser, subject to the
terms of leases;
10.2.9. evidence of the termination of the management agreement;
10.2.10. notice to each tenant of the Property of the transfer of
title and assumption by Purchaser of the landlord's obligation under the leases
and the obligation to refund the security deposits (in the form of Exhibit K).
Purchaser and Seller agree that Purchaser shall not accept responsibility for
security deposits unless they are transferred to Purchaser or Purchaser is
given a credit against the Purchase Price at Closing for such security
deposits; and
10.2.11. a certified and updated rent roll in the form of Exhibit
L).
11. PURCHASER'S DEFAULT. ALL EARNEST MONEY DEPOSITED INTO THE ESCROW IS TO
SECURE THE TIMELY PERFORMANCE BY PURCHASER OF ITS OBLIGATIONS AND UNDERTAKINGS
UNDER THIS AGREEMENT. IN THE EVENT OF A DEFAULT OF THE PURCHASER UNDER THE
PROVISIONS OF THIS AGREEMENT, SELLER SHALL RETAIN ALL OF THE EARNEST MONEY AND
THE INTEREST THEREON AS SELLER'S SOLE RIGHT TO DAMAGES OR ANY OTHER REMEDY,
EXCEPT FOR PURCHASER'S OBLIGATIONS TO INDEMNIFY SELLER AND RESTORE THE PROPERTY
AS SET FORTH IN PARAGRAPH 8.1 HEREOF. THE PARTIES HAVE AGREED THAT SELLER'S
ACTUAL DAMAGES, IN THE EVENT OF A DEFAULT BY PURCHASER, WOULD BE EXTREMELY
DIFFICULT OR IMPRACTICAL TO DETERMINE. THEREFORE, BY PLACING THEIR INITIALS
BELOW, THE PARTIES ACKNOWLEDGE THAT THE EARNEST MONEY HAS BEEN AGREED UPON,
AFTER NEGOTIATION, AS THE PARTIES' REASONABLE ESTIMATE OF SELLER'S DAMAGES.
<PAGE>
12. SELLER'S DEFAULT. IF THIS SALE IS NOT COMPLETED BECAUSE OF SELLER'S
DEFAULT, PURCHASER'S SOLE REMEDY SHALL BE THE RETURN OF ALL EARNEST MONEY
TOGETHER WITH ANY INTEREST ACCRUED THEREON, AND THIS AGREEMENT SHALL THEN
BECOME NULL AND VOID AND OF NO EFFECT AND THE PARTIES SHALL HAVE NO FURTHER
LIABILITY TO EACH OTHER AT LAW OR IN EQUITY, EXCEPT FOR PURCHASER'S OBLIGATIONS
TO INDEMNIFY SELLER AND RESTORE THE PROPERTY AS SET FORTH MORE FULLY IN
PARAGRAPH 8. NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, IF
SELLER'S DEFAULT IS ITS WILLFUL REFUSAL TO DELIVER THE DEED, THEN PURCHASER
WILL BE ENTITLED TO SUE FOR SPECIFIC PERFORMANCE.
13. PRORATIONS.
13.1. Rents (exclusive of delinquent rents, but including prepaid rents);
refundable security deposits (which will be assigned to and assumed by
Purchaser and credited to Purchaser at Closing); fuels; prepaid operating
expenses; and real and personal property taxes shall be adjusted ratably as of
11:59 p.m. on the Closing Date, and credited against the balance of the cash
due at Closing. Assessments payable in installments which are due subsequent
to the Closing Date shall be paid by Purchaser. If the amount of any of the
items to be prorated is not then ascertainable, the adjustments thereof shall
be on the basis of the most recent ascertainable data. All prorations will be
final except as to delinquent rent referred to in Paragraph 13.2 below and the
Tax Escrow set forth in Paragraph 13.3.
13.2. All rent paid following the Closing Date, and attributable to any
period prior to and including the Closing Date, by any tenant of the Property
who is indebted under a lease for rent for any period prior to and including
the Closing Date shall be deemed a "Post-Closing Receipt" until such time as
all such indebtedness is paid in full. Within ten (10) days following each
receipt by Purchaser of a Post-Closing Receipt, Purchaser shall pay such
Post-Closing Receipt to Seller. Purchaser shall use its best efforts to
collect all amounts which, upon collection, would constitute Post-Closing
Receipts hereunder but Purchaser shall in no event be required to incur any
expense or initiate any law suit in connection with the collection of
delinquent rent. Within 120 days after the Closing Date, Purchaser shall
deliver to Seller a reconciliation statement of Post-Closing Receipts through
the first 90 days after the Closing Date. Upon the delivery of the
Post-Closing Receipts reconciliation, Purchaser shall deliver to Seller any
Post-Closing Receipts owing to Seller and not previously delivered to Seller in
accordance with the terms hereof. Paragraph 13.2 of this Agreement shall
survive the Closing and the delivery and recording of the deed.
13.3. At Closing, Seller shall establish an interest bearing escrow with
the Title Insurer (the "Tax Escrow") and shall fund the Tax Escrow with an
amount equal to thirty five percent (35%) of the difference between the
Purchase Price and the current assessed value multiplied by 54.428367, the tax
millage applicable to the Property for 1995, divided by one thousand (1,000).
At the time that the final tax bill for the Property is issued for the year
1996, Purchaser shall be entitled to draw an amount from the Tax Escrow equal
to the difference between the total real property tax bill for 1996 and the
total real property tax bill for 1995 multiplied by a number, the numerator of
which shall be the number of days elapsed in 1996 from January 1 until the
<PAGE>
Closing Date, and the denominator of which shall be 365. For example, if the
1996 tax bill is $10,000 more than the 1995 tax bill and the closing takes
place on September 11, 1996, Purchaser will be entitled to draw $6,986.30 from
the Tax Escrow ($10,000 x 255/365). Any amount remaining in the Tax Escrow
after Purchaser draws the amount represented by the formula set forth above
shall be immediately returned by the Title Insurer to Seller. In addition,
Seller shall be credited with all interest earned on the Tax Escrow. Paragraph
13.3 of this Agreement shall survive the Closing and the delivery and recording
of the deed.
14. RECORDING. Neither this Agreement nor a memorandum thereof shall be
recorded and the act of recording by Purchaser or Seller shall be an act of
default hereunder by the recording party and subject to the provisions of
Paragraph 11 and 12 hereof.
15. ASSIGNMENT. The Purchaser shall not have the right to assign its interest
in this Agreement without the prior written consent of the Seller. Any
assignment or transfer of, or attempt to assign or transfer, Purchaser's
interest in this Agreement shall be an act of default hereunder by Purchaser
and subject to the provisions of Paragraph 11 hereof. Notwithstanding the
foregoing, Purchaser may assign this Agreement one time only to any entity
affiliated with or controlled by Purchaser provided that Purchaser remains
liable for and the assignee assumes the obligations of Purchaser hereunder.
16. BROKER. The parties hereto represent and warrant that no broker
commission or finder fee is due and payable in connection with this transaction
other than to the Dietz Organization (to be paid by Seller). Seller's
commission to the Dietz Organization shall only be payable out of the proceeds
of the sale of the Property in the event the transaction set forth herein
closes. Purchaser and Seller shall indemnify, defend and hold the other party
hereto harmless from any claim whatsoever (including without limitation,
reasonable attorney's fees, court costs and costs of appeal) from anyone
claiming by or through the indemnifying party any fee, commission or
compensation on account of this Agreement, its negotiation or the sale hereby
contemplated other than to the Dietz Organization. The indemnifying party
shall undertake its obligations set forth in this Paragraph 16 using attorneys
selected by the indemnifying party and reasonably acceptable to the indemnified
party. The provisions of this Paragraph 16 will survive the Closing and
delivery of the Deed.
17. REPRESENTATIONS AND WARRANTIES.
17.1. Any reference herein to Seller's knowledge or notice of any matter
or thing shall only mean such knowledge or notice that has actually been
received by Mark Saturno and Gregg Handrich, the asset manager of the Property
(the "Seller's Representative"), and any representation or warranty of the
Seller is based upon those matters of which the Seller's Representative has
actual knowledge. A copy of this Paragraph 17.1 shall be delivered to the
resident manager of the Property within three (3) days after the execution by
Seller of this Agreement with a request to advise Gregg Handrich within five
(5) business days after receipt by the resident manager as to the accuracy and
truthfulness of the representations and warranties contained herein. If the
<PAGE>
resident manager indicates that any of the representations or warranties
contained herein are incorrect, Gregg Handrich shall notify Purchaser as to the
response of the resident manager within three (3) business days after receipt
of a response from the resident manager. If Gregg Handrich fails to so notify
Purchaser, Purchaser shall be entitled to conclude that the resident manager
has reviewed this Agreement and that the representations and warranties
contained herein are correct. Except as set forth above, any knowledge or
notice given, had or received by any of Seller's agents, servants or employees
shall not be imputed to Seller, the general partner or limited partners of
Seller, the subpartners of the general partner or limited partners of Seller or
Seller's Representative.
17.2. Subject to the limitations set forth in Paragraph 17.1, Seller
hereby makes the following representations and warranties, which
representations and warranties are made to Seller's knowledge: (i) Seller has
no knowledge of any pending or threatened litigation, claim, cause of action,
zoning, building, fire or health code violation or administrative proceeding
concerning the Property; (ii) Seller has the power to execute and deliver this
Agreement and consummate the transactions contemplated herein; (iii) the rent
roll attached hereto as Exhibit M which Seller will update as of the Closing
Date is accurate as of the dates set forth thereon; (iv) Seller has not entered
into any agreement to sell, mortgage or otherwise encumber or dispose of its
interest in the Property or any part thereof; (v) all insurance policies
insuring the Property are in full force and effect, Seller is current on all
premium payments thereunder, and no notice has been received by Seller from any
insurer with respect to any defects or inadequacies of all or any part of the
Property; (vi) Seller has received no written notice from any governmental
agency regarding special assessments to be levied against the Property; and
(vii) the historical financial information provided pursuant to Paragraph 8.3
of this Agreement is complete and accurate.
17.3. Purchaser hereby represents and warrants to Seller that
Purchaser has the full right, power and authority to execute and deliver this
Agreement and consummate the transactions contemplated herein.
17.4. The parties agree that the representations contained herein
shall survive Closing for a period of one hundred eighty (180) days (i.e., the
claiming party shall have no right to make any claims against the other party
for a breach of a representation or warranty after the expiration of one
hundred eighty (180) days immediately following Closing).
17.5. Seller covenants to operate and manage the Property in the same
manner that it has managed, maintained and operated the Property during the
period of Seller's ownership, subject to reasonable wear and tear and casualty
and Seller agrees that all new tenant leases shall provide for rental and
security deposits of not less than that being charged currently and as shown on
Exhibit M.
<PAGE>
18. LIMITATION OF LIABILITY.
18.1. No Affiliate of Seller, nor any of their respective
beneficiaries, shareholders, partners, officers, directors, agents or
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 Purchaser hereby waives for itself and
anyone who may claim by, through or under Purchaser any and all rights to sue
or recover on account of any such alleged personal liability.
18.2. Notwithstanding anything contained herein to the contrary,
Purchaser hereby agrees that the maximum aggregate liability of Seller, in
connection with, arising out of or in any way related to a breach by Seller
under this Agreement or any document or conveyance agreement in connection with
the transaction set forth herein after the Closing shall be $250,000 except in
the case of fraud, intentional misrepresentation and willful breach by the
Seller. Purchaser hereby waives for itself and anyone who may claim by,
through or under Purchaser any and all rights to sue or recover from Seller any
amount greater than said limit except in the case of fraud intentional
misrepresentation and willful breach perpetrated by the Seller upon the
Purchaser.
18.3. Seller further agrees not to distribute $250,000 of the
proceeds of the Purchase Price to its partners for the longer of (i) one
hundred eighty (180) days after the Closing and (ii) final resolution of any
claims by Purchaser and asserted in writing against Seller prior to the
expiration of the one hundred eighty (180) days after the Closing in accordance
with the terms of this Agreement ("Claims"); provided, however, that if any
Claims are disputed by Seller, Seller shall have the right, by written notice
to Purchaser, to require Purchaser to file suit in a court of competent
jurisdiction within one hundred eighty (180) days after such notice to
Purchaser; otherwise said notice with respect to the Claim in question shall no
longer prevent Seller from distributing the proceeds.
19. TIME OF ESSENCE. Time is of the essence of this Agreement.
20. NOTICES. Any notice or demand which either party hereto is required or
may desire to give or deliver to or make upon the other party shall be in
writing and may be personally delivered or given or made by overnight courier
such as Federal Express, by facsimile transmission or made by United States
registered or certified mail addressed as follows:
TO SELLER: c/o The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road
Suite A-200
Bannockburn, Illinois 60015
Attention: Ilona Adams
<PAGE>
with copies to: The Balcor Company
Bannockburn Lake Office Plaza
2355 Waukegan Road
Suite A-200
Bannockburn, Illinois 60015
Attention: Alan Lieberman
(708) 317-4360
(708) 317-4462 (FAX)
and to: Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
Attention: Daniel J. Perlman, Esq.
(312) 902-5532
(312) 902-1061 (FAX)
TO PURCHASER: c/o American Apartment Communities, Inc.
2109 W. Fifth Avenue
Suite C
Columbus, Ohio 43212
Attention: George R. Nickerson
(614) 487-1250
(614) 487-1003 (FAX)
and one copy to: Porter, Wright, Morris & Arthur
41 South High Street
Columbus, Ohio 43215-6194
Attention: Richard A. Cheap, Esq.,
Megan V. Kent, Esq.,
(614) 227-2292
(800) 533-2794
(614) 227-2100 (FAX)
subject to the right of either party to designate a different address for
itself by notice similarly given. Any notice or demand so given shall be
deemed to be delivered or made on the next business day if sent by overnight
courier, or the same day as given if sent by facsimile transmission and
received by 5:00 p.m. Chicago time or on the 4th business day after the same is
deposited in the United States Mail as registered or certified matter,
addressed as above provided, with postage thereon fully prepaid. Any such
notice, demand or document not given, delivered or made by registered or
certified mail, by overnight courier or by facsimile transmission as aforesaid
shall be deemed to be given, delivered or made upon receipt of the same by the
party to whom the same is to be given, delivered or made. Copies of all
notices shall be served upon the Escrow Agent.
21. EXECUTION OF AGREEMENT AND ESCROW AGREEMENT. Purchaser will execute two
(2) copies of this Agreement and three (3) copies of the Escrow Agreement and
forward them to Seller for execution. Within one day after receiving a
facsimile copy of the signature page to this Agreement executed by Seller,
Purchaser will forward the Earnest Money, payable to the Escrow Agent set forth
in the Escrow Agreement, directly to the Escrow Agent. Seller will forward one
(1) copy of the executed Agreement to Purchaser and will forward the following
to the Escrow Agent:
<PAGE>
(A) One (1) fully executed copy of this Agreement; and
(B) Three (3) copies of the Escrow Agreement signed by the parties with a
direction to execute two (2) copies of the Escrow Agreement and deliver a fully
executed copy to each of the Purchaser and the Seller.
22. GOVERNING LAW. The provisions of this Agreement shall be governed by the
laws of the Ohio.
23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties and supersedes all other negotiations, understandings and
representations made by and between the parties and the agents, servants and
employees.
24. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same instrument.
25. CAPTIONS. Paragraph titles or captions contained herein are inserted as a
matter of convenience and for reference, and in no way define, limit, extend or
describe the scope of this Agreement or any provision hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have put their hand and seal as of
the date first set forth above.
PURCHASER:
American Apartment Communities II, L.P., a
Delaware limited partnership
By: American Apartment Communities II, Inc.,
a Maryland corporation, its general partner
By: /s/ George R. Nickerson
-----------------------------------
Name: George R. Nickerson
-----------------------------------
Its: Vice President
-----------------------------------
SELLER:
Hickory Creek Limited Partnership, an Illinois
Limited Partnership
By: Hickory Creek, Inc., an Illinois
Corporation, its general partner
By: /s/ James E. Mendelson
-----------------------------------
Name:
-----------------------------------
Its:
-----------------------------------
<PAGE>
_________________ of Dietz Organization ("Seller's Broker") executed this
Agreement in its capacity as a real estate broker and acknowledges that the fee
or commission due it from Seller as a result of the transaction described in
this Agreement is as set forth in that certain Listing Agreement, dated
________________, 1996 between Seller and Seller's Broker (the "Listing
Agreement"). Seller's Broker also acknowledges that payment of the aforesaid
fee or commission is conditioned upon the Closing and the receipt of the
Purchase Price by the Seller. Seller's Broker agrees to deliver a receipt to
the Seller at the Closing for the fee or commission due Seller's Broker and a
release, in the appropriate form, stating that no other fees or commissions are
due to it from Seller or Purchaser.
Dietz Organization
By:
---------------------------------
Name:
---------------------------------
Its:
---------------------------------
<PAGE>
Exhibits
A - Legal
B - Personal Property
C - Escrow Agreement
D - Title Commitment
E - Deed
F - Bill of Sale
G - Assignment and Assumption of Intangible Property
H - Service Contracts
I - Assignment and Assumption of Leases and Security Deposits
J - Non-Foreign Affidavit
K - Notice to Tenants
L - Rent Roll
M - Rental and Security Deposits
<PAGE>
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
PAUL WILLIAMS, et al., )
)
Plaintiffs, )
) No. 90 C 0726
v. )
) Honorable James B. Zagel
BALCOR PENSION INVESTORS, )
et al., )
)
Defendants. )
)
)
BALCOR MORTGAGE ADVISORS, et al., )
)
Counter-plaintiffs, )
)
v. )
)
PAUL WILLIAMS, et al., )
)
Counter-defendants. )
NOTICE OF PROPOSED
CLASS ACTION SETTLEMENT AND HEARING
THIS IS NOT NOTICE OF A LAWSUIT AGAINST YOU. This Notice is to
advise you of a proposed settlement of the class action lawsuit captioned above
and of a court hearing on the proposed settlement.
1. Summary of Proposed Settlement. The proposed settlement resolves
all issues raised by this lawsuit. The parties in these suits are the First
Union National Bank of North Carolina, Trustee of the Ploof Truck Lines, Inc.
Profit Sharing and 401(k) Plan, Bruce McGlasson and Tom Chipain (collectively
the "Class Representatives") on behalf of themselves and the plaintiff class as
defined below (the "Class"), Paul Williams, Beverly Kennedy, William B.
Copeland, Allan Hirschfield, Gregory Baird, individually and as trustee of the
Iva Medical Center, P.A. Pension and Profit Sharing Plan, and Samuel Wegbreit
(collectively "the Individual Plaintiffs"), who brought this suit as a class
action and Balcor Pension Investors, Balcor Pension Investors-II, Balcor
Pension Investors-III, Balcor Pension Investors-IV, Balcor Pension Investors-V,
Balcor Pension Investors-VI, Balcor Pension Investors-VII, Balcor Preferred
Pension-12, Balcor Mortgage Advisors, Balcor Mortgage Advisors-II, Balcor
Mortgage Advisors-III, Balcor Mortgage Advisors-V, Balcor Mortgage Advisors-VI,
Balcor Mortgage Advisors-VII, Balcor Mortgage Advisors-VIII, Balcor Mortgage
Advisors, Inc., Balcor Mortgage Advisors-V, Inc., The Balcor Company, Balcor
Securities Co., Shearson Lehman Hutton Inc., and American Express Company
(collectively "Defendants"). Plaintiffs assert that Defendants violated the
<PAGE>
law by misrepresenting or concealing material information concerning Balcor
Pension Investors, Balcor Pension Investors-II, Balcor Pension Investors-III,
Balcor Pension Investors-IV, Balcor Pension Investors-V, Balcor Pension
Investors-VI, Balcor Pension Investors-VII, and Balcor Preferred Pension-12
(the "BPI Partnerships") in connection with purchases of interests in them by
members of the Class. Defendants vigorously deny any wrongdoing and assert
that their conduct was proper and conformed to the law. To avoid the further
expense and risks of continued litigation, the parties have determined to
compromise their differences and have agreed to a proposed settlement that
resolves all issues raised by these lawsuits.
The class of persons who will be affected by the proposed settlement
consists of all individuals, partnerships, corporations and other entities who
invested in Balcor Pension Investors, Balcor Pension Investors-II, Balcor
Pension Investors-III, Balcor Pension Investors-IV, Balcor Pension
Investors-V, Balcor Pension Investors-VI, Balcor Pension Investors-VII, and
Balcor Preferred Pension-12 (the "BPI Partnerships"), during the original
public offerings of such interests. The Class excludes the Defendants and any
entities owned or controlled by the Defendants, those individuals and/or
entities who acquired their Partnership interests after the original offering
periods ended and those individuals who notified Class Counsel on or before
November 20, 1995 that they wished to be excluded from the Class.
This Notice contains important information regarding the settlement,
the final hearing on the settlement, and your right to participate in the
settlement hearing, which will be held on November 20, 1996 at 11:00 a.m. If
the Court approves the settlement, you will be bound by the Final Judgment.
YOU SHOULD READ THE ENTIRE NOTICE CAREFULLY, SINCE YOUR RIGHTS WILL BE AFFECTED
BY THIS SETTLEMENT.
2. History of the Lawsuits. There is now pending in the United
States District Court for the Northern District of Illinois an action captioned
Paul Williams, et al. v. The Balcor Company, et al., No. 90 C 0726, which was
filed on February 7, 1990. The lawsuit alleges violations by Defendants of
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C.
ee 78j(b) and 78t(a), Rule 10b-5 promulgated under e 10(b) of the Securities
Exchange Act of 1934, 17 C.F.R. d 240.10b-5, the rules and regulations of the
Securities and Exchange Commission promulgated under the Securities Exchange
Act of 1934, the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C.
ee 1961, et seq., and the common law in connection with the original offering
of interests in the BPI Partnerships. Defendants have denied these allegations
and have filed a class action counterclaim for declaratory judgment, which,
inter alia, concerns the propriety of defendants obtaining indemnification for
the attorneys' fees and expenses incurred defending this litigation from the
assets of the BPI Partnerships.
After the lawsuit was filed, the Seventh Circuit Court of Appeals
held in Short v. Belleville Shoe Mfg. Co., 908 F.2d 1385 (7th Cir. 1990), that
actions brought to enforce those provisions of the Securities Exchange Act of
1934 alleged in the lawsuit to have been violated by Defendants must be brought
within one year after discovery of the alleged violation and within three years
after such violation. Shortly thereafter, the United States Supreme Court made
a similar ruling in Lampf, Pleva, Lipkind, Prupis & Petrigrow v. Gilbertson,
<PAGE>
111 S.Ct. 2773 (1991). On July 21, 1994, the court granted the motion for
class certification filed by the class representatives and certified a class
solely on plaintiffs' claims of violations of the Securities and Exchange Act
of 1934.
On July 12, 1996, the Honorable James B. Zagel of the United States
District Court for the Northern District of Illinois preliminarily determined
that the proposed settlement is fair and reasonable.
3. Purpose of this Notice. This Notice is given pursuant to Federal
Rule of Civil Procedure 23 and an Order of the United States District Court for
the Northern District of Illinois. This Notice is not an expression of any
opinion by that Court as to the merits of any of the claims or defenses
asserted by any party in this lawsuit. The purpose of this Notice is to inform
you of the pendency of this lawsuit, the terms of the proposed class
settlement, the date of the court hearing on the settlement, and your rights
with respect to the settlement and hearing.
4. Definition of the Class. The proposed Class on whose behalf this
settlement is made consists of all individuals, partnerships, corporations and
other entities who invested in Balcor Pension Investors, Balcor Pension
Investors-II, Balcor Pension Investors-III, Balcor Pension Investors-IV,
Balcor Pension Investors-V, Balcor Pension Investors-VI, Balcor Pension
Investors-VII, and Balcor Preferred Pension-12, during the original public
offerings of such interests. The Class excludes the Defendants and any
entities owned or controlled by the Defendants, those individuals and/or
entities who acquired their Partnership interests after the original offering
periods ended and those individuals who notified Class Counsel on or before
November 20, 1995 that they wished to be excluded from the Class.
5. The Proposed Settlement. The parties have agreed to the
following settlement terms:
Consideration to the Class. As a condition of settlement, Defendants
will make the following consideration to the Class:
a. Defendants will deposit $100,000 into one of the bank
accounts of Balcor Preferred Pension-12 which shall be distributed to
members of the Class who invested in Balcor Preferred Pension-12.
b. The general partner ("General Partner") of each of the BPI
Partnerships will forego and instead distribute among the members of the
Class its distributive partnership share of Cash Flow from operations for
one of the four quarters immediately following the effective date of the
Settlement Agreement, excluding that percentage of such distributive share
of Cash Flow that, pursuant to the Partnership Agreement for each of the
BPI Partnerships (except Balcor Pension Investors), is to be set aside for
and deposited into the Early Investment Incentive Fund for such BPI
Partnership. The quarter for which the General Partner of each of the BPI
Partnerships will forego such distributive share of Cash Flow will be
chosen by Defendants by determining which quarter, of the four quarters
immediately following the effective date of the Settlement Agreement,
represents an average distributive Partnership share of Cash Flow earned
by such General Partner.
<PAGE>
c. Defendant The Balcor Company will guarantee to members of
the Class who invested in the following partnerships and who continue to
hold their units until termination of the partnership that the total
distributions from all sources, including Cash Flow, Mortgage Reductions,
distributions from the Early Investment Incentive Fund, and pursuant to
Section 18.4 of the Partnership Agreement for each of the BPI
Partnerships, made throughout the existence of the partnership, and
including monies distributed pursuant to this Settlement Agreement
will equal the following percentages of their respective initial capital
contributions:
Balcor Pension Investors VI - 90%
Balcor Pension Investors VII - 80%
Balcor Preferred Pension-12 - 80%
This guarantee will be null and void:
(1) As to any of the above partnerships in which there is
an effective change in control, including but not limited to:
(a) the replacement of the General Partner by an entity or individual
not affiliated with the current General Partner; (b) the General
Partner having been joined by any entity or individual not affiliated
with it as co-general partner; or (c) material restrictions having
been placed on the powers of the General Partner;
(2) As to any Class member who sells any of his/her/its
units, including any transfer of interests into the Early Investment
Incentive Fund, in any of the BPI Partnerships, with respect to such
units sold;
(3) As to any Class member who receives a tender offer
after April 1, 1996 for any of his/her/its units and does not accept
such tender offer, but which, if the Class member had accepted the
offer, would have resulted in the Class member having received
(including total partnership distributions to the Class member plus
the offer price of the tender) an amount equal to or greater than the
amount he/she/it would receive pursuant to the guarantee, the
percentage of the Initial Guarantee (the "Tender Percentage") equal
to the number of units which were not tendered pursuant to the tender
offer divided by the total number of units of the partnership
remaining eligible for the guarantee at the date of the termination
of said tender offer. In the event that more than one tender offer
is initiated, a Tender Percentage shall be computed for each tender
offer and the Tender Percentage for which the Initial Guarantee shall
be null and void shall be the sum of the Tender Percentages of all
tender offers. The "Initial Guarantee" for each of Balcor Pension
Investors-VI, Balcor Pension Investors-VII and Balcor Preferred
Pension-12 shall be a dollar amount per partnership interest equal to
the percentage of initial capital contribution described above as the
guarantee level in this Section 5(c) minus the actual dollar amount
distributed per partnership interest as of the date of the Settlement
Agreement. As of March 31, 1996, total distributions per interest in
these partnerships and the amount of additional distributions
guaranteed were:
<PAGE>
Additional Distributions
Per Interest Pursuant to
Total Distributions Per Initial Guarantee as of
Partnership Interest Through 03/31/96 03/31/96
Balcor Pension
Investors-VI $206.18 per $250 Interest $18.82 per $250 Interest
Balcor Pension
Investors-VII $147.05 per $250 Interest $52.95 per $250 Interest
Balcor Preferred
Pension-12 $55.87 per $100 Interest $24.13 per $100 Interest
As a result of distributions to holders of interests in these partnerships
and/or tender offers to holders of interests in certain of these partnerships
after April 1, 1996, the additional distributions per interest pursuant to the
Initial Guarantee have decreased and may decrease further. As of ,
defendants' records reflected that the number of interests held by members of
the Class who were original investors in these partnerships was approximately:
Units Held by
Partnership Class Members
Balcor Pension Investors-VI 1,032,269
Balcor Pension Investors-VII 379,261
Balcor Preferred Pension-12 262,174
The distributions provided for in subparagraphs 5.a. and 5.b. above
shall be made only to investors who purchased units in the BPI Partnerships
during the original public offerings of such interests, excluding those
individuals who excluded themselves from the Class. Those investors who
purchased interests in the BPI Partnerships during the original public
offerings but have excluded themselves from the Class and those investors who
purchased interests following the termination of the original offering periods
for such interests will receive only quarterly distributions of Cash Flow from
operations as provided in the Partnership Agreements for the BPI Partnerships.
6. Class Counsels' Attorneys' Fees and Costs. Defendants will pay
the fees and costs of class counsel that may be awarded or approved by the
Court.
7. Release. If the settlement is approved by the Court, all Class
members who did not timely exclude themselves from the Class will release
Defendants from all claims that were or could have been raised by the Class or
the Class Representatives against Defendants in these lawsuits.
8. Class Membership. If you invested in Balcor Pension Investors,
Balcor Pension Investors-II, Balcor Pension Investors-III, Balcor Pension
Investors-IV, Balcor Pension Investors-V, Balcor Pension Investors-VI, Balcor
Pension Investors-VII or Balcor Pension Preferred Pension-12 during the
<PAGE>
original public offerings of such interests, you are a member of the Class,
unless you expressly requested to be excluded ("opted out") on or before
November 20, 1995. As a member of the Class, any claims you may have against
defendants with respect to your interests in the BPI Partnerships will be
forever resolved and cannot be pursued in another lawsuit, except that you
shall not be precluded from participating in and sharing in any fund deposited
by any Defendant with the Securities and Exchange Commission, any state
securities commission or any governmental or regulatory entity in connection
with the resolution of proceedings relating to sales, marketing and related
activities as a soliciting dealer for the offering of interests in the BPI
Partnerships. YOU NEED DO NOTHING TO REMAIN A MEMBER OF THE CLASS, and your
rights in this lawsuit will be represented by class counsel, one of whom is
Norman Rifkind, Beigel, Schy, Lasky, Rifkind, Fertik & Gelber, 250 South Wacker
Drive, Suite 1500, Chicago, Illinois 60606.
9. Objecting to the Terms of the Settlement Agreement. If you have
any objections to the proposed settlement, you must file a written objection,
together with all briefs and other papers in support of the objection, with the
Court on or before November 4, 1996, and you must also serve copies of that
written objection on class counsel, Norman Rifkind, Esq., at the address set
forth in paragraph 8, above, and on counsel for Defendants, David L. Carden,
Esq., Jones, Day, Reavis & Pogue, 77 West Wacker, Chicago, Illinois 60601-1692,
postmarked no later than October 20, 1996.
10. Final Hearing on Fairness of Settlement. A final hearing to
determine the fairness, reasonableness and adequacy of the proposed settlement
will be held on November 20, 1996 in the United States District Court for the
Northern District of Illinois, located in the Federal Building, 219 South
Dearborn Street, Chicago, Illinois, in Room 1919 at 11:00 a.m.
11. Further Information. This Notice is not all-inclusive. For
further information concerning the litigation, you may refer to the pleadings
and other papers, including the proposed Settlement Agreement, that have been
filed with the Court, which may be inspected during regular business hours at
the Office of the Clerk of the Court identified in paragraph 10, above, 20th
floor, or you may obtain further information about this action, the terms of
the settlement, the settlement hearing and how the settlement may affect your
rights by calling the following toll-free number for a recorded message:
1-800-XXX-XXXX. PLEASE DO NOT CONTACT THE CLERK OF THE COURT.
Dated: ______________
Clerk of the Court, United States
District Court for the Northern
District of Illinois
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