<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
American Retirement Villas Properties III, L.P.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
ARV LOGO
November 11, 1998
Dear Holders of Units Representing Partnership Interests
of American Retirement Villas Properties III, L.P:
We are soliciting your consents (the "Consents"), as holders (the
"Unitholders") of units representing limited partner interests (the "Units") of
American Retirement Villas Properties III, L.P. (the "Partnership"), to the
proposed sale (the "Proposed Transaction") of the Partnership's Cedar Villas,
Pacific Villas and Villa Azusa senior apartment properties (the "Senior
Apartment Properties") for a purchase price of no less than the Appraised Value
(as defined in the attached Consent Solicitation Statement).
The sale of the Senior Apartment Properties is subject to, among other
things, the approval of the Unitholders of record as of November 1, 1998 (the
"Notice Date"). If a majority of the Units represented by valid Consents
returned to the Managing Partner vote in favor of the Proposed Transaction, the
Partnership will proceed with the sale of the Senior Apartment Properties.
The General Partners believe that it is in the best interest of the
Unitholders to sell the Senior Apartment Properties for several reasons. Among
the reasons, the General Partners believe that the Proposed Transaction provides
Unitholders with an opportunity to liquidate a substantial portion of their
investment and obtain a return on their investment in the time frame anticipated
(seven to ten years) when the Partnership initially sold the Units. The General
Partners also believe that selling the Senior Apartment Properties to a single
purchaser in a single transaction results in reduced costs to the Partnership
relative to a property by property sale. In addition, based on the information
contained in the appraisals for the Senior Apartment Properties and the Managing
Partner's knowledge of the industry and general economic conditions, the General
Partners believe that this may be an opportune time to sell the Senior Apartment
Properties.
The sale of the Senior Apartment Properties may be disadvantageous to some
Unitholders. The sale of the Senior Apartment Properties is a fully taxable
transaction, and each Unitholder will recognize his or her allocable share of
the taxable income or loss resulting from the Proposed Transaction. In addition,
quarterly distributions received by Unitholders will no longer include profits
from the Senior Apartment Properties, and Unitholders may be losing an
opportunity to benefit from possible future improvement in the fair market value
of the Senior Apartment Properties. Moreover, on a pro forma basis, assuming the
Senior Apartment Properties had been sold on January 1, 1997, the Partnership
would have reflected a net loss for the year ended December 31, 1997 and the six
months ended June 30, 1998. In the event the Unitholders do not approve the
Proposed Transaction, the Partnership will continue to own and operate the
Senior Apartment Properties and will explore other opportunities to achieve
liquidity for the Unitholders.
The Managing Partner is soliciting the Consents on behalf of the
Partnership and seeks your approval of the Proposed Transaction. The cost of
this solicitation is being borne by the Partnership. Any questions about this
Consent Solicitation or requests for copies of documents may be directed to the
information agent, ACS Securities Services, Inc. at 5580 LBJ Freeway, Suite 230,
Dallas, Texas 75240, telephone number (888) 215-9755.
In order for you to participate in the Consent Solicitation, a duly
executed and properly completed Consent must be delivered to the Partnership in
accordance with the instructions set forth in the Consent and the Consent
Solicitation Statement no later than 5:00 p.m. pacific standard time on December
9, 1998, unless this Consent Solicitation is extended by the Managing Partner.
Therefore, please complete, sign and date the enclosed Consent and return it in
the prepaid envelope provided by the Partnership. Thank you in advance for your
cooperation.
Sincerely,
/s/ Howard G. Phanstiel
Howard G. Phanstiel
Chief Executive Officer of
ARV Assisted Living, Inc.
245 Fischer Avenue, D-1, Costa Mesa, California 92626-4539
(800) 624-0236 - (714) 751-7400 - (714) 751-1743 Fax
<PAGE> 3
CONSENT SOLICITATION STATEMENT
NOVEMBER 11, 1998
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
(THE "PARTNERSHIP")
SOLICITATION OF CONSENT TO SELL A PORTION OF THE
PARTNERSHIP'S ASSETS
BY
ARV ASSISTED LIVING, INC.
("MANAGING PARTNER")
245 FISCHER AVENUE, SUITE D-1
COSTA MESA, CALIFORNIA 92626
To the Holders of Units Representing Limited Partnership
Interests of the Partnership (the "Unitholders"):
We are soliciting your consents (the "Consents") to a proposed sale of the
Partnership's Cedar Villas, Pacific Villas and Villa Azusa senior apartment
properties (collectively, the "Senior Apartment Properties") for a purchase
price of no less their appraised value (the "Proposed Transaction"). The
following is important information regarding this Consent Solicitation in a
question-and-answer format.
Q: WHAT AM I BEING ASKED TO CONSENT TO?
You are being asked to consent to the sale of the Senior Apartment
Properties for a purchase price of no less than their appraised value, as
determined by an independent appraiser. The Partnership has entered into three
separate purchase agreements (the "Purchase Agreements") with Meta Housing
Corporation ("Potential Purchaser") for the sale of the Senior Apartment
Properties at an aggregate purchase price above the appraised value, and we
believe that, if the Unitholders approve the Proposed Transaction, the Senior
Apartment Properties will be sold to Potential Purchaser at such price. In
addition, the Partnership entered into a letter of intent with United Housing
and Community Service Corp., as representative of a joint venture with Kest
Investment Co. ("Back-up Purchaser"), pursuant to which Back-up Purchaser
offered to purchase the Senior Apartment Properties at a price above the
appraised value in the event the Partnership did not close a transaction with
Potential Purchaser. However, in case the Partnership is unable to close a
transaction with either Potential Purchaser or Back-up Purchaser, we are
requesting your consent to the sale of the Senior Apartment Properties to any
purchaser (other than an affiliate of any General Partner of the Partnership (a
"General Partner")) at a price at or above their appraised value. We are
soliciting your Consent to sell to any non-affiliate because, in the event that
the Partnership is unable to close a transaction with either the Potential
Purchaser or Back-up Purchaser, we do not want to incur additional Partnership
expenses by conducting another consent solicitation prior to selling the Senior
Apartment Properties to another purchaser.
Q: WHY DOES THE PARTNERSHIP WANT TO SELL THE SENIOR APARTMENT PROPERTIES?
The General Partners believe that it is in the best interests of the
Unitholders to sell the Senior Apartment Properties for several reasons. Among
the reasons, the General Partners believe that the Proposed Transaction provides
Unitholders with an opportunity to liquidate a substantial portion of their
investment and obtain a return on their investment in the time frame anticipated
(seven to ten years) when the Partnership initially sold the Units. The General
Partners also believe that selling the Senior Apartment Properties to a single
purchaser in a single transaction results in reduced costs to the Partnership
relative to a property by property sale. In addition, based on the information
contained in the appraisals for the Senior Apartment Properties and the Managing
Partner's knowledge of the industry and general economic conditions, the General
Partners believe that this may be an opportune time to sell the Senior Apartment
Properties.
<PAGE> 4
Q: WHO IS SOLICITING MY CONSENT AND HOW WILL MY CONSENT BE SOLICITED?
The Managing Partner of the Partnership is soliciting your Consent on
behalf of the Partnership and seeks your approval of the Proposed Transaction.
The Partnership has retained the services of ACS Securities Services, Inc. to
manage the solicitation of Consents and to tabulate results. The Managing
Partner's directors, officers and regular employees may also participate in the
solicitation of Consents, but they will not receive any additional compensation
for such participation. Consents may also be solicited by personal interview,
mail and telephone. The costs relating to the solicitation of Consents will be
borne by the Partnership.
Q: FROM WHOM IS THE PARTNERSHIP SOLICITING CONSENTS?
We are seeking the consent of all the Unitholders of record as of November
1, 1998 (the "Notice Date"). On the Notice Date, there were 1,784 Unitholders of
record owning 18,666.48 units of limited partner interest in the Partnership
(the "Units").
Q: HOW MANY CONSENTS ARE NEEDED FOR APPROVAL OF THE PROPOSED TRANSACTION?
The partnership agreement for the Partnership does not require the General
Partners to obtain the consent of Unitholders in order to consummate the
Proposed Transaction. Nevertheless, the Managing Partner is seeking to obtain
Consents from the holders of more than 50% of the Units which vote in this
Consent Solicitation prior to consummating the Proposed Transaction.
Q: HOW DO I CONSENT?
In order to consent to the Proposed Transaction, you must sign and date the
enclosed consent card and return it in the prepaid envelope provided by the
Partnership. You have the right to revoke your Consent any time up to 5:00 p.m.
pacific standard time on December 9, 1998 (the "Consent Date"), which date may
be extended by the Managing Partner.
Q: HOW WILL THE SALE AFFECT UNITHOLDERS?
If the Proposed Transaction is approved by the Unitholders, the Partnership
intends to proceed with the sale of the Senior Apartment Properties to Potential
Purchaser. In the event the sale to Potential Purchaser does not close, the
Partnership intends to sell the Senior Apartment Properties to the Back-up
Purchaser or another purchaser. In any event, the sale of the Senior Apartment
Properties would be a fully taxable transaction, and each Unitholder would
recognize his or her allocable share of the taxable income or loss resulting
from the sale. In addition, quarterly distributions received by Unitholders will
no longer include profits from the Senior Apartment Properties, and Unitholders
may be losing an opportunity to benefit from future improvement in the fair
market value of the Senior Apartment Properties.
Q: WHAT IS THE APPRAISED VALUE OF THE SENIOR APARTMENT PROPERTIES?
The Partnership retained the services of Senior Living Valuation Services,
Inc., an independent appraiser which specializes in the valuation of senior
retirement facilities (the "Appraisal Firm"), to determine the fair market value
of the Senior Apartment Properties. According to the appraisal reports submitted
by the Appraisal Firm (the "Appraisals"), the Senior Apartment Properties have a
cumulative fair market value of $17,650,000 (the "Appraised Value").
Q: WHAT WILL THE PARTNERSHIP DO IF THE PROPOSED TRANSACTION IS NOT APPROVED?
In the event the Unitholders do not approve the Proposed Transaction, the
Partnership will continue to own and operate the Senior Apartment Properties and
will explore other opportunities to achieve liquidity for the Unitholders.
Q: WHO CAN I CONTACT WITH QUESTIONS ABOUT THIS CONSENT SOLICITATION?
Any questions about this Consent Solicitation or requests for copies of
documents may be directed to the information agent, ACS Securities Services,
Inc. at 5580 LBJ Freeway, Suite 230, Dallas, Texas 75240, telephone number (888)
215-9755.
2
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............. 5
SUMMARY OF THE TRANSACTION TO BE VOTED ON BY UNITHOLDERS.... 5
Transaction Summary....................................... 5
Reasons for the Sale...................................... 6
Disadvantages of the Proposed Transaction................. 6
THE PARTNERSHIP............................................. 7
Unitholders and General Partners.......................... 7
Management Fees........................................... 7
Distributions............................................. 7
Exit Strategy............................................. 8
Market for the Units...................................... 8
Other Information About the Partnership................... 9
THE POTENTIAL PURCHASER..................................... 9
THE BACK-UP PURCHASER....................................... 10
ANALYSIS OF THE PROPOSED TRANSACTION........................ 10
DISTRIBUTION OF PROCEEDS OF SALE............................ 12
SUMMARY OF PURCHASE AGREEMENTS.............................. 15
Purchase Price............................................ 15
Conditions to Potential Purchaser's Performance........... 15
Closing Date.............................................. 15
Closing Costs............................................. 15
Representations and Warranties............................ 15
SUMMARY OF LETTER OF INTENT................................. 16
INFORMATION CONCERNING PROPERTY APPRAISALS.................. 16
Real Estate Appraisals.................................... 16
Summary of Methodology.................................... 16
Conclusions as to Value................................... 19
Assumptions, Limitations, and Qualification of the
Appraisals............................................. 19
Compensation and Material Relationships................... 19
THE SENIOR APARTMENT PROPERTIES............................. 20
SELECTED HISTORICAL FINANCIAL DATA.......................... 21
UNAUDITED PRO FORMA BALANCE SHEET AS OF JUNE 30, 1998....... 22
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR
ENDED DECEMBER 31, 1997................................... 23
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE SIX
MONTHS ENDED JUNE 30, 1998................................ 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 24
Results of Operation...................................... 24
Liquidity and Capital Resources........................... 26
Year 2000 Issue........................................... 26
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................... 27
General................................................... 27
Partnership Status........................................ 28
Tax Consequences of the Proposed Transaction.............. 28
Distribution of Sale Proceeds............................. 30
APPROVAL BY UNITHOLDERS..................................... 30
Vote Required............................................. 30
Extension of Consent Date; Termination and Amendment...... 31
Dissenter's Rights........................................ 31
Revocation................................................ 31
Method of Solicitation.................................... 31
EXHIBITS
Summaries of the Appraisals............................... A-1
Purchase Agreements....................................... B-1
Letter of Intent.......................................... C-1
</TABLE>
4
<PAGE> 7
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Consent Solicitation Statement may include forward-looking statements.
These statements appear in a number of places in this Consent Solicitation
Statement, including "Summary of the Transaction to be Voted on by Unitholders,"
"The Partnership -- Distributions," "Analysis of the Proposed Transaction" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and include statements regarding the intent, belief and current
expectations of the Partnership and its Managing Partner. Forward-looking
statements involve a number of risks and uncertainties. Accordingly, a number of
factors could cause actual results, performance, achievements of the
Partnership, or industry results to be materially different from any future
results, performance or achievements expressed or implied by forward-looking
statements. These factors include, but are not limited to: (i) changes in the
competitive environment in which the Partnership operates, (ii) uncertainties as
to the Partnership's ability to attract tenants at each of the properties in its
portfolio, (iii) the ability of the Managing Partner to attract and retain
qualified personnel, (iv) the ability of the Partnership to maintain or increase
revenues and to generate sufficient income to make rent and loan payments, (v)
whether Proposed Purchaser purchases the Senior Apartment Properties, and (vi)
uncertainties relating to general economic conditions. While forward-looking
statements reflect the Partnership's good faith beliefs and best judgment based
on current information, Unitholders are cautioned that forward-looking
statements are not guarantees of future performance or results, and that actual
performance or results may differ materially. Accordingly, Unitholders are
cautioned not to place undue reliance on forward-looking statements. In
evaluating forward-looking statements, Unitholders should specifically consider
the various factors which could cause actual performance or results to differ
materially from those indicated by such statements.
SUMMARY OF THE TRANSACTION TO BE VOTED ON
BY UNITHOLDERS
The Managing Partner, on behalf of the Partnership, is soliciting the
Consents with respect to the Proposed Transaction. The following is a summary of
the Proposed Transaction.
TRANSACTION SUMMARY
If the sale of the Senior Apartment Properties is approved by a majority of
the Unitholders who vote in this Consent Solicitation, the Partnership intends
to sell the Senior Apartment Properties either to Potential Purchaser, Back-up
Purchaser or another third-party purchaser. In any event, the Partnership will
not sell the Senior Apartment Properties for a price below the Appraised Value.
The proceeds of sale of the Senior Apartment Properties will be disbursed in
accordance with the terms of the Partnership Agreement. Following the sale of
the Senior Apartment Properties, the Partnership will continue to own and
operate three assisted living facilities: Bradford Square, Chandler Villas and
Villa Las Posas.
The Partnership has entered into the Purchase Agreements with Potential
Purchaser pursuant to which Potential Purchaser has agreed to purchase the
Senior Apartment Properties for an aggregate of $18,250,000 in cash (the
"Proposed Price"), subject to certain closing conditions. In addition, the
Partnership entered into a letter of intent with Back-up Purchaser pursuant to
which Back-up Purchaser offered to purchase the Senior Apartment Properties for
$17,850,000 in cash in the event Potential Purchaser fails to close the purchase
pursuant to the Purchase Agreements.
The purchase prices offered by Potential Purchaser and Back-up Purchaser
for the Senior Apartment Properties are $600,000 and $200,000, respectively,
more than the Appraised Value. If the Unitholders approve the Proposed
Transaction and the Partnership is unable to consummate a sale with Potential
Purchaser or the Back-up Purchaser, the Partnership intends to sell the Senior
Apartment Properties to another purchaser at a price at or above the Appraised
Value ($17,650,000).
The General Partners believe that the Proposed Transaction is fair and
offers Unitholders an opportunity to realize immediate liquidity and return on a
substantial portion of their investment. If the Senior Apartment Properties are
sold to Potential Purchaser at the Proposed Price, the net proceeds from the
sale available for distribution to Unitholders will be approximately $6,934,455
(approximately $370 per Unit). If the Senior
5
<PAGE> 8
Apartment Properties are sold for the Appraised Value, the net proceeds from the
sale available for distribution to Unitholders will be approximately $6,340,455
(approximately $340 per Unit).
REASONS FOR THE SALE
The General Partners believe that the Proposed Transaction is fair to the
Unitholders for the following reasons:
- The Proposed Transaction offers the Unitholders an opportunity to
liquidate a substantial portion of their investment in the Partnership
and obtain a return of cash in the time frame anticipated (seven to ten
years) when the Units were initially sold by the Partnership. The
presently available alternative by which Unitholders may liquidate their
investment in the Partnership is to transfer Units on the secondary
market. The General Partners believe that the consideration Unitholders
might receive for a sale of the Units on the secondary market would be
less than the proceeds to be distributed as a result of the Proposed
Transaction. See "The Partnership -- Market for Units" and "Distribution
of the Proceeds of Sale."
- The sale of the Senior Apartment Properties as a portfolio of properties
in the Proposed Transaction results in reduced costs to the Partnership
relative to a property by property sale. Cost savings include reduced
brokerage commissions, escrow fees and legal fees. See "Analysis of the
Transaction."
- The Partnership engaged the services of the Appraisal Firm, an
independent appraiser which specializes in the valuation of senior
retirement facilities, to determine the fair market value of the Senior
Apartment Properties. See "Information Concerning Property Appraisals."
The purchase prices offered by Potential Purchaser and Back-up Purchaser
are $600,000 and $200,000, respectively, more than the Appraised Value of
the Senior Apartment Properties, and, in the event the Partnership does
not sell the Senior Apartment Properties to Potential Purchaser or
Back-up Purchaser, the Partnership will not sell the Senior Apartment
Properties for a purchase price below the Appraised Value.
- Based on information provided by the Appraisal Firm and the Managing
Partner's knowledge of the industry and general economic conditions, the
General Partners believe that this may be an opportune time to sell the
Senior Apartment Properties. The Senior Apartment Properties have
achieved more or less stabilized occupancy and have improved operations
during the last two years. See "The Senior Apartment Properties" and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
DISADVANTAGES OF THE PROPOSED TRANSACTION
In making their decision whether to vote in favor of the Proposed
Transaction, the Unitholders should consider the following:
- The sale of the Senior Apartment Properties is a fully taxable
transaction, and each Unitholder will recognize his or her allocable
share of the taxable income or loss resulting from the Proposed
Transaction. See "Certain Federal Income Tax Considerations."
- Quarterly distributions received by Unitholders will no longer include
profits from the Senior Apartment Properties, and Unitholders may be
losing an opportunity to benefit from possible future improvement in the
fair market value of the Senior Apartment Properties. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Distribution of the Proceeds of Sale." Moreover, on a pro forma
basis, assuming the Senior Apartment Properties had been sold on January
1, 1997, the Partnership would have reflected a net loss for the year
ended December 31, 1997 and the six months ended June 30, 1998. See
"Unaudited Pro Forma Statement of Operations for the Year Ended December
31, 1997" and "Unaudited Pro Forma Statement of Operations for the Six
Months Ended June 30, 1998."
- The expenses of the Partnership will not be significantly reduced by the
sale of the Senior Apartment Properties, and the revenue from the Senior
Apartment Properties will no longer be available to pay those expenses.
6
<PAGE> 9
THE PARTNERSHIP
The Partnership is a California limited partnership which was formed in
September 1989. The Partnership raised approximately $18,660,000 from the sale
of 18,666.48 Units at $1,000 per Unit in a registered public offering of the
Units completed in December 1992. The Partnership received net proceeds from the
offering totaling approximately $16,800,000. The Partnership invested the net
proceeds from the offering to purchase fee interests in four assisted living
facilities (one of which the Partnership sold in December of 1993) and three
senior apartment facilities. The Partnership also used the remaining portion of
the net proceeds from the offering to pay fees to the General Partners as
authorized by the Partnership Agreement.
UNITHOLDERS AND GENERAL PARTNERS
As of November 1, 1998, there were 1,784 Unitholders of record owning
18,666.48 Units. The Managing Partner owns approximately 58.34 Units. The
remaining General Partners do not own or control any Units. No person is known
by the Partnership to own beneficially more than 5% of the outstanding Units.
The General Partners are the Managing Partner, Gary L. Davidson, John A.
Booty, David P. Collins, John S. Jason and Tony Rota. John A. Booty and David P.
Collins are Directors of the Managing Partner and, on a combined basis, owned
approximately 6.9% of the shares of the Managing Partner as of September 30,
1998.
The Partnership Agreement provides that the General Partners own a 1%
interest in the Partnership's profits, losses and distributions but does not
specify how that interest is to be divided among the General Partners. By
agreement of the General Partners, the five individual General Partners each own
a .198% interest in the Partnership's profits, losses and distributions and the
Managing Partner owns a .01% interest in the Partnership's profits, losses and
distributions.
MANAGEMENT FEES
The General Partners currently receive 5% of gross revenues from operations
of the Partnership's properties (the "Property Management Fee") pursuant to the
Partnership Agreement. In 1997, 1996 and 1995, the General Partners received
$316,000, $298,000, and $280,000, respectively, for managing the Partnership's
properties (of which $117,000, $117,000 and $121,000, respectively, were
attributable to the Senior Apartment Properties). For the nine months ended
September 30, 1998, the Partnership paid a Property Management Fee of
approximately $345,000 for all six of the Partnership's properties (of which
$92,000 was attributable to the Senior Apartment Properties). In addition, the
General Partners are entitled to receive a partnership management fee of 10% of
cash flow before distribution (the "Partnership Management Fee"), but the fee is
subordinated to a quarterly, noncumulating distribution to Unitholders in an
amount equal to an annualized return of 7.5% of capital contributions allocated
to each of the Partnership's properties. In 1997, 1996 and 1995, the General
Partners received Partnership Management Fees totaling $119,000, $112,000 and
$92,000, respectively (of which $49,000, $52,000 and $46,000, respectively, were
attributable to the Senior Apartment Properties). For the nine months ended
September 30, 1998, the General Partners received Partnership Management Fees
totaling $146,000 (of which $48,000 was attributable to the Senior Apartment
Properties).
DISTRIBUTIONS
For the period from inception of the Partnership through August 15, 1998,
cash distributions have totaled $356.25 per Unit based on the weighted number of
Units outstanding over the life of the Partnership. A summary of distributions
over the last five years is as follows.
7
<PAGE> 10
ANNUAL DISTRIBUTIONS PAID PER $1,000 UNIT
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998(1)
------ ------- ------ ------ ---- -------
<S> <C> <C> <C> <C> <C> <C>
Distributions(2)................................ $34.45 $150.71 $15.03 $25.02 -0- $31.25
Return of Capital(3)............................ $34.45 $150.71 $15.03 -0- -0- $24.56
</TABLE>
- ---------------
(1) First and second quarter distribution only
(2) Distributions per weighted average of all Units outstanding
(3) $224.75 of distributions per Unit over the last five years represent a
return of capital on a GAAP basis, while the distributions made in 1996 and
1998 in the amounts of $25.02 and $6.69, respectively, represent a
distribution of earnings
The numbers set forth above are for an average Unit and assume quarterly,
rather than monthly, distributions.
The sum of the $356.25 per Unit distributions since the inception of the
Partnership (based on the weighted number of Units outstanding over the life of
the Partnership) and the estimated distribution of proceeds of sale from a sale
of the Senior Apartment Properties at the Proposed Price and the Appraised Value
of approximately $370 and $340 per Unit, respectively, will result in a return
of approximately $726.25 and $696.25, respectively, of the original $1,000
investment per Unit invested by each initial Unitholder. Through August 15,
1998, Unitholders had received aggregate distributions totaling approximately
$6,556,342. If the Senior Apartment Properties are sold at the Appraised Value,
the aggregate distributions to Unitholders over the life of the Partnership
would be approximately $12,896,797 on the original total investment of
approximately $18,660,000. The Partnership will continue to own the remaining
three assisted living facilities in its portfolio. The Partnership anticipates
making additional distributions in the future as a result of the continued
operation of the remaining three assisted living facilities, although there can
be no assurance as to the timing or amounts of any such future distributions.
EXIT STRATEGY
At the time the Units were sold, the Partnership was expected to operate
the facilities for seven to ten years from acquisition, but a definite timetable
to sell the Properties was not established. The Proposed Transaction offers an
exit strategy for the three Senior Apartment Properties. In addition, in July
1998, the Board of Directors of the Managing Partner approved the refinancing of
the Partnership's three assisted living communities. This refinancing is
expected to allow the Partnership to take advantage of the lower interest rates
available in the current environment and to provide a return of capital to the
Unitholders by borrowing against the increased value of these properties. The
Managing Partner will continue to consider other exit strategies in regards to
the three assisted living facilities, and expects to continue operating the
three assisted living facilities. See "Analysis of the Transaction." and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MARKET FOR THE UNITS
If the Proposed Transaction is approved by the Unitholders, the net
proceeds of sale will be distributed and the Partnership will continue to
operate the three assisted living facilities. Nonetheless, because one exit
strategy of Unitholders has been and remains the sale of Units on the secondary
market, information concerning such secondary market sales follows so that
Unitholders may compare such a strategy with the return offered by the Proposed
Transaction and continuing ownership of Units.
The Units are not listed on a national or regional securities exchange or
quoted on the NASDAQ system, and there is no established public trading market
for the Units. Secondary sales activity for the Units has been limited and
sporadic. The Managing Partner monitors transfers of the Units (a) because the
admission of the transferee as a substitute limited partner requires the consent
of the General Partners under the Partnership Agreement, and (b) in order to
track compliance with safe harbor provisions to avoid treatment as a "publicly
traded partnership" for tax purposes.
8
<PAGE> 11
Set forth in the following table is certain information regarding sale
transactions in the Units. Because the information regarding sale transactions
in the Units included in the table below does not reflect sufficient activity to
cause the prices shown to be representative of the value of the Units, such
information should not be relied upon as indicative of the ability of
Unitholders to sell their Units in secondary sale transactions or as to the
prices at which such Units may be sold. Therefore, the information presented
should not be relied upon by Unitholders in determining how to vote their
Consent.
The distribution of the proceeds of sale from a sale of the three Senior
Apartment Properties at the Proposed Price and the Appraised Value are estimated
to equal $370 and $340 per Unit, respectively. The secondary market price per
Unit during the first nine months of 1998 ranged from $350 to $650. The Managing
Partner believes that because the Proposed Transaction will not include the sale
of all of the Partnership's properties it may be misleading to compare secondary
sales activity for the sale of Units to the net proceeds of sale. In addition,
the Managing Partner does not believe that the secondary sale prices of the
Units accurately reflect the value of the assets of the Partnership because
secondary sale prices are adversely affected by a variety of factors unrelated
to the value of the assets of a limited partnership. Limited partner interests
are generally traded on a sporadic basis. Sale prices can vary dramatically
based on the number of interests sold at once or over time. Additionally, the
Tax Reform Act of 1986 contained provisions which caused limited partnerships to
place restrictions on transfers of interests in order to avoid taxation of
income at the partnership and partner levels. Accordingly, limited partnerships
have not been well received by investors and secondary sale prices have been
adversely affected.
The Managing Partner provides the following information regarding the sale
transactions (i.e., excluding transactions believed to be between related
parties, family members or the same beneficial owner) reported to it by selling
Unitholders.
SECONDARY MARKET PARTNERSHIP UNIT SALES
FROM JANUARY 1, 1994 THROUGH SEPTEMBER 30, 1998
AS TRACKED BY THE MANAGING PARTNER
<TABLE>
<CAPTION>
NUMBER OF UNITS
FOR WHICH SALE
PERIOD HIGH LOW PRICES WERE TRACKED
------ ---- ---- -------------------
<S> <C> <C> <C>
1994........................................... $539 $475 46.5
1995........................................... 455 385 51.2
1996........................................... 435 265 72.4
1997........................................... 575 250 565.0
1998 (through September 30, 1998).............. 650 350 305.2
</TABLE>
OTHER INFORMATION ABOUT THE PARTNERSHIP
The Partnership is subject to the information disclosure requirements of
the Securities Exchange Act of 1934, as amended, and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Partnership may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth Street
N.W., Washington, D.C. 20549 and its regional offices. Copies of such
information also can be obtained by mail from the Public Reference Section of
the Commission at 450 Fifth Street N.W., Washington, D.C. 20549 at rates
prescribed by the Commission, or by visiting the Commission's Internet website
at www.sec.gov. The Partnership's Commission file number is 0-26470.
THE POTENTIAL PURCHASER
Potential Purchaser, Meta Housing Corporation, is a closely held real
estate development and consulting company, which develops, rehabilitates and
owns affordable residential real estate and advises other entities. Potential
Purchaser currently manages approximately $75 million of independent senior
housing facilities
9
<PAGE> 12
similar to the Senior Apartment Properties. Potential Purchaser has been engaged
in the financing, development, construction and property management of senior
housing since 1969. It has developed more than 7,000 single family and
multifamily residential units. Potential Purchaser's address is 4100 West
Alameda Avenue, Suite 205, Burbank, California 91505.
Potential Purchaser is not affiliated with any of the General Partners or
their affiliates, except that John M. Huskey, a principal of Potential
Purchaser, is also a principal in Urban Housing Systems, Inc., a closely held
corporation that currently subcontracts management services to the Managing
Partner.
THE BACK-UP PURCHASER
Back-up Purchaser is a joint venture between two closely held housing
companies, United Housing and Community Services Corporation and Kest Investment
Co. United Housing and Community Services Corporation is incorporated as a
non-profit, public benefit corporation under Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended (the "Code"), and is governed by a volunteer
board of directors. Formed in 1974, United Housing and Community Services
Corporation provides affordable housing and creates community programs that
serve the needs of senior citizens and low-income families. The address of
United Housing and Community Services Corporation is 6855 Santa Monica
Boulevard, Suite 410, Los Angeles, California 90038. Kest Investment Co. is a
residential real estate development company and is located at 5150 Overland,
Culver City, California 90230.
The two entities forming the Back-up Purchaser are not affiliated with any
of the General Partners or their affiliates.
ANALYSIS OF THE PROPOSED TRANSACTION
In the course of evaluating the merits of the Proposed Transaction, the
Managing Partner obtained the Appraisals from the Appraisal Firm. Summaries of
the Appraisals are attached hereto as Appendix A. The Appraisals were prepared
in compliance with the requirements of the Uniform Standards of Professional
Appraisal Practice. The Appraisal Firm estimated the market value of each of the
Senior Apartment Properties as a going concern based on the Appraisal Firm's
investigation of the general economy of the industry, supply and demand factors,
comparable land and property sales, competitive property rents and occupancy and
consideration of the value of each of the Senior Apartment Properties under the
Cost Approach, Income Approach and Sales Comparison Approach, as those
approaches are defined by the Uniform Standards of Professional Appraisal
Practice. A more complete description of the Appraisal Firm's methodology is
provided below under the section titled "Information Concerning Property
Appraisals."
According to the Appraisals, the fair market value of each of the Senior
Apartment Properties, as of July 24, 1998, was as follows:
<TABLE>
<CAPTION>
SENIOR APARTMENT PROPERTIES APPRAISED VALUE
--------------------------- ---------------
<S> <C>
Cedar Villas................................................ $ 4,975,000
Pacific Villas.............................................. $ 6,650,000
Villa Azusa................................................. $ 6,025,000
-----------
Total Value....................................... $17,650,000
===========
</TABLE>
Unitholders may review the Appraisals in their entirety by visiting the
Managing Partner's primary business offices in Costa Mesa, California during
regular business hours or may obtain copies of the Appraisals by mail by sending
a written request to the Managing Partner. The Appraisals are subject to certain
limiting conditions and assumptions discussed in "Information Concerning
Property Appraisals" and should be used only as one factor among many in each
Unitholder's independent decision whether to approve the Proposed Transaction.
10
<PAGE> 13
In late July and early August 1998, the Managing Partner received inquiries
from several real estate brokers regarding the possible sale of the Senior
Apartment Properties. In response, the Managing Partner solicited offers to
purchase the Senior Apartment Properties, and thereafter received offers to
purchase from four prospective purchasers. On August 18, 1998, the Managing
Partner issued a master counteroffer to each of the four prospective purchasers
which set forth certain terms and conditions upon which the Partnership would
sell the Senior Apartment Properties.
On September 4, 1998, Potential Purchaser accepted the terms of the
counteroffer and entered into a letter of intent with the Partnership. On August
21, 1998, Back-up Purchaser made a counteroffer to the Partnership's master
counteroffer. On September 23, 1998, the Partnership and Back-up Purchaser
entered into a letter of intent pursuant to which Back-up Purchaser agreed to
purchase the Senior Apartment Properties for a purchase price of $17,850,000 in
the event Potential Purchaser fails to close its purchase transaction. No other
parties agreed to accept the terms of the counteroffer or subsequently made any
counters to the counteroffer.
On October 26, 1998, Potential Purchaser and the Partnership entered into
the Purchase Agreements in the forms attached to this Consent Solicitation
Statement as Appendix B. Since the Managing Partner believed that the purchase
prices offered by Potential Purchaser and Back-up Purchaser were fair, the
Managing Partner did not solicit any further offers from prospective purchasers.
In analyzing the sale of the Senior Apartment Properties, the General
Partners took into consideration the cost savings that would result from a sale
of the Senior Apartment Properties to a single purchaser in a single transaction
as opposed to individual sales of the Senior Apartment Properties at different
times to different purchasers. These savings include reduced brokerage
commissions, escrow and legal fees, and other savings.
In deciding how to vote, Unitholders should also consider that while the
Partnership could continue to hold the Senior Apartment Properties for several
more years in the hope that the Senior Apartment Properties may increase in
value, the Proposed Transaction, at a minimum, offers the Unitholders a present
opportunity to liquidate a portion of their investment in the Partnership at or
above the Appraised Value.
If the Unitholders approve the Proposed Transaction, the sale of the Senior
Apartment Properties would be a fully taxable transaction and each Unitholder
would recognize his or her allocable share of the taxable income or loss
resulting from the Proposed Transaction. See "Certain Federal Income Tax
Considerations." As described in "Certain Federal Income Tax Considerations,"
any gain recognized on the sale of the Senior Apartment Properties generally
will be treated as passive activity income under the passive activity loss rules
of Section 469 of the Code. As such, Unitholders may be able to use any unused
"passive activity loss" to offset all or a portion of such income. Since the
inception of the Partnership through December 31, 1997, the Partnership has
allocated to Unitholders approximately $223 per Unit of net losses. Such losses
would be "passive activity losses" for Unitholders who have not materially
participated in the activity in which the Partnership is engaged. The actual
amount of income, gain and loss to be recognized by Unitholders upon the sale of
the Senior Apartment Properties will depend upon the actual facts relating to
such sale, and upon each Unitholder's personal tax situation.
In the event the Proposed Transaction is not approved by the Unitholders,
the Partnership will continue to own and operate the Senior Apartment
Properties. As opportunities arise, the General Partners may pursue strategies
to increase the Unitholders' liquidity, including refinancing existing
indebtedness to take advantage of lower interest rates or to pay greater
distributions, borrowing additional funds secured by some or all of the Senior
Apartment Properties to pay larger distributions, or soliciting offers for the
sale of one, some or all of the Senior Apartment Properties. By continuing to
own and operate the Senior Apartment Properties, the Partnership would continue
to earn income on the Senior Apartment Properties and make distributions to the
Unitholders. The Partnership would also benefit from any increase in the value
of the Senior Apartment Properties over time.
EACH UNITHOLDER MUST MAKE HIS OR HER OWN DECISION WITH RESPECT TO THE VOTE
REQUESTED BY THIS CONSENT SOLICITATION STATEMENT BASED UPON A NUMBER OF FACTORS
INCLUDING THE UNITHOLDER'S FINANCIAL POSITION, NEED OR DESIRE FOR LIQUIDITY,
OTHER FINANCIAL OPPORTUNITIES AND TAX POSITION.
11
<PAGE> 14
DISTRIBUTION OF PROCEEDS OF SALE
Under the Partnership Agreement, "Proceeds of Sale" is defined as the net
proceeds from the sale of the Partnership's assets other than in the ordinary
course of business less expenses paid by the Partnership in connection with the
transaction and any amount which the Managing Partner reasonably determines
should be retained by the Partnership for operating expenses, contingency
reserves or further project development. The actual Proceeds of Sale available
for distribution will depend on the amount of encumbrances on the Senior
Apartment Properties and other of the Partnership's liabilities to be satisfied
out of the purchase price received.
As of June 30, 1998, the Partnership's liabilities totaled $24,162,000,
including mortgages and encumbrances totaling $10,751,000 on the Senior
Apartment Properties. The expenses of this Consent Solicitation will be borne by
the Partnership and are estimated at $398,500, which includes legal and
accounting fees and expenses ($50,000), closing costs ($300,000), costs of
appraisals ($13,500), printing and distribution of the Consent Solicitation
Statement ($10,000) and the costs of a ballot service to count the ballots
($25,000).
On December 15, 1998, the anticipated date for the close of the Proposed
Transaction with Potential Purchaser (although the closing of the Proposed
Transaction may occur as late as January 24, 1999), the Proceeds of Sale from a
sale of the Senior Apartment Properties at the Proposed Price and the Appraised
Value are estimated to be as follows:
CALCULATION OF ESTIMATED SALE PROCEEDS
<TABLE>
<CAPTION>
SALE AT SALE AT
PROPOSED PRICE APPRAISED VALUE
-------------- ---------------
<S> <C> <C>
Sales Price.................................... $ 18,250,000 $ 17,650,000
Closing Costs.................................. (300,000) (300,000)
Debt/Encumbrances*............................. (10,647,000) (10,647,000)
Solicitation costs............................. (25,000) (25,000)
Printing and Mailing........................... (10,000) (10,000)
Appraisal...................................... (13,500) (13,500)
Contingencies.................................. (200,000) (200,000)
Legal and Accounting........................... (50,000) (50,000)
------------ ------------
Total Value.......................... $ 7,004,500 $ 6,404,500
============ ============
</TABLE>
- ---------------
* As of June 30, 1998, encumbrances totaled $10,751,000. The amount of
encumbrances which will be outstanding as of December 15, 1998 is $10,647,000,
assuming timely payment of monthly amounts due.
The following example illustrates how the Proceeds of Sale would be
distributed following the sale of the Senior Apartment Properties at the
Proposed Price and the Appraised Value in accordance with the terms of the
Partnership Agreement.
Given reserves, expenses, encumbrances and other Partnership liabilities
totaling approximately $11,245,500, the Proceeds of Sale from a sale at the
Proposed Price and the Appraised Value available for distribution would be
approximately $7,004,500 and $6,404,500, respectively, and would be distributed
as follows:
- First, the available Proceeds of Sale would be distributed 99% to the
Unitholders until an amount which, when added to prior cash distributions
to the Unitholders, would provide them with a return of their entire
capital contribution, and 1% to the General Partners. Under this formula,
(i) in the case of a sale at the Proposed Price, the Unitholders would
receive a total priority distribution of approximately $6,934,455 (or
approximately $370 per Unit), and the General Partners would receive
$70,045, and (ii) in the case of a sale at the Appraised Value, the
Unitholders would receive a total priority distribution of approximately
$6,340,455 (or approximately $340 per Unit), and the General Partners
would receive $64,045;
12
<PAGE> 15
- Second, the available Proceeds of Sale would be distributed 99% to the
Unitholders and 1% to the General Partners until: (i) those Unitholders
who invested during the first three months after the Managing Partner
accepted the first subscription have received a preferred return of 10%
interest per annum cumulative (but not compounded) from the date of such
Unitholder's investment through the date of the distribution of the
Proceeds of Sale; (ii) those Unitholders who invested from the first day
of the fourth month until the last day of the sixth month after the
Managing Partner accepted the first subscription have received a
preferred return of 9% per annum cumulative (but not compounded) from the
date of such Unitholder's investment through the date of the distribution
of the Proceeds of Sale; and (iii) all other Unitholders have received a
preferred return of 8% per annum cumulative (but not compounded) from the
date of such Unitholder's investment through the date of the distribution
of the Proceeds of Sale; and
- Third, any balance remaining from the available Proceeds of Sale would be
distributed 15% to the General Partners and 85% to the Unitholders.
Because the Proceeds of Sale from a sale at either the Proposed Price or
the Appraised Value will not be sufficient to return the Unitholders' original
investment, no distribution will be made under the second and third provisions
discussed above.
The above amounts estimate the approximate amount that would be distributed
from the Proceeds of Sale following the Proposed Transaction assuming a sale at
the Proposed Price or the Appraised Value, but no assurance can be made in this
regard. The actual amounts resulting from the Proposed Transaction cannot be
determined until the time of sale and may vary from the amounts used in the
examples.
If the Unitholders approve the Proposed Transaction and the Partnership
sells the Senior Apartment Properties, the Partnership will continue to operate
its remaining three assisted living facilities. The Partnership will not receive
any income from the Senior Apartment Properties following the sale, but will
also no longer bear any expenses for the Senior Apartment Properties.
If the Proposed Transaction is approved, many of the Partnership's expenses
will not be significantly affected by the sale of the Senior Apartment
Properties. Those expenses include the cost of audits and tax return
preparation, required SEC filings, and mailings and communications with the
Unitholders. While these expenses will be ongoing, they will be spread over a
smaller asset base if the Proposed Transaction is approved and a sale of the
Senior Apartment Properties is completed because the costs will be deducted from
the income of only the remaining three assisted living properties, rather than
spread out over the six properties currently in the Partnership's portfolio.
The Partnership will pay substantially less in fees to the General Partners
following the sale of the Senior Apartment Properties because both the Property
Management Fee and the Partnership Management Fee are based on cash flow on a
property by property basis. Because there will be three fewer properties once
the Senior Apartment Properties are sold, the fees paid to the General Partners
will decrease accordingly. See "The Partnership -- Management Fee."
Total distributions of Proceeds of Sale from a sale of the Senior Apartment
Properties at the Proposed Price and the Appraised Value are anticipated to be
approximately $6,934,455 and $6,340,455, respectively, to the Unitholders
(approximately $370 and $340 per Unit, respectively), and $70,045 and $64,045,
respectively, to the General Partners. Based on the Proposed Price, the Managing
Partner has estimated that, for federal income tax purposes, taxable Unitholders
will have ordinary income of approximately $0.41 per Unit and Section 1231 gain
of approximately $167 per Unit under the 25% tax rate and $122 per Unit under
the 20% tax rate, and tax-exempt Unitholders will have an ordinary gain of
approximately $0.23 per Unit and Section 1231 gain of approximately $97 per Unit
under the 25% tax rate and $71 per Unit under the 20% tax rate, for the
Partnership's 1998 tax year, assuming in each case that the Unitholders
purchased their Units for cash in the initial offering of such Units. Based on
the Appraised Value, the Managing Partner has estimated that, for federal income
tax purposes, taxable Unitholders will have ordinary income of approximately
$0.45 per Unit and Section 1231 gain of approximately $180 per Unit under the
25% tax rate and $109 per Unit under the 20% tax rate, and tax-exempt
Unitholders will have an ordinary gain of approximately $0.16 per Unit and
13
<PAGE> 16
Section 1231 gain of approximately $62 per Unit under the 25% tax rate and $37
per Unit under the 20% tax rate, for the Partnership's 1998 tax year, assuming
in each case that the Unitholders purchased their Units for cash in the initial
offering of such Units. See "Certain Federal Income Tax Considerations." The
above estimates are based on actual nine month figures and annualized through
the remainder of the tax year. Any gain recognized on the sale of the Senior
Apartment Properties generally will be treated as passive activity income under
the passive activity loss rules of Section 469 of the Code. As such, Unitholders
may be able to use any unused passive activity losses to offset all or a portion
of the income. From the inception of the Partnership through December 31, 1997,
the Partnership allocated to taxable Unitholders who purchased their Units for
cash in the initial offering of such Units approximately $223 per Unit of net
losses. Such losses would be passive activity losses for Unitholders who have
not materially participated in the activity in which the Partnership is engaged.
The actual amount of income, gain and loss to be recognized by the Unitholders
upon the sale by the Partnership of the Senior Apartment Properties will depend
upon the actual facts relating to such sale, and upon each Unitholder's personal
tax situation. See "Certain Federal Income Tax Considerations."
For the period from inception of the Partnership through August 15, 1998,
cash distributions from operations have totaled approximately $6,556,342 or
$356.25 per Unit (based on the weighted number of Units outstanding over the
life of the Partnership). The sum of the $356.25 per Unit distributions from
operations since the inception of the Partnership and the distribution of
Proceeds of Sale from a sale at the Appraised Value of approximately $340 per
Unit will result in a total return to Unitholders of approximately $696.25 per
original $1,000 investment per Unit paid by each initial Unitholder.
No distributions from operations for the third quarter of 1998 have been
made. The Partnership anticipates paying third quarter distributions from
operations on the usual scheduled date of November 15, 1998.
14
<PAGE> 17
SUMMARY OF PURCHASE AGREEMENTS
THE DESCRIPTION OF THE TERMS OF THE PURCHASE AGREEMENTS AND RELATED
DOCUMENTS SET FORTH BELOW DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY, AND MADE SUBJECT TO, THE MORE COMPLETE AND DETAILED INFORMATION
SET FORTH IN THOSE CERTAIN PURCHASE AND SALE AGREEMENTS AND JOINT ESCROW
INSTRUCTIONS DATED, IN EACH CASE, AS OF OCTOBER 26, 1998, THE FORMS OF WHICH IS
ATTACHED AS APPENDIX B.
Potential Purchaser has agreed, subject to the terms and conditions set
forth in the Purchase Agreements, to purchase the Senior Apartment Properties.
The transactions are conditioned on, among other things, approval of the
Unitholders and satisfactory completion of Potential Purchaser's due diligence
review of the Senior Apartment Properties. The closing of the purchase of the
Senior Apartment Properties is expected to occur on or before January 24, 1999.
PURCHASE PRICE
Subject to the terms and conditions of the Purchase Agreements, Potential
Purchaser has agreed to purchase the Senior Apartment Properties, including the
land and all rights, titles and appurtenant interests, the improvements, the
fixtures, the personal property and certain intangible property, for the
Proposed Price, $18,250,000. The Proposed Price is allocated among the three
Senior Apartment Properties as follows: Cedar Villas, $5,100,000; Pacific
Villas, $6,900,000; and Villa Azusa, $6,250,000.
CONDITIONS TO POTENTIAL PURCHASER'S PERFORMANCE
Potential Purchaser's obligation to purchase the Senior Apartment
Properties is conditioned upon, among other things, Potential Purchaser's
approval of the following: an inspection of the Senior Apartment Properties with
respect to the physical condition thereof; an environmental assessment of the
Senior Apartment Properties; structural, mechanical and engineering reports
concerning the Senior Apartment Properties; an independent appraisal of the
Senior Apartment Properties undertaken by an appraiser retained by Potential
Purchaser; receipt of evidence of compliance with all building codes, zoning
ordinances and other governmental entitlements as necessary for the operation of
the Senior Apartment Properties as senior apartment facilities; and all consents
necessary for the transfer of any intangible property to Potential Purchaser.
Potential Purchaser has the right to waive any of the above conditions.
CLOSING DATE
The closing date (the "Closing Date") for the transaction with Potential
Purchaser is estimated to be on or before January 24, 1999. The Partnership may
extend the Closing Date for an additional thirty (30) days.
CLOSING COSTS
The Partnership is required to pay the following closing costs: all state,
municipal and other documentary, transfer, sales, or use taxes in connection
with the transaction with Potential Purchaser; all expenses of or related to the
issuance of a standard owner's title policy in favor of Potential Purchaser;
one-half of the escrow fees and charges; all recording and filing fees; the
Partnership's legal, accounting and other professional fees and expenses; and
the cost of all instruments and documents required to be delivered by the
Partnership. The Partnership is also required to pay all existing encumbrances
on the Senior Apartment Properties. All prorations to be made with respect to
the income and expenses of the Senior Apartment Properties are required to be
made between the Partnership and Potential Purchaser.
The Partnership will be required to pay a sales commission equal to one and
one-half percent (1.5%) of the Proposed Price to Barry Powell Real Estate
Investment Company, Inc., the real estate broker representing Potential
Purchaser.
REPRESENTATIONS AND WARRANTIES
The Partnership and the Managing Partner will make certain representations
and warranties with respect to the Senior Apartment Properties regarding, among
other things, title, the availability of utilities, compliance
15
<PAGE> 18
with land use regulations and other laws, environmental matters, the absence of
special hazards, the receipt of the necessary approvals, zoning and the absence
of litigation.
SUMMARY OF LETTER OF INTENT
THE DESCRIPTION OF THE TERMS OF THE LETTER OF INTENT BETWEEN THE
PARTNERSHIP AND BACK-UP PURCHASER SET FORTH BELOW DOES NOT PURPORT TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY, AND MADE SUBJECT TO, THE MORE
COMPLETE AND DETAILED INFORMATION SET FORTH IN THE LETTER OF INTENT ENTERED INTO
ON SEPTEMBER 23, 1998, THE FORM OF WHICH IS ATTACHED AS APPENDIX C.
On September 23, 1998, Back-up Purchaser and the Partnership entered into a
non-binding letter of intent pursuant to which Back-up Purchaser has agreed,
subject to certain conditions set forth in the letter of intent, to purchase the
Senior Apartment Properties for $17,850,000 in the event the Partnership does
not sell the Senior Apartment Properties to Potential Purchaser. If the
Partnership does not sell the Senior Apartment Properties to Potential
Purchaser, the letter of intent provides that the Partnership and Back-up
Purchaser will enter into a definitive purchase agreement. Back-up Purchaser's
obligation to purchase the Senior Apartment Properties is conditioned upon,
among other things, Back-up Purchaser's satisfactory completion of its due
diligence review of the Senior Apartment Properties.
INFORMATION CONCERNING PROPERTY APPRAISALS
REAL ESTATE APPRAISALS
The Partnership engaged Senior Living Valuation Services, Inc. to appraise
the Senior Apartment Properties. Accordingly, the Appraisal Firm prepared and
delivered written reports of its analysis and appraisal, based upon the review,
analysis, scope and limitations described therein, as to the fair market value
of the Senior Apartment Properties as of July 24, 1998. The Partnership selected
the Appraisal Firm because of its experience and reputation in appraising senior
apartment facilities and its familiarity with the Senior Apartment Properties.
The Partnership also recognized that the Appraisal Firm is one of the few
appraisal firms in the country which exclusively specializes in the appraisal of
senior living facilities. In sum, the Appraisal Firm has completed full
narrative appraisal reports for nearly 600 senior housing properties. The
Managing Partner also believes that Michael Boehm, MAI, President of the
Appraisal Firm, is a leading authority on senior living facilities. Mr. Boehm is
a contributor of several published articles on senior housing appraisals,
including Elderly Housing, A Guide to Appraisal, Market Analysis Development and
Financing which he co-authored.
Summaries of the Appraisals are set forth in Appendix A and should be read
in their entirety by the Unitholders. Complete copies of the Appraisals are
available for review at the offices of the Managing Partner or by requesting a
copy by writing to the Managing Partner. The methodology employed by the
Appraisal Firm and certain of the material assumptions, qualifications and
limitations to the Appraisals are described below.
SUMMARY OF METHODOLOGY
At the request of the Partnership, the Appraisal Firm inspected and
appraised the three Senior Apartment Properties in conformity with the Uniform
Standards of Professional Appraisal Practice, and estimated the fair market
value of the three Senior Apartment Properties as of July 24, 1998. The
Partnership placed no restriction or limitations on the Appraisals, the scope of
review and analysis, or the methodologies employed by the Appraisal Firm to
determine the fair market value of the Senior Apartment Properties. The
Partnership also provided the Appraisal Firm with complete and unrestricted
access to all information pertinent to its valuation of the Senior Apartment
Properties.
16
<PAGE> 19
Valuation Approaches Utilized
In appraising the Senior Apartment Properties, the Appraisal Firm
considered and utilized three commonly recognized approaches to valuation of
real property: the cost approach, the income approach and the sales comparison
approach. The type and age of a property, market conditions and the quantity and
quality of data affect the applicability of each approach in a specific
appraisal situation.
The "Income Approach" estimates a property's capacity to produce income
through an analysis of the rental market, operating expenses and net income. Net
income may then be processed into a value estimate through either (or a
combination) of two methods: direct capitalization or discounted cash flow
analysis.
The "Sales Comparison Approach" is based on the comparison of the property
to be appraised to the actual sales prices of recently sold comparable
properties. The underlying concept of the Sales Comparison Approach is that a
knowledgeable buyer will pay no more for a property than what other buyers
recently paid for properties of similar size, amenities and utility. The Sales
Comparison Approach is based on the actual behavior of buyers and sellers in the
market under normal conditions. However, this approach to property appraisal is
difficult to apply precisely when appraising a special purpose property for
which there are few or no comparables, or where very few sales have occurred
recently in the marketplace.
The "Cost Approach" is based on the principal that a property's value
reflects the value of the land plus the value of the depreciated improvements on
the land. The Cost Approach method of valuation generally consists of five
steps: valuation of the land as if it were vacant; estimation of the replacement
cost of the improvements (new) based on current prices for labor and materials;
estimation of accrued depreciation on the existing improvements due to physical
age and deterioration, functional obsolescence and economic or locational
obsolescence; deduction of the estimated depreciation from the estimated
replacement costs to determine the depreciated value of the building and other
improvements; and the summation of the depreciated value of the building and
improvements with the land value to determine the estimated present depreciated
value of the land, building and improvements.
Local Market Research and Property Review
In performing the Appraisals, the Appraisal Firm analyzed the individual
properties and conditions in the local market for the Senior Apartment
Properties. The Appraisal Firm performed site inspections of each Senior
Apartment Property during July 1998. During these visits, the Appraisal Firm
inspected the physical facilities, obtained current income, occupancy and
resident census and rent roll information, gathered information on competing
properties, and interviewed each local property administrator concerning
performance of the subject property, competitive conditions, area trends and
other factors. The Appraisal Firm's inquiries included ascertaining for each
Senior Apartment Property any deferred maintenance, capital budget issues,
status of on-going or planned improvements, licensing issues and other factors
affecting the property. The Appraisal Firm's analysis also included, among other
things: (a) reviewing each Senior Apartment Property's previous three years'
operating statements; (b) reviewing information submitted to the Appraisal Firm
by the Partnership which included rental and occupancy data, subject facility
descriptions, area trends and other factors; (c) developing information from a
variety of sources about market conditions for each property that included
population, employment and housing trends within the neighborhood; (d)
considering income and expense data for comparable facilities; (e) considering
supply and demand conditions for senior apartment facilities in each local
market based on the identification and survey of competing properties and market
saturation analyses; and (f) contacting local and state authorities to determine
tax rates, zoning, any planned development of competing properties, and
licensing of the subject and competing properties.
To assess each Senior Apartment Property's competitive position, the
Appraisal Firm considered such variables as property income growth patterns and
potential, quality of location and construction, tenant appeal, property
appearance, security and potential competition, and utilization. The Appraisal
Firm also interviewed management personnel responsible for the Partnership's
properties to discuss competitive conditions, area economic trends and industry
trends affecting the Senior Apartment Properties, historical and budgeted
operating revenues and expenses, business and marketing plans for each of the
Senior Apartment Properties, occupancy rates, and assisted living services
utilization. These interviews included ascertaining information on
17
<PAGE> 20
items of deferred maintenance, planned capital improvements and other factors
affecting the physical condition of the Senior Apartment Properties.
The Appraisal Firm also evaluated each Senior Apartment Property's highest
and best use both as currently improved and as vacant. In each instance the
highest and best use, as improved, of the Senior Apartment Properties was their
continued use as independent senior apartment facilities.
Other Market Research
To define the occupancy, income and expense, and valuation parameters to be
used in developing income and cash flow projections and valuations, the
Appraisal Firm reviewed the acquisition criteria and projection parameters in
use in the marketplace by major investors, owners, operators, appraisers and
financing sources for senior living facilities.
The Appraisal Firm also reviewed other published information concerning
acquisition and financing criteria in use by property investors and lenders
during 1998. Further, the Appraisal Firm screened tax records and interviewed
various sources in regional markets to identify sales of retirement housing
properties within the past 24 months in order to derive certain valuation
indicators. Sources for data concerning such transactions included appraisers,
property owners, real estate brokers, tax assessors and others. These sales of
similar improved properties were one of the more important factors used by the
Appraisal Firm in evaluating proper capitalization rates for the Senior
Apartment Properties. The Appraisal Firm also reviewed information compiled by
the Managing Partner identifying sales and acquisitions of retirement housing
properties.
In addition to its market research specific to the Senior Apartment
Properties, the Appraisal Firm conducts an annual survey of the marketplace. The
results of the Appraisal Firm's survey are presented in the Senior Housing
Investment Survey, a newsletter of industry capitalization and discount rates
which is requested by and distributed to over 250 senior housing lenders,
investors, owner/operators and other appraisers.
Property Valuations
After evaluating each of the Senior Apartment Properties under the Income
Approach, the Sales Comparison Approach and the Cost Approach, the Appraisal
Firm examined and reconciled the three valuations to estimate the fair market
value of the property. In doing so, the Appraisal Firm gave the greatest weight
to the Income Approach.
In applying the "Income Approach," the Appraisal Firm estimated each Senior
Apartment Property's income and expenses for the 12-month period ending June 30,
1998 after reviewing historical and budgeted operating results, discussions with
property management and other pertinent information. More specifically, the
Appraisal Firm estimated each Senior Apartment Property's income for the
12-month period ending June 30, 1998 based upon the review of current rent
rolls, an analysis of historical and budgeted income from rents, assisted living
and ancillary sources, surveys of comparable properties and consideration of
competitive conditions in local markets. Expenses were estimated based on
historical and budgeted operating expenses, certain industry expense guidelines,
and expenses incurred by comparable properties. Estimated expenses were then
deducted from income to arrive at each Senior Apartment Property's estimated net
operating income. Expenses relating solely to corporate overhead, Partnership
administration, and investor reporting and accounting were excluded.
The Appraisal Firm then employed a discounted cash flow analysis to
determine the value of each Senior Apartment Property. The discount rates used
by the Appraisal Firm were based on current acquisition criteria among
investors, rates reflected in specific sales transactions, and required yields
for debt and equity financing sources for similar properties. Where appropriate,
the Appraisal Firm adjusted the discount rate used for each Senior Apartment
Property to reflect valuation factors unique to the property and local market
conditions.
In applying the "Sales Comparison Approach," the Appraisal Firm
investigated and analyzed the sale of similar senior housing projects to the
Senior Apartment Properties within California during the last 24 months. These
sales were analyzed as to their conditions of sale, location, age and condition,
competitive
18
<PAGE> 21
market position, occupancy and net income producing ability. From this analysis,
comparative capitalization rates were estimated. Each of the comparable sales
was adjusted for differences in occupancy and net income producing ability.
In applying the "Cost Approach," the Appraisal Firm estimated the value of
each of the Senior Apartment Property sites through comparison and adjustment of
recent comparable vacant land sales in each location. To estimate the
replacement cost (new) of each of the Senior Apartment Properties, including
furniture and equipment, the Appraisal Firm utilized Marshall Valuation Service,
a nationally recognized cost manual. To these estimates, adjustments were made
for indirect costs and entrepreneurial profit to arrive at an estimated total
replacement cost (new) at the appraisal date for each of the Senior Apartment
Properties. Deductions for depreciation were made considering each Senior
Apartment Property's age, condition, and highest and best use.
The Appraisal Firm reconciled the values indicated from the cost, sales
comparison and income approach to arrive at a final valuation conclusion. The
Appraisal Firm gave primary emphasis to the income approach, an emphasis deemed
most appropriate based on acquisition criteria currently employed by buyers and
sellers of properties in the retirement housing market.
CONCLUSIONS AS TO VALUE
Based on the valuation methodology described above, the Appraisal Firm
determined the market value of the Senior Apartment Properties to be as follows:
<TABLE>
<CAPTION>
SENIOR APARTMENT PROPERTIES MARKET VALUE
--------------------------- ------------
<S> <C>
Cedar Villas............................................ $ 4,975,000
Pacific Villas.......................................... $ 6,650,000
Villa Azusa............................................. $ 6,025,000
-----------
Total Value................................... $17,650,000
===========
</TABLE>
ASSUMPTIONS, LIMITATIONS, AND QUALIFICATION OF THE APPRAISALS
The Appraisals reflect the Appraisal Firm's valuation of the Senior
Apartment Properties as of July 1998, and is based on information available as
of that date. Events occurring after July 1998 and before the closing of the
Proposed Transaction could affect the Senior Apartment Properties or assumptions
used in preparing the Appraisals. The Appraisal Firm has no obligation to update
the Appraisals on the basis of subsequent events.
In appraising the Senior Apartment Properties, the Appraisal Firm made
certain standard assumptions and operated under standard limiting conditions
which are listed in the Appraisals. In addition, the Appraisal Firm assumed that
the Senior Apartment Properties meet all physical plant and operating
requirements as independent senior apartment facilities. Finally, the estimates
of market value set forth in the Appraisals are partially based on current rent
rolls, historical operating statements and limited building drawings and
building statistical data provided by the Managing Partner.
COMPENSATION AND MATERIAL RELATIONSHIPS
The Partnership has paid a fee of $13,500 to the Appraisal Firm for
preparing the Appraisals, including reimbursement to the Appraisal Firm for all
related out-of-pocket expenses. The Appraisal Firm is also entitled to
indemnification against certain liabilities by the Partnership. The fee was
negotiated with the Appraisal Firm by the Managing Partner on behalf of the
Partnership and payment is not dependent upon completion of the Proposed
Transaction. The Appraisal Firm has previously prepared appraisals for the
Managing Partner and its affiliates for which it received customary fees, and is
likely to be engaged to prepare similar appraisals in the future for facilities
owned by or to be acquired by the Managing Partner and its affiliates.
19
<PAGE> 22
THE SENIOR APARTMENT PROPERTIES
The housing alternatives for the elderly include several types of housing
which may or may not include additional tenant related services. The major types
include congregate care housing, assisted living housing, skilled nursing
facilities and retirement homes or senior apartments. The Senior Apartment
Properties are of the senior apartment type which is similar to conventional
apartments with minimum age restrictions. The Partnership designed each of the
Senior Apartment Properties to fit its particular site and marketplace, but
these facilities nonetheless share many common features. Each of the Senior
Apartment Properties are age restricted. Each Senior Apartment Property is
surrounded by security fencing and access is controlled by an automatic gate.
The clubhouse at each Senior Apartment Property includes a full kitchen and
offers a variety of activities. The following is a brief description of each
Senior Apartment Property, including tables which set forth the average
historical occupancy and monthly rental rates.
HISTORICAL AVERAGE OCCUPANCY RATES FOR THE SENIOR APARTMENT PROPERTIES
<TABLE>
<CAPTION>
AVERAGE AVERAGE AVERAGE
OCCUPANCY FOR OCCUPANCY FOR OCCUPANCY FOR
SENIOR APARTMENT PROPERTY 1996 1997 1998*
------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
Pacific Villas.............................. 88.4% 89.2% 95.6%
Cedar Villas................................ 87.6 84.1 90.1
Villa Azusa................................. 95.2 94.2 94.5
</TABLE>
- ---------------
* Represents the occupancy rates for the first nine months of 1998.
HISTORICAL AVERAGE MONTHLY RENTAL RATES FOR THE SENIOR APARTMENT PROPERTIES
<TABLE>
<CAPTION>
AVERAGE MONTHLY AVERAGE MONTHLY AVERAGE MONTHLY
RENTAL RATE FOR RENTAL RATE FOR RENTAL RATE FOR
SENIOR APARTMENT PROPERTY 1996 1997 1998*
------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Pacific Villas......................... $560 $589 $612
Cedar Villas........................... 431 453 475
Villa Azusa............................ 471 496 522
</TABLE>
- ---------------
* Represents the rental rates for the first nine months of 1998.
Pacific Villas. Pacific Villas is located in Pomona, California, which is
in the eastern-most portion of metropolitan Los Angeles County, bordering San
Bernardino County. Pomona is 31 miles east of the Los Angeles financial
district. The surrounding area consists of established residential properties on
the interior streets and commercial properties along major cross-streets.
Freeway access is 2.5 miles south on the east-west San Bernardino (10) Freeway.
The Ontario International Airport is fifteen minutes to the east. The property
is located on approximately 4.66 acres of land and consists of eight two-story
buildings built in 1986. The property includes a total of 132 units with an
average of 622 square feet per unit. Of the 132 units, 115 are one bedroom, one
bath units and 17 are two bedroom, one bath units. Each unit has a storage area
and a patio or balcony. The property also includes a one-story building
containing a club house and an administrative office with adjoining pool and
spa. The property is subject to a loan which had an unpaid principal balance of
approximately $4,071,000 as of September 30, 1998.
Cedar Villas. Cedar Villas is located in Ontario, California. Ontario is
primarily a residential community with supporting commercial services. The area
surrounding Cedar Villas consists primarily of established single-family and
multi-family residential properties. The Ontario International Airport is about
2 miles to the northeast of the property. The property is located on
approximately 3.44 acres of land and consists of seven two-story buildings built
in 1984. The property includes a total of 137 units with an average of 517
square feet per unit. Of the 137 units, 105 are one bedroom, one bath units and
32 are two bedroom, one bath units. The property also includes a one-story
building containing a club house and an administrative office. The property
20
<PAGE> 23
is subject to a loan which had an unpaid principal balance of approximately
$3,746,000 as of September 30, 1998.
Villa Azusa. Villa Azusa is located in Azusa, California, which is in the
northeastern portion of the Los Angeles metropolitan area. Azusa is located
about 27 miles northeast of downtown Los Angeles and 10 miles east of Pasadena.
Azusa is primarily a residential community with supporting commercial services.
The area surrounding Villa Azusa consists of primarily established residential
properties on the interior streets and commercial properties along major
cross-streets. The property is located on approximately 3.38 acres of land and
consists of ten two-story buildings built in 1979. The property includes a total
of 146 identical 460 square foot one-bedroom apartment units and one 980 square
foot one-bedroom unit. The property also includes a one-story building
containing a club house and an administrative office. The property is subject to
a loan which had an unpaid principal balance of $2,872,000 as of September 30,
1998.
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for each of the years in
the five-year period ended December 31, 1997 has been derived from the
Partnership's financial statements audited by KPMG Peat Marwick, LLP,
independent certified public accountants. The selected financial data set forth
below should be read in conjunction with the audited and unaudited financial
statements and related notes included in the Partnership's annual report on Form
10-K for the fiscal year ended December 31, 1997 and the Partnership's quarterly
report on Form 10-Q for the fiscal quarter ended June 30, 1998.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
IN THOUSANDS, EXCEPT UNIT DATA
Revenues................................. $ 6,333 $ 6,140 $ 6,095 $ 6,136 $ 5,382
Net Income (loss)........................ 229 483 (464) (699) (775)
Net Income (loss) (per Limited Partner
unit).................................. 12.27 25.63 (24.62) (37.07) (41.15)
Total Assets............................. 31,241 25,300 32,794 34,794 35,378
Partners' Capital........................ 8,547 8,318 8,307 9,054 12,592
Notes Payable to banks and others........ 20,889 16,023 20,476 21,279 19,661
Distributions of Earnings (per Limited
Partner unit).......................... -- 25.02 -- -- --
Distributions -- Return of Capital (per
Limited Partner unit).................. -- -- 15.03 150.71 34.45
Total Distributions (per Limited Partner
unit).................................. -- 25.02 15.03 150.71 34.45
</TABLE>
21
<PAGE> 24
UNAUDITED PRO FORMA BALANCE SHEET AS OF JUNE 30, 1998
This unaudited pro forma balance sheet is presented as if the Senior
Apartment Properties had been sold on June 30, 1998. In the opinion of the
Managing Partner, all adjustments necessary to reflect the sale of the Senior
Apartment Properties have been made. This unaudited pro forma balance sheet is
not necessarily indicative of what the actual balance sheet amounts of the
Partnership would have been had the sale been completed as of June 30, 1998, nor
does it purport to represent the balance sheet for future periods. The pro forma
balance sheet should be read in conjunction with the information set forth in
"Selected Historical Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" located elsewhere in this
Consent Solicitation Statement.
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA PRO FORMA
JUNE 30, 1998 ADJUSTMENTS JUNE 30, 1998
------------- ----------- -------------
<S> <C> <C> <C>
ASSETS
Properties, at cost:
Land................................................ $ 4,674 $ (2,450) $ 2,224
Building and improvements, net of accumulated
depreciation..................................... 24,478 (10,473) 14,005
Furniture, fixtures and equipment net of accumulated
depreciation..................................... 964 (17) 947
------- -------- -------
Net properties................................... 30,116 (12,940) 17,176
Cash.................................................. 1,765 (110) 1,655
Restricted cash....................................... 158 (8) 150
Loan fees, net of accumulated amortization............ 53 -- 53
Other assets.......................................... 239 (61) 178
------- -------- -------
Total assets................................ $32,331 $(13,119) $19,212
======= ======== =======
LIABILITIES AND PARTNERS' CAPITAL
Notes payable to banks................................ $16,685 $(10,751) $ 5,934
Notes payable to others............................... 4,775 -- 4,775
Accounts payables..................................... 1,266 (199) 1,067
Accrued expenses...................................... 461 (31) 430
Amounts payable to affiliate.......................... 694 (196) 498
Distributions payable to partners..................... 281 -- 281
------- -------- -------
Total liabilities........................... 24,162 (11,177) 12,985
------- -------- -------
Minority interest..................................... 84 -- 84
------- -------- -------
Partners' capital (deficit):
General partners' deficit........................... (78) (19) (97)
Limited partner's capital........................... 8,163 (1,923) 6,240
------- -------- -------
Total partners' capital..................... 8,085 (1,942) 6,143
------- -------- -------
Total liabilities and partners' capital..... $32,331 $(13,119) $19,212
======= ======== =======
</TABLE>
22
<PAGE> 25
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR
THE YEAR ENDED DECEMBER 31, 1997
This unaudited pro forma statement of operations is presented as if the
sale of the Senior Apartment Properties had occurred on January 1, 1997. In the
opinion of the Managing Partner, all adjustments necessary to reflect the sale
have been made. The unaudited pro forma income statement is not necessarily
indicative of what actual results of operations of the Partnership would have
been had the sale be completed as of January 1, 1997, nor does it purport to
represent the results of operations for future periods. The pro forma statement
of operations should be read in conjunction with the information set forth in
"Selected Historical Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" located elsewhere in this
Consent Solicitation Statement.
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
FOR THE YEAR FOR THE YEAR
ENDED PRO FORMA ENDED
DECEMBER 31, 1997 ADJUSTMENTS DECEMBER 31, 1997
----------------- ----------- -----------------
<S> <C> <C> <C>
Revenues:
Rent......................................... $5,610 $(2,302) $3,308
Assisted living.............................. 601 -- 601
Interest and other........................... 122 (46) 76
------ ------- ------
Total revenues....................... 6,333 (2,348) 3,985
------ ------- ------
Costs and Expenses:
Rental property options...................... 2,880 (754) 2,126
Assisted living.............................. 235 -- 235
Depreciation and amortization................ 913 (548) 365
Interest..................................... 1,431 (815) 616
General and administrative................... 521 (150) 371
Property taxes............................... 264 (164) 100
Advertising.................................. 67 (35) 32
Minority interest............................ 83 -- 83
------ ------- ------
Total costs and expenses............. 6,394 (2,466) 3,928
------ ------- ------
Operating income (loss)...................... (61) 118 57
Net profit on sale of property............... 290 -- 290
------ ------- ------
Net income..................................... $ 229 $ 118 $ 347
====== ======= ======
</TABLE>
23
<PAGE> 26
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR
THE SIX MONTHS ENDED JUNE 30, 1998
This unaudited pro forma statement of operations is presented as if the
sale of the Senior Apartment Properties had occurred on January 1, 1998. In the
opinion of the Managing Partner, all adjustments necessary to reflect the sale
have been made. The unaudited pro forma income statement is not necessarily
indicative of what actual results of operations of the Partnership would have
been had the sale be completed as of January 1, 1998, nor does it purport to
represent the results of operations for future periods. The pro forma statement
of operations should be read in conjunction with the information set forth in
"Selected Historical Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" located elsewhere in this
Consent Solicitation Statement.
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
SIX MONTHS SIX MONTHS
ENDED PRO FORMA ENDED
JUNE 30, 1998 ADJUSTMENTS JUNE 30, 1998
------------- ----------- -------------
<S> <C> <C> <C>
Revenues:
Rent................................................ $3,895 $(1,220) $2,675
Assisted living..................................... 448 -- 448
Interest and other.................................. 206 (16) 190
------ ------- ------
Total revenues.............................. 4,549 (1,236) 3,313
------ ------- ------
Costs and Expenses:
Rental property options............................. 2,022 (371) 1,651
Assisted living..................................... 176 -- 176
Depreciation and amortization....................... 714 (265) 449
Interest............................................ 968 (405) 563
General and administrative.......................... 280 (72) 208
Property taxes...................................... 141 (83) 58
Advertising......................................... 50 (10) 40
Minority interest................................... 72 -- 72
------ ------- ------
Total costs and expenses.................... 4,423 (1,206) 3,217
------ ------- ------
Net income............................................ $ 126 $ (30) $ 96
====== ======= ======
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATION
Three Months and Six Months Ended June 30, 1998 Compared to Three Months and
Six Months Ended June 30, 1997
Revenue includes rental income, assisted living income, interest earned on
cash balances and other revenue. Revenue increased $818,000 and $1.5 million for
the three-month and six-month periods ended June 30, 1998, respectively,
compared with the corresponding periods in 1997. These increases resulted
primarily from the operation of Villa Las Posas, which opened in December 1997,
and by an increase in residents using assisted living services during 1998.
Total costs and expenses include rental property operations (consisting of,
but not limited to, property management costs, payroll related expenses,
utilities, food, and maintenance expenses), assisted living expenses, general
and administrative costs (comprised of, but not limited to, costs for
accounting, partnership administration, bad debt, data processing, investor
relations, insurance and professional services), depreciation and amortization,
property taxes, advertising costs and interest. Costs and expenses increased
$745,000 and $1.3 million for the three-month and six-month periods ended June
30, 1998, compared with the correspond-
24
<PAGE> 27
ing periods in 1997. The increase resulted primarily from the operation of Villa
Las Posas, a 123-unit assisted living community located in Camarillo,
California, which commenced operations in December 1997.
Fiscal Year Ended December 31, 1997 Compared to Fiscal Years Ended December
31, 1996 and 1995
Revenue for the years ended December 31, 1997, 1996 and 1995 includes rent
revenue, assisted living revenue, interest earned on cash balances and other
revenue. Total revenue for the year ended December 31, 1997 increased to $6.3
million from $6.1 million for the years ended December 31, 1996 and 1995.
The largest component of revenue, rent income, increased by 3% or $164,000
from 1996 to 1997, and by 6% or $316,000 from 1995 to 1996. The increase from
1996 to 1997 is due to slight increases in average rental rates and the increase
from 1995 to 1996 is a result of slight increases in overall community average
occupancy and rental rates.
Revenue from assisted living income increased by 43% or $182,000 from 1996
to 1997, and by $22% or $75,000 from 1995 to 1996. The increase in assisted
living revenue can be attributed to aggressive assisted living services
marketing, and the resulting increase in the number of residents using the
program.
Interest, grants and other revenue decreased by 56% or $153,000 from 1996
to 1997, and by 56% or $346,000 from 1995 to 1996. Interest income results from
interest earned on cash deposits. Other revenue generally includes processing
fees and beauty shop revenue. The decrease between the years is primarily due to
the reduction of the Partnership's notes receivable related to the sale of the
Heritage Pointe Claremont property in April 1996.
Total costs and expenses for the years ended 1997, 1996 and 1995 were $6.4
million, $6.2 million, and $6.6 million, respectively.
The largest component of expenses, rental property operations, consists
primarily of property management costs, payroll related expenses, utilities,
food expenses and maintenance and supplies. Rental property operating expenses
increased by 9% or $241,000 from 1996 to 1997, and by 6% or $142,000 from 1995
to 1996. The changes in rental property operating expenses are primarily due to
the fluctuations in aggregate occupancy levels and payroll expenses.
Assisted living expenses consist primarily of payroll expenses and supplies
related to the provision of assisted living services. Assisted living expenses
increased by 19% or $38,000 from 1996 to 1997, and by 17% or $29,000 from 1995
to 1996, as a result of the increase in the related staff providing assisted
living services. This increase corresponds with the increase in assisted living
revenue.
General and administrative expenses are comprised of, but not limited to,
costs for accounting, partnership administration, bad debt expense, data
processing, investor relations, insurance and professional services. General and
administrative expense increased by 24% or $101,000 from 1996 to 1997, and by 4%
or $18,000 from 1995 to 1996. Effective April 1, 1997, the Managing Partner
began allocating bulk expenses on a monthly basis in order to increase
efficiency. As a result, all costs allocated in 1997 are included in general and
administrative expenses, rather than property operations and general and
administrative expenses, which accounts for the increase in general and
administrative expenses from 1996 to 1997.
Depreciation and amortization expenses decreased by 9% or $90,000 from 1996
to 1997, and by 20% or $251,000 from 1995 to 1996. Depreciation and amortization
expenses decreased primarily due to the sale of Heritage Point Claremont
property in April 1996.
Property tax expense decreased by 6% or $17,000 from 1996 to 1997, and by
16% or $52,000 from 1995 to 1996. The slight decreases are due to successful
appeals on property tax assessments on certain of the Partnership's properties.
Interest expense decreased by 11% or $172,000 from 1996 to 1997, and by 14%
or $265,000 from 1995 to 1996. These decreases are due to the decrease in
borrowings on the Partnership's line of credit during 1996 and 1995. The
Partnership no longer has this line of credit.
25
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES
The General Partners expect that the cash to be generated from operations
of all the Partnership's properties will be adequate to pay operating expenses,
make necessary capital improvements, make required principal reductions of debt
and make quarterly distributions. On a long-term basis, the Partnership's
liquidity is sustained primarily from cash flow provided by operating
activities. During the six-month period ended June 30, 1998, cash provided by
operating activities increased to $1.7 million compared to $703,000 for the
corresponding period in 1997.
During the six-month period ended June 30, 1998, the Partnership's net cash
used in investing activities decreased to $1.2 million compared to net cash used
in investing activities of $2.9 million for the corresponding period in 1997.
The Partnership's investing activities consisted of capital improvements and the
purchase of furniture and fixtures at its operating properties. During 1997,
additional cash was used in the construction of Villa Las Posas.
During the six-month period ended June 30, 1998, the Partnership's net cash
provided by financing activities was $143,000 compared to net cash provided by
financing activities of $2.3 million for the corresponding period in 1997. The
Partnership's financing activities consisted of borrowings from its construction
loan and principal reduction on its notes payable to banks and others. During
the six-month period ended June 30, 1998, the Partnership made $354,000 in
distributions to the partners.
The General Partners are not aware of any trends, other than national
economic conditions which have had, or which may be reasonably expected to have,
a material favorable or unfavorable impact on the revenues or income from the
operations or sale of properties. The General Partners believe that if the
inflation rate increases they will be able to pass the subsequent increase in
operating expenses onto the residents of the facilities by way of higher rental
and assisted living rates.
On March 12, 1997, the Partnership obtained a $7.7 construction loan from
Bank United of Texas for financing the construction of Villa Las Posas. The
terms of the construction loan provide for the interest rate to be equal to the
30 day LIBOR rate plus 2.75 percent. As of June 30, 1998, the Partnership had
$5.9 million outstanding under this construction loan. In addition, the
Partnership has long-term notes payable to banks and others of $15.6 million as
of June 30, 1998.
In July 1998, the Board of Directors of the Managing Partner approved the
refinancing of the Partnership's three assisted living communities. If the
Partnership is able to refinance these properties, the refinancing is expected
to allow the Partnership to take advantage of lower interest rates available in
the current environment and to provide a return of capital to the limited
partners by borrowing against the increased value of these properties. As a
result of this refinancing, the Partnership's long-term debt is expected to be
approximately $30.0 million. In order to refinance certain long-term debt, the
Partnership will be required to pay a prepayment penalty. The savings on the
interest rate of the new debt, if available, will mitigate the effect of the
prepayment penalty. There can be no assurance that the Partnership will be
successful in refinancing its three assisted living communities or any of them.
The Partnership contemplates spending approximately $800,000 for capital
expenditures during 1998 for physical improvements at its communities. Of this
amount, approximately $130,000 has been contracted as of June 30, 1998. Funds
for these improvements are expected to be available from operations. A portion
of the funds for these improvements is expected to come from the refinancing
referenced above.
There are no known material trends, favorable or unfavorable, in the
Partnership's capital resources, and there is no expected change in the mix of
such resources.
YEAR 2000 ISSUE
Certain computer programs utilized by the Partnership were written using
two digits rather than four to define the year. As a result, those programs may
recognize a date using "00" as the year 1900 rather than the year 2000. In the
event this were to occur with any of the Partnership's computer programs, a
system failure or
26
<PAGE> 29
miscalculation causing disruptions of operations could occur. Such a failure
could cause the temporary inability to process transactions, send invoices or
engage in similar normal business activities.
Unrelated to the Year 2000 Issue, the Managing Partner, which provides
accounting services, intends to replaced substantially all of its accounting
information systems software during 1998 and 1999. The Managing Partner believes
that with the conversion to the new accounting software, the Year 2000 Issue
will not pose significant business or operating issues.
The Partnership is assessing its remaining software and operating equipment
to determine whether any existing programs will have to be modified or replaced
so that these systems will function properly with respect to dates in the year
2000 and thereafter. This assessment is expected to be completed during the
fourth quarter of 1998.
The Partnership has initiated communications with the third-party providers
of certain of its administrative services, as well as its significant suppliers
of services and products to determine the extent to which the Partnership is
vulnerable to those parties' failures to remediate their own Year 2000 Issues.
The Partnership plans to have completed its evaluation of those suppliers
during the first quarter of 1999. The Partnership does not presently believe
that third-party Year 2000 Issues will have a material adverse effect on the
Partnership. However, there can be no guarantee that the systems of other
companies on which the Partnership's operations or systems rely will be timely
remedied or that a failure by another company to remediate its systems in a
timely manner would not have a material adverse effect on the Partnership. The
Partnership expects to successfully implement the changes necessary to address
these Year 2000 Issues, and does not believe that the cost of such actions will
have a material effect on the Partnership. There can be no assurance, however,
that there will not be delays in, or increased costs associated with, the
implementation of such changes, and the Partnership's inability to implement
such changes could have a material adverse effect on the Partnership's business,
operating results, and financial condition.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the material federal income tax consequences
relating to the Proposed Transaction as described in this Consent Solicitation
Statement. This summary is not intended to and should not be considered an
opinion respecting the federal or state income tax consequences to a particular
Unitholder. Due to the complexity of the tax issues involved, Unitholders are
urged to consult with their personal tax advisors regarding their individual
circumstances and the tax reporting consequences of the transaction. This
discussion is based on the Code, existing final, temporary and proposed Treasury
Regulations thereunder, published rulings and practices of the Internal Revenue
Service (the "IRS"), and court decisions, each as currently in effect. There can
be no assurance that the IRS will agree with the conclusions herein or that
future legislation or administrative changes or court decisions will not
significantly modify the federal income tax law regarding the matters described
herein, potentially with retroactive effect. In addition, the Partnership has
not obtained a ruling from the Internal Revenue Service or an opinion of counsel
regarding the tax consequences of the Proposed Transaction or the accuracy of
the discussion set forth below.
This discussion addresses the material federal income tax considerations
that are generally applicable to all Unitholders who purchased their Units for
cash in the initial offering of such Units. The specific tax consequences of the
Proposed Transaction will vary for each Unitholder depending on each
Unitholder's personal investment or tax circumstances. The discussion set forth
below is based upon the assumption that the Units held by the Unitholders
constitute capital assets in the hands of such Unitholders.
It is not possible or practical to discuss here all aspects of federal
income tax law that may have relevance with respect to the transactions
described herein based on the individual circumstances of particular Unitholders
in light of their personal investment or tax circumstances, or to certain types
of Unitholders (including insurance companies, financial institutions or
broker-dealers, tax-exempt organizations, pension and profit-sharing plans,
persons subject to alternative minimum tax, foreign corporations and persons who
are
27
<PAGE> 30
not citizens or residents of the United States) subject to special treatment
under the federal income tax laws. This summary also does not address other
federal, state, local or foreign tax consequences of consummation of the Plan.
The following description is general in nature, and is not exhaustive of all
possible tax considerations. This analysis is not tax advice to the Unitholders,
and is not intended as a substitute for careful tax planning.
UNITHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS
DESCRIBED HEREIN IN LIGHT OF THEIR OWN CIRCUMSTANCES AND WITH RESPECT TO
POTENTIAL CHANGES IN THE APPLICABLE LAW.
PARTNERSHIP STATUS
Treasury Regulations (the "check-the-box regulations") that were adopted in
1996 permit the Partnership to elect treatment as a partnership for federal
income tax purposes. Even if the Partnership does not affirmatively elect
treatment as a Partnership, the check-the-box regulations provide that the
Partnership will be classified as a partnership for federal income tax purposes
so long as it has two or more partners.
Pursuant to Code Section 7704, "publicly traded partnerships" are taxed as
corporations. If the partnership were treated as an association taxable as a
corporation for federal income tax purposes, the income of the Partnership would
be taxed to the Partnership at corporate rates, no Partnership losses could be
used by the partners to offset their own income and all or a portion of any
distribution by the Partnership to the partners would be taxed to them as
dividends to the extent of the current and accumulated earnings and profits of
the Partnership.
Under current law, a "partnership" is not a taxable entity and incurs no
federal income tax liability. Instead, each partner is required to take into
account in computing such partner's income tax liability such partner's
allocable share of the partnership's items of income, gain, loss, deduction and
credit (hereinafter referred to as "income or loss"). The distribution of cash
attributable to partnership income is generally not a separate taxable event.
This tax treatment, however, depends entirely upon the Partnership's
classification as a "partnership" (rather than as an "association taxable as a
corporation") for federal income tax purposes. The discussion set forth below
assumes that the Partnership has been and will continue to be properly
classified for federal income tax purposes as a partnership, rather than an
association or publicly traded partnership taxable as a corporation. Upon the
formation of the Partnership in 1989, the Partnership received an opinion from
its tax counsel, Donald J. Regan, P.C., that the Partnership was properly
classified as a partnership for federal income tax purposes. The Partnership did
not, however, request a ruling from the Internal Revenue Service as to its tax
status as a partnership. Moreover, the opinion of counsel referred to above was
and is subject to the continuous satisfaction by the Partnership of certain
factual conditions. If, for any reason, the Partnership is or was classified for
tax purposes as an association or publicly traded partnership taxable as a
corporation, the tax consequences of the proposed transactions would differ
materially from that described below.
TAX CONSEQUENCES OF THE PROPOSED TRANSACTION
Realization of Gain or Loss
The sale of the Senior Apartment Properties (or other Partnership assets)
by the Partnership will cause the Partnership to recognize income or loss for
federal income tax purposes in an amount equal to the difference between (i) the
"amount realized" on the sale of the Senior Apartment Properties (or other
assets) over (ii) the Partnership's "adjusted tax basis" in the Senior Apartment
Properties (or other assets). The "amount realized" will equal the amount paid
by the Purchaser (including the amount of any liabilities assumed by or taken
subject to Purchaser), reduced by any expenses of sale. The "adjusted tax basis"
of an asset will equal its cost (including nondeductible capital expenditures
made by the Partnership at the time of purchase) with certain additions or
subtractions for expenditures, transaction costs, depreciation and other items
during the period of time from acquisition of the asset until consummation of
the Proposed Transaction.
28
<PAGE> 31
Characterization of Gain
The Senior Apartment Properties should constitute "Section 1231 property"
(i.e., real property and depreciable assets used in a trade or business which
are held for more than one year) rather than "dealer" property (i.e., property
which is held primarily for sale to customers in the ordinary course of
business). The determination of whether property is "dealer" property is a
factual inquiry, however, and the cases in the area are difficult to reconcile
in a number of respects. Consequently, absolute assurance that the property will
not be characterized as "dealer" property cannot be given. If the Senior
Apartment Properties were characterized as "dealer" property, gain upon the sale
would be taxed entirely as ordinary income (which is taxed at a substantially
higher rate than gains from sale of Section 1231 property).
In general, under Section 1231 of the Code, a taxpayer's gain attributable
to the disposition of real property used in a trade or business (such as the
Senior Apartment Properties) will be treated as capital gain ("Section 1231
Gain"). Under the Taxpayer Relief Act of 1997 (the "Act"), the maximum federal
rate of tax on the adjusted net capital gain of a non-corporate unitholder is
20%. However, under Sections 1245 and 1250 of the Code (which govern recapture
of depreciation taken with respect to personal and real property, respectively),
a portion of the amount previously allowed as depreciation expense with respect
to the Senior Apartment Properties will be "recaptured" upon the consummation of
the Proposed Transaction (and taxed at different rates) rather than being
characterized as capital gain. In general, under Section 1250, all depreciation
deductions previously claimed by the Partnership with respect to buildings
located on the Senior Apartment Properties (together with certain components of
the buildings properly characterized as part of the buildings) will be taxed at
a federal maximum rate of 25% (for non-corporate Unitholders). With respect to
all other depreciable assets related to the Senior Apartment Properties, the
excess of (i) previously claimed depreciation deductions with respect to such
assets, over (ii) the amount of depreciation deductions allowable with respect
to such assets under the straight-line method of depreciation, will be treated
as ordinary income and taxed at a maximum federal rate of 39.6% (for
non-corporate Unitholders).
To the extent the Partnership's gain or loss is treated as recognized from
the sale of "Section 1231" assets, each Unitholder would combine his or her
allocable share of gain or loss from the sale of the Partnership's Section 1231
assets with any other Section 1231 gains and losses recognized by such
Unitholder in that year. If the result is a net loss, such loss will be
characterized as an ordinary loss. If the result is a net gain, such gain will
be characterized as capital gain; provided, however, that such gain will be
treated as ordinary income to the extent the Unitholder has "non-recaptured"
Section 1231 losses. For these purposes, "non-recaptured" Section 1231 losses
means a Unitholder's aggregate Section 1231 losses for the five most recent
prior years that have not previously been recaptured. In addition, a
Unitholder's net gain will be treated as ordinary income to the extent such gain
is attributable to depreciation recapture, sale of inventory or certain other
items.
It is anticipated that the sale of the Senior Apartment Properties (or
other assets) will result in a taxable gain to the Partnership. Each Unitholder
will be required to recognize his or her allocable share of the taxable gain
recognized by the Partnership and allocable to the Unitholder as per in the
Partnership Agreement. In general, the Partnership Agreement allocates such gain
in the following order: (i) to those Unitholders and General Partners, if any,
who have negative capital accounts to the extent of their negative capital
accounts; (ii) to those partners who have previously been allocated depreciation
deductions attributable to the Senior Apartment Properties (or other assets),
but only to the extent such deductions exceed the gain allocated in (i) above;
(iii) to the partners in proportion to the distribution of proceeds of certain
sales or refinancings; and (iv) the balance, if any, 85% to the Unitholders and
15% to the General Partners. There can be no assurance, however, that such
allocations will be respected for federal income tax purposes if challenged by
the Internal Revenue Service. If the Internal Revenue Service successfully
challenges the allocations of income or loss under the Partnership Agreement,
Unitholders may (among other things) be allocated amounts of income or loss in
the year of the sale of the Senior Apartment Properties which are different from
the amounts set forth herein, and Unitholders may be allocated different amounts
of income and deductions, including depreciation deductions, in prior years.
29
<PAGE> 32
Passive Activity Losses
Gain or loss recognized on the sale of the Senior Apartment Properties (or
other Partnership assets) generally will be treated as passive activity income
or loss, under the passive activity loss rules of Section 469 of the Code, for
Unitholders who do not materially participate in the activity in which the
Partnership is engaged. Under Section 469 of the Code, a non-corporate taxpayer
or personal service corporation generally can deduct "passive activity losses"
in any year only to the extent of the person's passive activity income for that
year. Closely-held corporations may not offset such losses against so-called
"portfolio" income. Substantially all losses of Unitholders from the Partnership
should be considered passive activity losses. Unitholders may have "suspended"
passive losses from the Partnership (i.e., net taxable losses in excess of
statutorily permitted "phase-in" amounts which have not been used to offset
income from other passive activities) which may be available to shelter gain
from the Proposed Transaction. Each Unitholder should consult such Unitholder's
tax advisor regarding the effect that the passive activity loss rules will have
upon such Unitholder's tax situation.
Withholding
The Partnership may be required to withhold a portion of the distributions
to be made to any Unitholders who fail to provide appropriate certification as
to their non-foreign status or their status as a California resident.
DISTRIBUTION OF SALE PROCEEDS
In general, each Unitholder will recognize additional taxable gain (but not
loss) upon the receipt of sale proceeds from the Partnership if and to the
extent that (a) the sum of (i) the amount of cash received from the Partnership
and (ii) any reduction in such Unitholder's share of liabilities of the
Partnership exceeds (b) the Unitholder's adjusted tax basis in his or her
interest in the Partnership (including the Unitholder's share of Partnership
liabilities and as increased or decreased by his or her share of the Partnership
gain or loss from the sale of the Senior Apartment Properties and any other
assets of the Partnership). A Unitholder's gain (if any) will generally be
capital gain or loss, and will be long-term if the Unitholder has held his or
her interest in the Partnership for more than one year. For non-corporate
Unitholders, long-term capital gain is subject to a maximum federal tax rate of
20%.
APPROVAL BY UNITHOLDERS
VOTE REQUIRED
In order for the Proposed Transaction to be approved by the Unitholders, a
majority of the Units represented by valid Consents returned to the Managing
Partner must vote in favor of the Proposed Transaction ("Majority Approval").
Each Unitholder shall be entitled to cast one vote for each Unit he or she owns.
Section 8.5 of the Partnership Agreement permits this vote to be taken by
written consent without a meeting of the Unitholders.
Unitholders may vote to approve or disapprove the Proposed Transaction or
may abstain. Signed but unmarked Consents returned to the Managing Partner will
be deemed to approve the Proposed Transaction, and will be deemed, pursuant to
the Partnership Agreement, to have directed the Managing Partner to vote to
approve the Proposed Transaction. Because Majority Approval is required, a vote
to abstain has the same effect as a vote against the Proposed Transaction.
However, the failure of a Unitholder to vote will not affect the vote.
As of the Notice Date, there were 1,784 Unitholders of record owning
18,666.48 Units. The Managing Partner owns approximately 58.34 Units. The
remaining General Partners do not own or control any additional Units. The
Managing Partner will vote its Units in favor of the Proposed Transaction. No
person is known by the Partnership to own beneficially more than 5% of the
outstanding units.
30
<PAGE> 33
EXTENSION OF CONSENT DATE; TERMINATION AND AMENDMENT
The Managing Partner expressly reserves the right, in its sole discretion,
at any time and from time to time (i) to extend the Consent Date up to 60 days
from the date the first Consent Solicitation Statement was mailed or given to a
Unitholder, (ii) to terminate the Consent Solicitation, or (iii) to amend or
supplement this Consent Solicitation Statement. Any extension, termination or
amendment will be followed as promptly as practicable by written notice. Without
limiting the manner in which the Managing Partner may choose to make any written
notice, except as provided by applicable law, the Managing Partner will have no
obligation to publish, advertise or otherwise communicate such notice by public
announcement.
DISSENTER'S RIGHTS
Neither the Partnership Agreement nor California law provides any right for
Unitholders to have their respective units appraised or redeemed in connection
with or as a result of this Consent Solicitation.
REVOCATION
Every Consent given in accordance with this Consent Solicitation continues
in full force and effect unless otherwise revoked prior to the Consent Date.
Such revocation may be effected by a writing delivered to the Managing Partner
stating that the Consent is revoked or by a subsequent Consent executed by a
Unitholder bearing a later date and specifying that it supersedes the prior
Consent. The dates contained on the Consent form shall determine the order of
execution regardless of the postmark dates on the envelopes in which they are
mailed. A consent is not revoked by the death or incapacity of the Unitholder
unless, before the Consent Date, written notice of such death or incapacity is
received by the Managing Partner.
METHOD OF SOLICITATION
This solicitation of Consents is made by the Managing Partner on behalf of
the Partnership. This Consent Solicitation Statement is the primary method by
which the Managing Partner will solicit the Consents of the Unitholders. The
Partnership has engaged an independent investor solicitation management company,
ACS Securities Services, Inc. to manage the solicitation of the Consents and
tabulate the results. ACS Securities Services, Inc. is assisting the Managing
Partner with the planning and management of the solicitation effort, updating
the Unitholder database, coordination of printing and mailing of solicitation
materials, providing inbound information and assistance and outbound telephone
follow-up to Unitholders and the tabulation of Consents. For these services the
Partnership will pay ACS Securities Services, Inc. a management fee of $6,000
and associated costs estimated at $19,000. In addition, members of the Managing
Partner's Investor Relations Department may contact brokers who originally sold
partnership units to provide information regarding the Consent Solicitation
Statement and the progress of the solicitation of Consents. The brokers will not
be asked to solicit Consents and no commissions or fees will be paid to the
brokers. There will be no additional cost to the Partnership for telephone calls
made by the Managing Partner's Investor Relations Department. Finally,
designated members of the Investor Relations Department and officers of the
Managing Partner will be available to answer questions regarding this Consent
Solicitation.
THIS SOLICITATION OF CONSENTS EXPIRES AT 5:00 P.M. PACIFIC STANDARD TIME
ON DECEMBER 9, 1998, UNLESS EXTENDED.
Accordingly, it is important that the Unitholders complete and return the
enclosed Consent (or a facsimile thereof) so that it will be received before the
deadline. If you have any questions regarding this Consent Solicitation or the
transactions covered thereby, please contact the ACS Securities Services, Inc.,
at 5580 LBJ Freeway, Suite 230, Dallas, Texas 75240, telephone number (888)
215-9755.
31
<PAGE> 34
APPENDIX A
SUMMARIES OF THE APPRAISALS
<PAGE> 35
SENIOR LIVING VALUATION SERVICES, INC.
APPRAISERS & CONSULTANTS TO THE SENIOR HOUSING INDUSTRY
September 1, 1998
ARV Assisted Living, Inc.
500 Newport Center Drive, Suite 200
Newport Beach, CA 92660
Attention: Mr. Abdo Khoury
Re: Pacific Villas
3642 North Garey Avenue
Pomona, California
SLVS File No. 98-07-61
Mr. Khoury:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned senior housing
property. The full narrative appraisal report that will follow shortly has been
prepared to be in compliance with the requirements of the Uniform Standards of
Professional Appraisal Practice and Title XI of FIRREA. This will be a complete,
self contained appraisal report.
The value stated herein is based on our understanding of the site and
improvement descriptions as represented to us by the client and/or the client's
representatives and professional consultants as well as other available sources.
It will be your responsibility to read the report and inform the appraiser of
any errors or omissions you are aware of prior to utilizing the report or making
it available to any third party.
MARKET VALUE AS IS @ 7/24/98
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in the full narrative report, that the market value of the
fee simple total going concern interest in the subject, as is, as of July 24,
1998, is:
SIX MILLION SIX HUNDRED FIFTY THOUSAND DOLLARS
($6,650,000)
The narrative appraisal report that will follow shortly sets forth the
identification of the property and limiting conditions, pertinent facts about
the area and the subject property, comparable data, results of our investigation
and analysis and the reasoning leading to the conclusions set forth. Please feel
free to call me at (415) 788-42985 (sic) should you have any questions.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
/s/ MICHAEL G. BOEHM
- ---------------------------------------------------------
Michael G. Boehm, MAI, CRE
President
A-1
<PAGE> 36
SENIOR LIVING VALUATION SERVICES, INC.
APPRAISERS & CONSULTANTS TO THE SENIOR HOUSING INDUSTRY
September 1, 1998
ARV Assisted Living, Inc.
500 Newport Center Drive, Suite 200
Newport Beach, CA 92660
Attention: Mr. Abdo Khoury
Re: Cedar Villas
301 East Cedar Street
Ontario, California
SLVS File No. 98-07-60
Mr. Khoury:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned senior housing
property. The full narrative appraisal report that will follow shortly has been
prepared to be in compliance with the requirements of the Uniform Standards of
Professional Appraisal Practice and Title XI of FIRREA. This will be a complete,
self contained appraisal report.
The value stated herein is based on our understanding of the site and
improvement descriptions as represented to us by the client and/or the client's
representatives and professional consultants as well as other available sources.
It will be your responsibility to read the report and inform the appraiser of
any errors or omissions you are aware of prior to utilizing the report or making
it available to any third party.
MARKET VALUE AS IS @ 7/24/98
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in the full narrative report, that the market value of the
fee simple total going concern interest in the subject, as is, as of July 24,
1998, is:
FOUR MILLION NINE HUNDRED SEVENTY FIVE THOUSAND DOLLARS
($4,975,000)
The narrative appraisal report that will follow shortly sets forth the
identification of the property and limiting conditions, pertinent facts about
the area and the subject property, comparable data, results of our investigation
and analysis and the reasoning leading to the conclusions set forth. Please feel
free to call me at (415) 788-42985 (sic) should you have any questions.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
/s/ MICHAEL G. BOEHM
- ---------------------------------------------------------
Michael G. Boehm, MAI, CRE
President
A-2
<PAGE> 37
SENIOR LIVING VALUATION SERVICES, INC.
APPRAISERS & CONSULTANTS TO THE SENIOR HOUSING INDUSTRY
September 1, 1998
ARV Assisted Living, Inc.
500 Newport Center Drive, Suite 200
Newport Beach, CA 92660
Attention: Mr. Abdo Khoury
Re: Villa Azusa
200 East Gladstone
Azusa, California
SLVS File No. 98-07-62
Mr. Khoury:
In accordance with your request, we have conducted the required investigation,
gathered the necessary data, and made certain analyses that have enabled us to
form an opinion of the market value of the above captioned senior housing
property. The full narrative appraisal report that will follow shortly has been
prepared to be in compliance with the requirements of the Uniform Standards of
Professional Appraisal Practice and Title XI of FIRREA. This will be a complete,
self contained appraisal report.
The value stated herein is based on our understanding of the site and
improvement descriptions as represented to us by the client and/or the client's
representatives and professional consultants as well as other available sources.
It will be your responsibility to read the report and inform the appraiser of
any errors or omissions you are aware of prior to utilizing the report or making
it available to any third party.
MARKET VALUE AS IS @ 7/24/98
Based on an inspection of the property and the investigation and analysis
undertaken, we have formed the opinion, subject to the assumptions and limiting
conditions set forth in the full narrative report, that the market value of the
fee simple total going concern interest in the subject, as is, as of July 24,
1998, is:
SIX MILLION TWENTY FIVE THOUSAND DOLLARS
($6,025,000)
The narrative appraisal report that will follow shortly sets forth the
identification of the property and limiting conditions, pertinent facts about
the area and the subject property, comparable data, results of our investigation
and analysis and the reasoning leading to the conclusions set forth. Please feel
free to call me at (415) 788-42985 (sic) should you have any questions.
Respectfully submitted,
SENIOR LIVING VALUATION SERVICES, INC.
/s/ MICHAEL G. BOEHM
- ---------------------------------------------------------
Michael G. Boehm, MAI, CRE
President
A-3
<PAGE> 38
APPENDIX B
PURCHASE AGREEMENTS
<PAGE> 39
PURCHASE AND SALE AGREEMENT
AND
JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
AMERICAN RETIREMENT VILLAS PROPERTIES III,
A CALIFORNIA LIMITED PARTNERSHIP
AS SELLER
AND
META HOUSING CORPORATION,
A CALIFORNIA CORPORATION
AS BUYER
OCTOBER 26, 1998
B-1
<PAGE> 40
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (the
"Agreement") is made as of October 26, 1998, between AMERICAN RETIREMENT VILLAS
PROPERTIES III, a California limited partnership ("Seller"), and META HOUSING
CORPORATION, a California corporation, or assignee ("Buyer") with reference to
the following facts and circumstances. The "Effective Date" of this Agreement
shall be the date upon which the parties mutually execute this Agreement.
RECITALS
A. Seller is the fee owner of three (3) real properties improved with
seniors apartment projects (collectively, the "Affiliated Properties"), all as
more particularly described in attached Schedule A and incorporated herein.
B. Buyer desires to purchase from Seller and Seller desires to sell to
Buyer one of the Affiliated Properties commonly known as Villa Azusa, located at
200 E. Gladstone Street, Azusa, California 91702, and more particularly
described on attached Exhibit A and made a part hereof, upon the following terms
and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, Seller and Buyer agree as follows:
1. PURCHASE AND SALE
1.1 AGREEMENT TO BUY AND SELL. Subject to all of the terms and conditions
of this Agreement, Seller hereby agrees to sell and convey to Buyer, and Buyer
agrees to acquire and purchase from Seller, all of the following (collectively,
the "Property"):
1.1.1 REAL PROPERTY. A certain parcel of real property ("Real
Property") more particularly described on Exhibit A attached hereto and all
of Seller's right, title and interest in and to all easements, rights and
privileges, hereditaments and appurtenances thereto, including any right,
title and interest in and to adjacent streets, alleys or rights of way,
together with all of Seller's right, title and interest in and to all
improvements, structures, equipment and fixtures currently located on or
under said Real Property (collectively called the "Improvements"), subject
to easements, agreements and other matters of record and the rights of
existing tenants under leases or occupancy agreements.
1.1.2 PERSONAL PROPERTY. All of Seller's right, title and interest in
and to all tangible personal property (the "Personal Property") now or
hereafter used exclusively in connection with, the ownership, operation or
maintenance of the Real Property and/or the Improvements, with the
exception of any laundry equipment installed at the Real Property which
shall not be part of the Personal Property, but which shall include,
without limitation, equipment, machinery, furniture, art work, furnishings,
office equipment, tools, construction and finish materials not incorporated
in the Improvements and held for repair and replacements; and all right,
title and interest of Seller, determined as of the Closing Date, in and to
all intangible personal property (the "Intangible Property") now or
hereafter used exclusively in connection with the operation, ownership,
maintenance or management of the Real Property, including, without
limitation, all trade names and trademarks associated with the Real
Property; warranties; indemnities; all permits, licenses and approvals
related to the operation, maintenance, construction, or ownership of the
Real Property (to the extent assignable); insurance proceeds or claims
thereto related to the Real Property; and all books and records relating to
the Real Property.
1.1.3 SERVICE CONTRACTS. All of Seller's right, title and interest in
and to any and all contracts and other agreements pertaining to the
Property together with all supplements, amendments and modifications
thereto (collectively, the "Service Contracts"), which Service Contracts
are listed or described on Schedule B attached hereto and incorporated
herein by reference.
1.1.4 LEASES. All of Seller's interest, as landlord, in all leases or
other occupancy agreements affecting the Improvements, including leases or
occupancy agreements which may be made by Seller
B-2
<PAGE> 41
after the Effective Date of this Agreement and before Closing as permitted
by this Agreement, and any and all amendments and supplements thereto
(collectively, the "Leases").
1.2 PURCHASE PRICE. The purchase price to be paid by Buyer to Seller for
the Property (the "Purchase Price") shall be the sum of Six Million Two Hundred
Fifty Thousand Dollars ($6,250,000.00). The Purchase Price shall be payable upon
the Close of Escrow (as hereafter defined) as follows:
1.2.1 DEPOSIT. Upon the Opening of Escrow (as defined in Paragraph 2),
Buyer shall deliver to Escrow Agent (as defined in Paragraph 2) as an
earnest money deposit the sum of Sixty Eight Thousand Two Hundred Dollars
($68,200.00) (the "Deposit"), paid by wire transfer of funds or by
certified or cashier's check drawn on a local bank. Escrow Agent shall
promptly deposit and thereafter hold the Deposit in an interest bearing
account and interest will accrue for the account of Buyer except as
otherwise provided in this Agreement and will be applied against the
Purchase Price at Closing (as defined in Paragraph 2). Except as expressly
provided otherwise, the Deposit will become nonrefundable at and as of the
first day following the end of the Due Diligence Period, unless Buyer
terminates this Agreement by written notice to Seller and Escrow Agent as
provided herein on or before the end of the Due Diligence Period. In the
event Buyer so terminates this Agreement, Escrow Agent shall immediately
refund the Deposit to Buyer.
1.2.2 BALANCE OF PURCHASE PRICE. No later than such time as is
required by Escrow Agent or otherwise in order for the Closing to occur by
the Closing Date, Buyer will deposit into the Escrow the balance of the
Purchase Price in cash, by confirmed wire transfer of funds, or by
certified or cashier's check collectible in same day funds. For purposes of
calculating the balance of the Purchase Price payable by Buyer hereunder,
Buyer shall be credited with (i) the Deposit, (ii) all interest earned on
the Deposit during the Escrow, and (iii) Buyer's share of the prorations in
Buyer's favor and credits described in Section 5.2 hereof.
2. ESCROW
2.1 OPENING OF ESCROW. Within three (3) business days after their execution
and delivery of this Agreement, Seller and Buyer shall open an escrow (the
"Escrow") with Fidelity National Title Company (the "Escrow Agent") by
delivering to Escrow Agent a fully executed copy of this Agreement (the "Opening
of Escrow"). When this Agreement or counterparts hereof shall have been executed
by Seller and Buyer, and delivered to Escrow Agent, it shall constitute the
joint escrow instructions of the parties to the Escrow Agent. The purchase and
sale of the Property will be consummated through the Escrow. Escrow Agent is
hereby authorized and instructed to deliver, pursuant to the terms of this
Agreement, the documents and monies to be deposited into the Escrow. Escrow
Agent's standard form escrow instructions shall, to the extent consistent with
the terms hereof, inure to the benefit of Escrow Agent. If there is a conflict
between any printed escrow instructions and this Agreement, the terms of this
Agreement will govern.
2.2 CLOSING OF ESCROW. The closing (the "Closing") of the purchase and sale
of the Property shall take place through Escrow, upon satisfaction of all
conditions to Closing set forth herein, by no later than ninety (90) days after
the Effective Date of this Agreement, subject to the provisions of Section 4.2.5
hereof (the "Closing Date"). The term "Closing" or "Close of Escrow" as used
herein shall be deemed to be the date upon which the grant deed to the Real
Property is recorded. The Close of Escrow shall occur, if at all, simultaneously
with the Close of Escrow for Buyer's purchase from Seller of the remaining two
(2) Affiliated Properties.
3. ACTIONS PENDING CLOSING
3.1 DELIVERY OF TITLE DOCUMENTS. Within ten (10) days after the Opening of
Escrow, Seller shall cause to be delivered to Buyer a current, effective
Preliminary Report covering the Real Property and the Improvements (the
"Preliminary Report"), issued by Fidelity National Title Company (the "Title
Company"), together with (i) true, complete and legible copies of all documents
referred to in the Preliminary Report (the "Underlying Documents"), (ii) a plat
or sketch prepared by the Title Company showing all easements affecting the Real
Property, and (iii) a copy of any existing ALTA Survey of the Real Property (the
B-3
<PAGE> 42
"Survey") in Seller's possession or control, or written notice to Buyer that
Seller has no such Survey in its possession or under its control. In the event
Buyer elects to obtain any extended coverage ALTA owner's or lender's title
insurance policy, and such extended coverage requires an ALTA survey, Buyer
shall obtain said survey, if at all, at its sole cost and expense, prior to the
expiration of the Due Diligence Period (as defined in Section 3.3.2).
If any subsequent updating of a Preliminary Report or of a Survey prior to
the Close of Escrow shall disclose any additional title exceptions, defects or
encumbrances, then Buyer shall have an additional five (5) day period to approve
or disapprove such items in its discretion subject to the process described in
Section 3.2.
3.2 BUYER'S REVIEW OF TITLE. At any time prior to the expiration of the Due
Diligence Period, Buyer shall review and examine the Preliminary Reports, the
Underlying Documents, and the Surveys, if any, and deliver to Seller written
notice of any title exceptions which Buyer disapproves or other objections to
title, specifying reasonable grounds for each matter disapproved (collectively,
the "Disapproved Exceptions"). Such grounds must establish that the matters
disapproved would have an adverse effect on Buyer's use, development, financing,
marketability or operation of the Property, as determined by Buyer in its sole
discretion, and were not caused or created solely by the acts of Buyer. Buyer's
failure to provide such notice of Disapproved Exceptions prior to the expiration
of the Due Diligence Period shall constitute Buyer's approval of the condition
of title as shown on the Preliminary Report. If Buyer timely notifies Seller of
specific Disapproved Exceptions, Seller will have ten (10) days after receipt of
Buyer's notification of Disapproved Exceptions in which to advise Buyer that:
(i) Seller will cause the Disapproved Exceptions to be removed or
remedied or obtain appropriate endorsements to the Title Policy on or
before the Closing Date; or
(ii) Seller will not cause the Disapproved Exceptions to be removed or
remedied or cause appropriate endorsements to the Title Policy to be
issued.
(iii) If Seller does not notify Buyer of its election within the 10
day period, Seller will be deemed to have elected to not cause the
Disapproved Exceptions to be removed.
If Seller elects to not cause the Disapproved Exceptions to be removed or
remedied or cause appropriate endorsement to the Title Policy to be issued,
Buyer will have five (5) days to elect to:
(i) Proceed with the purchase and acquire the Property subject to the
Disapproved Exceptions without reduction in the Purchase Price; or
(ii) Cancel the Escrow and this Agreement by written notice to Seller
and Escrow Agent, in which case the Deposit and any interest accrued
thereon will be returned to Buyer, and the cancellation costs, if any, will
be borne equally by the parties.
If Buyer does not give Seller notice of its election within the 5 day
period, Buyer will be deemed to have elected to proceed with the Closing of this
transaction. If Seller commits to remove or remedy any Disapproved Exception and
fails to do so by the Closing Date, Seller will be in default under this
Agreement and Buyer may, at Buyer's election, terminate this Agreement and
pursue its remedies as set forth in Paragraph 8.
3.3 BUYER'S DUE DILIGENCE INVESTIGATION.
3.3.1 BUYER'S REVIEW OF PROPERTY DOCUMENTS. To the extent such items
are in Seller's possession or control, Seller shall, within ten (10) days
of the Effective Date, provide to Buyer copies of or access to the
information and documents set forth on Schedule C attached hereto and
incorporated herein by reference (the "Property Documents"). The Due
Diligence Period (defined in Subparagraph 3.3.2) shall be extended on a
day-for-day basis for each day after the tenth day following the Effective
Date for which Seller fails to make the initial delivery of the Property
Documents. Seller shall have the continuing obligation during the pendency
of this Agreement to provide Buyer with any Property Document coming into
Seller's possession or control or produced by or for Seller after the
initial delivery of the Property
B-4
<PAGE> 43
Documents. Buyer shall have until the expiration date of the Due Diligence
Period to deliver to Seller a disapproval notice stating that Buyer's
review of the Property Documents disclosed a defect in the Property and
describing the defect with reasonable particularity. Buyer's failure to so
notify Seller shall conclusively be considered approval. Buyer expressly
agrees that Seller is furnishing copies of all Property Documents to Buyer
for informational purposes only and without representation or warranty as
to the accuracy or completeness of the contents of such materials.
3.3.2 BUYER'S INSPECTION OF THE PROPERTY. During the period commencing
on the Effective Date and ending on the date which occurs thirty (30) days
thereafter (the "Due Diligence Period"), Buyer, its agents and
representatives shall have the right to enter the Real Property upon
reasonable prior notice to Seller for the purpose of conducting customary
soil, environmental, and other engineering tests and to inspect and survey
the Real Property, all at its own cost and expense. Buyer will keep the
Real Property free and clear of any liens and shall indemnify, defend (with
counsel reasonably acceptable to Seller) and hold Seller harmless from and
against any and all claims, losses, damages, liabilities, costs or
expenses, including, without limitation, reasonable attorneys' fees and
costs, arising out of Buyer's inspections and tests. By the end of the Due
Diligence Period, Buyer must approve the results of any and all
inspections, investigations, tests and studies as Buyer may have elected to
make or obtain within the Due Diligence Period. Buyer shall be deemed to
have approved all soil and other physical conditions pertaining to the Real
Property unless it has delivered to Seller written notice of disapproval on
or before the expiration of the Due Diligence Period. Such notice must
provide that in Buyer's opinion that the matters disapproved would have an
adverse impact on Buyer's use, development, financing, marketability or
operation of the Real Property. Seller shall have until five (5) business
days prior to the Closing to cure any matters so disapproved which can be
cured, but without any obligation to do so; provided, however, that Seller
shall notify Buyer within ten (10) days of receipt of Buyer's notice of
disapproval as to whether or not Seller will cure such disapproved matters.
If Seller elects not to cure such disapproved matters, or fails to timely
cure such disapproved matters, Buyer shall have the right to terminate this
Agreement and receive the return of the Deposit. Notwithstanding anything
to the contrary herein, and by no later than ten (10) days prior to the
expiration of the Due Diligence Period, Seller shall cause a Phase I
environmental survey to be performed for the Real Property and deliver a
copy of the written report thereof to Buyer for its review in accordance
with procedures set forth above. The costs of conducting said Phase I
survey and preparing the resulting report will initially be borne by
Seller; provided, however, that Buyer shall reimburse Seller for all such
costs at the Close of Escrow or any such time as Buyer elects to terminate
this Agreement for any reason other than the failure of Seller to timely
obtain the approval of its limited partners or of the Board of Directors of
Buyer's general partner, as provided in Sections 4.2.4 and 4.2.5. In the
event this Agreement is terminated prior to the Closing, Buyer will give
copies of all inspections, tests or studies to Seller as a condition
precedent to the return of the Deposit.
3.3.3 SERVICE CONTRACTS. During the Due Diligence Period, Buyer shall
notify Seller in writing as to which Service Contracts Buyer will assume
and which Service Contracts shall be terminated by Seller at Closing. By
means of a written assignment and assumption agreement in form and content
acceptable to Seller (the "Assignment and Assumption Agreement"), Buyer
will assume the obligations arising from and after the Closing Date under
those Service Contracts that are not in default as of the Closing Date and
which Buyer has elected to assume. Seller shall terminate at Closing all
Service Contracts that are not so assumed.
3.3.4 NO WARRANTIES. Except as expressly contained in Section 6 of
this Agreement, Buyer acknowledges that Buyer is purchasing the Property
solely in reliance on Buyer's own investigation and that no representations
or warranties of any kind whatsoever, express or implied, have been made by
Seller or by Seller's agents or brokers with respect to the condition or
use of the Property. Buyer further acknowledges that except as disclosed in
Section 6, Buyer will be aware of all zoning regulations, other
governmental requirements, site and physical conditions, and other matters
affecting the use and condition of the Property and agrees to purchase the
Property at the Close of Escrow in its then condition AS-IS and with all
faults.
B-5
<PAGE> 44
3.4 NOTICE OF CHANGES. Seller shall promptly notify Buyer of any change in
any condition concerning the Property or of any event or circumstance which
makes any representation or warranty of Seller under this Agreement untrue or
misleading, or any covenant of Seller under this Agreement incapable or less
likely of being performed; however, Seller's obligation to provide such notice
to Buyer shall in no way relieve Seller of any liability for its breach of any
of Seller's representations, warranties or covenants under this Agreement. In
the event of such notice of change, Buyer shall have a ten (10) day period to
determine whether or not to proceed with the purchase of the Property, and if
Buyer elects not to proceed, Escrow Holder shall promptly return the Deposit to
Buyer upon Buyer's demand.
4. CONDITIONS TO PARTIES' OBLIGATIONS TO CLOSE
The following shall be the conditions precedent to the parties' obligations
to consummate the purchase and sale transaction contemplated herein:
4.1 CONDITIONS TO BUYER'S OBLIGATIONS TO CLOSE. Buyer's obligation to
consummate the transactions contemplated hereby is subject to the following
conditions, each of which is for Buyer's sole benefit and may be waived by Buyer
only in writing at its sole option:
4.1.1 REPRESENTATIONS AND WARRANTIES. Seller's representations and
warranties in this Agreement shall be true on the date of Closing in all
material respects as though such representations and warranties were made
on and as of such date.
4.1.2 DELIVERY OF INSTRUMENTS AND INFORMATION. Seller shall have
delivered the instruments and information required to be delivered by
Seller as, when and in the manner set forth therein.
4.1.3 COMPLIANCE WITH THIS AGREEMENT. Seller shall duly have performed
and complied with all agreements, obligations and conditions Seller is
required to perform under this Agreement on or before the Closing.
4.1.4 DUE DILIGENCE REVIEW APPROVALS. Buyer shall have approved the
Property Documents and the physical condition of the Property.
4.1.5 TITLE POLICY. The Title Company shall be ready, willing and able
to issue the Title Policy required by Subparagraph 5.1.2(e).
4.2 CONDITIONS TO SELLER'S OBLIGATION TO CLOSE. Seller's obligation to
consummate the transaction contemplated hereby is subject to the following
conditions, each of which is for Seller's sole benefit and may be waived solely
by Seller only in writing, and at its sole option:
4.2.1 REPRESENTATIONS AND WARRANTIES. Buyer's representations and
warranties in this Agreement, or in any certificate or document signed by
Buyer pursuant to the provisions hereof, shall be true on and as of Closing
in all material respects as though such representations and warranties were
made on and as of such date.
4.2.2 DELIVERY OF INSTRUMENTS AND INFORMATION. Buyer shall have
delivered the instruments and information required to be delivered by Buyer
as, when and in the manner set forth herein.
4.2.3 COMPLIANCE WITH THIS AGREEMENT. Buyer shall have performed and
complied with all agreements and conditions Buyer is required to perform
under this Agreement on or before Closing.
4.2.4 BOARD OF DIRECTOR APPROVAL. Within the Due Diligence Period, the
Board of Directors of Seller's general partner shall have approved the
transaction contemplated by this Agreement and duly authorized and
empowered designated representatives of Seller to execute and deliver this
Agreement and all additional documents required in connection therewith.
4.2.5 APPROVAL OF LIMITED PARTNERS. Within ninety (90) days after the
Effective Date of this Agreement, the limited partners of Seller shall have
approved the transaction contemplated hereby and duly authorized and
empowered its general partner to execute and deliver this Agreement and all
additional documents required in connection herewith. In the event that
Seller is unable to obtain said
B-6
<PAGE> 45
approval within the 90 day period due to reasons beyond its control,
including, but not limited to, requirements of the Securities and Exchange
Commission, Seller shall have an additional thirty (30) day period within
which to obtain such approval, if at all, and the Closing shall be extended
accordingly. In the event Seller is unable to obtain the approval of its
limited partners within said ninety (90) day period, or as extended for the
additional 30 day period, Seller shall bear all title and escrow costs
incurred in connection with the transaction contemplated herein
4.2.6 CONCURRENT CLOSING OF AFFILIATED PROPERTIES' ESCROWS. The
escrows for Buyer's or Buyer's assignee's purchase from Seller of the two
(2) Affiliated Properties shall be able to close concurrently with the
Close of Escrow.
4.3 CONDITION TO PARTIES' OBLIGATIONS TO CLOSE. Buyer's and Seller's
respective obligations to consummate the transaction contemplated hereby are
subject to the requirement that within ninety (90) days after the Effective Date
of this Agreement, the Redevelopment Agency of the City of Azusa shall have
approved the transfer of Seller's interests in the Real Property to Buyer and
consented to the assumption by Buyer of Seller's rights and obligations under
the rehabilitation and affordable housing subsidy/grant agreement affecting the
Real Property. Buyer and Seller mutually agree to employ all good faith and
diligent effort to timely obtain said consent and approval.
5. CLOSING
5.1 DEPOSITS INTO ESCROW.
5.1.1 SELLER'S CLOSING DELIVERIES. At least one (1) business day prior
to the Closing Date, Seller shall deliver or cause to be delivered to
Escrow Agent the following items:
(a) A grant deed in statutory form, duly executed and acknowledged
by Seller, and a separate declaration of documentary transfer tax in
form satisfactory to Escrow Agent;
(b) A duly executed Bill of Sale (the "Bill of Sale") in a form
reasonably satisfactory to Buyer, which shall be attached hereto as
Exhibit B, assigning and conveying to Buyer all of Seller's right,
title, and interest in and to the Personal Property;
(c) A duly executed Assignment and Assumption Agreement (the
"Assignment and Assumption Agreement") in a form reasonably satisfactory
to Buyer, which shall be attached hereto as Exhibit C, assigning all of
Seller's right, title and interest in and to the Service Contracts;
(d) A duly executed Assignment of Leases (the "Assignment of
Leases") in a form reasonably satisfactory to Buyer, which shall be
attached hereto as Exhibit D, assigning all of Seller's right, title,
and interest in and to the Leases;
(e) An affidavit or qualifying statement which satisfies the
requirements of Section 1445 of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder (the "Non-Foreign Affidavit");
(f) A Standard Coverage CLTA Owner's Policy of Title Insurance
covering the Property, insuring Buyer as the owner of the Property as of
the Closing Date, subject only to the Permitted Exceptions, and in the
amount of the Purchase Price (the "Title Policy"). As used herein,
"Permitted Exceptions" means exceptions approved by Buyer pursuant to
this Agreement; a lien for real estate taxes and assessments not yet due
and payable; tenants in possession under the Leases; matters affecting
the condition of title to the Property created by or with the written
consent of Buyer; and any matters which would be shown by an inspection,
a survey of the Property, or by inquiry of persons in possession of the
Property. If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for
the extended coverage policy and the cost of any endorsements will be at
Buyer's sole cost and expense; however, Buyer's election to obtain an
extended coverage policy will not delay the Closing and Buyer's
inability to obtain an extended coverage policy or any such endorsements
will not be deemed to be a failure of any condition to Closing;
B-7
<PAGE> 46
(g) A Certificate from Seller certifying that all representations
and warranties of Seller contained in this Agreement remain true and
correct at Closing;
(h) An updated Rent Roll (as defined in Section 5.2.2) for the Real
Property, certified by Seller as true and complete;
(i) Evidence of the existence, organization and authority of Seller
and of the authority of the persons executing documents on behalf of
Seller reasonably satisfactory to Buyer; and
(j) Such other documents and funds as may be required in connection
with the closing of the Escrow and consummation of the sale of the
Property in accordance with the terms of this Agreement.
5.1.2 BUYER'S CLOSING DELIVERIES. At least one (1) business day prior
to the Closing Date, Buyer shall deliver or cause to be delivered to Escrow
Agent the following items:
(a) The balance of the Purchase Price in the manner set forth in
Subparagraph 1.2.2, together with such other sums as Escrow Agent shall
require to pay Buyer's share of the closing costs and prorations in
accordance with this Agreement;
(b) Evidence of the existence, organization and authority of Buyer
to execute and deliver this Agreement and to consummate the transaction
contemplated herein;
(c) A counterpart original of the Assignment and Assumption
Agreement duly executed;
(d) A counterpart original of the Assignment of Leases;
(e) Evidence of existence, organization and authority of Buyer and
of the authority of the persons executing documents on behalf of Buyer
reasonably satisfactory to Seller; and
(f) Such other documents and funds as may be required in connection
with the closing of the Escrow and the consummation of the sale of the
Property in accordance with the terms of this Agreement.
5.2 PRORATIONS.
5.2.1 TAXES AND ASSESSMENTS. All non-delinquent real estate taxes and
assessments on the Property will be prorated as of the Close of Escrow
based on the actual current tax bill for the Real Property. If the Close of
Escrow takes place before the real estate taxes are fixed for the tax year
in which the Close of Escrow occurs, the apportionment of real estate taxes
will be made on the basis of the real estate taxes for the immediately
preceding tax year applied to the latest assessed valuation. All delinquent
taxes and all delinquent assessments, if any, on the Real Property will be
paid at the Close of Escrow from funds accruing to Seller. All supplemental
taxes billed after the Close of Escrow for periods prior to the Close of
Escrow will be paid promptly by Seller. Any general and special bonds and
assessments secured by or attributable to the Real Property shall be
assumed and paid in full by Buyer, subject to proration or current amounts
owing as stated above.
5.2.2 RENTS AND DEPOSITS. All rents and other income under the Leases
which are actually received by Seller as of the Close of Escrow will be
prorated. Delinquent rents and rents not paid by Close of Escrow will not
be prorated. All rents collected by Buyer after Closing will be applied
first to current rents due and payable and next in satisfaction of the
oldest accrued rent, remitting to Seller, after deducting reasonable
collection costs, any rent properly allocable to Seller's period of
ownership of the Property. Upon Seller's request, Buyer shall bill and
attempt to collect such rent arrearages in the ordinary course of business,
and Buyer shall be reimbursed for any cost and expense incurred in
connection therewith, but Buyer shall not be obligated to engage a
collection agency or take legal action to collect such rent arrearages.
Seller shall have the right, but not the obligation, to seek collection of
any rents or other income applicable to any period of ownership of the
Property before the Closing.
B-8
<PAGE> 47
At the Close of Escrow, all tenant security deposits under the
Leases (and interest accrued thereon if required by law or contract to be
earned thereon) shall be transferred to Buyer or Buyer shall receive a
credit against the Purchase Price in the amount of such security deposits
(less deductions therefrom). The foregoing credits are agreed to constitute
a transfer of security deposits to Buyer for purposes of California Civil
Code Section 1950.5(g) or 1950.7(d), as applicable, and for all other
purposes. Prior to the Closing, Seller will provide Buyer and Escrow Agent
with an updated rent roll (the "Rent Roll") (or other document) which will
itemize all security deposits and deductions made therefrom. The Rent Roll
will be used to establish the adjustments and credits described above, and
constitutes Seller's notice to Buyer required by California Civil Code
Section 1950.5(h) or 1950.7, as applicable.
From and after the Closing, Buyer assumes the obligation to
repay all security deposits owing to all tenants of the Property and shall
indemnify and hold Seller harmless from any claim with respect thereto
(which obligation shall survive the Closing). Further, Seller hereby
notifies Buyer that following the Closing, Seller will give all tenants of
the Property the notice required by California Civil Code Section 1950.5(g)
or 1950.7(d), as applicable, substantially in the form of Exhibit E
attached hereto.
5.2.3 UTILITIES. Seller will notify all utility companies servicing
the Real Property of the sale thereof to Buyer and will request that such
companies send Seller a final bill for the period ending on the last day
before the Close of Escrow. Buyer will notify the utility companies that
all utility bills for the period commencing on the Close of Escrow are to
be sent to Buyer. In addition to the Purchase Price, Buyer will pay to
Seller an amount equal to the total of all utility deposits held by utility
companies and Seller will assign to Buyer all of Seller's right, title and
interest in any such utility deposits; provided, however, Seller reserves
the right to receive a return of such utility deposits and, in such event,
Buyer will arrange for substitute deposits with the utility companies as
may be required. If following the Close of Escrow either Buyer or Seller
receives a bill for utilities or other services provided to the Property
for the period in which the Close of Escrow occurred, Buyer and Seller will
equitably prorate the bill.
5.2.4 SERVICE CONTRACTS. Buyer or Seller, as the case may be, shall
receive a credit for regular charges under the Service Contracts assumed by
Buyer pursuant to this Agreement paid and applicable to Buyer's period of
ownership or payable and applicable to Seller's period of ownership,
respectively.
5.2.5 INVENTORY. Seller shall receive a credit at Closing for any
inventory located on the Property as of midnight preceding the Closing
Date, including office supplies, linen, housekeeping and other supplies.
5.2.6 EMPLOYEE ACCRUALS. All salaries of current employees of the
Property shall be prorated as of the Closing. Buyer shall assume
responsibility for and receive credit at Closing for all accrued
compensation, bonuses, benefits, vacation, holiday and sick pay, worker's
compensation premiums, payroll taxes and similar costs of all employees of
the Property.
5.2.7 METHOD OF PRORATION. All prorations will be made as of the date
of Close of Escrow based on a 365 day year or a 30 day month, as
applicable.
5.2.8 All other items customarily prorated as of the Closing Date in
similar transactions shall be calculated by Escrow Agent on the basis of
information obtained by Escrow Agent or provided by Seller or Buyer at the
request of Escrow Agent, in accordance with Escrow Agent's normal policies
and practices.
5.3 PAYMENT OF CLOSING COSTS.
5.3.1 CLOSING COSTS OF SELLER. Seller shall pay: (i) the cost of the
Title Policy associated with the CLTA Standard Coverage Policy; (ii) the
cost of recording the Grant Deed; (iii) any sales taxes owing in connection
with the transactions contemplated by this Agreement; (iv) one-half (1/2)
of Escrow Agent's fee; (v) all city and county documentary transfer taxes;
and (vi) any additional costs and charges customarily charged to sellers in
accordance with common escrow practices in the county in which the Real
Property is located.
B-9
<PAGE> 48
5.3.2 CLOSING COSTS OF BUYER. Buyer shall pay: (i) that portion of the
cost of the Title Policy that is associated with the ALTA Extended Coverage
Policy and any additional endorsements; (ii) one-half (1/2) of Escrow
Agent's fee; (iii) the cost, if any, of a new Survey of the Property; and
(iv) any additional charges customarily charged to buyers in accordance
with common escrow practices in the county in which the Real Property is
located.
5.3.3 OTHER CLOSING COSTS. All other Closing fees and expenses,
including, but not limited to, the parties' legal expenses, accounting and
consulting fees, and other incidental expenses in connection with this
transaction shall be borne by the party incurring same.
5.4 CLOSING OF ESCROW.
5.4.1 Escrow Agent shall Close the Escrow on the Closing Date if: (i)
it has received in a timely manner all funds and materials required to be
delivered into Escrow by Buyer and Seller; (ii) it has received notice from
the Title Company that it is prepared (subject only to recordation of the
grant deed) to issue to Buyer a Title Policy with respect to each Real
Property; and (iii) it is ready and able to simultaneously close the
escrows for Buyer's purchase of the Affiliated Properties.
5.4.2 At the Close of Escrow, Escrow Agent will promptly undertake all
of the following with respect to the Real Property:
5.4.2.1 FUNDS. Disburse all funds deposited with Escrow Agent by
Buyer in payment of the Purchase Price for the Property as follows:
(a) deliver to Seller the Purchase Price, less the amount of all
items, costs and prorations chargeable to the account of Seller; and
(b) disburse the remaining balance, if any, of the funds
deposited by Buyer to Buyer, less amounts chargeable to Buyer.
5.4.2.2 RECORDING. Cause the Grant Deed (with documentary transfer
tax information to be affixed after recording) and the Assignment of
Leases, if applicable, to be recorded with the County Recorder and
obtain conformed copies thereof for distribution to Buyer and Seller.
5.4.2.3 TITLE POLICY. Direct the Title Company to issue the Title
Policy to Buyer.
5.4.2.4 DELIVERY OF DOCUMENTS TO BUYER OR SELLER. Deliver to Buyer
the Non-Foreign Affidavit and other documents (or copies thereof)
deposited into Escrow by Seller. Deliver to Seller any other documents
(or copies thereof) deposited into Escrow by Buyer.
6. REPRESENTATIONS AND WARRANTIES
6.1 JOINT REPRESENTATIONS AND WARRANTIES. In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other:
6.1.1 AUTHORITY. Each party has the legal power, right and authority
to enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
6.1.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering
into of this Agreement, the instruments referenced herein, and the
consummation of this transaction. No further consent of any partner,
shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
6.1.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners,
officers or trustees of each party, if any, have the legal power, right,
and actual authority to bind each party to the terms and conditions of
those documents.
6.1.4 VALID AND BINDING. This Agreement and all other documents
required to close this transaction are and will be valid, legally binding
obligations of and enforceable against each party in accordance with
B-10
<PAGE> 49
their terms, subject only to applicable bankruptcy, insolvency,
reorganization, moratorium laws or similar laws or equitable principles
affecting or limiting the rights of contracting parties generally.
6.2 SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Seller hereby makes
the following representations, warranties and covenants:
6.2.1 NO DEFAULTS. Executing and delivering this Agreement and the
documents referenced herein, incurring the obligations set forth herein,
consummating the transaction contemplated herein, and complying with the
terms of this Agreement and the documents referenced herein do not conflict
with or result in the material breach of any terms, conditions or
provisions of, or constitute a default under, any bond, note, or other
evidence of indebtedness or any contract, indenture, mortgage, deed of
trust, loan, partnership agreement, rehabilitation/grant housing
agreements, lease or other agreement or instrument to which Seller is a
party or affecting the Property.
6.2.2 PENDING OR THREATENED ACTIONS. There are no pending or, to the
best of Seller's knowledge, contemplated actions, suits, arbitrations,
claims, hearings or proceedings, at law or in equity, affecting all or any
portion of the Property or in which Seller is or will be a party by reason
of Seller's ownership of the Property. Seller does not know of the
existence of any threatened or contemplated actions, claims, hearings or
proceedings or of the existence of any facts which might give rise to such
actions, claims or proceedings.
6.2.3 PERSONAL PROPERTY. Seller has and will transfer good and
marketable title to the Personal Property free and clear of any claim,
lien, pledge, option, charge, security interest, or other right of third
parties, whether voluntarily incurred or arising by operation of law,
except such claim, lien, pledge, option, charge, security interest, or
other third party right solely caused by or resulting from the acts or
conducts of Buyer.
6.2.4 ACCURACY OF DOCUMENTS. All instruments, documents, lists,
schedules and items required to be delivered to Buyer hereunder will fairly
present the information set forth in a manner that is not misleading and
will be true, complete and correct in all respects on the date of delivery
and upon the Closing, as they may be updated, modified or supplemented in
accordance with this Agreement.
6.2.5 CONDITION OF PROPERTY. To the best of Seller's knowledge, there
are no structural or mechanical defects in the Property which would
adversely affect Buyer's proposed use of the Property.
6.2.6 SURVIVAL. All representations and warranties contained in this
Subparagraph 6.2 or made in writing by Seller in connection with the
transaction herein provided for shall be true and correct on the date
hereof and at Closing, and liability for misrepresentation or breach of
warranty or covenant shall survive the execution and delivery of this
Agreement for a period of one (1) year.
6.3 PRE-CLOSING COVENANTS. So long as this Agreement remains in full force
and effect:
(a) Without the prior written consent of Buyer, Seller will not convey
any interest in the Property and will not subject the Property to any
additional liens, encumbrances, covenants, conditions, easements, rights of
way or similar matters after the date of this Agreement, except as may be
otherwise provided for in this Agreement, which will not be eliminated
prior to the Close of Escrow.
(b) Seller will not make any material alterations to the Property
without Buyer's consent, which will not be unreasonably withheld or
delayed.
(c) Seller will maintain the Property in substantially the same
condition as of the Effective Date, ordinary wear and tear excepted, and
manage the Property in accordance with Seller's established practices.
(d) Seller will keep and perform all of the obligations to be
performed by Seller under any leases or contracts. After expiration of the
Due Diligence Period, Seller will not enter into any contract or agreement
providing for the provision of goods or services to or with respect to the
Property or the operation thereof unless such contracts or agreements can
be terminated without penalty by the Closing Date, without prior written
consent of Buyer, which will not be unreasonably withheld or delayed.
Seller
B-11
<PAGE> 50
will not modify any housing subsidy agreements, development agreements,
permits or other government approvals affecting the Property or any
covenants, conditions or restrictions affecting the Property. Seller will
not enter into any new leases for any portion of the Property or extend the
terms of any existing leases without Buyer's written consent, which will
not be unreasonably withheld or delayed.
7. ADDITIONAL AGREEMENTS OF THE PARTIES
7.1 HAZARDOUS SUBSTANCES.
7.1.1 DEFINITIONS. For the purposes of this Agreement, the following
terms have the following meanings:
(a) "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment,
including, without limitation, CERCLA (Comprehensive Environmental
Response, Compensation and Liability Act of 1980) and RCRA (Resources
Conservation and Recovery Act of 1976).
(b) "HAZARDOUS SUBSTANCE" means any substance, material or waste
which is or becomes designated, classified or regulated as being "toxic"
or "hazardous" or a "pollutant" or which is or becomes similarly
designated, classified or regulated, under any Environmental Law,
including asbestos, petroleum and petroleum products.
(c) "ENVIRONMENTAL REPORT" means the Phase I environmental audit of
the Property performed by Seller or any third party or consultant
engaged by Seller to conduct such audit.
7.1.2 SELLER'S REPRESENTATIONS AND WARRANTIES.
Seller will obtain the Environmental Report for the Property and
will furnish a copy to Buyer not later than ten (10) days prior to the
expiration of the Due Diligence Period. As of the date of this
Agreement, to the actual knowledge of Seller and except as referred to
in the Environmental Report:
(a) since the date of Seller's acquisition of the Property, no
Hazardous Substances are now or have been used or stored on or within
any portion of the Property except those substances which are or have
been used or stored on the Property in the normal course of use and
operation of the Property and in compliance with all applicable
Environmental Laws;
(b) since the date of Seller's acquisition of the Property, there
are and have been no federal, state or local enforcement, clean-up,
removal, remedial or other governmental or regulatory actions instituted
or completed affecting the Property; and
(c) no claims have been made by any third party against Seller
relating to any Hazardous Substances on or within the Property.
7.1.3 MUTUAL INDEMNIFICATIONS.
(a) Buyer agrees to indemnify and hold harmless Seller, its
partners, employees, and agents ("Seller Indemnitees") from and against
any and all liabilities, claims, demands, suits, judgments, causes of
action, losses, costs, damages, injuries, penalties, enforcement
actions, fines, remedial actions, removal and disposal costs,
remediation costs and expenses (including reasonable attorneys' fees)
arising out of or related to the presence of Hazardous Substances in,
on, under, or about the Property, to the extent that such Hazardous
Substances first become present in, on, under or about the Property
either (i) during Buyer's tenure as owner, lessee or manager of the
Property, or (ii) as a result of Buyer's acts or omissions.
(b) Seller agrees to indemnify and hold harmless Buyer and its
partners, employees, and agents ("Buyer Indemnitees") from and against
any and all such liabilities, claims, demands, suits, judgments, causes
of action, losses, costs, damages, injuries, penalties, enforcement
actions, fines, remedial actions, removal and disposal costs,
investigation and remediation costs and expenses (including reasonable
attorneys' fees) arising out of or related to the presence of Hazardous
B-12
<PAGE> 51
Substances in, on, under or about the Property, to the extent such
Hazardous Substances were present in, on, under or about the Property
(i) during Seller's ownership of the Property or (ii) as a result of
Seller's acts or omissions.
7.2 DELIVERY OF POSSESSION. Possession of the Property shall be delivered
to Buyer upon Closing, subject to the rights of tenants in possession.
7.3 DAMAGE OR DESTRUCTION. If the Property sustains damage caused by fire
or other casualty prior to Closing and where the cost of repair or replacement
is estimated to be more than One Hundred Thousand Dollars ($100,000.00), Buyer
may elect to terminate this Agreement by written notice to Seller within fifteen
(15) days after receipt of Seller's written notice to Buyer advising of such
damage or destruction. If Buyer does not elect to terminate this Agreement, or
if the loss or casualty would cost less than $100,000 to repair, the Closing
shall take place as provided herein with an abatement of the Purchase Price
equal to the cost to repair unless such damage or destruction is covered by
insurance in which case there shall be assigned to Buyer at Closing all of
Seller's interest in and to the insurance proceeds that may be payable to Seller
on account of such occurrence, Seller shall have no obligation of repair or
replacement, and the Purchase Price shall be abated in the amount of the
deductible payable under the insurance coverage.
7.4 CONDEMNATION. Seller shall promptly give Buyer notice of any eminent
domain proceedings that are contemplated, threatened or instituted with respect
to the Property. By notice to Seller given within fourteen (14) days after Buyer
receives notice of proceedings in eminent domain that are contemplated,
threatened or instituted by anybody having the power of eminent domain with
respect to the Property (and if necessary the Closing Date shall be extended to
give Buyer the full 14 day period to make such election), Buyer may, if such
proceedings involve the taking of title to all or any interest in the Property,
terminate this Agreement by notice in writing sent within ten (10) days of
Seller's written notice to Buyer, in which case the Deposit and any accrued
interest thereon, less Buyer's one-half share of cancellation costs, will be
returned to Buyer, and neither party will have any further rights or obligations
under this Agreement except any rights or obligations which are expressly stated
to survive termination. If the proceedings do not involve the taking of title to
all or any interest in the Property, or if Buyer does not elect to terminate
this Agreement, this transaction will be consummated as described herein and
Seller shall, upon Close of Escrow, assign to Buyer its entire right, title and
interest in and to any condemnation award, and Buyer shall have the sole right
during the pendency of this Agreement to negotiate and otherwise deal with the
condemning authority in respect of such matter.
7.5 BROKERS' COMMISSIONS. Seller shall be solely liable for the commission
to be paid to Barry Powell Real Estate Investment Company, Inc. as the result of
the consummation of the transaction contemplated herein. Except as provided in
the preceding sentence, each party represents and warrants to the other party
that it did not negotiate the purchase and sale of the Property through any
broker, agent, finder, affiliate or other third party, or incur any liability,
contingent or otherwise, for brokerage or finder's fees or agent's commissions
or other like payments in connection with this Agreement, or the transaction
contemplated hereby, and hereby agrees to hold harmless and indemnify the other
party from any and all claims, demands, causes of action or damages resulting
therefrom. This provision shall survive Closing.
7.6 SELLER'S INDEMNIFICATION. Seller agrees to indemnify, defend and hold
Buyer and Buyer Indemnitees harmless from any liability, claim, demand, loss,
expense or damage (collectively, "Loss") (i) suffered by, or by any person or
entity against, Buyer arising from any act or omission of Seller, its agents,
employees or contractors occurring before the Closing; (ii) arising from any
breach by Seller of any obligation related to the Property other than those
obligations which by this Agreement, or any closing delivery, specifically
becomes the obligation of Buyer; or (iii) arising from any breach of any
representation or warranty made by Seller in this Agreement.
7.7 BUYER'S INDEMNIFICATION. Buyer agrees to indemnify, defend and hold
Seller and Seller Indemnitees harmless from any Loss (i) suffered by Seller
arising from any act or omission of Buyer, its agents, employees or contractors
occurring on or after the Closing; (ii) arising from any breach by Buyer of any
obligation of Buyer related to the Property which by this Agreement, or any
closing delivery, specifically becomes the
B-13
<PAGE> 52
obligation of Buyer; or (iii) arising from any breach of any representation or
warranty made by Buyer in this Agreement.
7.8 BUYER DEFAULT; LIQUIDATED DAMAGES. PRIOR TO ENTERING INTO THIS
TRANSACTION, BUYER AND SELLER HAVE BEEN CONCERNED WITH THE FACT THAT SUBSTANTIAL
DAMAGES WILL BE SUFFERED BY SELLER IN THE EVENT BUYER SHALL DEFAULT ON ITS
OBLIGATIONS UNDER THIS AGREEMENT. THE PARTIES REALIZE THAT IT WOULD BE EXTREMELY
DIFFICULT AND IMPRACTICABLE, IF NOT IMPOSSIBLE, TO ASCERTAIN WITH ANY DEGREE OF
CERTAINTY THE AMOUNT OF DAMAGES WHICH WOULD BE SUFFERED BY SELLER IN THE EVENT
OF BUYER'S DEFAULT UNDER THIS AGREEMENT. CONSEQUENTLY, THE PARTIES HEREBY AGREE
THAT THE REASONABLE ESTIMATE OF SAID DAMAGES IS THE SUM OF BUYER'S DEPOSIT HELD
IN ESCROW (INCLUDING THE ACCRUED INTEREST THEREON), AND IN THE EVENT THAT ALL OF
THE CONDITIONS TO BUYER'S OBLIGATIONS CONTAINED IN THIS AGREEMENT HAVE BEEN
SATISFIED OR WAIVED AND SELLER IS NOT OTHERWISE IN DEFAULT UNDER THIS AGREEMENT,
SELLER SHALL, AS ITS SOLE AND EXCLUSIVE REMEDY, BE ENTITLED TO RECOVER SUCH SUM
AS LIQUIDATED DAMAGES.
<TABLE>
<S> <C> <C>
Initials:
------------------------ ------------------------
Seller Buyer
</TABLE>
8. TERMINATION
8.1 BUYER'S RIGHT TO TERMINATE. In the event there is a failure of a
condition to Buyer's obligation as set forth in Sections 3 and 4.1 above and so
long as Buyer is not in default hereunder, Buyer may terminate this Agreement by
giving written notice to Escrow Agent and Seller not later than the first to
occur of (i) ten (10) days after the condition has failed (which as to
conditions requiring approval by Buyer, shall be the date Buyer has given Seller
written notice of disapproval of any item which Buyer has the right to approve
under Section 3 unless Seller has an opportunity to cure, in which case the date
shall be ten (10) days after the last date on which Seller can cure the
disapproved item under Section 3 or ten (10) days after the date on which Seller
gives Buyer written notice that it will not cure the disapproved item, whichever
occurs first), or (ii) the agreed Closing Date. Failure by Buyer to terminate as
provided in this paragraph shall be deemed a waiver of the condition which has
failed. If such condition required approval by Buyer, such failure to terminate
shall also be deemed an approval of the previously disapproved item. If Buyer
terminates as provided in this Section 8.1 based on a failure of condition
caused by the conduct of Seller, Seller shall pay all title and escrow
cancellation charges, and the Deposit shall be refunded to Buyer. If Buyer
terminates based on a failure of any other condition in Section 3, Buyer and
Seller shall each pay one-half of all title and escrow cancellation charges and
the Deposit (less Buyer's share of such cancellation charges) shall be refunded
to Buyer.
8.2 SELLER'S RIGHT TO TERMINATE. In the event of a failure of a condition
to Seller's obligation as set forth in Section 4.2 above, Seller may terminate
this Agreement by giving written notice to Escrow Agent and Buyer at any time
prior to the Closing. Failure of Seller to terminate as provided in this
paragraph shall be deemed a waiver by Seller of the condition which has failed,
and if such condition required approval by Seller, such failure shall be deemed
an approval of the previously disapproved item. If Seller terminates based upon
a failure of any condition in Sections 4.2.1, 4.2.2, or 4.2.3, Buyer shall pay
all title and escrow cancellation charges and the Deposit shall be retained by
Seller as provided in Section 7.8. If Seller terminates based upon a failure of
any condition in Sections 4.2.4 or 4.2.5, Seller shall pay all title and escrow
cancellation charges and the Deposit shall be refunded to Buyer.
9. GENERAL PROVISIONS
9.1 TIME OF ESSENCE. Time is of the essence concerning the obligations of
the parties hereunder.
9.2 ASSIGNMENT. Buyer shall the right to assign this Agreement to an entity
in which Buyer is a managing and controlling partner, member or principal or in
which Buyer owns at least fifty percent (50%) of the voting
B-14
<PAGE> 53
stock thereof (an "Affiliate"), without obtaining Seller's prior written
consent. Buyer may not assign this Agreement to a party other than an Affiliate
without the prior written consent of Seller, which consent shall not be
unreasonably withheld by Seller. Any attempted assignment to a party other than
an Affiliate without Seller's prior written consent, will, at Seller's option,
be voidable and constitute a material breach of this Agreement. If Seller
consents to an assignment, the assignment will not be effective against Seller
until Buyer delivers to Seller a fully executed copy of the assignment
instrument, which instrument must be satisfactory to Seller in both form and
substance and pursuant to which the assignee assumes and agrees to perform for
the benefit of Seller the obligations of Buyer under this Agreement, and
pursuant to which the assignee makes the warranties and representations required
of Buyer under this Agreement and such other representations and warranties as
Seller may reasonably require. Any such assignment will not release Buyer from
any of its obligations under this Agreement.
9.3 AMENDMENT. This Agreement may be supplemented, amended, or modified
only by the mutual agreement of the parties. No supplement, amendment, or
modification of this Agreement shall be binding unless it is in writing and
signed by both parties.
9.4 SUCCESSORS AND ASSIGNS. Subject to the provisions hereof, the terms
and provisions hereof shall be binding upon and inure to the benefit of the
successors and assigns of the parties.
9.5 MEANING OF TERMS. When necessary herein, all terms used in the
singular shall apply to the plural, and vice versa; and all terms used in the
masculine shall apply to the neuter and feminine genders.
9.6 ENTIRE AGREEMENT. This Agreement is the entire agreement between the
parties concerning the subject matter hereof and supersedes all prior agreements
between the parties concerning the same. No claim of waiver, modification,
consent or acquiescence concerning any of the provisions of this Agreement shall
be made against either party, except on the basis of a written instrument
executed by or on behalf of such party.
9.7 GOVERNING LAW. This Agreement shall be governed by, interpreted under
and construed in accordance with the laws of the State of California.
9.8 PARAGRAPH HEADINGS. The paragraph headings in this Agreement are
inserted solely for convenience of reference and are not a part of and are not
intended to govern, limit or aid in the construction of any term or provision
hereof.
9.9 ATTORNEYS' FEES. If either Seller or Buyer obtains legal counsel or
brings an action against the other by reason of the breach of any covenant,
provision or condition hereof, or otherwise arising out of this Agreement, the
unsuccessful party shall pay to the prevailing party reasonable attorneys' fees,
paralegal fees and reasonable costs, which shall be payable whether or not any
action is prosecuted to judgment.
9.10 NOTICES. All notices, requests, demands, and other communications
required or permitted to be given under this Agreement shall be given in writing
(at the addresses set forth below) by any of the following means: (i) personal
service; (ii) electronic communication, whether by telex, telegram or
telecopying (if confirmed in writing sent by registered or certified, first
class mail, return receipt requested); or (iii) registered or certified, first
class mail, return receipt requested. Such addresses may be changed by notice to
the other parties given in the same manner as provided above. Any notice, demand
or request sent pursuant to either (i) or (ii) hereof shall be deemed received
upon such personal service or upon confirmation of receipt by
B-15
<PAGE> 54
electronic means, and, if sent pursuant to (iii) shall be deemed received three
(3) days after deposit in the mail:
<TABLE>
<S> <C>
Seller: American Retirement Villas Properties III
245 Fischer Avenue, D-1
Costa Mesa, CA 92626
Attn: Legal Department
Facsimile: (714) 435-7102
Buyer: Meta Housing Corporation
4100 W. Alameda Avenue, Suite 205
Burbank, CA 91505
Attn: John Huskey
Facsimile: (818) 557-5697
Escrow Agent: Fidelity National Title Company
1300 Dove Street, Suite 310
Newport Beach, CA 92660
Attn: Patty Beverly
Facsimile: (714) 622-4167
</TABLE>
9.11 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance is determined to be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
9.12 FURTHER ASSURANCES. Each party agrees to do all acts and things and
to make, execute and deliver such written instruments as are reasonably
necessary to carry out the terms and provisions of this Agreement.
9.13 NO THIRD PARTY BENEFITS. Nothing in this Agreement shall be construed
as giving any person, firm, corporation or other entity, other than the parties
hereto, their successors and permitted assigns, any right, remedy or claim under
or concerning this Agreement or any provision hereof.
9.14 CONFIDENTIALITY. In that it is in Seller's and Buyer's best interests
to keep this Agreement and all information concerning the Property confidential
until the Closing, neither of them shall take any action nor conduct itself in
any fashion that would disclose any aspect of the contemplated transaction to
third parties unrelated to Buyer's acquisition or intended ownership and
operation of the Property or the Affiliated Properties. Notwithstanding the
foregoing, Buyer may disclose the contents of this Agreement and the materials
obtained hereunder with prospective lenders, equity participants and their
brokers, accountants, attorneys and other professionals, to the extent that such
disclosure is reasonably necessary and required to facilitate the closing of the
transaction contemplated by this Agreement and said third parties acknowledge
and agree to preserve the confidentiality of the information so disclosed. After
Closing, neither party shall make any public announcement of the transaction
that has not been approved in advance and in writing by the other party.
9.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and together shall
constitute one agreement.
9.16 WAIVER. No waiver of a breach, failure of any condition, or any right
or remedy contained in or granted by the provisions of this Agreement shall be
effective unless it is in writing and signed by the party waiving the breach,
failure, right, or remedy. No waiver of any breach, failure, right, or remedy
shall be deemed a waiver of any other breach, failure, right, or remedy, whether
or not similar, nor shall any waiver constitute a continuing waiver unless the
writing so specifies.
9.17 AMBIGUITIES. Each party and its counsel have participated fully in the
review and revision of this Agreement. Any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not apply
in interpreting this Agreement.
B-16
<PAGE> 55
9.18 COUNTING DAYS. Days shall be counted by excluding the first day and
including the last day, unless the last day is a Saturday, a Sunday, or a legal
holiday, and then it shall be excluded. Any act required by this Agreement to be
performed by a certain day shall be timely performed if completed before 5:00
p.m. local time on that date. If the day for performance of any obligation under
this Agreement is a Saturday, a Sunday, or a legal holiday, then the time for
performance of that obligation shall be extended to 5:00 p.m. local time on the
first following day that is not a Saturday, Sunday, or legal holiday.
9.19 POSSESSION OF THE PROPERTY. Seller will deliver possession of the
Property to Buyer upon the Close of Escrow, subject to the rights of any
tenants.
9.20 EXHIBITS. All exhibits and schedules to which reference is made in
this Agreement and which are attached hereto are deemed incorporated in this
Agreement.
9.21 NO RECORDATION. No memorandum or other document relating to this
Agreement will be recorded without the prior written consent of Seller, and any
such consent or approval will be conditioned upon Buyer providing Seller with a
quitclaim deed fully executed and acknowledged by Buyer, quitclaiming any and
all interests that it may have in the Property to Seller, which quitclaim deed
Seller may record in the event that this Agreement is terminated or the
transaction contemplated herein is not consummated.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
<TABLE>
<S> <C>
SELLER: AMERICAN RETIREMENT VILLA PROPERTIES III,
a California limited partnership
By: ARV Assisted Living, Inc.,
a Delaware corporation,
its General Partner
By: /s/ Sheila M. Muldoon
Name: Sheila M. Muldoon
Its: Senior Vice President
BUYER: META HOUSING CORPORATION,
a California corporation
By: /s/ John M. Huskey
Name: John M. Huskey
Its: President
AGREED AND ACCEPTED:
ESCROW AGENT: FIDELITY NATIONAL TITLE COMPANY
By:
Name:
Its:
</TABLE>
B-17
<PAGE> 56
PURCHASE AND SALE AGREEMENT
AND
JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
AMERICAN RETIREMENT VILLAS PROPERTIES III,
A CALIFORNIA LIMITED PARTNERSHIP
AS SELLER
AND
META HOUSING CORPORATION,
A CALIFORNIA CORPORATION
AS BUYER
OCTOBER 26, 1998
B-18
<PAGE> 57
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (the
"Agreement") is made as of October 26, 1998, between AMERICAN RETIREMENT VILLAS
PROPERTIES III, a California limited partnership ("Seller"), and META HOUSING
CORPORATION, a California corporation, or assignee ("Buyer") with reference to
the following facts and circumstances. The "Effective Date" of this Agreement
shall be the date upon which the parties mutually execute this Agreement.
RECITALS
A. Seller is the fee owner of three (3) real properties improved with
seniors apartment projects (collectively, the "Affiliated Properties"), all as
more particularly described in attached Schedule A and incorporated herein.
B. Buyer desires to purchase from Seller and Seller desires to sell to
Buyer one of the Affiliated Properties commonly known as Pacific Villas, located
at 3642 North Garey Avenue, Pomona, Ontario, California 91767, and more
particularly described on attached Exhibit A and made a part hereof, upon the
following terms and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, Seller and Buyer agree as follows:
1. PURCHASE AND SALE
1.1 AGREEMENT TO BUY AND SELL. Subject to all of the terms and conditions
of this Agreement, Seller hereby agrees to sell and convey to Buyer, and Buyer
agrees to acquire and purchase from Seller, all of the following (collectively,
the "Property"):
1.1.1 REAL PROPERTY. A certain parcel of real property ("Real
Property") more particularly described on Exhibit A attached hereto and all
of Seller's right, title and interest in and to all easements, rights and
privileges, hereditaments and appurtenances thereto, including any right,
title and interest in and to adjacent streets, alleys or rights of way,
together with all of Seller's right, title and interest in and to all
improvements, structures, equipment and fixtures currently located on or
under said Real Property (collectively called the "Improvements"), subject
to easements, agreements and other matters of record and the rights of
existing tenants under leases or occupancy agreements.
1.1.2 PERSONAL PROPERTY. All of Seller's right, title and interest in
and to all tangible personal property (the "Personal Property") now or
hereafter used exclusively in connection with, the ownership, operation or
maintenance of the Real Property and/or the Improvements, with the
exception of any laundry equipment installed at the Real Property which
shall not be part of the Personal Property, but which shall include,
without limitation, equipment, machinery, furniture, art work, furnishings,
office equipment, tools, construction and finish materials not incorporated
in the Improvements and held for repair and replacements; and all right,
title and interest of Seller, determined as of the Closing Date, in and to
all intangible personal property (the "Intangible Property") now or
hereafter used exclusively in connection with the operation, ownership,
maintenance or management of the Real Property, including, without
limitation, all trade names and trademarks associated with the Real
Property; warranties; indemnities; all permits, licenses and approvals
related to the operation, maintenance, construction, or ownership of the
Real Property (to the extent assignable); insurance proceeds or claims
thereto related to the Real Property; and all books and records relating to
the Real Property.
1.1.3 SERVICE CONTRACTS. All of Seller's right, title and interest in
and to any and all contracts and other agreements pertaining to the
Property together with all supplements, amendments and modifications
thereto (collectively, the "Service Contracts"), which Service Contracts
are listed or described on Schedule B attached hereto and incorporated
herein by reference.
B-19
<PAGE> 58
1.1.4 LEASES. All of Seller's interest, as landlord, in all leases or
other occupancy agreements affecting the Improvements, including leases or
occupancy agreements which may be made by Seller after the Effective Date
of this Agreement and before Closing as permitted by this Agreement, and
any and all amendments and supplements thereto (collectively, the
"Leases").
1.2 PURCHASE PRICE. The purchase price to be paid by Buyer to Seller for
the Property (the "Purchase Price") shall be the sum of Six Million Nine Hundred
Thousand Dollars ($6,900,000.00). The Purchase Price shall be payable upon the
Close of Escrow (as hereafter defined) as follows:
1.2.1 DEPOSIT. Upon the Opening of Escrow (as defined in Paragraph 2),
Buyer shall deliver to Escrow Agent (as defined in Paragraph 2) as an
earnest money deposit the sum of Seventy Five Thousand Four Hundred Dollars
($75,400.00) (the "Deposit"), paid by wire transfer of funds or by
certified or cashier's check drawn on a local bank. Escrow Agent shall
promptly deposit and thereafter hold the Deposit in an interest bearing
account and interest will accrue for the account of Buyer except as
otherwise provided in this Agreement and will be applied against the
Purchase Price at Closing (as defined in Paragraph 2). Except as expressly
provided otherwise, the Deposit will become nonrefundable at and as of the
first day following the end of the Due Diligence Period, unless Buyer
terminates this Agreement by written notice to Seller and Escrow Agent as
provided herein on or before the end of the Due Diligence Period. In the
event Buyer so terminates this Agreement, Escrow Agent shall immediately
refund the Deposit to Buyer.
1.2.2 BALANCE OF PURCHASE PRICE. No later than such time as is
required by Escrow Agent or otherwise in order for the Closing to occur by
the Closing Date, Buyer will deposit into the Escrow the balance of the
Purchase Price in cash, by confirmed wire transfer of funds, or by
certified or cashier's check collectible in same day funds. For purposes of
calculating the balance of the Purchase Price payable by Buyer hereunder,
Buyer shall be credited with (i) the Deposit, (ii) all interest earned on
the Deposit during the Escrow, and (iii) Buyer's share of the prorations in
Buyer's favor and credits described in Section 5.2 hereof.
2. ESCROW
2.1 OPENING OF ESCROW. Within three (3) business days after their execution
and delivery of this Agreement, Seller and Buyer shall open an escrow (the
"Escrow") with Fidelity National Title Company (the "Escrow Agent") by
delivering to Escrow Agent a fully executed copy of this Agreement (the "Opening
of Escrow"). When this Agreement or counterparts hereof shall have been executed
by Seller and Buyer, and delivered to Escrow Agent, it shall constitute the
joint escrow instructions of the parties to the Escrow Agent. The purchase and
sale of the Property will be consummated through the Escrow. Escrow Agent is
hereby authorized and instructed to deliver, pursuant to the terms of this
Agreement, the documents and monies to be deposited into the Escrow. Escrow
Agent's standard form escrow instructions shall, to the extent consistent with
the terms hereof, inure to the benefit of Escrow Agent. If there is a conflict
between any printed escrow instructions and this Agreement, the terms of this
Agreement will govern.
2.2 CLOSING OF ESCROW. The closing (the "Closing") of the purchase and sale
of the Property shall take place through Escrow, upon satisfaction of all
conditions to Closing set forth herein, by no later than ninety (90) days after
the Effective Date of this Agreement, subject to the provisions of Section 4.2.5
hereof (the "Closing Date"). The term "Closing" or "Close of Escrow" as used
herein shall be deemed to be the date upon which the grant deed to the Real
Property is recorded. The Close of Escrow shall occur, if at all, simultaneously
with the Close of Escrow for Buyer's purchase from Seller of the remaining two
(2) Affiliated Properties.
3. ACTIONS PENDING CLOSING
3.1 DELIVERY OF TITLE DOCUMENTS. Within ten (10) days after the Opening of
Escrow, Seller shall cause to be delivered to Buyer a current, effective
Preliminary Report covering the Real Property and the Improvements (the
"Preliminary Report"), issued by Fidelity National Title Company (the "Title
Company"), together with (i) true, complete and legible copies of all documents
referred to in the Preliminary Report (the
B-20
<PAGE> 59
"Underlying Documents"), (ii) a plat or sketch prepared by the Title Company
showing all easements affecting the Real Property, and (iii) a copy of any
existing ALTA Survey of the Real Property (the "Survey") in Seller's possession
or control, or written notice to Buyer that Seller has no such Survey in its
possession or under its control. In the event Buyer elects to obtain any
extended coverage ALTA owner's or lender's title insurance policy, and such
extended coverage requires an ALTA survey, Buyer shall obtain said survey, if at
all, at its sole cost and expense, prior to the expiration of the Due Diligence
Period (as defined in Section 3.3.2).
If any subsequent updating of a Preliminary Report or of a Survey prior to
the Close of Escrow shall disclose any additional title exceptions, defects or
encumbrances, then Buyer shall have an additional five (5) day period to approve
or disapprove such items in its discretion subject to the process described in
Section 3.2.
3.2 BUYER'S REVIEW OF TITLE. At any time prior to the expiration of the Due
Diligence Period, Buyer shall review and examine the Preliminary Reports, the
Underlying Documents, and the Surveys, if any, and deliver to Seller written
notice of any title exceptions which Buyer disapproves or other objections to
title, specifying reasonable grounds for each matter disapproved (collectively,
the "Disapproved Exceptions"). Such grounds must establish that the matters
disapproved would have an adverse effect on Buyer's use, development, financing,
marketability or operation of the Property, as determined by Buyer in its sole
discretion, and were not caused or created solely by the acts of Buyer. Buyer's
failure to provide such notice of Disapproved Exceptions prior to the expiration
of the Due Diligence Period shall constitute Buyer's approval of the condition
of title as shown on the Preliminary Report. If Buyer timely notifies Seller of
specific Disapproved Exceptions, Seller will have ten (10) days after receipt of
Buyer's notification of Disapproved Exceptions in which to advise Buyer that:
(i) Seller will cause the Disapproved Exceptions to be removed or
remedied or obtain appropriate endorsements to the Title Policy on or
before the Closing Date; or
(ii) Seller will not cause the Disapproved Exceptions to be removed or
remedied or cause appropriate endorsements to the Title Policy to be
issued.
(iii) If Seller does not notify Buyer of its election within the 10
day period, Seller will be deemed to have elected to not cause the
Disapproved Exceptions to be removed.
If Seller elects to not cause the Disapproved Exceptions to be removed or
remedied or cause appropriate endorsement to the Title Policy to be issued,
Buyer will have five (5) days to elect to:
(i) Proceed with the purchase and acquire the Property subject to the
Disapproved Exceptions without reduction in the Purchase Price; or
(ii) Cancel the Escrow and this Agreement by written notice to Seller
and Escrow Agent, in which case the Deposit and any interest accrued
thereon will be returned to Buyer, and the cancellation costs, if any, will
be borne equally by the parties.
If Buyer does not give Seller notice of its election within the 5 day
period, Buyer will be deemed to have elected to proceed with the Closing of this
transaction. If Seller commits to remove or remedy any Disapproved Exception and
fails to do so by the Closing Date, Seller will be in default under this
Agreement and Buyer may, at Buyer's election, terminate this Agreement and
pursue its remedies as set forth in Paragraph 8.
3.3 BUYER'S DUE DILIGENCE INVESTIGATION.
3.3.1 BUYER'S REVIEW OF PROPERTY DOCUMENTS. To the extent such items
are in Seller's possession or control, Seller shall, within ten (10) days
of the Effective Date, provide to Buyer copies of or access to the
information and documents set forth on Schedule C attached hereto and
incorporated herein by reference (the "Property Documents"). The Due
Diligence Period (defined in Subparagraph 3.3.2) shall be extended on a
day-for-day basis for each day after the tenth day following the Effective
Date for which Seller fails to make the initial delivery of the Property
Documents. Seller shall have the continuing
B-21
<PAGE> 60
obligation during the pendency of this Agreement to provide Buyer with any
Property Document coming into Seller's possession or control or produced by
or for Seller after the initial delivery of the Property Documents. Buyer
shall have until the expiration date of the Due Diligence Period to deliver
to Seller a disapproval notice stating that Buyer's review of the Property
Documents disclosed a defect in the Property and describing the defect with
reasonable particularity. Buyer's failure to so notify Seller shall
conclusively be considered approval. Buyer expressly agrees that Seller is
furnishing copies of all Property Documents to Buyer for informational
purposes only and without representation or warranty as to the accuracy or
completeness of the contents of such materials.
3.3.2 BUYER'S INSPECTION OF THE PROPERTY. During the period commencing
on the Effective Date and ending on the date which occurs thirty (30) days
thereafter (the "Due Diligence Period"), Buyer, its agents and
representatives shall have the right to enter the Real Property upon
reasonable prior notice to Seller for the purpose of conducting customary
soil, environmental, and other engineering tests and to inspect and survey
the Real Property, all at its own cost and expense. Buyer will keep the
Real Property free and clear of any liens and shall indemnify, defend (with
counsel reasonably acceptable to Seller) and hold Seller harmless from and
against any and all claims, losses, damages, liabilities, costs or
expenses, including, without limitation, reasonable attorneys' fees and
costs, arising out of Buyer's inspections and tests. By the end of the Due
Diligence Period, Buyer must approve the results of any and all
inspections, investigations, tests and studies as Buyer may have elected to
make or obtain within the Due Diligence Period. Buyer shall be deemed to
have approved all soil and other physical conditions pertaining to the Real
Property unless it has delivered to Seller written notice of disapproval on
or before the expiration of the Due Diligence Period. Such notice must
provide that in Buyer's opinion that the matters disapproved would have an
adverse impact on Buyer's use, development, financing, marketability or
operation of the Real Property. Seller shall have until five (5) business
days prior to the Closing to cure any matters so disapproved which can be
cured, but without any obligation to do so; provided, however, that Seller
shall notify Buyer within ten (10) days of receipt of Buyer's notice of
disapproval as to whether or not Seller will cure such disapproved matters.
If Seller elects not to cure such disapproved matters, or fails to timely
cure such disapproved matters, Buyer shall have the right to terminate this
Agreement and receive the return of the Deposit. Notwithstanding anything
to the contrary herein, and by no later than ten (10) days prior to the
expiration of the Due Diligence Period, Seller shall cause a Phase I
environmental survey to be performed for the Real Property and deliver a
copy of the written report thereof to Buyer for its review in accordance
with procedures set forth above. The costs of conducting said Phase I
survey and preparing the resulting report will initially be borne by
Seller; provided, however, that Buyer shall reimburse Seller for all such
costs at the Close of Escrow or any such time as Buyer elects to terminate
this Agreement for any reason other than the failure of Seller to timely
obtain the approval of its limited partners or of the Board of Directors of
Buyer's general partner, as provided in Sections 4.2.4 and 4.2.5. In the
event this Agreement is terminated prior to the Closing, Buyer will give
copies of all inspections, tests or studies to Seller as a condition
precedent to the return of the Deposit.
3.3.3 SERVICE CONTRACTS. During the Due Diligence Period, Buyer shall
notify Seller in writing as to which Service Contracts Buyer will assume
and which Service Contracts shall be terminated by Seller at Closing. By
means of a written assignment and assumption agreement in form and content
acceptable to Seller (the "Assignment and Assumption Agreement"), Buyer
will assume the obligations arising from and after the Closing Date under
those Service Contracts that are not in default as of the Closing Date and
which Buyer has elected to assume. Seller shall terminate at Closing all
Service Contracts that are not so assumed.
3.3.4 NO WARRANTIES. Except as expressly contained in Section 6 of
this Agreement, Buyer acknowledges that Buyer is purchasing the Property
solely in reliance on Buyer' s own investigation and that no
representations or warranties of any kind whatsoever, express or implied,
have been made by Seller or by Seller's agents or brokers with respect to
the condition or use of the Property. Buyer further acknowledges that
except as disclosed in Section 6, Buyer will be aware of all zoning
regulations, other governmental requirements, site and physical conditions,
and other matters affecting the use and
B-22
<PAGE> 61
condition of the Property and agrees to purchase the Property at the Close
of Escrow in its then condition AS-IS and with all faults.
3.4 NOTICE OF CHANGES. Seller shall promptly notify Buyer of any change in
any condition concerning the Property or of any event or circumstance which
makes any representation or warranty of Seller under this Agreement untrue or
misleading, or any covenant of Seller under this Agreement incapable or less
likely of being performed; however, Seller's obligation to provide such notice
to Buyer shall in no way relieve Seller of any liability for its breach of any
of Seller's representations, warranties or covenants under this Agreement. In
the event of such notice of change, Buyer shall have a ten (10) day period to
determine whether or not to proceed with the purchase of the Property, and if
Buyer elects not to proceed, Escrow Holder shall promptly return the Deposit to
Buyer upon Buyer's demand.
4. CONDITIONS TO PARTIES' OBLIGATIONS TO CLOSE
The following shall be the conditions precedent to the parties' obligations
to consummate the purchase and sale transaction contemplated herein:
4.1 CONDITIONS TO BUYER'S OBLIGATIONS TO CLOSE. Buyer's obligation to
consummate the transactions contemplated hereby is subject to the following
conditions, each of which is for Buyer's sole benefit and may be waived by Buyer
only in writing at its sole option:
4.1.1 REPRESENTATIONS AND WARRANTIES. Seller's representations and
warranties in this Agreement shall be true on the date of Closing in all
material respects as though such representations and warranties were made
on and as of such date.
4.1.2 DELIVERY OF INSTRUMENTS AND INFORMATION. Seller shall have
delivered the instruments and information required to be delivered by
Seller as, when and in the manner set forth therein.
4.1.3 COMPLIANCE WITH THIS AGREEMENT. Seller shall duly have performed
and complied with all agreements, obligations and conditions Seller is
required to perform under this Agreement on or before the Closing.
4.1.4 DUE DILIGENCE REVIEW APPROVALS. Buyer shall have approved the
Property Documents and the physical condition of the Property.
4.1.5 TITLE POLICY. The Title Company shall be ready, willing and able
to issue the Title Policy required by Subparagraph 5.1.2(e).
4.2 CONDITIONS TO SELLER'S OBLIGATION TO CLOSE. Seller's obligation to
consummate the transaction contemplated hereby is subject to the following
conditions, each of which is for Seller's sole benefit and may be waived solely
by Seller only in writing, and at its sole option:
4.2.1 REPRESENTATIONS AND WARRANTIES. Buyer's representations and
warranties in this Agreement, or in any certificate or document signed by
Buyer pursuant to the provisions hereof, shall be true on and as of Closing
in all material respects as though such representations and warranties were
made on and as of such date.
4.2.2 DELIVERY OF INSTRUMENTS AND INFORMATION. Buyer shall have
delivered the instruments and information required to be delivered by Buyer
as, when and in the manner set forth herein.
4.2.3 COMPLIANCE WITH THIS AGREEMENT. Buyer shall have performed and
complied with all agreements and conditions Buyer is required to perform
under this Agreement on or before Closing.
4.2.4 BOARD OF DIRECTOR APPROVAL. Within the Due Diligence Period, the
Board of Directors of Seller's general partner shall have approved the
transaction contemplated by this Agreement and duly authorized and
empowered designated representatives of Seller to execute and deliver this
Agreement and all additional documents required in connection therewith.
4.2.5 APPROVAL OF LIMITED PARTNERS. Within ninety (90) days after the
Effective Date of this Agreement, the limited partners of Seller shall have
approved the transaction contemplated hereby and
B-23
<PAGE> 62
duly authorized and empowered its general partner to execute and deliver
this Agreement and all additional documents required in connection
herewith. In the event that Seller is unable to obtain said approval within
the 90 day period due to reasons beyond its control, including, but not
limited to, requirements of the Securities and Exchange Commission, Seller
shall have an additional thirty (30) day period within which to obtain such
approval, if at all, and the Closing shall be extended accordingly. In the
event Seller is unable to obtain the approval of its limited partners
within said ninety (90) day period, or as extended for the additional 30
day period, Seller shall bear all title and escrow costs incurred in
connection with the transaction contemplated herein
4.2.6 CONCURRENT CLOSING OF AFFILIATED PROPERTIES' ESCROWS. The
escrows for Buyer's or Buyer's assignee's purchase from Seller of the two
(2) Affiliated Properties shall be able to close concurrently with the
Close of Escrow.
5. CLOSING
5.1 DEPOSITS INTO ESCROW.
5.1.1 SELLER'S CLOSING DELIVERIES. At least one (1) business day prior
to the Closing Date, Seller shall deliver or cause to be delivered to
Escrow Agent the following items:
(a) A grant deed in statutory form, duly executed and acknowledged
by Seller, and a separate declaration of documentary transfer tax in
form satisfactory to Escrow Agent;
(b) A duly executed Bill of Sale (the "Bill of Sale") in a form
reasonably satisfactory to Buyer, which shall be attached hereto as
Exhibit B, assigning and conveying to Buyer all of Seller's right,
title, and interest in and to the Personal Property;
(c) A duly executed Assignment and Assumption Agreement (the
"Assignment and Assumption Agreement") in a form reasonably satisfactory
to Buyer, which shall be attached hereto as Exhibit C, assigning all of
Seller's right, title and interest in and to the Service Contracts;
(d) A duly executed Assignment of Leases (the "Assignment of
Leases") in a form reasonably satisfactory to Buyer, which shall be
attached hereto as Exhibit D, assigning all of Seller's right, title,
and interest in and to the Leases;
(e) An affidavit or qualifying statement which satisfies the
requirements of Section 1445 of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder (the "Non-Foreign Affidavit");
(f) A Standard Coverage CLTA Owner's Policy of Title Insurance
covering the Property, insuring Buyer as the owner of the Property as of
the Closing Date, subject only to the Permitted Exceptions, and in the
amount of the Purchase Price (the "Title Policy"). As used herein,
"Permitted Exceptions" means exceptions approved by Buyer pursuant to
this Agreement; a lien for real estate taxes and assessments not yet due
and payable; tenants in possession under the Leases; matters affecting
the condition of title to the Property created by or with the written
consent of Buyer; and any matters which would be shown by an inspection,
a survey of the Property, or by inquiry of persons in possession of the
Property. If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for
the extended coverage policy and the cost of any endorsements will be at
Buyer's sole cost and expense; however, Buyer's election to obtain an
extended coverage policy will not delay the Closing and Buyer's
inability to obtain an extended coverage policy or any such endorsements
will not be deemed to be a failure of any condition to Closing;
(g) A Certificate from Seller certifying that all representations
and warranties of Seller contained in this Agreement remain true and
correct at Closing;
(h) An updated Rent Roll (as defined in Section 5.2.2) for the Real
Property, certified by Seller as true and complete;
B-24
<PAGE> 63
(i) Evidence of the existence, organization and authority of Seller
and of the authority of the persons executing documents on behalf of
Seller reasonably satisfactory to Buyer; and
(j) Such other documents and funds as may be required in connection
with the closing of the Escrow and consummation of the sale of the
Property in accordance with the terms of this Agreement.
5.1.2 BUYER'S CLOSING DELIVERIES. At least one (1) business day prior
to the Closing Date, Buyer shall deliver or cause to be delivered to Escrow
Agent the following items:
(a) The balance of the Purchase Price in the manner set forth in
Subparagraph 1.2.2, together with such other sums as Escrow Agent shall
require to pay Buyer's share of the closing costs and prorations in
accordance with this Agreement;
(b) Evidence of the existence, organization and authority of Buyer
to execute and deliver this Agreement and to consummate the transaction
contemplated herein;
(c) A counterpart original of the Assignment and Assumption
Agreement duly executed;
(d) A counterpart original of the Assignment of Leases;
(e) Evidence of existence, organization and authority of Buyer and
of the authority of the persons executing documents on behalf of Buyer
reasonably satisfactory to Seller; and
(f) Such other documents and funds as may be required in connection
with the closing of the Escrow and the consummation of the sale of the
Property in accordance with the terms of this Agreement.
5.2 PRORATIONS.
5.2.1 TAXES AND ASSESSMENTS. All non-delinquent real estate taxes and
assessments on the Property will be prorated as of the Close of Escrow
based on the actual current tax bill for the Real Property. If the Close of
Escrow takes place before the real estate taxes are fixed for the tax year
in which the Close of Escrow occurs, the apportionment of real estate taxes
will be made on the basis of the real estate taxes for the immediately
preceding tax year applied to the latest assessed valuation. All delinquent
taxes and all delinquent assessments, if any, on the Real Property will be
paid at the Close of Escrow from funds accruing to Seller. All supplemental
taxes billed after the Close of Escrow for periods prior to the Close of
Escrow will be paid promptly by Seller. Any general and special bonds and
assessments secured by or attributable to the Real Property shall be
assumed and paid in full by Buyer, subject to proration or current amounts
owing as stated above.
5.2.2 RENTS AND DEPOSITS. All rents and other income under the Leases
which are actually received by Seller as of the Close of Escrow will be
prorated. Delinquent rents and rents not paid by Close of Escrow will not
be prorated. All rents collected by Buyer after Closing will be applied
first to current rents due and payable and next in satisfaction of the
oldest accrued rent, remitting to Seller, after deducting reasonable
collection costs, any rent properly allocable to Seller's period of
ownership of the Property. Upon Seller's request, Buyer shall bill and
attempt to collect such rent arrearages in the ordinary course of business,
and Buyer shall be reimbursed for any cost and expense incurred in
connection therewith, but Buyer shall not be obligated to engage a
collection agency or take legal action to collect such rent arrearages.
Seller shall have the right, but not the obligation, to seek collection of
any rents or other income applicable to any period of ownership of the
Property before the Closing.
At the Close of Escrow, all tenant security deposits under the Leases (and
interest accrued thereon if required by law or contract to be earned thereon)
shall be transferred to Buyer or Buyer shall receive a credit against the
Purchase Price in the amount of such security deposits (less deductions
therefrom). The foregoing credits are agreed to constitute a transfer of
security deposits to Buyer for purposes of California Civil Code Section
1950.5(g) or 1950.7(d), as applicable, and for all other purposes. Prior to the
Closing, Seller will provide Buyer and Escrow Agent with an updated rent roll
(the "Rent Roll") (or other document) which will itemize all security deposits
and deductions made therefrom. The Rent Roll will be used to establish the
B-25
<PAGE> 64
adjustments and credits described above, and constitutes Seller's notice to
Buyer required by California Civil Code Section 1950.5(h) or 1950.7, as
applicable.
From and after the Closing, Buyer assumes the obligation to repay all
security deposits owing to all tenants of the Property and shall indemnify and
hold Seller harmless from any claim with respect thereto (which obligation shall
survive the Closing). Further, Seller hereby notifies Buyer that following the
Closing, Seller will give all tenants of the Property the notice required by
California Civil Code Section 1950.5(g) or 1950.7(d), as applicable,
substantially in the form of Exhibit E attached hereto.
5.2.3 UTILITIES. Seller will notify all utility companies servicing
the Real Property of the sale thereof to Buyer and will request that such
companies send Seller a final bill for the period ending on the last day
before the Close of Escrow. Buyer will notify the utility companies that
all utility bills for the period commencing on the Close of Escrow are to
be sent to Buyer. In addition to the Purchase Price, Buyer will pay to
Seller an amount equal to the total of all utility deposits held by utility
companies and Seller will assign to Buyer all of Seller's right, title and
interest in any such utility deposits; provided, however, Seller reserves
the right to receive a return of such utility deposits and, in such event,
Buyer will arrange for substitute deposits with the utility companies as
may be required. If following the Close of Escrow either Buyer or Seller
receives a bill for utilities or other services provided to the Property
for the period in which the Close of Escrow occurred, Buyer and Seller will
equitably prorate the bill.
5.2.4 SERVICE CONTRACTS. Buyer or Seller, as the case may be, shall
receive a credit for regular charges under the Service Contracts assumed by
Buyer pursuant to this Agreement paid and applicable to Buyer's period of
ownership or payable and applicable to Seller's period of ownership,
respectively.
5.2.5 INVENTORY. Seller shall receive a credit at Closing for any
inventory located on the Property as of midnight preceding the Closing
Date, including office supplies, linen, housekeeping and other supplies.
5.2.6 EMPLOYEE ACCRUALS. All salaries of current employees of the
Property shall be prorated as of the Closing. Buyer shall assume
responsibility for and receive credit at Closing for all accrued
compensation, bonuses, benefits, vacation, holiday and sick pay, worker's
compensation premiums, payroll taxes and similar costs of all employees of
the Property.
5.2.7 METHOD OF PRORATION. All prorations will be made as of the date
of Close of Escrow based on a 365 day year or a 30 day month, as
applicable.
5.2.8 All other items customarily prorated as of the Closing Date in
similar transactions shall be calculated by Escrow Agent on the basis of
information obtained by Escrow Agent or provided by Seller or Buyer at the
request of Escrow Agent, in accordance with Escrow Agent's normal policies
and practices.
5.3 PAYMENT OF CLOSING COSTS.
5.3.1 CLOSING COSTS OF SELLER. Seller shall pay: (i) the cost of the
Title Policy associated with the CLTA Standard Coverage Policy; (ii) the
cost of recording the Grant Deed; (iii) any sales taxes owing in connection
with the transactions contemplated by this Agreement; (iv) one-half (1/2)
of Escrow Agent's fee; (v) all city and county documentary transfer taxes;
and (vi) any additional costs and charges customarily charged to sellers in
accordance with common escrow practices in the county in which the Real
Property is located.
5.3.2 CLOSING COSTS OF BUYER. Buyer shall pay: (i) that portion of the
cost of the Title Policy that is associated with the ALTA Extended Coverage
Policy and any additional endorsements; (ii) one-half (1/2) of Escrow
Agent's fee; (iii) the cost, if any, of a new Survey of the Property; and
(iv) any additional charges customarily charged to buyers in accordance
with common escrow practices in the county in which the Real Property is
located.
5.3.3 OTHER CLOSING COSTS. All other Closing fees and expenses,
including, but not limited to, the parties' legal expenses, accounting and
consulting fees, and other incidental expenses in connection with this
transaction shall be borne by the party incurring same.
B-26
<PAGE> 65
5.4 CLOSING OF ESCROW.
5.4.1 ESCROW AGENT shall Close the Escrow on the Closing Date if: (i)
it has received in a timely manner all funds and materials required to be
delivered into Escrow by Buyer and Seller; (ii) it has received notice from
the Title Company that it is prepared (subject only to recordation of the
grant deed) to issue to Buyer a Title Policy with respect to each Real
Property; and (iii) it is ready and able to simultaneously close the
escrows for Buyer's purchase of the Affiliated Properties.
5.4.2 At the Close of Escrow, Escrow Agent will promptly undertake all
of the following with respect to the Real Property:
5.4.2.1 FUNDS. Disburse all funds deposited with Escrow Agent by
Buyer in payment of the Purchase Price for the Property as follows:
(a) deliver to Seller the Purchase Price, less the amount of all
items, costs and prorations chargeable to the account of Seller; and
(b) disburse the remaining balance, if any, of the funds
deposited by Buyer to Buyer, less amounts chargeable to Buyer.
5.4.2.2 RECORDING. Cause the Grant Deed (with documentary transfer
tax information to be affixed after recording) and the Assignment of
Leases, if applicable, to be recorded with the County Recorder and
obtain conformed copies thereof for distribution to Buyer and Seller.
5.4.2.3 TITLE POLICY. Direct the Title Company to issue the Title
Policy to Buyer.
5.4.2.4 DELIVERY OF DOCUMENTS TO BUYER OR SELLER. Deliver to Buyer
the Non-Foreign Affidavit and other documents (or copies thereof)
deposited into Escrow by Seller. Deliver to Seller any other documents
(or copies thereof) deposited into Escrow by Buyer.
6. REPRESENTATIONS AND WARRANTIES
6.1 JOINT REPRESENTATIONS AND WARRANTIES. In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other:
6.1.1 AUTHORITY. Each party has the legal power, right and authority
to enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
6.1.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering
into of this Agreement, the instruments referenced herein, and the
consummation of this transaction. No further consent of any partner,
shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
6.1.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners,
officers or trustees of each party, if any, have the legal power, right,
and actual authority to bind each party to the terms and conditions of
those documents.
6.1.4 VALID AND BINDING. This Agreement and all other documents
required to close this transaction are and will be valid, legally binding
obligations of and enforceable against each party in accordance with their
terms, subject only to applicable bankruptcy, insolvency, reorganization,
moratorium laws or similar laws or equitable principles affecting or
limiting the rights of contracting parties generally.
6.2 SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Seller hereby
makes the following representations, warranties and covenants:
6.2.1 NO DEFAULTS. Executing and delivering this Agreement and the
documents referenced herein, incurring the obligations set forth herein,
consummating the transaction contemplated herein, and complying with the
terms of this Agreement and the documents referenced herein do not conflict
with or result in the material breach of any terms, conditions or
provisions of, or constitute a default under, any
B-27
<PAGE> 66
bond, note, or other evidence of indebtedness or any contract, indenture,
mortgage, deed of trust, loan, partnership agreement, rehabilitation/grant
housing agreements, lease or other agreement or instrument to which Seller
is a party or affecting the Property.
6.2.2 PENDING OR THREATENED ACTIONS. There are no pending or, to the
best of Seller's knowledge, contemplated actions, suits, arbitrations,
claims, hearings or proceedings, at law or in equity, affecting all or any
portion of the Property or in which Seller is or will be a party by reason
of Seller's ownership of the Property. Seller does not know of the
existence of any threatened or contemplated actions, claims, hearings or
proceedings or of the existence of any facts which might give rise to such
actions, claims or proceedings.
6.2.3 PERSONAL PROPERTY. Seller has and will transfer good and
marketable title to the Personal Property free and clear of any claim,
lien, pledge, option, charge, security interest, or other right of third
parties, whether voluntarily incurred or arising by operation of law,
except such claim, lien, pledge, option, charge, security interest, or
other third party right solely caused by or resulting from the acts or
conducts of Buyer.
6.2.4 ACCURACY OF DOCUMENTS. All instruments, documents, lists,
schedules and items required to be delivered to Buyer hereunder will fairly
present the information set forth in a manner that is not misleading and
will be true, complete and correct in all respects on the date of delivery
and upon the Closing, as they may be updated, modified or supplemented in
accordance with this Agreement.
6.2.5 CONDITION OF PROPERTY. To the best of Seller's knowledge, there
are no structural or mechanical defects in the Property which would
adversely affect Buyer's proposed use of the Property.
6.2.6 SURVIVAL. All representations and warranties contained in this
Subparagraph 6.2 or made in writing by Seller in connection with the
transaction herein provided for shall be true and correct on the date
hereof and at Closing, and liability for misrepresentation or breach of
warranty or covenant shall survive the execution and delivery of this
Agreement for a period of one (1) year.
6.3 PRE-CLOSING COVENANTS. So long as this Agreement remains in full force
and effect:
(a) Without the prior written consent of Buyer, Seller will not convey
any interest in the Property and will not subject the Property to any
additional liens, encumbrances, covenants, conditions, easements, rights of
way or similar matters after the date of this Agreement, except as may be
otherwise provided for in this Agreement, which will not be eliminated
prior to the Close of Escrow.
(b) Seller will not make any material alterations to the Property
without Buyer's consent, which will not be unreasonably withheld or
delayed.
(c) Seller will maintain the Property in substantially the same
condition as of the Effective Date, ordinary wear and tear excepted, and
manage the Property in accordance with Seller's established practices.
(d) Seller will keep and perform all of the obligations to be
performed by Seller under any leases or contracts. After expiration of the
Due Diligence Period, Seller will not enter into any contract or agreement
providing for the provision of goods or services to or with respect to the
Property or the operation thereof unless such contracts or agreements can
be terminated without penalty by the Closing Date, without prior written
consent of Buyer, which will not be unreasonably withheld or delayed.
Seller will not modify any housing subsidy agreements, development
agreements, permits or other government approvals affecting the Property or
any covenants, conditions or restrictions affecting the Property. Seller
will not enter into any new leases for any portion of the Property or
extend the terms of any existing leases without Buyer's written consent,
which will not be unreasonably withheld or delayed.
B-28
<PAGE> 67
7. ADDITIONAL AGREEMENTS OF THE PARTIES
7.1 HAZARDOUS SUBSTANCES.
7.1.1 DEFINITIONS. For the purposes of this Agreement, the following
terms have the following meanings:
(a) "Environmental Law" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment,
including, without limitation, CERCLA (Comprehensive Environmental
Response, Compensation and Liability Act of 1980) and RCRA (Resources
Conservation and Recovery Act of 1976).
(b) "Hazardous Substance" means any substance, material or waste
which is or becomes designated, classified or regulated as being "toxic"
or "hazardous" or a "pollutant" or which is or becomes similarly
designated, classified or regulated, under any Environmental Law,
including asbestos, petroleum and petroleum products.
(c) "Environmental Report" means the Phase I environmental audit of
the Property performed by Seller or any third party or consultant
engaged by Seller to conduct such audit.
7.1.2 SELLER'S REPRESENTATIONS AND WARRANTIES.
Seller will obtain the Environmental Report for the Property and
will furnish a copy to Buyer not later than ten (10) days prior to the
expiration of the Due Diligence Period. As of the date of this
Agreement, to the actual knowledge of Seller and except as referred to
in the Environmental Report:
(a) since the date of Seller's acquisition of the Property, no
Hazardous Substances are now or have been used or stored on or within
any portion of the Property except those substances which are or have
been used or stored on the Property in the normal course of use and
operation of the Property and in compliance with all applicable
Environmental Laws;
(b) since the date of Seller's acquisition of the Property, there
are and have been no federal, state or local enforcement, clean-up,
removal, remedial or other governmental or regulatory actions instituted
or completed affecting the Property; and
(c) no claims have been made by any third party against Seller
relating to any Hazardous Substances on or within the Property.
7.1.3 MUTUAL INDEMNIFICATIONS.
(a) Buyer agrees to indemnify and hold harmless Seller, its
partners, employees, and agents ("Seller Indemnitees") from and against
any and all liabilities, claims, demands, suits, judgments, causes of
action, losses, costs, damages, injuries, penalties, enforcement
actions, fines, remedial actions, removal and disposal costs,
remediation costs and expenses (including reasonable attorneys' fees)
arising out of or related to the presence of Hazardous Substances in,
on, under, or about the Property, to the extent that such Hazardous
Substances first become present in, on, under or about the Property
either (i) during Buyer's tenure as owner, lessee or manager of the
Property, or (ii) as a result of Buyer's acts or omissions.
(b) Seller agrees to indemnify and hold harmless Buyer and its
partners, employees, and agents ("Buyer Indemnitees") from and against
any and all such liabilities, claims, demands, suits, judgments, causes
of action, losses, costs, damages, injuries, penalties, enforcement
actions, fines, remedial actions, removal and disposal costs,
investigation and remediation costs and expenses (including reasonable
attorneys' fees) arising out of or related to the presence of Hazardous
Substances in, on, under or about the Property, to the extent such
Hazardous Substances were present in, on, under or about the Property
(i) during Seller's ownership of the Property or (ii) as a result of
Seller's acts or omissions.
7.2 DELIVERY OF POSSESSION. Possession of the Property shall be delivered
to Buyer upon Closing, subject to the rights of tenants in possession.
B-29
<PAGE> 68
7.3 DAMAGE OR DESTRUCTION. If the Property sustains damage caused by fire
or other casualty prior to Closing and where the cost of repair or replacement
is estimated to be more than One Hundred Thousand Dollars ($100,000.00), Buyer
may elect to terminate this Agreement by written notice to Seller within fifteen
(15) days after receipt of Seller's written notice to Buyer advising of such
damage or destruction. If Buyer does not elect to terminate this Agreement, or
if the loss or casualty would cost less than $100,000 to repair, the Closing
shall take place as provided herein with an abatement of the Purchase Price
equal to the cost to repair unless such damage or destruction is covered by
insurance in which case there shall be assigned to Buyer at Closing all of
Seller's interest in and to the insurance proceeds that may be payable to Seller
on account of such occurrence, Seller shall have no obligation of repair or
replacement, and the Purchase Price shall be abated in the amount of the
deductible payable under the insurance coverage.
7.4 CONDEMNATION. Seller shall promptly give Buyer notice of any eminent
domain proceedings that are contemplated, threatened or instituted with respect
to the Property. By notice to Seller given within fourteen (14) days after Buyer
receives notice of proceedings in eminent domain that are contemplated,
threatened or instituted by anybody having the power of eminent domain with
respect to the Property (and if necessary the Closing Date shall be extended to
give Buyer the full 14 day period to make such election), Buyer may, if such
proceedings involve the taking of title to all or any interest in the Property,
terminate this Agreement by notice in writing sent within ten (10) days of
Seller's written notice to Buyer, in which case the Deposit and any accrued
interest thereon, less Buyer's one-half share of cancellation costs, will be
returned to Buyer, and neither party will have any further rights or obligations
under this Agreement except any rights or obligations which are expressly stated
to survive termination. If the proceedings do not involve the taking of title to
all or any interest in the Property, or if Buyer does not elect to terminate
this Agreement, this transaction will be consummated as described herein and
Seller shall, upon Close of Escrow, assign to Buyer its entire right, title and
interest in and to any condemnation award, and Buyer shall have the sole right
during the pendency of this Agreement to negotiate and otherwise deal with the
condemning authority in respect of such matter.
7.5 BROKERS' COMMISSIONS. Seller shall be solely liable for the commission
to be paid to Barry Powell Real Estate Investment Company, Inc. as the result of
the consummation of the transaction contemplated herein. Except as provided in
the preceding sentence, each party represents and warrants to the other party
that it did not negotiate the purchase and sale of the Property through any
broker, agent, finder, affiliate or other third party, or incur any liability,
contingent or otherwise, for brokerage or finder's fees or agent's commissions
or other like payments in connection with this Agreement, or the transaction
contemplated hereby, and hereby agrees to hold harmless and indemnify the other
party from any and all claims, demands, causes of action or damages resulting
therefrom. This provision shall survive Closing.
7.6 SELLER'S INDEMNIFICATION. Seller agrees to indemnify, defend and hold
Buyer and Buyer Indemnitees harmless from any liability, claim, demand, loss,
expense or damage (collectively, "Loss") (i) suffered by, or by any person or
entity against, Buyer arising from any act or omission of Seller, its agents,
employees or contractors occurring before the Closing; (ii) arising from any
breach by Seller of any obligation related to the Property other than those
obligations which by this Agreement, or any closing delivery, specifically
becomes the obligation of Buyer; or (iii) arising from any breach of any
representation or warranty made by Seller in this Agreement.
7.7 BUYER'S INDEMNIFICATION. Buyer agrees to indemnify, defend and hold
Seller and Seller Indemnitees harmless from any Loss (i) suffered by Seller
arising from any act or omission of Buyer, its agents, employees or contractors
occurring on or after the Closing; (ii) arising from any breach by Buyer of any
obligation of Buyer related to the Property which by this Agreement, or any
closing delivery, specifically becomes the obligation of Buyer; or (iii) arising
from any breach of any representation or warranty made by Buyer in this
Agreement.
7.8 BUYER DEFAULT; LIQUIDATED DAMAGES. PRIOR TO ENTERING INTO THIS
TRANSACTION, BUYER AND SELLER HAVE BEEN CONCERNED WITH THE FACT THAT SUBSTANTIAL
DAMAGES WILL BE SUFFERED BY SELLER IN THE EVENT BUYER SHALL DEFAULT ON ITS
OBLIGATIONS UNDER THIS AGREEMENT. THE PARTIES REALIZE THAT IT WOULD
B-30
<PAGE> 69
BE EXTREMELY DIFFICULT AND IMPRACTICABLE, IF NOT IMPOSSIBLE, TO ASCERTAIN WITH
ANY DEGREE OF CERTAINTY THE AMOUNT OF DAMAGES WHICH WOULD BE SUFFERED BY SELLER
IN THE EVENT OF BUYER'S DEFAULT UNDER THIS AGREEMENT. CONSEQUENTLY, THE PARTIES
HEREBY AGREE THAT THE REASONABLE ESTIMATE OF SAID DAMAGES IS THE SUM OF BUYER'S
DEPOSIT HELD IN ESCROW (INCLUDING THE ACCRUED INTEREST THEREON), AND IN THE
EVENT THAT ALL OF THE CONDITIONS TO BUYER'S OBLIGATIONS CONTAINED IN THIS
AGREEMENT HAVE BEEN SATISFIED OR WAIVED AND SELLER IS NOT OTHERWISE IN DEFAULT
UNDER THIS AGREEMENT, SELLER SHALL, AS ITS SOLE AND EXCLUSIVE REMEDY, BE
ENTITLED TO RECOVER SUCH SUM AS LIQUIDATED DAMAGES.
Initials: ____________ Seller ____________ Buyer ____________
8. TERMINATION
8.1 BUYER'S RIGHT TO TERMINATE. In the event there is a failure of a
condition to Buyer's obligation as set forth in Sections 3 and 4.1 above and so
long as Buyer is not in default hereunder, Buyer may terminate this Agreement by
giving written notice to Escrow Agent and Seller not later than the first to
occur of (i) ten (10) days after the condition has failed (which as to
conditions requiring approval by Buyer, shall be the date Buyer has given Seller
written notice of disapproval of any item which Buyer has the right to approve
under Section 3 unless Seller has an opportunity to cure, in which case the date
shall be ten (10) days after the last date on which Seller can cure the
disapproved item under Section 3 or ten (10) days after the date on which Seller
gives Buyer written notice that it will not cure the disapproved item, whichever
occurs first), or (ii) the agreed Closing Date. Failure by Buyer to terminate as
provided in this paragraph shall be deemed a waiver of the condition which has
failed. If such condition required approval by Buyer, such failure to terminate
shall also be deemed an approval of the previously disapproved item. If Buyer
terminates as provided in this Section 8.1 based on a failure of condition
caused by the conduct of Seller, Seller shall pay all title and escrow
cancellation charges, and the Deposit shall be refunded to Buyer. If Buyer
terminates based on a failure of any other condition in Section 3, Buyer and
Seller shall each pay one-half of all title and escrow cancellation charges and
the Deposit (less Buyer's share of such cancellation charges) shall be refunded
to Buyer.
8.2 SELLER'S RIGHT TO TERMINATE. In the event of a failure of a condition
to Seller's obligation as set forth in Section 4.2 above, Seller may terminate
this Agreement by giving written notice to Escrow Agent and Buyer at any time
prior to the Closing. Failure of Seller to terminate as provided in this
paragraph shall be deemed a waiver by Seller of the condition which has failed,
and if such condition required approval by Seller, such failure shall be deemed
an approval of the previously disapproved item. If Seller terminates based upon
a failure of any condition in Sections 4.2.1, 4.2.2, or 4.2.3, Buyer shall pay
all title and escrow cancellation charges and the Deposit shall be retained by
Seller as provided in Section 7.8. If Seller terminates based upon a failure of
any condition in Sections 4.2.4 or 4.2.5, Seller shall pay all title and escrow
cancellation charges and the Deposit shall be refunded to Buyer.
9. GENERAL PROVISIONS
9.1 TIME OF ESSENCE. Time is of the essence concerning the obligations of
the parties hereunder.
9.2 ASSIGNMENT. Buyer shall the right to assign this Agreement to an
entity in which Buyer is a managing and controlling partner, member or principal
or in which Buyer owns at least fifty percent (50%) of the voting stock thereof
(an "Affiliate"), without obtaining Seller's prior written consent. Buyer may
not assign this Agreement to a party other than an Affiliate without the prior
written consent of Seller, which consent shall not be unreasonably withheld by
Seller. Any attempted assignment without Seller's prior written consent, will,
at Seller's option, be voidable and constitute a material breach of this
Agreement. If Seller consents to an assignment, the assignment will not be
effective against Seller until Buyer delivers to Seller a fully executed copy of
the assignment instrument, which instrument must be satisfactory to Seller in
both form and substance and pursuant to which the assignee assumes and agrees to
perform for the benefit of Seller the obligations of Buyer under this Agreement,
and pursuant to which the assignee makes the warranties and representations
required of Buyer under this Agreement and such other representations and
warranties as
B-31
<PAGE> 70
Seller may reasonably require. Any such assignment will not release Buyer from
any of its obligations under this Agreement.
9.3 AMENDMENT. This Agreement may be supplemented, amended, or modified
only by the mutual agreement of the parties. No supplement, amendment, or
modification of this Agreement shall be binding unless it is in writing and
signed by both parties.
9.4 SUCCESSORS AND ASSIGNS. Subject to the provisions hereof, the terms
and provisions hereof shall be binding upon and inure to the benefit of the
successors and assigns of the parties.
9.5 MEANING OF TERMS. When necessary herein, all terms used in the
singular shall apply to the plural, and vice versa; and all terms used in the
masculine shall apply to the neuter and feminine genders.
9.6 ENTIRE AGREEMENT. This Agreement is the entire agreement between the
parties concerning the subject matter hereof and supersedes all prior agreements
between the parties concerning the same. No claim of waiver, modification,
consent or acquiescence concerning any of the provisions of this Agreement shall
be made against either party, except on the basis of a written instrument
executed by or on behalf of such party.
9.7 GOVERNING LAW. This Agreement shall be governed by, interpreted under
and construed in accordance with the laws of the State of California.
9.8 PARAGRAPH HEADINGS. The paragraph headings in this Agreement are
inserted solely for convenience of reference and are not a part of and are not
intended to govern, limit or aid in the construction of any term or provision
hereof.
9.9 ATTORNEYS' FEES. If either Seller or Buyer obtains legal counsel or
brings an action against the other by reason of the breach of any covenant,
provision or condition hereof, or otherwise arising out of this Agreement, the
unsuccessful party shall pay to the prevailing party reasonable attorneys' fees,
paralegal fees and reasonable costs, which shall be payable whether or not any
action is prosecuted to judgment.
9.10 NOTICES. All notices, requests, demands, and other communications
required or permitted to be given under this Agreement shall be given in writing
(at the addresses set forth below) by any of the following means: (i) personal
service; (ii) electronic communication, whether by telex, telegram or
telecopying (if confirmed in writing sent by registered or certified, first
class mail, return receipt requested); or (iii) registered or certified, first
class mail, return receipt requested. Such addresses may be changed by notice to
the other parties given in the same manner as provided above. Any notice, demand
or request sent pursuant to either (i) or (ii) hereof shall be deemed received
upon such personal service or upon confirmation of receipt by electronic means,
and, if sent pursuant to (iii) shall be deemed received three (3) days after
deposit in the mail:
<TABLE>
<S> <C>
Seller: American Retirement Villas Properties
III 245 Fischer Avenue, D-1 Costa Mesa,
CA 92626
Attn: Legal Department Facsimile:
(714) 435-7102
Buyer: Meta Housing Corporation 4100 W.
Alameda Avenue, Suite 205 Burbank, CA
91505 Attn: John Huskey Facsimile:
(818) 557-5697
Escrow Agent: Fidelity National Title Company 1300
Dove Street, Suite 310 Newport Beach,
CA 92660 Attn: Patty Beverly Facsimile:
(714) 622-4167
</TABLE>
9.11 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance is determined to be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
B-32
<PAGE> 71
9.12 FURTHER ASSURANCES. Each party agrees to do all acts and things and
to make, execute and deliver such written instruments as are reasonably
necessary to carry out the terms and provisions of this Agreement.
9.13 NO THIRD PARTY BENEFITS. Nothing in this Agreement shall be construed
as giving any person, firm, corporation or other entity, other than the parties
hereto, their successors and permitted assigns, any right, remedy or claim under
or concerning this Agreement or any provision hereof.
9.14 CONFIDENTIALITY. In that it is in Seller's and Buyer's best interests
to keep this Agreement and all information concerning the Property confidential
until the Closing, neither of them shall take any action nor conduct itself in
any fashion that would disclose any aspect of the contemplated transaction to
third parties unrelated to Buyer's acquisition or intended ownership and
operation of the Property or the Affiliated Properties. Notwithstanding the
foregoing, Buyer may disclose the contents of this Agreement and the materials
obtained hereunder with prospective lenders, equity participants and their
brokers, accountants, attorneys and other professionals, to the extent that such
disclosure is reasonably necessary and required to facilitate the closing of the
transaction contemplated by this Agreement and said third parties acknowledge
and agree to preserve the confidentiality of the information so disclosed. After
Closing, neither party shall make any public announcement of the transaction
that has not been approved in advance and in writing by the other party.
9.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and together shall
constitute one agreement.
9.16 WAIVER. No waiver of a breach, failure of any condition, or any right
or remedy contained in or granted by the provisions of this Agreement shall be
effective unless it is in writing and signed by the party waiving the breach,
failure, right, or remedy. No waiver of any breach, failure, right, or remedy
shall be deemed a waiver of any other breach, failure, right, or remedy, whether
or not similar, nor shall any waiver constitute a continuing waiver unless the
writing so specifies.
9.17 AMBIGUITIES. Each party and its counsel have participated fully in
the review and revision of this Agreement. Any rule of construction to the
effect that ambiguities are to be resolved against the drafting party shall not
apply in interpreting this Agreement.
9.18 COUNTING DAYS. Days shall be counted by excluding the first day and
including the last day, unless the last day is a Saturday, a Sunday, or a legal
holiday, and then it shall be excluded. Any act required by this Agreement to be
performed by a certain day shall be timely performed if completed before 5:00
p.m. local time on that date. If the day for performance of any obligation under
this Agreement is a Saturday, a Sunday, or a legal holiday, then the time for
performance of that obligation shall be extended to 5:00 p.m. local time on the
first following day that is not a Saturday, Sunday, or legal holiday.
9.19 POSSESSION OF THE PROPERTY. Seller will deliver possession of the
Property to Buyer upon the Close of Escrow, subject to the rights of any
tenants.
9.20 EXHIBITS. All exhibits and schedules to which reference is made in
this Agreement and which are attached hereto are deemed incorporated in this
Agreement.
9.21 NO RECORDATION. No memorandum or other document relating to this
Agreement will be recorded without the prior written consent of Seller, and any
such consent or approval will be conditioned upon Buyer providing Seller with a
quitclaim deed fully executed and acknowledged by Buyer, quitclaiming any and
all interests that it may have in the Property to Seller, which quitclaim deed
Seller may record in the event that this Agreement is terminated or the
transaction contemplated herein is not consummated.
[SIGNATURE PAGE TO FOLLOW]
B-33
<PAGE> 72
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
<TABLE>
<S> <C>
SELLER: AMERICAN RETIREMENT VILLA
PROPERTIES III,
a California limited partnership
By: ARV Assisted Living, Inc.,
a Delaware corporation,
its General Partner
By: /s/ Sheila M. Muldoon
Name: Sheila M. Muldoon
Its: Senior Vice President
BUYER: META HOUSING CORPORATION,
a California corporation
By:/s/ John M. Huskey
Name: John M. Huskey
Its: President
AGREED AND ACCEPTED:
ESCROW AGENT: FIDELITY NATIONAL TITLE COMPANY
By:
Name:
Its:
</TABLE>
B-34
<PAGE> 73
PURCHASE AND SALE AGREEMENT
AND
JOINT ESCROW INSTRUCTIONS
BY AND BETWEEN
AMERICAN RETIREMENT VILLAS PROPERTIES III,
A CALIFORNIA LIMITED PARTNERSHIP
AS SELLER
AND
META HOUSING CORPORATION,
A CALIFORNIA CORPORATION
AS BUYER
OCTOBER 26, 1998
B-35
<PAGE> 74
PURCHASE AND SALE AGREEMENT
AND JOINT ESCROW INSTRUCTIONS
This Purchase and Sale Agreement and Joint Escrow Instructions (the
"Agreement") is made as of October 26, 1998, between American Retirement Villas
Properties III, a California limited partnership ("Seller"), and Meta Housing
Corporation, a California corporation, or assignee ("Buyer") with reference to
the following facts and circumstances. The "Effective Date" of this Agreement
shall be the date upon which the parties mutually execute this Agreement.
RECITALS
A. Seller is the fee owner of three (3) real properties improved with
seniors apartment projects (collectively, the "Affiliated Properties"), all as
more particularly described in attached Schedule A and incorporated herein.
B. Buyer desires to purchase from Seller and Seller desires to sell to
Buyer one of the Affiliated Properties commonly known as Cedar Villas, located
at 301 E. Cedar Street, Ontario, California 91761, and more particularly
described on attached Exhibit A and made a part hereof, upon the following terms
and conditions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, Seller and Buyer agree as follows:
1. PURCHASE AND SALE
1.1 AGREEMENT TO BUY AND SELL. Subject to all of the terms and conditions
of this Agreement, Seller hereby agrees to sell and convey to Buyer, and Buyer
agrees to acquire and purchase from Seller, all of the following (collectively,
the "Property"):
1.1.1 REAL PROPERTY. A certain parcel of real property ("Real
Property") more particularly described on Exhibit A attached hereto and all
of Seller's right, title and interest in and to all easements, rights and
privileges, hereditaments and appurtenances thereto, including any right,
title and interest in and to adjacent streets, alleys or rights of way,
together with all of Seller's right, title and interest in and to all
improvements, structures, equipment and fixtures currently located on or
under said Real Property (collectively called the "Improvements"), subject
to easements, agreements and other matters of record and the rights of
existing tenants under leases or occupancy agreements.
1.1.2 PERSONAL PROPERTY. All of Seller's right, title and interest in
and to all tangible personal property (the "Personal Property") now or
hereafter used exclusively in connection with, the ownership, operation or
maintenance of the Real Property and/or the Improvements, with the
exception of any laundry equipment installed at the Real Property which
shall not be part of the Personal Property, but which shall include,
without limitation, equipment, machinery, furniture, art work, furnishings,
office equipment, tools, construction and finish materials not incorporated
in the Improvements and held for repair and replacements; and all right,
title and interest of Seller, determined as of the Closing Date, in and to
all intangible personal property (the "Intangible Property") now or
hereafter used exclusively in connection with the operation, ownership,
maintenance or management of the Real Property, including, without
limitation, all trade names and trademarks associated with the Real
Property; warranties; indemnities; all permits, licenses and approvals
related to the operation, maintenance, construction, or ownership of the
Real Property (to the extent assignable); insurance proceeds or claims
thereto related to the Real Property; and all books and records relating to
the Real Property.
1.1.3 SERVICE CONTRACTS. All of Seller's right, title and interest in
and to any and all contracts and other agreements pertaining to the
Property together with all supplements, amendments and modifications
thereto (collectively, the "Service Contracts"), which Service Contracts
are listed or described on Schedule B attached hereto and incorporated
herein by reference.
B-36
<PAGE> 75
1.1.4 LEASES. All of Seller's interest, as landlord, in all leases or
other occupancy agreements affecting the Improvements, including leases or
occupancy agreements which may be made by Seller after the Effective Date
of this Agreement and before Closing as permitted by this Agreement, and
any and all amendments and supplements thereto (collectively, the
"Leases").
1.2 PURCHASE PRICE. The purchase price to be paid by Buyer to Seller for
the Property (the "Purchase Price") shall be the sum of Five Million One Hundred
Thousand Dollars ($5,100,000.00). The Purchase Price shall be payable upon the
Close of Escrow (as hereafter defined) as follows:
1.2.1 DEPOSIT. Upon the Opening of Escrow (as defined in Paragraph 2),
Buyer shall deliver to Escrow Agent (as defined in Paragraph 2) as an
earnest money deposit the sum of Fifty Six Thousand Four Hundred Dollars
($56,400.00) (the "Deposit"), paid by wire transfer of funds or by
certified or cashier's check drawn on a local bank. Escrow Agent shall
promptly deposit and thereafter hold the Deposit in an interest bearing
account and interest will accrue for the account of Buyer except as
otherwise provided in this Agreement and will be applied against the
Purchase Price at Closing (as defined in Paragraph 2). Except as expressly
provided otherwise, the Deposit will become nonrefundable at and as of the
first day following the end of the Due Diligence Period, unless Buyer
terminates this Agreement by written notice to Seller and Escrow Agent as
provided herein on or before the end of the Due Diligence Period. In the
event Buyer so terminates this Agreement, Escrow Agent shall immediately
refund the Deposit to Buyer.
1.2.2 BALANCE OF PURCHASE PRICE. No later than such time as is
required by Escrow Agent or otherwise in order for the Closing to occur by
the Closing Date, Buyer will deposit into the Escrow the balance of the
Purchase Price in cash, by confirmed wire transfer of funds, or by
certified or cashier's check collectible in same day funds. For purposes of
calculating the balance of the Purchase Price payable by Buyer hereunder,
Buyer shall be credited with (i) the Deposit, (ii) all interest earned on
the Deposit during the Escrow, and (iii) Buyer's share of the prorations in
Buyer's favor and credits described in Section 5.2 hereof.
2. ESCROW
2.1 OPENING OF ESCROW. Within three (3) business days after their execution
and delivery of this Agreement, Seller and Buyer shall open an escrow (the
"Escrow") with Fidelity National Title Company (the "Escrow Agent") by
delivering to Escrow Agent a fully executed copy of this Agreement (the "Opening
of Escrow"). When this Agreement or counterparts hereof shall have been executed
by Seller and Buyer, and delivered to Escrow Agent, it shall constitute the
joint escrow instructions of the parties to the Escrow Agent. The purchase and
sale of the Property will be consummated through the Escrow. Escrow Agent is
hereby authorized and instructed to deliver, pursuant to the terms of this
Agreement, the documents and monies to be deposited into the Escrow. Escrow
Agent's standard form escrow instructions shall, to the extent consistent with
the terms hereof, inure to the benefit of Escrow Agent. If there is a conflict
between any printed escrow instructions and this Agreement, the terms of this
Agreement will govern.
2.2 CLOSING OF ESCROW. The closing (the "Closing") of the purchase and sale
of the Property shall take place through Escrow, upon satisfaction of all
conditions to Closing set forth herein, by no later than ninety (90) days after
the Effective Date of this Agreement, subject to the provisions of Section 4.2.5
hereof (the "Closing Date"). The term "Closing" or "Close of Escrow" as used
herein shall be deemed to be the date upon which the grant deed to the Real
Property is recorded. The Close of Escrow shall occur, if at all, simultaneously
with the Close of Escrow for Buyer's purchase from Seller of the remaining two
(2) Affiliated Properties.
3. ACTIONS PENDING CLOSING
3.1 DELIVERY OF TITLE DOCUMENTS. Within ten (10) days after the Opening of
Escrow, Seller shall cause to be delivered to Buyer a current, effective
Preliminary Report covering the Real Property and the Improvements (the
"Preliminary Report"), issued by Fidelity National Title Company (the "Title
Company"), together with (i) true, complete and legible copies of all documents
referred to in the Preliminary Report (the
B-37
<PAGE> 76
"Underlying Documents"), (ii) a plat or sketch prepared by the Title Company
showing all easements affecting the Real Property, and (iii) a copy of any
existing ALTA Survey of the Real Property (the "Survey") in Seller's possession
or control, or written notice to Buyer that Seller has no such Survey in its
possession or under its control. In the event Buyer elects to obtain any
extended coverage ALTA owner's or lender's title insurance policy, and such
extended coverage requires an ALTA survey, Buyer shall obtain said survey, if at
all, at its sole cost and expense, prior to the expiration of the Due Diligence
Period (as defined in Section 3.3.2).
If any subsequent updating of a Preliminary Report or of a Survey prior to
the Close of Escrow shall disclose any additional title exceptions, defects or
encumbrances, then Buyer shall have an additional five (5) day period to approve
or disapprove such items in its discretion subject to the process described in
Section 3.2.
3.2 BUYER'S REVIEW OF TITLE. At any time prior to the expiration of the Due
Diligence Period, Buyer shall review and examine the Preliminary Reports, the
Underlying Documents, and the Surveys, if any, and deliver to Seller written
notice of any title exceptions which Buyer disapproves or other objections to
title, specifying reasonable grounds for each matter disapproved (collectively,
the "Disapproved Exceptions"). Such grounds must establish that the matters
disapproved would have an adverse effect on Buyer's use, development, financing,
marketability or operation of the Property, as determined by Buyer in its sole
discretion, and were not caused or created solely by the acts of Buyer. Buyer's
failure to provide such notice of Disapproved Exceptions prior to the expiration
of the Due Diligence Period shall constitute Buyer's approval of the condition
of title as shown on the Preliminary Report. If Buyer timely notifies Seller of
specific Disapproved Exceptions, Seller will have ten (10) days after receipt of
Buyer's notification of Disapproved Exceptions in which to advise Buyer that:
(i) Seller will cause the Disapproved Exceptions to be removed or
remedied or obtain appropriate endorsements to the Title Policy on or
before the Closing Date; or
(ii) Seller will not cause the Disapproved Exceptions to be removed or
remedied or cause appropriate endorsements to the Title Policy to be
issued.
(iii) If Seller does not notify Buyer of its election within the 10
day period, Seller will be deemed to have elected to not cause the
Disapproved Exceptions to be removed.
If Seller elects to not cause the Disapproved Exceptions to be removed or
remedied or cause appropriate endorsement to the Title Policy to be issued,
Buyer will have five (5) days to elect to:
(i) Proceed with the purchase and acquire the Property subject to the
Disapproved Exceptions without reduction in the Purchase Price; or
(ii) Cancel the Escrow and this Agreement by written notice to Seller
and Escrow Agent, in which case the Deposit and any interest accrued
thereon will be returned to Buyer, and the cancellation costs, if any, will
be borne equally by the parties.
If Buyer does not give Seller notice of its election within the 5 day
period, Buyer will be deemed to have elected to proceed with the Closing of this
transaction. If Seller commits to remove or remedy any Disapproved Exception and
fails to do so by the Closing Date, Seller will be in default under this
Agreement and Buyer may, at Buyer's election, terminate this Agreement and
pursue its remedies as set forth in Paragraph 8.
3.3 BUYER'S DUE DILIGENCE INVESTIGATION.
3.3.1 BUYER'S REVIEW OF PROPERTY DOCUMENTS. To the extent such items
are in Seller's possession or control, Seller shall, within ten (10) days
of the Effective Date, provide to Buyer copies of or access to the
information and documents set forth on Schedule C attached hereto and
incorporated herein by reference (the "Property Documents"). The Due
Diligence Period (defined in Subparagraph 3.3.2) shall be extended on a
day-for-day basis for each day after the tenth day following the Effective
Date for which Seller fails to make the initial delivery of the Property
Documents. Seller shall have the continuing obligation during the pendency
of this Agreement to provide Buyer with any Property Document coming
B-38
<PAGE> 77
into Seller's possession or control or produced by or for Seller after the
initial delivery of the Property Documents. Buyer shall have until the
expiration date of the Due Diligence Period to deliver to Seller a
disapproval notice stating that Buyer's review of the Property Documents
disclosed a defect in the Property and describing the defect with
reasonable particularity. Buyer's failure to so notify Seller shall
conclusively be considered approval. Buyer expressly agrees that Seller is
furnishing copies of all Property Documents to Buyer for informational
purposes only and without representation or warranty as to the accuracy or
completeness of the contents of such materials.
3.3.2 BUYER'S INSPECTION OF THE PROPERTY. During the period
commencing on the Effective Date and ending on the date which occurs thirty
(30) days thereafter (the "Due Diligence Period"), Buyer, its agents and
representatives shall have the right to enter the Real Property upon
reasonable prior notice to Seller for the purpose of conducting customary
soil, environmental, and other engineering tests and to inspect and survey
the Real Property, all at its own cost and expense. Buyer will keep the
Real Property free and clear of any liens and shall indemnify, defend (with
counsel reasonably acceptable to Seller) and hold Seller harmless from and
against any and all claims, losses, damages, liabilities, costs or
expenses, including, without limitation, reasonable attorneys' fees and
costs, arising out of Buyer's inspections and tests. By the end of the Due
Diligence Period, Buyer must approve the results of any and all
inspections, investigations, tests and studies as Buyer may have elected to
make or obtain within the Due Diligence Period. Buyer shall be deemed to
have approved all soil and other physical conditions pertaining to the Real
Property unless it has delivered to Seller written notice of disapproval on
or before the expiration of the Due Diligence Period. Such notice must
provide that in Buyer's opinion that the matters disapproved would have an
adverse impact on Buyer's use, development, financing, marketability or
operation of the Real Property. Seller shall have until five (5) business
days prior to the Closing to cure any matters so disapproved which can be
cured, but without any obligation to do so; provided, however, that Seller
shall notify Buyer within ten (10) days of receipt of Buyer's notice of
disapproval as to whether or not Seller will cure such disapproved matters.
If Seller elects not to cure such disapproved matters, or fails to timely
cure such disapproved matters, Buyer shall have the right to terminate this
Agreement and receive the return of the Deposit. Notwithstanding anything
to the contrary herein, and by no later than ten (10) days prior to the
expiration of the Due Diligence Period, Seller shall cause a Phase I
environmental survey to be performed for the Real Property and deliver a
copy of the written report thereof to Buyer for its review in accordance
with procedures set forth above. The costs of conducting said Phase I
survey and preparing the resulting report will initially be borne by
Seller; provided, however, that Buyer shall reimburse Seller for all such
costs at the Close of Escrow or any such time as Buyer elects to terminate
this Agreement for any reason other than the failure of Seller to timely
obtain the approval of its limited partners or of the Board of Directors of
Buyer's general partner, as provided in Sections 4.2.4 and 4.2.5. In the
event this Agreement is terminated prior to the Closing, Buyer will give
copies of all inspections, tests or studies to Seller as a condition
precedent to the return of the Deposit.
3.3.3 SERVICE CONTRACTS. During the Due Diligence Period, Buyer shall
notify Seller in writing as to which Service Contracts Buyer will assume
and which Service Contracts shall be terminated by Seller at Closing. By
means of a written assignment and assumption agreement in form and content
acceptable to Seller (the "Assignment and Assumption Agreement"), Buyer
will assume the obligations arising from and after the Closing Date under
those Service Contracts that are not in default as of the Closing Date and
which Buyer has elected to assume. Seller shall terminate at Closing all
Service Contracts that are not so assumed.
3.3.4 NO WARRANTIES. Except as expressly contained in Section 6 of
this Agreement, Buyer acknowledges that Buyer is purchasing the Property
solely in reliance on Buyer's own investigation and that no representations
or warranties of any kind whatsoever, express or implied, have been made by
Seller or by Seller's agents or brokers with respect to the condition or
use of the Property. Buyer further acknowledges that except as disclosed in
Section 6, Buyer will be aware of all zoning regulations, other
governmental requirements, site and physical conditions, and other matters
affecting the use and condition of the Property and agrees to purchase the
Property at the Close of Escrow in its then condition AS-IS and with all
faults.
B-39
<PAGE> 78
3.4 NOTICE OF CHANGES. Seller shall promptly notify Buyer of any change in
any condition concerning the Property or of any event or circumstance which
makes any representation or warranty of Seller under this Agreement untrue or
misleading, or any covenant of Seller under this Agreement incapable or less
likely of being performed; however, Seller's obligation to provide such notice
to Buyer shall in no way relieve Seller of any liability for its breach of any
of Seller's representations, warranties or covenants under this Agreement. In
the event of such notice of change, Buyer shall have a ten 10) day period to
determine whether or not to proceed with the purchase of the Property, and if
Buyer elects not to proceed, Escrow Holder shall promptly return the Deposit to
Buyer upon Buyer's demand.
4. CONDITIONS TO PARTIES' OBLIGATIONS TO CLOSE
The following shall be the conditions precedent to the parties' obligations
to consummate the purchase and sale transaction contemplated herein:
4.1 CONDITIONS TO BUYER'S OBLIGATIONS TO CLOSE. Buyer's obligation to
consummate the transactions contemplated hereby is subject to the following
conditions, each of which is for Buyer's sole benefit and may be waived by Buyer
only in writing at its sole option:
4.1.1 REPRESENTATIONS AND WARRANTIES. Seller's representations and
warranties in this Agreement shall be true on the date of Closing in all
material respects as though such representations and warranties were made
on and as of such date.
4.1.2 DELIVERY OF INSTRUMENTS AND INFORMATION. Seller shall have
delivered the instruments and information required to be delivered by
Seller as, when and in the manner set forth therein.
4.1.3 COMPLIANCE WITH THIS AGREEMENT. Seller shall duly have
performed and complied with all agreements, obligations and conditions
Seller is required to perform under this Agreement on or before the
Closing.
4.1.4 DUE DILIGENCE REVIEW APPROVALS. Buyer shall have approved the
Property Documents and the physical condition of the Property.
4.1.5 TITLE POLICY. The Title Company shall be ready, willing and
able to issue the Title Policy required by Subparagraph 5.1.2(e).
4.2 CONDITIONS TO SELLER'S OBLIGATION TO CLOSE. Seller's obligation to
consummate the transaction contemplated hereby is subject to the following
conditions, each of which is for Seller's sole benefit and may be waived solely
by Seller only in writing, and at its sole option:
4.2.1 REPRESENTATIONS AND WARRANTIES. Buyer's representations and
warranties in this Agreement, or in any certificate or document signed by
Buyer pursuant to the provisions hereof, shall be true on and as of Closing
in all material respects as though such representations and warranties were
made on and as of such date.
4.2.2 DELIVERY OF INSTRUMENTS AND INFORMATION. Buyer shall have
delivered the instruments and information required to be delivered by Buyer
as, when and in the manner set forth herein.
4.2.3 COMPLIANCE WITH THIS AGREEMENT. Buyer shall have performed and
complied with all agreements and conditions Buyer is required to perform
under this Agreement on or before Closing.
4.2.4 BOARD OF DIRECTOR APPROVAL. Within the Due Diligence Period,
the Board of Directors of Seller's general partner shall have approved the
transaction contemplated by this Agreement and duly authorized and
empowered designated representatives of Seller to execute and deliver this
Agreement and all additional documents required in connection therewith.
4.2.5 APPROVAL OF LIMITED PARTNERS. Within ninety (90) days after the
Effective Date of this Agreement, the limited partners of Seller shall have
approved the transaction contemplated hereby and duly authorized and
empowered its general partner to execute and deliver this Agreement and all
additional documents required in connection herewith. In the event that
Seller is unable to obtain said
B-40
<PAGE> 79
approval within the 90 day period due to reasons beyond its control,
including, but not limited to, requirements of the Securities and Exchange
Commission, Seller shall have an additional thirty (30) day period within
which to obtain such approval, if at all, and the Closing shall be extended
accordingly. In the event Seller is unable to obtain the approval of its
limited partners within said ninety (90)day period, or as extended for the
additional 30 day period, Seller shall bear all title and escrow costs
incurred in connection with the transaction contemplated herein
4.2.6 CONCURRENT CLOSING OF AFFILIATED PROPERTIES' ESCROWS. The
escrows for Buyer's or Buyer's assignee's purchase from Seller of the two
(2) Affiliated Properties shall be able to close concurrently with the
Close of Escrow.
4.3 CONDITION TO PARTIES' OBLIGATIONS TO CLOSE. Buyer's and Seller's
respective obligations to consummate the transaction contemplated hereby are
subject to the requirement that within ninety (90) days after the Effective Date
of this Agreement, the Ontario Redevelopment Agency shall have approved the
transfer of Seller's interests in the Real Property to Buyer and consented to
the assumption by Buyer of Seller's rights and obligations under the
rehabilitation and affordable housing subsidy/ grant agreement affecting the
Real Property. Buyer and Seller mutually agree to employ all good faith and
diligent effort to timely obtain said consent and approval.
5. CLOSING
5.1 DEPOSITS INTO ESCROW.
5.1.1 SELLER'S CLOSING DELIVERIES. At least one (1) business day
prior to the Closing Date, Seller shall deliver or cause to be delivered to
Escrow Agent the following items:
(a) A grant deed in statutory form, duly executed and acknowledged
by Seller, and a separate declaration of documentary transfer tax in
form satisfactory to Escrow Agent;
(b) A duly executed Bill of Sale (the "Bill of Sale") in a form
reasonably satisfactory to Buyer, which shall be attached hereto as
Exhibit B, assigning and conveying to Buyer all of Seller's right,
title, and interest in and to the Personal Property;
(c) A duly executed Assignment and Assumption Agreement (the
"Assignment and Assumption Agreement") in a form reasonably satisfactory
to Buyer, which shall be attached hereto as Exhibit C, assigning all of
Seller's right, title and interest in and to the Service Contracts;
(d) A duly executed Assignment of Leases (the "Assignment of
Leases") in a form reasonably satisfactory to Buyer, which shall be
attached hereto as Exhibit D, assigning all of Seller's right, title,
and interest in and to the Leases;
(e) An affidavit or qualifying statement which satisfies the
requirements of Section 1445 of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder (the "Non-Foreign Affidavit");
(f) A Standard Coverage CLTA Owner's Policy of Title Insurance
covering the Property, insuring Buyer as the owner of the Property as of
the Closing Date, subject only to the Permitted Exceptions, and in the
amount of the Purchase Price (the "Title Policy"). As used herein,
"Permitted Exceptions" means exceptions approved by Buyer pursuant to
this Agreement; a lien for real estate taxes and assessments not yet due
and payable; tenants in possession under the Leases; matters affecting
the condition of title to the Property created by or with the written
consent of Buyer; and any matters which would be shown by an inspection,
a survey of the Property, or by inquiry of persons in possession of the
Property. If Buyer elects to obtain any additional endorsements or an
extended coverage policy, the additional premium and costs of survey for
the extended coverage policy and the cost of any endorsements will be at
Buyer's sole cost and expense; however, Buyer's election to obtain an
extended coverage policy will not delay the Closing and Buyer's
inability to obtain an extended coverage policy or any such endorsements
will not be deemed to be a failure of any condition to Closing;
B-41
<PAGE> 80
(g) A Certificate from Seller certifying that all representations
and warranties of Seller contained in this Agreement remain true and
correct at Closing;
(h) An updated Rent Roll (as defined in Section 5.2.2) for the Real
Property, certified by Seller as true and complete;
(i) Evidence of the existence, organization and authority of Seller
and of the authority of the persons executing documents on behalf of
Seller reasonably satisfactory to Buyer; and
(j) Such other documents and funds as may be required in connection
with the closing of the Escrow and consummation of the sale of the
Property in accordance with the terms of this Agreement.
5.1.2 BUYER'S CLOSING DELIVERIES. At least one (1) business day prior
to the Closing Date, Buyer shall deliver or cause to be delivered to Escrow
Agent the following items:
(a) The balance of the Purchase Price in the manner set forth in
Subparagraph 1.2.2, together with such other sums as Escrow Agent shall
require to pay Buyer's share of the closing costs and prorations in
accordance with this Agreement;
(b) Evidence of the existence, organization and authority of Buyer
to execute and deliver this Agreement and to consummate the transaction
contemplated herein;
(c) A counterpart original of the Assignment and Assumption
Agreement duly executed;
(d) A counterpart original of the Assignment of Leases;
(e) Evidence of existence, organization and authority of Buyer and
of the authority of the persons executing documents on behalf of Buyer
reasonably satisfactory to Seller; and
(f) Such other documents and funds as may be required in connection
with the closing of the Escrow and the consummation of the sale of the
Property in accordance with the terms of this Agreement.
5.2 PRORATIONS.
5.2.1 TAXES AND ASSESSMENTS. All non-delinquent real estate taxes and
assessments on the Property will be prorated as of the Close of Escrow
based on the actual current tax bill for the Real Property. If the Close of
Escrow takes place before the real estate taxes are fixed for the tax year
in which the Close of Escrow occurs, the apportionment of real estate taxes
will be made on the basis of the real estate taxes for the immediately
preceding tax year applied to the latest assessed valuation. All delinquent
taxes and all delinquent assessments, if any, on the Real Property will be
paid at the Close of Escrow from funds accruing to Seller. All supplemental
taxes billed after the Close of Escrow for periods prior to the Close of
Escrow will be paid promptly by Seller. Any general and special bonds and
assessments secured by or attributable to the Real Property shall be
assumed and paid in full by Buyer, subject to proration or current amounts
owing as stated above.
5.2.2 RENTS AND DEPOSITS. All rents and other income under the Leases
which are actually received by Seller as of the Close of Escrow will be
prorated. Delinquent rents and rents not paid by Close of Escrow will not
be prorated. All rents collected by Buyer after Closing will be applied
first to current rents due and payable and next in satisfaction of the
oldest accrued rent, remitting to Seller, after deducting reasonable
collection costs, any rent properly allocable to Seller's period of
ownership of the Property. Upon Seller's request, Buyer shall bill and
attempt to collect such rent arrearages in the ordinary course of business,
and Buyer shall be reimbursed for any cost and expense incurred in
connection therewith, but Buyer shall not be obligated to engage a
collection agency or take legal action to collect such rent arrearages.
Seller shall have the right, but not the obligation, to seek collection of
any rents or other income applicable to any period of ownership of the
Property before the Closing.
At the Close of Escrow, all tenant security deposits under the Leases (and
interest accrued thereon if required by law or contract to be earned thereon)
shall be transferred to Buyer or Buyer shall receive a credit
B-42
<PAGE> 81
against the Purchase Price in the amount of such security deposits (less
deductions therefrom). The foregoing credits are agreed to constitute a transfer
of security deposits to Buyer for purposes of California Civil Code Section
1950.5(g) or 1950.7(d), as applicable, and for all other purposes. Prior to the
Closing, Seller will provide Buyer and Escrow Agent with an updated rent roll
(the "Rent Roll") (or other document) which will itemize all security deposits
and deductions made therefrom. The Rent Roll will be used to establish the
adjustments and credits described above, and constitutes Seller's notice to
Buyer required by California Civil Code Section 1950.5(h) or 1950.7, as
applicable.
From and after the Closing, Buyer assumes the obligation to repay all
security deposits owing to all tenants of the Property and shall indemnify and
hold Seller harmless from any claim with respect thereto (which obligation shall
survive the Closing). Further, Seller hereby notifies Buyer that following the
Closing, Seller will give all tenants of the Property the notice required by
California Civil Code Section 1950.5(g) or 1950.7(d), as applicable,
substantially in the form of Exhibit E attached hereto.
5.2.3 UTILITIES. Seller will notify all utility companies servicing
the Real Property of the sale thereof to Buyer and will request that such
companies send Seller a final bill for the period ending on the last day
before the Close of Escrow. Buyer will notify the utility companies that
all utility bills for the period commencing on the Close of Escrow are to
be sent to Buyer. In addition to the Purchase Price, Buyer will pay to
Seller an amount equal to the total of all utility deposits held by utility
companies and Seller will assign to Buyer all of Seller's right, title and
interest in any such utility deposits; provided, however, Seller reserves
the right to receive a return of such utility deposits and, in such event,
Buyer will arrange for substitute deposits with the utility companies as
may be required. If following the Close of Escrow either Buyer or Seller
receives a bill for utilities or other services provided to the Property
for the period in which the Close of Escrow occurred, Buyer and Seller will
equitably prorate the bill.
5.2.4 SERVICE CONTRACTS. Buyer or Seller, as the case may be, shall
receive a credit for regular charges under the Service Contracts assumed by
Buyer pursuant to this Agreement paid and applicable to Buyer's period of
ownership or payable and applicable to Seller's period of ownership,
respectively.
5.2.5 INVENTORY. Seller shall receive a credit at Closing for any
inventory located on the Property as of midnight preceding the Closing
Date, including office supplies, linen, housekeeping and other supplies.
5.2.6 EMPLOYEE ACCRUALS. All salaries of current employees of the
Property shall be prorated as of the Closing. Buyer shall assume
responsibility for and receive credit at Closing for all accrued
compensation, bonuses, benefits, vacation, holiday and sick pay, worker's
compensation premiums, payroll taxes and similar costs of all employees of
the Property.
5.2.7 METHOD OF PRORATION. All prorations will be made as of the date
of Close of Escrow based on a 365 day year or a 30 day month, as
applicable.
5.2.8 All other items customarily prorated as of the Closing Date in
similar transactions shall be calculated by Escrow Agent on the basis of
information obtained by Escrow Agent or provided by Seller or Buyer at the
request of Escrow Agent, in accordance with Escrow Agent's normal policies
and practices.
5.3 PAYMENT OF CLOSING COSTS.
5.3.1 CLOSING COSTS OF SELLER. Seller shall pay: (i) the cost of the
Title Policy associated with the CLTA Standard Coverage Policy; (ii) the
cost of recording the Grant Deed; (iii) any sales taxes owing in connection
with the transactions contemplated by this Agreement; (iv) one-half (1/2)
of Escrow Agent's fee; (v) all city and county documentary transfer taxes;
and (vi) any additional costs and charges customarily charged to sellers in
accordance with common escrow practices in the county in which the Real
Property is located.
5.3.2 CLOSING COSTS OF BUYER. Buyer shall pay: (i) that portion of the
cost of the Title Policy that is associated with the ALTA Extended Coverage
Policy and any additional endorsements; (ii) one-half ( 1/2) of Escrow
Agent's fee; (iii) the cost, if any, of a new Survey of the Property; and
(iv) any additional
B-43
<PAGE> 82
charges customarily charged to buyers in accordance with common escrow
practices in the county in which the Real Property is located.
5.3.3 OTHER CLOSING COSTS. All other Closing fees and expenses,
including, but not limited to, the parties' legal expenses, accounting and
consulting fees, and other incidental expenses in connection with this
transaction shall be borne by the party incurring same.
5.4 CLOSING OF ESCROW.
5.4.1 Escrow Agent shall Close the Escrow on the Closing Date if: (i)
it has received in a timely manner all funds and materials required to be
delivered into Escrow by Buyer and Seller; (ii) it has received notice from
the Title Company that it is prepared (subject only to recordation of the
grant deed) to issue to Buyer a Title Policy with respect to each Real
Property; and (iii) it is ready and able to simultaneously close the
escrows for Buyer's purchase of the Affiliated Properties.
5.4.2 At the Close of Escrow, Escrow Agent will promptly undertake all
of the following with respect to the Real Property:
5.4.2.1 FUNDS. Disburse all funds deposited with Escrow Agent by Buyer
in payment of the Purchase Price for the Property as follows:
(a) deliver to Seller the Purchase Price, less the amount of all
items, costs and prorations chargeable to the account of Seller; and
(b) disburse the remaining balance, if any, of the funds deposited
by Buyer to Buyer, less amounts chargeable to Buyer.
5.4.2.2 RECORDING. Cause the Grant Deed (with documentary transfer tax
information to be affixed after recording) and the Assignment of Leases, if
applicable, to be recorded with the County Recorder and obtain conformed
copies thereof for distribution to Buyer and Seller.
5.4.2.3 TITLE POLICY. Direct the Title Company to issue the Title
Policy to Buyer.
5.4.2.4 DELIVERY OF DOCUMENTS TO BUYER OR SELLER. Deliver to Buyer the
Non-Foreign Affidavit and other documents (or copies thereof) deposited
into Escrow by Seller. Deliver to Seller any other documents (or copies
thereof) deposited into Escrow by Buyer.
6. REPRESENTATIONS AND WARRANTIES
6.1 JOINT REPRESENTATIONS AND WARRANTIES. In addition to any express
agreements of the parties contained herein, the following constitute
representations and warranties of the parties each to the other:
6.1.1 AUTHORITY. Each party has the legal power, right and authority
to enter into this Agreement and the instruments referenced herein, and to
consummate this transaction.
6.1.2 ACTIONS. All requisite action (corporate, trust, partnership or
otherwise) has been taken by each party in connection with the entering
into of this Agreement, the instruments referenced herein, and the
consummation of this transaction. No further consent of any partner,
shareholder, creditor, investor, judicial or administrative body,
governmental authority or other party is required.
6.1.3 DUE EXECUTION. The individuals executing this Agreement and the
instruments referenced herein on behalf of each party and the partners,
officers or trustees of each party, if any, have the legal power, right,
and actual authority to bind each party to the terms and conditions of
those documents.
6.1.4 VALID AND BINDING. This Agreement and all other documents
required to close this transaction are and will be valid, legally binding
obligations of and enforceable against each party in accordance with their
terms, subject only to applicable bankruptcy, insolvency, reorganization,
moratorium laws or similar laws or equitable principles affecting or
limiting the rights of contracting parties generally.
B-44
<PAGE> 83
6.2 SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Seller hereby makes
the following representations, warranties and covenants:
6.2.1 NO DEFAULTS. Executing and delivering this Agreement and the
documents referenced herein, incurring the obligations set forth herein,
consummating the transaction contemplated herein, and complying with the
terms of this Agreement and the documents referenced herein do not conflict
with or result in the material breach of any terms, conditions or
provisions of, or constitute a default under, any bond, note, or other
evidence of indebtedness or any contract, indenture, mortgage, deed of
trust, loan, partnership agreement, rehabilitation/grant housing
agreements, lease or other agreement or instrument to which Seller is a
party or affecting the Property.
6.2.2 PENDING OR THREATENED ACTIONS. There are no pending or, to the
best of Seller's knowledge, contemplated actions, suits, arbitrations,
claims, hearings or proceedings, at law or in equity, affecting all or any
portion of the Property or in which Seller is or will be a party by reason
of Seller's ownership of the Property. Seller does not know of the
existence of any threatened or contemplated actions, claims, hearings or
proceedings or of the existence of any facts which might give rise to such
actions, claims or proceedings.
6.2.3 PERSONAL PROPERTY. Seller has and will transfer good and
marketable title to the Personal Property free and clear of any claim,
lien, pledge, option, charge, security interest, or other right of third
parties, whether voluntarily incurred or arising by operation of law,
except such claim, lien, pledge, option, charge, security interest, or
other third party right solely caused by or resulting from the acts or
conducts of Buyer.
6.2.4 ACCURACY OF DOCUMENTS. All instruments, documents, lists,
schedules and items required to be delivered to Buyer hereunder will fairly
present the information set forth in a manner that is not misleading and
will be true, complete and correct in all respects on the date of delivery
and upon the Closing, as they may be updated, modified or supplemented in
accordance with this Agreement.
6.2.5 CONDITION OF PROPERTY. To the best of Seller's knowledge, there
are no structural or mechanical defects in the Property which would
adversely affect Buyer's proposed use of the Property.
6.2.6 SURVIVAL. All representations and warranties contained in this
Subparagraph 6.2 or made in writing by Seller in connection with the
transaction herein provided for shall be true and correct on the date
hereof and at Closing, and liability for misrepresentation or breach of
warranty or covenant shall survive the execution and delivery of this
Agreement for a period of one (1) year.
6.3 PRE-CLOSING COVENANTS. So long as this Agreement remains in full force
and effect:
(a) Without the prior written consent of Buyer, Seller will not convey
any interest in the Property and will not subject the Property to any
additional liens, encumbrances, covenants, conditions, easements, rights of
way or similar matters after the date of this Agreement, except as may be
otherwise provided for in this Agreement, which will not be eliminated
prior to the Close of Escrow.
(b) Seller will not make any material alterations to the Property
without Buyer's consent, which will not be unreasonably withheld or
delayed.
(c) Seller will maintain the Property in substantially the same
condition as of the Effective Date, ordinary wear and tear excepted, and
manage the Property in accordance with Seller's established practices.
(d) Seller will keep and perform all of the obligations to be
performed by Seller under any leases or contracts. After expiration of the
Due Diligence Period, Seller will not enter into any contract or agreement
providing for the provision of goods or services to or with respect to the
Property or the operation thereof unless such contracts or agreements can
be terminated without penalty by the Closing Date, without prior written
consent of Buyer, which will not be unreasonably withheld or delayed.
Seller will not modify any housing subsidy agreements, development
agreements, permits or other government approvals affecting the Property or
any covenants, conditions or restrictions affecting the Property. Seller
B-45
<PAGE> 84
will not enter into any new leases for any portion of the Property or
extend the terms of any existing leases without Buyer's written consent,
which will not be unreasonably withheld or delayed.
7. ADDITIONAL AGREEMENTS OF THE PARTIES
7.1 HAZARDOUS SUBSTANCES.
7.1.1 DEFINITIONS. For the purposes of this Agreement, the following
terms have the following meanings:
(a) "ENVIRONMENTAL LAW" means any law, statute, ordinance or
regulation pertaining to health, industrial hygiene or the environment,
including, without limitation, CERCLA (Comprehensive Environmental
Response, Compensation and Liability Act of 1980) and RCRA (Resources
Conservation and Recovery Act of 1976).
(b) "HAZARDOUS SUBSTANCE" means any substance, material or waste
which is or becomes designated, classified or regulated as being "toxic"
or "hazardous" or a "pollutant" or which is or becomes similarly
designated, classified or regulated, under any Environmental Law,
including asbestos, petroleum and petroleum products.
(c) "ENVIRONMENTAL REPORT" means the Phase I environmental audit of
the Property performed by Seller or any third party or consultant
engaged by Seller to conduct such audit.
7.1.2 SELLER'S REPRESENTATIONS AND WARRANTIES.
Seller will obtain the Environmental Report for the Property and will
furnish a copy to Buyer not later than ten (10) days prior to the
expiration of the Due Diligence Period. As of the date of this Agreement,
to the actual knowledge of Seller and except as referred to in the
Environmental Report:
(a) since the date of Seller's acquisition of the Property, no
Hazardous Substances are now or have been used or stored on or within
any portion of the Property except those substances which are or have
been used or stored on the Property in the normal course of use and
operation of the Property and in compliance with all applicable
Environmental Laws;
(b) since the date of Seller's acquisition of the Property, there
are and have been no federal, state or local enforcement, clean-up,
removal, remedial or other governmental or regulatory actions instituted
or completed affecting the Property; and
(c) no claims have been made by any third party against Seller
relating to any Hazardous Substances on or within the Property.
7.1.3 MUTUAL INDEMNIFICATIONS.
(a) Buyer agrees to indemnify and hold harmless Seller, its
partners, employees, and agents ("Seller Indemnitees") from and against
any and all liabilities, claims, demands, suits, judgments, causes of
action, losses, costs, damages, injuries, penalties, enforcement
actions, fines, remedial actions, removal and disposal costs,
remediation costs and expenses (including reasonable attorneys' fees)
arising out of or related to the presence of Hazardous Substances in,
on, under, or about the Property, to the extent that such Hazardous
Substances first become present in, on, under or about the Property
either (i) during Buyer's tenure as owner, lessee or manager of the
Property, or (ii) as a result of Buyer's acts or omissions.
(b) Seller agrees to indemnify and hold harmless Buyer and its
partners, employees, and agents ("Buyer Indemnitees") from and against
any and all such liabilities, claims, demands, suits, judgments, causes
of action, losses, costs, damages, injuries, penalties, enforcement
actions, fines, remedial actions, removal and disposal costs,
investigation and remediation costs and expenses (including reasonable
attorneys' fees) arising out of or related to the presence of Hazardous
Substances in, on, under or about the Property, to the extent such
Hazardous Substances were
B-46
<PAGE> 85
present in, on, under or about the Property (i) during Seller's
ownership of the Property or (ii) as a result of Seller's acts or
omissions.
7.2 DELIVERY OF POSSESSION. Possession of the Property shall be delivered
to Buyer upon Closing, subject to the rights of tenants in possession.
7.3 DAMAGE OR DESTRUCTION. If the Property sustains damage caused by fire
or other casualty prior to Closing and where the cost of repair or replacement
is estimated to be more than One Hundred Thousand Dollars ($100,000.00), Buyer
may elect to terminate this Agreement by written notice to Seller within fifteen
(15) days after receipt of Seller's written notice to Buyer advising of such
damage or destruction. If Buyer does not elect to terminate this Agreement, or
if the loss or casualty would cost less than $100,000 to repair, the Closing
shall take place as provided herein with an abatement of the Purchase Price
equal to the cost to repair unless such damage or destruction is covered by
insurance in which case there shall be assigned to Buyer at Closing all of
Seller's interest in and to the insurance proceeds that may be payable to Seller
on account of such occurrence, Seller shall have no obligation of repair or
replacement, and the Purchase Price shall be abated in the amount of the
deductible payable under the insurance coverage.
7.4 CONDEMNATION. Seller shall promptly give Buyer notice of any eminent
domain proceedings that are contemplated, threatened or instituted with respect
to the Property. By notice to Seller given within fourteen (14) days after Buyer
receives notice of proceedings in eminent domain that are contemplated,
threatened or instituted by anybody having the power of eminent domain with
respect to the Property (and if necessary the Closing Date shall be extended to
give Buyer the full 14 day period to make such election), Buyer may, if such
proceedings involve the taking of title to all or any interest in the Property,
terminate this Agreement by notice in writing sent within ten (10) days of
Seller's written notice to Buyer, in which case the Deposit and any accrued
interest thereon, less Buyer's one-half share of cancellation costs, will be
returned to Buyer, and neither party will have any further rights or obligations
under this Agreement except any rights or obligations which are expressly stated
to survive termination. If the proceedings do not involve the taking of title to
all or any interest in the Property, or if Buyer does not elect to terminate
this Agreement, this transaction will be consummated as described herein and
Seller shall, upon Close of Escrow, assign to Buyer its entire right, title and
interest in and to any condemnation award, and Buyer shall have the sole right
during the pendency of this Agreement to negotiate and otherwise deal with the
condemning authority in respect of such matter.
7.5 BROKERS' COMMISSIONS. Seller shall be solely liable for the commission
to be paid to Barry Powell Real Estate Investment Company, Inc. as the result of
the consummation of the transaction contemplated herein. Except as provided in
the preceding sentence, each party represents and warrants to the other party
that it did not negotiate the purchase and sale of the Property through any
broker, agent, finder, affiliate or other third party, or incur any liability,
contingent or otherwise, for brokerage or finder's fees or agent's commissions
or other like payments in connection with this Agreement, or the transaction
contemplated hereby, and hereby agrees to hold harmless and indemnify the other
party from any and all claims, demands, causes of action or damages resulting
therefrom. This provision shall survive Closing.
7.6 SELLER'S INDEMNIFICATION. Seller agrees to indemnify, defend and hold
Buyer and Buyer Indemnitees harmless from any liability, claim, demand, loss,
expense or damage (collectively, "Loss") (i) suffered by, or by any person or
entity against, Buyer arising from any act or omission of Seller, its agents,
employees or contractors occurring before the Closing; (ii) arising from any
breach by Seller of any obligation related to the Property other than those
obligations which by this Agreement, or any closing delivery, specifically
becomes the obligation of Buyer; or (iii) arising from any breach of any
representation or warranty made by Seller in this Agreement.
7.7 BUYER'S INDEMNIFICATION. Buyer agrees to indemnify, defend and hold
Seller and Seller Indemnitees harmless from any Loss (i) suffered by Seller
arising from any act or omission of Buyer, its agents, employees or contractors
occurring on or after the Closing; (ii) arising from any breach by Buyer of any
obligation of Buyer related to the Property which by this Agreement, or any
closing delivery, specifically becomes the obligation of Buyer; or (iii) arising
from any breach of any representation or warranty made by Buyer in this
Agreement.
B-47
<PAGE> 86
7.8 BUYER DEFAULT; LIQUIDATED DAMAGES. PRIOR TO ENTERING INTO THIS
TRANSACTION, BUYER AND SELLER HAVE BEEN CONCERNED WITH THE FACT THAT SUBSTANTIAL
DAMAGES WILL BE SUFFERED BY SELLER IN THE EVENT BUYER SHALL DEFAULT ON ITS
OBLIGATIONS UNDER THIS AGREEMENT. THE PARTIES REALIZE THAT IT WOULD BE EXTREMELY
DIFFICULT AND IMPRACTICABLE, IF NOT IMPOSSIBLE, TO ASCERTAIN WITH ANY DEGREE OF
CERTAINTY THE AMOUNT OF DAMAGES WHICH WOULD BE SUFFERED BY SELLER IN THE EVENT
OF BUYER'S DEFAULT UNDER THIS AGREEMENT. CONSEQUENTLY, THE PARTIES HEREBY AGREE
THAT THE REASONABLE ESTIMATE OF SAID DAMAGES IS THE SUM OF BUYER'S DEPOSIT HELD
IN ESCROW (INCLUDING THE ACCRUED INTEREST THEREON), AND IN THE EVENT THAT ALL OF
THE CONDITIONS TO BUYER'S OBLIGATIONS CONTAINED IN THIS AGREEMENT HAVE BEEN
SATISFIED OR WAIVED AND SELLER IS NOT OTHERWISE IN DEFAULT UNDER THIS AGREEMENT,
SELLER SHALL, AS ITS SOLE AND EXCLUSIVE REMEDY, BE ENTITLED TO RECOVER SUCH SUM
AS LIQUIDATED DAMAGES.
<TABLE>
<S> <C> <C>
Initials:
--------------- ---------------
Seller Buyer
</TABLE>
8. TERMINATION
8.1 BUYER'S RIGHT TO TERMINATE. In the event there is a failure of a
condition to Buyer's obligation as set forth in Sections 3 and 4.1 above and so
long as Buyer is not in default hereunder, Buyer may terminate this Agreement by
giving written notice to Escrow Agent and Seller not later than the first to
occur of (i) ten (10) days after the condition has failed (which as to
conditions requiring approval by Buyer, shall be the date Buyer has given Seller
written notice of disapproval of any item which Buyer has the right to approve
under Section 3 unless Seller has an opportunity to cure, in which case the date
shall be ten (10) days after the last date on which Seller can cure the
disapproved item under Section 3 or ten (10) days after the date on which Seller
gives Buyer written notice that it will not cure the disapproved item, whichever
occurs first), or (ii) the agreed Closing Date. Failure by Buyer to terminate as
provided in this paragraph shall be deemed a waiver of the condition which has
failed. If such condition required approval by Buyer, such failure to terminate
shall also be deemed an approval of the previously disapproved item. If Buyer
terminates as provided in this Section 8.1 based on a failure of condition
caused by the conduct of Seller, Seller shall pay all title and escrow
cancellation charges, and the Deposit shall be refunded to Buyer. If Buyer
terminates based on a failure of any other condition in Section 3, Buyer and
Seller shall each pay one-half of all title and escrow cancellation charges and
the Deposit (less Buyer's share of such cancellation charges) shall be refunded
to Buyer.
8.2 SELLER'S RIGHT TO TERMINATE. In the event of a failure of a condition
to Seller's obligation as set forth in Section 4.2 above, Seller may terminate
this Agreement by giving written notice to Escrow Agent and Buyer at any time
prior to the Closing. Failure of Seller to terminate as provided in this
paragraph shall be deemed a waiver by Seller of the condition which has failed,
and if such condition required approval by Seller, such failure shall be deemed
an approval of the previously disapproved item. If Seller terminates based upon
a failure of any condition in Sections 4.2.1, 4.2.2, or 4.2.3, Buyer shall pay
all title and escrow cancellation charges and the Deposit shall be retained by
Seller as provided in Section 7.8. If Seller terminates based upon a failure of
any condition in Sections 4.2.4 or 4.2.5, Seller shall pay all title and escrow
cancellation charges and the Deposit shall be refunded to Buyer.
9. GENERAL PROVISIONS
9.1 TIME OF ESSENCE. Time is of the essence concerning the obligations of
the parties hereunder.
9.2 ASSIGNMENT. Buyer shall the right to assign this Agreement to an
entity in which Buyer is a managing and controlling partner, member or principal
or in which Buyer owns at least fifty percent (50%) of the voting stock thereof
(an "Affiliate"), without obtaining Seller's prior written consent. Buyer may
not assign this Agreement to a party other than an Affiliate without the prior
written consent of Seller, which consent shall not be unreasonably withheld by
Seller. Any attempted assignment to a party other than an Affiliate without
Seller's prior written consent, will, at Seller's option, be voidable and
constitute a material breach of this Agreement. If Seller consents to an
assignment, the assignment will not be effective against Seller until Buyer
delivers to Seller a fully executed copy of the assignment instrument, which
instrument
B-48
<PAGE> 87
must be satisfactory to Seller in both form and substance and pursuant to which
the assignee assumes and agrees to perform for the benefit of Seller the
obligations of Buyer under this Agreement, and pursuant to which the assignee
makes the warranties and representations required of Buyer under this Agreement
and such other representations and warranties as Seller may reasonably require.
Any such assignment will not release Buyer from any of its obligations under
this Agreement.
9.3 AMENDMENT. This Agreement may be supplemented, amended, or modified
only by the mutual agreement of the parties. No supplement, amendment, or
modification of this Agreement shall be binding unless it is in writing and
signed by both parties.
9.4 SUCCESSORS AND ASSIGNS. Subject to the provisions hereof, the terms
and provisions hereof shall be binding upon and inure to the benefit of the
successors and assigns of the parties.
9.5 MEANING OF TERMS. When necessary herein, all terms used in the
singular shall apply to the plural, and vice versa; and all terms used in the
masculine shall apply to the neuter and feminine genders.
9.6 ENTIRE AGREEMENT. This Agreement is the entire agreement between the
parties concerning the subject matter hereof and supersedes all prior agreements
between the parties concerning the same. No claim of waiver, modification,
consent or acquiescence concerning any of the provisions of this Agreement shall
be made against either party, except on the basis of a written instrument
executed by or on behalf of such party.
9.7 GOVERNING LAW. This Agreement shall be governed by, interpreted under
and construed in accordance with the laws of the State of California.
9.8 PARAGRAPH HEADINGS. The paragraph headings in this Agreement are
inserted solely for convenience of reference and are not a part of and are not
intended to govern, limit or aid in the construction of any term or provision
hereof.
9.9 ATTORNEYS' FEES. If either Seller or Buyer obtains legal counsel or
brings an action against the other by reason of the breach of any covenant,
provision or condition hereof, or otherwise arising out of this Agreement, the
unsuccessful party shall pay to the prevailing party reasonable attorneys' fees,
paralegal fees and reasonable costs, which shall be payable whether or not any
action is prosecuted to judgment.
9.10 NOTICES. All notices, requests, demands, and other communications
required or permitted to be given under this Agreement shall be given in writing
(at the addresses set forth below) by any of the following means: (i) personal
service; (ii) electronic communication, whether by telex, telegram or
telecopying (if confirmed in writing sent by registered or certified, first
class mail, return receipt requested); or (iii) registered or certified, first
class mail, return receipt requested. Such addresses may be changed by notice to
the other parties given in the same manner as provided above. Any notice, demand
or request sent pursuant to either (i) or (ii) hereof shall be deemed received
upon such personal service or upon confirmation of receipt by electronic means,
and, if sent pursuant to (iii) shall be deemed received three (3) days after
deposit in the mail:
Seller: American Retirement Villas Properties
III
245 Fischer Avenue, D-1
Costa Mesa, CA 92626
Attn: Legal Department
Facsimile: (714) 435-7102
Buyer: Meta Housing Corporation
4100 W. Alameda Avenue, Suite 205
Burbank, CA 91505
Attn: John Huskey
Facsimile: (818) 557-5697
Escrow Agent: Fidelity National Title Company
1300 Dove Street, Suite 310
Newport Beach, CA 92660
Attn: Patty Beverly
Facsimile: (714) 622-4167
B-49
<PAGE> 88
9.11 SEVERABILITY. If any provision of this Agreement or the application
thereof to any person or circumstance is determined to be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
9.12 FURTHER ASSURANCES. Each party agrees to do all acts and things and to
make, execute and deliver such written instruments as are reasonably necessary
to carry out the terms and provisions of this Agreement.
9.13 NO THIRD PARTY BENEFITS. Nothing in this Agreement shall be construed
as giving any person, firm, corporation or other entity, other than the parties
hereto, their successors and permitted assigns, any right, remedy or claim under
or concerning this Agreement or any provision hereof.
9.14 CONFIDENTIALITY. In that it is in Seller's and Buyer's best interests
to keep this Agreement and all information concerning the Property confidential
until the Closing, neither of them shall take any action nor conduct itself in
any fashion that would disclose any aspect of the contemplated transaction to
third parties unrelated to Buyer's acquisition or intended ownership and
operation of the Property or the Affiliated Properties. Notwithstanding the
foregoing, Buyer may disclose the contents of this Agreement and the materials
obtained hereunder with prospective lenders, equity participants and their
brokers, accountants, attorneys and other professionals, to the extent that such
disclosure is reasonably necessary and required to facilitate the closing of the
transaction contemplated by this Agreement and said third parties acknowledge
and agree to preserve the confidentiality of the information so disclosed. After
Closing, neither party shall make any public announcement of the transaction
that has not been approved in advance and in writing by the other party.
9.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and together shall
constitute one agreement.
9.16 WAIVER. No waiver of a breach, failure of any condition, or any right
or remedy contained in or granted by the provisions of this Agreement shall be
effective unless it is in writing and signed by the party waiving the breach,
failure, right, or remedy. No waiver of any breach, failure, right, or remedy
shall be deemed a waiver of any other breach, failure, right, or remedy, whether
or not similar, nor shall any waiver constitute a continuing waiver unless the
writing so specifies.
9.17 AMBIGUITIES. Each party and its counsel have participated fully in the
review and revision of this Agreement. Any rule of construction to the effect
that ambiguities are to be resolved against the drafting party shall not apply
in interpreting this Agreement.
9.18 COUNTING DAYS. Days shall be counted by excluding the first day and
including the last day, unless the last day is a Saturday, a Sunday, or a legal
holiday, and then it shall be excluded. Any act required by this Agreement to be
performed by a certain day shall be timely performed if completed before 5:00
p.m. local time on that date. If the day for performance of any obligation under
this Agreement is a Saturday, a Sunday, or a legal holiday, then the time for
performance of that obligation shall be extended to 5:00 p.m. local time on the
first following day that is not a Saturday, Sunday, or legal holiday.
9.19 POSSESSION OF THE PROPERTY. Seller will deliver possession of the
Property to Buyer upon the Close of Escrow, subject to the rights of any
tenants.
9.20 EXHIBITS. All exhibits and schedules to which reference is made in
this Agreement and which are attached hereto are deemed incorporated in this
Agreement.
9.21 NO RECORDATION. No memorandum or other document relating to this
Agreement will be recorded without the prior written consent of Seller, and any
such consent or approval will be conditioned upon Buyer providing Seller with a
quitclaim deed fully executed and acknowledged by Buyer, quitclaiming any and
all interests that it may have in the Property to Seller, which quitclaim deed
Seller may record in the event that this Agreement is terminated or the
transaction contemplated herein is not consummated.
[SIGNATURE PAGE TO FOLLOW]
B-50
<PAGE> 89
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
SELLER: AMERICAN RETIREMENT VILLA
PROPERTIES III,
a California limited partnership
By: ARV Assisted Living, Inc.,
a Delaware corporation,
its General Partner
By: /s/ SHEILA M. MULDOON
Name: Sheila M. Muldoon
Its: Senior Vice President
BUYER: META HOUSING CORPORATION,
a California corporation
By: /s/ JOHN M. HUSKEY
Name: John M. Huskey
Its: President
AGREED AND ACCEPTED:
ESCROW AGENT: FIDELITY NATIONAL TITLE COMPANY
By:
--------------------------------------
Name:
--------------------------------------
Its:
--------------------------------------
B-51
<PAGE> 90
APPENDIX C
LETTER OF INTENT
<PAGE> 91
ARV LOGO
September 21, 1998
Via Telecopier and U.S. Mail
Brent Hogan
Marens & Millistrap
1055 West 7th Street, Suite 1700
Los Angeles, CA 90017
Re: Cedar Villas, 301 E. Cedar Street, Ontario, CA (137 Units);
Pacific Villas, 3642 N. Garey Avenue, Pomona, CA (132 Units); and
Villa Azusa, 200 E. Gladstone Street, Azusa, CA (147 Units)
Dear Mr. Hogan:
This will acknowledge receipt of the August 21, 1998 counteroffer of United
Housing and Community Service Corp. ("United Housing"), which revised the August
18, 1998 letter of intent prepared by American Retirement Villas Properties III,
a California limited partnership ("ARVP III"), collectively the "Counteroffer,"
regarding the purchase of the above-referenced properties (the "Properties").
Please note, however, that as of September 4, 1998, ARVP III, as owner and
seller of the Properties, entered into a letter of intent with another
prospective buyer ("First Buyer") regarding the purchase and sale of the
Properties (the "First Transaction"). ARVP III and First Buyer are now involved
in the negotiation and preparation of a binding agreement of purchase and sale
and propose to open escrow thereon immediately following execution of a
definitive agreement.
Notwithstanding the foregoing, ARVP III proposes to accept the Counteroffer
of United Housing in a secondary, back-up position to the First Transaction,
subject to the following terms and conditions.
1. NATURE OF LETTER OF INTENT
This letter of intent is not intended to substitute a binding agreement but
rather to serve as the basis for negotiating and drafting a definitive purchase
and sub agreement between the parties containing the terms and conditions stated
in this letter of intent, as well as other terms and conditions to be
determined. The parties contemplate preparation of a more detailed purchase and
sale agreement containing additional terms and conditions that are customary for
a transaction of the nature contemplated in this letter of intent. The parties
agree to negotiate in good faith and adopt industry standards, if any, with
respect to any key points in the purchase and sale agreement not covered herein.
II. PURCHASE PRICE
A. The Purchase Price for the Properties shall be Seventeen Million Eight
Hundred Fifty Thousand Dollars ($17,850,000.00).
B. The Purchase Price shall be paid in cash at the close of escrow.
III. PURCHASE AND SALE AGREEMENT
Within five (5) business days of ARVP III's service of written notice that
the First Transaction has been terminated and that First Buyer has no further
rights or interests in or to the Properties, ARVP III and United Housing will be
required to execute and deliver a purchase and sale agreement that will include,
among other things, the business terms specified in this letter of intent and
such other terms and conditions as are mutually negotiated between the parties.
C-1
<PAGE> 92
IV. DUE DILIGENCE INVESTIGATION
United Housing shall have thirty (30) days after the mutual execution of a
definitive purchase and sale agreement (the "Due Diligence Period"), within
which to physically inspect the Properties and investigate all books, records,
legal documents, and other information in ARVP III's possession or under its
control concerning the title to the Properties, the construction of the
improvements on the Properties, or the condition of the improvements on the
Properties, in order to determine, in Buyer's discretion, whether Buyer desires
to acquire the Properties in their existing conditions.
V. CLOSE OF ESCROW
Escrow shall close on or before fifteen (15) days after the expiration of
the Due Diligence Period.
VI. FINANCIAL ABILITY OF UNITED HOUSING
Within five (5) business days from the mutual execution of this letter of
intent, United Housing shall provide to ARPV III, in form and context
satisfactory to ARVP III, written verification of sufficient funds to close the
transaction contemplated herein.
VII. BROKER'S COMMISSION
If the purchase and sale transaction contemplated in this letter of intent
is consummated, ARVP III shall pay a sales commission equal to Two Percent (2%)
of the Purchase Price to United Housing's broker.
VIII. CONTINUED EFFECT OF COUNTEROFFER
All provisions of the Counteroffer, except as modified by this letter,
shall remain in full force and effect and are reaffirmed. In the event of any
conflict, inconsistency, or incongruity between any provision of this letter and
any provision of the Counteroffer, the provisions of this letter shall govern
and control. This letter, together with the Counteroffer, constitutes the entire
agreement between ARVP III and United Housing pertaining to the purchase and
sale of the Properties.
IX. ACKNOWLEDGEMENT OF BACK-UP POSITION
United Housing hereby acknowledges that the Counteroffer, as amended by
this letter, has been accepted by ARVP III in a secondary position as a back-up
offer and the accepted offer of the First Buyer. United Housing further
acknowledges ARVP III shall have no obligation to sell the Properties to United
Housing unless and until the First Transaction is reevaluated and the First
Buyer has no further right or title in or to the Properties. United Housing
shall have no right, title or interest in or to the Properties until such time,
if at all, as ARVP III and United Housing enter into a definitive agreement
providing for the purchase and sale of the Properties.
C-2
<PAGE> 93
X. EXPIRATION OF LETTER OF INTENT
This letter of intent shall expire for all purposes if it has not been
accepted by United Housing and returned to ARVP III on or before September 25,
1998.
If the foregoing terms correctly state your understanding of the terms on
which the parties will proceed with the possible purchase and sale of the
Properties, please sign and return the enclosed copy of this letter. This Letter
will serve as the basis on which to proceed with further negotiations.
Sincerely,
AMERICAN RETIREMENT VILLAS PROPERTIES III,
a California limited partnership
By: ARV Assisted Living, Inc.
a Delaware corporation
its General Partner
By:
/s/ DOUGLAS ARMSTRONG
-------------------------------------------------------------
DOUGLAS Armstrong
Attorney for ARV Assisted Living, Inc.
AGREED TO AND ACCEPTED BY:
UNITED HOUSING AND COMMUNITY SERVICE CORP.
<TABLE>
<S> <C>
By: /s/ MARK MANDELLE Dated: 9/23/98
- ---------------------------------------------------- ----------------------------------------------
Name: Mark Mandelle
- -------------------------------------------------
Its: Partner
- ----------------------------------------------------
</TABLE>
C-3
<PAGE> 94
CONSENT
AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.,
A CALIFORNIA LIMITED PARTNERSHIP
(THE "PARTNERSHIP")
THIS CONSENT IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE MANAGING
PARTNER, ARV ASSISTED LIVING, INC. THIS SOLICITATION OF CONSENTS EXPIRES ON
DECEMBER 9, 1998, UNLESS EXTENDED BY THE MANAGING PARTNER.
The undersigned, a holder of units of limited partner interest in the
Partnership (the "Units"), acting with respect to all of the Units held by the
undersigned, hereby acknowledges receipt of the Consent Solicitation Statement
dated November 11, 1998, and acts and consents as follows:
(CHECK ONE BOX)
[ ]APPROVE the sale of the Senior Apartment Properties for a purchase price of
no less than the Appraised Value ($17,650,000).
[ ]DISAPPROVE the sale of the Senior Apartment Properties for a purchase price
of no less than the Appraised Value.
[ ] ABSTAIN.
SIGNED BUT UNMARKED BALLOTS WILL BE DEEMED TO APPROVE THE SALE AND WILL
BE DEEMED, PURSUANT TO THE PARTNERSHIP AGREEMENT, TO HAVE DIRECTED THE
MANAGING PARTNER TO VOTE TO APPROVE THE PROPOSED TRANSACTION.
<PAGE> 95
Sign your name exactly as it appears on this Consent and date this Consent.
When Units are registered in the name of more than one person, the Consent must
be signed by all named holders. When signing as attorney, executor,
administrator, trustee or guardian, please give your full title. If a
corporation, please sign in the full corporate name by the president or an
authorized officer. If a partnership, please sign in the partnership's name by
an authorized person.
Date:
-----------------------------------------------------------------------------,
1998
----------------------------
Signature (Title, if any)
----------------------------
Signature (Title, if any)
