<PAGE>
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
---------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to __________________
Commission file number 0-20253
DIVALL INCOME PROPERTIES 3 LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Wisconsin 39-1660958
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 W. 11th St., Suite 1110, Kansas City, Missouri 64105
(Address of principal executive offices, including zip code)
(816) 421-7444
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited
Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No_________
---
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DIVALL INCOME PROPERTIES 3 LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1999 and December 31, 1998
-----------------------------------
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
----------- -------------
INVESTMENT PROPERTIES: (Note 3)
<S> <C> <C> <C>
Land $1,553,680 $1,553,680
Buildings and improvements 2,249,959 2,249,959
Accumulated depreciation (746,043) (713,396)
---------- ----------
Net investment properties 3,057,596 3,090,243
---------- ----------
OTHER ASSETS:
Cash and cash equivalents 274,821 230,807
Cash held in Indemnification Trust (Note 8) 313,114 306,386
Rents and other receivables 8,550 14,463
Deferred rent receivable 19,938 20,778
Deferred fees 18,845 19,738
Prepaid assets 1,357 3,393
---------- ----------
Total other assets 636,625 595,565
---------- ----------
Total assets $3,694,221 $3,685,808
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
DIVALL INCOME PROPERTIES 3 LIMITED PARTNERSHIP
LIABILITIES AND PARTNERS' CAPITAL
June 30, 1999 and December 31, 1998
-----------------------------------
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
------------- -------------
LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses $ 16,499 $ 18,816
Due to current General Partner 207 229
Security deposits 16,635 16,635
Unearned rental income 45,254 27,254
------------ ------------
Total liabilities 78,595 62,934
------------ ------------
CONTINGENT LIABILITIES: (Note 7)
PARTNERS' CAPITAL: (Notes 1, 4 and 9)
Current General Partner -
Cumulative net income (loss) 15,588 14,756
Cumulative cash distributions (8,418) (7,965)
------------ ------------
7,470 6,791
------------ ------------
Limited Partners (17,102.52 interests outstanding)
Capital contributions, net of offering costs 14,408,872 14,408,872
Cumulative net loss (182,241) (294,314)
Cumulative cash distributions (10,352,984) (10,232,984)
Reallocation of former general partners' deficit capital (265,491) (265,491)
------------ ------------
3,608,156 3,616,083
------------ ------------
Total partners' capital 3,615,626 3,622,874
------------ ------------
Total liabilities and partners' capital $ 3,694,221 $ 3,685,808
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
DIVALL INCOME PROPERTIES 3 LIMITED PARTNERSHIP
STATEMENTS OF INCOME
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Rental income $106,201 $105,187 $215,568 $209,206
Interest income 5,609 10,758 10,645 27,127
Other income 175 0 175 42
Gain on sale of assets 0 0 0 238,698
Recovery of amounts previously written off 0 0 2,683 0
-------- -------- -------- --------
111,985 115,945 229,071 475,073
-------- -------- -------- --------
EXPENSES:
Partnership management fees 16,473 16,215 32,774 32,260
Restoration fees 0 0 107 0
Insurance 1,018 1,095 2,036 2,190
General and administrative 8,787 14,422 17,020 26,537
Advisory Board fees and expenses 4,250 4,553 5,650 8,911
Professional services 12,926 24,830 24,739 47,419
Professional services related to investigation 0 807 0 1,286
Appraisals 0 (124) 0 13,776
Environmental inspections 0 8,250 0 8,250
Disposition fees 0 0 0 37,500
Depreciation 16,323 20,592 32,647 42,921
Amortization 447 447 893 893
-------- -------- -------- --------
60,224 91,087 115,866 221,943
-------- -------- -------- --------
NET INCOME $ 51,761 $ 24,858 $113,205 $253,130
======== ======== ======== ========
NET INCOME - GENERAL PARTNER $ 518 $ 249 $ 1,132 $ 2,531
NET INCOME - LIMITED PARTNERS 51,243 24,609 112,073 250,599
-------- -------- -------- --------
$ 51,761 $ 24,858 $113,205 $253,130
======== ======== ======== ========
NET INCOME PER LIMITED PARTNERSHIP
INTEREST, based on 17,102.52 interests $3.00 $1.44 $6.55 $14.65
outstanding ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
DIVALL INCOME PROPERTIES 3 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1999 1998
------------ -------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income $ 113,205 $ 253,130
Adjustments to reconcile net income to net cash from
operating activities -
Depreciation and amortization 33,540 43,814
Gain on sale of assets 0 (238,698)
Recovery of amounts previously written off (2,683) 0
Interest applied to Indemnification Trust Account (6,728) (7,811)
Decrease in rents, other receivables and prepaid assets 7,949 15,135
Decrease in deferred rent receivable 840 9,412
(Decrease) in accounts payable and accrued expenses (2,317) (7,847)
Decrease in security deposits 0 (20,184)
(Decrease) in due to General Partner (22) (1,296)
Increase in unearned rental income 18,000 274
--------- -----------
Net cash provided from operating activities 161,784 45,929
--------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Recoveries from former affiliates 2,683 0
Proceeds from sale of assets 0 1,242,562
--------- -----------
Net cash provided from investing activities 2,683 1,242,562
--------- -----------
CASH FLOWS (USED IN) FINANCING ACTIVITIES:
Cash distributions to General Partner (453) (1,012)
Cash distributions to Limited Partners (120,000) (1,655,000)
--------- -----------
Net cash (used in) financing activities (120,453) (1,656,012)
--------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 44,014 (367,521)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 230,807 595,420
--------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 274,821 $ 227,899
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
DIVALL INCOME PROPERTIES 3 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
These unaudited interim financial statements should be read in conjunction with
DiVall Income Properties 3 Limited Partnership's (the "Partnership") 1998 annual
audited financial statements within Form 10-K.
These unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of the
Partnership's financial position as of June 30, 1999, and the results of
operations for the three and six-month periods ended June 30, 1999, and 1998,
and cash flows for the six-month periods ended June 30, 1999 and 1998. Results
of operations for the periods are not necessarily indicative of the results to
be expected for the full year.
1. ORGANIZATION AND BASIS OF ACCOUNTING:
-------------------------------------
The Partnership was formed on December 12, 1989, pursuant to the Uniform Limited
Partnership Act of the State of Wisconsin. The initial capital which was
contributed during 1989, consisted of $300, representing aggregate capital
contributions of $200 by the former general partners and $100 by the Initial
Limited Partner.
The Partnership initially offered two classes of Limited Partnership interests
for sale: Distribution interests ("D-interests") and Retention interests ("R-
interests"). Each class was offered at a price (before volume discounts) of
$1,000 per interest. The Partnership offered the two classes of interests
simultaneously up to an aggregate of 25,000 interests.
The minimum offering requirements for the D-interests were met and escrowed
subscription funds were released to the Partnership as of July 13, 1990. The
offering closed on April 23, 1992, at which point 17,102.52 D-interests had been
issued, resulting in aggregate proceeds, net of discounts and offering costs, of
$14,408,872.
The minimum offering requirements for R-interests were not met. During 1991,
680.9 R-interests were converted to D-interests and were reflected as
Partnership issuances in 1991.
The Partnership is currently engaged in the business of owning and operating its
investment portfolio (the "Properties") of commercial real estate. The
Properties are leased on a triple net basis to, and operated by, franchisors or
franchisees of national, regional and local retail chains under long-term
leases. The lessees consist of fast-food, family style, and casual/theme
restaurants. At June 30, 1999, the Partnership owned five (5) properties and
specialty leasehold improvements for use in all five (5) of the Properties.
Rental revenue from investment properties is recognized on the straight-line
basis over the life of the respective lease. Percentage rents are accrued
throughout the year based on the tenant's actual reported year-to-date sales
along with Management's estimate of the tenant's sales for any remaining
unreported periods during the year.
6
<PAGE>
The Partnership considers its operations to be in only one segment and therefore
no segment disclosure is made.
Depreciation of the properties is provided on a straight-line basis over 31.5
years, which is the estimated useful lives of the buildings and improvements.
Deferred charges consist of leasing commissions paid when properties are leased
to tenants other than the original tenant. Leasing commissions are capitalized
and amortized over the life of the lease.
Real estate taxes on the Partnership's investment properties are the
responsibility of the tenant. However, when a tenant fails to make the required
tax payments or when a property becomes vacant, the Partnership makes the
appropriate payment to avoid possible foreclosure of the property. Taxes are
accrued in the period for which the liability is incurred.
Cash and cash equivalents include cash on deposit in financial institutions and
highly liquid temporary investments with initial maturities of 90 days or less.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities (and disclosure of
contingent assets and liabilities) at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
During 1996, the Partnership adopted Statement of Financial Accounting Standards
No.121 ("SFAS 121"), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, which requires that all long-lived assets
be reviewed for impairment in value whenever changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The adoption of
SFAS 121 had no impact on the Partnership's financial statements.
The Partnership will be dissolved on December 1, 2015, or earlier upon the prior
occurrence of any of the following events: (a) the disposition of all interests
in real estate and other Partnership assets; (b) the decision by Majority Vote
(as defined in the Amended Agreement of Limited Partnership ("Partnership
Agreement")) of the Limited Partners to dissolve the Partnership or to compel
the sale of all or substantially all of the Partnership's assets; (c) the
failure to elect a successor General Partner within six months after removal of
the last remaining General Partner; or (d) the date of the death or the
effective date of dissolution, removal, withdrawal, bankruptcy, or incompetency
of the last remaining General Partner, unless the Partnership is continued by
vote of all Limited Partners and a replacement General Partner is previously
elected by a majority of the Limited Partners. During the Second Quarter of
1998, the General Partner received the consent of the Limited Partners to
liquidate the Partnership's assets and dissolve the Partnership. On July 22,
1999, the General Partner entered into a Real Estate Purchase Contract for the
sale of all of the properties for $3,550,000. See Part II, Item 5, Other
Information. However, until such sale is actually consummated, which is
uncertain, the Partnership plans to continue normal operations until an actual
sale of the properties is completed.
No provision for Federal income taxes has been made, as any liability for such
taxes would be that of the individual partners rather than the Partnership. At
December 31, 1998, the tax basis of the Partnership's
7
<PAGE>
assets exceeded the amounts reported in the accompanying financial statements by
approximately $3,200,000.
2. REGULATORY INVESTIGATION:
-------------------------
A preliminary investigation during 1992 by the Office of the Commissioner of
Securities for the State of Wisconsin and the Securities and Exchange Commission
(the "Investigation") revealed that during at least the three years ended
December 31, 1992, the former general partners of the Partnership, Gary J.
DiVall ("DiVall") and Paul E. Magnuson ("Magnuson") had transferred substantial
cash assets of the Partnership and two affiliated publicly registered
partnerships, DiVall Insured Income Fund Limited Partnership ("DiVall 1")
(dissolved effective December 31, 1998) and DiVall Insured Income Properties 2
Limited Partnership ("DiVall 2") (collectively the "Partnerships") to various
other entities previously sponsored by or otherwise affiliated with DiVall and
Magnuson. The unauthorized transfers were in violation of the respective
Partnership Agreements and resulted, in part, from material weaknesses in the
internal control system of the Partnerships.
Subsequent to discovery, and in response to the regulatory inquiries, a third-
party Permanent Manager, The Provo Group, Inc. ("TPG"), was appointed (effective
February 8, 1993) to assume responsibility for daily operations and assets of
the Partnerships as well as to develop and execute a plan of restoration for the
Partnerships. Effective May 26, 1993, the Limited Partners, by written consent
of a majority of interests, elected the Permanent Manager, TPG, as General
Partner. TPG terminated the former general partners by accepting their tendered
resignations.
In 1993, the current General Partner estimated an aggregate recovery of $3
million for the Partnerships. At that time, an allowance was established against
amounts due from former general partners and their affiliates reflecting the
estimated $3 million receivable. This net receivable was allocated among the
Partnerships based on each Partnership's pro rata share of the total
misappropriation. Through June 30, 1999, $5,768,000 of recoveries have been
received which exceeded the original estimate of $3 million. As a result, the
Partnership has recognized $1,286,000 as income over the past four years, which
represents its share of the excess recovery. The current General Partner
continues to pursue recoveries of the misappropriated funds, however no further
significant recoveries are anticipated.
3. INVESTMENT PROPERTIES:
----------------------
As of June 30, 1999, the Partnership owned five (5) fast-food restaurants
comprised of: two (2) Hardee's restaurants, one (1) Applebee's restaurant, and
two (2) Denny's restaurants. The five (5) properties are located in three (3)
states.
The total cost of the investment properties includes the original purchase price
plus acquisition fees and other capitalized costs paid to an affiliate of the
former general partners.
According to the Partnership Agreement, the former general partners were to
commit 82% of the original offering proceeds to the acquisition of investment
properties. Upon full investment of the net proceeds of the offering,
approximately 57% of the original offering proceeds was invested in the
Partnership's properties.
8
<PAGE>
The current General Partner receives a fee for managing the Partnership equal
to 4% of gross receipts, with a maximum reimbursement for office rent and
related overhead of $25,000 between the three original affiliated Partnerships
as provided in the Permanent Manager Agreement ("PMA") which amount has been
reduced due to the 1998 sale of DiVall 1. On May 26, 1993, the Permanent
Manager, TPG, replaced the former general partners as the new General Partner,
as provided for in an amendment to the Partnership Agreement dated May 26, 1993.
Pursuant to amendments to the Partnership Agreement, TPG continues to provide
management services for the same fee structure as provided in the PMA mentioned
above. Effective March 1, 1999, the minimum management fee and the maximum
reimbursement for office rent and overhead increased by 1.6% representing the
allowable annual Consumer Price Index adjustment per the PMA. For purposes of
computing the 4% overall fee, gross receipts includes amounts recovered in
connection with the misappropriation of assets by the former general partners
and their affiliates. TPG has received fees from the Partnership totaling
$88,004 to date on the amounts recovered, which has been offset against the 4%
minimum fee.
Several of the Partnership's property leases contain purchase option provisions
with stated purchase prices in excess of the original cost of the properties.
The current General Partner is unaware of any unfavorable purchase options in
relation to original cost.
4. PARTNERSHIP AGREEMENT:
----------------------
The Partnership Agreement, prior to an amendment effective May 26, 1993,
provided that, for financial reporting and income tax purposes, net profits or
losses from operations were allocated 90% to the Limited Partners and 10% to the
former general partners. The Partnership Agreement also provided that Net Cash
Receipts, as defined, would be distributed 90% to the Limited Partners and 10%
to the former general partners, except that distributions to the former general
partners in excess of 1% in any calendar year would be subordinated to
distributions to the Limited Partners in an amount equal to their Original
Property Distribution Preference, as defined.
Net proceeds, as defined, were to be distributed as follows: (a) 1% to the
General Partners and 99% to the Limited Partners, until distributions to the
Limited Partners equal their Original Capital, as defined, plus their Original
Property Liquidation Preference, as defined, and (b) the remainder 90% to the
Limited Partners and 10% to the General Partners. Such distributions were to be
made as soon as practicable following the sale, financing or refinancing of an
original property.
On May 26, 1993, pursuant to the results of a solicitation of written consents
from the Limited Partners, the Partnership Agreement was amended to replace the
former general partners and amend various sections of the agreement. The former
general partners were replaced as General Partner, by The Provo Group, Inc., an
Illinois corporation. Under the terms of the amendment, net profits or losses
from operations are allocated 99% to the Limited Partners and 1% to the current
General Partner. The amendment also provided for distributions from Net Cash
Receipts to be made 99% to the Limited Partners and 1% to its current General
Partner. Pursuant to the amendments to the Partnership Agreement effective June
30, 1994, distributions of Net Cash Receipts will not be made to the General
Partner unless and until each Limited Partner has received a distribution from
Net Cash Receipts in an amount equal to 10% per annum, cumulative simple return
on his or her Adjusted Original Capital, as defined, from the Return Calculation
Date, as defined, except to the extent needed by the General Partner to pay its
federal and state income taxes on the income allocated to it attributable to
such year. Distributions paid to the General Partner are based on the estimated
tax liability as a result of allocated income. Subsequent to the filing of the
General
9
<PAGE>
Partner's income tax returns, a true-up of actual distributions is made. Net
proceeds, as defined, was also amended to be distributed 1% to the current
General Partner and 99% to the Limited Partners.
Additionally, as per the amendment of the Partnership Agreement dated May 26,
1993, the total compensation paid to all persons for the sale of the investment
properties shall be limited to a competitive real estate commission, not to
exceed 6% of the contract price for the sale of the property. The General
Partner may receive up to one-half of the competitive real estate commission,
not to exceed 3%, provided that the General Partner provides a substantial
amount of services in the sales effort. It is further provided that a portion
of the amount of such fees payable to the General Partner is subordinated to its
success at recovering the funds misappropriated by the former general partners.
(See Note 7.)
Effective June 1, 1993, the Partnership Agreement was amended to (i) change the
definition of "Distribution Quarter" to be consistent with calendar quarters,
and (ii) change the distribution provisions to subordinate the General Partner's
share of distributions from Net Cash Receipts and Net Proceeds, except to the
extent necessary for the General Partner to pay its federal and state income
taxes on Partnership income allocated to the General Partner. Because these
amendments do not adversely affect the rights of the Limited Partners, pursuant
to section 10.2 of the Partnership Agreement, the amendments were made by the
General Partner without a vote of the Limited Partners.
5. LEASES:
-------
Lease terms for the investment properties are 20 years from their inception.
The leases provide for minimum rents and additional rents based upon percentages
of gross sales in excess of specified breakpoints. The lessee is responsible
for occupancy costs such as maintenance, insurance, real estate taxes, and
utilities. Accordingly, these amounts are not reflected in the statements of
income, except in circumstances where, in management's opinion, the Partnership
will be required to pay such costs to preserve assets (i.e., payment of past-due
real estate taxes). Management has determined that the leases are properly
classified as operating leases; therefore, rental income is reported when earned
and the cost of the property, excluding the cost of the land, is depreciated
over its estimated useful life.
Aggregate minimum lease payments to be received under the leases for the
Partnership's properties are as follows:
<TABLE>
<CAPTION>
Year ending
December 31,
<S> <C>
1999 $ 409,380
2000 409,380
2001 409,380
2002 409,380
2003 409,380
Thereafter 2,731,958
----------
$4,778,858
==========
</TABLE>
Two (2) of the Partnership's properties are leased to a Denny's franchisee.
Base rent from these properties amounted to approximately 27% of total base rent
in 1998.
10
<PAGE>
Two (2) of the Partnership's properties are leased to Hardee's Food Systems,
Inc. Base rent from these properties amounted to approximately 43% of total base
rents.
The original offering document required the Partnership to lease its properties
to a single tenant as long as the properties so leased do not constitute; in the
aggregate, more than 20% of the aggregate gross proceeds of the offering. As of
June 30, 1999, the Partnership has leased two of its properties to Hardees Food
Systems, Inc., which constitute 21% of the aggregate gross proceeds.
6. TRANSACTIONS WITH CURRENT GENERAL PARTNER:
------------------------------------------
Amounts paid to the current General Partner for the six months ended June 30,
1999 and 1998, are as follow:
<TABLE>
<CAPTION>
Current General Partner Incurred as of Incurred as of
----------------------- June 30, 1999 June 30, 1998
-------------- --------------
<S> <C> <C>
Management fees $32,774 $32,260
Disposition fees 0 37,500
Restoration fees 107 0
Cash distribution 453 1,012
Overhead allowance 2,644 2,603
Reimbursement for out-of-pocket expenses 1,688 6,522
------- -------
$37,666 $79,897
======= =======
</TABLE>
7. CONTINGENT LIABILITIES:
----------------------
According to the Partnership Agreement, the current General Partner may receive
a disposition fee not to exceed 3% of the contract price of the sale of
investment properties. Fifty percent (50%) of all such disposition fees earned
by the current General Partner is to be escrowed until the aggregate amount of
recovery of the funds misappropriated from the Partnerships by the former
general partners is greater than $4,500,000. Upon reaching such recovery level,
full disposition fees will thereafter be payable and fifty percent (50%) of the
previously escrowed amounts will be paid to the current General Partner. At
such time as the recovery exceeds $6,000,000 in the aggregate, the remaining
escrowed disposition fees shall be paid to the current General Partner. If such
levels of recovery are not achieved, the current General Partner will contribute
the amounts escrowed towards the recovery. In lieu of an escrow, 50% of all
such disposition fees have been paid directly to the restoration account and
then distributed among the three Partnerships. After surpassing the $4,500,000
recovery level during March 1996, 50% of the amounts previously escrowed was
refunded to the current General Partner. The remaining amount allocated to the
Partnerships may be owed to the current General Partner if the $6,000,000
recovery level is met. As of June 30, 1999, the Partnership may owe the current
General Partner $18,862, which is currently reflected as a recovery, if the
$6,000,000 recovery level is achieved, which is unlikely.
11
<PAGE>
8. PMA INDEMNIFICATION TRUST:
--------------------------
The PMA provides that the Permanent Manager will be indemnified from any claims
or expenses arising out of or relating to the Permanent Manager serving in such
capacity or as substitute general partner, so long as such claims do not arise
from fraudulent or criminal misconduct by the Permanent Manager. The PMA
provides that the Partnership fund this indemnification obligation by
establishing a reserve of up to $250,000 of Partnership assets which would not
be subject to the claims of the Partnership's creditors. An Indemnification
Trust ("Trust") serving such purposes has been established at United Missouri
Bank, N.A. The Trust has been fully funded with Partnership assets as of June
30, 1999. Funds are invested in U.S. Treasury securities. In addition,
interest totaling $63,114 has been credited to the Trust as of June 30, 1999.
The rights of the Permanent Manager to the Trust shall be terminated upon the
earliest to occur of the following events: (i) the written release by the
Permanent Manager of any and all interest in the Trust; (ii) the expiration of
the longest statute of limitations relating to a potential claim which might be
brought against the Permanent Manager and which is subject to indemnification;
or (iii) a determination by a court of competent jurisdiction that the Permanent
Manager shall have no liability to any person with respect to a claim which is
subject to indemnification under the PMA. At such time as the indemnity
provisions expire or the full indemnity is paid, any funds remaining in the
Trust will revert back to the general funds of the Partnership.
9. FORMER GENERAL PARTNERS' CAPITAL ACCOUNTS:
------------------------------------------
The capital account balance of the former general partners as of May 26, 1993,
the date of their removal as general partners pursuant to the results of a
solicitation of written consents from the Limited Partners, was a deficit of
$265,491. At December 31, 1993, the former general partners' deficit capital
account balance in the amount of $265,491 was reallocated to the Limited
Partners.
10. SUBSEQUENT EVENTS:
------------------
On August 15, 1999, the Partnership made a distribution to the Limited Partners
for the Second Quarter 1999 of $80,000 amounting to approximately $4.68 per
limited partnership interest.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources:
- - --------------------------------
Investment Properties and Net Investment in Direct Financing Leases
- - -------------------------------------------------------------------
The investment properties, including equipment held by the Partnership at June
30, 1999, were originally purchased at a price, including acquisition costs, of
approximately $6,091,000.
Other Assets
- - ------------
Cash and cash equivalents were $275,000 at June 30, 1999, compared to $231,000
at December 31, 1998. The Partnership designated cash of $80,000 to fund the
Second Quarter 1999 distributions to Limited Partners; $67,000 for the payment
of accounts payable and accrued expenses; and the remainder represents reserves
deemed necessary to allow the Partnership to operate normally. Cash generated
through the
12
<PAGE>
operations of the Partnership's investment properties and sales of investment
properties will provide the sources for future fund liquidity and Limited
Partner distributions.
The Partnership established an Indemnification Trust (the "Trust") during the
Fourth Quarter of 1993 and deposited $130,000 in the Trust during 1994, $100,000
during 1995, and $20,000 during 1996. The provision to establish the Trust was
included in the PMA for the indemnification of TPG, in the absence of fraud or
gross negligence, from any claims or liabilities that may arise from TPG acting
as Permanent Manager. The Trust is owned by the Partnership. For additional
information regarding the Trust, refer to Note 8 to the financial statements.
Liabilities
- - -----------
Accounts payable and accrued expenses at June 30, 1999, in the amount of
$16,000, primarily represented the accrual of legal and auditing fees.
Partners' Capital
- - -----------------
Net income for the quarter was allocated between the General Partner and the
Limited Partners, 1% and 99%, respectively, as provided in the Partnership
Agreement and the Amendment to the Partnership Agreement, as discussed more
fully in Note 4 of the financial statements. The former general partners'
capital account balance was reallocated to the Limited Partners at December 31,
1993. Refer to Note 9 to the financial statements for additional information
regarding the reallocation.
Cash distributions paid to the Limited Partners and to the General Partner
during 1999, of $120,000 and $453, respectively, have also been made in
accordance with the amended Partnership Agreement. The Second Quarter 1999
distribution of $80,000 was paid to the Limited Partners on August 15, 1999.
Results of Operations:
- - ----------------------
The Partnership reported net income for the quarter ended June 30, 1999, in the
amount of $52,000 compared to net income for the quarter ended June 30, 1998 of
$25,000. Net income for the six months ended June 30, 1999 and 1998 totaled
$113,000 and $253,000, respectively.
Revenues
- - --------
Total revenues were $112,000, and $116,000, for the quarters ended June 30,
1999, and 1998, respectively, and were $229,000 and $475,000 for the six months
ended June 30, 1999 and 1998, respectively. The 1998 income includes a first
quarter gain of $239,000 recognized on the sale of a Denny's property to the
tenant.
Total revenues, should approximate $400,000 annually or $100,000 quarterly,
based on leases currently in place. Future revenues may decrease with tenant
defaults and/or sales of Partnership properties. They may also increase with
additional rents due from tenants, if those tenants experience sales levels
which require the payment of additional rent to the Partnership.
13
<PAGE>
Expenses
- - --------
For the quarters ended June 30, 1999 and 1998, cash expenses amounted to
approximately 39% and 60% of total revenues, respectively. For the six months
ended June 30, 1999 and 1998, cash expenses totaled 36% and 37% of total
revenues, respectively. Total expenses, including non-cash items, amounted to
54% and 79% of total revenues for the quarters ended June 30, 1999 and 1998,
respectively and totaled 51% and 47% of total revenues for the six months ended
June 30, 1999 and 1998, respectively. During 1998, disposition fees of $37,500
on the sale of the Denny's property in Sanford, Florida, and fees incurred for
the appraisal and environmental inspection of the Partnership's properties
totaling $22,000 had a negative impact on expenses. However, the gain recorded
during 1998 had a favorable impact on the expense to revenue ratios.
Inflation:
- - ----------
Inflation has a minimal effect on operating earnings and related cash flows from
a portfolio of triple net leases. By their nature, such leases actually fix
revenues and are not impacted by rising costs of maintenance, insurance, or real
estate taxes. If inflation causes operating margins to deteriorate for lessees
if expenses grow faster than revenues, then, inflation may well negatively
impact the portfolio through tenant defaults.
It would be misleading to associate inflation with asset appreciation for real
estate, in general, and the Partnership's portfolio, specifically. Due to the
"triple net" nature of the property leases, asset values generally move
inversely with interest rates.
Year 2000
- - ---------
The Partnership's operations are not dependent on date sensitive software. The
Partnership is not aware of any Year 2000 problems with its current software.
Accounting and Partnership records software are owned and operated by third
parties who provide services to the Partnership under contract and any cost to
make the software Year 2000 compliant will be borne by the third parties. The
Partnership has received assurances from a majority of these third parties that
such software is Year 2000 compliant or will be by January 1, 2000. The
Partnership believes, however, that even if any Year 2000 problems are not
corrected on schedule, the cost and disruption to operations of the Partnership
are expected to be minimal.
Tenants are responsible for the operation of any equipment located at the
Partnership's properties. While the Partnership is not fully aware of the
compliance attainment efforts of its tenants, tenant preparedness for the Year
2000 should have minimal impact on the Partnership and are not expected to be
material to the Partnership's operations, financial condition or liquidity.
While the Partnership has received assurances from some tenants regarding Year
2000 compliance, to the extent the Partnership is not satisfied with the status
of a tenant's or third party provider's Year 2000 compliance, the Partnership
expects to develop and implement appropriate contingency plans.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
None.
14
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PART II - OTHER INFORMATION
Items 1 - 4.
Not Applicable.
Item 5. Other Information.
On July 22, 1999, the General Partner entered into a Real Estate Purchase
Contract ("Agreement") on behalf of the Partnership with Milwaukee Street
Partners, LLC (the "Buyer"). The Buyer, its officers and directors are not
affiliated with the Partnership, the General Partner or its officers and
directors. The Agreement, attached as Exhibit 10.1 to this report, provides for
the sale of all four of the Partnership's properties owned in fee simple and the
assignment of the Partnership's single property subject to a ground lease to the
Buyer for a purchase price of $3,550,000, subject to adjustment in certain
circumstances. Detailed property descriptions are included in the Agreement.
In anticipation of the closing of the sale, and to satisfy certain
conditions of the Agreement, the Buyer has deposited $100,000 with an escrow
agent. The sale will be completed on or prior to December 31, 1999, provided
that certain conditions are satisfied, including the obtainment of acceptable
financing by the Buyer.
The General Partner negotiated a purchase price of $3,550,000 based on its
evaluation of the Properties' current return and the potential for future
appreciation. After deducting all expenses associated with the sale, payment of
management and disposition fees due to the General Partner, payment of all
debts, liabilities and obligations of the Partnership and the establishment of
reserves for contingencies, the General Partner intends to make a liquidating
distribution of the net proceeds to the Limited Partners prior to the end of the
1999 fiscal year-end.
Item 6. Exhibits and Reports on Form 8-K
(a) Listing of Exhibits:
10.1 Real Estate Purchase Contract between the Partnership and Milwaukee
Street Partners, LLC dated July 22, 1999.
99.0 Correspondence to the Limited Partners dated August 15, 1999,
regarding the Second Quarter 1999 distribution.
(b) Report on Form 8-K:
The Registrant filed no reports on Form 8-K during the second quarter of
fiscal year 1999.
15
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DIVALL INCOME PROPERTIES 3 LIMITED PARTNERSHIP
By: The Provo Group, Inc., General Partner
/s/ Bruce A. Provo
By: -------------------------------
Bruce A. Provo, President
Date: August 14, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
By: The Provo Group, Inc., General Partner
/s/ Bruce A. Provo
By: ---------------------------------
Bruce A. Provo, President
Date: August 14, 1999
/s/ Kristin J. Atkinson
By: ------------------------------------
Kristin J. Atkinson
Vice President - Finance and Administration
Date: August 14, 1999
16
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REAL ESTATE PURCHASE CONTRACT
-----------------------------
- DiVall Income Properties 3
This Contract (the "Agreement") is made effective as of the Acceptance Date
(as defined below), by and between DIVALL INCOME PROPERTIES 3 LIMITED
PARTNERSHIP, a limited partnership formed under the laws of the State of
Wisconsin (the "Partnership" or the "Seller"), and the Milwaukee Street
Partners, LLC., or its assigns (the "Buyer").
PREAMBLE
The Seller represents that the Partnership is a publicly traded limited
partnership formed under the laws of the State of Wisconsin. The sole general
partner of the Partnership is The Provo Group, Inc., an Illinois corporation
("Provo"). The Partnership is the landlord of five (5) Net Leases relating to
buildings used primarily for convenience restaurants located in three states. In
connection with the dissolution of the Partnership, the Partnership has accepted
the Buyer's offer to purchase by delivery of a copy of this Agreement executed
by the Seller to Chicago Title and Trust Company (the "Escrow Agent"), 1100 Main
Street, Suite 500, Kansas City, Missouri 64105.
NOW, THEREFORE, in consideration of the foregoing, and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms shall
have the following meanings, and additional capitalized terms defined elsewhere
in this Agreement shall have such meaning:
1.1 "Estoppel Certificate" shall mean an estoppel certificate in the form
of Exhibit 1.1 from the tenant of each Property.
1.2 "Ground Lease" shall mean that certain Ground Lease listed in Exhibit
1.2 between the owner of the real property described therein and the Partnership
as the tenant, as such Ground Lease may have been or may hereafter be amended or
modified.
1.3 "Ground Leasehold Assignment" shall mean a Ground Leasehold
Assignment and Assumption Agreement in the form of Exhibit 1.3 pursuant to which
the Buyer agrees to assume all of the obligations of the tenant under the Ground
Lease, and the Partnership assigns all right, title and interest under the
Ground Lease to the Buyer.
1.4 "Improvement" shall mean any and all buildings, structures or other
improvements located on each Land Parcel, including without limitation the
building occupied by the Tenant pursuant to the Lease with respect to such Land
Parcel.
<PAGE>
1.5 "Individual Property Purchase Price" shall mean the cash
consideration offered by the Buyer with respect to an individual Property. The
Individual Property Purchase Price for each Property shall be set forth in
Section 1.5 of Schedule 1.
1.6 "Land" shall mean the real property upon which the Improvements are
located, as more particularly described in Exhibit 1.6. Each individual parcel
of land upon which Improvements are located may be referred to as a "Land
Parcel".
1.7 "Lease" shall mean each of those certain Absolutely Net Leases,
between the Partnership as landlord and Tenant with respect to a Land Parcel and
the related Improvements, as more particularly described in Exhibit 1.7, as such
Leases may have been or may hereafter be amended or modified. More than one
Lease may be referred to as the "Leases".
1.8 "Leasehold Assignment" shall mean a Leasehold Assignment and
Assumption Agreement in the form of Exhibit 1.8 pursuant to which the
Partnership assigns the Lessor's Leasehold Interest in the Properties to the
Buyer and the Buyer agrees to assume all rights, liabilities and obligations
thereunder.
1.9 "Lessee's Ground Leasehold Interest" shall mean all of the
Partnership's rights, duties, liabilities and obligations pursuant to the Ground
Lease. Included in the foregoing is any right of the Partnership to return of a
deposit or escrow paid to the Ground Lessor or with respect to the subject
Property.
1.10 "Lessor's Leasehold Interest" shall mean all of the Partnership's
rights, duties, liabilities and obligations under each Lease. Such rights and
obligations shall include, without limitation, any obligation to refund to the
Tenant any deposits or pay any amounts held in escrow with respect to the
Property pursuant to a Lease.
1.11 "Tenant" shall mean the lessee with respect to each of the Leases set
forth in Exhibit 1.7.
1.12 "Total Purchase Price" shall mean the cash consideration the Buyer is
willing to pay in order to acquire each and every Property (i.e. the sum of the
Individual Property Purchase Prices). The Total Purchase Price shall be set
forth in Section 1.5 of Schedule 1.
1.13 "Property" shall mean (i) the fee interest in the Land Parcel, or as
the case may be, Lessee's Ground Leasehold Interest in the respective Ground
Lease, and (ii) Lessor's Leasehold Interest, with respect to each location. More
than one Property may hereinafter be referred to as the "Properties".
2
<PAGE>
2. PURCHASE.
--------
2.1 Offer to Purchase. Subject to the terms and provisions of this
Agreement, Buyer offers to purchase from Seller, all of Seller's right, title
and interest in and to all of the Properties for the Total Purchase Price.
2.2 Acceptance. Upon Seller's acceptance of this Agreement by execution
of this Agreement where indicated and delivery of an executed original to the
Escrow Agent and a copy thereof to the Buyer, Seller agrees to sell to Buyer all
of Seller's right, title and interest in and to the Properties for the Total
Purchase Price, subject to the terms and provisions of this Agreement, and
subject only to the satisfaction of the financing contingency, as described
below, Buyer shall be obligated to Close on or before the Closing Date. The
Seller shall date this Agreement with the date of execution by Seller and
delivery to the Escrow Agent, which date shall be the "Acceptance Date".
2.2.1 The Buyer shall have sixty (60) days following the later of
(i) the Acceptance Date or (ii) the date on which the last right of first
refusal in favor of a Tenant expires or is waived by the Tenant in writing (the
"Initial Financing Contingency Period"), in which to secure financing for the
purchase of the Properties upon reasonable terms and conditions. For purposes of
this Agreement financing of 70% of the Total Purchase Price for 3 or more years
at an interest rate of 9% or less shall be deemed to be reasonable terms and
conditions. Buyer shall diligently and in good faith pursue such financing
beginning not later than the Acceptance Date through the expiration of the
Initial Financing Contingency Period and, if applicable, the Extended Financing
Contingency Period. If during the Initial Financing Contingency Period the Buyer
is unable to secure an enforceable commitment for financing upon reasonable
terms and conditions, provided the Buyer has otherwise discharged Buyer's
obligations under this Agreement, at Buyer's option Buyer may (iii) terminate
this Agreement in which case the Deposit shall be promptly returned to Buyer and
neither party shall have any continuing obligation to the other under this
Agreement, or (iv) extend the financing contingency period for an additional
thirty days (the "Extended Financing Contingency Period"), but in no event later
than December 1, 1999. If Buyer shall elect the Extended Financing Contingency
Period, as a condition of such extension, Buyer shall deposit an additional One
Hundred Thousand Dollars ($100,000) with the Escrow Agent (the "Extended
Financing Deposit") by wire transfer or delivery of a cashier's check prior to
the expiration of the Initial Financing Contingency Period. If during the
Extended Financing Contingency Period the Buyer is unable to secure an
enforceable commitment for financing upon reasonable terms and conditions, at
Buyer's option, Buyer may waive such financing contingency or terminate this
Agreement in which case the Deposit shall be promptly returned to Buyer and
neither party shall have any continuing obligation under this Agreement.
2.3 Withdrawal of Properties. As provided in Section 10, the Seller has
the right not to close on one or more Properties. If, in accordance with the
terms of this Agreement, the Seller exercises such right to withdraw a Property
from the Closing, the Buyer agrees to buy and the
3
<PAGE>
Seller agrees to sell at the Closing all remaining Properties, provided only
that the Total Purchase Price shall be reduced by the Individual Property
Purchase Price applicable to the Properties withdrawn from the Closing.
3. PAYMENT OF PURCHASE PRICE. The Total Purchase Price shall be paid to the
Partnership as follows:
3.1 Initial Deposit. Contemporaneously with the Buyer's delivery of this
Agreement to the Escrow Agent, Buyer shall deliver One Hundred Thousand Dollars
($100,000) (the "Initial Deposit") to the Escrow Agent. The Initial Deposit
shall either be in the form of a cashier's check drawn on a U. S. Bank, made
payable to "Chicago Title Insurance Company, as escrow agent for DiVall Income
Properties 3 Limited Partnership", or by wire transfer of immediately available
funds to the Escrow Agent for the same account. Upon acceptance of this
Agreement by the Partnership, the Deposit shall become refundable only in the
event (i) the Buyer is unable to obtain financing for the Total Purchase Price
within the Initial Financing Contingency Period and the Extended Financing
Contingency Period (if applicable) and Buyer elects to terminate this Agreement
as provided in Section 2.2.1, or (ii) the Partnership defaults in its
obligations under this Agreement, and fails to cure such default within the
applicable cure period. For purposes of this Agreement, the Deposit shall be
allocated equally to each Property.
3.2 Interest. The Initial Deposit shall be deposited in an interest-
bearing account on the Acceptance Date and the Extended Financing Deposit and
the Extended Closing Deposit shall be deposited in the same account upon
receipt. For purposes of this Agreement, "Deposit" shall mean the Initial
Deposit, plus the Initial Deposit plus the Extended Financing Deposit, plus the
Extended Closing Deposit (as defined below), plus all interest earned thereon.
3.3 Balance of Purchase Price. The balance of the Total Purchase Price,
subject to any adjustments provided for in this Agreement, shall be due and
payable in immediately available funds on the Closing Date.
4. TITLE.
-----
4.1 Fee Title Binder. For each of the 4 Properties in which Seller owns
a fee interest (the "Fee Properties") Seller has made available to Buyer, a copy
of a commitment (a "Fee Title Binder") for an extended coverage owner's policy
of title insurance (a "Fee Title Policy") issued through Chicago Title and Trust
Company, (the "Title Company"). The Seller shall provide Buyer a Fee Title
Binder updated through July 1, 1999 within thirty (30) days of the Acceptance
Date. The Fee Title Binder describes each Fee Property and Schedule B-1 of each
Fee Title Binder describes each of the exceptions to the title with respect to
such Fee Property as of the date of the Fee Title Binder. Upon consummation of
the sale of each Fee Property to Buyer, Seller shall cause the Title Company to
insure the Buyer with indefeasible, good and marketable fee title, subject only
to (i) ordinary and customary easements, zoning restrictions and similar
encumbrances, (ii) any real estate or other ad valorem taxes and assessments
with respect to the Property, (iii) pre-printed survey exceptions, (iv) security
interests related to equipment and fixtures located in the
4
<PAGE>
Buildings, (v) security interests, liens, mortgages or deeds of trust with
respect to the Tenant's interest in their respective Lease, and (vi) the Lease
(collectively the "Permitted Exceptions"). The term "Permitted Exceptions" shall
not (except as provided in the preceding sentence) include any trust deeds,
mortgages, mechanic's liens or the like representing financial obligations
secured by the Property.
4.2 Leasehold Title Binder. For the Property in which Seller holds a
Ground Leasehold Interest pursuant to a Ground Lease (collectively the "Ground
Lease Property"), Seller has made available to Buyer a copy of a current
commitment a ("Leasehold Title Binder") for an extended coverage lessee's policy
of title insurance a ("Leasehold Title Policy") issued through the Title
Company. The Seller shall provide Buyer a Leasehold Title Binder updated through
July 1, 1999 within thirty (30) days of the Acceptance Date. The Leasehold Title
Binder describes the Ground Lease Property and Schedule B-1 of the Leasehold
Title Binder describes each of the exceptions to Seller's interest in the Ground
Lease Property as of the date of the Leasehold Title Binder. Upon consummation
of the sale and assignment of the Lessee's Ground Leasehold Interest in the
Ground Lease Property to Buyer, Seller shall cause the Title Company to insure
the Buyer with good and marketable leasehold interest in the Ground Lease
Property, subject only to (i) ordinary and customary easements, zoning
restrictions and similar encumbrances on the Land Parcel, (ii) any real estate
or other ad valorem taxes and assessments with respect to the Property, (iii)
pre-printed survey exceptions, (iv) security interests related to equipment and
fixtures located in the Buildings, (v) security interests, liens, mortgages or
deeds of trust with respect to the Tenants' interest in their respective Lease,
(vi) the Lease, and (vii) the Ground Lease (collectively, the "Permitted
Exceptions"). The term "Permitted Exceptions" shall not (except as provided in
the preceding sentence, and any encumbrance on the fee placed by the ground
lessor) include any trust deeds, mortgages, mechanics liens or the like
applicable to Seller's interest in the Ground Lease Property, representing
financial obligations secured by the Property.
4.3 Defects. Within fifteen (15) days of receipt of the updated Fee Title
Binders and Leasehold Title Binder, the Buyer shall provide Seller with written
notice of any exception to title which is not a Permitted Exception (a
"Defect"). Seller shall have the option within ten (10) days of receipt of
written notice of such Defect to cure any such Defect by removing the Defect or
causing the Title Company to insure over such Defect. Seller may, at Seller's
option, delay the Closing on all of the Properties in order to cure such Defect
with respect to each Property affected ("Defective Properties"). If Seller is
unable to cure the Defect with respect to any Defective Property within thirty
(30) days of the originally scheduled Closing Date, Buyer at Buyer's option may
either waive the Defect not cured or terminate this Agreement with respect to
all Properties by written notice to Seller. If this Agreement is terminated with
respect to all Properties as provided herein, the Seller shall promptly cause
the Deposit to be returned to Buyer and neither party shall have any continuing
obligations under this Agreement. Buyer shall be deemed to have waived the
Defect unless Buyer shall have given the Seller written notice of (i) such
Defect within 15 days following receipt of the respective updated Title Binders,
and (ii) termination of the Agreement at least thirty (30) days prior to the
Closing Date. Upon waiver of all Defects with respect to a Defective Property, a
closing shall be scheduled on the Closing Date. The Total Purchase Price shall
not be adjusted due to any Defect in the Property.
5
<PAGE>
5. DUE DILIGENCE MATERIALS.
5.1 Due Diligence Room. Seller has collected certain information and
documents relating to the Properties at Provo's offices at 101 West 11th Street,
Suite 1110, Kansas City, Missouri (the "Due Diligence Room") and in binders
delivered to prospective purchasers ("Due Diligence Binders"). The information
included in the Due Diligence Room and/or the Due Diligence Binders includes
true and current copies of the following as of the Acceptance Date:
5.1.1 Appraisals of each Property prepared by Valuation Associates
dated after March 1, 1998 (individually an "Appraisal" and collectively the
"Appraisals");
5.1.2 A Phase 1 Environmental Assessment of each Property prepared
by Streamline Environmental dated after April 1, 1998 (individually an
"Environmental Report" and collectively the "Environmental Reports");
5.1.3 An as built survey with respect to each Land Parcel which has
been dated down to not earlier than June 15, 1998 (individually a "Survey"
and collectively the "Surveys");
5.1.4 Each Lease, as amended, through May 31, 1999, with respect to
each Property;
5.1.5 A rent roll disclosing a detailed rental history for each
Property for 1996, 1997, 1998, and 1999 through May 31, 1999;
5.1.6 Each Ground Lease, as amended, through May 31, 1999;
5.1.7 Each annual and quarterly report filed with the Securities
and Exchange Commission by Seller with respect to the periods 1993 to May
31,1999 (collectively, the "Reports").
6. REPRESENTATIONS AND WARRANTIES
------------------------------
6.1 Representations and Warranties of Seller. Seller hereby represents
and warrants as of the Acceptance Date, that to Seller's actual knowledge:
6.1.1 Except as set forth in Section 6.1.1 of Seller's Disclosure
Schedule attached hereto (the "Disclosure Schedule"), there is no pending
condemnation or similar proceeding affecting the Properties or any portion
thereof, and Seller has not received any written notice and has no
knowledge that any such proceeding is contemplated.
6.1.2 Except as set forth in Section 6.1.2 of the Disclosure
Schedule, there are no contracts of employment, management, maintenance,
service, or supply outstanding
6
<PAGE>
between the Seller and any third party (other than the Tenant) which affect
any of the Properties which are not cancelable within thirty (30) days.
6.1.3 Seller is not prohibited from consummating the transactions
contemplated in this Agreement, by any law, regulation, agreement,
instrument, restriction, order or judgment.
6.1.4 Seller is duly organized, validly existing and in good standing
under the laws of the State of Wisconsin. Seller has full right, title,
authority and capacity to execute and perform this Agreement and to
consummate all of the transactions contemplated herein, and the
representative of the general partner of the Seller who executes and
delivers this Agreement and all documents to be delivered to Buyer
hereunder is, and shall be, duly authorized to do so.
6.1.5 No party has been granted any license, lease, or other right
relating to the use or possession of any of the Properties except the
respective Tenants as set forth in Exhibit 1.7.
6.1.6 Except as set forth in Section 6.1.6 of the Disclosure
Schedule, there are no attachments, executions, assignments for the benefit
of creditors, receiverships, conservatorships or voluntary or involuntary
proceedings in bankruptcy or pursuant to any other debtor relief laws
contemplated or filed by Seller or any Tenant or pending against Seller,
any Tenant or the Property.
6.1.7 Other than certain rights of first refusal and purchase options
under various Leases, there are no contracts or other obligations
outstanding for the sale, exchange or transfer of any Property or any
portion thereof.
6.1.8 Except as set forth in Section 6.1.8 of the Disclosure
Schedule, there are no actions, suits, claims, proceedings or causes of
action which are pending or have been threatened or asserted against, or
are affecting, Seller or any Property or any part thereof in any court or
before any arbitrator, board of governmental or administrative agency or
other person or entity which might reasonably be considered to have an
adverse effect on any Property, any portion thereof, or upon the
consummation of the transaction contemplated by this Agreement.
6.1.9 All of the third parties which have provided the Appraisals,
Surveys, Title Commitments and Environmental Reports are professionally
competent and have provided such information based upon their own
professional investigation as set forth therein.
6.1.10 Except as set forth in Section 6.1.10 of the Disclosure
Schedule, none of the Properties is subject to any material unrepaired
damage resulting from fire or other casualty.
7
<PAGE>
6.1.11 Except as set forth in Section 6.1.11 of the Disclosure
Schedule, no Tenant is in material default under their respective Leases,
for which default the applicable cure period has run, (i) with respect to
payment of rent (whether base rent, percentage rent or additional rent), or
(ii) with respect to any other material obligation under the Lease.
6.1.12 Except as set forth in Section 6.1.12 of the Disclosure
Schedule, the Seller is not in default of any material obligation under any
Lease or Ground Lease.
6.1.13 Except as set forth in Section 6.1.13 of the Disclosure
Schedule, the lessor under the Ground Lease is not in default of any
material obligation under the Ground Lease.
6.2 Representations and Warranties of Buyer. Buyer hereby represents and
warrants as of the date hereof and of the Closing Date that:
6.2.1 Buyer is duly organized, in good standing and qualified to do
business in the state of its organization and has the power to enter into,
and has taken all necessary actions to authorize the execution and delivery
of this Agreement and the documents to be executed and delivered by Buyer
pursuant hereto.
6.2.2 Neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby will result in any
violation or default under the Buyer's organizational documents or any
mortgage, agreement, indenture, judgment, decree, order or any other such
obligation to which Buyer is a party or which is binding upon Buyer or any
of its properties or assets.
6.2.3 Buyer has had the opportunity to review all information and
documents in the Due Diligence Room with respect to each Property, and is
relying solely on Buyer's investigation and evaluation of the Properties
and due diligence materials in deciding to offer to buy the Properties and
in establishing the Individual Property Purchase Prices set forth in
Section 1.5 of the Schedule 1.
6.2.4 Except as set forth in Section 6.2.4 of Schedule 1, Buyer has
not engaged any broker or finder with respect to the Properties or the
transaction contemplated hereby, and is not obligated to pay any
commission, finder's fee or other compensation with respect to any of the
Properties or the transaction contemplated by this Agreement. Buyer
specifically indemnifies and holds Seller harmless from any claim to
commissions, finder's fee or other compensation asserted by any party by
virtue of any relationship with Buyer (whether or not disclosed on the
Schedule 1).
8
<PAGE>
7. COVENANTS.
7.1 Affirmative Covenants of Seller. Unless otherwise expressly
contemplated by this Agreement, or consented to in writing by the Buyer, the
Seller hereby covenants and agrees to do each of the following between the
Acceptance Date and the Closing Date:
7.1.1 The Seller shall promptly and fully comply with, observe and
perform all of the obligations imposed upon the Seller pursuant to the
terms and conditions of the Leases and Ground Leases.
7.1.2 Seller shall enforce and secure the performance of each and
every material obligation to be performed by the Tenants under the Leases
in keeping with Seller's historic business practices.
7.1.3 Seller shall promptly notify the Buyer of any material breach
or default by any Tenant of any Lease, which default has not been cured
within the applicable cure period.
7.1.4 Seller shall not accept or receive from the Tenant rent under
any Lease more than thirty (30) days in advance of the date such rent is
due, whether such rent shall be base rent, additional rent or percentage
rent, without giving the Buyer credit for such amount pursuant to section
8.6.1.
7.1.5 Seller shall not materially amend or modify the terms and
conditions of any Lease without the express written consent of the Buyer.
7.1.6 Seller agrees to give Buyer prompt notice of (i) any fire or
other casualty materially adversely affecting any Property, or (ii) any
actual or threatened taking or condemnation of all or any portion of any of
the Properties, of which Seller gains actual knowledge between the
Acceptance Date and the Closing Date.
7.1.7 Not less than thirty (30) days prior to the Closing Date,
Seller shall provide (i) a supplement to the Environmental Reports updating
the Environmental Reports through not earlier than July 1, 1999, and (ii) a
date-down of the Surveys to not earlier than July 1, 1999.
7.2 Affirmative Covenants of Buyer. In the event the updated Surveys and
Environmental Reports disclose any material adverse changes from the Surveys and
Environmental Reports currently in the Due Diligence Room, then, within fifteen
days of receipt of said updates, Buyer shall give Seller written notice of such
differences and any objections thereto. Seller shall have ten (10) days in
which to advise Buyer of Seller's intention to cure such objections. If Seller
does not agree to cure such objections, then Buyer shall have the right to
either (i) terminate this Agreement, in which case the Deposit shall be promptly
returned to Buyer and neither party shall have further obligations under this
Agreement, or (ii) elect to waive such objections and close
9
<PAGE>
without adjustment to the Purchase Price. If Buyer does not make a written
election within ten (10) days following the Seller's advice on whether Seller
will cure, the Buyer shall be deemed to waive such objections.
7.3 Notification. Any notifications required under this Agreement may be
accomplished by (i) mailing such information to Buyer, or (ii) faxing such
information to Buyer.
8. CLOSING.
8.1 Closing Date. The Closing for the purchase of the Property shall take
place at the offices of Shughart Thomson & Kilroy, 120 West 12th Street, Suite
1800, Kansas City, Missouri 64105, not more than thirty (30) days following the
date Buyer obtains an enforceable commitment for financing upon reasonable terms
and conditions at a time mutually acceptable to the parties, but in no event
later than November 15, 1999 (the "Closing Date"). The Buyer may extend the
Closing Date an additional fifteen (15) days by (i) giving the Seller written
notice of such extension not less than five (5) days prior to the originally
scheduled Closing Date, and (ii) depositing an additional One Hundred Thousand
Dollars ($100,000) with the Escrow Agent (the "Extended Closing Deposit")
contemporaneously with the giving of such notice of extension. Upon written
notice to Buyer, Seller may extend the Closing Date up to thirty (30) days. The
Closing shall occur following the satisfaction or waiver of each of the
conditions set forth in this Section.
8.1.1 Properties Subject to Closing. Not less than five (5) days
prior to the Closing Date, the Buyer and the Seller shall agree in writing
which of the Properties shall be subject to and transferred at the Closing.
Without such written agreement, it shall be assumed that all Properties
shall be subject to Closing. Pursuant to Section 10, the Seller has the
right to withdraw First Refusal Properties from the Closing.
8.2 Seller's Deliverables at Closing. At the Closing, Seller shall
deliver to Buyer the following (collectively the "Seller's Deliverables"):
8.2.1 A Special Warranty Deed, duly executed and acknowledged by
Seller, conveying each of the Fee Properties subject to the Closing to
Buyer in indefeasible fee simple free and clear of any lien, encumbrance or
exception other than the Permitted Exceptions, and non-Permitted Exceptions
waived by Buyer.
8.2.2 A Ground Leasehold Assignment duly executed by Seller with
respect to the Ground Lease Property, if subject to the Closing.
8.2.3 A Leasehold Assignment duly executed by Seller with respect to
each of the Properties subject to the Closing.
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8.2.4 The original executed copy of the Environmental Reports with
respect to the Properties subject to Closing.
8.2.5 The original copies of each Appraisal with respect to each
Property subject to the Closing.
8.2.6 An originally executed Estoppel Certificate in substantially
the form of Exhibit 1.2, executed by each Tenant with respect to their
respective Property for each of the Properties subject to the Closing,
which Estoppel Certificates shall disclose whatever modifications to the
form which the Tenant shall deem appropriate. If the Seller is unable to
secure an executed Estoppel Certificate from a Tenant after commercially
reasonable efforts, then Buyer shall have the right to either (i) terminate
this Agreement, in which case the Deposit shall be promptly returned to
Buyer and neither party shall have further obligations under this
Agreement, or (ii) elect to waive such requirement and close without
adjustment to the Purchase Price.
8.2.7 An as-built survey with respect to each Land Parcel which has
been dated down to not earlier than July 1, 1999.
8.2.8 An executed copy of each Lease, as amended through the date of
Closing with respect to each Property subject to the Closing.
8.2.9 An executed copy of each Ground Lease, as amended through the
Closing Date, with respect to the Ground Lease Property, if subject to the
Closing.
8.2.10 A letter from Resource Phoenix stating that the Partnership
had received written consents from greater than 50% of the Units of the
Partnership outstanding as of April 15, 1998 consenting to the proposed
sale of the Properties and liquidation of the Partnership.
8.2.11 A certified copy of the resolution of the Board of Directors
of Provo authorizing Provo to execute and deliver this Agreement and the
other agreements referred to herein in the transactions contemplated hereby
and thereby as general partner of the Partnership.
8.2.12 All keys, codes and combinations to each Property subject to
the Closing, and possession of each such Property, subject to the Tenant's
rights under the respective Leases.
8.2.13 Signed copies of all of the leases and all other material
agreements (if any) between Seller and any third parties, other than
Tenants, affecting the Properties subject to the Closing.
8.2.14 All other documents required to satisfy the conditions set
forth in this
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Agreement not previously provided to Buyer.
8.2.15 An accounting of all sums received by Seller from Tenants
specifically allocable to Taxes (as defined below), which amounts have not
been applied to payment of such Taxes.
8.2.16 Execution with Buyer of a Settlement Statement at the Closing.
8.2.17 A certificate executed by the Seller to the effect that all of
the representations and warranties set forth in Section 6.1 of this
Agreement remain true and accurate as of the Closing Date, subject to the
updated Disclosure Schedule provided below.
8.2.18 Disclosure Schedule updated through the Closing Date.
8.3 Buyer's Deliverable at Closing. At Closing Buyer shall deliver to
Seller the following (collectively the "Buyer's Deliverables"):
8.3.1 The balance of the Total Purchase Price (after deducting the
Deposit) applicable to the Properties subject to the Closing in immediately
available funds, as adjusted as provided below.
8.3.2 Such evidence of the authority and capacity of Buyer and its
representatives as Seller or the Title Company may reasonably require.
8.3.3 A Ground Leasehold Assignment duly executed by Buyer with
respect to all of the Ground Lease Properties subject to the Closing.
8.3.4 A Leasehold Assignment duly executed by the Buyer with respect
to each of the Properties subject to the Closing.
8.3.5 Execution with Seller of a Settlement Statement at the Closing.
8.3.6 All other documents reasonably required by Seller to satisfy
the conditions set forth in this Agreement not previously provided to
Seller.
8.4 Escrow Agent's Deliverables at Closing. At Closing, the Escrow Agent
shall:
8.4.1 Deliver to Buyer an irrevocable commitment to issue a Fee Title
Policy or Leasehold Title Policy, as the case may be, to Buyer in the
amount of the Individual Property Purchase Price with respect to each
Property subject to the Closing which title policies shall conform to the
requirements of Section 4.
8.4.2 Deliver to Seller, the Deposit in immediately available funds.
12
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8.5 Expenses. Buyer shall pay the cost of (i) any due diligence or other
fees and expenses incurred by Buyer, including without limitation attorneys fees
and any brokerage or finder's fee or commission payable by Buyer with respect to
the transaction contemplated by this Agreement, (ii) any mortgage registration
taxes, and (iii) all of Buyer's Deliverables. Seller shall pay the cost of (w)
any transfer fees, any taxes or stamps, sales taxes, documentary stamps, and any
recording fees relating to the sale and transfer of the Properties to Buyer, (x)
all of Seller's Deliverables, (y) the Title Policies to be delivered by Title
Company, and (z) all fees, costs and expenses incurred by Seller with respect to
the Due Diligence Room and Due Diligence Binders, and the transaction
contemplated by this Agreement, including without limitation any attorney's fees
and any fee or commission payable to an affiliate of Provo with respect to the
sale of the Properties.
8.6 Prorations. Except as specifically set forth herein, there shall be
no prorations or credits against the Total Purchase Price at Closing.
8.6.1 Base Rent. All Base Rent payments under the Leases received
by Seller with respect to the month of Closing shall be prorated as of the
Closing Date. At Closing, the Buyer shall be entitled to a credit against
the Total Purchase Price in the amount of all Base Rent collected by the
Seller with respect to a Property subject to the Closing attributable to
that portion of the month of Closing following the Closing Date. At
Closing, the Buyer shall be entitled to a credit against the Total Purchase
Price equal to the amount of any Base Rent paid more than thirty (30) days
in advance. The Leasehold Assignment shall convey to Buyer the right to
collect any and all rent or other obligations due under the Leases with
respect to the Properties subject to the Closing, both past due and
prospectively from the Closing Date, without adjustment to the Total
Purchase Price except as set forth in Section 8.6.4 below.
8.6.2 Percentage Rent. For each Property subject to the Closing,
Buyer shall be obligated to pay the Seller at Closing an amount equal to
eighty percent (80%) of the Percentage Rents paid pursuant to such Lease
for the immediately preceding annual calculation period, prorated through
the Closing Date. The Percentage Rent paid with respect to the immediately
preceding calculation period was (i) $17,259.50 with respect to the
Applebee's, Pittsburgh, Pennsylvania Lease, (ii) $97.75 with respect to the
Denney's, Englewood, Colorado Lease, and (iii) $0.00 for all other Leases.
8.6.3 Taxes. There shall be no pro ration for any real estate or
personal property taxes or assessments, sales tax, or other ad valorem
taxes, (collectively the "Taxes") with respect to the Properties subject to
the Closing, and the Buyer shall take all such Properties subject to any
and all then outstanding Taxes, due or accrued, whether for the year of
Closing or prior years. However, to the extent Seller has received payment
from any Tenant prior to the Closing Date, which payment was specifically
applicable to the payment of such Taxes, to the extent any such sums have
not previously been applied to the payment of such Taxes, the Buyer shall
be entitled to a credit against the Total
13
<PAGE>
Purchase Price in the amount of any such sums actually collected by Seller.
At Closing, Seller shall provide an accounting of all such amounts.
8.6.4 Accounts Receivable. At Closing, the Seller shall provide a
detailed and accurate accounting and aging of all accounts receivable due
and owing from any Tenant of any of the Properties ("Accounts Receivable")
subject to the Closing as of the Closing Date. Buyer agrees to pay to
Seller an amount equal to the sum of (i) 75% of all Accounts Receivable
which are less than 31 days past due, (ii) 50% of all Accounts Receivable
which are more than 30 days past due, but less than 61 days past due, and
(iii) 25% of all Accounts Receivable which are more than 60 days past due,
but less than 91 days past due. An aging of the Accounts Receivable as of
May 31, 1999 is set forth in Section 8.6.4 of the Disclosure Schedule.
8.7 Buyer's Obligation to Close. The Buyer hereby expressly acknowledges
and agrees that:
8.7.1 Buyer is acquiring the Land, Improvements and Leases "AS IS",
"WHERE IS" and "WITH ALL FAULTS" as of the Closing Date and without any
representation or warranty other than expressly set forth in this
Agreement, including without limitation, no warranty of merchantability or
fitness for a particular purpose, or compliance by the Properties with
governmental laws, ordinances or regulations.
8.7.2 Buyer is acquiring the Lessee's Ground Leasehold Interest and
Lessor's Leasehold Interest, and assuming as of the Closing Date, any and
all obligations of Seller under each of the Leases and the Ground Lease,
whether past, current or future.
8.7.3 Buyer is experienced in the business of owning, acquiring and
operating real property and is relying solely on its own investigation,
analysis and expertise in determining (i) to buy the Properties, and (ii)
the respective Individual Property Purchase Prices.
8.7.4 Buyer shall be obligated to purchase each Property which is not
withdrawn from the Closing pursuant to Section 10 even in the event (i) of
a material default by any Tenant under the terms of any Lease, which occurs
after the Acceptance Date, or (ii) a material default by lessor under the
terms of any Ground Lease, which default occurs after the Acceptance Date.
8.7.5 The Seller intends, following the Closing Date and prior to
December 31, 1999, to wind up its business affairs, distribute its assets
to its partners, liquidate and dissolve under the laws of the State of
Wisconsin.
14
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9. CASUALTY AND CONDEMNATION.
9.1 Casualty Property: Condemnation Property. A "Casualty Property" shall
mean a Property that, between the Acceptance Date and the Closing Date incurs
damage caused by fire or other casualty, and such damage is in excess of
$100,000 and such damages have not been repaired and all liens applicable to
such repairs have not been waived, released or expired prior to the Closing
Date. A "Condemnation Property") shall mean a Property that between the
Acceptance Date and the Closing Date becomes subject to a taking or condemnation
of all or any portion of such Property, which taking materially affects the
Tenant's use of the Property. In the event of a condemnation or casualty with
respect to any Property which qualifies such Property as a Condemnation Property
or a Casualty Property, the Buyer may elect to either (i) terminate this
Agreement, in which case the Deposit shall be promptly returned and neither
party shall have any continuing obligations under this Agreement, or (ii) elect
to close on the Closing Date, in which event there shall be no adjustment to the
Total Purchase Price, but Buyer shall be entitled to receive the applicable
condemnation award and all insurance proceeds otherwise payable to Seller with
respect to such condemnation or casualty, as the case may be.
10. RIGHT OF FIRST REFUSAL
10.1 Tenant's Right of First Refusal. Certain of the Leases grant the
Tenant a right of first refusal in the event of the sale of such Property to a
third party. Not later than five (5) business days following the Acceptance
Date, the Seller shall give the relevant Tenants (which have not previously
waived such right of first refusal) written notice of the offer to purchase the
First Refusal Property for the respective Individual Property Purchase Price
pursuant to the terms and conditions of the Lease, for the purpose of
determining whether the Tenant shall exercise its right of first refusal. If,
within the period for exercising such right of first refusal as provided in the
Lease and prior to the Closing Date, a Tenant has exercised its right of first
refusal with respect to a Property, such Property shall be deemed a "First
Refusal Property". Seller shall have the right to exclude any First Refusal
Property from the Closing, in which event (i) the Total Purchase Price shall be
reduced by the Individual Property Purchase Price applicable to such First
Refusal Property (ii) the Deposit allocable to such First Refusal Property shall
be promptly returned to Buyer, and (iii) neither party shall have further
obligations to the other under this Agreement with respect to such First Refusal
Property.
11. TERMINATION, DEFAULT AND REMEDIES.
11.1 Default by Seller. Seller shall be in default hereunder upon the
occurrence of any one or more of the following events:
11.1.1 Any of Seller's warranties or representations set forth herein
are untrue and/or inaccurate in any material respect; or
11.1.2 Seller shall fail to meet, comply with or perform any material
covenant, agreement, or obligation on its part required, within the time
limits and in the manner
15
<PAGE>
required in this Agreement, which failure is not cured within the applicable
Cure Period (as defined below).
11.2 Default by Buyer. Buyer shall be in default hereunder upon the
occurrence of any one or more of the following respects:
11.2.1 Any of Buyer's warranties or representations set forth
herein are untrue and/or inaccurate in any material respect; or
11.2.2 Buyer shall fail to meet, comply with or perform any
material covenant, agreement or obligation on its part required, within the
time limits and in the manner required in this Agreement, which failure is
not cured within the applicable cure period.
11.3 Cure Period. In the event of a default by either Buyer or Seller,
the defaulting party shall have the following periods in which to cure such
default (the "Cure Period"); (i) in the event of a failure to pay money to or
for the benefit of the other party when it becomes due and payable pursuant to
the terms and conditions of this Agreement, five (5) days; and (ii) in the event
of a non-monetary default, the parties shall have thirty (30) days from receipt
of written notice of such default, in which to cure such default.
11.4 Remedies. In the event of a default by the Seller which is not cured
within the applicable Cure Period, then upon written demand, the Buyer shall be
entitled to (i) prompt return of any Deposit allocable to the Properties which
are subject to such default then being held by the Escrow Agent, and (ii)
termination of the Agreement with respect to the Properties subject to such
default. The parties hereby agree that such return of the Deposit and
termination of the Agreement shall be Buyer's sole and exclusive remedy against
the Seller. The parties hereto acknowledge and agree that the amount of damages
arising from a default by the Buyer would be difficult to calculate with
certainty. Thus, in the event of a default by the Buyer which is not cured
within the applicable Cure Period, then upon written demand, the Seller shall be
entitled to (i) prompt distribution of the Deposit by the Escrow Agent as
liquidated damages for such default, and (ii) termination of the Agreement. Such
liquidated damages, in addition to the termination of the Agreement as provided
below, shall be the Seller's sole remedy.
11.5 Termination. This Agreement shall terminate, and upon termination,
all obligations of either party to the other pursuant to the terms and
conditions of this Agreement shall cease and terminate, (other than with respect
to the obligations set forth above in Section 11.4), upon the occurrence of
either of the following:
11.5.1 Following a default and failure to cure within the
applicable Cure Period, upon written notice of the non-defaulting party to
the other party and the Escrow Agent requesting distribution of the
Deposit, or
11.5.2 The occurrence of the Closing Date, plus any applicable Cure
Period, without a Closing.
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11.6 Attorney's Fees. If it shall be necessary for either Buyer or Seller
to employ an attorney to enforce its rights pursuant to this Agreement because
of the default of the other party, the prevailing party shall be reimbursed by
the other party for all reasonable attorney's fees.
12 MISCELLANEOUS.
-------------
12.1 Notices. All notices, demands, requests and other communications
required or permitted hereunder shall be in writing, and shall be deemed
delivered on the earlier of (i) posting of registered or certified mail and
addressed to the addressee at its address set forth below or at such other
address as such party may have specified theretofore by notice delivered in
accordance with this Section, or (ii) actual receipt by the addressee:
If to Seller:
DiVall Income Properties 3 Limited Partnership
c/o The Provo Group, Inc., General Partner
101 West 11th Street, Suite 1110
Kansas City, Missouri 64105
Attention: Kristin Atkinson
FAX: (816) 221-2130
With a copy to:
Shughart Thomson & Kilroy, P.C.
120 W. 12th Street, Suite 1800
Kansas City, Missouri 64105
Attention: Jacob W. Bayer, Jr.
FAX: (816) 374-0509
If to Buyer:
Milwaukee Street Partners
20630 Bartlett Drive
Brookfield, Wisconsin 53045
Attention: Robert Korslin
FAX: (414) 827-9652
with a copy to:
Godfrey, Neshek, Worth, et al.
11 North Wisconsin Street
Elkhorn, WI 53121-0260
Attention: Lisle W. Blackbourn
FAX: (414) 723-5091
17
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to the address set forth in the Buyer's signature block to this Agreement,
to the attention of the signatory.
12.2 Survival of Representations and Warranties. No representations,
warranties or covenants of the Seller contained in this Agreement shall survive
the Closing.
12.3 Governing Law; Venue. The laws of the State of Missouri shall govern
the validity, enforcement, and interpretation of this Agreement. Any dispute or
cause of action under this Agreement shall be resolved in a court of competent
subject matter jurisdiction in Jackson County, Missouri.
12.4 Integration; Modification; Waiver. This Agreement constitutes the
complete and final expression of the agreement of the parties relating to the
Properties, and supersedes all previous contracts, agreements, and
understandings of the parties, either oral or written, relating to the
Properties. This Agreement cannot be modified, or any of the terms hereof
waived, except by an instrument in writing (referring specifically to this
Agreement) executed by the party against whom enforcement of the modification or
waiver is sought.
12.5 Counterpart Execution. This Agreement may be executed in several
counterparts, each of which shall be fully effective as an original and all of
which together shall constitute one and the same instrument.
12.6 Headings; Construction. The headings which have been used throughout
this Agreement have been inserted for convenience of reference only and do not
constitute matter to be construed in interpreting this Agreement.
12.7 Invalid Provisions. If any one or more of the provisions of this
Agreement, or the applicability of any such provision to a specific situation,
shall be held invalid or unenforceable, such provision shall be modified to the
minimum extent necessary to make it or its application valid and enforceable,
and the validity and enforceability of all other provisions of this Agreement
and all other applications of any such provision shall not be affected thereby.
12.8 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of Seller and Buyer, and their respective heirs, personal
representatives, successors and assigns. Buyer may not assign its rights under
this Agreement without the express written consent of Seller. Seller may assign
its rights under this Agreement, without the consent of Buyer. Except as
expressly provided herein, nothing in this Agreement is intended to confer on
any person, other than the parties hereto and their respective heirs, personal
representatives, successors and assigns, any rights or remedies under or by
reason of this Agreement.
12.9 Further Acts. In addition to the acts recited in this Agreement to
be performed by Seller and Buyer, Seller and Buyer agree to perform or cause to
be performed at the Closing or after the Closing any and all such further acts
as may be reasonably necessary to consummate the transactions contemplated
hereby.
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12.10 Time is of the Essence. Time is of the essence under this Agreement.
SELLER:
DIVALL INCOME PROPERTIES 3
LIMITED PARTNERSHIP
By: The Provo Group, Inc., General Partner
By: /s/ Bruce A. Provo
-------------------------
Bruce A. Provo, President
The Seller executes the foregoing Agreement and delivers an originally
executed copy of the Agreement to the Escrow Agent and a copy to the Buyer on
the ____________, 1999 (the "Acceptance Date").
BUYER:
MILWAUKEE STREET PARTNERS, LLC.
By: /s/ Robert J. Korslin
-----------------------------
Name: Robert J. Korslin
Title: Manager
Address: 20630 Bartlett Dr.
--------------------------
Brookfield, WI 53045
--------------------------
Type of Entity: Limited Liability Company
State of Organization: WI
------------
Fax #: (414) 827-9652
--------------------------
Date: 7/21/99
---------------------------
19
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STATE OF MISSOURI )
)SS:
COUNTY OF JACKSON )
On this 22nd day of July, 1999, before me, the undersigned, a Notary Public
in and for said county and state, personally appeared Bruce A. Provo, the
President of The Provo Group, Inc., the General Partner of DiVall Income
Properties 3 Limited Partnership, known to me to be the person who executed the
within instrument on behalf of said partnership and acknowledged to me that he
executed the same for the purposes therein stated.
------------------------
Notary Public
My commission expires:
12-1-2000
- - ----------------------
STATE OF WISCONSIN )
)SS:
COUNTY OF WAUKESHA )
On this 21st day of July, 1999, before me, the undersigned, a Notary Public
in and for said county and state, personally appeared Robert J. Korslin the
Manager of Milwaukee Street Partners, LLC., a limited liability company, known
to me to be the person who executed the within instrument on behalf of said
entity and acknowledged to me that he executed the same for the purposes therein
stated.
----------------------
Notary Public
My commission expires:
11-15-2002
- - -----------------------
20
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Exhibit 1.1
-----------
Form of Estoppel Certificate
----------------------------
TENANT ESTOPPEL CERTIFICATE
___________, 1999
DiVall Income Properties 3 Limited Partnership
101 West 11th Street, Suite 1110
Kansas City, Missouri 64105
Re: Landlord: DiVall Income Properties 3 Limited Partnership
Tenant:
Address:
To Whom It May Concern:
The Tenant operates ______________________ at the premises located at the
above-referenced address (the "Premises"), pursuant to a Lease Agreement dated
_________________, (the "Lease"). The Lease has not been amended in any other
respects. The Lease contains the complete agreement between the Landlord and the
Tenant regarding the Premises, and there is no oral agreement or course of
dealing modifying the Lease.
Tenant has been informed that the Landlord has accepted an offer to
purchase the Premises from Milwaukee Street Partners, LLC. (the "Buyer"). Tenant
understands that the Buyer will be acting in reliance upon this Tenant Estoppel
Certificate (the "Certificate") in acquiring the Premises.
The Tenant has been requested to and does hereby certify to Buyer and to
such others as it may concern, as follows:
LEASE.
-----
1 Tenant has accepted possession of the Premises and is now in full
possession of the same. All work to be performed by the Landlord under the Lease
has been performed.
2 The Tenant commenced occupancy of the Premises on _______________and
began paying rent on _________________.
3 The Lease term commenced on _______________, and the term expires
(excluding renewal periods) on _______________. There are __ renewal periods of
years each.
4 The minimum annual rent ("Base Rent") presently payable by the Tenant
pursuant to the Lease is $__________ per year.
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5 In addition to the Base Rent, the Tenant is obligated to pay
"Percentage Rent" as provided in the Lease. The Tenant paid Percentage Rent in
the amount of $______ in the lease year immediately preceding the current lease
year.
6 The Lease is an Absolutely Net Lease, meaning that, in addition to the
Base Rent and the Percentage Rent (if any), the Tenant is responsible for paying
all taxes, utilities and insurance and any and all repairs (except for repairs
to the structural components of the Premises) and other costs and expenses with
respect to the Premises ("Additional Rent").
7 The Tenant has not paid, and will not hereafter pay, any Base Rent,
Percentage Rent or Additional Rent (collectively the "Rent") more than one month
in advance.
8 Tenant has previously paid a security deposit in the amount of
$_______pursuant to the terms of the Lease.
9 There are no concessions, allowances, rebates, refunds or rent free
occupancies to which the Tenant is entitled under the Lease.
10 As of the date hereof, (i) there are no unpaid Rent arrearages due by
the Tenant under the Lease, and (ii) no security deposit held in connection with
the Lease has been drawn against for rent due or for any other purpose.
11 As of the date hereof, the Lease is in full force and effect, there
are no offsets of Rents, and there are no violations of or defaults under any of
the Lease terms on the part of either Landlord or the Tenant.
12 The Tenant has no knowledge of any circumstances giving rise to any
credit or set off against its obligation to pay present or future Rent, and the
Tenant has no notice of any prior assignment, hypothecation or pledge of the
Rents under this Lease.
13 Tenant has not received notice from any person of any violation of any
federal, state, county or municipal laws, regulations, ordinances, orders
relating to the use or condition of the Premises.
14 No environmentally hazardous materials have been used, stored, or
released or disposed of in violation of any applicable federal, state or local
statutes, rules or regulations on or about the Premises by the Tenant.
15 Tenant hereby acknowledges that, in the event Buyer purchases the
Premises and is the assignee of the Lease, following written notice of such sale
and assignment from the Landlord, Tenant will treat the Buyer in all respects as
the Landlord under the Lease and make all payments of Rent and other
performances under the Lease to the Buyer and, after the date of such notice,
look exclusively to the Buyer for all of Landlord's obligation under the Lease.
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The foregoing representations are true and accurate as of the date of this
Certificate. In the event of any material change of any of such representations
within the following six months, Tenant shall notify Landlord in writing
specifying with particularity the change. The Landlord and Buyer may rely on the
foregoing representations.
TENANT
----------------------------------
By:
-------------------------------
Date:
-----------------------------
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Exhibit 1.2
-----------
List of Ground Leases
---------------------
DiVall Income Properties 3 Limited Partnership
Ground Lease Agreement by and between DiVall Income Properties 3 Limited
Partnership and Rollco Investment Co. dated 7/1/91 for the premises located at
9069 E. Arapahoe Road, Englewood, Colorado.
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Exhibit 1.3
-----------
Form of Ground Leasehold Assignment and Assumption Agreement
------------------------------------------------------------
GROUND LEASEHOLD ASSIGNMENT AND ASSUMPTION AGREEMENT
This Ground Leasehold Assignment and Assumption Agreement (the
"Assignment") is made and entered into as of _________, 1999 by and between
DiVall Income Properties 3 Limited Partnership, a Wisconsin limited partnership
(the "Assignor") and Milwaukee Street Partners, LLC., a limited liability
company (the "Assignee") with respect to that certain Real Estate Purchase
Contract between the Assignor and Assignee dated as of ___________, 1999 (the
"Purchase Agreement").
Contemporaneously with the execution and delivery of this Assignment, the
Assignor has sold, transferred and conveyed to Assignee certain Land and
Improvements pursuant to special warranty deeds pursuant to the Purchase
Agreement and all of Assignors right, title and interest in and to the Leases
and other rights pursuant to the Leasehold Assignment and Assumption Agreement.
In connection with such conveyance to the Assignee, the Assignor does hereby
assign, transfer and convey to Assignee, as of the date of this Assignment, all
of Assignor's right, title and interest in and to (i) Lessee's Ground Leasehold
Interest with respect to the Ground Lease between Assignor and Rollco Investment
Co. dated July 1, 1991 for premises located at 9069 E. Arapahoe Road, Englewood,
Colorado, a copy of which is attached hereto as Attachment A, and (ii) any and
all contracts or agreements with respect to the premises subject to the Ground
Leases which are in existence on the date of this Assignment (collectively, the
"Intangible Property"). Specifically included within such assignment is any and
all right to possession and use of the premises subject to the Ground Leases,
and any and all other rights thereunder.
The Assignee hereby assumes all of Assignor's obligations, past, current
and future under each of the above referenced Ground Leases, and other
agreements, as of the date of this Assignment, including the obligation to pay
rent and any other amounts due under the Ground Leases. Assignee hereby
indemnifies and agrees to hold Assignor harmless from and in respect to any
actions, claims, damages, losses, costs, expenses and liabilities, including
without limitation, interest, penalties, reasonable attorney's fees and expenses
of investigation, response or remediation (collectively the "Claims"), in
connection with or arising out of or relating to the Ground Leases or
Improvements conveyed to Assignee, regardless of whether such Claims are brought
by or on behalf of a ground lessor or other third party or arise from acts
occurring before or after the date of this Assignment.
Any capitalized term used above, which is not otherwise defined in this
Assignment, shall have the meaning set forth in the Purchase Agreement.
25
<PAGE>
IN WITNESS WHEREOF the parties have caused this Assignment to be executed
as of the date first written above.
ASSIGNOR:
DIVALL INCOME PROPERTIES 3
LIMITED PARTNERSHIP
By: THE PROVO GROUP, INC., sole General Partner
By: ___________________________________
Bruce A. Provo, President
ASSIGNEE:
MILWAUKEE STREET PARTNERS, LLC.
By: _________________________________
Name: _______________________________
Title: ________________________________
ACKNOWLEDGED:
ROLLCO INVESTMENT CO.
By: _________________________________
Name: _______________________________
Title: ________________________________
26
<PAGE>
ATTACHMENT A TO GROUND LEASEHOLD ASSIGNMENT AND ASSUMPTION AGREEMENT
Copy of Ground Lease
- - --------------------
27
<PAGE>
Exhibit 1.6
-----------
Legal Description of Each Land Parcel
-------------------------------------
Property #1
2101 Greentree Rd
Pittsburgh, PA
All that certain lot or parcel of land situate in the Township of Scott,
Allegheny County, Pennsylvania, more particularly bounded and described as Lot
No. 1 in The Bourse Village Shops Plan of Lots No. 4, recorded on October 30,
1989 in the Allegheny County Recorder's Office at Plan Book Volume 161, pages
106 through 109.
Being designated as Block 100-H, Lot 202 in the Deed Registry Office of
Allegheny County, Pennsylvania.
Being the same property that DiVall Real Estate Investment Corporation, a
Wisconsin corporation, by its deed recorded on July 10, 1991 and recorded in the
Recorder's Office of Allegheny County, Pennsylvania, in Deed Book Volume 8518,
page 576, granted and conveyed unto DiVall Income Properties 3 Limited
Partnership, a Wisconsin limited partnership.
Property #2
9069 E. Araphahoe Rd.
Englewood, CO
Commencing at the Southeast corner of Tract 57, Clark Colony, County of
Arapahoe, State of Colorado;
thence Northerly along the East line of said Tract 57, 80.00 feet to a point on
the Northerly line of the Colorado State Highway Division's right of way;
thence on an angle to the left of 93 degrees 53 minutes 50 seconds and along
said Northerly line 94.62 feet to the point of beginning;
thence continuing along said Northerly line 150.00 feet to a point on the
Easterly right of way line of Interstate Highway No. 25;
thence on an angle to the right of 62 degrees 32 minutes 00 seconds and along
said Easterly right of way line 184.35 feet;
thence on an angle to the right of 121 degrees 05 minutes 00 seconds, 220.66
feet;
thence on an angle to the right of 90 degrees 16 minutes 50 seconds, 110.00
feet;
thence on an angle to the left of 33 degrees 04 minutes 22 seconds, 45.71 feet
to the point of beginning,
County of Arapahoe,
State of Colorado
28
<PAGE>
Property #3
4375 Sinton Road
Colorado Springs, CO
Beginning at the most southerly corner of said Lot 2; thence northeasterly on
the Southeasterly line of said Lot 2, a distance of 36.0 feet to the Point of
Beginning;
thence angle left 90 degrees Northwesterly, 55.50 feet;
thence angle right 90 degrees Northeasterly parallel with the Southeasterly line
of said Lot 2, a distance of 159.0 feet;
thence angle right 71 degrees 12 minutes 17 seconds easterly parallel with the
Northerly line of said Lot 2, a distance of 11.04 feet;
thence angle left 90 degrees 00 minutes 00 seconds and run northerly, a distance
of 35.35 feet to the aforementioned North line of said Lot 2;
thence Northeasterly on the Northerly line of said Lot 2, a distance of 59.62
feet to the Easterly corner of said Lot 2;
thence Southeasterly on the Southeasterly line of said Lot 2, 215.29 feet to the
Point of Beginning.
Property #4
9505 S. 13th Street
Oak Creek, Wisconsin
Lot 1 of Certified Survey Map No. 5502, recorded on January 8, 1991 on Reel
2528, Image 1402, as Document No. 6448221, being a division of Parcels 2 and 3,
Certified Survey Map No. 4471 and unplatted lands all located in the NE 1/4 of
the NE 1/4 of Section 30, T 5 N, R 22, E, City of Oak Creek, County of
Milwaukee, State of Wisconsin.
Property #5
2450 Layton Avenue
St. Francis, Wisconsin
That part of the Southwest 1/4 of the Southeast 1/4 of Section 22, Town 6 North,
Range 22 East, in the City of St. Francis, County of Milwaukee, State of
Wisconsin, which is bounded and described as follows:
Commencing at the Southwest corner of said 1/4 Section; thence due North along
the West line of said 1/4 Section 60.00 feet to a point; thence South 89 degrees
58' 11" East and parallel to the South line of said 1/4 Section 33.00 feet to
the point of beginning of the land to be described; thence due North and
parallel to the West line of said 1/4 Section 267.48 feet to a point on the
Southerly line of South Whitnall Avenue; thence South 69 degrees 15' 00" East
along a line which is Southwesterly of and parallel to the original center line
of South Whitnall Avenue 756.03 feet to a point in the North line of East Layton
Avenue, said point being 60.00 feet North of, as measured at right angles to the
South line
29
<PAGE>
of said 1/4 Section; thence North 89 degrees 58' 11" West along the North line
of East Layton Avenue 706.99 feet to the point of beginning. Excepting therefrom
the North 7.00 feet, the West 27.00 feet and that part thereof described in
Special Warranty Deed recorded as Document No. 7076180.
30
<PAGE>
Exhibit 1.7
List of Leases
DiVall Income Properties 3 Limited Partnership
Property 1
Lease Agreement by and between DiVall Insured Income Properties 3 Limited
Partnership and B.T. Woodlipp, Inc. dated 10/18/89 for the premises located at
2010 Greentree Road, Pittsburgh, Pennsylvania.
Property 2
Lease Agreement by and between DiVall Insured Income Properties 3 Limited
Partnership and DenAmerica Corporation dated 6/24/91 for the premises located at
9069 E. Arapahoe Road, Englewood, Colorado.
Property 3
Lease Agreement by and between DiVall Insured Income Properties 3 Limited
Partnership and DenAmerica Corporation dated 4/1/92 for the premises located at
4375 Sinton Road, Colorado Springs, Colorado.
Property 4
Lease Agreement by and between DiVall Insured Income Properties 3 Limited
Partnership and Hardee's Food Systems, Inc. dated 11/8/96 for the premises
located at 9505 S. 13th Street, Oak Creek, Wisconsin.
Property 5
Lease Agreement by and between DiVall Insured Income Properties 3 Limited
Partnership and Hardee's Food Systems, Inc. dated 11/8/96 for the premises
located at 2450 Layton Avenue, St. Francis, Wisconsin.
31
<PAGE>
Exhibit 1.8
Form of Leasehold Assignment and Assumption Agreement
LEASEHOLD ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (the "Assignment") is made and
entered into as of _________, 1999 by and between DiVall Income Properties 3
Limited Partnership, a Wisconsin limited partnership (the "Assignor") and
Milwaukee Street Partners, LLC., a limited liability company (the "Assignee")
with respect to that certain Real Estate Purchase Contract between the Assignor
and Assignee dated as of ___________, 1999 (the "Purchase Agreement").
Contemporaneously with the execution and delivery of this Assignment, the
Assignor has sold, transferred and conveyed to Assignee all of the Land and
Improvements pursuant to special warranty deeds (collectively the "Real
Property") related to the locations listed in Attachment A hereto. In connection
with such conveyance to the Assignee, the Assignor does hereby assign, transfer
and convey to Assignee, as of the date of this Assignment, all of Assignor's
right, title and interest in and to (i) Lessor's Leasehold Interest with respect
to each of the Leases listed in Attachment A, (ii) any and all obligations of
the Tenants to the Assignor, and (iii) any and all contracts or agreements with
respect to the Real Property which are in existence on the date of this
Assignment (collectively, the "Intangible Property"). Specifically included
within such assignment is any and all right to collect rent, and all other
amounts due and owing from the Tenants under such Leases, whether such amount is
past due, currently due and owing, or due and owing in the future.
The Assignee hereby assumes all of Assignor's obligations, past, current
and future under each of the above referenced Leases and other agreements, as of
the date of this Assignment. Assignee hereby indemnifies and agrees to hold
Assignor harmless from and in respect to any actions, claims, damages, losses,
costs, expenses and liabilities, including without limitation, interest,
penalties, reasonable attorney's fees and expenses of investigation, response or
remediation (collectively the "Claims"), in connection with or arising out of or
relating to the Leases, Land or Improvements conveyed to Assignee, regardless of
whether such Claims are brought by or on behalf of a Tenant or other third party
or arise from acts occurring before or after the date of this Assignment.
32
<PAGE>
Any capitalized term used above, which is not otherwise defined in this
Assignment, shall have the meaning set forth in the Purchase Agreement.
IN WITNESS WHEREOF the parties have caused this Assignment to be executed
as of the date first written above.
ASSIGNOR:
DIVALL INCOME PROPERTIES 3
LIMITED PARTNERSHIP
By THE PROVO GROUP, INC., sole General Partner
By:
---------------------------
Bruce A. Provo, President
ASSIGNEE:
MILWAUKEE STREET PARTNERS, LLC.
By:
----------------------------
Name:
--------------------------
Title:
------------------------
33
<PAGE>
ATTACHMENT A TO LEASEHOLD ASSIGNMENT AND ASSUMPTION AGREEMENT
List of Locations
List of Leases
<PAGE>
SELLER'S DISCLOSURE STATEMENT*
-----------------------------
To the actual knowledge of Seller:
6.1.1 Following is a list of all pending condemnation or similar
proceedings affecting the Properties or any portion thereof or any written
notice or knowledge of Seller that such proceeding is contemplated with
respect to any Property:
. None
6.1.2 Following is a list of all material contracts of employment,
management, maintenance, service or supply outstanding between the Seller
and any third party (other than the Tenant) which affects any of the
Properties which are not cancelable within thirty (30) days:
. None
6.1.6 Following are listed the attachments, executions, assignments
for the benefit of creditors, receiverships, conservatorships or voluntary
or involuntary proceedings in bankruptcy or pursuant to any debtor relief
laws contemplated or filed by Seller or any Tenant or which are pending
against Seller or any Tenant or any Property:
. None
6.1.8 Listed below are all of the actions, suits, claims, proceedings
or causes of action which are pending or have been threatened or asserted
against or are affecting, Seller or any Property or any part thereof in any
court or before any arbitrator, board of governmental or administrative
agency or any other person or entity, which might reasonably be considered
to have an adverse effect on the Property, any portion thereof, or upon the
consummation of the transaction contemplated by this Agreement:
. None
6.1.10 Below are listed each of the Properties which is subject to any
material unrepaired damage resulting from fire or other casualty:
. None
35
<PAGE>
6.1.11 Following is a list of the material defaults by Tenants under
their respective Leases, where the applicable Cure Period for such default
has run (i) with respect to payment of rent (whether base rent, percentage
rent or additional rent), and (ii) with respect to any other obligation
under a Lease:
. None
6.1.12 Following is a list of each default by Seller of any material
obligation under any Lease or Ground Lease:
. None
6.1.13 Following is a list of each default of any material obligation
of lessor under any Ground Lease:
. None
8.6.4 Following is a complete and accurate accounting and aging of
all Accounts Receivable as of May 31, 1999.
. See Attached Schedule.
*All of the information contained in this Disclosure Schedule is as of May 31,
1999.
36
<PAGE>
SCHEDULE 1
----------
Buyer's Schedule
----------------
Section 1.5
<TABLE>
<CAPTION>
Ground Individual
Property Lease Property
No. Property Location Concept (Y/N) Purchase Price
- - -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 B. T. Woodlipp, Inc. Applebee's N $1,200,000.00
2101 Greentree Road
Pittsburgh, PA
2 DenAmerica Corporation Denny's Y $ 240,000.00
9069 E. Arapahoe Road
Englewood, CO
3 DenAmerica Corporation Denny's N $ 675,000.00
4375 Sinton Road
Colorado Springs, CO
4 Hardee's Food Systems, Inc. Hardee's N $ 705,000.00
9505 S. 13th Street
Oak Creek, WI
5 Hardee's Food Systems, Inc. Hardee's N $ 730,000.00
2450 Layton Avenue
St. Francis, WI
TOTAL PURCHASE $3,550,000.00
PRICE: -------------
</TABLE>
Section 6.2.4
Except as set forth below, Buyer has not engaged any broker or finder with
respect to the Properties or the transaction contemplated by this Agreement, and
is not obligated to pay any other person a commission, finder's fee or other
compensation with respect to the Properties or the transaction contemplated by
the Agreement:
37
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
June 30, 1999 Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 274,821 274,821
<SECURITIES> 313,114 313,114
<RECEIVABLES> 48,690 48,690
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 636,625 636,625
<PP&E> 3,803,639 3,803,639
<DEPRECIATION> 746,043 746,043
<TOTAL-ASSETS> 3,694,221 3,694,221
<CURRENT-LIABILITIES> 78,595 78,595
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 3,615,626 3,615,626
<TOTAL-LIABILITY-AND-EQUITY> 3,694,221 3,694,221
<SALES> 106,201 215,568
<TOTAL-REVENUES> 111,985 229,071
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 60,224 115,866
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 51,761 113,205
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 51,761 113,205
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 51,761 113,205
<EPS-BASIC> 3.00 6.55
<EPS-DILUTED> 3.00 6.55
</TABLE>
<PAGE>
DiVall Income Properties 3, L.P.
QUARTERLY NEWS
- - --------------------------------------------------------------------------------
A publication of The Provo Group, Inc. SECOND QUARTER 1999
Liquidation Update
The Provo Group, Inc. has been working diligently with a potential buyer. We
have negotiated a price and as a result, we are in receipt of a fully executed
contract. If everything goes according to the contract, the Partnership would be
liquidated by year-end. Additionally, we are in receipt of the earnest money
deposit in the amount of $100,000. However, please be aware that a contract does
not necessarily mean a sale will transpire ... the buyer does have the option to
forfeit the earnest money deposit and withdraw the offer to purchase ... or the
buyer may simply be unable to perform.
Management is taking all the steps necessary in order for the Partnership to
liquidate by year-end. At this time, it is too early to communicate a
liquidation price. We will not have that information until liquidation costs,
closing fees, administrative expenses and all other costs are calculated and
accounted for. We should have an estimated liquidation price to report to you in
the next newsletter, which will be mailed out on November 15, 1999. Investors
can expect to receive a final quarterly distribution in November, a final
liquidation distribution in December, and the 1999 Schedule K-1s in February of
2000... if a sale is consummated.
--------------------------------
Distribution Highlights
. 9.1% (approx.) annualized return from operations and other sources based on
$3,500,000 (estimated net asset value as of December 31, 1998).
. $80,000 total amount distributed for the Second Quarter 1999 which was
$20,000 higher than projected.
. $4.68 per unit (approx.) for the Second Quarter 1999 from cash flow from
operations.
. $687.00 to $523.00 range of distributions per unit from the first unit sold
to the last unit sold before the offering closed (April 1992),
respectively. [NOTE: Distributions are from both cash flow from operations
and "net" cash activity from financing and investing activities.]
<PAGE>
Page 2 DiVall 3 2 Q 99
Statements of Income and Cash Flow Highlights
. Revenues were consistent with projections.
. There was an 17.6% decrease in "total" expenses from projections.
. Expenses were lower than projected because administrative costs, legal
fees and defaulted tenant expenses have all been lower than budgeted.
-------------------------------
Property Highlights
. VACANCIES - There were no vacancies as of June 30, 1999.
. RENTS RECEIVABLE - There are no delinquencies as of June 30, 1999.
------------------------------
Questions & Answers
1. When can I expect my next distribution mailing?
Your distribution correspondence for the Third Quarter of 1999 is scheduled
to be mailed on November 15, 1999.
For questions or additional information, please contact Investor Relations at:
1-800-547-7686 or 1-816-421-7444
All written inquiries may be mailed or faxed to:
The Provo Group, Inc.
101 West 11th Street, Suite 1110
Kansas City, Missouri 64105
(FAX 816-221-2130)
E-Mail: [email protected]
<PAGE>
DIVALL INCOME PRPOERTIES 3 L.P.
STATEMENTS OF INCOME AND CASH FLOW CHANGES
FOR THE THREE MONTH PERIOD ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
PROJECTED ACTUAL VARIANCE
----------------------------------------
<S> <C> <C> <C>
2ND 2ND
QUARTER QUARTER BETTER
OPERATING REVENUES 6/30/99 6/30/99 (WORSE)
-------- -------- -------
Rental income $105,600 $106,200 $ 600
Interest income 6,040 5,609 (431)
Other income 0 175 175
-------- -------- -------
TOTAL OPERATING REVENUES $111,640 $111,984 $ 344
-------- -------- -------
OPERATING EXPENSES
Insurance $ 1,017 $ 1,018 ($1)
Management fees 16,695 16,473 222
Overhead allowance 1,347 1,329 18
Advisory Board 4,300 4,250 50
Administrative 12,339 7,444 4,895
Professional services 3,760 3,962 (202)
Auditing 8,250 8,250 0
Legal 1,800 453 1,347
Defaulted tenants 1,050 274 776
-------- -------- -------
TOTAL OPERATING EXPENSES $ 50,558 $ 43,453 $ 7,105
-------- -------- -------
INVESTIGATION AND RESTORATION
EXPENSES $ 300 $ 0 $ 300
-------- -------- -------
NON-OPERATING EXPENSES
Depreciation $ 16,324 $ 16,324 $ 0
Amortization 446 446 (0)
-------- -------- -------
TOTAL NON-OPERATING EXPENSES $ 16,770 $ 16,770 $(0)
-------- -------- -------
TOTAL EXPENSES $ 67,628 $ 60,223 $ 7,405
-------- -------- -------
NET INCOME $ 44,012 $ 51,761 $ 7,749
OPERATING CASH RECONCILIATION: VARIANCE
---------
Depreciation and amortization 16,770 16,770 0
(Increase) Decrease in current
assets 857 14,158 13,301
Increase (Decrease) in current 8,048 (4,996) (13,044)
liabilities
(Increase) Decrease in cash
reserved for payables (8,224) 2,000 10,224
Advance from/(to) future cash flows
for current distributions 800 800 0
-------- -------- -------
Net Cash Provided From Operating
Activities $ 62,263 $ 80,493 $18,230
-------- -------- -------
CASH FLOWS FROM (USED IN) INVESTING
AND FINANCING ACTIVITIES
Recoveries from former general
partners 0 0 0
-------- -------- -------
Net Cash Provided from Investing
And Financing Activities $ 0 $ 0 $ 0
-------- -------- -------
Total Cash Flow For Quarter $ 62,263 $ 80,493 $18,230
Cash Balance Beginning of Period 229,052 257,126 28,074
Less 1st quarter distributions
paid 5/99 (60,000) (60,000) 0
Change in cash reserved for payables
or distributions 7,424 (2,800) (10,224)
-------- --------- --------
Cash Balance End of Period $238,739 $274,819 $36,080
Cash reserved for 2nd quarter
L.P. distributions (60,000) (80,000) (20,000)
Cash advanced from (reserved for)
future distributions (5,000) (5,000) 0
Cash reserved for payment of
payables (17,263) (61,800) (44,537)
-------- -------- --------
Unrestricted Cash Balance End of
Period $156,476 $128,019 $(28,457)
======== ======== ========
- - --------------------------------------------------------------------------------
PROJECTED ACTUAL VARIANCE
--------- ------ --------
* Quarterly Distribution $ 60,000 $ 80,000 $ 20,000
Mailing Date 8/15/99 (enclosed) -
</TABLE>
* Refer to distribution letter for detail of quarterly distribution.
<PAGE>
PROJECTIONS FOR
DISCUSSION PURPOSES DIVALL INCOME PROPERTIES 3 LIMITED PARTNERSHIP
1999 PROPERTY SUMMARY
AND RELATED ESTIMATED RECEIPTS
PORTFOLIO (Note 1)
<TABLE>
<CAPTION>
REAL ESTATE EQUIPMENT
--------------------------------- ----------------------------------------------
ANNUAL LEASE ANNUAL
BASE % EXPIRATION LEASE %
CONCEPT LOCATION COST RENT YIELD DATE COST RECEIPTS RETURN
- - ------------------------------ --------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
APPLEBEE'S PITTSBURGH, PA 891,333 116,040 13.02% 290,469 0.00%
" " 58,094 0.00%
DENNY'S CO SPRINGS, CO 580,183 77,460 13.35% 210,976 0 0.00%
DENNY'S ENGLEWOOD, CO 213,211 35,880 16.83% 210,976 0.00%
HARDEE'S (3) ST. FRANCIS, WI 1,194,381 92,000 7.70% (2) 369,688 0 0.00%
" " (2) 84,500 0 0.00%
HARDEE'S (3) OAK CREEK, WI 1,341,906 88,000 6.56% (2) 482,078 0 0.00%
" " (2) 105,488 0 0.00%
- - ------------------------------- ---------------------------------- ----------------------------------------------
- - ------------------------------- ---------------------------------- ----------------------------------------------
PORTFOLIO TOTALS (5 Properties) 4,221,014 409,380 9.70% 1,812,269 0 0.00%
- - ------------------------------- ---------------------------------- ----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOTALS
- - ---------------------------------
ANNUAL %
COST RECEIPTS RETURN
- - ---------------------------------
<S> <C> <C>
1,239,896 116,040 9.36%
791,159 77,460 9.79%
424,187 35,880 8.46%
1,648,569 92,000 5.58%
1,929,472 88,000 4.56%
- - ---------------------------------
- - ---------------------------------
6,033,283 409,380 6.79%
- - ---------------------------------
</TABLE>
Note 1: This property summary includes only current property and equipment held
by the Partnership.
2: The lease was terminated and the equipment sold to Hardee's Food
Systems in conjunction with their assumption of the Terratron leases.
3: These leases were assumed by Hardee's Food Systems at rental rates
lower than those stated in the original leases.
