-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Be7CtzprOHTG6QgRKohmWZG1R3H1juTzmZQFoOpaYqm9qPD3lH10LybxCWX/Ls02 f8X5ACZ68IjRVPaX0bjuYQ== 0000711642-99-000037.txt : 19990402 0000711642-99-000037.hdr.sgml : 19990402 ACCESSION NUMBER: 0000711642-99-000037 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANGELES PARTNERS XIV CENTRAL INDEX KEY: 0000759859 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953959771 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-14284 FILM NUMBER: 99579579 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10KSB 1 FORM 10-KSB ANNUAL OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended December 31, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from to Commission file number 0-14248 ANGELES PARTNERS XIV California 95-3959771 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Limited Partnership Units (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.X] State issuer's revenues for its most recent fiscal year. $6,267,000. State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests, as of December 31, 1998. No market value exists for the limited partnership interest of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE NONE PART I ITEM 1. DESCRIPTION OF BUSINESS Angeles Partners XIV (the "Partnership" or "Registrant") is a publicly-held limited partnership organized under the California Uniform Limited Partnership Act on June 29, 1984, as amended (the "Agreement"). The Partnership's Managing General Partner is Angeles Realty Corporation II ("ARC II" or the "Managing General Partner"), a California corporation and wholly-owned subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT") which is an affiliate of Insignia Financial Group, Inc. ("Insignia"). Effective October 1, 1998, and February 26, 1999, Insignia and IPT, respectively, were merged into Apartment Investment and Management Company ("AIMCO"). Thus the Managing General Partner is now a wholly-owned subsidiary of AIMCO. The Partnership's Non-Managing General Partner is ARCII/AREMCO Partners, Ltd. ARC II and ARCII/AREMCO Partners, Ltd. are herein collectively referred to as the "General Partners". The Partnership Agreement provides that the Partnership is to terminate on December 31, 2035 unless terminated prior to such date. The Registrant is engaged in the business of operating and holding real properties for investment. In 1985 and 1987, during its acquisition phase, the Registrant acquired four existing apartment properties, one office building and one industrial complex. The Registrant continues to own and operate two of the existing apartment properties. See "Item 2. Description of Properties". Commencing in February 1985, the Registrant offered pursuant to a Registration Statement filed with the Securities and Exchange Commission, up to 80,000 Units of Limited Partnership Interest (the "Units") at a purchase price of $1,000 per Unit with a minimum purchase of 5 Units ($5,000). The offering terminated in February 1987. Upon termination of the offering, the Registrant had accepted subscriptions for 44,390 Units, for an aggregate of $44,390,000. Since its initial offering, the Registrant has not received, nor are limited partners required to make, additional capital contributions. The Managing General Partner contributed capital in the amount of $1,000 for a 1% interest in the Partnership. The Partnership was formed for the purpose of acquiring fee interests in various types of real property. The Managing General Partner intends to maximize the operating results and, ultimately, the net realizable value of each of the Partnership's properties in order to achieve the best possible return for the investors. Such results may best be achieved through property sales, refinancings, debt restructurings or relinquishment of the assets. The Partnership intends to evaluate each of its holdings periodically to determine the most appropriate strategy for each of the assets. A further description of the Partnership's business is included in "Management's Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form 10-KSB. The Partnership has no full time employees. The Managing General Partner is vested with full authority as to the general management and supervision of the business and affairs of the Partnership. Limited Partners have no right to participate in the management or conduct of such business and affairs. Property management and administrative services are provided by affiliates of the Managing General Partner. The Dayton Industrial Complex was managed by an unaffiliated third party. The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Partnership's properties. The number and quality of competitive properties, including those which may be managed by an affiliate of the Managing General Partner in such market area, could have a material effect on the rental market for the apartments at the Registrant's properties and the rents that may be charged for such apartments. While the Managing General Partner and its affiliates are a significant factor in the United States in the apartment industry, competition for the apartments is local. In addition, various limited partnerships have been formed by the Managing General Partner and/or affiliates to engage in business which may be competitive with the Registrant. Both the income and expenses of operating the remaining properties owned by the Partnership are subject to factors outside of the Partnership's control, such as an oversupply of similar properties resulting from overbuilding, increases in unemployment or population shifts, reduced availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed, which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership interest in Insignia Properties Trust ("IPT"), the entity which controls the Managing General Partner. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. ITEM 2. DESCRIPTION OF PROPERTIES The following table sets forth the Registrant's investments in properties: Date of Property Purchase Type of Ownership Use Waterford Square 05/31/85 Fee ownership subject to a Residential Rental Apartments first mortgage (1) 487 units Fox Crest 06/30/85 Fee ownership subject to a Residential Rental Apartments first mortgage 245 units (1) Property is held by a limited partnership which the Registrant owns a 99% interest in. SCHEDULE OF PROPERTIES: Set forth below for each of the Registrant's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis. Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis (in thousands) (in thousands) Waterford Square Apartments $ 17,346 $ 11,134 5-20 yrs (1) $ 6,162 Fox Crest Apartments 9,621 6,116 5-20 yrs (1) 3,258 $ 26,967 $ 17,250 $ 9,420 (1) Straight-line and accelerated See "Note B" of the financial statements included in "Item 7." for a description of the Partnership's depreciation policy. SCHEDULE OF PROPERTY INDEBTEDNESS: The following table sets forth certain information relating to the loans encumbering the Registrant's properties: Principal Principal Balance At Balance December 31, Interest Period Maturity Due At Property 1998 Rate Amortized Date (6) Maturity (6) (in thousands) (in thousands) Waterford Square Apartments 1st mortgage $ 11,795 7.90% 31 yrs 11/2027 $ 86 Fox Crest Apartments 1st mortgage 6,311 8.00% 30 yrs 05/2003 5,445 Angeles Partners XIV Working capital loan, in default (3) 1,281 (1) (1) 11/1997 1,281 Working capital loan, in default (3) 3,295 (1) (1) 11/1997 3,295 Note payable (2) ("Glenwood") 2,405 12.50% (4) 03/2002 2,405 Note payable (2) ("Waterford Square") 433 12.00% (4) 03/2002 433 Note payable (2) ("Foxcrest") 4,765 12.50% (5) 03/2003 4,765 Total $ 30,285 $ 17,710 (1) Interest accrues at prime plus 2%; payments are made based on excess cash flow as defined. (2) Payable to Angeles Mortgage Investment Trust ("AMIT"), an affiliate of the Managing General Partner. (3) Payable to Angeles Acceptance Pool, L.P. ("AAP"). (4) Payment of excess cash flow only, as defined, due semi-annually. (5) No payments due until maturity. (6) See "Item 7, Consolidated Financial Statements _ Note E" for information with respect to the Registrant's ability to prepay these loans and more specific details as to the terms of the loans. RENTAL RATES AND OCCUPANCY: Average annual rental rates and occupancy for 1998 and 1997 for each property: Average Annual Average Annual Rental Rates Occupancy Property 1998 1997 1998 1997 Waterford Square Apartments $6,156/unit $6,034/unit 94% 92% Fox Crest Apartments 7,794/unit 7,525/unit 96% 96% As noted under "Item 1. Description of Business," the real estate industry is highly competitive. All of the properties of the Partnership are subject to competition from other residential apartment complexes in the area. The Managing General Partner believes that all of the properties are adequately insured. Each property is an apartment complex which leases its units for terms of one year or less. No residential tenant leases 10% or more of the available rental space. All of the buildings are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. REAL ESTATE TAX AND RATES: Real estate taxes and rates in 1998 for each property were: 1998 1998 Billing Rate (in thousands) Waterford Square Apartments $ 157 5.80% Fox Crest Apartments 191* 8.01% * Amount per 1997 billings, tax bills for 1998 not yet received. CAPITAL IMPROVEMENTS: Waterford Square Apartments paid approximately $314,000 in capital expenditures for the year ended December 31, 1998. This consisted primarily of a roof replacement project, exterior painting, carpet replacements, outdoor furniture and gutter replacements. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $517,000 of capital improvements over the near term. The budgeted amount for the year ended December 31, 1999 is approximately $601,000 consisting of, but not limited to, structural improvements, roof and flooring replacements, painting, landscaping, swimming pool repairs and appliance replacements. Fox Crest Apartments paid approximately $172,000 in capital expenditures for the year ended December 31, 1998. This consisted primarily of various building improvements, carpet replacements, and new appliances. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that the property requires approximately $515,000 of capital improvements over the near term. The budgeted amount for the year ended December 31, 1999 is approximately $555,000 consisting of, but not limited to interior and exterior building improvements. The capital improvements planned for 1999 at the Partnership's properties will be made only to the extent of cash available from operations and Partnership reserves. ITEM 3. LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc., ("Insignia") and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates to acquire limited partnership units, the management of partnerships by Insignia Affiliates as well as a recently announced agreement between Insignia and Apartment Investment and Management Company. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have recently filed an amended complaint. The Managing General Partner has filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers have been received. The Managing General Partner does not anticipate that costs associated with this case, if any, to be material to the Partnership's overall operations. On July 30, 1998, certain entities claiming to own limited partnership interests in certain limited partnerships whose general partners were, at the time, affiliates of Insignia filed a complaint entitled EVEREST PROPERTIES, LLC. V. INSIGNIA FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California, county of Los Angeles. The action involves 44 real estate limited partnerships (including the Partnership) in which the plaintiffs allegedly own interests and which Insignia Affiliates allegedly manage or control (the "Subject Partnerships"). This case was settled on March 3, 1999. The Partnership is responsible for a portion of the settlement costs. The expense will not have a material effect on the Partnership's operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Unit holders of the Registrant did not vote on any matter during the quarter ended December 31, 1998. PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS The Partnership, a publicly held limited partnership, offered and sold 44,390 limited partnership units aggregating $44,390,000. The Partnership currently has 4,392 holders of record owning an aggregate of 43,589 Units. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. In 1998 and 1997, the number of Limited Partnership Units decreased by 298 units and 10 units, respectively, due to Limited Partners abandoning their Limited Partnership Units. In abandoning his or her Limited Partnership Units, a Limited Partner relinquishes all right, title and interest in the Partnership as of the date of abandonment. However, the Limited Partner is allocated his or her share of income (loss) for that year. The income (loss) per Limited Partnership Unit in the accompanying statements of operations is calculated based on the number of units outstanding at the beginning of the year. There were no distributions made for the years ended December 31, 1998 and 1997. Future cash distributions will depend on the levels of net cash generated from operations, refinancings, property sales and the availability of cash reserves. The Registrant's distribution policy will be reviewed on a quarterly basis. However, based on the current default under the working capital loans and the pending maturities of the first mortgage loans, it is unlikely that a distribution will be made by the Registrant in the foreseeable future. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this Form 10-KSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosure contained in this Form 10-KSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward- looking statements as a result of a number of factors, including those identified herein. This item should be read in conjunction with the financial statements and other items contained elsewhere in this report. RESULTS OF OPERATIONS The Partnership realized net income of approximately $7,936,000 for the year ended December 31, 1998 versus a net loss of approximately $3,974,000 for the year ended December 31, 1997. The increase in net income for the year ended December 31, 1998 resulted from the extraordinary gain on extinguishment of debt of approximately $9,343,000. The Partnership realized a loss before extraordinary gain of approximately $1,407,000 for the year ended December 31, 1998 compared to a loss before extraordinary gain on extinguishment of debt of $3,974,000. The decrease in loss before extraordinary items is due to an increase in revenues and a decrease in expenses. Revenues increased primarily due to a gain on sale of investment which was offset by a decrease in rental income. Rental income decreased primarily due to the loss of Buildings 53, 59, 41 and 55 of the Dayton Industrial Complex in January, April, June and December 1998 but was slightly offset by an increase in rental income at both Fox Crest Apartments and Waterford Square Apartments. Average rental rates increased at both apartment properties, while Waterford Square Apartments also experienced an increase in average occupancy. The decrease in expenses is mainly due to decreases in operating expenses, interest expenses and property taxes partially offset by a slight increase in depreciation and general administrative expenses. In addition, the Partnership had a write-down of an investment in 1998 as opposed to a write-up of investment in 1997 (see discussion below). These decreases were primarily due to the foreclosures of Building 53 and 59 and the sales of Buildings 41 and 55 of the Dayton Industrial Complex. The decrease in operating expenses was partially offset by increased property expenses at both residential properties and an increase in maintenance expense at Fox Crest Apartments due to interior painting and repairs for the year ended December 31, 1998. The decrease in interest expense was due to foreclosure of Buildings 53 and 59 and the sale of Buildings 41 and 55, partially offset by an increase in interest expense on the defaulted debt due to interest accruing on increased debt balances as unpaid interest is added to principal. General and administrative and depreciation expense increased slightly for the comparable periods. Included in general and administrative expenses at both December 31, 1998 and 1997 are management reimbursements to the Managing General Partner allowed under the Partnership Agreement. In addition, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. In January 1998 and April 1998, Buildings 53 and 59, respectively, of the Dayton Industrial Complex were foreclosed on. In June and December 1998 Buildings 41 and 55 of the Dayton Industrial Complex were sold. Historically, the Dayton Industrial Complex has not been able to retain tenants and has never generated operating cash. Effective October 1, 1996, the Partnership determined that, based on economic conditions at the time as well as projected future operational cash flows, the decline in value of the property was other than temporary and recovery of the carrying value was not likely. Accordingly, the Dayton Industrial Complex's carrying value was reduced to an amount equal to its estimated fair value. The Partnership ceased making debt service payments on Buildings 53 and 59 in 1996 and the buildings were placed in receivership in 1997. In the Managing General Partner's opinion, it was not in the Partnership's best interest to contest the foreclosure actions. As a result of the foreclosures, the Partnership recorded an extraordinary gain on extinguishment of debt of approximately $2,244,000 and $3,637,000 for Buildings 53 and 59, respectively. Also, in connection with the foreclosure of Building 59, the Partnership recorded a $44,000 write-up of the building from its carrying value to its estimated fair value during 1998. Prior to the foreclosure of Building 53, the outstanding debt on the property was a first mortgage in the amount of approximately $1,043,000 and a second mortgage in the amount of approximately $1,669,000. Related accrued interest amounted to approximately $175,000. Prior to the foreclosure of Building 59, the outstanding debt on the property was a first mortgage in the amount of approximately $2,895,000 and a second mortgage in the amount of approximately $704,000. Related accrued interest amounted to approximately $688,000. As a result of the sale of Building 41, the Partnership recorded an extraordinary gain on extinguishment of debt of approximately $2,128,000. Prior to the sale of Building 41, the outstanding debt on the property was a first mortgage in the amount of approximately $1,104,000 and a second mortgage in the amount of approximately $2,823,000. Related accrued interest amounted to approximately $23,000. Related to the sale of Building 55, the Partnership recorded an extraordinary gain on extinguishment of debt of approximately $ 1,334,000. Prior to the sale of Building 55, the outstanding debt on the property was a second mortgage in the amount of approximately $2,833,000 and a third mortgage in the amount of approximately $1,377,000. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Registrant from increases in expenses. As part of this plan, the Managing General Partner attempts to protect the Registrant from inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At December 31, 1998, the Registrant held cash and cash equivalents of approximately $883,000 as compared to approximately $649,000 at December 31, 1997. The increase in cash and cash equivalents is due to $1,215,000 of cash provided by operating activities (however, this was primarily the result of accruing interest of approximately $2,282,000 on its indebtedness and $42,000 for services provided by affiliates, all of which if paid would have meant no cash would have been provided by operating activities) and $ 4,292,000 of cash provided by investing activities, which is partially offset by $5,273,000 of cash used in financing activities. Cash provided by investing activities consisted of proceeds from the sale of investment properties and receipts from restricted escrows, which was partially offset by property improvements and replacements. Cash used in financing activities consisted of payments of principal and repayment of loans on the mortgages encumbering the Registrant's properties, which was partially offset by additions to the notes payable. The Registrant invests its working capital reserves in a money market account. The accompanying financial statements have been prepared assuming the Partnership will continue as a going concern. The Partnership continues to incur recurring operating losses and suffers from inadequate liquidity. Recourse indebtedness of approximately $4,576,000 is in default at December 31, 1998, as a result of nonpayment of interest and principal upon its maturity in November 1997. With respect to the Partnership's two apartment complexes, the sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with Federal, state, and local legal and regulatory requirements. The Registrant has budgeted approximately $1,156,000 in capital improvements for all of the Registrant's properties in 1999. Budgeted capital improvements at Waterford Square Apartments consists of, but are not limited to, structural improvements, roof and flooring replacements, painting, landscaping, swimming pool repairs and appliance replacements. Budgeted capital improvements at Fox Crest Apartments consist of, but are not limited to interior and exterior building improvements. The capital expenditures will be incurred only if cash is available from operations or from partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. With respect to the Partnership as a whole the sufficiency of existing liquid assets to meet future debt requirements is directly related to the level of recourse and non-recourse debt at the Partnership level. The Partnership has unsecured working capital loans to AAP in the amount of approximately $4,576,000, plus related accrued interest that was due November 25, 1997. This indebtedness is recourse to the Partnership. The Partnership does not have the means with which to satisfy this obligation. The Managing General Partner does not plan to enter into negotiations with AAP on this indebtedness at this time. The Managing General Partner believes that the possibility that AAP will initiate collection proceedings on this indebtedness is remote, as the estimated value of the Partnership's investment properties and other assets are significantly less than the existing first mortgages and other secured Partnership indebtedness. If AAP initiates proceedings, then the Managing General Partner will enter into negotiations to restructure this indebtedness. The existing first mortgage indebtedness, working capital loans and amounts due to AMIT are thought to be in excess of the value of the properties. (Pursuant to a series of transactions, affiliates of the Managing General Partner acquired ownership interests in AMIT as follows: On September 17, 1998, AMIT was merged with and into IPT, effective February 26, 1999, IPT was merged into AIMCO. Accordingly, AIMCO is now the holder of the AMIT loans.) The two AMIT Notes in the amount of approximately $2,838,000 plus related accrued interest originally matured in March 1998; these notes are recourse to the Partnership only. During 1998, the lender agreed to extend the maturity date on these notes to March 2002. At the time of the granting of the extension, an additional $28,000 in loan costs was added to the principal. These loans require monthly payments of excess cash flow, as defined. The Partnership's other remaining note to AMIT for approximately $4,765,000, plus accrued interest at 12.5% per annum compounded monthly, is due March 2003 and does not require any payments until maturity. Accrued interest as of December 31, 1998 is approximately $1,943,000. The first mortgage loan encumbering Waterford Square Apartments, which is guaranteed by HUD, is scheduled to mature November 2027, at which time a balloon payment of $86,000 is due. Likewise, the first mortgage loan encumbering Fox Crest Apartments is scheduled to mature in May 2003, at which time a balloon payment of $5,445,000 is due. The Registrant is current in its payments on both of these mortgages. The Managing General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Registrant will risk losing such properties through foreclosure. No other sources of additional financing have been identified by the Partnership, nor does the Managing General Partner have any other plans to remedy the liquidity problems the Partnership is currently experiencing. The Managing General Partner anticipates that the Fox Crest Apartments and Waterford Square Apartments will generate sufficient cash flows during 1999 to meet all property operating expenses, property debt service requirements and to fund capital expenditures. However, these cash flows will be insufficient to provide debt service for the unsecured Partnership indebtedness. If the Managing General Partner is unsuccessful in its efforts to restructure these loans, then it may be forced to liquidate the Partnership. As a result of the above, there is substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classifications of liabilities that may result from these uncertainties. There were no distributions made for the years ended December 31, 1998 and 1997. Future cash distributions will depend on the levels of net cash generated from operations, refinancings, property sales and the availability of cash reserves. The Registrant's distribution policy will be reviewed on a quarterly basis. However, based on the current default under the working capital loans, it is unlikely that a distribution will be made by the Registrant in the foreseeable future. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the Managing General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four Phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the mainframe system used by the Managing Agent became fully functional. In addition to the mainframe, PC-based network servers and routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of December 31, 1998, had completed approximately 75% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by March 31, 1999. Computer software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. During 1998, the Managing Agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and the testing process is expected to be completed by March 31, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 80% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by March 31, 1999. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. The Managing Agent intends to have a third-party conduct an audit of these systems and report their findings by March 31, 1999. Any of the above operating equipment that has been found to be non-compliant to date has been replaced or repaired. To date, these have consisted only of security systems and phone systems. As of December 31, 1998 the Managing Agent has evaluated approximately 86% of the operating equipment for the Year 2000 compliance. The total cost incurred for all properties managed by the Managing Agent as of December 31, 1998 to replace or repair the operating equipment was approximately $400,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $325,000, which is expected to be completed by April 30, 1999. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within our enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before May 1999. The Managing Agent has updated data transmission standards with two of the three financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by June 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.8 million ($0.6 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. ITEM 7. FINANCIAL STATEMENTS ANGELES PARTNERS XIV LIST OF FINANCIAL STATEMENTS Report of Ernst & Young, LLP, Independent Auditors Consolidated Balance Sheet - December 31, 1998 Consolidated Statements of Operations - Years ended December 31, 1998 and 1997 Consolidated Statements of Changes in Partners' Deficit - Years ended December 31, 1998 and 1997 Consolidated Statements of Cash Flows - Years ended December 31, 1998 and 1997 Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Angeles Partners XIV We have audited the accompanying consolidated balance sheet of Angeles Partners XIV as of December 31, 1998, and the related consolidated statements of operations, changes in partners' deficit and cash flows for each of the two years in the period ended December 31, 1998. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Angeles Partners XIV at December 31, 1998, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that Angeles Partners XIV will continue as a going concern. As more fully described in Note A, the Partnership continues to incur recurring operating losses and suffers from inadequate liquidity. It is in default on unsecured indebtedness of $4,576,000, plus related accrued interest of $2,762,000, due to non-payment upon maturity of the debt in November 1997. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note A. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. /S/ ERNST & YOUNG LLP Greenville, South Carolina March 3, 1999 ANGELES PARTNERS XIV CONSOLIDATED BALANCE SHEET (in thousands, except unit data) December 31, 1998 Assets Cash and cash equivalents $ 883 Receivables and deposits 382 Restricted escrows 354 Other assets 360 Investment properties (Notes D, E and H): Land $ 2,243 Buildings and related personal property 24,724 26,967 Less accumulated depreciation (17,250) 9,717 $ 11,696 Liabilities and Partners' Deficit Liabilities Accounts payable $ 45 Tenant security deposit liabilities 88 Accrued taxes 315 Accrued interest 5,107 Due to affiliates (Note G) 1,342 Other liabilities 85 Notes payable, including $4,576 in default (Notes D, E and H) 30,285 Partners' Deficit General partners $ (639) Limited partners (43,589 units issued and outstanding) (24,932) (25,571) $ 11,696 See Accompanying Notes to Consolidated Financial Statements ANGELES PARTNERS XIV CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except unit data) Years Ended December 31, 1998 1997 Revenues: Rental income $ 5,147 $ 5,494 Other income 157 139 Gain on sale of investment properties (Note D) 963 -- Total revenues 6,267 5,633 Expenses: Operating 1,928 2,305 General and administrative 226 214 Depreciation 1,258 1,219 Interest 3,922 4,670 Property taxes 384 486 Write (up) down of investment property (Note H) (44) 713 Total expenses 7,674 9,607 Loss before extraordinary items (1,407) (3,974) Extraordinary item - gain on extinguishment of debt (Note D) 9,343 -- Net income (loss) $ 7,936 $ (3,974) Net income (loss) allocated to general partners (1%) $ 79 $ (40) Net income (loss) allocated to limited partners (99%) 7,857 (3,934) Net income (loss) $ 7,936 $ (3,974) Per limited partnership unit: Loss before extraordinary items $ (31.74) $ (89.62) Extraordinary item - gain on extinguishment of debt 210.76 -- Net income (loss) $ 179.02 $ (89.62) See Accompanying Notes to Consolidated Financial Statements ANGELES PARTNERS XIV CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (in thousands, except unit data) Limited Partnership General Limited Units Partners Partners Total Original capital contributions 44,390 $ 1 $ 44,390 $ 44,391 Partners' deficit at December 31, 1996 43,897 $ (678) $ (28,855) $ (29,533) Net loss for the year ended December 31, 1997 -- (40) (3,934) (3,974) Abandonment of limited Partnership Units (Note I) (10) -- -- -- Partners' deficit at December 31, 1997 43,887 (718) (32,789) (33,507) Net income for the year ended December 31, 1997 -- 79 7,857 7,936 Abandonment of limited Partnership Units (Note I) (298) -- -- -- Partners' deficit at December 31, 1998 43,589 $ (639) $ (24,932) $ (25,571) See Accompanying Notes to Consolidated Financial Statements ANGELES PARTNERS XIV CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 1998 1997 Cash flows from operating activities: Net income (loss) $ 7,936 $ (3,974) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 1,258 1,219 Amortization of discounts, loan costs, and leasing commissions 64 55 Extraordinary gain on extinguishment of debt (9,343) -- Gain on sale of investment properties (963) -- Bad debt recovery, net (7) (22) Write (up) down of investment property (44) 713 Change in accounts: Receivables and deposits (173) 156 Other assets 23 4 Accounts payable 42 (11) Tenant security deposit liabilities (8) 5 Accrued taxes (3) 9 Accrued interest 2,282 2,958 Due to affiliates 142 146 Other liabilities 9 1 Net cash provided by operating activities 1,215 1,259 Cash flows from investing activities: Property improvements and replacements (486) (343) Proceeds from sale of investment properties 4,741 -- Net withdrawals (deposits to) restricted escrows 37 (50) Net cash provided by (used in) investing activities 4,292 (393) Cash flows from financing activities: Principal payments on notes payable (603) (718) Repayment of loans (4,698) -- Additions to notes payable 28 183 Net cash used in financing activities (5,273) (535) Net increase in cash and cash equivalents 234 331 Cash and cash equivalents at beginning of year 649 318 Cash and cash equivalents at end of year $ 883 $ 649 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,603 $ 1,594 Supplemental disclosure of non-cash investing and financing activities: Interest on notes transferred to notes payable $ 1,063 $ 878
See Accompanying Notes to Consolidated Financial Statements ANGELES PARTNERS XIV CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Unaudited) (in thousands) Supplemental disclosure of non-cash activities Foreclosures/Sale In January and April of 1998, Buildings 53 and 59, respectively, of the Dayton Industrial Complex were foreclosed upon by the lender. In June 1998 and December 1998, Buildings 41 and 55, respectively, of the Dayton Industrial Complex were sold to an unaffiliated third party. The proceeds from the sale were used to pay down the mortgages secured by the property, and the remaining balance of the non-recourse indebtedness was forgiven. In connection with these non-cash transactions, the following accounts were adjusted:
Building 53 Building 59 Building 41 Building 55 Receivables and deposits $ (35) $ -- $ -- $ -- Other assets (9) -- -- -- Investment properties (660) (706) -- -- Accounts payable -- 30 -- -- Tenant security deposit liabilities 12 -- -- -- Property tax payable 64 26 -- -- Accrued interest 175 688 23 -- Mortgage notes payable 2,697 3,599 2,105 1,334
NOTE A - GOING CONCERN The accompanying financial statements have been prepared assuming Angeles Partners XIV (the "Partnership") will continue as a going concern. The Partnership continues to incur recurring operating losses and suffers from inadequate liquidity. Recourse indebtedness of approximately $4,576,000, plus accrued interest of $2,762,000 is in default at December 31, 1998, as a result of nonpayment of interest and principal upon maturity in November, 1997. The Partnership realized net income of approximately $7,936,000 for the year ended December 31, 1998. This was due to the recognition of an extraordinary gain on the extinguishment of debt of approximately $9,343,000, relating to the foreclosures of Buildings 53 and 59 and the sale of Buildings 41 and 55 in the Dayton Industrial Complex. The Partnership incurred a loss before the extraordinary gain of approximately $1,407,000. Angeles Realty Corporation II, (the "Managing General Partner" or "ARC II") expects the Partnership to continue to incur such losses from operations. The Partnership generated cash from operations of approximately $1,215,000 during the year ended December 31, 1998; however, this primarily was the result of accruing interest of approximately $2,282,000 on its indebtedness and $142,000 for services provided by affiliates. The Partnership has two notes to Angeles Mortgage Investment Trust ("AMIT"), which are recourse to the Partnership, in the amount of approximately $2,838,000 plus related accrued interest that originally matured in March 1998. The Managing General Partner negotiated with AMIT to extend this indebtedness and in the second quarter of 1998 executed an extension through March 2002. These notes require monthly payments of excess cash flow, as defined. The Partnership has unsecured working capital loans to Angeles Acceptance Pool, L.P. ("AAP") in the amount of approximately $4,576,000 plus related accrued interest of approximately $2,762,000 that is in default due to non-payment upon maturity in November 1997. This indebtedness is recourse to the Partnership. The Partnership does not have the means with which to satisfy this obligation. The Managing General Partner does not plan to enter into negotiations with AAP on this indebtedness at this time. The Managing General Partner believes that it is doubtful that AAP will initiate collection proceedings on this indebtedness since the estimated value of the Partnership's investment properties and other assets are significantly less than the existing first mortgages and other secured Partnership indebtedness. If AAP initiates proceedings, then the Managing General Partner will enter into negotiations to restructure this indebtedness. No other sources of additional financing have been identified by the Partnership, nor does the Managing General Partner have any other plans to remedy the liquidity problems the Partnership is currently experiencing. The Managing General Partner anticipates that Fox Crest Apartments and Waterford Square Apartments will generate sufficient cash flows for the next twelve months to meet all property operating expenses, property debt service requirements and to fund capital expenditures. However, these cash flows will be insufficient to provide debt service for the unsecured Partnership indebtedness. As a result of the above, there is substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classifications of liabilities that may result from these uncertainties. NOTE B - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization: The Partnership is a California limited partnership organized in June 1984, to acquire and operate residential and commercial real estate properties. The Partnership's managing general partner is Angeles Realty Corporation II ("ARC II" or "Managing General Partner") an affiliate of Insignia Financial Group, Inc. ("Insignia") and wholly-owned subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"). Effective October 1, 1998 and February 26, 1999, Insignia and IPT, respectively, were merged into Apartment Investment and Management Company ("AIMCO"). Thus the Managing General Partner is now a wholly-owned subsidiary of AIMCO. The Partnership's Non-Managing General Partner is ARCII/AREMCO Partners, Ltd. ARC II and ARCII/AREMCO Partners, Ltd. are herein collectively referred to as the "General Partners". The Partnership commenced operations on June 29, 1984, and completed its acquisition of apartment and commercial properties on December 20, 1985. As of December 31, 1998 the Partnership continues to operate two apartment properties, one in the Northwest and the other is in the South. The Partnership Agreement provides that the Partnership will terminate on December 31, 2035 unless terminated prior to such date. Principles of Consolidation: The consolidated financial statements include all of the accounts of the Partnership and its 99% limited partnership interest in Waterford Square Apartments, Ltd. The Partnership may remove the General Partner in Waterford Square Apartments, Ltd.; therefore, this partnership is controlled and consolidated by the Partnership. All significant interpartnership balances have been eliminated. Allocations and Distributions to Partners: In accordance with the Agreement, any gain from the sale or other disposition of Partnership assets will be allocated first to the General Partner to the extent of the amount of any Incentive Interest (as defined below) to which the General Partner is entitled. Any gain remaining after said allocation will be allocated to the Limited Partners in proportion to their interests in the Partnership; provided that the gain shall first be allocated to Partners with negative account balances, in proportion to such balances, in an amount equal to the sum of such negative capital account balances. The Partnership will allocate other profits and losses 1% to the General Partner and 99% to the Limited Partners. Except as discussed below, the Partnership will allocate distributions 1% to the General Partner and 99% to the Limited Partners. Upon the sale or other disposition, or refinancing of any asset of the Partnership, the Distributable Net Proceeds shall be distributed as follows: (i) First, to the Partners in proportion to their interests until the Limited Partners have received proceeds equal to their Original Capital Investment; (ii) Second, to the Partners until Limited Partners have received distributions from all sources equal to their 6% Cumulative Distribution, (iii) Third, to the General Partner until it has received its cumulative distributions equal to 3% of the aggregate Disposition Prices of all properties, mortgages or other investments sold ("Initial Incentive Interest") and (iv) Thereafter, 85% to the Partners in proportion to their interests and 15% to the General Partner ("Final Incentive Interest"). Cash and Cash Equivalents: Cash and cash equivalents includes cash on hand and in banks, money market accounts, and certificates of deposit with original maturities of less than 90 days. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. The security deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Advertising Costs: Advertising costs, of approximately $59,000 in 1998 and approximately $64,000 in 1997, are charged to expense as they are incurred and are included in operating expenses in the accompanying consolidated statements of operations. Investment Properties: Investment properties consist of two apartment complexes and are stated at cost. Acquisition fees are capitalized as a cost of real estate. In accordance with Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Partnership records impairment losses on long- lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Costs of apartment properties that have been permanently impaired have been written down to appraised value. Depreciation: Depreciation is computed utilizing straight-line and accelerated methods over the estimated useful lives of the investment properties and related personal property. For Federal income tax purposes, depreciation is computed utilizing the straight-line method over an estimated life of 5 to 20 years for personal property and 15 to 40 years for real property. Loan Costs: Loan costs of approximately $356,000, at December 31, 1998, which are included in other assets on the accompanying balance sheet, are being amortized on a straight-line basis over the lives of the loans. At December 31, 1998, accumulated amortization is approximately $60,000 and is also included in other assets on the accompanying balance sheet. Leases: The Partnership generally leases apartment units for twelve-month terms or less. In addition, the Managing General Partner's policy is to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged against rental income as incurred. Fair Value of Financial Instruments: Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's first mortgages, after discounting the scheduled loan payments to maturity, approximates its carrying balance. The Managing General Partner believes that it is not appropriate to use the Partnership's incremental borrowing rate for debt to affiliates or debt that is in default as there is no market in which the Partnership could obtain similar financing. Segment Reporting: In June 1997, the Financial Accounting Standards Board issued Statement of Financial Standards No. 131, Disclosure about Segments of an Enterprise and Related Information ("Statement 131"), which is effective for years beginning after December 15, 1997. Statement 131 established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. (See "Note J" for disclosure about the Registrant's segments) Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassification: Certain reclassifications have been made to the 1997 balances to conform to the 1998 presentation. NOTE C - TRANSFER OF CONTROL Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into Apartment Investment and Management Company, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO ultimately acquired a 100% ownership interest in Insignia Properties Trust ("IPT"), the entity which controls the Managing General Partner. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE D - FORECLOSURE AND SALE OF INVESTMENT PROPERTIES In January 1998 and April 1998, Buildings 53 and 59, respectively, of the Dayton Industrial Complex were foreclosed upon and in June and December 1998, Buildings 41 and 55 of the Dayton Industrial Complex were sold. Historically, the Dayton Industrial Complex has not been able to retain tenants and has never generated operating cash. Effective October 1, 1996, the Partnership determined that, based on economic conditions at the time as well as projected future operational cash flows, the decline in value of the property was other than temporary and recovery of the carrying value was not likely. Accordingly, the Dayton Industrial Complex's carrying value was reduced to an amount equal to its estimated fair value. The Partnership ceased making debt service payments on Buildings 53 and 59 in 1996 and the buildings were placed in receivership in 1997. In the Managing General Partner's opinion, it was not in the Partnership's best interest to contest the foreclosure actions. As a result of the foreclosures, the Partnership recorded an extraordinary gain on extinguishment of debt of approximately $2,244,000 and $3,637,000 for Buildings 53 and 59, respectively. Also, in connection with the foreclosure of Building 59, the Partnership recorded a $44,000 write-up of the building from its carrying value to its estimated fair value during the second quarter of 1998. Prior to the foreclosure of Building 53, the outstanding debt on the property was a first mortgage in the amount of approximately $1,043,000 and a second mortgage in the amount of approximately $1,669,000. Related accrued interest amounted to approximately $175,000. Prior to the foreclosure of Building 59, the outstanding debt on the property was a first mortgage in the amount of approximately $2,895,000 and a second mortgage in the amount of approximately $704,000. Related accrued interest amounted to approximately $688,000. The Partnership sold Building 41 of the Dayton Industrial Complex on June 12, 1998, to an unaffiliated party for net sales proceeds of approximately $1,847,000. The partnership realized a loss of approximately $177,000 on the sale and a related $2,128,000 extraordinary gain on the early extinguishment of debt during the second quarter of 1998. The extraordinary gain was the result of forgiveness of debt. Prior to the sale of Building 41, the outstanding debt on the property was a first mortgage in the amount of approximately $1,104,000 and a second mortgage in the amount of approximately $2,823,000. Related accrued interest amounted to approximately $23,000. Net proceeds of $1,822,000 were used to pay down this non-recourse indebtedness and the remaining balances were forgiven. On December 31, 1998, the Partnership sold Building 55 of the Dayton Industrial Complex to an unaffiliated party for net sales proceeds of approximately $2,894,000 after payment of closing costs. The partnership realized a gain of approximately $1,140,000 on the sale and a related $1,334,000 extraordinary gain on the early extinguishment of debt during the second quarter of 1998. The extraordinary gain was the result of forgiveness of debt. Prior to the sale of Building 55, the outstanding debt of the property was a second mortgage in the amount of approximately $2,833,000 and a third mortgage in the amount of approximately $1,377,000. Net proceeds of $2,876,000 were used to pay down this non-recourse indebtedness and the remaining balances were forgiven. NOTE E - NOTES PAYABLE The principle terms of notes payable are as follows: Monthly Principal Principal Payment Stated Balance Balance At Including Interest Maturity Due At December 31, Property Interest Rate Date Maturity 1998 (in thousands) (in thousands) Waterford Square Apartments 1st mortgage $ 87 7.90% 11/2027 $ 86 $ 11,795 Fox Crest Apartments 1st mortgage 56 8.0% 05/2003 5,445 6,311 Angeles Partners XIV Working capital loan, in default (3) (1) (1) 11/1997 1,281 1,281 Working capital loan, in default (3) (1) (1) 11/1997 3,295 3,295 Note payable (2) ("Glenwood") (4) 12.50% 03/2002 2,405 2,405 Note payable (2) ("Waterford Square") (4) 12.00% 03/2002 433 433 Note payable (2) ("Foxcrest") (5) 12.50% 03/2003 4,765 4,765 Totals $17,710 $30,285 (1) Interest accrues at prime plus 2%; payments are based on excess cash flow as defined. (2) Payable to AMIT, an affiliate of the Managing General Partner. (3) Payable to AAP. (4) Payments of excess cash flow only, as defined, due semi-annually. (5) No payments due until maturity. In June 1996, the Waterford Square note and the Glenwood note, both held by AMIT, were restructured, adding previously accrued delinquent interest and late charges of approximately $874,000 to the original note amount. The $459,000 and $1,915,000 notes provide semi-annual payments of excess cash flow, as defined, and matured in March 1998. The notes provided for the accrual of interest on the unpaid balance at 12.0% (Waterford Square note) and 12.5% (Glenwood note). In July 1998, the lender agreed to extend the maturity date on these notes to March 2002. At the time of the granting of the extension, an additional $28,000 in loan costs was added to the principal. Mortgage notes payable totaling approximately $18,106,000 are nonrecourse and are secured by pledge of certain of the Partnership's investment properties and by pledge of revenues from the respective investment properties. Certain of the notes include prepayment penalties if repaid prior to maturity. Further the properties may not be sold subject to existing indebtedness. Scheduled principal payments of notes payable subsequent to December 31, 1998, are as follows (in thousands): 1999 $ 4,860 2000 308 2001 333 2002 3,199 2003 10,440 Thereafter 11,145 $ 30,285 NOTE F - INCOME TAXES Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. The following is a reconciliation of reported net income (loss) and Federal taxable income (loss) (in thousands except per unit data): 1998 1997 Net income (loss) as reported $ 7,936 $ (3,974) Add (deduct): Depreciation differences (38) (326) Unearned income (1) 107 Discounts on notes payable -- 47 Book-tax difference on sale/foreclosures (2,472) -- Write (up) down of investment properties (44) 713 Other 48 (1) Federal taxable income (loss) 5,429 $ (3,434) Federal taxable income (loss) per limited partnership unit $ 81.42 $ (77.47) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net liabilities as reported $ (25,571) Land and buildings (74) Accumulated depreciation (223) Syndication and distribution costs 6,047 Difference in investment in lower tier (5,389) Other 60 Net liabilities - Federal tax basis $ (25,150) NOTE G - TRANSACTIONS WITH AFFILIATED PARTIES The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Managing General Partner and affiliates during the year ended December 31, 1998 and 1997. 1998 1997 (in thousands) Property management fees (included in operating expenses) $ 264 $ 251 Reimbursement for services of affiliates, including approximately $23,000 and $6,000 of construction oversight reimbursements in 1998 and 1997, respectively; (included in investment property, operating, and general and administrative expenses) 164 153 Due to affiliate 1,342 1,200 During the years ended December 31, 1998 and 1997, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from all of the Registrant's residential properties as compensation for providing property management services. The Registrant paid to such affiliates $264,000 and $251,000 for the years ended December 31, 1998 and 1997, respectively. Property management services for the Dayton Industrial Complex were performed by an unaffiliated third party. Affiliates of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $164,000 and $153,000 for the years ended December 31, 1998 and 1997, respectively. For the period from January 1, 1997, to August 31, 1997, the Partnership insured its properties under a master policy through an agency affiliated with the Managing General Partner with an insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner which receives payment on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. In November 1992, AAP, a Delaware limited partnership which now controls the working capital loan previously provided by Angeles Capital Investment, Inc. ("ACII"), was organized. Angeles Corporation ("Angeles") is the 99% limited partner of AAP and Angeles Acceptance Directives, Inc.("AAD"), which was wholly- owned by IPT, was, until April 14, 1995, the 1% general partner of AAP. On April 14, 1995, as part of a settlement of claims between affiliates of the General Partner and Angeles, AAD resigned as general partner of AAP and simultaneously received a .5% limited partner interest in AAP. An affiliate of Angeles now serves as the general partner of AAP. These working capital loans funded the Partnership's operating deficits in prior years. Total indebtedness was approximately $4,576,000, plus accrued interest, at December 31, 1998, with monthly interest accruing at prime plus two percent. Upon maturity on November 25, 1997, the Partnership did not have the means with which to satisfy this maturing debt obligation. Total interest expense for this loan was approximately $489,000 and $485,000 for year ended December 31, 1998 and 1997, respectively. Accrued interest payable was approximately $2,762,000 at December 31, 1998. AMIT provides financing (the "AMIT Loans") to the Partnership. The principal balances on the AMIT Loans totals approximately $7,603,000 at December 31, 1998, accrues interest at rates of 12% to 12.5% per annum and are recourse to the Partnership. Two of the three notes totaling $2,838,000 originally matured in March 1998. The Managing General Partner negotiated with AMIT to extend this indebtedness and in the second quarter of 1998, executed an extension through March 2002. The remaining note with a principal balance of approximately $4,765,000 matures in March 2003. Total interest expense on the AMIT Loans was approximately $1,124,000 and $1,025,000 for the years ended December 31, 1998 and 1997, respectively. Accrued interest was approximately $2,225,000 at December 31, 1998. Pursuant to a series of transactions, affiliates of the Managing General Partner acquired ownership interests in AMIT. On September 17, 1998, AMIT was merged with and into IPT, the Managing General Partner. Effective February 26, 1999, IPT was merged into AIMCO. AIMCO is now the holder of the AMIT Loans. NOTE H - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION
Initial Cost To Partnership (in thousands) Cost Buildings Capitalized and Related (Removed) Personal Subsequent to Description Encumbrances Land Property Acquisition Waterford Square Apartments $ 11,795 $ 1,382 $ 13,479 $ 2,485 Fox Crest Apartments 6,311 861 8,198 562 Angeles Partners XIV 12,179 -- -- -- Totals $ 30,285 $ 2,243 $ 21,677 $ 3,047
Gross Amount At Which Carried At December 31, 1998 (in thousands) Buildings And Related Personal Accumulated Date Depreciable Description Land Property Total Depreciation Acquired Life-Years Waterford Square Apartments $ 1,382 $ 15,964 $ 17,346 $ 11,134 05/31/85 5-20 yrs Fox Crest Apartments 861 8,760 9,621 6,116 06/30/85 5-20 yrs Totals $ 2,243 $ 24,724 $ 26,967 $ 17,250
The depreciable lives included above are for the buildings and components. The depreciable lives for related personal property are for 3 to 7 years. As mentioned previously, the Partnership disposed of all of the remaining Dayton Buildings, either to foreclosure or sales, during 1998. The Partnership accounted for these buildings as "held for disposal" effective October 1, 1996, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" and has recorded write-ups and write-downs of approximately $44,000 and $(713,000) for the years ended December 1998 and 1997, respectively, on the buildings from their carrying value to their estimated fair value less costs to dispose. The Partnership recognized rental revenues and operating expenses of approximately $544,000 and $970,557, respectively, for Dayton Industrial Complex for the year ended December 31, 1998, compared to rental revenues and operating expenses of approximately $1,044,000 and $2,230,000, respectively, for the year ended December 31, 1997. Reconciliation of "Investment Properties and Accumulated Depreciation": Years Ended December 31, 1998 1997 (in thousands) Investment Properties Balance at beginning of year $ 40,284 $ 40,654 Property improvements 486 343 Dispositions (13,847) -- Write up (down) 44 (713) Balance at end of Year $ 26,967 $ 40,284 Accumulated Depreciation Balance at beginning of year $ 24,760 $ 23,541 Additions charged to expense 1,258 1,219 Dispositions (8,768) -- Balance at end of Year $ 17,250 $ 24,760 The aggregate cost of the investment properties for Federal income tax purposes at December 31, 1998 and 1997, is approximately $26,893,000 and $43,017,000. The accumulated depreciation taken for Federal income tax purposes at December 31, 1998 and 1997, is approximately $17,473,000 and $25,405,000, respectively. NOTE I - ABANDONMENT OF LIMITED PARTNERSHIP UNITS In 1998 and 1997, the number of Limited Partnership Units decreased by 298 units and 10 units, respectively, due to Limited Partners abandoning their Limited Partnership Units. In abandoning his or her Limited Partnership Units, a Limited Partner relinquishes all right, title and interest in the Partnership as of the date of abandonment. However, the Limited Partner is allocated his or her share of income (loss) for that year. The income (loss) per Limited Partnership Unit in the accompanying statements of operations is calculated based on the number of units outstanding at the beginning of the year. NOTE J _ SEGMENT REPORTING Description of the types of products and services from which reportable segment derives its revenues: As defined by SFAS No. 131," Disclosures about Segments of an Enterprise and Related Information", the Partnership has one reportable segment: residential properties. The Partnership's residential property segment consists of two apartment complexes located in Waukegan, Illinois and Huntsville, Alabama. The Partnership rents apartment units to people for terms that are typically less than twelve months. Measurement of segment profit or loss: The Partnership evaluates performance based on net income. The accounting policies of the reportable segment are the same as those described in the summary of significant accounting policies. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segment consists of investment properties that offer similar products and services. Although each of the investment properties are managed separately, they have been aggregated into one segment as they provide services with similar types of products and customers. Segment information for the years 1998 and 1997 is shown in the tables below. The "Other" column includes partnership administration related items and other income and expense not allocated to the reportable segment. 1998 RESIDENTIAL OTHER TOTALS Rental income $ 4,605 $ 542 $ 5,147 Other income 143 14 157 Interest expense 1,526 2,396 3,922 Depreciation 1,258 -- 1,258 General and administrative expense -- 226 226 Gain on sale of investment properties -- 963 963 Extraordinary item - gain on extinguishment of debt -- 9,343 9,343 Segment profit (loss) (157) 8,093 7,936 Total assets 11,321 375 11,696 Capital expenditures for investment properties 486 -- 486 1997 Rental income 4,427 1,067 5,494 Other income 130 9 139 Interest expense 1,556 3,114 4,670 Depreciation 1,219 -- 1,219 General and administrative expense -- 214 214 Segment profit (loss) (361) (3,613) (3,974) Total assets 11,616 5,670 17,286 Capital expenditures for investment properties 274 69 343 NOTE K _ LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, the Managing General Partner and several of their affiliated partnerships and corporate entities. The complaint purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging the acquisition by Insignia Financial Group, Inc., ("Insignia") and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates to acquire limited partnership units, the management of partnerships by Insignia Affiliates as well as a recently announced agreement between Insignia and Apartment Investment and Management Company. The complaint seeks monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, plaintiffs have recently filed an amended complaint. The Managing General Partner has filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The Managing General Partner does not anticipate that costs associated with this case, if any, to be material to the Partnership's overall operations. On July 30, 1998, certain entities claiming to own limited partnership interests in certain limited partnerships whose general partners were, at the time, affiliates of Insignia filed a complaint entitled EVEREST PROPERTIES, LLC. V. INSIGNIA FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California, county of Los Angeles. The action involves 44 real estate limited partnership (including the Partnership) in which the plaintiffs allegedly own interests and which Insignia Affiliates allegedly manage or control (the "Subject Partnerships"). This case was settled on March 3, 1999. The Partnership is responsible for a portion of the settlement costs. The expense will not have a material effect on the Partnership's operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND FINANCIAL DISCLOSURES There were no disagreements with Ernst & Young LLP regarding the 1998 or 1997 audits of the Partnership's financial statements. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Angeles Realty Corporation II ("ARC II" or the "Managing General Partner") was a wholly-owned subsidiary of MAE GP Corporation ("MAE GP"). Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust ("IPT"). Effective February 26, 1999, IPT was merged into Apartment Investment and Management Company ("AIMCO"). Thus, the Managing General Partner is now a wholly-owned subsidiary of AIMCO. The names and ages of, as well as the positions and offices held by, the present executive officers and director of ARC II are set forth below. There are no family relationships between or among any officers or directors. Name Age Position Patrick J. Foye 41 Executive Vice President and Director Timothy R. Garrick 42 Vice President - Accounting and Director Patrick J. Foye has been Executive Vice President and Director of the Managing General Partner since October 1, 1998. Mr. Foye has served as Executive Vice President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Timothy R. Garrick has served as Vice President-Accounting of AIMCO and Vice President-Accounting and Director of the Managing General Partner since October 1, 1998. Prior to that date, Mr. Garrick served as Vice President-Accounting Services of Insignia Financial Group since June of 1997. From 1992 until June of 1997, Mr. Garrick served as Vice President of Partnership Accounting and from 1990 to 1992 as an Asset Manager for Insignia Financial Group. From 1984 to 1990, Mr. Garrick served in various capacities with U.S. Shelter Corporation. From 1979 to 1984, Mr. Garrick worked on the audit staff of Ernst & Whinney. Mr. Garrick received his B.S. Degree from the University of South Carolina and is a Certified Public Accountant. ITEM 10. EXECUTIVE COMPENSATION No compensation or remuneration was paid by the Partnership to any officer or director of ARC II. The Partnership has no plan, nor does the Partnership presently propose a plan, which will result in any remuneration being paid to any officer or director upon termination of employment. However, certain fees and other payments have been made to the Partnership's Managing General Partner and its affiliates, as described in "Item 12.". ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 1998, no person or entity owned of record more than 5% of the Limited Partnership Units of the Partnership nor was any person or entity known by the Partnership to own of record and beneficially, or beneficially only, more than 5% of such securities. On October 1, 1998, Insignia Financial Group, Inc. merged into AIMCO, a real estate investment trust, whose Class A Common Shares are listed on the New York Stock Exchange. As a result of such merger, AIMCO and AIMCO Properties, L.P., a Delaware limited partnership and the operating partnership of AIMCO ("AIMCO OP") acquired indirect control of the Managing General Partner. AIMCO is presently considering whether it will engage in an exchange offer for limited partnership interests in the Partnership. There is a substantial likelihood that, within a short period of time, AIMCO OP will offer to acquire limited partnership interests in the Partnership for cash or preferred units or common units of limited partnerships interests in AIMCO OP. While such an exchange offer is possible, no definite plans exist as to when or whether to commence such an exchange offer, or as to the terms of any such exchange offer, and it is possible that none will occur. A registration statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Form 10-KSB shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state. The Partnership knows of no contractual arrangements, the operation or the terms of which may at a subsequent date result in a change in control of the Partnership, except as follows: Article 12.1 of the Agreement, which provides that upon a vote of the Limited Partners holding more than 50% of the then outstanding Limited Partnership Units the Managing General Partner may be expelled from the Partnership upon 90 days written notice. In the event that a successor general partner has been elected by Limited Partners holding more than 50% of the then outstanding Limited Partnership Units and if said Limited Partners elect to continue the business of the Partnership, the Partnership is required to pay in cash to the expelled Managing General Partner an amount equal to the accrued and unpaid management fee described in Article 10 of the Agreement and to purchase the Managing General Partner's interest in the Partnership on the effective date of the expulsion, which shall be an amount equal to the difference between (i) the balance of the Managing General Partner's capital account and (ii) the fair market value of the share of Distributable Net Proceeds to which the Managing General Partner would be entitled. Such determination of the fair market value of the share of Distributable Net Proceeds is defined in Article 12.2(b) of the Agreement. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Managing General Partner and affiliates during the year ended December 31, 1998 and 1997. 1998 1997 (in thousands) Property management fees (included in operating expenses) $ 264 $ 251 Reimbursement for services of affiliates, including approximately $23,000 and $6,000 of construction oversight reimbursements in 1998 and 1997, respectively; (included in investment property, operating, and general and administrative expenses) 164 153 Due to affiliate 1,342 1,200 During the years ended December 31, 1998 and 1997, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from all of the Registrant's residential properties as compensation for providing property management services. The Registrant paid to such affiliates $264,000 and $251,000 for the years ended December 31, 1998 and 1997, respectively. Property management services for the Dayton Industrial Complex were performed by an unaffiliated third party. Affiliates of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $164,000 and $153,000 for the years ended December 31, 1998 and 1997, respectively. For the period from January 1, 1997, to August 31, 1997, the Partnership insured its properties under a master policy through an agency affiliated with the Managing General Partner with an insurer unaffiliated with the Managing General Partner. An affiliate of the Managing General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner which receives payment on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Managing General Partner by virtue of the agent's obligations was not significant. In November 1992, AAP, a Delaware limited partnership which now controls the working capital loan previously provided by Angeles Capital Investment, Inc. ("ACII"), was organized. Angeles Corporation ("Angeles") is the 99% limited partner of AAP and Angeles Acceptance Directives, Inc.("AAD"), which was wholly- owned by IPT, was, until April 14, 1995, the 1% general partner of AAP. On April 14, 1995, as part of a settlement of claims between affiliates of the General Partner and Angeles, AAD resigned as general partner of AAP and simultaneously received a .5% limited partner interest in AAP. An affiliate of Angeles now serves as the general partner of AAP. These working capital loans funded the Partnership's operating deficits in prior years. Total indebtedness was approximately $4,576,000, plus accrued interest, at December 31, 1998, with monthly interest accruing at prime plus two percent. Upon maturity on November 25, 1997, the Partnership did not have the means with which to satisfy this maturing debt obligation. Total interest expense for this loan was approximately $489,000 and $485,000 for year ended December 31, 1998 and 1997, respectively. Accrued interest payable was approximately $2,762,000 at December 31, 1998. AMIT provides financing (the "AMIT Loans") to the Partnership. The principal balances on the AMIT Loans totals approximately $7,603,000 at December 31, 1998, accrues interest at rates of 12% to 12.5% per annum and are recourse to the Partnership. Two of the three notes totaling $2,838,000 originally matured in March 1998. The Managing General Partner negotiated with AMIT to extend this indebtedness and in the second quarter of 1998, executed an extension through March 2002. The remaining note with a principal balance of approximately $4,765,000 matures in March 2003. Total interest expense on the AMIT Loans was approximately $1,124,000 and $1,025,000 for the years ended December 31, 1998 and 1997, respectively. Accrued interest was approximately $2,225,000 at December 31, 1998. Pursuant to a series of transactions, affiliates of the Managing General Partner acquired ownership interests in AMIT. On September 17, 1998, AMIT was merged with and into IPT, the Managing General Partner. Effective February 26, 1999, IPT was merged into AIMCO. AIMCO is now the holder of the AMIT Loans. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits required by Item 601 of Regulation S-B: Refer to Exhibit Index in this report. (b) Current Report on form 8-K dated October 1, 1998 filed on October 16, 1998, disclosing change in control of Registrant from Insignia Financial Group, Inc. to AIMCO. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Angeles Partners XIV (A California Limited Partnership) (Registrant) By: Angeles Realty Corporation II Managing General Partner By: /s/ Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/ Timothy R. Garrick Timothy R. Garrick Vice President - Accounting Date: March 30, 1999 In accordance with the Exchange Act, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/ Patrick J. Foye Executive Vice President Date: March 30, 1999 Patrick J. Foye and Director /s/ Timothy R. Garrick Vice President - Accounting Date: March 30, 1999 Timothy R. Garrick and Director EXHIBIT INDEX Exhibit 3.1 Amended Certificate and Agreement of the Limited Partnership filed in Form S-11 dated December 24, 1984 incorporated herein by reference. 10.1 Agreement of Purchase and Sale of Real Property with Exhibits - Waterford Square Apartments filed in Form 8K dated May 31, 1985 incorporated herein by reference. 10.2 Agreement of Purchase and Sale of Real Property with Exhibits - Fox Crest Apartments filed in form 8K dated June 30, 1985 incorporated herein by reference. 10.3 Agreement of Purchase and Sale of Real Property with Exhibits - Dayton Industrial Complex filed in form 8K dated December 20, 1985 incorporated herein by reference. 10.4 Agreement of Purchase and Sale of Real Property with Exhibits - Camelot Village Apartments filed in Form 8K dated March 31, 1987 incorporated herein by reference. 10.5 Agreement of Purchase and Sale of Real Property with Exhibits - Glenwood Plaza Shopping Center filed in form 8K dated March 31, 1987 incorporated herein by reference. 10.6 Glenwood Plaza Shopping Center financing disclosed in notes to financial statements filed in Form 10Q dated June 30, 1988 incorporated herein by reference. 10.7 Promissory note - Waterford Square Apartments financing disclosed in notes to financial statements filed in Form 10K dated December 31, 1989 incorporated herein by reference. 10.8 Promissory note - Fox Crest Apartments financing disclosed in notes to financial statements filed in Form 10K dated December 31, 1989 incorporated herein by reference. 10.9 Sale agreement - Cascades Apartments filed in Form 8-K, Exhibit I, dated August 28, 1991 incorporated herein by reference. 10.10 Stock Purchase Agreement dated November 24, 1992 showing the purchase of 100% of the outstanding stock of Angeles Realty Corporation II by IAP GP Corporation, a subsidiary of MAE GP Corporation, filed in Form 8-K dated December 31, 1992, which is incorporated herein by reference. 10.11 Agreement of Purchase and Sale of Real Property with Exhibits Camelot Village Apartments and Glenwood Plaza Shopping Center filed in Form 8-K dated July 15, 1993 incorporated herein by reference. 10.12 Agreement of Purchase and Sale of Real Property with Exhibits Building 54 of the Dayton Industrial Complex Shopping Center filed in Form 8-K dated December 28, 1994 incorporated herein by reference. 10.13 Agreement of Purchase and Sale of Real Property with Exhibits - Building 47 of the Dayton Industrial Complex Shopping Center filed in Form 8-K dated August 31, 1995 incorporated herein by reference. 10.14 Purchase Agreement - Building 45 of the Dayton Industrial Complex - between the Partnership and Miller-Valentine Partners, dated December 31, 1995. 10.15 Amendment to and Assignment of Purchase Agreement - Building 45 of the Dayton Industrial Complex - between the Partnership, Miller-Valentine Partners and Mid-States Development Company, dated April 8, 1996. 10.16 Assignment of Permits, Etc. - Building 45 of the Dayton Industrial Complex - between the Partnership and Mid-States Development Company, dated April 8, 1996. 10.17 Assignment and Assumption of Leases and Security Deposits - Building 45 of the Dayton Industrial Complex - between the Partnership and Mid-States Development Company, dated April 8, 1996. 10.18 Assignment of Warranties - Building 45 of the Dayton Industrial Complex - between the Partnership and Mid-States Development Company, dated April 8, 1996. 10.19 Bill of Sale and Assignment - Building 45 of the Dayton Industrial Complex - between the Partnership and Mid-States Development Company, dated April 8, 1996. 10.20 Limited Warranty Deed - Building 45 of the Dayton Industrial Complex - between the Partnership and Mid-States Development Company, dated April 8, 1996. 10.21 Purchase Agreement - Building 52 of the Dayton Industrial Complex - between the Partnership and Miller-Valentine Partner, dated December 31, 1995. 10.22 Assignment of Purchase Agreement - Building 52 of the Dayton Industrial Complex - between the Partnership, Miller-Valentine Partners and Mid-States Development Company, dated April 8, 1996. 10.23 Assignment of Permits, Etc. - Building 52 of the Dayton Industrial Complex - between the Partnership, Miller-Valentine Partners and Mid-States Development Company, dated April 8, 1996. 10.24 Assignment of Assumption of Leases and Security Deposits - Building 52 of the Dayton Industrial Complex - between the Partnership, Miller-Valentine Partners and Mid-States Development Company, dated April 8, 1996. 10.25 Assignment of Warranties - Building 52 of the Dayton Industrial Complex - between the Partnership, Miller-Valentine Partners and Mid-States Development Company, dated April 8, 1996. 10.26 Bill of Sale and Assignment - Building 52 of the Dayton Industrial Complex - between the Partnership, Miller-Valentine Partners and Mid-States Development Company, dated April 8, 1996. 10.27 Limited Warranty Deed - Building 52 of the Dayton Industrial Complex - between the Partnership, Miller-Valentine Partners and Mid-States Development Company, dated April 8, 1996. 10.28 Purchase Agreement - between Angeles Partners XIV and ABMD, LTD., dated July 30, 1996. 10.29 Assignment of Service Agreements - by Angeles Partners XIV to ABMD, LTD. 10.30 Assignment of Licenses and Permits - by Angeles Partners XIV to ABMD, LTD. 10.31 Assignment of Warranties and Guarantees - by Angeles Partners XIV to ABMD, LTD. 10.32 Bill of Sale and Assignment - by Angeles Partners XIV to ABMD, LTD. 10.33 Limited Warranty Deed - by Angeles Partners XIV to ABMD, LTD. 10.34 Assignment and Assumption of Leases and Subleases - by Angeles Partners XIV to ABMD, LTD. 10.35 Mortgage Note between Washington Capital Associates, Inc. and Waterford Square Apartments, a California general partnership, dated October 28, 1996. 10.36 Rider to Mortgage Note by Waterford Square Apartments, a California general partnership, to the order of Washington Capital Associates, Inc. dated as of October 28, 1996. 10.37 Assignment of Warranties - Building 41 of the Dayton Industrial Complex - between the Partnership and Mid-States Development Company, dated June 12, 1998. 10.38 Assignment of Permits - Building 41 of the Dayton Industrial Complex - between the Partnership and Mid-States Development Company, dated June 12, 1998. 10.39 Purchase Agreement - Building 41 of the Dayton Industrial Complex - between the Partnership and Mid-States Development Company, dated June 12, 1998. 10.40 Closing Statement - Building 41 of the Dayton Industrial Complex - between the Partnership and Mid-States Development Company, dated June 12, 1998. 10.41 Journal Entry Confirming Sale, Ordering Deed and Distributing Sale Proceeds - between The Traveler's Insurance Company and the Partnership, dated June 12, 1998. 10.42 Agreement of Purchase and Sale - Building 55 of the Dayton Industrial Complex - between Angeles Partners XIV and Shopsmith Inc., dated December 31, 1998 filed in 10-KSB for the year ended December 31, 1998. 16.1 Letter from the Registrant's former independent accountant regarding its concurrence with the statements made by the Registrant, is incorporated by reference to the exhibit filed with Form 8-K dated September 1, 1993. 27 Financial Data Schedule. EX-27 2
5 This schedule contains summary financial information extracted from Angeles Partners XIV 1998 Year-End 10-KSB and is qualified in its entirety by reference to such 10-KSB filing. 0000759859 ANGELES PARTNERS XIV 1,000 12-MOS DEC-31-1998 DEC-31-1998 883 0 382 0 0 0 26,967 (17,250) 11,696 0 30,285 0 0 0 (25,571) 11,696 0 6,267 0 0 7,674 0 3,922 0 0 0 0 0 0 7,936 179.02 0 Registrant had an unclassified balance sheet. Multiplier is 1.
EX-10.42 3 EXHIBIT 10.42 PURCHASE AGREEMENT THIS PURCHASE AGREEMENT (this "Agreement") is made as of December 31, 1998 (the "date of this Agreement") by and between ANGELES PARTNERS XIV, a California limited partnership ("Seller"), whose address is One Insignia Financial Plaza, P.O. Box 1089, Greenville, South Carolina 29602, and SHOPSMITH, INC., an Ohio corporation ("Purchaser"), whose address is 6530 Poe Avenue, Dayton, Ohio 45414. SECTION 1. DESCRIPTION OF PROPERTY; AGREEMENT OF PURCHASE AND SALE. 1.1 Purchase and Sale; Property. Seller agrees to sell and convey to Purchaser, and Purchaser agrees to purchase and pay for, upon the terms and conditions contained in this Agreement, the following: 1.1.1 The parcel(s) of land located at 6530 Poe Avenue, Dayton, Ohio, as more fully described in Exhibit A (the "Land"); 1.1.2 The two story building containing approximately 115,000 square feet and all other buildings, structures, landscaping and other improvements on the land (the "Improvements," the Land and the Improvements being collectively referred to as the "Premises"); 1.1.3 All fixtures, equipment, machinery, heating, ventilating and air conditioning equipment and systems, plumbing and electrical equipment and systems, furnishings, furniture, alarm systems, sprinkler systems and all other personal property that is owned by Seller and attached to, appurtenant to or located on or used in connection with the operation, management or maintenance of the Premises (all of the foregoing being collectively referred to as the "Personal Property"). 1.1.4 All right, title and interest of Seller in and to easements, rights-of-way, air rights, riparian rights, rights of ingress or egress, and all other rights, privileges and appurtenances owned by Seller and in any way related to, or used in connection with, the Premises and/or the Personal Property, including, but not limited to, the Access Easement and the Parking Easement (as hereinafter defined) set forth in Section 12 hereof. 1.1.5 All right, title and interest of Seller in and to any tenant leases, including the Agreement of Lease dated August 18, 1987, as amended by a First Amendment to Lease dated September 28, 1990, as further amended by a Revised Amendment No. 2 to Lease dated April 4, 1994, each between Seller and Purchaser (such lease, as amended, the "Lease"), security deposits, rents and profits affecting the Premises. Notwithstanding the foregoing, at Purchaser's option, the Lease may be terminated rather than assigned to Purchaser at the Closing (as hereinafter defined). The term "Property," as used in this Agreement, shall mean all property, whether real or personal, set out in this Section 1.1. SECTION 2. PURCHASE PRICE. 2.1 Purchase Price. The total purchase price for the Property shall be Two Million Nine Hundred Thousand and No/100 Dollars ($2,900,000.00) (the "Purchase Price"), payable as follows: 2.1.1 The sum of $1,000.00 shall be paid as an earnest money deposit (the "Deposit") to Chicago Title Insurance Company, a Missouri corporation (the "Escrow Agent") on or before ______________, 1998. The Deposit shall be held by the Escrow Agent in accordance with the terms set forth in this Agreement and either (1) paid to Purchaser, with interest, or credited to the Purchase Price at the Closing;(2) paid to Seller, with interest, if this Agreement is terminated by Seller due to Purchaser's default pursuant to Section 13.1; or (3) returned to Purchaser, with interest, if this Agreement is terminated by Purchaser pursuant to the exercise of any right of termination provided to Purchaser in this Agreement (including, but not limited to, Seller's default or the failure of any condition). This Section 2.1.1 shall survive the termination of this Agreement. If requested by the Escrow Agent, Seller, Purchaser and the Escrow Agent shall enter into an escrow agreement consistent with the terms of this Agreement containing such additional escrow terms as the Escrow Agent may reasonably require. 2.1.2 The balance of the Purchase Price shall be paid in full at the time of Closing by certified or cashier's check or by wire transfer of immediately available Federal Reserve System funds. 2.2 Adjustments. The portion of the Purchase Price payable at the Closing shall be subject to prorations and adjustments as provided in this Agreement. SECTION 3. INSPECTIONS. 3.1 Inspection Period. Purchaser shall have a period of sixty (60) days after the date of this Agreement (the "Inspection Period"), in which to inspect the Property for all purposes whatsoever, including, without limitation, the determination of the character, size (including quantity of acreage), condition (whether environmental or otherwise), accessibility, state of repair, zoning and suitability of the Property for the purpose it is being acquired. If the Property is not satisfactory to Purchaser, in Purchaser's sole discretion, Purchaser may elect not to purchase the Property by sending written notice of termination to Seller and the Escrow Agent, postmarked not later than the last day of the Inspection Period. Upon receipt of that notice, the Escrow Agent shall return the Deposit and any interest thereon to Purchaser. In that event, this Agreement shall terminate and neither party shall have any further rights or obligations under this Agreement other than those rights and/or obligations that are expressly stated to survive expiration or termination of this Agreement. 3.2 Entry for Inspections. Immediately upon the execution of this Agreement and thereafter continuously through the date of the Closing, Seller shall disclose to Purchaser the service contractors employed or hired by Seller who have been engaged to operate or maintain the Property. During that time, Purchaser may, at Purchaser's sole risk and expense, undertake a complete physical inspection of the Property as Purchaser deems appropriate. Purchaser agrees to indemnify and save Seller harmless against all liabilities, claims, damages, penalties, costs and expenses (including, but not limited to, reasonable attorneys' fees and expenses) incurred by or asserted against Seller in connection with or arising out of the entry upon the Premises by Purchaser or Purchaser's employees, agents or contractors. This obligation shall survive the expiration or termination of this Agreement. SECTION 4. TITLE AND SURVEY. 4.1 Title. Promptly after the date of this Agreement, Purchaser shall obtain a commitment for an Owner's Policy of Title Insurance (the "Commitment") issued by a title agency selected by Purchaser (the "Title Company") and dated as of a current date, pursuant to which the Title Company shall commit to issue to Purchaser an ALTA (Form B-1970 & 1984, if available) Owner's Policy of title insurance, in the amount of the Purchase Price, insuring in Purchaser marketable fee simple title to the Premises, subject only to the following "Permitted Exceptions": (a) All legal highways; (b) Zoning, building and other laws, ordinances, codes and regulations; (c) Matters disclosed by the Survey pursuant to Section 4.2; (d) Easements, rights-of-way, conditions, covenants and restrictions of record, to the extent that those easements, rights-of-way, conditions, covenants and restrictions do not interfere with, obstruct, or otherwise impair Purchaser's proposed use of the Premises; and (e) Real estate taxes that are a lien upon the Premises, but not yet due and payable. The Commitment shall also insure Purchaser's interests under the Access Easement and the Parking Easement, subject only to the Permitted Exceptions. Any mortgage or other monetary liens on the Property ("Monetary Liens") are to be discharged and paid by Seller at the time of Closing. At the Closing, and as a condition to Purchaser's obligations under this Agreement, the Title Company shall deliver to Purchaser the policy of title insurance in accordance with the Commitment (the "Title Policy"). Seller shall provide an affidavit and such other instruments and assurances as may be required by the Title Company to delete the "standard" or "general" exceptions from the Title Policy. 4.2 Survey. Promptly after the date of this Agreement, Purchaser shall obtain an as-built survey and metes and bounds description of the Premises, the Access Easement and the Parking Easement prepared by a registered land surveyor or engineer, duly licensed in the State of Ohio, showing the acreage of the Premises, the Access Easement and the Parking Easement to the nearest 1/1,000th of an acre, and containing the certifications and the minimum standard detail requirements for land surveys most recently adopted by the ALTA/ACSM and the specifications set forth as item numbers 1 through 4 and 6 through 11 of ALTA/ACSM's Table A (the "Survey"). 4.3 Defects and Cure. Purchaser shall notify Seller of Purchaser's disapproval of any matter contained in the Commitment or the Survey on or before the later of (a) the last day of the Inspection Period or (b) 15 days after Purchaser's receipt of both the Commitment and the Survey and copies of the documents referred to in the Commitment as exceptions or exclusions from coverage. Except for real estate taxes that are to be prorated at Closing, Monetary Liens and the 30 Foot Ingress/Egress Easement (as defined in Section 12.3), Purchaser's failure to notify Seller of disapproval of any matter within the foregoing time period shall be deemed approval of that matter. If the Survey discloses conditions that are not in conformity with the criteria set forth above or that might otherwise adversely affect Purchaser's proposed use of the Premises, or if the Commitment discloses matters other than the Permitted Exceptions and Monetary Liens (collectively, "Defects"), those Defects shall, as a condition to Purchaser's obligations under this Agreement, be cured or removed at or before the Closing. If Seller fails to cure and remove all Defects within the period allowed for cure, this Agreement may be terminated, at Purchaser's election, by written notice. Purchaser may, at its sole election, proceed to close this transaction notwithstanding any Defects, in which event the Defects shall be deemed additional Permitted Exceptions. If Purchaser elects to terminate this Agreement, the Deposit and any interest thereon shall be refunded to Purchaser, and neither party shall have any further rights and/or obligations that are expressly stated to survive expiration or termination of this Agreement. SECTION 5. CONDITIONS TO CLOSING. 5.1 Purchaser's Conditions. The obligation of Purchaser to close the transaction contemplated by this Agreement is subject to the following conditions, which, together with any other conditions set forth in this Agreement, are for Purchaser's benefit and which may be waived by Purchaser at its sole option: 5.1.1 The representations and warranties of Seller contained in Section 6 of this Agreement shall be true on the date of Closing in all material respects as though those representations and warranties were made on that date. 5.1.2 Seller shall not have breached any material affirmative covenant contained in this Agreement to be performed by Seller on or before the date of Closing. 5.1.3 The conditions set forth in Sections 3 and 4 shall have been satisfied; and, in the event Purchaser has delivered a notice of Defects pursuant to Section 4, Seller has remedied the Defects in the manner and within the time period provided in this Agreement, or Purchaser has waived same in writing. 5.1.4 Seller shall have timely delivered to Purchaser in satisfactory form the documents and all other items referred to in Section 7 below. 5.1.5 At Closing, the Title Company shall have delivered or irrevocably committed itself in writing to deliver the Title Policy described in Section 4.1. 5.1.6 Purchaser shall have obtained financing for the acquisition of the Property from a lender, whether, public or institutional (including, without limitation, low cost financing from the State of Ohio), in an amount and upon such terms and conditions as shall be satisfactory to Purchaser, in Purchaser's sole discretion. 5.1.7 Purchaser shall have obtained all building, zoning and environmental permits and approvals necessary for Purchaser's continued use of the Premises as presently operated (including a conditional use permit relating to Purchaser's retail activities on the Premises) and for any modification of or repairs to the Premises for Purchaser's intended use. Seller shall cooperate with Purchaser in its efforts to obtain such permit, including executing the applications to be submitted therefor. 5.1.8 Seller shall have completed patching and repairing of the asphalt covered area of the Premises, together with restriping the same, no later than the Closing. Seller shall present to Purchaser a plan acceptable to Purchaser for the completion of the foregoing no later than ten (10) days after the date of this Agreement. If such work shall not be completed and fully paid for by the date of the Closing, Purchaser, at its option and in lieu of exercising its right to terminate this Agreement, may elect to have an amount equal to the cost of completing such work, as determined by Purchaser, withheld from the Purchase Price and deposited with the Escrow Agent to be applied to the cost of completing such work in accordance with the plan acceptable to Purchaser. 5.1.9 The Access Easement, the Parking Easement and the related subordination agreements described in Section 12 of this Agreement shall have been obtained. If any of these conditions is not satisfied or waived, Purchaser shall have the right to terminate this Agreement by notice to Seller no later than the date of Closing or such earlier time as may be provided above. In the event that the applications for the conditional use permit referred to in Section 5.1.7 of this Agreement shall be pending as of the date of Closing, Purchaser shall have the right to extend the period for satisfaction of such conditions for a period of up to sixty (60) days. In the event of termination of this Agreement, the Escrow Agent shall immediately refund the Deposit and all accrued interest thereon to Purchaser, this Agreement shall terminate, and neither party shall have any further rights or obligations under this Agreement other than those rights and/or obligations which are expressly stated to survive expiration or termination of this Agreement. SECTION 6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. 6.1 Seller's Representations, Warranties and Covenants. Seller represents, warrants and covenants to Purchaser as to the following matters, and shall be deemed to remake all of the following representations, warranties and covenants as of the date of Closing. 6.1.1 The execution and delivery of this Agreement by Seller, the execution and delivery of every other document and instrument delivered pursuant to this Agreement by or on behalf of Seller, and the consummation of the transactions contemplated by this Agreement, have been duly authorized and validly executed and delivered by Seller, and, to Seller's best knowledge, will not (a) constitute or result in the breach of or default under any oral or written agreement to which Seller is a party or which affect the Property; (b) constitute or result in a violation of any order, decree or injunction with respect to which Seller and/or the Property is bound; (c) cause or entitle any party to have a right to accelerate or declare a default under any oral or written agreement to which Seller is a party or which affects the Property; and/or (d) violate any provision of any municipal, state or federal law, statutory or otherwise, to which Seller or the Property may be subject. 6.1.2 To Seller's best knowledge, the Property is in compliance with all applicable federal, state and local statutes, laws, ordinances, orders, requirements, rules and regulations (including, but not limited to, building, zoning and environmental laws and the Americans With Disabilities Act). 6.1.3 To Seller's best knowledge, all required building permits, occupancy permits or other required approvals or consents of governmental authorities or public or private utilities having jurisdiction have been obtained with respect to the Property. 6.1.4 To Seller's best knowledge, Seller has received no written notice of violation of any applicable federal, state or local statute, law, ordinance, order, requirement, rule or regulation, or of any covenant, condition, restriction or easement affecting the Property. 6.1.5 To Seller's best knowledge, the Property is in compliance with all covenants, conditions, restrictions, easements and similar matters affecting the Property. 6.1.6 With respect to environmental matters: (i) To Seller's best knowledge, no toxic, hazardous, explosive or otherwise dangerous materials, substances, pollutants or wastes, as those terms are used in the Clean Air Act, the Clean Water Act, Resource Conservation and Recovery Act of 1976, the Hazardous Materials Transportation Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), the Emergency Planning and Community Right-to-Know Act or in any other federal, state or local law environmental law (collectively "Environmental Laws"), petroleum products, polychlorinated biphenyls, or radioactive materials (all of the above being collectively referred to herein as "Hazardous Materials") have been or are stored, treated, disposed of, managed, generated, manufactured, produced, released, emitted or discharged on, in or under the Property, other than such of the foregoing as are used by Purchaser in connection with its operations on the Premises. (ii) To Seller's best knowledge, Seller is in compliance with all Environmental Laws and has obtained all environmental licenses, permits, approvals, registrations and authorizations (federal, state and local) material to the Premises (other than such of the foregoing as are required to be obtained by Purchaser in connection with the operation of its business on the Premises). All such licenses, permits, approvals, registrations and authorizations remain in full force and effect as of the Closing and may be effectively transferred or assigned to Purchaser on or after the Closing. (iii) To Seller's best knowledge, no governmental or private action, suit or proceeding to enforce or impose liability under any Environmental Laws has been instigated or, to the knowledge of Seller, threatened against Seller and no lien has been created under the Environmental Laws. (iv) To Seller's best knowledge, none of the Premises consists of "wetlands" under applicable federal or state law. (v) To Seller's best knowledge, there are no underground storage tanks on the Premises (other than three(3) underground fuel oil storage tanks) and no underground storage tanks have been removed from the Premises. 6.1.7 To Seller's best knowledge, there are no encroachments onto the Land of any improvement on any adjoining property, and there are no encroachments onto any adjoining property of any improvements on the Land, other than as shown on the Survey of the Premises prepared by Shaw Weiss & DeNaples, dated September 22, 1997, updated January 8, 1998, if any. 6.1.8 To Seller's best knowledge, there is no pending or threatened litigation, arbitration, administrative action or examination, claim, or demand whatsoever relating to the Property. No attachments, execution proceedings, liens, assignments or insolvency proceedings are pending or, to Seller's best knowledge, threatened against Seller or the Property, nor are any of the foregoing contemplated by Seller. Seller is not contemplating the institution of insolvency proceedings. 6.1.9 Except for a possible taking of a small portion of the front of the Land not to exceed 20 feet in width in connection with the addition of an interchange at Wyse Road located to the south of the Premises, Seller has no knowledge of any pending or contemplated eminent domain, condemnation, or other governmental or quasi-governmental taking of any part or all of the Property. 6.1.10 To Seller's best knowledge, there are no public improvements that have been ordered to be made and/or that have not been previously assessed, and there are no special, general or other assessments pending, threatened against, or affecting the Property. 6.1.11 To Seller's best knowledge, there are no leases, management contracts, service contracts or other agreements, either oral or written, pertaining to the Property that will survive the Closing or to which Purchaser or the Property will be bound except those to which Purchaser is already a party thereto. 6.1.12 Seller has paid or will pay in full all bills and invoices for labor and material of any kind arising from the ownership, operation, management, repair, maintenance or leasing of the Property (including, without limitation, all bills and invoices relating to the work to be performed by Seller pursuant to Section 5.1.8), and there are no actual or potential claims for mechanic's liens, brokerage commissions or other claims outstanding or available to any party in connection with the ownership, operation, management, repair, maintenance or leasing of the Property. 6.1.13 Between the date of this Agreement and the date of Closing, Seller will keep the Property insured in accordance with its obligations under Article IX of the Lease. 6.1.14 Between the date of this Agreement and the date of Closing, no part of the Property will be sold, encumbered or transferred in favor of or to any party whatsoever except for the Easements. There are no purchase contracts, options or any other agreements of any kind, oral or written, by which any person or entity other than Seller will have acquired or will have any basis to assert any right, title or interest in, or right to possession, use, enjoyment or proceeds of, any part or all of the Property, except for the Access Easement, if and to the extent such easement shall encumber the Premises. 6.1.15 Seller is not a foreign person within the meaning of Section 1445 of the Internal Revenue Code of 1990, as amended. 6.1.16 To Seller's best knowledge, the continued compliance with all legal requirements relating to the Property is not dependent upon facilities located at any other property; and the compliance by any other property with any legal requirements applicable to the other property is not dependent upon the Property. 6.1.17 The Premises are assessed separately from all other adjacent property for purposes of real property taxes. 6.1.18 Adequate supplies of all public utilities, including, but not limited to, water, sanitary sewer, gas, electricity, telephone, storm sewer and drainage facilities and other utilities required by law or by the normal use and operation of the Premises (a) are installed to the property lines of the Premises, (b) are connected pursuant to valid permits, (c) are adequate to service the Premises, (d) are adequate to permit full compliance with all requirements of law and normal usage of the Premises by the occupants and their licensees and invitees, and (e) either enter the Premises through adjoining public streets, or if they pass through adjoining private land, do so in accordance with valid public easements or private easements that inure to the benefit of Seller and its successors in title to the Premises. 6.1.19 To Seller's best knowledge, Seller has not received and has no actual knowledge of any notice or request, formal or informal, from any insurance company or board of fire underwriters (a) identifying any defects in the Property that would adversely affect the insurability of the Property or (b) requesting the performance of any work or alteration with respect to the Property. 6.1.20 To Seller's best knowledge, no fact or condition exists that would result in the termination or impairment of access to the Premises from adjoining public or private streets or ways or that could result in discontinuation of necessary sewer, water, electric, gas, telephone or other utilities or services. All sewage, sanitation, plumbing, water retention, refuse disposal, and similar facilities servicing the Premises are in full compliance with governmental and environmental protection authorities' laws, rules and regulations. 6.1.21 To Seller's best knowledge, the Improvements are structurally sound, and the roof, plumbing systems, heating systems, ventilating and air- conditioning systems and electrical systems are operable, and, with regular maintenance, repair or replacement, as may be required because of deterioration from use or age, are adequate to serve the needs of the Improvements. 6.2 Survival. All of the representations, warranties and covenants made by Seller in Section 6.1 and elsewhere in this Agreement shall survive Closing for a period of one (1) year. SECTION 7. CLOSING AND TRANSFER OF TITLE. 7.1 Closing. The parties agree to close this purchase and sale (the "Closing") no later than thirty (30) days after the last day of the Inspection Period, at 10:00 a.m., in the offices of the Title Company, or such earlier date to which Seller and Purchaser may agree. 7.2 Seller's Documents; Other Deliveries. At Closing, Seller shall execute and/or deliver to Purchaser the following. 7.2.1 A limited warranty deed to the Premises conveying marketable, fee simple title to the Premises to Purchaser free, clear, and unencumbered, subject, however, to the Permitted Exceptions. The conveyance made by the limited warranty covenants contained in such deed shall include the items set forth in paragraphs A through D of the Deed from Mid-States Development Company, an Ohio general partnership, to Seller dated December 1, 1985 and recorded at Microfiche No. 85-0701D11 of the Montgomery County, Ohio Deed Records. 7.2.2 A Bill of Sale with full warranties of title, conveying the Personal Property to Purchaser. 7.2.3 An assignment of any warranties, guarantees, licenses and permits with respect to the Property. 7.2.4 All other documents and instruments referred to in Section 5. 7.2.5 All of the Personal Property. 7.2.6 All blueprints, construction plans, specifications and plats in Seller's possession for all of the Improvements and Personal Property. 7.2.7 An owner's affidavit as to mechanics' liens, persons in possession of the Premises, unrecorded agreements, and such other matters required by the Title Company as a condition to its deletion of the standard exceptions relating to such matters from the Title Policy. 7.2.8 An owner's affidavit, in form and substance satisfactory to Purchaser, signed under penalty of perjury and containing Seller's U.S. taxpayer identification number, to the effect that Seller is not a foreign person within the meaning of Section 1445(f) of the Internal Revenue Code. 7.2.9 A certificate in affidavit form, satisfactory to Purchaser, executed by an officer of Seller, and dated as of the date of Closing, which provides that all Seller's representations, warranties and covenants set forth in this Agreement are, as of the date of Closing, true and correct with the same force and effect as if each warranty, representation and covenant were made again at Closing. 7.2.10 All consents that may be required from any third person or entity in connection with the sale of the Property. 7.2.11 Certified copies of the resolutions of Seller or Seller's partners' board of directors (if Seller or any of its partners are a corporation) or its partners (if Seller or any of its partners are a partnership) evidencing authorization of the officer(s) or partner(s) acting for Seller and/or Seller's partners and authorization and approval of this Agreement and the transactions contemplated by this Agreement, in form and substance satisfactory to Purchaser's counsel and the Title Company. 7.2.12 A fully executed Access Easement and Parking Easement, together with related subordination agreements in accordance with Section 12 hereof. 7.2.13 An assignment to Purchaser of Seller's right, title and interest under the Lease, or, at Purchaser's option, a termination of the Lease. 7.2.14 A termination of the Stock Option Agreement pursuant to Section 19 hereof. 7.2.15 Such other documents or instruments as may be reasonably required by Purchaser, required by other provisions of this Agreement, or reasonably necessary to effectuate Closing, including, but not limited to, a closing statement. All of the documents and instruments to be delivered by Seller shall be in the form and substance reasonably satisfactory to counsel for Purchaser. 7.3 Purchaser's Documents. At Closing, Purchaser shall execute and/or deliver to Seller the following documents: 7.3.1 A certified copy of the resolution of Purchaser's board of directors evidencing authorization of the officer(s) acting for Purchaser and authorization and approval of this Agreement and the transactions contemplated by this Agreement. 7.3.2 A termination of the Stock Option Agreement pursuant to Section 19 hereof. 7.3.3 Such other documents and instruments as Seller or the Title Company shall reasonably request in order to consummate this transaction, or reasonably necessary to effectuate Closing, including, but not limited to, a closing statement. SECTION 8.POSSESSION. Purchaser is in possession of the Property and will continue to be at Closing. Between the date of this Agreement and Closing, Seller shall continue to operate the Property in accordance with its present standards and shall maintain the Property in its present condition and repair, ordinary wear and tear expected, in accordance with the Lease. SECTION 9. PRORATIONS AND EXPENSES. 9.1 Proration of Real Estate Taxes. Pursuant to Section 3 of the Lease, Purchaser is responsible for payment of real estate taxes over and above the real estate taxes paid by Seller during the first year of the term of the Lease. The real estate taxes which are a lien for the year in which the Closing occurs shall be prorated as of the date of the Closing in accordance with the customary method of tax proration in Montgomery County, Ohio; provided that only that portion of such taxes as Seller is obligated to pay pursuant to the terms of Section 3 of the Lease shall be the subject of such proration. 9.2 Utility Expenses; Miscellaneous Expenses. Purchaser shall continue to be responsible for all charges for consumption of utilities as provided in the Lease. The parties will prorate, as of the date of Closing, any miscellaneous income (including rent under the Lease) and expenses related to the Property. 9.3 Estimates. All items that are not subject to an exact determination shall be estimated by the parties. When any item so estimated is capable of exact determination after Closing, the party in possession of the facts necessary to make the determination and the parties shall adjust the prior estimate within 10 days after both parties have received the reports. Either party will be entitled, at its own expense, to audit the records supporting the determination made. All prorations shall be made as of 11:59 p.m. on the day prior to the date of Closing. SECTION 10. CONDEMNATION OR CASUALTY. 10.1 Condemnation. If between the date of this Agreement and the date of Closing all or any portion of the Property is taken or is made subject to condemnation, eminent domain or other governmental or quasi-governmental acquisition proceedings, then the following provisions shall apply. In the event Seller receives a written notice from any governmental or quasi- governmental authority with powers of eminent domain to the effect that a condemnation as to any portion or all of the Property is pending or contemplated, Seller shall notify Purchaser promptly after receipt of the notice. If the proposed or pending condemnation is one that could reasonably be expected to render any portion of the Premises untenantable, then Purchaser may, upon receipt of notice of the event, cancel this Agreement at any time prior to Closing, in which event the Deposit and any interest thereon shall be returned to Purchaser, this Agreement shall terminate, and neither party shall have any further rights or obligations under this Agreement other than those rights and/or obligations which are expressly stated to survive expiration or termination of this Agreement. In the event that Purchaser shall not elect to terminate, then this Agreement shall remain in full force and effect, and Seller shall be entitled to all monies received or collected prior to the Closing by reason of the condemnation, except to the extent Purchaser shall be entitled to such proceeds pursuant to Article XI of the Lease. In that event, this transaction shall close in accordance with the terms and conditions of this Agreement except that there will be an abatement of the Purchase Price equal to the amount of the gross proceeds received by Seller. If, however, Seller has not received any proceeds by reason of such condemnation prior to the Closing and Purchaser does not elect to terminate Purchaser's obligations under this Agreement, then the Closing shall take place without abatement of the Purchase Price, and Seller shall assign and transfer to Purchaser at Closing by written instrument all of Seller's right, title and interest in any condemnation awards. 10.2 Casualty. In the event of substantial loss or damage to the Property prior to the Closing by fire or other casualty, Purchaser may, at any time after receipt of notice or knowledge of that event, cancel this Agreement, in which event the Deposit and any interest thereon shall be immediately refunded, this Agreement shall terminate and neither party shall have any further rights or obligations under this Agreement other than those rights and/or obligations which are expressly stated to survive expiration or termination of this Agreement. In the event that Purchaser shall not elect to terminate, or if the loss or damage is not "substantial," then this Agreement shall remain in full force and effect and Purchaser shall proceed to close and take the Property as damaged, in which event Purchaser shall be entitled to receive the insurance proceeds plus the amount of any deductible, co-insurance or self-insurance carried by Seller, so that Purchaser shall receive, in effect, the full replacement cost of the loss or damage, as the cost is determined in the settlement with the insurer. Seller and Purchaser shall each be entitled to participate in the settlement. As used in this Section 10.2, the term "substantial loss or damage" means any loss or damage resulting to the Property which the parties reasonably estimate will require more than 30 days to repair or restore. SECTION 11. [Intentionally omitted] SECTION 12. EASEMENTS FOR ACCESS AND PARKING 12.1 Access Easement. There currently exists a driveway to the north of the Premises running easterly off of Poe Avenue and providing access from Poe Avenue to the Premises and being 100 feet in width (the "Driveway"). The Driveway is located partially on the Premises and partially on the property to the north of the Premises (the "Adjacent Property"). Purchaser's obligations under this Agreement shall be conditioned upon the execution and delivery of an Easement Agreement with respect to the joint use of the Driveway by Purchaser and the owner of the Adjacent Property (the "Adjacent Owner") in the form of Exhibit B hereto, with such changes thereto as shall be acceptable to Purchaser in its sole and absolute discretion (such easement, the "Access Easement"). Seller shall use its best efforts to obtain the Adjacent Owner's agreement to execute and deliver the Access Easement at Closing. No changes shall be made to the form of the agreement attached as Exhibit B hereto without Purchaser's prior written consent. Seller shall also use its best efforts to obtain subordination agreements from the holders of any mortgages or leases affecting the Adjacent Property. The forms of such subordination agreements are attached to this Agreement as Exhibits C-1 and C-2 and shall not be changed without Purchaser's prior written consent. If Seller is unable to obtain the Access Easement or subordination agreements and if Seller has used its best efforts to do so, Purchaser's sole remedy shall be to terminate this Agreement. 12.2 Parking Easement. Purchaser's obligations under this Agreement shall be conditioned upon the execution and delivery of an Easement Agreement for parking purposes between Purchaser and the owner of the property located to the east of the Premises (the "East Adjacent Owner") in the form of Exhibit C hereto, with such changes thereto as shall be acceptable to Purchaser in its sole and absolute discretion (such easement, the "Parking Easement"). Seller shall use its best efforts to obtain the East Adjacent Owner's agreement to execute and deliver the Parking Easement at Closing. No changes shall be made to the form of the agreement attached as Exhibit C hereto without Purchaser's prior written consent. Seller shall also use its best efforts to obtain subordination agreements from the holders of any mortgages or leases affecting the property to the east of the Premises which will be encumbered by the Parking Easement. The forms of such subordination agreements are attached to this Agreement as Exhibits C-1 and C-2 and shall not be changed without Purchaser's prior written consent. If Seller is unable to obtain the Parking Easement or subordination agreements and if Seller has used its best efforts to do so, Purchaser's sole remedy shall be to terminate this Agreement. As an alternative to the execution and delivery of the Parking Easement at closing, Seller may cause the East Adjacent Owner to convey the Easement Parcel (as defined in the Parking Easement) to Purchaser and take such other actions in connection therewith including the release of any mortgages and leases affecting the Easement Parcel, all in accordance with paragraph 4 of the Parking Easement. If Seller is unable to cause the East Adjacent Owner to so convey the Easement Parcel to Purchaser by Closing, Purchaser's sole remedy shall be to terminate this Agreement. 12.3 30-Foot Ingress/Egress Easement. Purchaser's obligations under this Agreement shall be conditioned upon the termination, release and abandonment of that certain 30-foot ingress and egress easement set forth in a deed dated August 23, 1978 and recorded at Microfiche No. 78-471A03, Montgomery County, Ohio Deed Records (the "30 Foot Easement"), which easement benefits the Premises and other real property. Seller shall use its best efforts to obtain an instrument signed by all parties benefitted by such 30 Foot Easement (including any lessees and mortgagees) terminating, releasing and abandoning the same. If Seller is unable to obtain such an instrument and if Seller has used its best efforts to do so, Purchaser's sole remedy shall be to terminate this Agreement. SECTION 13. DEFAULT. 13.1 Purchaser's Default. In the event that Seller is ready, willing and able to convey the Property in accordance with this Agreement, and Purchaser is obligated under the terms of this Agreement to consummate the transaction evidenced by this Agreement but fails to consummate this Agreement and take title, the parties recognize and agree that the damages Seller will sustain will be substantial, but difficult if not impossible to ascertain. Therefore, the parties agree that, in the event of Purchaser's default, Seller shall be entitled to receive and retain the Deposit and any interest thereon as liquidated damages for Purchaser's failure to close. Seller's right to receive and retain the Deposit and any interest thereon shall constitute the waiver by Seller of all other rights and remedies against Purchaser except for those rights and/or obligations that are expressly stated to survive the termination of this Agreement. 13.2 Seller's Default. If Closing is not concluded through no fault of Purchaser, Purchaser, at its option, may (a) elect to enforce the terms of this Agreement by action for specific performance, and/or exercise any other right or remedy available to it at law or in equity or (b) terminate this Agreement by notice to Seller. In either of the foregoing events, Purchaser shall be entitled to an immediate refund of the Deposit and any interest thereon after notice to Seller and to the Escrow Agent. In the event of a successful specific performance action by Purchaser, the full Purchase Price shall be paid to Seller at the time of Closing. Upon any termination under (b) above, the parties shall have no further rights and obligations under this Agreement other than those rights and/or obligations that are expressly stated to survive expiration or termination of this Agreement. Copies of all notices with regard to any termination and/or request for the delivery of the Deposit in connection with a failure to close pursuant to this Section 13 shall be sent to the Escrow Agent and the Escrow Agent shall act in accordance with this Agreement (or, if applicable, any separate Escrow Agreement). SECTION 14. BROKER. Each party represents and warrants to the other that it has dealt with no agent or broker who has in any way participated in the sale of the Property, except that Seller represents that it has dealt with Miller-Valentine Realty, Inc., an Ohio corporation ("MV Realty"). Seller agrees to pay the brokerage commission due to MV Realty. Any other fees or commissions that may be claimed shall be the sole responsibility of the party breaching the preceding warranty. Each party agrees to indemnify and hold the other harmless against any and all claims, judgments, costs of suit, attorneys' fees and other reasonable expenses that the other may incur by reason of any action or claim made against the other by any agent, advisor or intermediary appointed by or instructed by Seller or Purchaser, as the case may be, arising out of this Agreement or the sale of the Property to Purchaser. SECTION 15. ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs, personal representatives, successors and assigns. SECTION 16. NOTICES. All notices permitted or required under this Agreement shall be in writing, and shall be deemed properly delivered when deposited in the United States mail, postage prepaid, certified or registered mail, return receipt requested, addressed to the parties at their respective addresses set forth below or as they may otherwise specify by written notice delivered in accordance with this Section: As to Purchaser: Shopsmith, Inc. 6530 Poe Avenue Dayton, Ohio 45414 Attention: John R. Folkerth As to Seller: Angeles Partners XIV One Insignia Financial Plaza P.O. Box 1089 Greenville, South Carolina 29602 Attention: Ken Cobler SECTION 17. EXPENSES. Seller shall pay for any transfer tax, conveyance fee or similar charge in connection with the sale of the Premises. All costs of the Survey and Legal Descriptions to be prepared in accordance with Section 4.2 and all costs incurred in connection with the release of the 30-Foot Easement pursuant to Section 12.3 shall be paid by MV Realty pursuant to a separate agreement between Purchaser and MV Realty executed simultaneously with this Agreement. Purchaser shall pay all costs, fees and premiums of the Commitment and the Title Policy and the recording charges for the deed and any mortgage Purchaser may place upon the Premises. Any other miscellaneous closing expenses properly allocable to both parties (including, but not limited to, escrow fees) shall be divided equally between Purchaser and Seller. Each party shall pay for its own legal and accounting fees and incidental expenses. SECTION 18. COOPERATION. From time to time at the request of Purchaser, and without further consideration, Seller shall execute and deliver, and/or join with Purchaser in executing and delivering, such applications for licenses, variances, zoning changes, approvals, permits and consents from governmental bodies, utility companies, financial institutions and other entities and shall supply such information, arrange such meetings, and execute such forms and take such action as Purchaser may reasonably request in order to proceed with and fully implement Purchaser's use of the Property or to effectuate the transactions contemplated by this Agreement; provided, however, that Seller shall not be required to incur any expenses in connection with these matters, nor shall any permanent changes be made to the status of the Premises (zoning or otherwise) prior to the Closing without Seller's consent (which shall not be unreasonably withheld). Seller shall not file an objection to or oppose Purchaser's intended use of the Property. SECTION 19. STOCK OPTION AGREEMENT. Pursuant to a certain Stock Option Agreement dated as of March 29, 1994 between Purchaser and Seller (the "Stock Option Agreement"), Purchaser granted to Seller an option to purchase Common Shares of Purchaser on and subject to the terms and conditions set forth in the Stock Option Agreement. Seller agrees that the Stock Option Agreement and all of Seller's rights and interests thereunder shall terminate effective as of the date of the Closing, without payment of any sum whatsoever. At the Closing, Seller and Purchaser shall enter into an agreement evidencing such termination. SECTION 20. MISCELLANEOUS. 20.1 Gender. Words of any gender used in this Agreement shall be held and construed to include any other gender, any words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise. 20.2 Attorneys' Fees. If either party commences an action against the other to enforce any of the terms of this Agreement or because of the breach by either party of any of the terms of this Agreement, the losing or defaulting party shall pay to the prevailing party its reasonable attorneys' fees, costs and expenses incurred in connection with the prosecution or defense of such action. The term "prevailing party" means the party obtaining substantially the relief sought, whether by compromise, settlement or judgment. 20.3 Captions. The captions in this Agreement are inserted only for the purpose of convenient reference and in no way define, limit, or prescribe the scope or intent of this Agreement or any part of this Agreement. 20.4 Construction. No provisions of this Agreement shall be construed by any court or other judicial authority against any part by reason of that party's being deemed to have drafter or structured the provisions. 20.5 Entire Agreement. This Agreement constitutes the entire contract between the parties and supersedes all prior understandings, if any, there being no other oral or written promises, conditions, representations, understandings or terms of any kind as conditions or inducements to the execution of this Agreement and none have been relied upon by either party. Any subsequent conditions, representations, warranties or agreements shall not be valid and binding upon the parties unless in writing and signed by both parties. 20.6 Recording. The parties agree that this Agreement shall not be recorded. 20.7 Time of Essence. TIME IS OF THE ESSENCE UNDER THIS AGREEMENT. 20.8 Original Document. This Agreement shall be executed by the parties in counterparts, each of which shall be deemed an original, but all of such counterparts taken together shall constitute one and the same Agreement. The phrase "date of this Agreement" and similar phrases as used herein shall mean the date on which the last of Seller or Purchaser shall sign this Agreement as indicated below. 20.9 Governing Law. This Agreement shall be construed, and the rights and obligations of Seller and Purchaser shall be determined, in accordance with the laws of the State of Ohio. WITNESS the execution hereof as of the day and year indicated below. PURCHASER: SHOPSMITH, INC., an Ohio corporation By: Name: Title: Date: SELLER: ANGELES PARTNERS XIV, a California limited partnership By: Angeles Realty Corporation II, a corporation, as general partner By: Name: Title: Date: EXHIBIT A Situate in the City of Vandalia, County of Montgomery and State of Ohio, and being Lot Seven (7) of 70/75 Corporate Center, as recorded in Plat Book 107, Page 60 of the Plat Records of Montgomery County, Ohio. -----END PRIVACY-ENHANCED MESSAGE-----