-----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, VEr9OFPmA6InES1YYSOE+XFL1YUsOlkQQ5smejfmdL1XmnSdO+bv9fb8/R10j8lW 7Etisz3EHDA33aoCVWy+1A== 0000763049-98-000023.txt : 19981113 0000763049-98-000023.hdr.sgml : 19981113 ACCESSION NUMBER: 0000763049-98-000023 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOX STRATEGIC HOUSING INCOME PARTNERS CENTRAL INDEX KEY: 0000800080 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 943016373 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-16877 FILM NUMBER: 98744113 BUSINESS ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 FORMER COMPANY: FORMER CONFORMED NAME: FOX STRATEGIC HOUSING PARTNERS /CA/ DATE OF NAME CHANGE: 19870402 FORMER COMPANY: FORMER CONFORMED NAME: CENTURY PROPERTIES GROWTH FUND XXVI DATE OF NAME CHANGE: 19870208 10QSB 1 FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 QUARTERLY OR TRANSITIONAL REPORT U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from.........to......... Commission file number 0-16877 FOX STRATEGIC HOUSING INCOME PARTNERS (Exact name of small business issuer as specified in its charter) California 94-3016373 (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) (864) 239-1000 (Issuer's telephone number) 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 . PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) FOX STRATEGIC HOUSING INCOME PARTNERS CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) September 30, 1998 Assets Cash and cash equivalents $ 4,461 Receivables and deposits 331 Restricted escrows 125 Other assets 347 Investment properties: Land $ 3,119 Buildings and related personal property 18,316 21,435 Less accumulated depreciation (6,890) 14,545 $19,809 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 16 Tenant security deposit liabilities 49 Accrued property taxes 214 Accrued interest 58 Other liabilities 47 Mortgage notes payable 10,491 Partners' (Deficit) Capital: General partner $ (213) Limited partners (26,111 units issued and outstanding) 9,147 8,934 $19,809 See Accompanying Notes to Consolidated Financial Statements b) FOX STRATEGIC HOUSING INCOME PARTNERS CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 Revenues: Rental income $ 757 $ 726 $ 2,226 $ 2,146 Other income 96 85 297 260 Total revenues 853 811 2,523 2,406 Expenses: Operating 281 265 764 774 General and administrative 53 45 159 148 Depreciation 158 156 474 467 Interest 199 228 666 698 Property taxes 72 67 199 210 Total expenses 763 761 2,262 2,297 Net income $ 90 $ 50 $ 261 $ 109 Net income allocated to general partner $ 18 $ 10 $ 52 $ 22 Net income allocated to limited partners 72 40 209 87 $ 90 $ 50 $ 261 $ 109 Net income per limited partnership unit $ 2.75 $ 1.53 $ 8.00 $ 3.33 Distributions per limited partnership unit $108.12 $ -- $108.12 $ -- See Accompanying Notes to Consolidated Financial Statements c) FOX STRATEGIC HOUSING INCOME PARTNERS CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (Unaudited) (in thousands, except unit data)
Limited Partnership General Limited Units Partner's Partners' Total Original capital contributions 26,111 $ -- $26,111 $26,111 Partners' (deficit) capital at December 31, 1997 26,111 $ (207) $11,761 $11,554 Distributions to partners -- (58) (2,823) (2,881) Net income for the nine months ended September 30, 1998 -- 52 209 261 Partners' (deficit) capital at September 30, 1998 26,111 $ (213) $ 9,147 $ 8,934 See Accompanying Notes to Consolidated Financial Statements
d) FOX STRATEGIC HOUSING INCOME PARTNERS CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 1998 1997 Cash flows from operating activities: Net income $ 261 $ 109 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 474 467 Amortization of loan costs 29 30 Change in accounts: Receivables and deposits (225) 117 Other assets (103) (39) Accounts payable (24) (20) Tenant security deposit liabilities -- (8) Accrued property taxes 43 (49) Accrued interest payable 578 667 Other liabilities (3) 9 Net cash provided by operating activities 1,030 1,283 Cash flows from investing activities: Property improvements and replacements (71) (113) Deposits to restricted escrows (125) -- Net cash used in investing activities (196) (113) Cash flows from financing activities: Proceeds from long term borrowings 10,500 -- Repayment of mortgage notes payable principal (8,712) (938) Principal payments on mortgage notes payable (9) -- Loan costs paid (239) -- Distributions to partners (2,881) -- Net cash used in financing activities (1,341) (938) Net (decrease) increase in cash and cash equivalents (507) 232 Cash and cash equivalents at beginning of period 4,968 4,315 Cash and cash equivalents at end of period $ 4,461 $ 4,547 Cash paid for interest $ 58 $ -- Supplemental disclosure of non cash investing and financing activities: Accrued interest added to note payable principal $ 876 $ 883 See Accompanying Notes to Consolidated Financial Statements e) FOX STRATEGIC HOUSING INCOME PARTNERS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements of Fox Strategic Housing Income Partners (the "Partnership") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"), a California Corporation, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 1998, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1998. For further information, refer to the financial statements and footnotes thereto included in the Partnership's annual report on Form 10-KSB for the year ended December 31, 1997. Certain reclassifications have been made to the 1997 information to conform to the 1998 presentation. NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES Fox Partners VIII, a California general partnership, is the General Partner. The general partners of Fox Partners VIII are FCMC and Fox Realty Investors ("FRI"), a California general partnership. Insignia Properties Trust ("IPT") is the sole shareholder of FCMC and the Managing General Partner of FRI (see "Note D"). 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 transactions with the Managing General Partner and its affiliates were incurred during the nine months ended September 30, 1998 and 1997: 1998 1997 (in thousands) Property management fees (included in operating expenses) $118 $115 Reimbursements for services of affiliates (included in general and administrative and operating expenses) 46 49 Included in "Reimbursements for services of affiliates" for the nine months ended September 30, 1998 and 1997 is approximately $1,000 and $2,000, respectively, in reimbursements for construction oversight costs. 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 current year's master policy. The agent assumed the financial obligations to the affiliate of the Managing General Partner which received 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. On August 28, 1997, an affiliate of the Managing General Partner (the "Purchaser") commenced a tender offer for limited partnership interests in the Partnership. The Purchaser offered to purchase up to 11,750 of the outstanding units of limited partnership interest in the Partnership at $260.00 per Unit, net to the seller in cash. As a result of the tender offer, the Purchaser acquired 3,919 of the outstanding limited partner units of the Partnership. NOTE C - REFINANCING OF MORTGAGE NOTES PAYABLE On July 30, 1998, the Partnership refinanced the mortgage indebtedness encumbering its properties. The new mortgage encumbering Woodview Apartments is in the principal amount of $5,600,000, bears interest at a rate of 6.64% per annum and requires monthly debt service payments of $35,912.97. The new mortgage encumbering Barrington Place Apartments is in the principal amount of $4,900,000, bears interest at a rate of 6.65% and requires monthly debt service payments of $31,456.28. Both mortgage loans mature on August 1, 2008 at which time the properties will either be refinanced or sold. The Partnership received net proceeds from these refinancings in the aggregate amount of approximately $1,549,000, which proceeds were distributed in October, 1998. In addition, the Partnership was required to establish escrows with the lender for tax and insurance costs. NOTE D - TRANSFER OF CONTROL - SUBSEQUENT EVENT On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control of the Managing General Partner. In addition, AIMCO also acquired approximately 51% of the outstanding common shares of beneficial interest of IPT, the entity which controls the General Partner of the Partnership. Also, effective October 1, 1998 IPT and AIMCO entered into an Agreement and plan of Merger pursuant to which IPT is to be merged with and into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has agreed to vote all of the IPT Shares owned by it in favor of the IPT Merger and has granted an irrevocable limited proxy to unaffiliated representatives of IPT to vote the IPT Shares acquired by AIMCO and its subsidiaries in favor of the IPT Merger. As a result of AIMCO's ownership and its agreement, the vote of no other holder of IPT is required to approve the merger. 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. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The Partnership's investment properties consist of two apartment complexes. The following table sets forth the average occupancy of the properties for each of the nine months ended September 30, 1998 and 1997: Average Occupancy Property 1998 1997 Barrington Place Apartments Westlake, Ohio 94% 95% Wood View Apartments Atlanta, Georgia 95% 93% The Partnership reported net income for the nine months ended September 30, 1998, of approximately $261,000 as compared to net income of approximately $109,000 for the corresponding period of 1997. The Partnership reported net income for the three months ended September 30, 1998, of approximately $90,000 as compared to net income of approximately $50,000 for the corresponding period in 1997. The increase in net income is attributed to increase in both rental and other income and a decrease in interest expense and property taxes. Rental income increased at both investment properties during the three and nine month periods ended September 30, 1998, due to rental rate increases combined with overall decreases in concessions at both investment properties during 1998 as compared to 1997. Other income increased primarily due to an increase in corporate unit and interest income at Barrington Place. Interest expense decreased due to lower rates obtained upon refinancing the debt in 1998 (see "Note C"). The decrease in property tax expense is attributable to a tax refund received at Wood View and a decrease in the effective tax rate by the taxing authority for Barrington Place. Included in operating expense for the nine months ended September 30, 1998 is approximately $31,000 of major repairs and maintenance comprised primarily of landscaping costs and exterior building and parking lot repairs. Included in operating expense for the nine months ended September 30, 1997 is approximately $39,000 of major repairs and maintenance comprised primarily of landscaping costs. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of 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. At September 30, 1998, the Partnership had cash and cash equivalents of approximately $4,461,000 compared to approximately $4,547,000 for the corresponding period of 1997. The net decrease in cash and cash equivalents for the nine months ended September 30, 1998 is approximately $507,000 compared to a net increase in cash and cash equivalents of approximately $232,000 for the corresponding period of 1997. Net cash provided by operating activities decreased primarily due to increases in receivable and deposits and other assets, which include prepaid expenses, due to the timing of payments. Partially offsetting these decreases is an increase in net income, as discussed above, and an increase in accrued property taxes. Net cash used in investing activities increased due to restricted escrow deposits required by the terms of the new debt agreements, partially offset by a decrease in property improvements and replacements in 1998 as compared to 1997. Net cash provided by financing activities increased due to distributions paid to partners in 1998, with none paid in 1997, combined with loan costs paid in 1998 related to the refinancing of debt. Partially offsetting these increases in cash used are proceeds from long-term borrowings in excess of the repayment of prior debt. Prior to July 30, 1998, the Partnership's properties were cross-collateralized by a zero coupon first mortgage which secured the entire amount of the note payable. Interest accrued on the amount borrowed at a contract rate of 10.9 percent per annum, with the accrued interest added to principal each January and July. On July 30, 1998, the Partnership refinanced this indebtedness with new mortgage loans on each of the properties. As a result, the properties are no longer cross-collateralized. The new loan on the Woodview Apartments is in the principal amount of $5,600,000, bears interest at a rate of 6.64% per annum and requires monthly debt service payments of $35,912.97. The new mortgage encumbering Barrington Place Apartments is in the principal amount of $4,900,000, bears interest at a rate of 6.65% and requires monthly debt service payments of $31,456.28. Both mortgage loans mature on August 1, 2008. The General Partner will attempt to refinance such indebtedness or sell the properties prior to such maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such properties through foreclosure. The Partnership received net proceeds from these refinancings in the aggregate amount of approximately $1,549,000. In addition, the Partnership was required to establish escrows with the lender for tax and insurance costs. 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 various properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with federal, state and local legal and regulatory requirements. The General Partner is currently assessing the need for capital improvements at each of the Partnership's properties. To the extent the additional capital improvements are required, the Partnership's distributable cash flow, if any, may be adversely affected at least in the short term. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. During the nine months ended September 30, 1998, the Partnership distributed cash from operations of approximately $480,000 and proceeds from prior year property sales of approximately $2,401,000. A subsequent distribution in the amount of $2,500,000 was paid in October 1998, with approximately $951,000 distributed from operations and $1,549,000 distributed from refinancing proceeds. Future cash distributions will depend on the levels of net cash generated from operations, refinancings, property sales, and the availability of cash reserves. The Partnership's distribution policy will be reviewed on a quarterly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations to permit further distributions to its partners in 1998 or subsequent periods. Transfer of Control - Subsequent Event On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and into Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control of the Managing General Partner. In addition, AIMCO also acquired approximately 51% of the outstanding common shares of beneficial interest of Insignia Properties Trust ("IPT"), the entity which controls the General Partner of the Partnership. Also, effective October 1, 1998 IPT and AIMCO entered into an Agreement and plan of Merger pursuant to which IPT is to be merged with and into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger requires the approval of the holders of a majority of the outstanding IPT Shares. AIMCO has agreed to vote all of the IPT Shares owned by it in favor of the IPT Merger and has granted an irrevocable limited proxy to unaffiliated representatives of IPT to vote the IPT Shares acquired by AIMCO and its subsidiaries in favor of the IPT Merger. As a result of AIMCO's ownership and its agreement, the vote of no other holder of IPT is required to approve the merger. The Managing General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. Year 2000 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 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 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. 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 are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Managing Agent and the Partnership. STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT The Managing Agent's plan to resolve the Year 2000 Issue involves the following four phases: assessment, remediation, testing and implementation. To date, the Managing Agent has fully completed its assessment of all information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phase on both hardware and software systems. Assessments are continuing in regards to embedded systems in operating equipment. The Managing Agent anticipates having all phases complete by June 1, 1999. In addition to the areas the Partnership is relying on the Managing Agent to verify compliance with, the Partnership has certain operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. The focus of the Managing General Partner was to the security systems, elevators, heating-ventilation-air-conditioning systems, telephone systems and switches, and sprinkler systems. The Managing General Partner is currently engaged in the identification of all non-compliant operational systems, and is in the process of estimating the costs associated with any potential modifications or replacements needed to such systems in order for them to be Year 2000 compliant. It is not expected that such costs would have a material adverse affect upon the operations of the Partnership. RISK ASSOCIATED WITH THE YEAR 2000 The Managing General Partner believes that the Managing Agent has an effective program in place to resolve the Year 2000 issue in a timely manner and has appropriate contingency plans in place for critical applications that could affect the Partnership's operations. To date, the Managing General Partner is not aware of any external agent with a Year 2000 issue that would materially impact the Partnership's results of operations, liquidity or capital resources. However, the Managing General Partner has no means of ensuring that external agents will be Year 2000 compliant. The Managing General Partner does not believe that the inability of external agents to complete their Year 2000 resolution 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. Other Certain items discussed in this quarterly report may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act") and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to be materially different from future results, performance or achievements expressed or implied by such forward- looking statements. Such forward-looking statements speak only as of the date of this quarterly report. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled ROSALIE NUANCES, 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 Corporate 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 are scheduled to be heard on January 8, 1999. The Managing General believes the action to be without merit, and intends to vigorously defend it. In April 1998, a limited partner of the Partnership commenced an action in the Circuit Court for Jackson County, Missouri entitled BOND PURCHASE LLC V. FOX STRATEGIC HOUSING INCOME PARTNERS, ET AL. The complaint claims that the Partnership and the Managing General Partner breached certain contractual and fiduciary duties allegedly owed to the claimant and seeks damages and injunctive relief. The Managing General Partner believes the claims to be without merit and intends to vigorously defend the claims. 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 in the Superior Court of the State of California, County of Los Angeles. The action, entitled EVEREST PROPERTIES LLC V. INSIGNIA FINANCIAL GROUP, INC., 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"). The complaint names as defendants Insignia, several Insignia Affiliates alleged to be managing partners of the Subject Partnerships, the Partnership and the Corporate General Partner. Plaintiffs allege that they have requested from, but have been denied by each of the Subject Partnerships, lists of their respective limited partners for the purpose of making tender offers to purchase up to 4.9% of the limited partner units of each of the Subject Partnerships. The complaint also alleges that certain of the defendants made tender offers to purchase limited partner units in many of the Subject Partnerships, with the alleged result that plaintiffs have been deprived of the benefits they would have realized from ownership of the additional units. The plaintiffs assert eleven causes of action, including breach of contract, unfair business practices, and violations of the partnership statutes of the states in which the Subject Partnerships are organized. Plaintiffs seek compensatory, punitive and treble damages. The Managing General Partner filed an answer to the complaint on September 15, 1998. The Managing General Partner believes the claims to be without merit and intends to defend the action vigorously. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature. The Managing General Partner believes that all such other matters are adequately covered by insurance and will be resolved without a material adverse effect upon the business, financial condition, results of operations, or liquidity of the Partnership. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a)Exhibits: Exhibit 10.1 Repair Escrow Agreement dated July 30, 1998, between Fox Strategic Housing Income Partners, a California limited partnership, and Newport Mortgage Company, L.P., a Texas limited partnership, related to the refinancing of debt on Woodview Apartments. Exhibit 10.2 Replacement Reserve Agreement dated July 30, 1998, between Fox Strategic Housing Income Partners, a California limited partnership, and Newport Mortgage Company, L.P., a Texas limited partnership, related to the refinancing of debt on Woodview Apartments. Exhibit 10.3 Multi-family Note dated July 30, 1998, between Westlake East Associates Limited Partnership, an Ohio limited partnership, and Newport Mortgage Company, L.P., a Texas limited partnership, related to the refinancing of debt on Barrington Place Apartments. Exhibit 10.4 Repair Escrow Agreement dated July 30, 1998, between Fox Strategic Housing Income Partners, a California limited partnership, and Newport Mortgage Company, L.P., a Texas limited partnership, related to the refinancing of debt on Barrington Place Apartments. Exhibit 10.5 Replacement Reserve Agreement dated July 30, 1998, between Fox Strategic Housing Income Partners, a California limited partnership, and Newport Mortgage Company, L.P., a Texas limited partnership, related to the refinancing of debt on Barrington Place Apartments. Exhibit 27 Financial Data Schedule, filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended September 30, 1998. SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FOX STRATEGIC HOUSING INCOME PARTNERS By: FOX PARTNERS VIII Its General Partner By: FOX CAPITAL MANAGEMENT CORPORATION Its Managing General Partner By: /s/Patrick Foye Patrick Foye Executive Vice President By: /s/Timothy R. Garrick Timothy R. Garrick Vice President - Accounting (Duly Authorized Officer) Date: November 12, 1998 EX-27 2
5 This schedule contains summary financial information extracted from Fox Strategic Housing Income Partners 1998 Third Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000800080 FOX STRATEGIC HOUSING INCOME PARTNERS 1,000 9-MOS DEC-31-1998 SEP-30-1998 4,461 0 331 0 0 0 21,435 6,890 19,809 0 10,491 0 0 0 8,934 19,809 0 2,523 0 0 2,262 0 666 0 0 0 0 0 0 261 8.00 0 Registrant has an unclassified balance sheet. Multiplier is 1.
EX-10.1 3 EXHIBIT 10.1 REPAIR ESCROW AGREEMENT This REPAIR ESCROW AGREEMENT ("Agreement") is made and entered into this ______ day of July, 1998, by and between FOX STRATEGIC HOUSING INCOME PARTNERS, a California limited partnership ("Borrower"), and NEWPORT MORTGAGE COMPANY, L.P., a Texas limited partnership ("Lender") and its successors and assigns. W I T N E S S E T H: WHEREAS, Lender has agreed to make and Borrower has agreed to accept the Loan, which is to be evidenced by the Note and secured by the Security Instrument encumbering the Property described on Exhibit "A" attached to, and incorporated into, this Agreement by reference; WHEREAS, as a condition of making the Loan, Lender is requiring Borrower to make the Repairs to the Improvements, which Repairs are generally described in the Schedule of Work attached to this Agreement as Exhibit "B"; WHEREAS, in order to assure that the Repairs are made and paid for in a timely manner, Lender is requiring Borrower to establish the Repair Escrow Fund with Lender pursuant to the terms of this Agreement; and WHEREAS, Lender and Borrower are desirous of reducing to writing all of their agreements regarding the Repair Escrow Fund. NOW, THEREFORE, for and in consideration of the Loan, the mutual promises and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower agree as follows: 1. Definitions. The following terms used in this Agreement shall have the meanings set forth below in this Paragraph 1: (a) "Completion Date" means the date which is one hundred eighty (180) days after the date of this Agreement or , 1999. (b) "Disbursement Request" means Borrower's written requests to Lender in the form attached to this Agreement as Exhibit "C" for the disbursement of money from the Repair Escrow Fund pursuant to Paragraph 3 below, which requests shall not be made more often than once every thirty (30) days during the term of this Agreement. (c) "Improvements" means the multifamily apartment project known as Wood View Apartments and situated upon the Property. (d) "Jurisdiction" means the State in which the Property is located. (e) "Loan" means the loan from Lender to Borrower in the original principal amount of Five Million Six Hundred Thousand Dollars ($5,600,000.00), as evidenced by the Note and secured by the Security Instrument. (f) "Loan Documents" means, collectively, the Note, Security Instrument, this Agreement and all other instruments and documents executed in connection with the Loan. (g) "Minimum Disbursement Request Amount" means Five Thousand and No/100 Dollars ($5,000.00). (h) "Note" means the promissory note from Borrower to Lender evidencing the Loan. (i) "Property" means the real property described on the attached Exhibit "A". (j) "Repairs" means the repairs to be made to the Improvements, as described on the attached Exhibit "B" or as otherwise required by Lender in accordance with this Agreement. (k) "Repair Escrow Fund" means the sum of Twenty-One Thousand Seven Hundred Fifty Dollars and No/100 ($21,750.00) deposited into escrow with Lender as of the date of this Agreement, together with interest, if any, to be held in accordance with the provisions of this Agreement. (l) "Schedule of Work" means the schedule of work for the Repairs attached to this Agreement as Exhibit "B". (m) "Security Instrument" means the mortgage, deed of trust, deed to secure debt, or other similar security instrument encumbering the Property and securing Borrower's performance of its Loan obligations. 2. Repair Escrow Fund. (a) Establishment. Lender hereby acknowledges that Borrower has established the Repair Escrow Fund by depositing the amount of the Repair Escrow Fund with Lender. Borrower and Lender agree that all moneys deposited into the Repair Escrow Fund shall be held by Lender in an interest bearing account if Lender estimates that the Repairs will require longer than ninety (90) days to complete, and any interest earned on such moneys shall be added to the principal balance of the Repair Escrow Fund and disbursed in accordance with the provisions of this Agreement. Lender shall be entitled to deduct from the Repair Escrow Fund a one time fee in the amount of zero Dollars ($ -0-) for establishing the Repair Escrow Fund. Lender shall not be responsible for any losses resulting from investment of moneys in the Repair Escrow Fund or for obtaining any specific level or percentage of earnings on such investment. (b) Use. The Repair Escrow Fund shall, except as otherwise stated in this Agreement, be used for the purpose of paying, or reimbursing Borrower for, the costs of the Repairs. 3. Disbursements. From time to time, as construction and completion of the Repairs progresses, upon Borrower's submission of a Disbursement Request in the form attached to this Agreement as Exhibit C, and provided that Borrower is in full compliance with all the applicable conditions set forth in this Agreement and in the other Loan Documents, Lender shall make disbursements from the Repair Escrow Fund for payment or reimbursement of the actual costs of the Repairs. Borrower's Disbursement Request shall be signed by Borrower, and Borrower shall include with its Disbursement Request a report setting out the progress of the Repairs and any other reports or information relating to the construction of the Repairs that may be reasonably requested by Lender. Borrower also shall include with each Disbursement Request copies of any applicable invoices and/or bills and appropriate lien waivers for the prior period for which disbursement was made, executed by all contractors and suppliers supplying labor or materials for the Repairs, and, unless waived by Lender in writing, a report prepared by the professional engineer employed by Lender as to the status of the Repairs. Except for the final Disbursement Request, no Disbursement Request shall be for an amount less than the Minimum Disbursement Request Amount. 4. Reporting Requirements; Completion. Prior to receiving the final disbursement from the Repair Escrow Fund, Borrower shall deliver to Lender, in addition to the information required by Paragraph 3 above, the following: (a) Contractor's Certificate. A certificate signed by each major contractor and supplier of materials, as reasonably determined by Lender, engaged to provide labor or materials for the Repairs to the effect that such contractor or supplier has been paid in full for all work completed and that the portion of the Repairs provided by such contractor or supplier has been fully completed in accordance with the plans and specifications (if any) provided to it by Borrower and that such portion of the Repairs is in compliance with all applicable building codes and other rules and regulations promulgated by applicable regulatory or governmental authorities; (b) Borrower's Certificate. A certificate signed by Borrower to the effect that the Repairs have been fully paid for, that all money disbursed hereunder has been used for the Repairs and no claim or claims exist against the Borrower or against the Property or Improvements out of which a lien based on furnishing labor or material exists or might ripen. Borrower may except from the certificate described in the preceding sentence any claim or claims that Borrower intends to contest, provided that any such claim or claims are described in Borrower's certificate and Borrower certifies to Lender that the Repair Escrow Fund is sufficient to make payment of the full amount which might in any event be payable in order to satisfy such claim or claims. If required by Lender, Borrower also shall certify to Lender that such portion of the Repairs is in compliance with all applicable zoning ordinances; (c) Engineer's Certificate. A certificate signed by the professional engineer employed by Lender to the effect that the Repairs have been completed in a good and workmanlike manner in compliance with the Schedule of Work and all applicable building codes, zoning ordinances and other rules and regulations promulgated by applicable regulatory or governmental authorities; and (d) Other Certificates. Any other certificates of approval, acceptance or compliance required by Lender from or by the city, county, state or federal governmental authorities having jurisdiction over the Property and the Repairs. 5. Indirect and Excess Disbursements. Lender, in its sole judgment, is authorized to hold, use and disburse the Repair Escrow Fund to pay any and all costs, charges and expenses whatsoever and howsoever incurred or required in connection with the construction and completion of the Repairs, or in the payment or performance of any obligation of Borrower to Lender. If Lender, for purposes specified in this Paragraph 5, shall elect to pay any portion of the Repair Escrow Fund to parties other than Borrower, then Lender may do so, at any time and from time to time, and the amount of advances to which Borrower shall be entitled under this Agreement shall be correspondingly reduced. 6. Schedule of Work. All disbursements from the Repair Escrow Fund shall be limited to the costs of those items set forth on the Schedule of Work attached to this Agreement as Exhibit "B". 7. Repairs. Borrower covenants and agrees with Lender as follows: (a) Commencement of Work. Prior to the recordation of the Security Instrument, no work of any kind has been or will be commenced or performed upon the Property and no materials or equipment have been or will be delivered to or upon the Property. (b) Construction. Borrower will commence the Repairs as soon as practicable after the date of this Agreement and will diligently proceed with and complete the Repairs on or before the Completion Date in a workmanlike manner and in accordance with the Schedule of Work, good building practices and all applicable laws, ordinances, rules and regulations. (c) Changes in Schedule of Work . Without the prior written consent of Lender, Borrower will make no departures from or alterations to the Schedule of Work. (d) Inspections. Borrower will permit Lender or any person designated by Lender (including without limitation a professional inspection engineer) and any interested governmental authority, at any time and from time to time, to inspect the Repairs and Improvements and to examine and copy all of Borrower's books and records and all contracts and bills pertaining to the Repairs and Improvements. Lender shall be entitled to deduct from the Repair Escrow Fund reasonable fees for performing any such inspections and/or an amount sufficient to reimburse Lender for all fees and expenses charged by any professional inspection engineer employed by Lender in connection with any such inspection. Borrower agrees to cause the replacement of any material or work that is defective, unworkmanlike, does not comply with any applicable law, ordinance, rule or regulation, or does not comply with the requirements of this Agreement, as determined by Lender. Prior to and as a condition of the final disbursement of funds from the Repair Escrow Fund, Lender shall inspect or cause to be inspected the Repairs and the Improvements to determine that all Repairs, including but not limited to interior and exterior repairs have been completed in a manner acceptable to Lender. (e) Purchases. Without the prior written consent of Lender, no materials, machinery, equipment, fixtures or any other part of the Repairs shall be purchased or installed under conditional sale contracts or lease agreements, or any other arrangement wherein title to such Repairs is retained or subjected to a purchase money security interest, or the right is reserved or accrues to anyone to remove or repossess any such Repairs, or to consider them as personal property. 8. Lien Protection. Borrower shall promptly pay or cause to be paid, when due, all costs, charges and expenses incurred in connection with the construction and completion of the Repairs, and shall keep the Property and Improvements free and clear of any and all liens other than the lien of the Security Instrument and any other junior lien which may be consented to by Lender. 9. Adverse Claims. Borrower shall promptly advise Lender in writing of any litigation, liens, or claims affecting the Property and of all complaints and charges made by any governmental authority or any governmental department, bureau, commission or agency exercising supervision or control over Borrower or its business, which may delay or adversely affect the Repairs. 10. Compliance With Laws; Insurance Requirements. (a) Compliance With Laws. All Repairs shall comply with all applicable laws, ordinances, rules and regulations of all governmental authorities having jurisdiction over the Property and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (b) Insurance Requirements. In addition to any insurance required under the Loan Documents, Borrower shall provide or cause to be provided workers' compensation, builder's risk (if required by Lender), and public liability insurance and other insurance required under applicable law in connection with any of the Repairs. All such policies shall be in form and amount satisfactory to Lender. All such policies which can be endorsed with standard mortgage clauses making losses payable to Lender or its assigns shall be so endorsed. The originals of such policies shall be deposited with Lender. 11. Use of Repair Escrow Fund. Borrower will accept disbursements from the Repair Escrow Fund in accordance with the provisions of this Agreement and will use, or cause to be used, each such disbursement solely to pay for materials, labor and services, or to pay costs and expenses for which such disbursement is requested. 12. Conditions Precedent. Lender shall not be obligated to make any disbursement from the Repair Escrow Fund to or for the benefit of Borrower unless at the time of each Disbursement Request all of the following conditions prevail: (a) No Default. There shall exist no condition, event or act which would constitute a default (with or without notice and/or lapse of time) under this Agreement or any other Loan Document. (b) Representations and Warranties. All representations and warranties of Borrower set forth in this Agreement and in the Loan Documents are true. (c) Continuing Compliance. Borrower shall be in full compliance with the provisions of this Agreement, the other Loan Documents and any request or demand by Lender permitted hereby. (d) No Lien Claim. No lien or claim based on furnishing labor or materials has been filed or asserted against the Property or the Improvements, unless Borrower has properly provided bond or other security against loss in accordance with applicable law. (e) Approvals. All licenses, permits, and approvals of governmental authorities required for the Repairs as completed to the applicable stage have been obtained. (f) Legal Compliance. The Repairs as completed to the applicable stage do not violate any laws, ordinances, rules or regulations, or building lines or restrictions applicable to the Property. 13. Right to Complete Repairs. If Borrower abandons or fails to proceed diligently with the Repairs or otherwise is in default under this Agreement, Lender shall have the right (but not the obligation) to enter upon the Property and take over and cause the completion of the Repairs. Any contracts entered into or indebtedness incurred upon the exercise of such right may be in the name of Borrower, and Lender is hereby irrevocably appointed the attorney in fact of Borrower, such appointment being coupled with an interest, to enter into such contracts, incur such obligations, enforce any contracts or agreements made by or on behalf of Borrower (including the prosecution and defense of all actions and proceedings in connection with the Repairs and the payment, settlement, or compromise of all claims for materials and work performed in connection with the Repairs) and do any and all things necessary or proper to complete the Repairs including signing Borrower's name to any contracts and documents as may be deemed necessary by Lender. In no event shall Lender be required to expend its own funds to complete the Repairs, but Lender may, in Lender's sole discretion, advance such funds. Any funds advanced shall be added to the outstanding balance of the Note, secured by the Security Instrument and payable to Lender by Borrower in accordance with the provisions of the Security Instrument pertaining to the protection of Lender's security and advances made by Lender. Borrower waives any and all claims it may have against Lender for materials used, work performed or resultant damage to the Property. 14. Insufficient Account. If Lender determines in its reasonable discretion that the Repair Escrow Fund is insufficient to pay for the Repairs, Lender shall so notify Borrower, in writing, and as soon as possible (but in no event later than twenty (20) days after such notice) Borrower shall pay to Lender an amount, in cash, equal to such deficiency, which amount shall be placed in the Repair Escrow Fund by Lender. 15. Security Agreement. Borrower hereby conveys, pledges, transfers and grants to Lender and its successors and assigns a security interest pursuant to the Uniform Commercial Code of the Jurisdiction and other applicable laws in and to all money in the Repair Escrow Fund as such may increase or decrease from time to time for the purpose of securing Borrower's obligations under this Agreement and to further secure Borrower's obligations under the Note, Security Instrument and other Loan Documents. 16. Post Default. If Borrower defaults in the performance of its obligations under this Agreement or under the Note, Security Instrument or any other Loan Document, Lender and its successors and assigns shall have all remedies available to them under Article 9 of the Uniform Commercial Code of the Jurisdiction and under any other applicable laws and, in addition, may retain all moneys in the Repair Escrow Fund, including interest, and in Lender's discretion, may apply such amounts, without restriction and without any specific order of priority, to the payment of any and all indebtedness or obligations of Borrower set forth in the Note, Security Instrument or other Loan Documents, including, but not limited to, principal, interest, taxes, insurance, reasonable attorneys' fees actually incurred and/or repairs to the Property. 17. Termination. This Agreement shall terminate upon the completion of the Repairs in accordance with this Agreement, and the full disbursement by Lender of the Repair Escrow Fund. In the event there are funds remaining in the Repair Escrow Fund after the Repairs have been completed in accordance with this Agreement, and provided no default by Borrower exists under this Agreement or under any other Loan Documents, such funds remaining in the Repair Escrow Fund shall be [SELECT AND INITIAL APPLICABLE ITEM]: Lender/Borrower Initials / refunded by Lender to the Borrower. / deposited by Lender into the Replacement Reserve account established by Lender pursuant to the Replacement Reserve Agreement between Borrower and Lender dated _________________, 199___. 18. No Amendment. Nothing contained in this Agreement shall be construed to amend, modify, alter, change or supersede the terms and provisions of the Note, Security Instrument or any other Loan Document and, if there shall exist a conflict between the terms and provisions of this Agreement and those of the Note, Security Instrument or other Loan Documents, then the terms and provisions of the Note, Security Instrument and other Loan Documents shall control. 19. Release; Indemnity. (a) Release. Borrower covenants and agrees that, in performing any of its duties under this Agreement, neither Lender nor any of its successors and assigns shall be liable for any losses, costs or damages which may be incurred by any of them as a result thereof, except for any losses, costs or damages arising out of the willful misconduct or gross negligence of such party. (b) Indemnity. Borrower hereby agrees to indemnify and hold harmless Lender and its successors and assigns, against any and all losses, claims, damages, liabilities and expenses including, without limitation, reasonable attorneys' fees and disbursements, which may be imposed or incurred by any of them in connection with this Agreement. 20. Choice of Law. This Agreement shall be construed and enforced in accordance with the laws of the Jurisdiction. 21. Successors and Assigns. Borrower acknowledges and agrees that Lender, at its option, may assign or otherwise transfer the Loan and all documents evidencing and securing the Loan, including, but not limited to, this Agreement, to other parties subsequent to the execution of this Agreement. This Agreement shall be binding upon the successors and assigns of Borrower and Lender. Borrowers may not assign its rights, interests, or obligations under this Agreement without first obtaining Lender's prior written consent. 22. Attorneys' Fees. In the event that Lender or its successors or assigns shall engage the services of an attorney at law to enforce the provisions of this Agreement against Borrower, then Borrower shall pay all costs of such enforcement, including any reasonable attorneys' fees actually incurred. 23. Remedies Cumulative. In the event of Borrower's default under this Agreement, Lender may exercise all or any one or more of its rights and remedies available under this Agreement, at law or in equity. Such rights and remedies shall be cumulative and concurrent, and may be enforced separately, successively or together, and Lender's exercise of any particular right or remedy shall not in any way prevent Lender from exercising any other right or remedy available to Lender. Lender may exercise any such remedies from time to time as often as may be deemed necessary by Lender. 24. Determinations by Lender. In any instance where the consent or approval of Lender may be given or is required, or where any determination, judgment or decision is to be rendered by Lender under this Agreement, the granting, withholding or denial of such consent or approval and the rendering of such determination, judgment or decision shall be made or exercised by Lender (or its designated representative) at its sole and exclusive option and in its sole and absolute discretion. 25. Completion of Repairs. Lender's disbursement of moneys in the Repair Escrow Fund or other acknowledgment of completion of any Repair in a manner satisfactory to Lender shall not be deemed a certification by Lender that the Repair has been completed in accordance with applicable building, zoning or other codes, ordinances, statutes, laws, regulations or requirements of any governmental authority or agency. Borrower shall at all times have the sole responsibility for insuring that all Repairs are completed in accordance with all such governmental requirements. 26. No Agency or Partnership. Nothing contained in this Agreement shall constitute Lender as a joint venturer, partner or agent of Borrower, or render Lender liable for any debts, obligations, acts, omissions, representations or contracts of Borrower. 27. Entire Agreement. This writing constitutes the entire agreement of the parties relative to the Repair Escrow Fund. Any modification or amendment hereto shall be ineffective unless in writing and signed by the parties hereto. ATTACHED EXHIBITS. The following Exhibits are attached to this Agreement: |X | Exhibit A Property Description (required) |X | Exhibit B Schedule of Work (required) |X | Exhibit C Disbursement Request (required) |X | Exhibit D Modifications to Agreement IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. BORROWER: FOX STRATEGIC HOUSING INCOME PARTNERS, a California limited partnership By: Fox Partners VIII, a California general partnership, General Partner By: Fox Capital Management Corporation, a California corporation, Managing Partner By:/s/ Robert D. Long, Jr. Robert D. Long, Jr., Vice President Borrower's Social Security or Taxpayer Identification No.____________________ LENDER: NEWPORT MORTGAGE COMPANY, L.P., a Texas limited partnership By: DUSCO, INC., a Texas corporation, General Partner By:/s/ Jeffrey S. Juster Jeffrey S. Juster, President EXHIBIT A PROPERTY DESCRIPTION EXHIBIT B SCHEDULE OF WORK REPAIR COSTS 1. Replace brick pavers at the entry roadway with concrete tampered pavers. $6,500 2. Repair the portion of heaving concrete sidewalk in front of Building 8, Breezeway C. $200 3. Replace damaged railroad tie retaining wall in front of Building 2. $800 4. Replace roof on Building 8. $900 Total Repairs $17,400 x 125% $21,750 EXHIBIT C DISBURSEMENT REQUEST The undersigned hereby requests from ("Lender") the disbursement of funds in the amount of $ ("Disbursement Request") from the Repair Escrow Fund established pursuant to the Repair Escrow Agreement dated , 19___ by and between Lender and the undersigned to pay for repairs to the multifamily apartment project known as and located in . The undersigned hereby represents and warrants to Lender that the following information and certifications provided in connection with this Disbursement Request are true and correct as of the date hereof: 1. Purpose for which disbursement is requested? 2. To whom shall the disbursement be made (may be the undersigned in the case of reimbursement for advances and payments made or cost incurred for work done by the undersigned)? 3. Estimated costs of completing the uncompleted Repairs as of the date of this Disbursement Request. 4. The undersigned certifies that: (a) the disbursement requested pursuant to this Disbursement Request will be used solely to pay a cost or costs allowable under the Repair Escrow Agreement; (b) none of the items for which disbursement is requested pursuant to this Disbursement Request has formed the basis for any disbursement previously made from the Repair Escrow Fund; (c) all labor and materials for which disbursements have been requested have been incorporated into the Improvements or suitably stored upon the Property in accordance with reasonable and standard building practices, the Repair Escrow Agreement and all applicable laws, ordinances, rules and regulations of any governmental authority having jurisdiction over the Property; and (d) the materials, supplies and equipment furnished or installed for the Repairs are not subject to any lien or security interest or that the funds to be disbursed pursuant to this Disbursement Request are to be used to satisfy any such lien or security interest. 5. All capitalized terms used in this Disbursement Request without definition shall have the meanings ascribed to them in the Repair Escrow Agreement. IN WITNESS WHEREOF, the undersigned has executed this Disbursement Request as of the day and date first above written. BORROWER: Date: EX-10.2 4 EXHIBIT 10.2 REPLACEMENT RESERVE AGREEMENT This REPLACEMENT RESERVE AGREEMENT ("Agreement") is made and entered into this day of July, 1998, by and between FOX STRATEGIC HOUSING INCOME PARTNERS, a California limited partnership, ("Borrower"), and NEWPORT MORTGAGE COMPANY, L.P., a Texas limited partnership ("Lender") and its successors and assigns. W I T N E S S E T H: WHEREAS, Lender has agreed to make and Borrower has agreed to accept the Loan, which is to be evidenced by the Note and secured by the Security Instrument encumbering the Property described on Exhibit "A" attached to, and incorporated into, this Agreement by reference; WHEREAS, as a condition to the closing of the Loan, Lender has required Borrower to establish the Replacement Reserve Fund at the time of closing for the funding of Capital Replacements throughout the Loan term; and WHEREAS, Lender and Borrower are desirous of reducing to writing all of their agreements regarding the Replacement Reserve Fund. NOW, THEREFORE, for and in consideration of the Loan, the mutual promises and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower agree as follows: 1. Definitions. The following terms used in this Agreement shall have the meanings set forth below in this Paragraph 1: (a) "Capital Replacement" means the replacement of those items listed on Exhibit "B" of this Agreement and such other replacements as may be approved in writing or required by Lender. (b) "Disbursement Period" means the interval between disbursements from the Replacement Reserve Fund, which interval shall be no shorter than once a [SELECT APPLICABLE PERIOD AND INITIAL BESIDE SELECTED PERIOD] LENDER AND BORROWER INITIALS: month / X quarter. / (c) "Jurisdiction" means the State in which the Property is located. (d) "Loan" means the loan from Lender to Borrower in the original principal amount of Five Million Six Hundred Thousand and No/100 Dollars ($5,600,000.00), as evidenced by the Note and secured by the Security Instrument. (e) "Loan Documents" means, collectively, the Note, Security Instrument and all other instruments and documents executed in connection with the Loan. (f) "Minimum Disbursement Request Amount" means Five Thousand and No/100 Dollars ($5,000.00). (g) "Note" means the promissory note from Borrower to Lender evidencing the Loan. (h) "Property" means the real property described on Exhibit "A" of this Agreement. (i) "Replacement Reserve Deposit" means the initial deposit in the amount of Zero Dollars ($-0-) made as of the date of this Agreement, together with the sum of Four Thousand Two Hundred Seventy-Five and No/100 Dollars ($4,275.00) per month to be deposited into the Replacement Reserve Fund, as such monthly deposit amount may increase from time to time in accordance with the schedule attached to this Agreement as Exhibit "C". (j) "Replacement Reserve Fund" means the account established pursuant to this Agreement to defray the costs of Capital Replacements. (k) "Security Instrument" means the mortgage, deed of trust, deed to secure debt, or other similar security instrument encumbering the Property and securing Borrower's performance of its Loan obligations. 2. Replacement Reserve Fund. (a) Establishment; Funding. Upon the closing of the Loan, the parties shall establish the Replacement Reserve Fund and, if required by Lender, Borrower shall pay to Lender for deposit into the Replacement Reserve Fund, the amount of the initial Replacement Reserve Deposit. Commencing on the date the first installment of principal and/or interest is due under the Note and continuing on the same day of each successive month during the Loan term, Borrower shall pay to Lender for deposit into the Replacement Reserve Fund the monthly Replacement Reserve Deposit, together with its regular monthly payments of principal and interest as required by the Note and Security Instrument. The Replacement Reserve Fund shall be maintained and governed in accordance with this Agreement. (b) Investment of Deposits. Borrower and Lender agree that all moneys deposited into the Replacement Reserve Fund shall be held by Lender in an interest bearing account, and any interest earned on such moneys shall be added to the principal balance of the Replacement Reserve Fund and disbursed in accordance with the provisions of this Agreement. Lender shall not be responsible for any losses resulting from investment of moneys in the Replacement Reserve Fund or for obtaining any specific level or percentage of earnings on such investment. Lender shall be entitled to deduct from the Replacement Reserve Fund a one time fee for establishing the Replacement Reserve Fund in an amount not to exceed $ -0-. (c) Use. Subject to the pledge and security interest and other rights of Lender set forth in this Agreement, the Replacement Reserve Fund shall be maintained for the payment of the costs of the Capital Replacements identified on Exhibit B attached to this Agreement. (d) Deferral of Deposits. Notwithstanding subsections 2(a) through (c) above, Lender defers its right to require Borrower to make the monthly Replacement Reserve Deposit. Lender, however, reserves the right to require, in its reasonable discretion and upon written notice to Borrower, at any time and from time to time, that Borrower begin making the monthly Replacement Reserve Deposit upon the occurrence of any of the following events: (1) Borrower's default under the Note, Security Instrument, or any other document delivered in connection with the Loan, (2) the occurrence of a transfer of ownership prohibited under the terms of the Security Instrument, or (3) Borrower's failure to maintain the Property in a satisfactory manner and/or in accordance with the requirements of the Security Instrument, and Lender's determination that the estimated cost to complete any deferred maintenance items with respect to the Property will be greater than or equal to 5 percent of the original principal balance of the Loan. 3. Disbursements. (a) Requests for Disbursement. Lender shall disburse funds from the Replacement Reserve Fund, in its sole discretion, as follows: (i) Borrower's Request. If Borrower determines, at any time or from time to time, that a Capital Replacement is necessary or desirable, Borrower shall perform such Capital Replacement and request from Lender, in writing, reimbursement for such Capital Replacement. Borrower's request for reimbursement shall include (A) a detailed description of the Capital Replacement performed, together with evidence, satisfactory to Lender, that the cost of such Capital Replacement has been paid and (B) lien waivers from each contractor and material supplier supplying labor or materials for such Capital Replacement, if required by Lender. (ii) Lender's Request. If Lender shall determine, at any time or from time to time, that Capital Replacements are necessary or desirable, it shall so notify Borrower, in writing, requesting that Borrower obtain and submit to Lender bids for all labor and materials required in connection with such Capital Replacement. Borrower shall submit such bids and a time schedule for completing each Capital Replacement to Lender within thirty (30) days after Borrower's receipt of Lender's notice. (b) Conditions Precedent. Disbursement from the Replacement Reserve Fund shall be made no more frequently than once every Disbursement Period and, except for the final disbursement, no disbursement shall be made in an amount less than the Minimum Disbursement Request Amount. Disbursements shall be made only if the following conditions precedent have been satisfied, as reasonably determined by Lender: (i) Payment for Capital Replacement. The Capital Replacement has been performed and/or installed on the Property in a good and workmanlike manner with suitable materials (or in the case of a partial disbursement, performed and/or installed on the Property to an acceptable stage) and paid for by Borrower as evidenced by copies of all applicable paid invoices or bills submitted to Lender by Borrower at the time Borrower requests disbursement from the Replacement Reserve Fund. (ii) No Default. There shall exist no condition, event or act which would constitute a default (with or without notice and/or lapse of time) under this Agreement or any other Loan Document. (iii)Representations and Warranties. All representations and warranties of Borrower set forth in this Agreement and in the Loan Documents are true. (iv) Continuing Compliance. Borrower shall be in full compliance with the provisions of this Agreement, the other Loan Documents and any request or demand by Lender permitted hereby. (v) No Lien Claim. No lien or claim based on furnishing labor or materials has been filed or asserted against the Property or the Improvements, unless Borrower has properly provided bond or other security against loss in accordance with applicable law. (vi) Approvals. All licenses, permits, and approvals of governmental authorities required for the Capital Replacement as completed to the applicable stage have been obtained. (vii)Legal Compliance. The Capital Replacement as completed to the applicable stage does not violate any laws, ordinance, rules or regulations, or building lines or restrictions applicable to the Property. 4. Right to Complete Capital Replacements. If Borrower abandons or fails to proceed diligently with and complete any Capital Replacement in a timely fashion or is otherwise in default under this Agreement, Lender shall have the right (but not the obligation) to enter upon the Property and take over and cause the completion of such Capital Replacement. Any contracts entered into or indebtedness incurred upon the exercise of such right may be in the name of Borrower, and Lender is hereby irrevocably appointed the attorney in fact of Borrower, such appointment being coupled with an interest, to enter into such contracts, incur such obligations, enforce any contracts or agreements made by or on behalf of Borrower (including the prosecution and defense of all actions and proceedings in connection with the Capital Replacement and the payment, settlement or compromise of all bills and claims for materials and work performed in connection with the Capital Replacement) and do any and all things necessary or proper to complete any Capital Replacement including signing Borrower's name to any contracts and documents as may be deemed necessary by Lender. In no event shall Lender be required to expend its own funds to complete any Capital Replacement, but Lender may, in its sole discretion, advance such funds. Any funds advanced shall be added to the outstanding balance of the Loan, secured by the Security Instrument and payable to Lender by Borrower in accordance with the provisions of the Security Instrument pertaining to the protection of Lender's security and advances made by Lender. Borrower waives any and all claims it may have against Lender for materials used, work performed or resultant damage to the Property. 5. Inspection. Lender or any agent of Lender may periodically inspect any Capital Replacement in process and upon completion during normal business hours or at any other reasonable time. Lender shall be entitled to deduct from the Replacement Reserve Fund reasonable fees for performing any such inspection, which fee shall not exceed $500.00 per inspection. If Lender, in its sole discretion, retains a professional inspection engineer or other qualified third party to inspect any Capital Replacement, Lender also shall be entitled to deduct from the Replacement Reserve Fund an amount sufficient to pay all reasonable fees and expenses charged by such third party inspector. 6. Insufficient Account. If Borrower requests disbursement from the Replacement Reserve Fund for a Capital Replacement in accordance with this Agreement in an amount which exceeds the amount on deposit in the Replacement Reserve Fund, Lender shall disburse to Borrower only the amount on deposit in the Replacement Reserve Fund. All additional amounts required in connection with any such Capital Replacement shall be paid by Borrower from Borrower's own funds. 7. Security Agreement. Borrower hereby conveys, pledges, transfers and grants to Lender a security interest pursuant to the Uniform Commercial Code of the Jurisdiction or any other applicable law in and to all money in the Replacement Reserve Fund, as same may increase or decrease from time to time, for the purpose of securing Borrower's obligations under this Agreement and to further secure Borrower's obligations under the Note, Security Instrument and other Loan Documents. 8. Post Default. If Borrower defaults in the performance of its obligations under this Agreement or under the Note, Security Instrument or any other Loan Document, Lender and its successors and assigns shall have all remedies available to them under Article 9 of the Uniform Commercial Code of the Jurisdiction and under any other applicable law and, in addition, may retain all money in the Replacement Reserve Fund, including interest, and in Lender's discretion, may apply such amounts, without restriction and without any specific order of priority, to the payment of any and all indebtedness or obligations of Borrower set forth in the Note, Security Instrument or any other Loan Document, including, but not limited to, principal, interest, taxes, insurance, reasonable attorneys' fees actually incurred and/or repairs to the Property. 9. Termination. If not sooner terminated by written concurrence of the parties, this Agreement shall terminate upon the payment in full of the Loan and all indebtedness incurred in connection therewith and upon such termination, Lender shall pay to Borrower all funds remaining in the Replacement Reserve Fund. 10. No Amendment. Nothing contained in this Agreement shall be construed to amend, modify, alter, change or supersede the terms and provisions of the Note, Security Instrument or any other Loan Document; and, if there is a conflict between the terms and provisions of this Agreement and those of the Note, Security Instrument, or any other Loan Document then the terms and provisions of the Note, Security Instrument or such other Loan Document shall control. 11. Release; Indemnity. (a) Release. Borrower covenants and agrees that, in performing any of its duties under this Agreement, neither Lender nor its successors and assigns shall be liable for any losses, costs or damages which may be incurred by any of them as a result of such performance, except for any losses, costs or damages arising out of the willful misconduct or gross negligence of such party. (b) Indemnity. Borrower hereby agrees to indemnify and hold harmless Lender and its successors and assigns from and against any and all losses, claims, damages, liabilities and expenses including, without limitation, reasonable attorneys' fees and disbursements, which may be imposed or incurred by any of them in connection with this Agreement. 12. Choice of Law. This Agreement shall be construed and enforced in accordance with the laws of the Jurisdiction. 13. Successors and Assigns. Borrower acknowledges and agrees that Lender, at its option, may assign or otherwise transfer the Loan and any or all Loan Documents including, but not limited to, this Agreement, to other parties subsequent to the execution of this Agreement. This Agreement shall be binding upon the respective successors and assigns of Borrower and Lender. Borrower may not assign its rights, interests or obligations under this Agreement without first obtaining Lender's prior written consent. 14. Attorneys' Fees. In the event that Lender or its successors or assigns shall engage the services of an attorney at law to enforce the provisions of this Agreement against Borrower, then Borrower shall pay all costs of such enforcement, including any reasonable attorneys' fees actually incurred. 15. Compliance with Laws; Insurance Requirements. (a) Compliance with Laws. All Capital Replacements shall comply with all applicable laws, ordinances, rules and regulations of all governmental authorities having jurisdiction over the Property and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (b) Insurance Requirements. In addition to any insurance required under the Loan Documents, Borrower shall provide or cause to be provided workers' compensation, builder's risk (if required by Lender), and public liability insurance and other insurance required under applicable law in connection with any of the Capital Replacements. All such policies which can be endorsed with standard mortgage clauses making losses payable to Lender or its assigns shall be so endorsed. The originals of such policies shall be deposited with Lender. 16. Remedies Cumulative. In the event of Borrower's default under this Agreement, Lender may exercise all or any one or more of its rights and remedies available under this Agreement, at law or in equity. Such rights and remedies shall be cumulative and concurrent, and may be enforced separately, successively or together, and Lender's exercise of any particular right or remedy shall not in any way prevent Lender from exercising any other right or remedy available to Lender. Lender may exercise any such remedies from time to time as often as may be deemed necessary by Lender. 17. Determinations by Lender. In any instance where the consent or approval of Lender may be given or is required, or where any determination, judgment or decision is to be rendered by Lender under this Agreement, the granting, withholding or denial of such consent or approval and the rendering of such determination, judgment or decision shall be made or exercised by Lender (or its designated representative) at its sole and exclusive option and in its sole and absolute discretion. 18. Completion of Capital Replacements. Lender's disbursement of moneys from the Replacement Reserve Fund or other acknowledgment of completion of any Capital Replacement in a manner satisfactory to Lender shall not be deemed a certification by Lender that the Capital Replacement has been completed in accordance with applicable building, zoning or other codes, ordinances, statutes, laws, regulations or requirements of any governmental authority or agency. Borrower shall at all times have the sole responsibility for insuring that all Capital Replacements are completed in accordance with all such governmental requirements. 19. No Agency or Partnership. Nothing contained in this Agreement shall constitute Lender as a joint venturer, partner or agent of Borrower, or render Lender liable for any debts, obligations, acts, omissions, representations or contracts of Borrower. 20. Entire Agreement. This writing, together with references to this Agreement contained in the Security Instrument, constitutes the entire agreement of the parties relative to the Replacement Reserve Fund. Any modification or amendment of this Agreement shall be ineffective unless in writing and signed by Lender and Borrower. ATTACHED EXHIBITS. The following Exhibits are attached to this Agreement: |X | Exhibit A Property Description (required) |X | Exhibit B Capital Replacements (required) |X | Exhibit C Replacement Reserve Deposit (required) |X | Exhibit D Modifications to Agreement IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. BORROWER: FOX STRATEGIC HOUSING INCOME PARTNERS, a California limited partnership By: Fox Partners VIII, a California general partnership, General Partner By: Fox Capital Management Corporation, a California corporation, Managing Partner By:/s/ Robert D. Long, Jr. Robert D. Long, Jr., Vice President Borrower's Social Security or Taxpayer Identification No.____________________ LENDER: NEWPORT MORTGAGE COMPANY, L.P., a Texas limited partnership By: DUSCO, INC., a Texas corporation, General Partner By:/s/ Jeffrey S. Juster Jeffrey S. Juster, President EXHIBIT A Property Description EXHIBIT B Capital Replacements EXHIBIT C Replacement Reserve Deposit The following amounts shall be paid to Lender by Borrower each month in accordance with the provisions of Paragraph 2(a) for deposit into the Replacement Reserve Fund subject to the provisions of Paragraph 2(d): From September 1, 1998 until the Loan is paid in full: $4,275.00 EX-10.3 5 EXHIBIT 10.3 MULTIFAMILY NOTE (MULTISTATE) US $4,900,000.00 July _____, 1998 FOR VALUE RECEIVED, the undersigned ("BORROWER") jointly and severally (if more than one) promises to pay to the order of NEWPORT MORTGAGE COMPANY, L.P., a Texas limited partnership the principal sum of Four Million Nine Hundred Thousand And No/100 Dollars (US $4,900,000.00), with interest on the unpaid principal balance at the annual rate of _______________________________ percent (_________%). 1. DEFINED TERMS. As used in this Note, (i) the term "LENDER" means the holder of this Note, and (ii) the term "INDEBTEDNESS" means the principal of, interest on, or any other amounts due at any time under, this Note, the Security Instrument or any other Loan Document, including prepayment premiums, late charges, default interest, and advances to protect the security of the Security Instrument under Section 12 of the Security Instrument. "Event of Default" and other capitalized terms used but not defined in this Note shall have the meanings given to such terms in the Security Instrument. 2. ADDRESS FOR PAYMENT. All payments due under this Note shall be payable at 8411 Preston Road, Suite 680, Dallas, Texas 75225 or such other place as may be designated by written notice to Borrower from or on behalf of Lender. 3. PAYMENT OF PRINCIPAL AND INTEREST. Principal and interest shall be paid as follows: (a) Unless disbursement of principal is made by Lender to Borrower on the first day of the month, interest for the period beginning on the date of disbursement and ending on and including the last day of the month in which such disbursement is made shall be payable simultaneously with the execution of this Note. Interest under this Note shall be computed on the basis of a 360-day year consisting of twelve 30-day months. (b) Consecutive monthly installments of principal and interest, each in the amount of _____________________________________________________________________ Dollars (US $__________________________), shall be payable on the first day of each month beginning on September 1, 1998, until the entire unpaid principal balance evidenced by this Note is fully paid. Any accrued interest remaining past due for 30 days or more shall be added to and become part of the unpaid principal balance and shall bear interest at the rate or rates specified in this Note, and any reference below to "accrued interest" shall refer to accrued interest which has not become part of the unpaid principal balance. Any remaining principal and interest shall be due and payable on August 1, 2008 or on any earlier date on which the unpaid principal balance of this Note becomes due and payable, by acceleration or otherwise (the "MATURITY DATE"). The unpaid principal balance shall continue to bear interest after the Maturity Date at the Default Rate set forth in this Note until and including the date on which it is paid in full. (c) Any regularly scheduled monthly installment of principal and interest that is received by Lender before the date it is due shall be deemed to have been received on the due date solely for the purpose of calculating interest due. 4. APPLICATION OF PAYMENTS. If at any time Lender receives, from Borrower or otherwise, any amount applicable to the Indebtedness which is less than all amounts due and payable at such time, Lender may apply that payment to amounts then due and payable in any manner and in any order determined by Lender, in Lender's discretion. Borrower agrees that neither Lender's acceptance of a payment from Borrower in an amount that is less than all amounts then due and payable nor Lender's application of such payment shall constitute or be deemed to constitute either a waiver of the unpaid amounts or an accord and satisfaction. 5. SECURITY. The Indebtedness is secured, among other things, by a multifamily mortgage, deed to secure debt or deed of trust dated as of the date of this Note (the "SECURITY INSTRUMENT"), and reference is made to the Security Instrument for other rights of Lender as to collateral for the Indebtedness. 6. ACCELERATION. If an Event of Default has occurred and is continuing, the entire unpaid principal balance, any accrued interest, the prepayment premium payable under Paragraph 10, if any, and all other amounts payable under this Note and any other Loan Document shall at once become due and payable, at the option of Lender, without any prior notice to Borrower. Lender may exercise this option to accelerate regardless of any prior forbearance. 7. LATE CHARGE. If any monthly amount payable under this Note or under the Security Instrument or any other Loan Document is not received by Lender within ten (10) days after the amount is due, Borrower shall pay to Lender, immediately and without demand by Lender, a late charge equal to five percent (5%) of such amount. Borrower acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the loan evidenced by this Note (the "LOAN"), and that it is extremely difficult and impractical to determine those additional expenses. Borrower agrees that the late charge payable pursuant to this Paragraph represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional expenses Lender will incur by reason of such late payment. The late charge is payable in addition to, and not in lieu of, any interest payable at the Default Rate pursuant to Paragraph 8. 8. DEFAULT RATE. So long as (a) any monthly installment under this Note remains past due for 30 days or more, or (b) any other Event of Default has occurred and is continuing, interest under this Note shall accrue on the unpaid principal balance from the earlier of the due date of the first unpaid monthly installment or the occurrence of such other Event of Default, as applicable, at a rate (the "DEFAULT RATE") equal to the lesser of 4 percentage points above the rate stated in the first paragraph of this Note or the maximum interest rate which may be collected from Borrower under applicable law. If the unpaid principal balance and all accrued interest are not paid in full on the Maturity Date, the unpaid principal balance and all accrued interest shall bear interest from the Maturity Date at the Default Rate. Borrower also acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan, that, during the time that any monthly installment under this Note is delinquent for more than 30 days, Lender will incur additional costs and expenses arising from its loss of the use of the money due and from the adverse impact on Lender's ability to meet its other obligations and to take advantage of other investment opportunities, and that it is extremely difficult and impractical to determine those additional costs and expenses. Borrower also acknowledges that, during the time that any monthly installment under this Note is delinquent for more than 30 days or any other Event of Default has occurred and is continuing, Lender's risk of nonpayment of this Note will be materially increased and Lender is entitled to be compensated for such increased risk. Borrower agrees that the increase in the rate of interest payable under this Note to the Default Rate represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional costs and expenses Lender will incur by reason of the Borrower's delinquent payment and the additional compensation Lender is entitled to receive for the increased risks of nonpayment associated with a delinquent loan. 9. LIMITS ON PERSONAL LIABILITY. (a) Except as otherwise provided in this Paragraph 9, Borrower shall have no personal liability under this Note, the Security Instrument or any other Loan Document for the repayment of the Indebtedness or for the performance of any other obligations of Borrower under the Loan Documents, and Lender's only recourse for the satisfaction of the Indebtedness and the performance of such obligations shall be Lender's exercise of its rights and remedies with respect to the Mortgaged Property and any other collateral held by Lender as security for the Indebtedness. This limitation on Borrower's liability shall not limit or impair Lender's enforcement of its rights against any guarantor of the Indebtedness or any guarantor of any obligations of Borrower. (b) Borrower shall be personally liable to Lender for the repayment of a portion of the Indebtedness equal to zero percent (-0-%) of the unpaid principal balance of this Note, plus any other amounts for which Borrower has personal liability under this Paragraph 9. (c) In addition to Borrower's personal liability under Paragraph 9(b), Borrower shall be personally liable to Lender for the repayment of a further portion of the Indebtedness equal to any loss or damage suffered by Lender as a result of (1) failure of Borrower to pay to Lender upon demand after an Event of Default all Rents to which Lender is entitled under Section 3(a) of the Security Instrument and the amount of all security deposits collected by Borrower from tenants then in residence; (2) failure of Borrower to apply all insurance proceeds and condemnation proceeds as required by the Security Instrument; or (3) failure of Borrower to comply with Section 14(d) or (e) of the Security Instrument relating to the delivery of books and records, statements, schedules and reports. (d) For purposes of determining Borrower's personal liability under Paragraph 9(b) and Paragraph 9(c), all payments made by Borrower or any guarantor of this Note with respect to the Indebtedness and all amounts received by Lender from the enforcement of its rights under the Security Instrument shall be applied first to the portion of the Indebtedness for which Borrower has no personal liability. (e) Borrower shall become personally liable to Lender for the repayment of all of the Indebtedness upon the occurrence of any of the following Events of Default: (1) Borrower's acquisition of any property or operation of any business not permitted by Section 33 of the Security Instrument; (2) a Transfer (including, but not limited to, a lien or encumbrance) that is an Event of Default under Section 21 of the Security Instrument, other than a Transfer consisting solely of the involuntary removal or involuntary withdrawal of a general partner in a limited partnership or a manager in a limited liability company; or (3) fraud or written material misrepresentation by Borrower or any officer, director, partner, member or employee of Borrower in connection with the application for or creation of the Indebtedness or any request for any action or consent by Lender. (f) In addition to any personal liability for the Indebtedness, Borrower shall be personally liable to Lender for (1) the performance of all of Borrower's obligations under Section 18 of the Security Instrument (relating to environmental matters); (2) the costs of any audit under Section 14(d) of the Security Instrument; and (3) any costs and expenses incurred by Lender in connection with the collection of any amount for which Borrower is personally liable under this Paragraph 9, including fees and out of pocket expenses of attorneys and expert witnesses and the costs of conducting any independent audit of Borrower's books and records to determine the amount for which Borrower has personal liability. (g) To the extent that Borrower has personal liability under this Paragraph 9, Lender may exercise its rights against Borrower personally without regard to whether Lender has exercised any rights against the Mortgaged Property or any other security, or pursued any rights against any guarantor, or pursued any other rights available to Lender under this Note, the Security Instrument, any other Loan Document or applicable law. For purposes of this Paragraph 9, the term "MORTGAGED PROPERTY" shall not include any funds that (1) have been applied by Borrower as required or permitted by the Security Instrument prior to the occurrence of an Event of Default or (2) Borrower was unable to apply as required or permitted by the Security Instrument because of a bankruptcy, receivership, or similar judicial proceeding. 10. VOLUNTARY AND INVOLUNTARY PREPAYMENTS. (a) A prepayment premium shall be payable in connection with any prepayment made under this Note as provided below: (1) Borrower may voluntarily prepay all of the unpaid principal balance of this Note on the last Business Day of a calendar month if Borrower has given Lender at least 30 days prior notice of its intention to make such prepayment. Such prepayment shall be made by paying (A) the amount of principal being prepaid, (B) all accrued interest, (C) all other sums due Lender at the time of such prepayment, and (D) the prepayment premium calculated pursuant to Schedule A. For all purposes including the accrual of interest, any prepayment received by Lender on any day other than the last calendar day of the month shall be deemed to have been received on the last calendar day of such month. For purposes of this Note, a "BUSINESS DAY" means any day other than a Saturday, Sunday or any other day on which Lender is not open for business. Borrower shall not have the option to voluntarily prepay less than all of the unpaid principal balance. (2) Upon Lender's exercise of any right of acceleration under this Note, Borrower shall pay to Lender, in addition to the entire unpaid principal balance of this Note outstanding at the time of the acceleration, (A) all accrued interest and all other sums due Lender, and (B) the prepayment premium calculated pursuant to Schedule A. (3) Any application by Lender of any collateral or other security to the repayment of any portion of the unpaid principal balance of this Note prior to the Maturity Date and in the absence of acceleration shall be deemed to be a partial prepayment by Borrower, requiring the payment to Lender by Borrower of a prepayment premium. The amount of any such partial prepayment shall be computed so as to provide to Lender a prepayment premium computed pursuant to Schedule A without Borrower having to pay out-of-pocket any additional amounts. (b) Notwithstanding the provisions of Paragraph 10(a), no prepayment premium shall be payable with respect to (A) any prepayment made no more than ninety (90) days before the Maturity Date, or (B) any prepayment occurring as a result of the application of any insurance proceeds or condemnation award under the Security Instrument. (c) Schedule A is hereby incorporated by reference into this Note. (d) Any permitted or required prepayment of less than the unpaid principal balance of this Note shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments, unless Lender agrees otherwise in writing. (e) Borrower recognizes that any prepayment of the unpaid principal balance of this Note, whether voluntary or involuntary or resulting from a default by Borrower, will result in Lender's incurring loss, including reinvestment loss, additional expense and frustration or impairment of Lender's ability to meet its commitments to third parties. Borrower agrees to pay to Lender upon demand damages for the detriment caused by any prepayment, and agrees that it is extremely difficult and impractical to ascertain the extent of such damages. Borrower therefore acknowledges and agrees that the formula for calculating prepayment premiums set forth on Schedule A represents a reasonable estimate of the damages Lender will incur because of a prepayment. (f) Borrower further acknowledges that the prepayment premium provisions of this Note are a material part of the consideration for the Loan, and acknowledges that the terms of this Note are in other respects more favorable to Borrower as a result of the Borrower's voluntary agreement to the prepayment premium provisions. 11. COSTS AND EXPENSES. Borrower shall pay all expenses and costs, including fees and out-of-pocket expenses of attorneys and expert witnesses and costs of investigation, incurred by Lender as a result of any default under this Note or in connection with efforts to collect any amount due under this Note, or to enforce the provisions of any of the other Loan Documents, including those incurred in post-judgment collection efforts and in any bankruptcy proceeding (including any action for relief from the automatic stay of any bankruptcy proceeding) or judicial or non-judicial foreclosure proceeding. 12. FORBEARANCE. Any forbearance by Lender in exercising any right or remedy under this Note, the Security Instrument, or any other Loan Document or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of that or any other right or remedy. The acceptance by Lender of any payment after the due date of such payment, or in an amount which is less than the required payment, shall not be a waiver of Lender's right to require prompt payment when due of all other payments or to exercise any right or remedy with respect to any failure to make prompt payment. Enforcement by Lender of any security for Borrower's obligations under this Note shall not constitute an election by Lender of remedies so as to preclude the exercise of any other right or remedy available to Lender. 13. WAIVERS. Presentment, demand, notice of dishonor, protest, notice of acceleration, notice of intent to demand or accelerate payment or maturity, presentment for payment, notice of nonpayment, grace, and diligence in collecting the Indebtedness are waived by Borrower and all endorsers and guarantors of this Note and all other third party obligors. 14. LOAN CHARGES. If any applicable law limiting the amount of interest or other charges permitted to be collected from Borrower in connection with the Loan is interpreted so that any interest or other charge provided for in any Loan Document, whether considered separately or together with other charges provided for in any other Loan Document, violates that law, and Borrower is entitled to the benefit of that law, that interest or charge is hereby reduced to the extent necessary to eliminate that violation. The amounts, if any, previously paid to Lender in excess of the permitted amounts shall be applied by Lender to reduce the unpaid principal balance of this Note. For the purpose of determining whether any applicable law limiting the amount of interest or other charges permitted to be collected from Borrower has been violated, all Indebtedness that constitutes interest, as well as all other charges made in connection with the Indebtedness that constitute interest, shall be deemed to be allocated and spread ratably over the stated term of the Note. Unless otherwise required by applicable law, such allocation and spreading shall be effected in such a manner that the rate of interest so computed is uniform throughout the stated term of the Note. 15. COMMERCIAL PURPOSE. Borrower represents that the Indebtedness is being incurred by Borrower solely for the purpose of carrying on a business or commercial enterprise, and not for personal, family or household purposes. 16. COUNTING OF DAYS. Except where otherwise specifically provided, any reference in this Note to a period of "days" means calendar days, not Business Days. 17. GOVERNING LAW. This Note shall be governed by the law of the jurisdiction in which the Land is located. 18. CAPTIONS. The captions of the paragraphs of this Note are for convenience only and shall be disregarded in construing this Note. 19. NOTICES. All notices, demands and other communications required or permitted to be given by Lender to Borrower pursuant to this Note shall be given in accordance with Section 31 of the Security Instrument. 20. CONSENT TO JURISDICTION AND VENUE. Borrower agrees that any controversy arising under or in relation to this Note shall be litigated exclusively in the jurisdiction in which the Land is located (the "PROPERTY JURISDICTION"). The state and federal courts and authorities with jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over all controversies which shall arise under or in relation to this Note. Borrower irrevocably consents to service, jurisdiction, and venue of such courts for any such litigation and waives any other venue to which it might be entitled by virtue of domicile, habitual residence or otherwise. 21. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A) AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS NOTE OR THE RELATIONSHIP BETWEEN THE PARTIES AS LENDER AND BORROWER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL. ATTACHED SCHEDULES. THE FOLLOWING SCHEDULES ARE ATTACHED TO THIS NOTE: |X | SCHEDULE A PREPAYMENT PREMIUM (REQUIRED) |X | SCHEDULE B MODIFICATIONS TO MULTIFAMILY NOTE IN WITNESS WHEREOF, Borrower has signed and delivered this Note or has caused this Note to be signed and delivered by its duly authorized representative. BORROWER: WESTLAKE EAST ASSOCIATES LIMITED PARTNERSHIP, an Ohio limited partnership By: Fox Strategic Housing Income Partners, a California limited partnership, General Partner By: Fox Partners VIII, a California general partnership, Managing General Partner By: Fox Capital Management Corporation, a California corporation, Managing Partner By:/s/ Robert D. Long, Jr. Robert D. Long, Jr., Vice President ____________________________________ Borrower's Social Security/Employer ID No. SCHEDULE A PREPAYMENT PREMIUM Any prepayment premium payable under Paragraph 10 of this Note shall be computed as follows: (a) If the prepayment is made between the date of this Note and the date that is 114 months after the first day of the first calendar month following the date of this Note (the "YIELD MAINTENANCE PERIOD"), the prepayment premium shall be the greater of: (i) 1.0% of the unpaid principal balance of this Note; or (ii) the product obtained by multiplying: (A) the amount of principal being prepaid, by (B) the excess (if any) of the Monthly Note Rate over the Assumed Reinvestment Rate, by (C) the Present Value Factor. For purposes of subparagraph (ii), the following definitions shall apply: MONTHLY NOTE RATE: one-twelfth (1/12) of the annual interest rate of the Note, expressed as a decimal calculated to five digits. PREPAYMENT DATE: in the case of a voluntary prepayment, the date on which the prepayment is made; in any other case, the date on which Lender accelerates the unpaid principal balance of the Note. ASSUMED REINVESTMENT RATE: one-twelfth (1/12) of the yield rate as of the date 5 Business Days before the Prepayment Date, on the ______% U.S. Treasury Security due ______________________, as reported in The Wall Street Journal, expressed as a decimal calculated to five digits. In the event that no yield is published on the applicable date for the Treasury Security used to determine the Assumed Reinvestment Rate, Lender, in its discretion, shall select the non-callable Treasury Security maturing in the same year as the Treasury Security specified above with the lowest yield published in The Wall Street Journal as of the applicable date. If the publication of such yield rates in The Wall Street Journal is discontinued for any reason, Lender shall select a security with a comparable rate and term to the Treasury Security used to determine the Assumed Reinvestment Rate. The selection of an alternate security pursuant to this Paragraph shall be made in Lender's discretion. PRESENT VALUE FACTOR: the factor that discounts to present value the costs resulting to Lender from the difference in interest rates during the months remaining in the Yield Maintenance Period, using the Assumed Reinvestment Rate as the discount rate, with monthly compounding, expressed numerically as follows: a1+1RRon 1 ARR N = number of months remaining in Yield Maintenance Period ARR = Assumed Reinvestment Rate (b) If the prepayment is made after the expiration of the Yield Maintenance Period but more than ninety (90) days before the Maturity Date, the prepayment premium shall be 1.0% of the unpaid principal balance of this Note. SCHEDULE B MODIFICATIONS TO MULTIFAMILY NOTE The foregoing Multifamily Note is hereby modified in the following respects: A. The final sentence of Paragraph 9(a) is amended to read as follows: This limitation on Borrower's liability shall not limit or impair Lender's enforcement of its rights against any guarantor of the Indebtedness or any guarantor of any obligations of Borrower in accordance with the applicable guaranty. B. Clause (3) of Paragraph 9(c) is modified to read as follows: (3) failure of Borrower to comply with Section 14(e) of the Security Instrument relating to the delivery of books and records, statements, schedules and reports. C. In clause (3) of Paragraph 9(e), "fraud or written material misrepresentation" is changed to "fraud or intentional, written material misrepresentation." D. Paragraph 9(f) is modified to read as follows: (f) In addition to any personal liability for the Indebtedness, Borrower shall be personally liable to Lender for (1) the performance of all of Borrower's obligations under Section 18 of the Security Instrument (relating to environmental matters) and (2) any costs and expenses incurred by Lender in connection with the collection of any amount for which Borrower is personally liable under this Paragraph 9, including reasonable fees and out of pocket expenses of attorneys and expert witnesses and the costs of conducting any independent audit of Borrower's books and records to determine the amount for which Borrower has personal liability. The personal liability of Borrower with respect to its obligations under Section 18 of the Security Instrument and the liability of Fox Strategic Housing Income Partners, a California limited partnership, under the Exceptions to Non-Recourse Guaranty with respect to such obligations shall not exceed $1,000,000 in the aggregate. E. Section 10(b) is modified to read as follows: (b) Notwithstanding the provisions of Paragraph 10(a), no prepayment premium shall be payable with respect to (A) any prepayment made no more than 90 days before the Maturity Date, (B) any prepayment occurring as a result of the application of any insurance proceeds or condemnation award under the Security Instrument or (C) any amounts disbursed by Lender under Section 12 of the Security Instrument. F. The phrase "default under this Note" in Paragraph 11 is changed to "Event of Default as defined in Section 22 of the Security Instrument." No other modifications are made to the Note. ______________________ BORROWER'S INITIALS EX-10.4 6 EXHIBIT 10.4 REPAIR ESCROW AGREEMENT This REPAIR ESCROW AGREEMENT ("Agreement") is made and entered into this _____ day of July, 1998, by and between WESTLAKE EAST ASSOCIATES LIMITED PARTNERSHIP, an Ohio limited partnership ("Borrower"), and NEWPORT MORTGAGE COMPANY, L.P., a Texas limited partnership ("Lender") and its successors and assigns. W I T N E S S E T H: WHEREAS, Lender has agreed to make and Borrower has agreed to accept the Loan, which is to be evidenced by the Note and secured by the Security Instrument encumbering the Property described on Exhibit "A" attached to, and incorporated into, this Agreement by reference; WHEREAS, as a condition of making the Loan, Lender is requiring Borrower to make the Repairs to the Improvements, which Repairs are generally described in the Schedule of Work attached to this Agreement as Exhibit "B"; WHEREAS, in order to assure that the Repairs are made and paid for in a timely manner, Lender is requiring Borrower to establish the Repair Escrow Fund with Lender pursuant to the terms of this Agreement; and WHEREAS, Lender and Borrower are desirous of reducing to writing all of their agreements regarding the Repair Escrow Fund. NOW, THEREFORE, for and in consideration of the Loan, the mutual promises and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower agree as follows: 1. Definitions. The following terms used in this Agreement shall have the meanings set forth below in this Paragraph 1: (a) "Completion Date" means the date which is twelve (12) months after the date of this Agreement or July 30, 1999. (b) "Disbursement Request" means Borrower's written requests to Lender in the form attached to this Agreement as Exhibit "C" for the disbursement of money from the Repair Escrow Fund pursuant to Paragraph 3 below, which requests shall not be made more often than once every thirty (30) days during the term of this Agreement. (c) "Improvements" means the multifamily apartment project known as Barrington Apartments, 28600 Detroit Road, Westlake, Ohio and situated upon the Property. (d) "Jurisdiction" means the State in which the Property is located. (e) "Loan" means the loan from Lender to Borrower in the original principal amount of Four Million Nine Hundred Thousand Dollars ($4,900,000.00), as evidenced by the Note and secured by the Security Instrument. (f) "Loan Documents" means, collectively, the Note, Security Instrument, this Agreement and all other instruments and documents executed in connection with the Loan. (g) "Minimum Disbursement Request Amount" means Five Thousand and No/100 Dollars ($5,000.00). (h) "Note" means the promissory note from Borrower to Lender evidencing the Loan. (i) "Property" means the real property described on the attached Exhibit "A". (j) "Repairs" means the repairs to be made to the Improvements, as described on the attached Exhibit "B" or as otherwise required by Lender in accordance with this Agreement. (k) "Repair Escrow Fund" means the sum of One Hundred Three Thousand Seven Hundred Fifty and No/100 Dollars ($103,750.00) deposited into escrow with Lender as of the date of this Agreement, together with interest, if any, to be held in accordance with the provisions of this Agreement. (l) "Schedule of Work" means the schedule of work for the Repairs attached to this Agreement as Exhibit "B". (m) "Security Instrument" means the mortgage, deed of trust, deed to secure debt, or other similar security instrument encumbering the Property and securing Borrower's performance of its Loan obligations. 2. Repair Escrow Fund. (a) Establishment. Lender hereby acknowledges that Borrower has established the Repair Escrow Fund by depositing the amount of the Repair Escrow Fund with Lender. Borrower and Lender agree that all moneys deposited into the Repair Escrow Fund shall be held by Lender in an interest bearing account if Lender estimates that the Repairs will require longer than ninety (90) days to complete, and any interest earned on such moneys shall be added to the principal balance of the Repair Escrow Fund and disbursed in accordance with the provisions of this Agreement. Lender shall be entitled to deduct from the Repair Escrow Fund a one time fee in the amount of ZERO Dollars ($-0-) for establishing the Repair Escrow Fund. Lender shall not be responsible for any losses resulting from investment of moneys in the Repair Escrow Fund or for obtaining any specific level or percentage of earnings on such investment. (b) Use. The Repair Escrow Fund shall, except as otherwise stated in this Agreement, be used for the purpose of paying, or reimbursing Borrower for, the costs of the Repairs. 3. Disbursements. From time to time, as construction and completion of the Repairs progresses, upon Borrower's submission of a Disbursement Request in the form attached to this Agreement as Exhibit C, and provided that Borrower is in full compliance with all the applicable conditions set forth in this Agreement and in the other Loan Documents, Lender shall make disbursements from the Repair Escrow Fund for payment or reimbursement of the actual costs of the Repairs. Borrower's Disbursement Request shall be signed by Borrower, and Borrower shall include with its Disbursement Request a report setting out the progress of the Repairs and any other reports or information relating to the construction of the Repairs that may be reasonably requested by Lender. Borrower also shall include with each Disbursement Request copies of any applicable invoices and/or bills and appropriate lien waivers for the prior period for which disbursement was made, executed by all contractors and suppliers supplying labor or materials for the Repairs, and, unless waived by Lender in writing, a report prepared by the professional engineer employed by Lender as to the status of the Repairs. Except for the final Disbursement Request, no Disbursement Request shall be for an amount less than the Minimum Disbursement Request Amount. 4. Reporting Requirements; Completion. Prior to receiving the final disbursement from the Repair Escrow Fund, Borrower shall deliver to Lender, in addition to the information required by Paragraph 3 above, the following: (a) Contractor's Certificate. A certificate signed by each major contractor and supplier of materials, as reasonably determined by Lender, engaged to provide labor or materials for the Repairs to the effect that such contractor or supplier has been paid in full for all work completed and that the portion of the Repairs provided by such contractor or supplier has been fully completed in accordance with the plans and specifications (if any) provided to it by Borrower and that such portion of the Repairs is in compliance with all applicable building codes and other rules and regulations promulgated by applicable regulatory or governmental authorities; (b) Borrower's Certificate. A certificate signed by Borrower to the effect that the Repairs have been fully paid for, that all money disbursed hereunder has been used for the Repairs and no claim or claims exist against the Borrower or against the Property or Improvements out of which a lien based on furnishing labor or material exists or might ripen. Borrower may except from the certificate described in the preceding sentence any claim or claims that Borrower intends to contest, provided that any such claim or claims are described in Borrower's certificate and Borrower certifies to Lender that the Repair Escrow Fund is sufficient to make payment of the full amount which might in any event be payable in order to satisfy such claim or claims. If required by Lender, Borrower also shall certify to Lender that such portion of the Repairs is in compliance with all applicable zoning ordinances; (c) Engineer's Certificate. A certificate signed by the professional engineer employed by Lender to the effect that the Repairs have been completed in a good and workmanlike manner in compliance with the Schedule of Work and all applicable building codes, zoning ordinances and other rules and regulations promulgated by applicable regulatory or governmental authorities; and (d) Other Certificates. Any other certificates of approval, acceptance or compliance required by Lender from or by the city, county, state or federal governmental authorities having jurisdiction over the Property and the Repairs. 5. Indirect and Excess Disbursements. Lender, in its sole judgment, is authorized to hold, use and disburse the Repair Escrow Fund to pay any and all costs, charges and expenses whatsoever and howsoever incurred or required in connection with the construction and completion of the Repairs, or in the payment or performance of any obligation of Borrower to Lender. If Lender, for purposes specified in this Paragraph 5, shall elect to pay any portion of the Repair Escrow Fund to parties other than Borrower, then Lender may do so, at any time and from time to time, and the amount of advances to which Borrower shall be entitled under this Agreement shall be correspondingly reduced. 6. Schedule of Work. All disbursements from the Repair Escrow Fund shall be limited to the costs of those items set forth on the Schedule of Work attached to this Agreement as Exhibit "B". 7. Repairs. Borrower covenants and agrees with Lender as follows: (a) Commencement of Work. Prior to the recordation of the Security Instrument, no work of any kind has been or will be commenced or performed upon the Property and no materials or equipment have been or will be delivered to or upon the Property. (b) Construction. Borrower will commence the Repairs as soon as practicable after the date of this Agreement and will diligently proceed with and complete the Repairs on or before the Completion Date in a workmanlike manner and in accordance with the Schedule of Work, good building practices and all applicable laws, ordinances, rules and regulations. (c) Changes in Schedule of Work . Without the prior written consent of Lender, Borrower will make no departures from or alterations to the Schedule of Work. (d) Inspections. Borrower will permit Lender or any person designated by Lender (including without limitation a professional inspection engineer) and any interested governmental authority, at any time and from time to time, to inspect the Repairs and Improvements and to examine and copy all of Borrower's books and records and all contracts and bills pertaining to the Repairs and Improvements. Lender shall be entitled to deduct from the Repair Escrow Fund reasonable fees for performing any such inspections and/or an amount sufficient to reimburse Lender for all fees and expenses charged by any professional inspection engineer employed by Lender in connection with any such inspection. Borrower agrees to cause the replacement of any material or work that is defective, unworkmanlike, does not comply with any applicable law, ordinance, rule or regulation, or does not comply with the requirements of this Agreement, as determined by Lender. Prior to and as a condition of the final disbursement of funds from the Repair Escrow Fund, Lender shall inspect or cause to be inspected the Repairs and the Improvements to determine that all Repairs, including but not limited to interior and exterior repairs have been completed in a manner acceptable to Lender. (e) Purchases. Without the prior written consent of Lender, no materials, machinery, equipment, fixtures or any other part of the Repairs shall be purchased or installed under conditional sale contracts or lease agreements, or any other arrangement wherein title to such Repairs is retained or subjected to a purchase money security interest, or the right is reserved or accrues to anyone to remove or repossess any such Repairs, or to consider them as personal property. 8. Lien Protection. Borrower shall promptly pay or cause to be paid, when due, all costs, charges and expenses incurred in connection with the construction and completion of the Repairs, and shall keep the Property and Improvements free and clear of any and all liens other than the lien of the Security Instrument and any other junior lien which may be consented to by Lender. 9. Adverse Claims. Borrower shall promptly advise Lender in writing of any litigation, liens, or claims affecting the Property and of all complaints and charges made by any governmental authority or any governmental department, bureau, commission or agency exercising supervision or control over Borrower or its business, which may delay or adversely affect the Repairs. 10. Compliance With Laws; Insurance Requirements. (a) Compliance With Laws. All Repairs shall comply with all applicable laws, ordinances, rules and regulations of all governmental authorities having jurisdiction over the Property and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (b) Insurance Requirements. In addition to any insurance required under the Loan Documents, Borrower shall provide or cause to be provided workers' compensation, builder's risk (if required by Lender), and public liability insurance and other insurance required under applicable law in connection with any of the Repairs. All such policies shall be in form and amount satisfactory to Lender. All such policies which can be endorsed with standard mortgage clauses making losses payable to Lender or its assigns shall be so endorsed. The originals of such policies shall be deposited with Lender. 11. Use of Repair Escrow Fund. Borrower will accept disbursements from the Repair Escrow Fund in accordance with the provisions of this Agreement and will use, or cause to be used, each such disbursement solely to pay for materials, labor and services, or to pay costs and expenses for which such disbursement is requested. 12. Conditions Precedent. Lender shall not be obligated to make any disbursement from the Repair Escrow Fund to or for the benefit of Borrower unless at the time of each Disbursement Request all of the following conditions prevail: (a) No Default. There shall exist no condition, event or act which would constitute a default (with or without notice and/or lapse of time) under this Agreement or any other Loan Document. (b) Representations and Warranties. All representations and warranties of Borrower set forth in this Agreement and in the Loan Documents are true. (c) Continuing Compliance. Borrower shall be in full compliance with the provisions of this Agreement, the other Loan Documents and any request or demand by Lender permitted hereby. (d) No Lien Claim. No lien or claim based on furnishing labor or materials has been filed or asserted against the Property or the Improvements, unless Borrower has properly provided bond or other security against loss in accordance with applicable law. (e) Approvals. All licenses, permits, and approvals of governmental authorities required for the Repairs as completed to the applicable stage have been obtained. (f) Legal Compliance. The Repairs as completed to the applicable stage do not violate any laws, ordinances, rules or regulations, or building lines or restrictions applicable to the Property. 13. Right to Complete Repairs. If Borrower abandons or fails to proceed diligently with the Repairs or otherwise is in default under this Agreement, Lender shall have the right (but not the obligation) to enter upon the Property and take over and cause the completion of the Repairs. Any contracts entered into or indebtedness incurred upon the exercise of such right may be in the name of Borrower, and Lender is hereby irrevocably appointed the attorney in fact of Borrower, such appointment being coupled with an interest, to enter into such contracts, incur such obligations, enforce any contracts or agreements made by or on behalf of Borrower (including the prosecution and defense of all actions and proceedings in connection with the Repairs and the payment, settlement, or compromise of all claims for materials and work performed in connection with the Repairs) and do any and all things necessary or proper to complete the Repairs including signing Borrower's name to any contracts and documents as may be deemed necessary by Lender. In no event shall Lender be required to expend its own funds to complete the Repairs, but Lender may, in Lender's sole discretion, advance such funds. Any funds advanced shall be added to the outstanding balance of the Note, secured by the Security Instrument and payable to Lender by Borrower in accordance with the provisions of the Security Instrument pertaining to the protection of Lender's security and advances made by Lender. Borrower waives any and all claims it may have against Lender for materials used, work performed or resultant damage to the Property. 14. Insufficient Account. If Lender determines in its reasonable discretion that the Repair Escrow Fund is insufficient to pay for the Repairs, Lender shall so notify Borrower, in writing, and as soon as possible (but in no event later than twenty (20) days after such notice) Borrower shall pay to Lender an amount, in cash, equal to such deficiency, which amount shall be placed in the Repair Escrow Fund by Lender. 15. Security Agreement. Borrower hereby conveys, pledges, transfers and grants to Lender and its successors and assigns a security interest pursuant to the Uniform Commercial Code of the Jurisdiction and other applicable laws in and to all money in the Repair Escrow Fund as such may increase or decrease from time to time for the purpose of securing Borrower's obligations under this Agreement and to further secure Borrower's obligations under the Note, Security Instrument and other Loan Documents. 16. Post Default. If Borrower defaults in the performance of its obligations under this Agreement or under the Note, Security Instrument or any other Loan Document, Lender and its successors and assigns shall have all remedies available to them under Article 9 of the Uniform Commercial Code of the Jurisdiction and under any other applicable laws and, in addition, may retain all moneys in the Repair Escrow Fund, including interest, and in Lender's discretion, may apply such amounts, without restriction and without any specific order of priority, to the payment of any and all indebtedness or obligations of Borrower set forth in the Note, Security Instrument or other Loan Documents, including, but not limited to, principal, interest, taxes, insurance, reasonable attorneys' fees actually incurred and/or repairs to the Property. 17. Termination. This Agreement shall terminate upon the completion of the Repairs in accordance with this Agreement, and the full disbursement by Lender of the Repair Escrow Fund. In the event there are funds remaining in the Repair Escrow Fund after the Repairs have been completed in accordance with this Agreement, and provided no default by Borrower exists under this Agreement or under any other Loan Documents, such funds remaining in the Repair Escrow Fund shall be [SELECT AND INITIAL APPLICABLE ITEM]: Lender/Borrower Initials / refunded by Lender to the Borrower. / deposited by Lender into the Replacement Reserve account established by Lender pursuant to the Replacement Reserve Agreement between Borrower and Lender dated _________________, 199___. 18. No Amendment. Nothing contained in this Agreement shall be construed to amend, modify, alter, change or supersede the terms and provisions of the Note, Security Instrument or any other Loan Document and, if there shall exist a conflict between the terms and provisions of this Agreement and those of the Note, Security Instrument or other Loan Documents, then the terms and provisions of the Note, Security Instrument and other Loan Documents shall control. 19. Release; Indemnity. (a) Release. Borrower covenants and agrees that, in performing any of its duties under this Agreement, neither Lender nor any of its successors and assigns shall be liable for any losses, costs or damages which may be incurred by any of them as a result thereof, except for any losses, costs or damages arising out of the willful misconduct or gross negligence of such party. (b) Indemnity. Borrower hereby agrees to indemnify and hold harmless Lender and its successors and assigns, against any and all losses, claims, damages, liabilities and expenses including, without limitation, reasonable attorneys' fees and disbursements, which may be imposed or incurred by any of them in connection with this Agreement. 20. Choice of Law. This Agreement shall be construed and enforced in accordance with the laws of the Jurisdiction. 21. Successors and Assigns. Borrower acknowledges and agrees that Lender, at its option, may assign or otherwise transfer the Loan and all documents evidencing and securing the Loan, including, but not limited to, this Agreement, to other parties subsequent to the execution of this Agreement. This Agreement shall be binding upon the successors and assigns of Borrower and Lender. Borrowers may not assign its rights, interests, or obligations under this Agreement without first obtaining Lender's prior written consent. 22. Attorneys' Fees. In the event that Lender or its successors or assigns shall engage the services of an attorney at law to enforce the provisions of this Agreement against Borrower, then Borrower shall pay all costs of such enforcement, including any reasonable attorneys' fees actually incurred. 23. Remedies Cumulative. In the event of Borrower's default under this Agreement, Lender may exercise all or any one or more of its rights and remedies available under this Agreement, at law or in equity. Such rights and remedies shall be cumulative and concurrent, and may be enforced separately, successively or together, and Lender's exercise of any particular right or remedy shall not in any way prevent Lender from exercising any other right or remedy available to Lender. Lender may exercise any such remedies from time to time as often as may be deemed necessary by Lender. 24. Determinations by Lender. In any instance where the consent or approval of Lender may be given or is required, or where any determination, judgment or decision is to be rendered by Lender under this Agreement, the granting, withholding or denial of such consent or approval and the rendering of such determination, judgment or decision shall be made or exercised by Lender (or its designated representative) at its sole and exclusive option and in its sole and absolute discretion. 25. Completion of Repairs. Lender's disbursement of moneys in the Repair Escrow Fund or other acknowledgment of completion of any Repair in a manner satisfactory to Lender shall not be deemed a certification by Lender that the Repair has been completed in accordance with applicable building, zoning or other codes, ordinances, statutes, laws, regulations or requirements of any governmental authority or agency. Borrower shall at all times have the sole responsibility for insuring that all Repairs are completed in accordance with all such governmental requirements. 26. No Agency or Partnership. Nothing contained in this Agreement shall constitute Lender as a joint venturer, partner or agent of Borrower, or render Lender liable for any debts, obligations, acts, omissions, representations or contracts of Borrower. 27. Entire Agreement. This writing constitutes the entire agreement of the parties relative to the Repair Escrow Fund. Any modification or amendment hereto shall be ineffective unless in writing and signed by the parties hereto. ATTACHED EXHIBITS. The following Exhibits are attached to this Agreement: |X | Exhibit A Property Description (required) |X | Exhibit B Schedule of Work (required) |X | Exhibit C Disbursement Request (required) |X | Exhibit D Modifications to Agreement IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. BORROWER: WESTLAKE EAST ASSOCIATES LIMITED PARTNERSHIP, an Ohio limited partnership By: Fox Strategic Housing Income Partners, a California limited partnership, General Partner By: Fox Partners VIII, a California general partnership, Managing General Partner By: Fox Capital Management Corporation, a California corporation, Managing Partner By:/s/ Robert D. Long, Jr. Robert D. Long, Jr., Vice President Borrower's Social Security or Taxpayer Identification No. ________________________ LENDER: NEWPORT MORTGAGE COMPANY, L.P., a Texas limited partnership By: DUSCO, INC., a Texas corporation, General Partner By:/s/ Jeffrey S. Juster Jeffrey S. Juster, President EXHIBIT A PROPERTY DESCRIPTION EXHIBIT B SCHEDULE OF WORK EXHIBIT B SCHEDULE OF WORK REPAIR COSTS 1. Remove cracked and deteriorated paving bricks at SW corner of site (secondary entrance) and replace with asphalt. $3,500 2. Repair damaged portion of tennis court fence near basketball goal. $500 3. Resurface tennis court. $3,000 4. Remove and properly reinstall buckled siding at the north end, third elevation of Building 3 $2,000 5. Replace inefficient heating units at the apartments. $65,000 6. Construct four (4) garage parking spaces $9,000 Total Repairs $83,000 x 125% $103,750 EXHIBIT C DISBURSEMENT REQUEST The undersigned hereby requests from ("Lender") the disbursement of funds in the amount of $ ("Disbursement Request") from the Repair Escrow Fund established pursuant to the Repair Escrow Agreement dated , 19___ by and between Lender and the undersigned to pay for repairs to the multifamily apartment project known as and located in . The undersigned hereby represents and warrants to Lender that the following information and certifications provided in connection with this Disbursement Request are true and correct as of the date hereof: 1. Purpose for which disbursement is requested? 2. To whom shall the disbursement be made (may be the undersigned in the case of reimbursement for advances and payments made or cost incurred for work done by the undersigned)? 3. Estimated costs of completing the uncompleted Repairs as of the date of this Disbursement Request. 4. The undersigned certifies that: (a) the disbursement requested pursuant to this Disbursement Request will be used solely to pay a cost or costs allowable under the Repair Escrow Agreement; (b) none of the items for which disbursement is requested pursuant to this Disbursement Request has formed the basis for any disbursement previously made from the Repair Escrow Fund; (c) all labor and materials for which disbursements have been requested have been incorporated into the Improvements or suitably stored upon the Property in accordance with reasonable and standard building practices, the Repair Escrow Agreement and all applicable laws, ordinances, rules and regulations of any governmental authority having jurisdiction over the Property; and (d) the materials, supplies and equipment furnished or installed for the Repairs are not subject to any lien or security interest or that the funds to be disbursed pursuant to this Disbursement Request are to be used to satisfy any such lien or security interest. 5. All capitalized terms used in this Disbursement Request without definition shall have the meanings ascribed to them in the Repair Escrow Agreement. IN WITNESS WHEREOF, the undersigned has executed this Disbursement Request as of the day and date first above written. BORROWER: Date: EX-10.5 7 EXHIBIT 10.5 REPLACEMENT RESERVE AGREEMENT This REPLACEMENT RESERVE AGREEMENT ("Agreement") is made and entered into this day of July, 1998, by and between WESTLAKE EAST ASSOCIATES LIMITED PARTNERSHIP, an Ohio limited partnership, ("Borrower"), and NEWPORT MORTGAGE COMPANY, L.P., a Texas limited partnership ("Lender") and its successors and assigns. W I T N E S S E T H: WHEREAS, Lender has agreed to make and Borrower has agreed to accept the Loan, which is to be evidenced by the Note and secured by the Security Instrument encumbering the Property described on Exhibit "A" attached to, and incorporated into, this Agreement by reference; WHEREAS, as a condition to the closing of the Loan, Lender has required Borrower to establish the Replacement Reserve Fund at the time of closing for the funding of Capital Replacements throughout the Loan term; and WHEREAS, Lender and Borrower are desirous of reducing to writing all of their agreements regarding the Replacement Reserve Fund. NOW, THEREFORE, for and in consideration of the Loan, the mutual promises and covenants herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and Borrower agree as follows: 1. Definitions. The following terms used in this Agreement shall have the meanings set forth below in this Paragraph 1: (a) "Capital Replacement" means the replacement of those items listed on Exhibit "B" of this Agreement and such other replacements as may be approved in writing or required by Lender. (b) "Disbursement Period" means the interval between disbursements from the Replacement Reserve Fund, which interval shall be no shorter than once a [SELECT APPLICABLE PERIOD AND INITIAL BESIDE SELECTED PERIOD] LENDER AND BORROWER INITIALS: month / XX quarter. / (c) "Jurisdiction" means the State in which the Property is located. (d) "Loan" means the loan from Lender to Borrower in the original principal amount of Four Million Nine Hundred Thousand Dollars ($4,900,000.00), as evidenced by the Note and secured by the Security Instrument. (e) "Loan Documents" means, collectively, the Note, Security Instrument and all other instruments and documents executed in connection with the Loan. (f) "Minimum Disbursement Request Amount" means Five Thousand and No/100 Dollars ($5,000.00). (g) "Note" means the promissory note from Borrower to Lender evidencing the Loan. (h) "Property" means the real property described on Exhibit "A" of this Agreement. (i) "Replacement Reserve Deposit" means the initial deposit in the amount of Zero Dollars ($-0-) made as of the date of this Agreement, together with the sum of Three Thousand Two Hundred Thirty Nine and No/100 Dollars ($3,239.00) per month for years one through five and Three Thousand Seven Hundred Fifty Eight and 33/100 Dollars ($3,758.33) per month for years six through ten to be deposited into the Replacement Reserve Fund, as such monthly deposit amount may increase from time to time in accordance with the schedule attached to this Agreement as Exhibit "C". (j) "Replacement Reserve Fund" means the account established pursuant to this Agreement to defray the costs of Capital Replacements. (k) "Security Instrument" means the mortgage, deed of trust, deed to secure debt, or other similar security instrument encumbering the Property and securing Borrower's performance of its Loan obligations. 2. Replacement Reserve Fund. (a) Establishment; Funding. Upon the closing of the Loan, the parties shall establish the Replacement Reserve Fund and, if required by Lender, Borrower shall pay to Lender for deposit into the Replacement Reserve Fund, the amount of the initial Replacement Reserve Deposit. Commencing on the date the first installment of principal and/or interest is due under the Note and continuing on the same day of each successive month during the Loan term, Borrower shall pay to Lender for deposit into the Replacement Reserve Fund the monthly Replacement Reserve Deposit, together with its regular monthly payments of principal and interest as required by the Note and Security Instrument. The Replacement Reserve Fund shall be maintained and governed in accordance with this Agreement. (b) Investment of Deposits. Borrower and Lender agree that all moneys deposited into the Replacement Reserve Fund shall be held by Lender in an interest bearing account, and any interest earned on such moneys shall be added to the principal balance of the Replacement Reserve Fund and disbursed in accordance with the provisions of this Agreement. Lender shall not be responsible for any losses resulting from investment of moneys in the Replacement Reserve Fund or for obtaining any specific level or percentage of earnings on such investment. Lender shall be entitled to deduct from the Replacement Reserve Fund a one time fee for establishing the Replacement Reserve Fund in an amount not to exceed $-0-. (c) Use. Subject to the pledge and security interest and other rights of Lender set forth in this Agreement, the Replacement Reserve Fund shall be maintained for the payment of the costs of the Capital Replacements identified on Exhibit B attached to this Agreement. (d) Deferral of Deposits. Notwithstanding subsections 2(a) through (c) above, Lender defers its right to require Borrower to make the monthly Replacement Reserve Deposit. Lender, however, reserves the right to require, in its reasonable discretion and upon written notice to Borrower, at any time and from time to time, that Borrower begin making the monthly Replacement Reserve Deposit upon the occurrence of any of the following events: (1) Borrower's default under the Note, Security Instrument, or any other document delivered in connection with the Loan, (2) the occurrence of a transfer of ownership prohibited under the terms of the Security Instrument, or (3) Borrower's failure to maintain the Property in a satisfactory manner and/or in accordance with the requirements of the Security Instrument, and Lender's determination that the estimated cost to complete any deferred maintenance items with respect to the Property will be greater than or equal to 5 percent of the original principal balance of the Loan. 3. Disbursements. (a) Requests for Disbursement. Lender shall disburse funds from the Replacement Reserve Fund, in its sole discretion, as follows: (i) Borrower's Request. If Borrower determines, at any time or from time to time, that a Capital Replacement is necessary or desirable, Borrower shall perform such Capital Replacement and request from Lender, in writing, reimbursement for such Capital Replacement. Borrower's request for reimbursement shall include (A) a detailed description of the Capital Replacement performed, together with evidence, satisfactory to Lender, that the cost of such Capital Replacement has been paid and (B) lien waivers from each contractor and material supplier supplying labor or materials for such Capital Replacement, if required by Lender. (ii) Lender's Request. If Lender shall determine, at any time or from time to time, that Capital Replacements are necessary or desirable, it shall so notify Borrower, in writing, requesting that Borrower obtain and submit to Lender bids for all labor and materials required in connection with such Capital Replacement. Borrower shall submit such bids and a time schedule for completing each Capital Replacement to Lender within thirty (30) days after Borrower's receipt of Lender's notice. (b) Conditions Precedent. Disbursement from the Replacement Reserve Fund shall be made no more frequently than once every Disbursement Period and, except for the final disbursement, no disbursement shall be made in an amount less than the Minimum Disbursement Request Amount. Disbursements shall be made only if the following conditions precedent have been satisfied, as reasonably determined by Lender: (i) Payment for Capital Replacement. The Capital Replacement has been performed and/or installed on the Property in a good and workmanlike manner with suitable materials (or in the case of a partial disbursement, performed and/or installed on the Property to an acceptable stage) and paid for by Borrower as evidenced by copies of all applicable paid invoices or bills submitted to Lender by Borrower at the time Borrower requests disbursement from the Replacement Reserve Fund. (ii) No Default. There shall exist no condition, event or act which would constitute a default (with or without notice and/or lapse of time) under this Agreement or any other Loan Document. (iii)Representations and Warranties. All representations and warranties of Borrower set forth in this Agreement and in the Loan Documents are true. (iv) Continuing Compliance. Borrower shall be in full compliance with the provisions of this Agreement, the other Loan Documents and any request or demand by Lender permitted hereby. (v) No Lien Claim. No lien or claim based on furnishing labor or materials has been filed or asserted against the Property or the Improvements, unless Borrower has properly provided bond or other security against loss in accordance with applicable law. (vi) Approvals. All licenses, permits, and approvals of governmental authorities required for the Capital Replacement as completed to the applicable stage have been obtained. (vii)Legal Compliance. The Capital Replacement as completed to the applicable stage does not violate any laws, ordinance, rules or regulations, or building lines or restrictions applicable to the Property. 4. Right to Complete Capital Replacements. If Borrower abandons or fails to proceed diligently with and complete any Capital Replacement in a timely fashion or is otherwise in default under this Agreement, Lender shall have the right (but not the obligation) to enter upon the Property and take over and cause the completion of such Capital Replacement. Any contracts entered into or indebtedness incurred upon the exercise of such right may be in the name of Borrower, and Lender is hereby irrevocably appointed the attorney in fact of Borrower, such appointment being coupled with an interest, to enter into such contracts, incur such obligations, enforce any contracts or agreements made by or on behalf of Borrower (including the prosecution and defense of all actions and proceedings in connection with the Capital Replacement and the payment, settlement or compromise of all bills and claims for materials and work performed in connection with the Capital Replacement) and do any and all things necessary or proper to complete any Capital Replacement including signing Borrower's name to any contracts and documents as may be deemed necessary by Lender. In no event shall Lender be required to expend its own funds to complete any Capital Replacement, but Lender may, in its sole discretion, advance such funds. Any funds advanced shall be added to the outstanding balance of the Loan, secured by the Security Instrument and payable to Lender by Borrower in accordance with the provisions of the Security Instrument pertaining to the protection of Lender's security and advances made by Lender. Borrower waives any and all claims it may have against Lender for materials used, work performed or resultant damage to the Property. 5. Inspection. Lender or any agent of Lender may periodically inspect any Capital Replacement in process and upon completion during normal business hours or at any other reasonable time. Lender shall be entitled to deduct from the Replacement Reserve Fund reasonable fees for performing any such inspection, which fee shall not exceed $500.00 per inspection. If Lender, in its sole discretion, retains a professional inspection engineer or other qualified third party to inspect any Capital Replacement, Lender also shall be entitled to deduct from the Replacement Reserve Fund an amount sufficient to pay all reasonable fees and expenses charged by such third party inspector. 6. Insufficient Account. If Borrower requests disbursement from the Replacement Reserve Fund for a Capital Replacement in accordance with this Agreement in an amount which exceeds the amount on deposit in the Replacement Reserve Fund, Lender shall disburse to Borrower only the amount on deposit in the Replacement Reserve Fund. All additional amounts required in connection with any such Capital Replacement shall be paid by Borrower from Borrower's own funds. 7. Security Agreement. Borrower hereby conveys, pledges, transfers and grants to Lender a security interest pursuant to the Uniform Commercial Code of the Jurisdiction or any other applicable law in and to all money in the Replacement Reserve Fund, as same may increase or decrease from time to time, for the purpose of securing Borrower's obligations under this Agreement and to further secure Borrower's obligations under the Note, Security Instrument and other Loan Documents. 8. Post Default. If Borrower defaults in the performance of its obligations under this Agreement or under the Note, Security Instrument or any other Loan Document, Lender and its successors and assigns shall have all remedies available to them under Article 9 of the Uniform Commercial Code of the Jurisdiction and under any other applicable law and, in addition, may retain all money in the Replacement Reserve Fund, including interest, and in Lender's discretion, may apply such amounts, without restriction and without any specific order of priority, to the payment of any and all indebtedness or obligations of Borrower set forth in the Note, Security Instrument or any other Loan Document, including, but not limited to, principal, interest, taxes, insurance, reasonable attorneys' fees actually incurred and/or repairs to the Property. 9. Termination. If not sooner terminated by written concurrence of the parties, this Agreement shall terminate upon the payment in full of the Loan and all indebtedness incurred in connection therewith and upon such termination, Lender shall pay to Borrower all funds remaining in the Replacement Reserve Fund. 10. No Amendment. Nothing contained in this Agreement shall be construed to amend, modify, alter, change or supersede the terms and provisions of the Note, Security Instrument or any other Loan Document; and, if there is a conflict between the terms and provisions of this Agreement and those of the Note, Security Instrument, or any other Loan Document then the terms and provisions of the Note, Security Instrument or such other Loan Document shall control. 11. Release; Indemnity. (a) Release. Borrower covenants and agrees that, in performing any of its duties under this Agreement, neither Lender nor its successors and assigns shall be liable for any losses, costs or damages which may be incurred by any of them as a result of such performance, except for any losses, costs or damages arising out of the willful misconduct or gross negligence of such party. (b) Indemnity. Borrower hereby agrees to indemnify and hold harmless Lender and its successors and assigns from and against any and all losses, claims, damages, liabilities and expenses including, without limitation, reasonable attorneys' fees and disbursements, which may be imposed or incurred by any of them in connection with this Agreement. 12. Choice of Law. This Agreement shall be construed and enforced in accordance with the laws of the Jurisdiction. 13. Successors and Assigns. Borrower acknowledges and agrees that Lender, at its option, may assign or otherwise transfer the Loan and any or all Loan Documents including, but not limited to, this Agreement, to other parties subsequent to the execution of this Agreement. This Agreement shall be binding upon the respective successors and assigns of Borrower and Lender. Borrower may not assign its rights, interests or obligations under this Agreement without first obtaining Lender's prior written consent. 14. Attorneys' Fees. In the event that Lender or its successors or assigns shall engage the services of an attorney at law to enforce the provisions of this Agreement against Borrower, then Borrower shall pay all costs of such enforcement, including any reasonable attorneys' fees actually incurred. 15. Compliance with Laws; Insurance Requirements. (a) Compliance with Laws. All Capital Replacements shall comply with all applicable laws, ordinances, rules and regulations of all governmental authorities having jurisdiction over the Property and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (b) Insurance Requirements. In addition to any insurance required under the Loan Documents, Borrower shall provide or cause to be provided workers' compensation, builder's risk (if required by Lender), and public liability insurance and other insurance required under applicable law in connection with any of the Capital Replacements. All such policies which can be endorsed with standard mortgage clauses making losses payable to Lender or its assigns shall be so endorsed. The originals of such policies shall be deposited with Lender. 16. Remedies Cumulative. In the event of Borrower's default under this Agreement, Lender may exercise all or any one or more of its rights and remedies available under this Agreement, at law or in equity. Such rights and remedies shall be cumulative and concurrent, and may be enforced separately, successively or together, and Lender's exercise of any particular right or remedy shall not in any way prevent Lender from exercising any other right or remedy available to Lender. Lender may exercise any such remedies from time to time as often as may be deemed necessary by Lender. 17. Determinations by Lender. In any instance where the consent or approval of Lender may be given or is required, or where any determination, judgment or decision is to be rendered by Lender under this Agreement, the granting, withholding or denial of such consent or approval and the rendering of such determination, judgment or decision shall be made or exercised by Lender (or its designated representative) at its sole and exclusive option and in its sole and absolute discretion. 18. Completion of Capital Replacements. Lender's disbursement of moneys from the Replacement Reserve Fund or other acknowledgment of completion of any Capital Replacement in a manner satisfactory to Lender shall not be deemed a certification by Lender that the Capital Replacement has been completed in accordance with applicable building, zoning or other codes, ordinances, statutes, laws, regulations or requirements of any governmental authority or agency. Borrower shall at all times have the sole responsibility for insuring that all Capital Replacements are completed in accordance with all such governmental requirements. 19. No Agency or Partnership. Nothing contained in this Agreement shall constitute Lender as a joint venturer, partner or agent of Borrower, or render Lender liable for any debts, obligations, acts, omissions, representations or contracts of Borrower. 20. Entire Agreement. This writing, together with references to this Agreement contained in the Security Instrument, constitutes the entire agreement of the parties relative to the Replacement Reserve Fund. Any modification or amendment of this Agreement shall be ineffective unless in writing and signed by Lender and Borrower. ATTACHED EXHIBITS. The following Exhibits are attached to this Agreement: |X | Exhibit A Property Description (required) |X | Exhibit B Capital Replacements (required) |X | Exhibit C Replacement Reserve Deposit (required) [X ] Exhibit D Modifications to Agreement IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day and year first above written. BORROWER: WESTLAKE EAST ASSOCIATES LIMITED PARTNERSHIP, an Ohio limited partnership By: Fox Strategic Housing Income Partners, a California limited partnership, General Partner By: Fox Partners VIII, a California general partnership, Managing General Partner By: Fox Capital Management Corporation, a California corporation, Managing Partner By:/s/ Robert D. Long, Jr. Robert D. Long, Jr., Vice President Borrower's Social Security or Taxpayer Identification No._______________________________ LENDER: NEWPORT MORTGAGE COMPANY, L.P., a Texas limited partnership By: DUSCO, INC., a Texas corporation, General Partner By:/s/ Jeffrey S. Juster Jeffrey S. Juster, President EXHIBIT A Property Description EXHIBIT B Capital Replacements EXHIBIT C Replacement Reserve Deposit The following amounts shall be paid to Lender by Borrower each month in accordance with the provisions of Paragraph 2(a) for deposit into the Replacement Reserve Fund subject to the provisions of Paragraph 2(d): From: September 1, 1998 to August 1, 2003 $3,239.00 From: September 1, 2003 until the Loan is paid in full: $3,758.33 -----END PRIVACY-ENHANCED MESSAGE-----