<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File No. 0-13323
_________________
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2803902
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
399 Boylston Street, 13th FL.
Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 578-1200
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No ___
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
No voting stock is held by nonaffiliates of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
------
Item 1. Business
--------
New England Life Pension Properties II; A Real Estate Limited
Partnership (the "Partnership") was organized under the Uniform Limited
Partnership Act of the Commonwealth of Massachusetts on September 15, 1983, to
invest primarily in newly constructed and existing income-producing real
properties.
The Partnership was initially capitalized with contributions of $2,000
from Copley Properties Company II, Inc. (the "General Partner") and $10,000 from
NELRECO Troy, Inc. (the "Initial Limited Partner"). The Partnership filed a
Registration Statement on Form S-11 (the "Registration Statement") with the
Securities and Exchange Commission on September 21, 1983, with respect to a
public offering of 50,000 units of limited partnership interest at a purchase
price of $1,000 per unit (the "Units") with an option to sell up to an
additional 60,000 Units (an aggregate of $110,000,000). The Registration
Statement was declared effective on November 23, 1983.
The first sale of Units occurred on June 15, 1984, at which time the
Initial Limited Partner withdrew its contribution from the Partnership.
Investors were admitted to the Partnership thereafter at monthly closings; the
offering of Units terminated on November 23, 1984, and the last group of initial
investors was admitted to the Partnership on November 30, 1984. As of November
30, 1984, a total of 39,917 Units had been sold, a total of 5,980 investors had
been admitted as limited partners (the "Limited Partners") and a total of
$39,654,700 had been contributed to the capital of the Partnership. The
remaining 70,083 units were de-registered on November 30, 1984.
The Partnership has no employees. Services are performed for the
Partnership by the General Partner and affiliates of the General Partner.
As of December 31, 1995, the Partnership had investments in the five
real property investments described below. In December 1993, it sold its sixth
investment, an apartment complex in Grand Rapids, Michigan, which resulted in a
capital distribution of $50.11 per unit. The Partnership and its affiliate, New
England Life Pension Properties has provided the ground lessee of one of the
Partnership's properties, the Willows Shopping Center in Concord, California,
with a $2.5 million leasehold mortgage loan for the purpose of completing the
renovation of the Center. New England Life Pension Properties II will fund
$1,875,000 of the loan, with the balance funded by New England Life Pension
Properties. The Partnership has no other current plan to renovate, improve or
further develop any of its real property.
In the opinion of the General Partner of the Partnership, the
properties are adequately covered by insurance.
A. Light Industrial Facilities in Elkridge, Maryland.
-------------------------------------------------
The Partnership continues to own two adjacent parcels of land
containing an aggregate of approximately five acres located in Elkridge,
Maryland, which are ground leased to Dorsey Associates. Situated on the land
are two light industrial buildings. The Partnership purchased the land in 1984
for $362,500. The Partnership is entitled to receive a base rent of $43,500 per
year, plus an annual percentage rent equal to 75% of gross revenues from the
rental of the buildings in excess of a base amount. The Partnership is entitled
to receive 75% of the net proceeds from the sale of the entire property after it
has recovered its investment in the land and the mortgage loan described below.
In 1984 the Partnership also made a $2,062,500 non-recourse mortgage
loan to Dorsey Associates that matured on June 29, 1994. The loan is secured by
a first mortgage of the buildings and of the leasehold interest in the land.
Interest only is payable monthly at the rate of 12% per annum. Although the
Partnership has not yet foreclosed on this loan, the mortgage loan has not been
extended as of March 1, 1996 as the Partnership is in the process of evaluating
various alternatives to extending the loan.
B. Industrial Building in Columbia, Maryland.
-----------------------------------------
The Partnership continues to own a ground leasehold interest in a 2.5
acre parcel of land located in Columbia, Maryland, which is subleased to
Columbia Warehouse Limited Partnership ("CWLP"). Situated on the land is a one-
story light industrial building. The Partnership purchased the ground leasehold
interest in 1984 for $137,500. The ground lease, as amended on June 1, 1989,
has an unexpired term of approximately 75 years. Annual rental under the ground
lease is approximately $3,420 and is adjusted at five-year intervals. The
<PAGE>
Partnership receives an annual rent of $16,500 from the sublessee, plus an
annual percentage rent equal to 75% of gross revenues from the rental of the
building in excess of a base amount. The Partnership is entitled to receive 75%
of the net proceeds from the sale of the entire property after it has recovered
its investment in the land and the mortgage loan described below.
In 1984 the Partnership also made a $1,062,500 non-recourse mortgage
loan to CWLP that matured on June 29, 1994. The loan is secured by a first
mortgage of the buildings and of the leasehold interest in the land. Interest
only is payable monthly at the rate of 12% per annum. Although the Partnership
has not foreclosed on this loan, the mortgage loan has not been extended as of
March 1, 1996 as the Partnership is in the process of evaluating various
alternatives to extending the loan.
C. Shopping Center in Concord, California ("Willows Shopping
---------------------------------------------------------
Center")
- -------
On July 30, 1984, the Partnership and an affiliate of the Partnership
(the "Affiliate") jointly made land purchase-leaseback and leasehold mortgage
loan investments aggregating $15,719,317 in a 24.8 acre shopping center known as
The Willows Shopping Center in Concord, California. The Partnership's share of
these investments aggregated $11,789,488, giving the Partnership a 75% interest
in each component of the investment held in common with the Affiliate. The
investments entitled the Partnership and the Affiliate jointly to receive an
annual interest return of 13% on the $10,719,317 ten-year mortgage, together
with an annual fixed rental under the ground lease equal to a 12.2% return on
the $5,000,000 land purchase price plus an annual percentage rental equal to 50%
of the ground tenant's annual gross revenues in excess of specified base
amounts.
On August 15, 1985, the Partnership and the Affiliate consented to a
sale by the ground tenant, Willows Concord Venture ("Willows Concord"), of the
ground tenant's ownership interest in the buildings and leasehold interest in
the land to an affiliate of VMS Realty, Inc. In conjunction with the sale, the
ground lease was amended to provide that the Partnership and the Affiliate would
no longer participate in excess rental revenues from the Shopping Center or in
net appreciation from the sale of the property. The mortgage loan was also
amended to increase the principal amount by $3,880,683 to $14,600,000, to extend
the maturity date one year to August, 1995, and to lower the interest rate from
13% per annum to a stepped rate beginning at 9% per annum and increasing to 12%
over six years. Under the terms of the original ground lease, the joint ground
lessors were entitled to 50% of the net proceeds from a sale. The Partnership
received cash of $3,215,625 and an interest in the incremental mortgage loan
amount equal to $2,910,512, 50% of which was payable to the former ground lessee
upon full payment of the loan principal by the new mortgagor. The joint
mortgagees also entered into a Collection and Disbursement Agreement pursuant to
which Willows Concord was entitled to share in 50% of interest paid under the
new mortgage note in excess of the interest that would have been payable under
the original note.
The Partnership and the Affiliate had not received interest payments
currently on the mortgage loan since the payment due for March, 1990, and as a
result, the Partnership and the Affiliate began foreclosure proceedings to take
possession of the property. On October 4, 1990, Pacific First Bank, the second
leasehold mortgagee, filed an involuntary bankruptcy petition in the United
States Bankruptcy Court for the Northern District of California against the
ground lessee/debtor, to which filing the ground lessee/debtor subsequently
consented. The ground lessee/debtor later consented to relief from stay of
foreclosure proceedings. The Partnership and the Affiliate sold their interest
in the leasehold mortgage loan to Willows Concord on June 14, 1991. In return,
the Partnership and the Affiliate took back a note in the amount of $14,863,206.
Willows Concord foreclosed on the leasehold mortgage on June 18, 1991.
The Partnership, the Affiliate and Willows Concord entered into a replacement
promissory note in the same principal amount of $14,863,206, effective June 18,
1991. The new loan is secured by the leasehold interest, bears interest at the
rate of 9.323% per annum and provides for a reduction in principal if the note
is paid prior to maturity. The Partnership, the Affiliate and Willows Concord
also entered into a new ground lease which provides for annual rent in the
amount of $550,000 plus an annual percentage rent equal to 70% of the ground
lessee's annual gross revenues in excess of a specified amount. The Partnership
has a 75% share of such rent. To the extent that operating cash flow from the
shopping center is not sufficient to pay the ground rent, such rent may accrue
until June 1996 at which time Willows Concord is obligated to pay all unpaid
accrued rent and to pay all future ground rent on a current basis.
<PAGE>
On January 1, 1995 the Partnership and the Affiliate committed to make
a $2.5 million construction loan to the ground lessee in order to fund the
completion of the renovation of the Center. The loan bears interest at 11% per
annum, provides for payments of principal and interest based on a 15-year
amortization schedule, and matures on December 31, 1997. In addition, the
ground lease was amended to provide the Partnership with the sole right to cause
a sale of the Center on or after January 1, 1996.
D. Research and Development Building in Los Angeles County,
-------------------------------------------------------
California ("Susana Corporate Center")
- -------------------------------------
The Partnership continues to own a 4.02 acre parcel of land in Los
Angeles County, California, which it acquired for $1,750,000 and leased back to
the seller. Situated on the land is a one-story, 63,164 square foot research
and development facility leased to a single tenant. The ground lease has a term
of 60 years and provides for a fixed annual rent of $214,375 plus additional
rent equal to 60% of gross revenues from the rental of the building in excess of
a base amount. The Partnership is entitled to receive 60% of the net proceeds
from the sale of the entire property after it has recovered its investment in
the land and the mortgage loan described below and after payment to the ground
lessee of an amount equal to the cost of any capital improvements made during
the lease term.
In 1985 the Partnership also made a $3,250,000 non-recourse mortgage
loan to the ground lessee. Interest only is payable monthly at the rate of
12.25% per annum. The entire principal amount is due and payable after ten
years and is not prepayable. The loan is secured by a first mortgage on the
building and the leasehold interest in the land.
During 1993, the Partnership agreed to a restructuring of the ground
lease and the mortgage loan. The ground lease now provides for annual rental in
an amount which is determined by the available cash flow after the interest
payments are made on the mortgage loan. The mortgage loan has been modified to
(1) increase the loan amount by $192,000 to a total of $3,442,000, (2) reduce
the interest rate on the initial $3,250,000 loan to 9.06% per annum, and (3)
extend the maturity date of the loan to December 31, 1999. Payments of
principal and interest with interest at the rate of 8% per annum, are due
monthly on the additional $192,000 loan. The increase was made to fund tenant
improvements.
E. Research and Development Facility in Columbia, Maryland ("Case
--------------------------------------------------------------
Communications Building")
- ------------------------
The Partnership continues to own a 19.2 acre parcel of land in
Columbia, Maryland, which it acquired for $2,570,379 and leased back to the
seller. A 160,000 square foot research and development building has been
constructed on the land. The ground lease has a term of 60 years and provides
for a fixed annual rent of $262,392 plus additional rent equal to 65.864% of
gross revenues from the rental of the building in excess of a base amount. The
Partnership is entitled to receive 60% of the net proceeds from the sale of the
entire property after it has recovered its investment in the land and the
mortgage loan described below:
The Partnership has also fully funded a $8,814,621 non-recourse
mortgage loan to the ground lessee. Interest only is payable monthly at the
rate of 11% per annum. The loan matured on May 1, 1995 and is secured by a
first mortgage of the building and the leasehold interest in the land. The
Partnership has also fully funded an additional $1,000,000 loan. This loan
bears interest at the rate of 14% per annum, is secured by a second mortgage on
the building and leasehold interest in the land and matured simultaneously with
the first mortgage loan described above. Although the Partnership has not
foreclosed on these loans, the first mortgage loan has not been extended as of
March 1, 1996 as the Partnership is in the process of evaluating various
alternatives to extending the loan.
<PAGE>
Item 2. Properties
----------
The following table sets forth the annual realty taxes for the Partnership's
properties and information regarding tenants who occupy 10% or more of gross
leasable area (GLA) in the Partnership's properties:
<TABLE>
<CAPTION>
Estimated Number of Annual
1996 Tenants Contract
Annual with 10% Rent Line of Business
Realty or More Name(s) of Square Feet of per Lease Renewal of Principal
Property Taxes of GLA Tenant(s) Each Tenant Sq. Ft. Expiration Options Tenants
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Center in $327,958 2 Whole Earth Access 40,374 $ 7.80 4/1996* None Specialty Retail
Concord, CA REI 29,486 $ 5.50 5/2003 Two 5 Specialty Retail
year
options
Industrial Building in $ 43,375 1 Dynasplint 9,600 $ 6.50 10/1996 None Manufacturing
Elkridge, MD
Industrial Building in $ 26,872 2 Igene 8,480 $ 8.25 1/2001 None Pharmaceutical
Columbia, MD New Horizons 18,360 $ 7.20 6/1996 None Pharmaceutical
R&D Building in L.A. $ 40,000 1 National 63,164 $ 7.80 12/1999 None Insurance
County, CA American
Insurance
R&D Building in
Columbia, MD $187,110 1 US Government 160,000 $12.80 11/1996 None Defense Research
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Tenant vacated upon expiration of lease
<PAGE>
The following table sets forth for each of the last five years the gross
leasable area, occupancy rates, rental revenues and net effective rent for the
Partnership's properties:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Net
Gross Rental Effective
Leasable Year-End Revenue Rent
Property Area Occupancy Recognized ($/sf/yr)*
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shopping Center in
Concord, CA
- ------------------
1991 274,488 68% $3,131,840 $16.07
1992 274,488 70% $2,346,938 $12.39
1993 274,488 78% $2,612,770 $12.52
1994 251,531 91% $2,595,391 $12.39
1995 251,531 91% $3,099,701 $13.54
Industrial Buildings in
Elkridge, MD
- -----------------------
1991 84,630 57% $ 412,210 $10.25
1992 84,630 60% $ 273,543 $ 5.46
1993 84,630 55% $ 254,478 $ 5.35
1994 84,630 76% $ 300,981 $ 5.43
1995 84,630 43% $ 266,751 $ 7.33
Industrial Buildings in
Columbia, MD
- -----------------------
1991 38,840 100% $ 287,239 $ 7.76
1992 38,840 100% $ 325,425 $ 8.51
1993 38,840 82% $ 266,711 $ 7.55
1994 38,840 85% $ 291,556 $ 9.04
1995 38,840 91% $ 284,134 $ 8.04
R&D Building in L.A.
County, CA
- --------------------
1991 63,164 100% $ 710,412 $11.25
1992 63,164 100% $ 710,412 $11.25
1993 63,164 100% $ 620,246 $ 9.82
1994 63,164 100% $ 518,234 $ 8.20
1995 63,164 100% $ 514,621 $ 8.15
R&D Building in
Columbia, MD
- -------------------
1991 160,000 100% $1,825,333 $11.41
1992 160,000 100% $1,900,000 $11.88
1993 160,000 100% $2,300,000 $14.38
1994 160,000 100% $2,636,836 $16.48
1995 160,000 100% $2,283,934 $14.27
- --------------------------------------------------------------------------------
</TABLE>
* Net effective rent calculation is based on average occupancy during the
respective year.
<PAGE>
Following is a schedule of lease expirations for each of the next ten years
for the Partnership's properties based on the annual contract rent in effect at
December 31, 1995:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
TENANT AGING REPORT
Percentage of
# of Lease Total Gross Annual
Property Expirations Square Feet Annual Rental Rental*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shopping Center in Concord, CA (1)
- ----------------------------------
1996 2 41,790 $314,917 12%
1997 3 11,130 $ 63,362 2%
1998 1 600 $ 18,948 1%
1999 3 23,650 $260,984 10%
2000 2 10,520 $128,746 5%
2001 1 7,088 $ 77,117 3%
2002 2 22,411 $222,615 9%
2003 4 44,779 $401,192 15%
2004 0 0 $ 0 0%
2005 6 49,457 $586,913 23%
Industrial Buildings in Elkridge, MD
- ------------------------------------
1996 1 9,600 $ 62,400 30%
1997 6 20,040 $102,319 49%
1998 1 4,800 $ 19,200 9%
1999 0 0 $ 0 0%
2000 1 6,360 $ 24,232 12%
2001 0 0 $ 0 0%
2002 0 0 $ 0 0%
2003 0 0 $ 0 0%
2004 0 0 $ 0 0%
2005 0 0 $ 0 0%
Industrial Building in Columbia, MD
- -----------------------------------
1996 2 20,760 $107,112 56%
1997 0 0 $ 0 0%
1998 2 4,800 $ 26,688 14%
1999 0 0 $ 0 0%
2000 0 0 $ 0 0%
2001 1 8,480 $ 57,240 30%
2002 0 0 $ 0 0%
2003 0 0 $ 0 0%
2004 0 0 $ 0 0%
2005 0 0 $ 0 0%
R&D Building in L.A. County, CA
- -------------------------------
1996 0 0 $ 0 0%
1997 0 0 $ 0 0%
1998 0 0 $ 0 0%
1999 1 63,164 $622,347 100%
2000 0 0 $ 0 0%
2001 0 0 $ 0 0%
2002 0 0 $ 0 0%
2003 0 0 $ 0 0%
2004 0 0 $ 0 0%
2005 0 0 $ 0 0%
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
R&D Building in Columbia, MD
- ----------------------------
<S> <C> <C> <C> <C>
1995 0 0 $ 0 0%
1996 1 160,000 $2,228,000 100%
1997 0 0 $ 0 0%
1998 0 0 $ 0 0%
1999 0 0 $ 0 0%
2000 0 0 $ 0 0%
2001 0 0 $ 0 0%
2002 0 0 $ 0 0%
2003 0 0 $ 0 0%
2004 0 0 $ 0 0%
2005 0 0 $ 0 0%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Remaining leases do not expire within 10 years.
* Does not include expenses paid by tenants.
<PAGE>
Following is information regarding the competitive market conditions for each of
the Partnership's properties. This information has been gathered from sources
deemed reliable. However, the Partnership has not independently verified the
information and, as such, cannot guarantee its accuracy or completeness.
Research & Development Building in Los Angeles County, CA
- ---------------------------------------------------------
The South Bay office market is a relatively diverse market encompassing nearly
30 million square feet of existing space. It includes the communities of Long
Beach, Torrance, El Segundo and LAX. Overall vacancy in this area is 24%.
While this represents a decline from 26% reported in 1993, vacancy has remained
above 18% for more than seven years. The softness in this market is
attributable to the contraction of the aerospace and defense industries. As a
number of new government contracts continue to diminish, this area has increased
its reliance on foreign trade due to its proximity to the sea ports of Long
Beach and Los Angeles, as well as LAX.
Light Industrial Facilities and Industrial Building in Elkridge, MD
- -------------------------------------------------------------------
These buildings are typical 1970s vintage flex office/warehouse buildings for
the Baltimore/Washington Corridor market. The Corridor emerged in the early
1970s with the construction of I-95. The corridor industrial market is a
dynamic entity that generally extends from the Washington Beltway (I-495) on the
south to the Baltimore Beltway on the north (I-695) and from Columbia on the
west to I-97 on the east. The Corridor market is influenced by the presence of
such variables as the federal government, Fort Meade and the National Security
Agency and BWI Airport. The Department of Defense has been a large user of
space, both directly and indirectly through contacts in the past; however this
trend reached a plateau a few years ago given the cuts in defense spending. The
Corridor contains approximately 14,415,000 square feet and exhibited a vacancy
rate of 10% as of the end of 1995.
Research & Development Facility in Columbia, MD
- -----------------------------------------------
The Howard County R&D market contains approximately 3.2 million square feet and
exhibited a vacancy rate of 10% as of December 31, 1995. The 10% vacancy rate
is a strong improvement from the 1990-to-1993 period when the vacancy rate
hovered in the 22%-to-24% range.
Shopping Center in Concord, CA
- ------------------------------
This neighborhood shopping center lies within the Central Contra Costa County
market in which there is approximately 8.1 million square feet of retail
inventory. This market incorporates the cities along the I-680 corridor and
includes Walnut Creek, Concord, Pleasant Hill and Martinez. An average vacancy
rate of 5% was reported within the neighborhood centers, with retail strip
properties posting a slightly higher average vacancy of 7%. Since 1992, no new
retail projects have come on-line within the property's immediate neighborhood.
New construction is expected to be limited due to the lack of available land and
the still cautious attitude among the lending community.
<PAGE>
Item 3. Legal Proceedings.
------------------
The Partnership is not a party to, nor are any of its properties
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
PART II
-------
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
---------------------------------------------------------------------
There is no active market for the Units. Trading in the Units is
sporadic and occurs solely through private transactions.
As of December 31, 1995, there were 6,184 holders of Units.
The Partnership's Amended and Restated Agreement of Limited
Partnership dated June 15, 1984, as amended to date (the "Partnership
Agreement"), requires that any Distributable Cash (as defined therein) be
distributed quarterly to the Partners in specified proportions and priorities.
There are no restrictions on the Partnership's present or future ability to make
distributions of Distributable Cash. For the year ended December 31, 1995, cash
distributions paid in 1995 or distributed after year end with respect to 1995 to
the Limited Partners as a group totaled $2,486,032. For the year ended December
31, 1994, cash distributions paid in 1994 or distributed after year end with
respect to 1994 to the Limited Partners as a group totaled $4,384,484, of which
$2,000,241 was capital distributions.
Cash distributions exceeded net income in 1995 and, therefore,
resulted in a reduction of partners' capital. Distributions, however, were less
than cash provided by operating activities. Reference is made to the
Partnership's Statement of Changes in Partners' Capital and Statement of Cash
Flows in Item 8 herein.
<PAGE>
Item 6. Selected Financial Data.
------------------------
<TABLE>
<CAPTION>
For Year For Year For Year For Year For Year
Ended or Ended or Ended or Ended or Ended or
as of as of as of as of as of
12/31/95(3) 12/31/94(2) 12/31/93(1) 12/31/92 12/31/91
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 5,313,944 $ 5,061,123 $ 4,902,277 $ 4,856,666 $ 4,844,818
Net Income $ 1,710,797 $ 2,340,707 $ 1,376,686 $ 2,364,385 $ 3,442,669
Net Income
per Unit of
Limited
Partnership
Interest
Outstanding $ 42.43 $ 58.05 $ 34.14 $ 65.34 $ 85.38
Total Assets $39,074,700 $39,868,957 $41,816,002 $42,526,793 $42,361,375
----------- ----------- ----------- ----------- -----------
Total Cash
Distributions
per Limited
Partnership Unit,
including amounts
distributed after
year end with
respect to the
previous year $62.28 $109.84 $61.12 $61.12 $70.52
-----------------------------------------------
</TABLE>
(1) The Partnership recorded a provision of $1,670,000 ($41.42 per Unit) for
impaired mortgage loans during 1993.
(2) The Partnership recorded a provision of $800,000 ($19.84 per Unit) for
impaired mortgage loans during 1994.
(3) The Partnership recorded a provision of $1,428,000 ($35.42 per Unit) for
impaired mortgage loans during 1995.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Liquidity and Capital Resources
The Partnership completed its offering of units of limited partnership
interest in November 1984. A total of 39,917 units were sold. The
Partnership received proceeds of $36,296,995, net of selling commissions and
other offering costs, which were invested in real estate, used to pay related
acquisition costs, or retained as working capital reserves. The Partnership
made six real estate investments, one of which was sold in December 1993. The
remaining investments are described in Item 1 hereof. As a result of sales
and similar transactions, capital of $4,395,261 has been returned to the
limited partners through December 31, 1995. Two of the Partnership's mortgage
loan investments had a maturity date in 1994; another had a maturity in 1995.
The Partnership is evaluating various alternatives to extending these loans.
The capital distribution to limited partners of $2,000,241 ($50.11 per
limited partnership unit) on July 28, 1994 was from the proceeds from the sale
of the Oxford Place investment in December 1993. The adjusted capital
contribution after this distribution was reduced to $889.89 per unit.
At December 31, 1995, the Partnership had $5,257,856 in cash, cash
equivalents and short-term investments which were partially used for cash
distributions of $627,786 to partners on January 25, 1996; the remainder is
expected to be used to fund the renovation of the Willows Shopping Center or
retained as working capital reserves. The source of future liquidity and cash
distributions to partners will be cash generated by the Partnership's real
estate and short-term investments and proceeds from the sale of such
investments. Quarterly distributions of cash from operations relating to 1995
and 1994 were made at the annualized rates of 7% and 6.5%, respectively, on
the weighted average adjusted capital contribution during the period. The
cash distribution rate increased with the stabilization of property operations
and the attainment of appropriate reserve levels.
The carrying value of the Partnership's real estate investments in the
financial statements at December 31, 1995, other than impaired mortgage loans,
is at depreciated cost, or if the investment's carrying value is determined
not to be recoverable through expected undiscounted future cash flows, the
carrying value is reduced to estimated fair market value. The fair market
value of such investments is further reduced by the estimated cost of sale for
properties held for sale. Carrying value may be greater or less than current
appraised value. At December 31, 1995, the carrying value of certain
investments exceeded their related appraised values by an aggregate of
approximately $1,150,000, and the appraised value of the remaining investments
exceeded their related carrying values by an aggregate of approximately
$210,000. The current appraised value of real estate investments has been
estimated by the general partner and is generally based on a combination of
traditional appraisal approaches performed by the Partnership's advisor and
independent appraisers. Because of the subjectivity inherent in the valuation
process, the estimated current appraised value may differ significantly from
that which could be realized if the real estate were actually offered for sale
in the marketplace.
<PAGE>
Results of Operations
---------------------
Form of Real Estate Investments
The Willows Shopping Center is structured as a ground lease/mortgage loan
investment. However, for financial reporting purposes it is accounted for as
a property which is jointly owned with an affiliate. The remainder of the
Partnership's investments are structured and accounted for as ground
lease/mortgage loan investments.
Operating Factors
At December 31, 1995, the Willows Shopping Center was 91% leased,
compared to approximately 91% and 78% at the end of 1994 and 1993,
respectively. The ground lessee/borrower has commenced the full
rehabilitation of this property including the complete renovation and
reconfiguration of the center to a mini power center. The general partner
determined that it is in the best interest of the Partnership to provide
funding for the rehabilitation costs in the form of a construction loan,
together with its affiliate which owns a share of the center. The
Partnership's share of the remaining estimated cost is approximately
$1,575,000 at December 31, 1995.
Occupancy at Elkridge decreased to 43% as of December, 31, 1995, compared
to 76% and 55% at the end of 1994 and 1993, respectively. Occupancy at the
R&D building is 73%. The Partnership has entered into a purchase and sale
agreement for the vacant warehouse building. However, the sale is contingent
on the buyer's obtaining necessary financing.
Susana Corporate Center has been 100% leased to a single-tenant over the
past three years. In May 1993, in connection with the restructuring of the
tenant's lease, the ground lease/mortgage loan agreements were modified by
reducing the interest rate and allowing for the deferral of ground rent if
cash flow was insufficient. The Partnership continues to market this property
for sale.
Occupancy at the Oakland property was 91% at December 31, 1995, up from
85% and 82% one and two years prior; however, leases for 53% of the currently
occupied space expire in 1996.
The Case Communications property has been fully occupied under a five
year lease with a government agency, which expires in November 1996.
Investment Results
The Partnership determined that the mortgage loans secured by Elkridge
and Susana Corporate Center were impaired and recognized a provision for
impaired mortgage loans of $1,670,000 which was charged to operations in 1993.
During 1994 and 1995, the estimated fair market value of the loan collateral
further declined, resulting in an increase to the valuation allowance of
$800,000 and $328,000, respectively. During the fourth quarter of 1995, the
Partnership determined that the mortgage loans secured by the Case
Communications Building were impaired, primarily due to the change in the
expected holding period for the property and a decrease in market rental
rates. This impairment resulted in an increase to the valuation allowance of
$1,100,000, which was charged to operations in 1995. Ground rent and interest
payments from Case Communications continue to be made in accordance with
contractual terms.
<PAGE>
1995 Compared to 1994
Interest on cash equivalents and short-term investments increased
approximately 13% during 1995 compared to 1994, primarily due to an increase
in short-term interest rates.
Exclusive of the provision for impaired mortgage loans, real estate
results were $3,259,150 in 1995, a slight decrease compared to $3,287,302 in
1994. Operating income from the Case Communications Building related to
percentage rent decreased $120,000, and operating income from Susana Corporate
Center decreased by approximately $55,000. These decreases were partially
offset by an increase in net operating income from the Willows Shopping Center
of approximately $95,000, and by the Oakland property.
Operating cash flow, however increased $217,000, or 6%, between 1995 and
1994. This change in cash flow primarily stems from a reduction in
expenditures for deferred leasing costs at the Willows Shopping Center,
partially offset by the increase in non-cash working capital items. In
addition, cash flow in 1994 was reduced by $114,000 as a result of advance
rent receipts in the prior year.
1994 Compared to 1993
Interest on cash equivalents and short-term investments increased nearly
five-fold during 1994 as compared to 1993, due to an increase in short-term
interest rates and a higher average investment balance. The increase in the
average balance resulted from the Partnership's temporarily retaining the
sales proceeds from the Oxford Place Apartments.
Exclusive of the provision for impaired mortgage loans and the operations
from Oxford Place Apartments, real estate operating results were $3,287,302 in
1994, an 11% increase compared to $2,955,850 in 1993. Operating income in
1994 includes approximately $200,000 from the Case Communications Building
related to the final settlement of prior year percentage rent. Operating
income in 1993 includes $270,000 from the settlement of past due rents at
Willows Shopping Center in connection with an anchor tenant's lease revision.
Excluding that settlement, net operating income from the Willows Shopping
Center increased approximately $210,000. Income from the Elkridge investment
increased by approximately $120,000 due to an increase in average occupancy.
Finally, operating income from Susana Corporate Center increased slightly.
Operating cash flow, exclusive of $583,203 from Oxford Place Apartments
in 1993, increased by 1% between 1994 and 1993. The change in cash flow is
reflective of the change in operating results, offset by the cash settlement
in 1993 which resulted from the renegotiated lease term of an anchor tenant at
the Willows Shopping Center.
Portfolio Expenses
The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the general partner. General and administrative expenses
primarily consist of real estate appraisal, printing, legal, accounting and
investor servicing fees.
1995 Compared to 1994
General and administrative expenses were relatively unchanged.
Management fee expense increased 4% due to an increase in distributable cash
flow.
<PAGE>
1994 Compared to 1993
General and administrative expenses increased by 24% or $33,000 due to an
increase in appraisal, investor servicing and professional fees. Management
fee expense decreased 2% due to a decrease in distributable cash flow.
Inflation
By their nature, real estate investments tend not to be adversely
affected by inflation. Inflation may result in appreciation in the value of
the Partnership's real estate investments over time if rental rates and
replacement costs increase. Declines in real property values, during the
period of Partnership operations, due to market and economic conditions, have
overshadowed the positive effect inflation may have on the value of the
Partnership's investments.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
See the Financial Statements of the Partnership included as a part of
this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
--------------------
The Partnership has had no disagreements with its accountants on any
matters of accounting principles or practices or financial statement
disclosure.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
(a) and (b) Identification of Directors and Executive Officers.
--------------------------------------------------
The following table sets forth the names of the directors and
executive officers of the General Partner and the age and position held by
each of them as of December 31, 1995.
<TABLE>
<CAPTION>
Name Position(s) with the General Partner Age
---- ------------------------------------ ---
<S> <C> <C>
Joseph W. O'Connor President, Chief Executive Officer and 49
Director
Daniel J. Coughlin Managing Director and Director 43
Peter P. Twining Managing Director, General Counsel and 49
Director
Wesley M. Gardiner, Jr. Vice President 37
Daniel C. Mackowiak Principal Financial and Accounting Officer 44
</TABLE>
Mr. O'Connor and Mr. Coughlin have served in an executive capacity
since the organization of the General Partner on August 25, 1983. Mr.
Gardiner and Mr. Twining have served in their capacities since June 1994, and
Mr. Mackowiak has served in his capacity as of January 1, 1996. All of these
individuals will continue to serve in such capacities until their successors
are elected and qualify.
(c) Identification of Certain Significant Employees.
-----------------------------------------------
None.
(d) Family Relationships.
--------------------
None.
(e) Business Experience.
-------------------
The General Partner was incorporated in Massachusetts on August
25, 1983. The background and experience of the executive officers and
directors of the General Partner are as follows:
Joseph W. O'Connor has been President, Chief Executive Officer and a
Director of Copley Real Estate Advisors, Inc. ("Copley") since January, 1982.
He was a Principal of Copley from 1985 to 1987 and has been a Managing
Director of Copley since January 1, 1988. He has been active in real estate
for 27 years. From June, 1967, until December, 1981, he was employed by New
England Mutual Life Insurance Company ("The New England"), most recently as a
Vice President in which position he was responsible for The New England's real
estate portfolio. He received a B.A. from Holy Cross College and an M.B.A.
from Harvard Business School.
<PAGE>
Daniel J. Coughlin was a Principal of Copley from 1985 to 1987 and has
been a Managing Director of Copley since January 1, 1988 and a Director of
Copley since July 1994. Mr. Coughlin has been active in financial management
and control for 21 years. From June, 1974 to December, 1981, he was Real
Estate Administration Officer in the Investment Real Estate Department at The
New England. Since January, 1982, he has been in charge of the asset
management division of Copley. Mr. Coughlin is a Certified Property Manager
and a licensed real estate broker. He received a B.A. from Stonehill College
and an M.B.A. from Boston University.
Peter P. Twining is a Managing Director and General Counsel of Copley.
As such, he is responsible for general legal oversight and policy with respect
to Copley and its investment portfolios. Before being promoted to this
position in January 1994, he was a Vice President/Principal and senior lawyer
responsible for assisting in the oversight and management of Copley's legal
operations. Before joining Copley in 1987, he was a senior member of the Law
Department at The New England and was associated with the Boston law firm,
Ropes and Gray. Mr. Twining is a graduate of Harvard College and received his
J.D. in 1979 from Northeastern University.
Wesley M. Gardiner, Jr. joined Copley in 1990 and has been a Vice
President at Copley since January, 1994. From 1982 to 1990, he was employed
by Metric Realty, a nationally-known real estate investment advisor and
syndication firm, as a portfolio manager responsible for several public and
private limited partnerships. His career at Copley has included asset
management responsibility for the company's Georgia and Texas holdings.
Presently, as a Vice President and Team Leader, Mr. Gardiner has overall
responsibility for all the partnerships advised by Copley whose securities are
registered under the Securities and Exchange Act of 1934. He received a B.A.
in Economics from the University of California at San Diego.
Daniel C. Mackowiak has been a Vice President of Copley since January
1989 and has been a Vice President and the Principal Financial and Accounting
Officer of the Managing General Partner since January 1996. Mr. Mackowiak
previously held the offices of Chief Accounting Officer of Copley from January
1989 through April 1994 and Vice President and Principal Financial and
Accounting Officer of the Managing General Partner between January 1989 and
May 1994. From 1975 until joining Copley, he was employed by the public
accounting firm of Price Waterhouse, most recently as a Senior Audit Manager.
He is a certified public accountant and has been active in the field of
accounting his entire business career. He received a B.S. from Nichols
College and an M.B.A. from Cornell University.
Mr. O'Connor is a director of Copley Properties, Inc., a Delaware
corporation organized as a real estate investment trust which is listed for
trading on the American Stock Exchange. None of the other directors of the
General Partner is a director of a company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934. All
of the directors and officers of the General Partner also serve as directors
and officers of one or more corporations which serve as general partners of
publicly-traded real estate limited partnerships which are affiliated with the
General Partner.
(f) Involvement in Certain Legal Proceedings.
None.
Item 11. Executive Compensation.
----------------------
Under the Partnership Agreement, the General Partner and its affiliates
are entitled to receive various fees, commissions, cash distributions,
allocations of taxable income or loss and expense reimbursements from the
Partnership. See Notes 1, 2 and 6 of Notes to Financial Statements.
<PAGE>
The following table sets forth the amounts of the fees and cash
distributions and reimbursements for out-of-pocket expenses which the
Partnership paid to or accrued for the account of the General Partner and its
affiliates for the year ended December 31, 1995:
<TABLE>
<CAPTION>
Amount of
Compensation
and
Receiving Entity Type of Compensation Reimbursement
- ---------------- -------------------- -------------
<S> <C> <C>
General Partner Share of Distributable Cash $ 25,112
Copley Real Estate Advisors, Inc. Management Fees and 248,355
Reimbursement of Expenses
New England Securities Corporation Servicing Fees and 7,973
Reimbursement of Expenses
-------------
TOTAL $ 281,440
=============
</TABLE>
For the year ended December 31, 1995, the Partnership allocated $49,180
of taxable income to the General Partner.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
No person or group is known by the Partnership to be the beneficial owner
of more than 5% of the outstanding Units at December 31, 1995. Under the
Partnership Agreement, the voting rights of the Limited Partners are limited
and, in some circumstances, are subject to the prior receipt of certain
opinions of counsel or judicial decisions.
Except as expressly provided in the Partnership Agreement, the right to
manage the business of the Partnership is vested exclusively in the General
Partner.
(b) Security Ownership of Management.
An affiliate of the General Partner of the Partnership owned 699 Units at
December 31, 1995.
(c) Changes in Control.
There exists no arrangement known to the Partnership the operation of
which may at a subsequent date result in a change in control of the
Partnership.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The Partnership has no relationships or transactions to report other than
as reported in Item 11, above.
<PAGE>
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
----------------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Financial Statements--The Financial Statements listed on the
accompanying Index to Financial Statements and Schedules and Financial
Statement Index No. 2 are filed as part of this Annual Report.
(2) Financial Statement Schedules--The Financial Statement Schedules
listed on the accompanying Index to Financial Statements and Schedules are
filed as part of this Annual Report.
(3) Exhibits--The Exhibits listed in the accompanying Exhibit Index
are filed as a part of this Annual Report and incorporated in this Annual
Report as set forth in said Index.
(b) Reports on Form 8-K. During the last quarter of the year ended
December 31, 1995, the Partnership filed no Current Reports on Form 8-K.
<PAGE>
New England Life
Pension Properties II;
A Real Estate Limited Partnership
Financial Statements
* * * * * * *
December 31, 1995
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
--------------------------------------
A REAL ESTATE LIMITED PARTNERSHIP
---------------------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
-------------------------------------------
Page
Report of Independent Accountants.........................................
Financial Statements:
Balance Sheet - December 31, 1995 and 1994..........................
Statement of Operations - Years ended December 31, 1995, 1994
and 1993.........................................................
Statement of Changes in Partners' Capital - Years ended
December 31, 1995, 1994 and 1993.................................
Statement of Cash Flows - Years ended December 31, 1995, 1994
and 1993.........................................................
Notes to Financial Statements.......................................
Financial Statement Schedules:
Schedule III - Real Estate and Accumulated
Depreciation as of December 31, 1995.............................
Schedule IV - Mortgage Loans on Real Estate
as of December 31, 1995..........................................
<PAGE>
Report of Independent Accountants
---------------------------------
To the Partners
New England Life Pension Properties II;
A Real Estate Limited Partnership
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of New
England Life Pension Properties II; A Real Estate Limited Partnership (the
"Partnership") at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Copley
Properties Company II, Inc., the General Partner of the Partnership; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by the General Partner, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/ Price Waterhouse LLP
-------------------------
Price Waterhouse LLP
Boston, Massachusetts
March 15, 1996
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Assets
Real estate investments:
Ground leases and mortgage loans, net $17,575,746 $19,014,308
Property, net 15,381,902 14,689,691
Deferred leasing costs and
other assets, net 528,022 591,963
----------- -----------
33,485,670 34,295,962
Cash and cash equivalents 2,731,930 4,101,201
Short-term investments 2,525,926 1,292,505
Interest and rent receivable 331,174 179,289
----------- -----------
$39,074,700 $39,868,957
=========== ===========
Liabilities and Partners' Capital
Accounts payable $ 505,813 $ 548,907
Accrued management fee 62,089 57,662
Deferred disposition fees 314,464 314,464
----------- -----------
Total liabilities 882,366 921,033
----------- -----------
Partners' capital:
Limited partners ($889.89 per
unit; 110,000 units authorized,
39,917 units issued and outstanding) 38,127,446 38,875,480
General partner 64,888 72,444
----------- -----------
Total partners' capital 38,192,334 38,947,924
----------- -----------
$39,074,700 $39,868,957
=========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
Investment Activity
Property rentals $ 2,340,380 $1,976,622 $ 1,989,107
Property operating expenses (1,063,651) (902,099) (967,118)
Depreciation and amortization (670,852) (564,888) (450,520)
----------- ---------- -----------
605,877 509,635 571,469
Ground rentals and interest
on mortgage loans 2,679,916 2,825,292 2,857,154
Amortization (26,643) (47,625) (59,201)
Provision for impaired mortgage
loans (1,428,000) (800,000) (1,670,000)
----------- ---------- -----------
Total real estate operations 1,831,150 2,487,302 1,699,422
Interest on cash equivalents
and short-term investments 293,648 259,209 56,016
----------- ---------- -----------
Total investment activity 2,124,798 2,746,511 1,755,438
----------- ---------- -----------
Portfolio Expenses
Management fee 248,355 238,186 243,729
General and administrative 165,646 167,618 135,023
----------- ---------- -----------
414,001 405,804 378,752
----------- ---------- -----------
Net income $ 1,710,797 $2,340,707 $ 1,376,686
=========== ========== ===========
Net income per limited
partnership unit $42.43 $58.05 $34.14
=========== ========== ===========
Cash distributions per limited
partnership unit $61.17 $110.66 $61.12
=========== ========== ===========
Number of limited partnership units
outstanding during the year 39,917 39,917 39,917
=========== ========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------------
1995 1994 1993
---------------------- --------------------- ---------------------
General Limited General Limited General Limited
Partner Partners Partner Partners Partner Partners
-------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of year $ 72,444 $38,875,480 $ 73,449 $40,975,393 $ 84,326 $42,052,201
Cash distributions (24,664) (2,441,723) (24,412) (4,417,213) (24,644) (2,439,727)
Net income 17,108 1,693,689 23,407 2,317,300 13,767 1,362,919
-------- ----------- -------- ----------- -------- -----------
Balance at end
of year $ 64,888 $38,127,446 $ 72,444 $38,875,480 $ 73,449 $40,975,393
======== =========== ======== =========== ======== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,710,797 $ 2,340,707 $ 1,376,686
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 697,495 612,513 509,721
Provision for impaired mortgage loans 1,428,000 800,000 1,670,000
Increase in deferred leasing costs
and other assets (67,865) (376,568) (216,525)
Decrease (increase) in operating
receivables (178,617) 1,909 330,357
Increase (decrease) in unearned
revenue - (114,336) 114,336
Increase (decrease) in operating
liabilities (38,668) 69,829 90,133
----------- ----------- -----------
Net cash provided by operating
activities 3,551,142 3,334,054 3,874,708
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures on owned property (1,247,337) (1,482,163) (742,712)
Increase in mortgage loan - (171,007) (20,994)
Decrease (increase) in short-term
investments, net (1,206,689) (213,717) 46,102
Net proceeds from sale of investment - - 190,140
Repayment of mortgage loan - - 5,028,459
Increase in deferred disposition fees - - 172,425
----------- ----------- -----------
Net cash provided by (used in)
investing activities (2,454,026) (1,866,887) 4,673,420
----------- ----------- -----------
Cash flows from financing activity:
Distributions to partners (2,466,387) (4,441,625) (2,464,371)
----------- ----------- -----------
Net cash used in financing activity (2,466,387) (4,441,625) (2,464,371)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (1,369,271) (2,974,458) 6,083,757
Cash and cash equivalents:
Beginning of year 4,101,201 7,075,659 991,902
----------- ----------- -----------
End of year $ 2,731,930 $ 4,101,201 $ 7,075,659
=========== =========== ===========
</TABLE>
(See accompanying notes to financial statements)
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1 - Organization and Business
- ----------------------------------
General
New England Life Pension Properties II; A Real Estate Limited Partnership (the
"Partnership") is a Massachusetts limited partnership organized for the purpose
of investing primarily in newly constructed and existing income producing real
properties. It primarily serves as an investment for qualified pension and
profit sharing plans and other entities intended to be exempt from federal
income tax. The Partnership commenced operations in June, 1984 and acquired
several real estate investments through 1986. It intends to dispose of its
investments within twelve years of their acquisition, and then liquidate;
however, the general partner could extend the investment period if it is in the
best interest of the limited partners.
The general partner of the Partnership is Copley Properties Company II, Inc.,
a wholly-owned subsidiary of Copley Real Estate Advisors, Inc. ("Copley").
Subject to the general partner's overall authority, the business of the
Partnership is managed by Copley pursuant to an advisory contract. Copley is a
wholly-owned subsidiary of New England Investment Companies, L.P. ("NEIC"), a
publicly traded limited partnership. New England Mutual Life Insurance Company
("The New England"), the parent of NEIC's predecessor, is NEIC's principal
unitholder. In August 1995, The New England announced an agreement to merge
(the "Merger") with Metropolitan Life Insurance Company ("Metropolitan Life"),
with Metropolitan Life to be the surviving entity. This merger, which is
subject to various policyholder and regulatory approvals, is expected to take
place in the first half of 1996. Metropolitan Life is the second largest life
insurance company in the United States in terms of total assets, having assets
of over $130 billion (and adjusted capital of over $8 billion) as of June 30,
1995.
At December 31, 1995, an affiliate of the general partner owned 699 units and
at December 31, 1994 the general partner owned 426 units of limited partnership
interest, which were repurchased from certain qualified plans, within specified
annual limitations provided for in the Partnership Agreement.
Management
Copley, as advisor, is entitled to receive stipulated fees from the
Partnership in consideration of services performed in connection with the
management of the Partnership and the acquisition and disposition of Partnership
investments in real property. Partnership management fees are 9% of
distributable cash from operations, as defined, before deducting such fees.
Acquisition fees were paid in an amount equal to 2% of the gross proceeds from
the offering. Disposition fees are generally 3% of the selling price of the
property, but are subject to the prior receipt by the limited partners of their
capital contributions plus a stipulated return thereon.
New England Securities Corporation, an indirect subsidiary of The New England,
is engaged by the Partnership to act as its unit holder servicing agent. Fees
and out-of-pocket expenses for such services totaled $7,973, $11,784 and $9,914
in 1995, 1994 and 1993, respectively.
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the general partner to make estimates affecting
the reported amounts of assets and liabilities, and of revenues and expenses.
In the Partnership's business, certain estimates require an assessment of
factors not within management's control, such as the ability of tenants to
perform under long-term leases and the ability of the properties to sustain
their occupancies in changing markets. Actual results, therefore, could differ
from those estimates.
<PAGE>
Ground Leases and Mortgage Loans
While the related land and loan investments are legally separable, the
terms thereof have been negotiated jointly and the general partner evaluates
investment performance on a combined basis. They are, therefore, presented
together in the accompanying balance sheet and statement of operations.
Investments in land subject to ground leases are stated at cost, plus
accrued revenue. Investments in mortgage loans to the related ground lessees are
originally stated at cost, plus accrued interest. If the investment is subject
to ownership accounting (see below), cost is adjusted for the accumulated cost
recovery allowance. If the mortgage loan is impaired (see "Impaired Mortgage
Loans" below), the carrying amount is adjusted to the estimated market value of
the underlying collateral less anticipated costs of sale.
Accrual of contractual ground rent and loan interest is discontinued if the
total of the Partnership's invested cash and such accrual approximates the
appraised value of the investment. Under this condition, the Partnership
applies ownership accounting whereby revenue is recognized only to the extent of
net operating income generated by the underlying property, before depreciation,
to which the Partnership is entitled. In addition, the cost of the investment
related to depreciable property is subject to a recovery allowance similar to
depreciation, which is computed using the straight-line method based on
estimated useful lives. The Partnership, however, retains a priority claim to
all unrecognized contractual revenue. If a mortgage loan is determined to be
impaired, the Partnership recognizes revenue only to the extent of operating
cash flow generated by the collateral underlying the loan and no longer
recognizes a cost recovery allowance.
Impaired Mortgage Loans
The Partnership considers a loan to be impaired when it is probable that it
will be unable to collect all amounts due under the contractual terms of the
loan agreement. Factors that the Partnership considers in determining whether a
loan is impaired include its past due status, fair value of the underlying
collateral and economic prospects of the borrower. When a loan is impaired, its
carrying value is periodically adjusted, through a valuation allowance, to its
estimated market value which is based on the appraised value of the underlying
collateral less anticipated costs of sale. Changes in the valuation allowance
are reported in the Statement of Operations.
Property
The Partnership and an affiliate share common ownership of an investment.
The form of the investment is a combination ground lease and mortgage loan, as
described above; however, in this case (Willows Shopping Center), substantial
economic risks of property ownership rest with the Partnership and its
affiliate. Accordingly, the investment is accounted for as owned property,
although the Partnership and its affiliate have a priority claim to all
unrecognized contractual revenue. The Partnership's financial statements
include its proportionate ownership share (75%) of the individual assets,
liabilities, revenue and expenses related to the property. Land and buildings
and improvements (net of accumulated depreciation) are classified as property in
the balance sheet.
Leases provide for rental increases over the respective lease terms.
Rental revenue is being recognized on a straight-line basis over the lease
terms.
Capitalized Costs
Maintenance and repair costs are expensed as incurred. Significant
improvements and renewals are capitalized. Depreciation is computed using the
straight-line method based on estimated useful lives of the buildings and
improvements ranging from 21 to 25 years. Leasing costs are also capitalized
and amortized over the related lease terms.
Acquisition fees have been capitalized as part of the cost of real estate
investments. Amounts not related to land are being amortized using the
straight-line method over the terms of the mortgage loans or the estimated
useful lives of the property.
<PAGE>
Realizability of Real Estate Investments
The Partnership considers a real estate investment, other than a mortgage
loan, to be impaired when it determines the carrying value of the investment is
not recoverable through undiscounted cash flows generated from the operations
and disposal of the property. Effective January 1, 1995, with its adoption of
Statement of Financial Accounting Standards No.121 (SFAS 121) entitled, "
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Partnership measures the impairment loss based on the
excess of the investment's carrying value over its fair market value. For
investments being held for sale, the impairment loss is measured based on the
excess of the investment's carrying value over its estimated fair market value
less costs of sale. Property held for sale is not depreciated during the
holding period.
The carrying value of an investment may be more or less than its current
appraised value. At December 31, 1995 and 1994, the appraised value of certain
investments exceeded their related carrying values by an aggregate of $210,000
and $200,000, respectively, while the carrying value of the remaining
investments exceeded their appraised values by an aggregate of $1,150,000 and
$1,100,000 at the respective dates.
The current appraised value of real estate investments has been estimated
by the general partner and is generally based on a combination of traditional
appraisal approaches performed by Copley and independent appraisers. Because of
the subjectivity inherent in the valuation process, the estimated current
appraised value may differ significantly from that which could be realized if
the real estate were actually offered for sale in the marketplace.
Cash Equivalents and Short-Term Investments
Cash equivalents are stated at cost, plus accrued interest. The Partnership
considers all highly liquid debt instruments purchased with a maturity of ninety
days or less to be cash equivalents; otherwise, they are classified as short-
term investments.
The Partnership has the positive intent and ability to hold all short-
term investments to maturity; therefore, short-term investments are carried at
cost, plus accrued interest, which approximates market value. At December 31,
1995 and 1994, all investments were in commercial paper with less than five
months and four months, respectively, remaining to maturity.
Deferred Disposition Fees
Disposition fees due to Copley related to sales or restructuring of
investments are included in the determination of gains or losses resulting from
such transactions. According to the terms of the advisory contract, payment of
such fees has been deferred until the limited partners first receive their
capital contributions, plus stipulated returns thereon.
Income Taxes
A partnership is not liable for income taxes and, therefore, no provision
for income taxes is made in the financial statements of the Partnership. A
proportionate share of the Partnership's income is reportable on each partner's
tax return.
Per Unit Computations
Per unit computations are based on the number of units of limited
partnership interest outstanding during the year. The actual per unit amount
will vary by partner depending on the date of admission to, or withdrawal from,
the Partnership.
<PAGE>
Note 3 - Investments in Ground Leases and Mortgage Loans
- --------------------------------------------------------
The following is a summary of the Partnership's investments in ground
leases and mortgage loans:
<TABLE>
<CAPTION>
Fixed
Rental/
Investment/ Acquisition Interest December 31,
Location Date Rate 1995 1994
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Elkridge 1984 12% (L) $ 362,500 $ 362,500
Elkridge, MD 12% (M) 2,062,500 2,062,500
Oakland 1984 12% (G) 137,500 137,500
Columbia, MD 12% (M) 1,062,500 1,062,500
Susana Corporate
Center 1985 12.25% (L) 1,750,000 1,750,000
Los Angeles, CA 1993 8% (M) 192,000 192,000
*9.06% (M) 3,250,000 3,250,000
Case Communications
Columbia, MD 1985-1986 11% (L) 2,570,379 2,570,379
11% (M) 8,814,621 8,814,621
14% (M) 1,000,000 1,000,000
----------- -----------
$21,202,000 $21,202,000
=========== ===========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(L) Ground lease (G) Ground leasehold interest
(M) Mortgage loan (*) 12.25% prior to May 1, 1993
<PAGE>
<TABLE>
<CAPTION>
December 31,
1995 1994
------------ ------------
<S> <C> <C>
Cash invested $21,202,000 $21,202,000
Unamortized
acquisition costs and fees, net 64,100 74,662
Accrued ground lease and
mortgage loan receivables 268,802 268,802
Cost recovery allowance (61,156) (61,156)
Valuation allowance for
impaired mortgage loans (3,898,000) (2,470,000)
----------- -----------
$17,575,746 $19,014,308
=========== ===========
</TABLE>
Ground leases have terms of fifty-five to seventy-five years and
provide for additional rent equal to a percentage, ranging from 60% to 75%, of
gross revenues in excess of a base amount from the rental of the buildings
situated on the land. Percentage rent totaled $560,123, $647,229, and $519,246
in 1995, 1994, and 1993, respectively. The Partnership is also entitled to that
same percentage of the net proceeds from the sale of the entire property after
it has recovered its cash investment in the land and mortgage loan and, for
Susana Corporate Center and the Case Communications Building, after payment to
the ground lessee of an amount equal to its cost of any capital improvements
made during the lease term. The lease agreements require the lessee to pay all
operating expenses related to the subject land.
Generally, interest on the mortgage loans is payable monthly. The loans are
secured by first mortgages on the buildings, a second mortgage on the Case
Communications Building, and by the ground leasehold interests. Principal
balances are due after ten years. The Elkridge, Columbia and Case
Communications loans have matured, and the Partnership is evaluating various
alternatives to extending the loans.
Subsequent to December 31, 1995, a purchase and sale agreement was executed
on a portion of the Elkridge property at a price which approximated the
Partnership's carrying value. The sale is contingent on the buyer's obtaining
necessary financing.
Susana Corporate Center
The Partnership agreed to restructure the Susana Corporate Center mortgage
loan and ground lease investment effective May 1, 1993. The annual interest
rate on the $3,250,000 mortgage loan was reduced from 12.25% to 9.06%, and the
maturity date was extended to December 31, 1999. In addition, the Partnership
made an incremental loan of $192,000 to finance tenant improvement costs.
Finally, the payment of ground rent was limited to the extent of available cash
flow, with the balance accruing at the contractual rental rate.
Sale of Oxford Place
The Oxford Place apartment complex in Grand Rapids, Michigan was sold on
December 29, 1993 and the entire net proceeds were received by the Partnership
in full satisfaction of its ground lease and mortgage loan investment and
related accrued interest. The Partnership accrued a disposition fee payable to
the advisor of $172,425 in connection with the sale and made a capital
distribution of $2,000,241 ($50.11 per limited partnership unit) from sales
proceeds on July 28, 1994.
Revenue Recognition and Valuation
With the determination that Oxford Place, Elkridge and Susana Corporate
Center loans were impaired as of January 1, 1993, the Partnership has recognized
income to the extent of operating cash flow generated by the collateral
underlying the loans ($461,973 in 1995; $662,063 in 1994 and $898,202 in 1993).
In addition, a valuation allowance has been established to adjust the carrying
value of the loans to their estimated fair market value less anticipated costs
of sale. The activity in the valuation allowance
<PAGE>
during 1994 and 1995, together with the related recorded and carrying values of
the impaired mortgage loans at the beginning and end of 1994 and 1995, are
summarized in the table below.
During the fourth quarter of 1995, the Partnership determined that the Case
Communications mortgage loan was impaired. Therefore, it is also included in
the following table. Ground rent and interest payments from the Case
Communications Building, however, continues to be made in accordance with
contractual terms.
<TABLE>
<CAPTION>
Recorded Valuation Carrying
Value Allowance Value
----------- ------------ -----------
<S> <C> <C> <C>
Balance at January 1, 1994 $ 5,541,140 $(1,670,000) $ 3,871,140
=========== =========== ===========
Decrease in fair market value
of collateral (800,000)
-----------
Balance at December 31, 1994 $ 5,787,874 $(2,470,000) $ 3,317,874
=========== =========== ===========
Decrease in fair market
value of collateral, net (328,000)
Additional impaired loan (1,100,000)
-----------
Balance at December 31, 1995 $15,619,235 $(3,898,000) $11,721,235
=========== =========== ===========
</TABLE>
The valuation allowance at December 31, 1995 is attributable as follows:
Elkridge - $385,000; Susana Corporate Center - $2,413,000; Case Communications -
$1,100,000.
The average recorded value of the impaired mortgage loans did not differ
materially from the balances at the end of each period, except for the
determination of the Case Communications impairment in the fourth quarter of
1995.
Note 4 - Investments in Properties
- ----------------------------------
The Willows Shopping Center investment (the "Willows"), acquired in
1984, is owned jointly with an affiliate of the Partnership (the "Affiliate");
the Partnership has a 75% ownership share. The ground lessee/mortgagor stopped
paying interest on the mortgage loan as of March 1990. As a result, the
Partnership and its Affiliate began foreclosure proceedings to take possession
of the property. A protracted series of legal interactions ensued, including
the filing of an involuntary bankruptcy petition by the second leasehold
mortgagee. In June 1991, the Partnership and its Affiliate sold the mortgage
note to the original owner of the Willows, who in turn undertook and completed
the foreclosure action. The Partnership and its Affiliate received a new
mortgage note; the principal related to the Partnership's share is $11,147,406.
The note bears interest at 9.323% per annum, payable monthly, however it may
accrue with interest compounded at 11%. The loan matures on June 18, 2001. The
original owner also assumed the ground lease. The ground lease provides for
annual rental payments to the Partnership of $412,500. Rental payments may
accrue through June 1996, with interest compounding at 11%. The ground lease
also provides for participation rentals at 70% of gross revenues in excess of a
base amount to the Partnership and its Affiliate. Under this investment
arrangement, however, the Partnership and its Affiliate are bearing substantial
economic risks of ownership; accordingly, the investment is being accounted for
as a jointly owned property.
In connection with a major renovation of the property, on January 1, 1995,
the Partnership and its Affiliate committed to make a construction loan to the
ground lessee in the amount of $2,500,000. The Partnership's share is
$1,875,000, of which $301,862 has been funded as of December 31, 1995. Interest
accrues at 11% compounded monthly; debt service payments begin on January 1,
1996, including principal payments based upon a 15-year amortization schedule.
The note matures on December 31, 1997. In addition, the ground lease was
amended, whereby after January 1, 1996, the Partnership and the Affiliate may,
at their sole discretion, offer the entire property for sale.
At December 31, 1995 and 1994, the Partnership's proportionate share of the
carrying value of the property was comprised of land at $3,750,000, and building
and improvements of $11,641,902 and $10,939,691, respectively, (net of
accumulated depreciation of $2,270,683 and $1,715,555, respectively).
<PAGE>
The Partnership's proportionate share of future minimum rentals under
noncancelable operating leases are: $1,751,250 in 1996; $1,773,750 in 1997;
$1,745,250 in 1998; $1,611,750 in 1999; $1,239,000 in 2000; and $4,339,500
thereafter.
Note 5 - Income Taxes
- ---------------------
The Partnership's income for federal income tax purposes differs from
that reported in the accompanying statement of operations as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
Net income per financial
statements $1,710,797 $2,340,707 $1,376,686
Timing differences:
Expenses - - 7,386
Ground rent and mortgage
loan interest (1) 1,779,246 1,518,282 1,800,258
Valuation allowances 1,428,000 800,000 1,670,000
Loss on sale - - (13,487)
---------- ---------- ----------
Taxable income $4,918,043 $4,658,989 $4,840,843
========== ========== ==========
</TABLE>
(1) Represents additional contractual revenue recognized for tax purposes
related to the Willows Shopping Center, Elkridge, Susana Corporate Center,
and Oxford Place in 1993.
Note 6 - Partners' Capital
- --------------------------
Allocations of net income (losses) from operations and distributions of
distributable cash from operations, as defined, are in the ratio of 99% to the
limited partners and 1% to the general partner. Cash distributions are made
quarterly.
Net sales proceeds and financing proceeds are allocated first to limited
partners to the extent of their contributed capital plus a stipulated return
thereon, as defined, second to pay disposition fees, and then 85% to the limited
partners and 15% to the general partner. The adjusted capital contribution per
limited partnership unit was reduced from $1,000 to $940 during 1985 and further
reduced to $889.89 during 1994 as a result of such transactions. Income from a
sale is allocated in proportion to the distribution of related proceeds,
provided that the general partner is allocated at least 1%. Income or losses
from a sale, if there are no residual proceeds after the repayment of the
related debt, will be allocated 99% to the limited partners and 1% to the
general partner.
Note 7 - Subsequent Event
- -------------------------
Distributions of cash from operations relating to the quarter ended
December 31, 1995 were made on January 25, 1996 in the aggregate amount of
$627,786 ($15.57 per limited partnership unit).
<PAGE>
NEW ENGLAND LIFE PENSION PROPERTIES II
A REAL ESTATE LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Initial Costs to Costs Capitalized
Partnership to Aquisitions
------------ -----------------
Encum- Buildings &
Description brances Land Improvements Improvements
- ----------- ------- ---- ------------ ------------
<S> <C> <C> <C> <C>
Light Industrial Facilities
Elkridge, Maryland Note A $369,750 -- --
Industrial Building
Columbia, Maryland Note A 140,250 -- --
75% Interest in Shopping
Center
Concord, California Note A 3,750,000 9,841,798 4,060,785
Research and Development
Buildings
Los Angeles, California Note A 1,785,000 -- --
Research and Development
Buildings
Columbia, Maryland Note A 2,618,087 -- --
-------------------------------------------------------------------------------------
Total $8,663,087 $9,841,798 $4,060,785
=====================================================================================
<CAPTION>
Gross amount at which
Carried at Close of Period
--------------------------
Accumulated
Buildings & Depreciation Date Depreciable
Land Improvements Total & Amortization Acquired Life
---- ------------ ----- --------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Light Industrial Facilities
Elkridge, Maryland $369,750 -- $369,750 -- 06/29/84 --
Industrial Building
Columbia, Maryland 140,250 -- 140,250 -- 06/29/84 --
75% Interest in Shopping
Center
Concord, California 3,750,000 13,902,583 17,652,583 (2,270,683) 07/30/84 (L) 25 years
06/18/91 (B)
Research and Development
Buildings
Los Angeles, California 1,785,000 -- 1,785,000 -- 02/04/85 --
Research and Development
Buildings
Columbia, Maryland 2,618,087 -- 2,618,087 (28,609) 05/02/85 --
-------------------------------------------------------------------------------------------
Total
$8,663,087 $13,902,583 $22,565,670 ($2,299,292)
===========================================================================================
(L) Land
(B) Buidlings & Improvements
</TABLE>
Notes:
(A) All senior mortgages on the properties are held by New England Life Pension
Properties II
(B) The Concord, California investment was accounted for as a jointly-owned
property effective June 1991
<TABLE>
<CAPTION>
Reconciliation of real estate owned:
<S> <C>
Balance at beginning of period $21,318,333
Acquisitions 1,247,337
-----------
Balance at end of period $22,565,670
===========
Accumulated depreciation
at beginning of year $1,740,992
Depreciation expense 1995 555,128
Amortization expense 1995 3,172
-----------
Accumulated depreciation at end of year: $2,299,292
===========
</TABLE>
<PAGE>
03/25/96 NEW ENGLAND LIFE PENSION PROPERTIES II
A REAL ESTATE LIMITED PARTNERSHIP
MORTGAGE LOANS ON REAL ESTATE SCHEDULE IV
AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Final Periodic Cost
Interest Maturity Payment Prior Face Amount Recovery
Description Rate Date Terms Liens of Mortgage Allowance
- ----------- --------------- ----------- -------------- ------ --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Light Industrial
Facilities Interest
Elkridge, Maryland 12.00% 06/29/94 Monthly -- $2,062,500 $(28,324)
(See Note 3) Principal
at Maturity
Industrial Building Interest
Columbia, Maryland 12.00% 06/29/94 Monthly -- 1,062,500 --
(See Note 3) Principal
at Maturity
Research and Development
Buildings 9.06% 12/31/99 Interest 3,250,000 (32,832)
Los Angeles, California 8.00% 12/31/99 Monthly -- 192,000
(See Note 3) Principal
at Maturity
Research and Development
Buildings 11.00% Interest
Columbia, Maryland (See Note 3) 05/01/95 Monthly -- 8,814,621 --
Principal
at Maturity
14.00% Interest
(See Note 3) 05/01/95 Monthly -- 1,000,000 --
Principal
at Maturity
__________________________________________________________________________________
Total $16,381,621 ($61,156)
==================================================================================
<CAPTION>
Valuation
Allowance Accrued Deferred Carrying
for Impaired Interest Acquisition Amount of
Description Mortgage Loans Receivable Fee Mortgage
- ----------- ----------------- ----------- ---------- --------------
<S> <C> <C> <C> <C>
Light Industrial
Facilities
Elkridge, Maryland $(385,000) $235,625 -- $1,884,801
Industrial Building
Columbia, Maryland -- -- -- $1,062,500
Research and Development
Buildings (2,413,000) 33,177 -- $837,345
Los Angeles, California $192,000
Research and Development
Buildings
Columbia, Maryland (1,100,000) -- -- $7,714,621
-- -- -- $1,000,000
_____________________________________________________________
Total ($3,898,000) $268,802 $0 $12,691,267
=============================================================
Balance at beginning of period $14,126,658
Valuation allowance for impaired
mortgage loans (1,428,000)
Amortization (7,391)
--------------
Balance at end of period $12,691,267
==============
</TABLE>
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL REPORT
DECEMBER 31, 1995
<PAGE>
FINANCIAL STATEMENTS
INDEX NO. 2
Auditor's Report and Financial Statements
of M.O.R. XXIX Associates Limited Partnership
Page #
Independent Auditor's Report of Wolpoff & Company..............
Balance Sheet - December 31, 1995 and 1994.....................
Statement of Income - For the Years Ended
December 31, 1995, 1994 and 1993.............................
Statement of Partners' Capital - For the Years Ended
December 31, 1995, 1994 and 1993.............................
Statement of Cash Flows - For the Years Ended
December 31, 1995, 1994 and 1993.............................
Notes to Financial Statements..................................
<PAGE>
[LETTERHEAD OF WOLPOFF & COMPANY, LLP APPEARS HERE]
To the Partners
M.O.R. XXIX Associates Limited Partnership
Columbia, Maryland
We have reviewed the accompanying statement of assets, liabilities and partners'
capital - income tax basis of M.O.R. XXIX Associates Limited Partnership as of
December 31, 1995 and 1994, and the related statements of revenue and expenses -
income tax basis, changes in partners' capital - income tax basis, and cash
flows - income tax basis for the years ended December 31, 1995, 1994 and 1993,
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants. All
information included in these financial statements is the representation of the
management of M.O.R. XXIX Associates Limited Partnership.
A review consists principally of inquiries of Partnership personnel and
analytical procedures applied to financial data. It is substantially less in
scope than an audit in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
As described in Note 1, these financial statements were prepared on the basis of
accounting the Partnership uses for income tax purposes, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with the basis of accounting described in Note 1.
/s/ WOLPOFF & COMPANY, LLP
WOLPOFF & COMPANY, LLP
Baltimore, Maryland
February 29, 1996
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL - INCOME TAX BASIS
-------------------------------------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
--------------- --------------
<S> <C> <C>
PROPERTY, AT COST - Notes 1, 3 and 6
Building and Improvements $ 4,532,735 $ 4,532,735
Tenant Improvements 4,343,486 4,345,648
Deferred Costs 1,016,069 974,629
-------------- --------------
9,892,290 9,853,012
Less Accumulated Depreciation and Amortization 5,544,315 5,019,052
-------------- --------------
PROPERTY, NET 4,347,975 4,833,960
-------------- --------------
OTHER ASSETS
Cash and Cash Equivalents - Notes 1 and 7 133,515 208,161
Property Tax and Insurance Fund 1,264 40,350
Receivable, Affiliates - Note 4 497,162 376,546
Tenant Receivables 7,106 82,191
-------------- --------------
TOTAL OTHER ASSETS 639,047 707,248
-------------- --------------
$ 4,987,022 $ 5,541,208
============== ==============
</TABLE>
__________
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
STATEMENT OF ASSETS, LIABILITIES AND PARTNERS' CAPITAL - INCOME TAX BASIS
-------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
------------- -------------
<S> <C> <C>
LIABILITIES
Mortgages Payable - Note 2
First Mortgage $ 8,814,621 $ 8,814,621
Second Mortgage 1,000,000 1,000,000
Accrued Interest Payable 92,467 92,467
Payable to Tenant 50,064 20,784
Accounts Payable and Accrued Expenses 32,290 84,854
Accrued Ground Rent 1,318 42,824
Refundable Deposit - Note 5 299,963 299,963
------------- -------------
TOTAL LIABILITIES 10,290,723 10,355,513
COMMITMENTS AND CONTINGENCY - Notes 3 and 8
PARTNERS' CAPITAL (DEFICIT) (5,303,701) (4,814,305)
------------- -------------
$ 4,987,022 $ 5,541,208
============= =============
</TABLE>
__________
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
STATEMENT OF REVENUE AND EXPENSES - INCOME TAX BASIS
----------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
-------------- ------------- -------------
<S> <C> <C> <C>
REVENUE - Note 5
Rental Income
Base Rent $ 1,940,000 $ 1,914,667 $ 1,870,667
Special Rent 160,000 160,000 160,000
Operating Expense Reimbursement 183,934 146,032 108,499
------------- ------------- -------------
2,283,934 2,220,699 2,139,166
Interest and Other Income 28,533 14,570 18,392
------------- ------------- -------------
TOTAL REVENUE 2,312,467 2,235,269 2,157,558
------------- ------------- -------------
OPERATING EXPENSES
Property Taxes 187,073 186,638 191,354
Management Fees - Note 4 83,164 27,100 23,013
Legal and Accounting 4,190 3,734 4,158
General and Administrative 4,038 2,781 1,806
------------- ------------- -------------
TOTAL OPERATING EXPENSES 278,465 220,253 220,331
------------- ------------- -------------
OPERATING INCOME 2,034,002 2,015,016 1,937,227
------------- ------------- -------------
MORTGAGE INTEREST AND GROUND RENT - Notes 2 and 3
Mortgages 1,109,608 1,109,608 1,109,608
Ground Rent 718,830 702,144 673,164
------------- ------------- -------------
1,828,438 1,811,752 1,782,772
------------- ------------- -------------
INCOME BEFORE DEPRECIATION AND AMORTIZATION 205,564 203,264 154,455
DEPRECIATION AND AMORTIZATION (525,263) (567,966) (567,956)
------------- ------------- -------------
NET LOSS $ (319,699) $ (364,702) $ (413,501)
============= ============= =============
</TABLE>
__________
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS
------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1995 1994 1993
--------------- -------------- --------------
<S> <C> <C> <C>
CAPITAL CONTRIBUTIONS $ 1,000 $ 1,000 $ 1,000
--------------- -------------- --------------
BASIS ADJUSTMENT - Note 6 259,800 259,800 259,800
--------------- -------------- --------------
DISTRIBUTIONS
Prior Years (744,927) (540,714) (431,766)
Current Year (169,697) (204,213) (108,948)
--------------- -------------- --------------
(914,624) (744,927) (540,714)
--------------- -------------- --------------
ACCUMULATED LOSSES
Prior Years (4,330,178) (3,965,476) (3,551,975)
Current Year (319,699) (364,702) (413,501)
--------------- -------------- --------------
(4,649,877) (4,330,178) (3,965,476)
--------------- -------------- --------------
TOTAL PARTNERS' CAPITAL (DEFICIT) $ (5,303,701) $ (4,814,305) $ (4,245,390)
=============== ============== ==============
</TABLE>
__________
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
STATEMENT OF CASH FLOWS - INCOME TAX BASIS
------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1995 1994 1993
------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (319,699) $ ($364,702) $ (413,501)
------------- -------------- -------------
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operating Activities
Depreciation and Amortization 525,263 567,966 567,956
Change in Tenant Receivables 75,085 (82,191) -0-
Change in Accounts Payable and Accrued Expenses (52,564) 64,924 (13,330)
Change in Payable to Tenant 29,280 (37,227) 58,011
Change in Accrued Interest Payable -0- 92,467 (92,467)
Change in Accrued Ground Rent (41,506) (177,477) 572
Change in Prepaid Expenses -0- 21,866 (21,866)
------------- -------------- -------------
Total Adjustments 535,558 450,328 498,876
------------- -------------- -------------
Net Cash Provided by Operating Activities 215,859 85,626 85,375
------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Tenant Improvements and Deferred Costs (39,278) (1,604) -0-
Change in Property Tax and Insurance Fund 39,086 1,523 (41,873)
Change in Receivable, Affiliates (120,616) 324,378 65,560
------------- -------------- -------------
Net Cash Provided (Used) by Investing Activities (120,808) 324,297 23,687
------------- -------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Partners (169,697) (204,213) (108,948)
------------- -------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (74,646) 205,710 114
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 208,161 2,451 2,337
------------- -------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 133,515 $ 208,161 $ 2,451
============= ============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Paid During the Year for Interest $ 1,109,608 $ 1,017,140 $ 1,202,075
============= ============== =============
</TABLE>
__________
See Accountant's Review Report.
The notes to financial statements are an integral part of this statement.
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1995
-----------------
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
M.O.R. XXIX Associates Limited Partnership was formed in November 1984
pursuant to an agreement under the Maryland Uniform Limited
Partnership Act.
Income Tax Basis
----------------
The Partnership follows the policy of preparing its financial
statements on the basis utilized for income tax reporting.
Consequently, the financial statements are not prepared in accordance
with generally accepted accounting principles.
Cash and Cash Equivalents
-------------------------
The Partnership considers all highly liquid debt instruments purchased
with a maturity of 3 months or less to be cash equivalents.
Property
--------
The Partnership owns and operates an office building in Howard County,
Maryland containing approximately 160,000 square feet of leasable
area. All property is recorded at cost. The building was placed into
service on March 1, 1986, and has been 100% occupied since that date
(see Note 5).
Interest Expense
----------------
Interest expense and real property taxes incurred during the
construction period were capitalized as a deferred cost and are being
amortized over a 10-year period.
Depreciation
------------
Building costs are being depreciated using the Accelerated Cost
Recovery System (19 years, straight-line) for costs incurred prior to
December 31, 1986, and the Modified Accelerated Cost Recovery System
(31.5 and 39 years, straight-line) for costs incurred after 1986.
Amortization
------------
Various deferred costs are being amortized as follows:
<TABLE>
<CAPTION>
Amortization
Amount Period
-------------- ------------------
<S> <C> <C>
Construction Period
Interest and Taxes $ 485,129 10 Years
Leasing Commissions 415,960 10 Years
Permanent Mortgage Costs 114,980 Fully Amortized
--------------
$ 1,016,069
==============
</TABLE>
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1995
-----------------
Note 1 - Income Taxes
------------
(Cont.) Partnerships are not subject to income taxes. The individual partners
are required to report their respective shares of partnership income
or loss and other tax items on their individual income tax returns.
Note 2 - FINANCING
Permanent Mortgage
------------------
Permanent financing was provided by New England Life Pension
Properties II in the amount of $9,814,621, through 2 separate
nonrecourse mortgages. The first mortgage originated May 1, 1985, and
was fully funded as of December 31, 1986, in the amount of $8,814,621.
The second mortgage was fully funded during 1986 in the amount of
$1,000,000. Pertinent information regarding these mortgages is as
follows:
<TABLE>
<CAPTION>
First Mortgage Second Mortgage
-------------- ---------------
<S> <C> <C>
Outstanding Balance, December 31, 1995 $8,814,621 $1,000,000
Interest Rate 11% 14%
Payment Constant Interest Only Interest Only
Term 10 Years 9 Years
Maturity Date May 1, 1995 May 1, 1995
Amount Due at Maturity $8,814,621 $1,000,000
</TABLE>
Also see Notes 3 and 8.
Note 3 - LAND SALE AND LEASEBACK
In 1985 the Partnership sold its land to New England Life Pension
Properties II for $2,385,379 and entered into a land lease with a term
of 60 years. The annual base rent is $262,392. The lease provides for
supplemental rent equal to 65.864% of the gross receipts of the
property which are in excess of $1,247,000. For this purpose the
special rent amounting to $160,000 annually is not included. The
remaining minimum annual land lease payments total $13,119,608 for
1996 through 2045.
The total ground rent for 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Basic Annual Rent $ 262,392 $ 262,392 $ 262,392
Supplemental Rent* 456,438 439,752 410,772
------------- ------------- -------------
$ 718,830 $ 702,144 $ 673,164
============= ============= =============
</TABLE>
*See Schedule of Supplemental Ground Rent Calculation.
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1995
-----------------
Note 4 - RELATED PARTY TRANSACTIONS
The Partnership has various contractual arrangements with Manekin
Corporation, an entity affiliated with certain partners.
Management Fees
---------------
The Partnership has entered into an agreement with Manekin Corporation
to act as management agent for the property. The management agreement
provided for management fees equal to 1% of rents and tenant expense
billings. On January 1, 1995, the management fee increased to 3%. For
1995, 1994 and 1993, management fees of $83,164, $27,100 and $23,013,
respectively, were incurred.
Receivable, Affiliates
----------------------
The Partnership participates in a central disbursing cash account with
various entities affiliated with the Partnership. As of December 31,
1995 and 1994, the Partnership's share of the cash account was
$493,094 and $376,546, respectively, and is reflected as receivable,
affiliates. The funds earn interest at the applicable federal rate. As
of December 31, 1995, other receivables from affiliates amounted to
$4,068.
The majority of the Partnership's cash is held in one commercial bank.
Periodically, during the year, the balance may have exceeded the FDIC
limitation.
Note 5 - LEASE
During 1989 the building was 100% leased to Case/Datatel, Inc., which
in December 1989 vacated the building and entered into a re-lease
agreement with the Partnership. As a condition to the re-lease,
Case/Datatel agreed to pay rent during the new tenant's (U.S.
Government) free-rent period and to make a deposit of $299,963 with
the Partnership. The deposit is refundable at the earlier of
termination of the U.S. Government's lease or February 29, 1996. In
addition, Case/Datatel is responsible for all the terms and
obligations of the lease should the U.S. Government cause its lease to
be terminated prior to February 29, 1996.
Effective January 1, 1990, the U.S. Government leased the entire
building for a base rent plus operating expenses and real estate
taxes. The base rent increases every March 1. Effective March 1, 1995,
the annual rent amount is $2,048,000. The lease automatically renews
annually until October 31, 1996. The U.S. Government has the option to
renew beyond October 31, 1996, for five 1-year periods at the
prevailing market rate. Included in the annual rent is $160,000 of
special rent associated with tenant improvements initially required by
Case/Datatel, Inc.
Note 6 - BASIS ADJUSTMENT
On December 18, 1986, the Partnership redeemed William H. Winstead's
partnership interest. Concurrently, the basis of the Partnership's
real property was adjusted pursuant to (S)734 of the Internal Revenue
Code. The increase in basis was $259,800.
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
DECEMBER 31, 1995
-----------------
Note 7 - CASH RESTRICTIONS
On December 30, 1991, the Manekin Organization and the partners of
M.O.R. XXIX Associates Limited Partnership entered into a restructure
and loan agreement with Mercantile-Safe Deposit & Trust Company
(Mercantile). As a result, the organization entered into a lockbox
arrangement with Mercantile whereby all rent payments are received
directly by the bank. These funds are held for payment of monthly
expenses including escrow amounts. Additionally, at its discretion,
Mercantile may apply the remaining available funds to reduce debt owed
to Mercantile which is guaranteed by the Partnership and the partners.
Note 8 - CONTINGENCY
The Partnership has not secured new financing or an extension of their
mortgages which matured on May 1, 1995. The Partnership's continuation
as a going concern is dependent upon its ability to obtain debt or
equity financing.
<PAGE>
To the Partners
M.O.R. XXIX Associates Limited Partnership
Columbia, Maryland
ACCOUNTANT'S REPORT ON SUPPLEMENTARY INFORMATION
------------------------------------------------
The accompanying supplementary information contained on pages 12 and 13 is
presented for purposes of additional analysis. Such information has not been
subjected to the same inquiries and analytical procedures applied in the review
of the basic financial statements, but has been compiled from information that
is the representation of the management of M.O.R. XXIX Associates Limited
Partnership, without audit or review. Accordingly, we do not express an opinion
or any other form of assurance on such supplementary information.
/s/ WOLPOFF & COMPANY, LLP
WOLPOFF & COMPANY, LLP
Baltimore, Maryland
February 29, 1996
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
SCHEDULE OF SUPPLEMENTAL GROUND RENT CALCULATION
------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
GROSS RENT RECEIPTS $ 1,940,000 $ 1,914,667 $ 1,870,667
BASE 1,247,000 1,247,000 1,247,000
--------------- --------------- ---------------
GROSS RENT RECEIPTS IN EXCESS OF BASE 693,000 667,667 623,667
APPLICABLE PERCENTAGE 65.864% 65.864% 65.864%
--------------- --------------- ---------------
SUPPLEMENTAL GROUND RENT $ 456,438 $ 439,752 $ 410,772
=============== =============== ===============
</TABLE>
__________
See Accountant's Report on Supplementary Information.
<PAGE>
M.O.R. XXIX ASSOCIATES LIMITED PARTNERSHIP
------------------------------------------
SCHEDULE OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS
-----------------------------------------------------------
YEAR ENDED DECEMBER 31, 1995
----------------------------
<TABLE>
<CAPTION>
Partners' Partners'
Partners' Capital Current Year Capital
Ownership (Deficit) -------------------------------- (Deficit)
Percentage 12/31/94 Distributions Net Loss 12/31/95
----------- -------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
GENERAL PARTNER
RA & DM, Inc. 1.00% $ (48,142) $ (1,697) $ (3,197) $ (53,036)
LIMITED PARTNER
MRU Limited Partnership 99.00% (4,766,163) (168,000) (316,502) (5,250,665)
----------- -------------- ---------------- -------------- -------------
100.00% $ (4,814,305) $ (169,697) $ (319,699) $ (5,303,701)
=========== ============== ================ ============== =============
</TABLE>
__________
See Accountant's Report on Supplementary Information.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
Date: March 15 , 1996 By: /s/ Joseph W. O'Connor
------ ----------------------
Joseph W. O'Connor
President of the
General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
President, Principal
Executive Officer and
Director of the
/s/ Joseph W. O'Connor General Partner March 15 , 1996
- ------------------------ ------
Joseph W. O'Connor
Principal Financial and
Accounting Officer of the
/s/ Daniel C. Mackowiak General Partner March 15 , 1996
- ------------------------- ------
Daniel C. Mackowiak
Director of the
/s/ Daniel J. Coughlin General Partner March 15 , 1996
- ------------------------ ------
Daniel J. Coughlin
Director of the
/s/ Peter P. Twining General Partner March 15 , 1996
- ---------------------- ------
Peter P. Twining
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Exhibit Number
- ------- ------- ------
4. Amended and Restated Agreement of Limited *
Partnership of New England Life Pension
Properties II; A Real Estate Limited
Partnership (filed as Exhibit 28A to Form
8-K dated June 15, 1984, as filed with the
Commission on June 25, 1984).
10A. Form of Escrow Deposit Agreement among the *
Registrant, NEL Equity Services Corporation
and The Bank of Boston (filed as Exhibit 10A
to the Registrant's Registration Statement
on Form S-11, file no. 2-86659 [the
"Registration Statement"]).
10B. Form of Advisory Contract between the *
Registrant and Copley Real Estate Advisors,
Inc. (filed as Exhibit 10B to the
Registration Statement).
10C. Confirmatory Ground Sublease, dated as of *
June 29, 1984, between the Registrant, as
Lessor, and Columbia Warehouse Limited
Partnership ("Columbia"), as Lessee [filed
as Exhibit 10D to Post-Effective Amendment
No. 1 to the Registration Statement, dated
August 23, 1984 ("Post-Effective Amendment
No. 1")].
10D. Promissory Note, dated June 29, 1984, in *
the principal amount of $1,062,500 from
Columbia to the Registrant (filed as
Exhibit 10E to Post-Effective Amendment
No. 1).
10E. Deed of Trust, dated June 29, 1984, by and *
between Columbia and the Trustees named
therein (filed as Exhibit 10F to Post-
Effective Amendment No. 1.).
10F. Confirmatory Ground Lease, dated as of *
June 29, 1984 between the Registrant,
as Lessor, and Dorsey Associates
("Dorsey"), as Lessee (filed as Exhibit
10G to Post-Effective Amendment No. 1.).
10G. Promissory Note, dated June 29, 1984, in *
the principal amount of $2,062,500 from
Dorsey to the Registrant (filed as Exhibit
10H to Post Effective Amendment No. 1).
10H. Deed of Trust, dated June 29, 1984, by and *
between Dorsey and the Trustees named
therein (filed as Exhibit 10I to Post-
Effective Amendment No. 1).
10I. Deed of Trust and Security Agreement, *
dated as of July 30, 1984, among Willows
Concord Venture, as Grantor, El Camino
Title Company, as Trustee, and New England
Life Pension Properties; A Real Estate
Limited Partnership and the Registrant, as
Beneficiaries (filed as Exhibit 28.1 to
Form 8-K dated July 29, 1984, as filed with
the Commission on August 4, 1984).
10J. Ground Lease dated as of July 30, 1984, *
between Willows Concord Venture, as Lessee,
and New England Life Pension Properties; A
Real Estate Limited Partnership and the
Registrant, as Lessors (filed as Exhibit
28.2 to Form 8-K dated July 29, 1984, as
filed with the Commission on August 14, 1984).
<PAGE>
Exhibit Page
Number Exhibit Number
- ------ ------- ------
10K. Ground Lease dated as of December 21, *
1984, between the Registrant, as Lessor,
and Susana Partners '82 ("Susana") as
Lessee (filed as Exhibit 10(i)a to Form
8-K dated February 4, 1985, as filed on
or about February 15, 1985, as amended).
10L. Deed of Trust and Security Agreement dated *
as of December 21, 1984, among the
Registrant, as Grantee, Susana, as Grantor,
and First American Title Insurance Company,
as Trustee (filed as Exhibit 10(i)b to Form
8-K dated February 15, 1985, as amended).
10N. Mortgage and Security Agreement, dated as of *
September 26, 1985, by and between Oxford
Place Apartments Limited Partnership,
Mortgagor, and the Registrant, Mortgagee, in
the amount of $4,250,000.
10O. Promissory Note, dated as of September 26, *
1985, in the principal amount of $4,250,000
from the Registrant to Oxford Place
Apartments Limited Partnership.
10P. Ground Lease dated as of September 26, 1985 *
between the Registrant, as Landlord and
Oxford Place Apartments Limited Partnership,
as Tenant.
10Q. Contract of Sale dated as of September 26, *
1985, by and between Oxford Apartments
Limited Partnership, Seller, and the
Registrant, Purchaser.
10R. Letter Agreement between New England Life *
Pension Properties; A Real Estate Limited
Partnership, the Registrant and Willows
Concord Venture dated June 14, 1991.
10S. Promissory Note dated July 14, 1991 in the *
principal amount of $14,863,206.38 from
Willows Concord Venture to New England
Life Pension Properties; A Real Estate
Limited Partnership and the Registrant.
10T. Assignment of Note and Liens Including Deed *
of Trust dated as of June 13, 1991 by New
England Life Pension Properties; A Real
Estate Limited Partnership and the
Registrant to Willows Concord Venture.
10U. Assignment of VMS Loan Documents dated *
June 14, 1991 by Willows Concord Venture
to New England Life Pension Properties;
A Real Estate Limited Partnership and the
Registrant.
10V. Deed of Trust and Security Agreement dated *
June 13, 1991 between Willows Concord
Venture, as Trustor; Chicago Title Company,
as Trustee; and New England Life Pension
Properties; A Real Estate Limited Partnership
and the Registrant, as Beneficiary.
10W. Assignment of Leases and Rents dated June 13, *
1991 by Willows Concord Venture to New
England Life Pension Properties; A Real
Estate Limited Partnership and the Registrant.
<PAGE>
Exhibit Page
Number Exhibit Number
- ------ ------- ------
10X. Amended and Completely Restated Ground Lease *
dated effective as of June 18, 1991 between
Registrant, New England Life Pension
Properties II; A Real Estate Limited
Partnership and Willows Concord Venture.
10Y. Amended and Restated Secured Promissory Note *
effective as of June 14, 1991, in the
principal amount of $14,863,206.38 from
Willows Concord Venture to the Registrant and
New England Life Pension Properties II; A
Real Estate Limited Partnership.
10Z. Modification Agreement and First Amendment to *
Loan Documents dated August 13, 1991, by and
between Willows Concord Venture, the
Registrant and New England Life Pension
Properties II; A Real Estate Limited
Partnership.
10AA. Modification Agreement and Second Amendment to *
Loan Documents dated September 12, 1991, by
and between Willows Concord Venture, the
Registrant and New England Life Pension
Properties II; A Real Estate Limited
Partnership.
10BB. Modification Agreement and Third Amendment to *
Loan Documents dated October 15, 1991, by and
between Willows Concord Venture, the
Registrant and New England Life Pension
Properties II; A Real Estate Limited Partnership.
10CC. Fourth Amendment to Loan Documents dated *
December 17, 1992 by and between Willows
Concord Venture Registrant and New England
Life Pension Properties II; A Real Estate
Limited Partnership.
10DD. Special Warranty Deed by and between *
Registrant, Grantor, and Oxford Place
Apartments Limited Partnership, Grantee,
dated December, 1993.
10EE. Agreement to Cause Early Expiration of Term of *
Ground Lease by and between Oxford Place
Apartments Limited Partnership and Registrant
dated as of December 29, 1993.
10FF. Discharge of Mortgage and Security Agreement *
executed by Registrant, dated December, 1993.
10GG. Termination of Collateral Assignment of Lease *
or Leases executed by Registrant, dated
December, 1993.
10HH. Consent letter given by Registrant regarding *
sale of property dated December 29, 1993.
10II. Construction Loan Agreement dated January 1,
1995 by and between Willows Concord Venture,
A California Limited Partnership as Borrower,
and New England Life Pension Properties II;
A Real Estate Limited Partnership as Lender.
* Previously filed and incorporated herein by reference.
<PAGE>
Construction Loan Agreement dated January 1, 1995 by and between
Willows Concord Venture, A California Limited Partnership as Borrower,
and New England Life Pension Properties II; A Real Estate Limited
Partnership as Lender.
<PAGE>
Willows Concord Venture
CLOSING AGENDA
--------------
CONSTRUCTION LOAN FROM NEW ENGLAND LIFE PENSION PROPERTIES;
A REAL ESTATE LIMITED PARTNERSHIP,
AND
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP, AS LENDER,
TO
WILLOWS CONCORD VENTURE, AS BORROWER
DOCUMENT TAB NO.
- -------- ------
Construction Loan Agreement.........................................1
Promissory Note.....................................................2
Security Agreement..................................................3
Fifth Amendment to Loan Documents...................................4
First Amendment to Amended and
Completely Restated Ground Lease..................................5
<PAGE>
CONSTRUCTION LOAN AGREEMENT
between
WILLOWS CONCORD VENTURE,
A CALIFORNIA LIMITED PARTNERSHIP
as Borrower,
and
NEW ENGLAND LIFE PENSION PROPERTIES;
A REAL ESTATE LIMITED PARTNERSHIP, AND
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
as Lender,
Dated: January 1, 1995
Property Located In: Concord, Contra Costa County, California
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. DEFINITIONS......................................................................................... 1
1.01 Defined Terms............................................................................... 1
ARTICLE II. LOAN ............................................................................................... 6
2.01 Loan........................................................................................ 6
2.02 Loan Documents.............................................................................. 6
2.03 Effective Date.............................................................................. 6
ARTICLE III. DISBURSEMENT....................................................................................... 6
3.01 Conditions Precedent........................................................................ 6
3.02 Account..................................................................................... 7
3.03 Disbursement Authorization.................................................................. 7
3.04 Borrower's Funds Account.................................................................... 7
3.05 Pledge and Assignment....................................................................... 7
3.06 Disbursement................................................................................ 7
3.07 Disbursed Funds............................................................................. 9
ARTICLE IV. CONSTRUCTION........................................................................................ 10
4.01 Commencement and Completion................................................................. 10
4.02 Force Majeure............................................................................... 10
4.03 Construction................................................................................ 10
4.04 Americans With Disabilities Act Compliance.................................................. 10
4.05 Plans and Specifications.................................................................... 11
4.06 Construction Information; Inspections....................................................... 12
4.07 Prohibited Contracts........................................................................ 12
4.08 Contractors................................................................................. 12
4.09 Liens and Stop Notices...................................................................... 12
4.10 Construction Responsibilities............................................................... 13
4.11 Improvement District........................................................................ 13
4.12 Delay....................................................................................... 13
4.13 Bonds....................................................................................... 13
4.14 Capital Expenditures and Reserves........................................................... 13
ARTICLE V. INSURANCE............................................................................................ 14
5.01 Title Insurance............................................................................. 14
5.02 Hazard Insurance............................................................................ 14
5.03 Flood Zone Notification..................................................................... 14
5.04 Liability Insurance......................................................................... 14
5.05 Blanket Coverage............................................................................ 14
5.06 General..................................................................................... 14
ARTICLE VI. REPRESENTATIONS AND WARRANTIES...................................................................... 15
6.01 Authority................................................................................... 15
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
6.02 Formation and Organization
Documents................................................................................... 15
6.03 Enforceability.............................................................................. 15
6.04 No Violation................................................................................ 15
6.05 Financial Information....................................................................... 16
6.06 Accuracy.................................................................................... 16
6.07 Adequacy of Loan............................................................................ 16
6.08 Taxes....................................................................................... 16
6.09 Compliance.................................................................................. 16
ARTICLE VII. DEFAULT............................................................................................ 16
7.01 Default..................................................................................... 16
7.02 Acceleration................................................................................ 18
7.03 Disbursement by Lender...................................................................... 18
7.04 Lender's Completion of Construction......................................................... 19
7.05 Cessation of Construction................................................................... 19
7.06 Repayment of Funds Advanced................................................................. 19
7.07 Right of Contest............................................................................ 19
ARTICLE VIII. HAZARDOUS MATERIALS.............................................................................. 20
8.01 Covenants................................................................................... 20
8.02 Right of Contest............................................................................ 20
8.03 Indemnity................................................................................... 21
8.04 Inspection by Lender........................................................................ 21
ARTICLE IX. MISCELLANEOUS PROVISIONS............................................................................ 21
9.01 Expenses.................................................................................... 21
9.02 Indemnity................................................................................... 22
9.03 Books and Records........................................................................... 22
9.04 ERISA Compliance............................................................................ 22
9.05 Further Assurances.......................................................................... 22
9.06 Form of Documents........................................................................... 23
9.07 No Third Parties Benefited.................................................................. 23
9.08 Notices..................................................................................... 23
9.09 Authority to File Notices................................................................... 24
9.10 Actions..................................................................................... 24
9.11 Relationship of Parties..................................................................... 24
9.12 Lender's Delay.............................................................................. 24
9.13 Attorneys' Fees; Enforcement................................................................ 24
9.14 Assignment.................................................................................. 25
9.15 Lender's Agents............................................................................. 25
9.16 Severability................................................................................ 25
9.17 Heirs, Successors and Assigns............................................................... 25
9.18 Rights Cumulative, No Waiver................................................................ 25
9.19 Time........................................................................................ 25
9.20 Headings.................................................................................... 26
9.21 Governing Law............................................................................... 26
9.22 Integration; Interpretation................................................................. 26
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
9.23 Joint and Several Liability................................................................. 26
9.24 Execution in Counterparts................................................................... 26
9.25 Incorporation............................................................................... 26
9.26 Credit for Principal Payments............................................................... 26
9.27 WAIVER OF RIGHT TO TRIAL BY JURY............................................................ 27
9.28 Obligations under Ground Lease.............................................................. 27
9.29 Non-Recourse................................................................................ 27
</TABLE>
EXHIBIT A - DESCRIPTION OF PROPERTY
EXHIBIT B - DISBURSEMENT BUDGET
-iii-
<PAGE>
CONSTRUCTION LOAN AGREEMENT
---------------------------
THIS CONSTRUCTION LOAN AGREEMENT ("Agreement") is made as of January
1, 1995, between WILLOWS CONCORD VENTURE, a California limited partnership,
("Borrower") and NEW ENGLAND LIFE PENSION PROPERTIES; A Real Estate Limited
Partnership, and NEW ENGLAND LIFE PENSION PROPERTIES II; A Real Estate Limited
Partnership, each a Massachusetts limited partnership (jointly referral to
herein as "Lender").
A. Borrower is the ground tenant and Lender is the ground landlord of
certain real property described in Exhibit A hereto ("Property") under the
---------
Ground Lease (as hereinafter defined).
B. Borrower proposes to repair, renovate and rehabilitate the
Improvements (as hereinafter defined) located on the Property in accordance with
the Plans and Specifications (as hereinafter defined) and has requested a loan
from Lender for said purpose.
THEREFORE, Borrower and Lender agree as follows:
ARTICLE I. DEFINITIONS
1.01 Defined Terms. As used herein, the following terms shall have
-------------
the meanings set forth below:
"Account" means a demand deposit account in the name of Borrower and
Lender which shall be opened with a bank approved by Lender and which shall be
administered in accordance with the terms of this Agreement.
"ADA" means the Americans with Disabilities Act of July 26, 1990,
Public Law Number 101-336, 104 Stat. 327, 42 U.S.C. Section 12101, et seq., as
amended from time to time.
"Agreement" means this Construction Loan Agreement as originally
executed or as it may from time to time be amended pursuant to Section 9.22
------------
hereof.
"Application for Payment" means a written itemized statement, signed
by Borrower, setting forth the matters described in Section 3.06 hereof.
------------
"Assignment of Leases and Rents" means that certain Assignment of
Leases and Rents dated as of June 13, 1991, executed by Borrower in favor of
Lender, recorded on June 18, 1991 as Instrument No. 91-110715 in the Official
Records of Contra Costa County, California, as amended by that certain
Modification Agreement and First Amendment to Loan Documents dated as of
<PAGE>
August 15, 1991, as further amended by that certain Modification Agreement and
Second Amendment to Loan Documents dated as of September 12, 1991, as further
amended by that certain Modification Agreement and Third Amendment to Loan
Documents dated as of October 15, 1991, as further amended by that certain
Fourth Amendment to Loan Documents dated as of December 17, 1992, and as further
amended by that Fifth Amendment to Loan Documents (as defined herein).
"Authorized Borrower Representatives" means the persons designated by
Borrower to Lender in writing who are authorized to request disbursements of the
Loan until written notice of Borrower's revocation of such authority is received
by Lender at its office address shown herein.
"Bankruptcy Act" means the Bankruptcy Reform Act of 1978, as amended
or recodified.
"Borrower" means Willows Concord Venture, a California limited
partnership.
"Borrower's Funds" means all funds which are now or hereafter
deposited and held in the Borrower's Funds Account pursuant to Section 3.01(b)
---------------
of this Agreement.
"Borrower's Funds Account" means a demand deposit account in the name
of Borrower and Lender which shall be opened with a bank approved by Lender and
which shall be administered in accordance with the terms of this Agreement.
"CCP" means the California Code of Civil Procedure, as the same may be
amended or recodified.
"Debtor Relief Law" means any present or future state or federal law
regulating bankruptcy, reorganization or other relief of debtors, other than the
Bankruptcy Act.
"Deed of Trust" means that certain Deed of Trust and Security
Agreement dated as of June 13, 1991, by Borrower, as Trustor, to Chicago Title
Company, as Trustee, for the benefit of Lender, recorded in June 18, 1991 as
Instrument No. 91-116714 in the Official Records of Contra Costa County,
California, as amended by that certain Modification Agreement and First
Amendment to Loan Documents dated as of August 15, 1991, as further amended by
that certain Modification Agreement and Second Amendment to Loan Documents dated
as of September 12, 1991, as further amended by that certain Modification
Agreement and Third Amendment to Loan Documents dated as of October 15, 1991, as
further amended by that
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<PAGE>
certain Fourth Amendment to Loan Documents dated as of December 17, 1992, and as
further amended by the Fifth Amendment to Loan Documents (as defined herein).
"Default" means the occurrence of any of the events listed in Section
-------
7.01 of this Agreement.
- ----
"Disbursement Budget" means the budget and schedule for disbursement
of the loan proceeds attached as Exhibit B to this Agreement.
---------
"Effective Date" means the date on which the Fifth Amendment to Loan
Documents is recorded in the office of the County Recorder of the County where
the Property is located.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
the same may be amended or recodified.
"Financing Statement" means that certain State of California Uniform
Commercial Code, Financing Statement, Form UCC-1, dated of even date herewith,
executed by Borrower, as Debtor, in favor of Lender, as Secured Party.
"Fifth Amendment to Loan Documents" means that certain Fifth Amendment
to Loan Documents of even date herewith by and between Borrower and Lender.
"Governmental Agency" means (a) any government or municipality or
political subdivision of any government or municipality, (b) any assessment,
improvement, community facilities or other special taxing district, (c) any
governmental or quasi-governmental agency, authority, board, bureau, commission,
corporation, department, instrumentality or public body, or (d) any court,
administrative tribunal, arbitrator, public utility or regulatory body.
"Ground Lease" means that certain Amended and Completely Restated
Ground Lease by and between Lender, as Landlord, and Borrower, as Tenant,
effective as of June 18, 1991.
"Hazardous Materials" means oil, flammable explosives, asbestos, urea
formaldehyde insulation, radioactive materials, hazardous wastes, toxic or
contaminated substances or similar materials, including, without limitation, any
substances which are "hazardous substances," "hazardous wastes," "hazardous
materials" or "toxic substances" under applicable environmental laws, ordinances
or regulations.
-3-
<PAGE>
"Hazardous Materials Claim," means any claim or action pending or
threatened against Borrower, the Property or Improvements by any Governmental
Agency or any other person or entity relating to Hazardous Materials or pursuant
to the Hazardous Materials Laws.
"Hazardous Materials Laws" means all laws, ordinances and regulations
relating to Hazardous Materials, including, without limitation, those relating
to soil and ground water conditions.
"Improvements" means the shopping center and any and all other
improvements located on the Property.
"Initial Cure Period" means the period of time beginning with the date
on which written notice from Lender of Borrower's failure to perform any of its
non-monetary obligations under any of the Loan Documents is deemed served
pursuant to Section 9.08 of this Agreement upon Borrower and ending 30 days
------------
after such service.
"Lender" means New England Life Pension Properties; A Real Estate
Limited Partnership, and New England Life Pension Properties II; a Real Estate
Limited Partnership, each a Massachusetts limited partnership (jointly referred
to herein as "Lender").
"Leasehold Interest" means Borrower's leasehold interest under the
Ground lease (as defined herein) which demises the Property, together with all
estate, title, interests, title reversion rights, rents, increases, issues,
profits, rights of way or uses, additions, accretions, servitudes, gaps, gores,
liberties, privileges, water rights, water courses, alleys, streets, passages,
ways, vaults, adjoining strips of ground, licenses, tenements, franchises,
hereditaments, rights, appurtenances and easements, now or hereafter owned by
Borrower and existing, belonging or appertaining to the Leasehold Interest, all
claims or demands whatsoever of Borrower therein or thereto, either at law or in
equity, in possession or in expectancy and all estate, right, title and interest
of Borrower in and to all streets, roads and public places, opened or proposed,
now or hereafter used in connection with, existing, belonging or appertaining
to, the Property and/or the Leasehold Interest.
"Loan" means the loan described in this Agreement in the principal sum
of $2,500,000.00.
"Loan Documents" means this Agreement, the Note, the Deed of Trust,
the Assignment of Leases and Rents, the Security Agreement, and the Financing
Statement.
-4-
<PAGE>
"Maturity Date" shall have the meaning given to such term in the Note.
"Note" means that certain Promissory Note of even date herewith in the
original principal amount of the Loan made by Borrower to the order of Lender.
"Onsite Materials" means materials for the repair, renovation and
rehabilitation of the Improvements which are stored on the Property.
"Original Note" means that certain Amended and Restated Promissory
Note dated effective as of June 14, 1991 made by Borrower in favor of Lender in
the principal amount of Fourteen Million Eight Hundred Sixty Three Thousand Two
Hundred Six and 38/100 Dollars ($14,863,206.38), which Original Note replaced
and superseded in its entirety that certain Promissory Note dated June 14, 1991
made by Borrower in favor of Lender in the principal amount of Fourteen Million
Eight Hundred Sixty Three Thousand Two Hundred Six and 38/100 Dollars
($14,863,206.38).
"Plans and Specifications" shall mean the plans and specifications for
the Work (as defined herein) submitted or to be submitted and approved by
Lender, as such plans and specifications may be amended or modified with the
approval of Lender in accordance with the provisions of Section 4.05 of this
------------
Agreement.
"Property" means the real property located in the County of Contra
Costa, State of California and more particularly described in Exhibit A hereto.
---------
"Remedial Action" means all handling, treatment, removal, storage,
decontamination, cleanup, transport, disposal or other remedial action, if any,
required by any Hazardous Materials Laws, any order or request of any
governmental entity or agency or any judgment, consent decree, settlement or
compromise in respect to any Hazardous Materials Claims.
"Requirements" means all applicable laws, ordinances, rules,
regulations, building restrictions, recorded covenants and restrictions, and
requirements of all Governmental Agencies having jurisdiction over the
Improvements or the Property.
"Security Agreement" means that certain Security Agreement of even
date herewith executed by Borrower in favor of Lender.
"Title Company" means a title insurer satisfactory to Lender.
"Title Policy" means an LP-3 ALTA Lender's Policy of Title Insurance,
with any endorsements which Lender may reasonably
-5-
<PAGE>
require, insuring Lender, in the principal amount of the Loan, of the validity
and priority of the lien of the Deed of Trust upon the Leasehold Interest and
the Improvements, subject only to matters approved by Lender in writing.
"Work" means the repair, renovation and rehabilitation of the
Improvements in accordance with the Plans and Specifications.
ARTICLE II. LOAN
2.01 Loan. By and subject to the terms of this Agreement, Lender
----
agrees to lend and Borrower agrees to borrow the principal sum of TWO MILLION
FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS ($2,500,000.00), to finance the Work
and for the other purposes provided in the Loan Documents.
2.02 Loan Documents. Borrower shall deliver to Lender concurrently
--------------
with this Agreement the Loan Documents, properly executed and in recordable form
if necessary.
2.03 Effective Date. The date of the Loan Documents is for reference
--------------
purposes only. The date of delivery and transfer to Lender of the security
under the Loan Documents and of Borrower's and Lender's obligations under the
Loan Documents is the Effective Date.
ARTICLE III. DISBURSEMENT
3.01 Conditions Precedent. Lender shall not be obligated to make any
--------------------
disbursements or take any other action under the Loan Documents unless all of
the following conditions precedent are satisfied at the time of such action:
(a) There exists no Default, or event, omission or failure of
condition which would constitute a Default after notice or lapse of time, or
both;
(b) The undisbursed Loan proceeds together with all sums (if
any) to be provided by Borrower as shown in the Disbursement Budget shall at all
times be not less than the amount which Lender from time to time determines
necessary to: (i) pay, through completion, all costs of the Work and the
marketing and sale or leasing of the Property and Improvements in accordance
with the Loan Documents; (ii) pay all sums which may accrue under the Loan
Documents prior to repayment of the Loan; and (iii) enable Borrower to perform
and satisfy all of the covenants of Borrower contained in the Loan Documents. If
Lender determines
-6-
<PAGE>
at any time that said funds are not sufficient for said purposes, Borrower may
satisfy this condition by depositing the amount of such deficiency in the
Borrower's Funds Account within seven (7) days of Lender's written demand;
(c) Borrower has delivered to Lender all Loan Documents, other
documents, instruments, policies, and forms of evidence or other materials
requested by Lender under the terms of this Agreement or any of the other Loan
Documents; and
(d) The Title Company shall be unconditionally committed to
issuing, at Borrower's sole cost and expense, an endorsement to the Title Policy
increasing the liability amount thereof to cover the amount of the loan, with
coverage and in a form satisfactory to Lender, insuring Lender's interest under
the Deed of Trust as a good and sufficient first lien on the Leasehold Interest
and the Improvements, subject only to such exceptions from its coverage as
Lender shall approve in writing.
(e) Subject to the Ground Lease, Borrower shall have paid all
property taxes other than those which are a lien on the Property, but not yet
due and payable; and
(f) At Borrower's sole cost and expense, the Fifth Amendment to
Loan Documents shall have been duly recorded in the Official Records of Contra
Costa County, California, and the Financing Statement shall have been duly filed
with the California Secretary of State.
3.02 Account. The proceeds of the Loan and Borrower's Funds, when
-------
qualified for disbursement, shall be deposited into the Account or otherwise
disbursed to or for the benefit or account of Borrower under the terms of this
Agreement.
3.03 Disbursement Authorization. Disbursements hereunder may be made
--------------------------
by Lender to the Account upon the written request of the Authorized Borrower
Representatives.
3.04 Borrower's Funds Account. Except as otherwise provided in this
------------------------
Agreement, Borrower's Funds shall be held in the Borrower's Funds Account and
disbursed in accordance with the terms hereof.
3.05 Pledge and Assignment. As security for Borrower's performance
---------------------
under the Loan Documents, Borrower irrevocably pledges and assigns to Lender all
monies at any time deposited in the Account and the Borrower's Funds Account.
3.06 Disbursement. Subject to the conditions set forth in Section
------------ -------
3.01, the proceeds of the Loan and Borrower's Funds shall
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<PAGE>
be disbursed, not more frequently than once per month, in accordance with the
following terms and conditions:
(a) Unless another provision of this Agreement specifies
otherwise, from time to time throughout the term of the Loan, Borrower shall
submit to Lender an Application for Payment setting forth:
(i) a description of the work performed, material
supplied and/or costs incurred or due for which
disbursement is requested with respect to any line
item ("Item") shown in the Disbursement Budget; and
(ii) the total amount incurred, expended and/or due for
each requested Item less prior disbursements.
(b) Lender shall have the right to condition any disbursement
upon Lender's receipt and approval of the following:
(i) the Application for Payment;
(ii) bills, invoices, documents of title, vouchers,
statements, payroll records, receipts and any other
documents evidencing the total amount expended,
incurred or due for any requested Items;
(iii) evidence of Borrower's use of a lien release, joint
check and voucher system reasonably acceptable to
Lender for payments or disbursements to any
contractor, subcontractor, materialman, supplier or
lien claimant;
(iv) physical inspections of the Work by Lender's
inspectors and/or engineers;
(v) waivers and releases of mechanics' lien, stop notice
claim, equitable lien claim or other lien claim
rights;
(vi) evidence of Borrower's compliance with the provisions
of Sections 4.03 and 6.01 of this Agreement;
---- ----
(vii) valid, recorded Notice(s) of Completion for the Work
or any portions of the Work for which
-8-
<PAGE>
Notice(s) of Completion may be recorded under
applicable law;
(viii) the Architect's and Engineer's, if any, Certificate
of Substantial Completion, prior to the final
retention disbursement or the final stage
disbursement;
(ix) any other document, requirement, evidence or
information that Lender may reasonably request under
any provision of the Loan Documents; and
(x) in the event that any Application for Payment
includes the cost of Onsite Materials, such
Application for Payment shall include each of the
following: (a) evidence that the Onsite Materials
have been paid for by Borrower; (b) evidence that the
Onsite Materials are insured as required hereunder;
and (c) evidence that the Onsite Materials are stored
in an area on the Property for which adequate
security is provided against theft and vandalism.
Borrower acknowledges that this approval process may result in
disbursement delays and Borrower consents to all such delays.
(c) Disbursements made after the deposit of Borrower's Funds shall be
made from Borrower's Funds until depleted.
(d) Lender shall have the option to make disbursement hereunder
directly to any contractor or supplier delivering goods or services in
connection with the Work.
(e) Each Application for Payment by Borrower shall constitute a
representation and warranty by Borrower that Borrower is in compliance with all
the conditions precedent specified in Section 3.01 of this Agreement.
------------
3.07 Disbursed Funds. All disbursements shall be held by Borrower in
---------------
trust and applied by Borrower solely for the purposes for which the funds have
been disbursed. Lender is not obligated to monitor or determine Borrower's use
or application of the disbursements.
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<PAGE>
ARTICLE IV. CONSTRUCTION
4.01 Commencement and Completion. Unless otherwise provided by this
---------------------------
Agreement, Borrower shall promptly commence the Work and shall diligently
continue and complete the Work in accordance with the Plans and Specifications
on or before December 31, 1995.
4.02 Force Majeure. The time within which the Work must be completed
-------------
shall be extended for a period of time equal to the period of any delay directly
affecting the work which is caused by fire, earthquake or other Acts of God,
strike, lockout, acts of public enemy, riot, insurrection, or governmental
regulation of the sale or transportation of materials, supplies or labor
provided Borrower furnishes Lender with written notice (as specified in Section
-------
4.12), of any such delay within ten (10) days from the occurrence of any such
- ----
delay. In no event, however, shall the time for completion of the Work be
extended beyond the Maturity Date.
4.03 Construction. Borrower shall perform and complete the Work in a good
------------
and workmanlike manner in accordance with the Plans and Specifications and the
recommendations of any soils or engineering report approved by Lender. In
performing and completing the Work, Borrower shall comply with the Requirements.
If necessary, the Plans and Specifications shall be modified to comply with the
Requirements, subject to the provisions of Section 4.05 below.
------------
4.04 Americans With Disabilities Act Compliance. Borrower represents and
------------------------------------------
warrants to Lender that the Work has been designed and shall be performed and
completed, and that the Improvements shall be operated and hereafter maintained,
in strict accordance and full compliance with all of the requirements of the
ADA. Borrower is responsible for all ADA compliance costs, including, without
limitation, attorney's fees and litigation costs.
4.05 Plans and Specifications. Except as otherwise provided below, there
------------------------
shall be no change in the Plans and Specifications without Lender's prior
written approval, which approval shall not be unreasonably withheld or delayed.
Requests for approval shall be submitted on a change order form acceptable to
Lender signed by Borrower and, if required by Lender, the project architect and
the general contractor (if any), accompanied by working drawings and a written
narrative of the proposed change. As conditions to its approval, (a) Lender may
require reasonably satisfactory evidence of the cost of the proposed change and
the time necessary to complete the proposed change, and (b) to the extent Lender
reasonably determines that the proposed change shall result in
-10-
<PAGE>
increased cost, Lender may require Borrower to deposit the reasonable amount of
the increased cost into the Borrower's Funds Account in accordance with Section
-------
3.01(b). Borrower acknowledges that this approval process may result in delays
- -------
and consents to all such delays. Provided that Borrower submits any proposed
change order to Lender together with a cover letter specifying that Lender is to
reply within fifteen (15) days of its receipt thereof pursuant to this Section
-------
4.05, Lender shall be deemed to have approved such change order if it fails to
- ----
object in writing within fifteen (15) days of Lender's receipt of any such
change order and notice. Upon Lender's request, Borrower, the project architect,
and the general contractor (if any), shall initial the copy of the Plans and
Specifications delivered to, and approved by, Lender as a true copy of the Plans
and Specifications for the Work. Borrower shall maintain at all times a full set
of working drawings for the Work available for inspection by Lender.
Notwithstanding the above, Borrower may make minor changes in the Plans and
Specifications without Lender's prior written consent unless such change: (i)
constitutes a material change in the building material or equipment
specifications, the architectural or structural design, value, architecture, or
quality of any of the Improvements; or (ii) would result in an increase in any
item of construction cost in excess of TEN THOUSAND AND NO/100THS DOLLARS
($10,000.00) for any single change or in excess of FIFTY THOUSAND AND NO/100THS
DOLLARS ($50,000.00) for all such changes in such items of construction cost; or
(iii) would affect the structural integrity, quality of building material or
equipment or overall efficiency of operating systems or utility systems of the
Improvements; or (iv) requires the approval (which has not been given as of the
date of any such change) of any Governmental Agency or any other person or
entity. Notwithstanding the foregoing, Borrower shall submit all proposed
changes to the Plans and Specifications to Lender at least fifteen (15) days
prior to the commencement of construction relating to such proposed change
whether or not any such change is subject to Lender's approval.
4.06 Construction Information; Inspections. From time to time, and within
-------------------------------------
ten (10) business days of receipt from Lender of a request therefor, Borrower
shall deliver to Lender:
(a) a complete list stating (i) the name, address and phone number of
each contractor, subcontractor and material supplier to be employed or used for
the Work, and (ii) the dollar amount, including changes if any, of each contract
and subcontract, and the portion thereof, if any, paid through the date of such
list;
(b) copies of each contract and subcontract identified in such list,
including any changes thereto;
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<PAGE>
(c) a cost breakdown, in a form reasonably acceptable to Lender,
stating the projected total cost of the Work, and the portion, if any, of each
cost item (i) which has been incurred, and (ii) which has been paid, all as of
the date of such cost breakdown;
(d) a construction progress schedule, in a form reasonably acceptable
to Lender, showing the progress of the Work and the projected sequencing and
completion time for uncompleted work, all as of the date of such schedule; and
(e) with respect to any item designated above which has been
previously delivered, such update thereof as Lender may request.
Lender is expressly authorized to contact any contractor, subcontractor or
material supplier and, at all reasonable times, to enter the Property and
inspect the Improvements and the Work in order to verify information disclosed
pursuant to this Section, or for any other reasonable purpose.
4.07 Prohibited Contracts. Without Lender's prior written consent, which
--------------------
consent shall not be unreasonably withheld or delayed, Borrower shall not
contract for any materials, furnishings, equipment, fixtures or other parts or
components of the Work, or other property for the use or occupancy of the
Property or Improvements, if any third party retains or purports to retain any
interest (other than lien rights, if any, created by operation of law) in such
items after their delivery to the Property. Borrower shall have five (5) days
to effect the removal of any such retained interest
4.08 Contractors. Lender may, but shall not be obligated to, disapprove
-----------
any contractor, subcontractor or material supplier whom Lender deems financially
or otherwise unqualified; provided, however, that the absence of any such
-------- -------
disapproval shall not constitute a representation of qualifications.
4.09 Liens and Stop Notices. If a claim of lien is recorded affecting the
----------------------
Leasehold Interest or Improvements or a bonded stop notice is served upon Lender
which affects the Loan or Borrower's Funds, Borrower shall, within twenty (20)
days of such recording or service or within five (5) days of Lender's demand
(whichever occurs first), (a) pay and discharge the same, or (b) effect the
release thereof by recording or delivering to Lender a surety bond in sufficient
form and amount, or (c) otherwise provide Lender with other assurance which
Lender deems, in its sole discretion,
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<PAGE>
to be satisfactory for the payment of such lien or bonded stop notice and for
the full and continuous protection of Lender from the effect of such lien or
bonded stop notice.
4.10 Construction Responsibilities. Borrower shall be solely responsible
-----------------------------
for all aspects of Borrower's business and conduct in connection with the
Leasehold Interest and Improvements, including, without limitation, the quality
and suitability of the Plans and Specifications and their compliance with the
Requirements, the supervision of the Work, the qualifications, financial
condition and performance of all architects, engineers, contractors, material
suppliers, consultants and property managers, and the accuracy of all
applications for payment and the proper application of all disbursements.
Lender is not obligated to supervise, inspect or inform Borrower or any third
party of any aspect of the Work or any other matter referred to above. Any
inspection or review by Lender is to determine whether Borrower is properly
discharging its obligations to Lender and may not be relied upon by Borrower or
any third party. Lender owes no duty of care to Borrower or any third party to
protect against, or to inform Borrower or any third party of, any negligent,
faulty, inadequate or defective design or construction of the Work.
4.11 Improvement District. Without Lender's prior written consent,
--------------------
Borrower shall not, directly or indirectly, advocate or assist in the
incorporation of any of the Property or Improvements into any improvement or
other assessment district.
4.12 Delay. Borrower shall promptly notify Lender in writing of any event
-----
causing delay or interruption of the Work, or the timely completion of the Work.
The notice shall specify the particular work delayed, and the cause and period
of each delay.
4.13 Bonds. Within five (5) days of Lender's request, Borrower shall
-----
procure from a surety acceptable to Lender, and deliver to Lender, dual obligee
performance and labor and material payment bonds in a form, substance and amount
reasonably acceptable to Lender and, if requested by Lender, cause any such bond
to be recorded and the Plans and Specifications and construction agreement, if
any, to be filed in the office of the County Recorder of the County where the
Property is located.
4.14 Capital Expenditures and Reserves. Borrower shall not make any
---------------------------------
capital improvement to the property other than those described in the Plans and
Specifications (as the same may be changed pursuant to Section 4.05 hereof) or
expend or reserve any income or revenue derived from the Property for any such
capital improvement without Lender's prior approval for each such capital
improvement, expenditure or reserve.
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<PAGE>
ARTICLE V. INSURANCE
5.01 Title Insurance. Borrower shall procure the endorsement to the Title
---------------
Policy described in Section 3.01(d). During the term of the Loan, Borrower
shall procure and deliver to Lender, within five (5) business days of Lender's
written request to Borrower, such other endorsements to the Title Policy as
Lender may reasonably require.
5.02 Hazard Insurance. Borrower shall procure and maintain from an
----------------
insurer reasonably satisfactory to Lender a policy of Builders Risk Completed
Value hazard insurance, with a vandalism and malicious mischief endorsement and
such other endorsements as Lender may reasonably require, insuring Lender
against damage to the Property in a amount reasonably acceptable to Lender.
Lender shall be named under a Lender's Loss Payable Endorsement (form #438BFU or
equivalent) attached to the policy. At Lender's request, the policy shall
contain an agreed value clause sufficient (as reasonably determined by Lender)
to eliminate any risk of co-insurance.
5.03 Flood Zone Notification. If required by applicable law, Borrower, as
-----------------------
ground tenant of the Property and the Improvements under any existing or future
lease or sale agreement, shall promptly give written notice to all lessees or
purchasers of the Leasehold Interest of the fact that the Property and the
Improvements are or will be located in a flood hazard area. Borrower
acknowledges that, to the extent required, such written notices have been given
by it or will be promptly given.
5.04 Liability Insurance. Borrower shall procure and maintain from an
-------------------
insurer reasonably satisfactory to Lender a policy of comprehensive public
liability insurance and property damage insurance with limits as reasonably
required by Lender, insuring against liability for injury or death to any person
and property damage occurring on the Property or in the Improvements from any
cause whatsoever. Such policy shall name Lender as an additional insured.
5.05 Blanket Coverage. Lender may accept blanket insurance policies in
----------------
satisfaction of Borrower's obligations to provide insurance.
5.06 General. Borrower shall procure and maintain all other insurance
-------
required by the Requirements, this Agreement, the Deed of Trust or applicable
law. Lender shall receive the originals of all required insurance policies, or
other evidence of insurance reasonably acceptable to Lender. Borrower shall
maintain all required insurance until the Loan is repaid. All insurance
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<PAGE>
policies shall provide that the insurance shall not be cancellable without
twenty (30) days prior written notice to Lender. All insurance policies shall be
issued by licensed insurance companies acceptable to Lender.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties as of the
Effective Date and continuing thereafter:
6.01 Authority. Borrower has complied with all laws and regulations
---------
concerning its organization, existence and transaction of business. Borrower
has the right and power to lease the Property and Improvements as ground tenant
as contemplated in the Loan Documents and the Ground Lease. Borrower has, or
at all appropriate times shall have, properly obtained all permits, licenses and
approvals necessary to perform the Work and to use, occupy and market the
Improvements, and has complied with the Requirements and all other applicable
statutes, laws, regulations and ordinances.
6.02 Formation and Organizational Documents. Borrower has delivered to
--------------------------------------
Lender all of the relevant information and organizational documents of Borrower,
of the partners or joint venturers of Borrower (if any), and of all guarantors
of the Loan (if any), and all such formation and organizational documents remain
in full force and effect and have not been amended or modified since they were
delivered to Lender. If any such formation or organizational document is
hereafter amended or modified, Borrower shall immediately provide Lender with
notice in writing of such change.
6.03 Enforceability. Borrower is authorized to execute deliver, to
--------------
perform its obligations under, the Loan Documents, which obligations are the
valid and binding obligations of Borrower.
6.04 No Violation. Borrower's undertakings in the Loan Documents do not
------------
violate any of the Requirements or any other applicable statute, law, regulation
or ordinance or any order or ruling of any court or governmental entity, or
conflict with, or constitute a breach or default under, any agreement by which
Borrower is, or the Leasehold Interest and Improvements are, bound or regulated.
Borrower is not in violation of any statute, law, regulation or ordinance, or of
any order of any court or governmental entity. There are no claims, actions or
proceedings pending or, to Borrower's knowledge, threatened against Borrower or
affecting the Leasehold Interest or Improvements other than those disclosed to
Lender in writing.
-15-
<PAGE>
6.05 Financial Information. All financial information delivered to
---------------------
Lender, including, without limitation, information relating to the financial
condition of Borrower, the Leasehold Interest, the Improvements, partners or
joint venturers of Borrower, or guarantors, fairly and accurately represents
such financial condition and has been prepared in accordance with generally
accepted accounting principles consistently applied, unless otherwise noted in
such information. No material adverse change in such financial condition has
occurred.
6.06 Accuracy. All reports, documents, instruments, information and forms
--------
of evidence delivered to Lender concerning the Loan or security for the Loan or
required by the Loan Documents are accurate, correct and sufficiently complete
to give Lender true and accurate knowledge of their subject matter, and do not
contain any misrepresentation or omission.
6.07 Adequacy of Loan. The undisbursed Loan proceeds, together with
----------------
Borrower's Funds and all other sums (if any) to be provided by Borrower as shown
in Exhibit B, are sufficient to do all of the things specified in Section
--------- -------
3.01(b).
- -------
6.08 Taxes. Borrower has filed all required federal, state, county and
-----
municipal tax returns and has paid all taxes owed and payable by Borrower, and
Borrower knows of no basis for any additional assessment with respect to any
such taxes.
6.09 Compliance. Borrower is familiar with all Requirements. The
----------
development of the Property and the construction of the Improvements will
conform to and comply with the Requirements and the Plans and Specifications.
ARTICLE VII. DEFAULT
7.01 Default. The following shall constitute an event of default under
-------
the Loan Documents:
(a) Monetary. At Lender's option, (i) Borrower's failure to pay
--------
within fifteen (15) days of the date due any sums payable under the Note, the
Original Note or any of the other Loan Documents; or (ii) Borrower's failure to
deposit any Borrower's Funds as and when required under Section 3.01(b); or
---------------
(b) Performance of Obligations. Borrower's failure to perform any of
--------------------------
its other obligations (in addition to those in Section 7.01(a) above) under any
---------------
of the Loan Documents within the Initial Cure Period, or, within ninety (90)
days after written notice so long as Borrower begins within the Initial Cure
Period and diligently continues to cure the failure, and Lender,
-16-
<PAGE>
exercising reasonable judgment, determines that the cure cannot reasonably be
completed at or before expiration of the Initial Cure Period; or
(c) Construction; Use. (i) Any material deviation in the Work from
-----------------
the Plans and Specifications or Requirements or the appearance or use of
defective workmanship or materials in performing the Work, and Borrower's
failure to remedy the same to Lender's reasonable satisfaction within thirty
(30) days of Lender's written demand to do so; or (ii) the cessation of the Work
prior to completion for a continuous period of more than thirty (30) days,
unless such cessation is (A) a result of a casualty or taking and Borrower
diligently continues to restore the Property in accordance with the provisions
of Section 5 of the Deed of Trust, or (B) caused by events for which delay may
---------
be permitted under Section 4.02 hereof; or (iii) the curtailment in availability
------------
to the Property or Improvements of utilities or other public services necessary
for the full occupancy and utilization of the Improvements for a continuous
period of more than thirty (30) days; or
(d) Liens; Attachment; Condemnation. (i) The filing of any claim of
-------------------------------
lien against the Leasehold Interest or Improvements or the service on Lender of
any bonded stop notice relating to the Loan and the continuance of the claim of
lien or bonded stop notice for twenty (20) days without discharge, satisfaction
or provision for payment being made in accordance with Section 4.09; or (ii) the
------------
condemnation, seizure or appropriation of, or occurrence of an uninsured
casualty with respect to any material, as determined by Lender in its sole and
absolute discretion, portion of the Property or Improvements, unless (A) within
sixty (60) days after any such condemnation, seizure or appropriation, or
occurrence of an uninsured casualty, Borrower submits to Lender a written
proposal reasonably satisfactory to Lender for the repair or restoration of the
Property or Improvements, as the case may be, using funds provided by Borrower,
such that the value of the Leasehold Interest or Improvements, as the case may
be, is not materially impaired as a result thereof, and (B) Borrower diligently
pursues such repair or restoration to completion in a good and workmanlike
manner; or
(e) Representations and Warranties. The failure of any of Borrower's
------------------------------
representations or warranties in any of the Loan Documents to be true within
thirty (30) days after notice by Lender; or
(f) Change in Management or Control. The occurrence of any
-------------------------------
management, organizational or other material change in the Borrower or the
partners or venturers thereof, including, without limitation, partnership or
joint venture disputes, which Lender
-17-
<PAGE>
determines, in its reasonable discretion, will have a material adverse effect on
the Loan, the Leasehold Interest, the security for the Loan or upon Borrower's
or its partners' and venturers' ability to perform their obligations under the
Loan Documents, without Lender's prior written consent; provided, however, that
Lender shall not unreasonably withhold or delay its consent to any
(i) distribution to any general or limited partner of Borrower of such partner's
respective interest therein or (ii) assignment or transfer by any general or
limited partner of Borrower of its respective interest so distributed to any
person or entity controlling, controlled by, or under common control with such
general or limited partner (each an "Affiliate"), provided that (A) such
distribution, assignment or transfer is made for the purpose of accomplishing a
tax free exchange under Section 1031 of the Internal Revenue Code of 1986, as
amended, and (B) any and all such Affiliates agree to assume all of the
liabilities and obligations of Borrower and such general or limited partner to
Lender pursuant to a written instrument satisfactory to Lender.
(g) Acceleration Upon Loss of Security. If at any time the Deed of
----------------------------------
Trust ceases to be a valid first lien upon the Leasehold Interest and
Improvements subject only to such other liens and encumbrances approved by
Lender and shown in the Title Policy.
(h) Cross-Default. The occurrence of any Event of Default under the
-------------
Deed of Trust.
7.02 Acceleration. Upon the occurrence of a Default specified in
------------
Sections 7.01, Lender may, at its option, declare all sums owing to Lender under
- -------- ----
the Note, the Original Note and the other Loan Documents immediately due and
payable. Upon the occurrence of any Default specified in any of the Loan
Documents which provides that acceleration shall be automatic, all sums owing to
Lender under the Note, the Original Note and the other Loan Documents shall
automatically become immediately due and payable. Upon acceleration, Lender may,
in addition to other uses permitted under the Loan Documents, apply undisbursed
Loan proceeds and any sums in the Account and the Borrower's Funds Account to
the sums owing to Lender under the Loan Documents in such order as Lender may
elect. Without limitation of the provisions of Section 7.04 hereof, Borrower
------------
hereby irrevocably appoints Lender as its true and lawful attorney-in-fact,
which agency is coupled with an interest, to accomplish the foregoing actions
and rights of Lender or transfer of such funds to Lender.
7.03 Disbursement by Lender. Upon the occurrence of a Default which is
----------------------
occasioned by Borrower's failure to pay money, Lender may but shall not be
obligated to make such payment from Loan proceeds, Borrower's Funds, or other
funds of Lender. If
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<PAGE>
such payment is made from proceeds of the Loan or from Borrower's Funds,
Borrower shall deposit in the Borrower's Funds Account, upon written demand
issued pursuant to Section 3.01(b), an amount equal to such payment. If such
---------------
payment is made from funds of Lender, Borrower shall repay such funds upon
demand issued pursuant to Section 7.06. In either case, the Default with respect
------------
to which any such payment has been made by Lender shall not be deemed cured
until such deposit or repayment (as the case may be) has been made by Borrower.
7.04 Lender's Completion of Construction. If a Default occurs, Lender
-----------------------------------
may, upon five (5) days written notice to Borrower, and with or without legal
process, take possession of the Property and Improvements, remove Borrower and
all agents, employees and contractors of Borrower from the Property and
Improvements, complete the Work and market and sell or lease the Leasehold
Interest and the Improvements. Borrower irrevocably appoints Lender as its
attorney-in-fact, which agency is coupled with an interest for the purposes of
effecting the provisions of this Section 7.04. As attorney-in-fact, Lender may,
------------
in Borrower's name, take or omit to take any action Lender may deem appropriate,
including, without limitation, exercising Borrower's rights under the Loan
Documents and all contracts concerning the Property and/or Improvements.
7.05 Cessation of Construction. If Lender reasonably determines that the
-------------------------
Work is not being performed in accordance with the Plans and Specifications, the
Requirements, or the Loan Documents, Lender may order all Work affected by the
condition of nonconformance immediately stopped. After that order, Borrower
shall not allow any Work, other than corrective work, to be performed on any of
the Property or Improvements affected by the condition of nonconformance until
Lender notifies Borrower in writing that the nonconforming condition has been
corrected, which notice shall be provided by Lender promptly after completion of
the corrective work and receipt of notice from Borrower that such work has been
completed.
7.06 Repayment of Funds Advanced. If Lender spends its funds in
---------------------------
exercising any of its rights or remedies under the Loan Documents, the amount of
funds spent shall be payable to Lender upon demand, together with interest at
the rate applicable to the principal balance of the Note as specified therein
plus 2% per annum, from the date the funds were spent. Until repaid, such
amounts shall have the security afforded disbursements under the Note.
7.07 Right of Contest. Borrower may contest in good faith any claim,
----------------
demand, levy or assessment (other than liens and stop notices, provision for
which is made in Section 4.09) by any
------------
-19-
<PAGE>
person other than Lender which would constitute a Default if (a) Borrower
pursues the contest diligently and in a manner which Lender determines is not
prejudicial to Lender and does not impair the rights of Lender under any of the
Loan Documents; and (b) Borrower deposits with Lender any funds or other forms
of assurance which Lender in good faith from time to time reasonably determines
appropriate to protect Lender from the consequences of the contest being
unsuccessful. Borrower's compliance with this Section shall operate to prevent
such claim, demand, levy or assessment from becoming a Default.
ARTICLE VIII. HAZARDOUS MATERIALS
8.01 Covenants. Without limitation of the provisions of the Ground Lease
---------
or any other agreement, covenant or restriction by which Borrower may be bound,
Borrower hereby agrees as follows:
(a) No Hazardous Activities. Borrower shall not cause or knowingly
-----------------------
permit any Hazardous Materials to be brought onto the Property in violation of
applicable law.
(b) Hazardous Materials Laws. Borrower shall comply and cause the
------------------------
Property to comply with all Hazardous Materials Laws in connection with the
Work.
(c) Notices. Borrower shall immediately notify Lender in writing of:
-------
(i) the discovery by Borrower of any breach or violation of the foregoing
clauses (a) and (b) of this Section, or (ii) the receipt by Borrower of written
notice of any Hazardous Materials Claims.
(d) Remedial Action. Subject to applicable law, in response to
---------------
Borrower's actual knowledge of the presence of any Hazardous Materials on or
under the Property resulting from any breach or violation of the foregoing
clauses (a) and (b) of this Section, Borrower shall promptly commence and
thereafter diligently pursue, at no cost or expense to Lender, all Remedial
Action in connection with such Hazardous Materials. The foregoing, however,
shall be subject to Borrower's right of contest under Section 8.02, below.
------------
8.02 Right of Contest. Borrower may contest in good faith any claim,
----------------
demand, levy or assessment under the Hazardous Materials Laws or any Hazardous
Materials Claims made by any person or entity if: (a) the contest is based on a
material question of law or fact raised by Borrower in good faith; (b) Borrower
promptly commences and thereafter diligently pursues the contest; (c) the
contest will not materially impair the taking of any Remedial Action with
respect to such claim, demand, levy or
-20-
<PAGE>
assessment under Hazardous Materials Laws or Hazardous Materials Claims; and
(d) Borrower demonstrates to Lender's reasonable satisfaction that Borrower has
the financial capability to undertake and pay for such contest and any Remedial
Action when reasonably necessary. No Default shall be deemed to exist with
respect to any claim, demand, levy or attachment being contested by Borrower in
accordance with the foregoing terms of this Section 8.02.
------------
8.03 Indemnity. Notwithstanding anything to the contrary set forth in
---------
Section 9.29, the duty of Borrower to indemnify Lender and the liability of
- ------------
Borrower to Lender under Section 9.02 shall not be secured by the Deed of Trust
------------
or subject to any "non-recourse" or "limitation of liability" provisions of this
Agreement or any other Loan Document if such duty to indemnify arises out of a
breach of Section 8.01 hereof. Borrower acknowledges that Lender's appraisal of
------------
the Leasehold Interest and Improvements is such that Lender is not willing to
accept the consequences under California's "One Form of Action Rule" (i.e.
Section 726 of the CCP) and "Anti-Deficiency Rules" (i.e. Sections 580(a),
580(b) and 580(d) of the CCP) of the inclusion of Borrower's duty to indemnify
Lender with respect to the matters described above in this Section 8.03 among
------------
the obligations secured by the Deed of Trust and that Lender would not make the
Loan but for the unsecured personal liability undertaken by Borrower in
connection with such matters. Borrower further acknowledges that Lender's right
to indemnification with respect to such matters is in addition to, and not in
limitation of, all of the rights and remedies which Lender may possess at law or
in equity at any time under any Hazardous Materials Laws.
8.04 Inspection By Lender. Upon reasonable prior notice to Borrower,
--------------------
Lender, its employees and agents, may from time to time (whether before or after
the commencement of a nonjudicial or judicial foreclosure proceeding) enter and
inspect the Property for the purpose of determining the existence, location,
nature and magnitude of any past or present release or threatened release of any
Hazardous Materials into, onto, beneath or from the Property.
ARTICLE IX. MISCELLANEOUS PROVISIONS
9.01 Expenses. Borrower shall pay Lender immediately upon demand all
--------
costs and expenses incurred by Lender in connection with the enforcement or
satisfaction by Lender of any of Borrower's obligations under this Agreement or
under the Loan Documents. For all purposes of this Agreement, Lender's costs
and expenses shall include, without limitation, all appraisal fees, cost
engineering and inspection fees, legal fees, accounting fees,
-21-
<PAGE>
environmental consultant fees (if any), auditor fees, and the cost to Lender of
any title insurance premiums and title surveys. If any of the services described
in this Section are provided by an employee of Lender, Borrower shall reimburse
Lender its standard charge for such services.
9.02 Indemnity. Borrower indemnifies Lender against, and holds Lender
---------
harmless from, any losses, damages, liabilities, claims, actions, judgments,
court costs and legal or other expenses (including reasonable attorneys' fees)
which Lender may incur as a direct or indirect consequence of: (i) the making of
the Loan, except for violations of lending laws or regulations by Lender; or
(ii) Borrower's failure to perform any obligations as and when required by this
Agreement or any of the Loan Documents; or (iii) any failure at any time of any
of Borrower's representations or warranties to be true and correct, or (iv) any
act or omission by Borrower, any contractor, subcontractor or material supplier,
engineer, architect or other person or entity with respect to any of the Work.
Borrower shall pay immediately upon Lender's demand any amounts owing under this
indemnity together with interest from the date the indebtedness arises until
paid at the rate of interest applicable to the principal balance of the Note as
specified therein plus 2% per annum. Borrower's duty to indemnify Lender shall
survive the release and cancellation of the Note and the reconveyance or partial
reconveyance of the Deed of Trust.
9.03 Records. Borrower shall maintain complete books of accounts and
-------
other records for the Work, the Leasehold Interest and Improvements and for
disbursement and use of the Loan proceeds and Borrower's Funds, and during
normal business hours upon not less than two (2) business days' notice the same
shall be available for inspection and copying by Lender.
9.04 ERISA Compliance. Borrower shall at all times comply with the
----------------
provisions of ERISA with respect to any retirement or other employee benefit
plan to which it is a party as employer, and as soon as possible after Borrower
knows, or has reason to know, that any Reportable Event (as defined in ERISA)
with respect to any such plan of Borrower has occurred, it shall furnish to
Lender a statement in writing setting forth details as to such Reportable Event
and the action, if any, which Borrower proposes to take with respect thereto,
together with a copy of the notice of such Reportable Event furnished to the
Pension Benefit Guaranty Corporation.
9.05 Further Assurances. At Lender's request and at Borrower's expense,
------------------
Borrower shall execute, acknowledge and deliver any other instruments and
perform any other acts
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<PAGE>
necessary, desirable or proper (as reasonably determined by Lender) to carry out
the purposes of the Loan Documents or to perfect and preserve any liens created
by the Loan Documents.
9.06 Form of Documents. The form and substance of all documents,
-----------------
instruments, and forms of evidence to be delivered to Lender under the terms of
any of the Loan Documents shall be subject to Lender's approval (which approval
shall not be unreasonably withheld or delayed) and shall not be modified,
superseded or terminated in any respect without Lender's prior written approval.
9.07 No Third Parties Benefitted. No person other than Lender and
---------------------------
Borrower and their permitted successors and assigns shall have any right of
action under any of the Loan Documents.
9.08 Notices. Any notice, request, demand or other communication required
-------
or permitted under the Loan Documents (unless otherwise expressly provided
therein) shall be given in writing by delivering the same in person to the
intended addressee by overnight courier service with guaranteed next day
delivery or by certified United States mail, postage prepaid or telegram sent to
the intended addressee at the applicable address set forth below or to such
different address as either Lender or Borrower shall have designated by written
notice to the other sent in accordance herewith. Such notices shall be deemed
given when received or, if earlier, in the case of delivery by courier service
with guaranteed next day delivery, the next day or the day designated for
delivery, or in the case of delivery by certified United States mail, two days
after deposit therein. No notice to or demand on Borrower in any case shall of
itself entitle Borrower to any other or further notice or demand in similar or
other circumstances.
Notice addresses:
If to Borrower: c/o Mr. William Thormahlen
Sares-Regis Group
18802 Bardeen Avenue
Irvine, California 92715-1521
If to Lender: c/o Copley Real Estate Advisors, Inc.
399 Boylston Street
Boston, Massachusetts 02116
Attention: General Counsel
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<PAGE>
with a copy to: Hale and Dorr
60 State Street
Boston, MA 02109
Attention: Kenneth A. Hoxsie, Esq.
9.09 Authority to File Notices. Borrower irrevocably appoints and
-------------------------
authorizes Lender, as Borrower's attorney-in-fact, which agency is coupled with
an interest, to execute and/or record in Lender's or Borrower's name any
notices, instruments or documents that Lender deems appropriate to protect
Lender's interest under any of the Loan Documents.
9.10 Actions. Lender may commence, appear in or defend any action or
-------
proceeding purporting to affect the Leasehold Interest, Improvements, Loan
Documents or the rights, duties or liabilities of Borrower or Lender under the
Loan Documents. In exercising this right, Lender may incur and pay costs and
expenses including, without limitation, reasonable attorneys' fees and court
costs and Borrower agrees to pay all such expenses so incurred or paid.
9.11 Relationship of Parties. The relationship of Borrower and Lender
-----------------------
under the Loan Documents is, and shall at all times remain, solely that of
borrower and lender. Lender neither undertakes nor assumes any responsibility
or duty to Borrower or to any third party with respect to the Leasehold
Interest, Improvements or Loan, except as expressly provided in the Loan
Documents and the Ground Lease.
9.12 Lender's Delay. Lender shall not be liable in any way for Lender's
--------------
failure to perform or delay in performing under the Loan Documents, and Lender
may suspend or terminate all or any portion of Lender's obligations under the
Loan Documents if Lender's delay or failure results directly or indirectly from,
or is based upon, the action, inaction, or purported action, of any Governmental
Agency, or any other cause or event identified in Section 4.02 hereof.
------------
9.13 Attorney's Fees; Enforcement. If any attorney is engaged by Lender
----------------------------
to enforce, or defend any provision of any of the Loan documents, or as a
consequence of any Default under the Loan Documents, with or without the filing
of any legal action or proceeding, Borrower shall pay to Lender, immediately
upon demand, the amount of all attorneys' fees and costs incurred by Lender in
connection therewith, together with interest thereon from the date of such
demand until paid at the rate of interest applicable to the principal balance of
the Note as specified therein plus 2% per annum.
-24-
<PAGE>
9.14 Assignment. Borrower shall not assign Borrower's interest under any
----------
of the Loan Documents, or in any monies due or to become due thereunder, without
Lender's prior written consent. Any assignment made without Lender's consent
shall be void. Borrower recognizes that this is not an ordinary loan and that
Lender would not make this Loan except in reliance on Borrower's expertise and
reputation, Lender's knowledge of Borrower, and Lender's understanding that this
Agreement is more in the nature of an agreement involving personal services than
a standard loan where Lender would rely on security upon which no additional
work is planned. In this instance, Lender is relying on Borrower's expertise
and prior experience to perform and complete the Work in accordance with the
terms of the Loan Documents.
9.15 Lender's Agents. Lender may designate an agent or independent
---------------
contractor to exercise any of Lender's rights under the Loan Documents. Any
reference to Lender in any of the Loan Documents shall include Lender's agents,
employees or independent contractors.
9.16 Severability. If any provision of the Loan Documents shall be
------------
determined by a court of competent jurisdiction to be invalid, illegal or
unenforceable, that portion shall be deemed severed from the Loan Documents and
the remaining parts shall remain in full force as though the invalid, illegal,
or unenforceable portion had never been part of the Loan Documents.
9.17 Heirs, Successors and Assigns. The terms of the Loan Documents shall
-----------------------------
be binding upon and inure to the benefit of the heirs, successors and assigns of
the parties; provided however, that this Section does not waive the provisions
of Section 9.14.
------------
9.18 Rights Cumulative, No Waiver. All Lender's rights and remedies
----------------------------
provided in the Loan Documents, granted by law or otherwise, are cumulative and
may be exercised by Lender at any time. Lender's exercise of any right or
remedy shall not constitute a cure of any Default unless all sums then due and
payable to Lender under the Loan Documents are repaid and Borrower has cured all
other Defaults. No waiver shall be implied from any failure of Lender to take,
or any delay by Lender in taking, action concerning any Default or failure of
condition under the Loan Documents, or from any previous waiver of any similar
or unrelated Default or failure of condition. Any waiver or approval under any
of the Loan Documents must be in writing and shall be limited to its specific
terms.
9.19 Time. Time is of the essence of each term of the Loan Documents.
----
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<PAGE>
9.20 Headings. All headings appearing in any of the Loan Documents are
--------
for convenience only and shall be disregarded in construing the Loan Documents.
9.21 Governing Law. The Loan Documents shall be governed by, and
-------------
construed in accordance with, the laws of the State of California, except to the
extent preempted by Federal laws. Borrower and all persons and entities in any
manner obligated to Lender under the Loan Documents consent to the jurisdiction
of any Federal or State Court within the State of California having proper venue
and also consent to service of process by any means authorized by California or
Federal Law.
9.22 Integration; Interpretation. The Loan Documents contain or expressly
---------------------------
incorporate by reference the entire agreement of the parties with respect to the
matters contemplated herein and supersede all prior negotiations. The Loan
Documents shall not be modified except by written instrument executed by all
parties. Any reference in any of the Loan Documents to the Property, the
Leasehold Interest or Improvements shall include all or any part of the
Property, the Leasehold Interest or Improvements. Any reference to the Loan
Documents in any of the Loan Documents includes any amendments, renewals or
extensions approved by Lender. Any reference in this Agreement to the Loan
Documents shall include all or any of the provisions of this Agreement and the
Loan Documents unless otherwise specified.
9.23 Joint and Several Liability. The liability of all persons and
---------------------------
entities who are in any manner obligated under any of the Loan Documents shall
be joint and several.
9.24 Execution in Counterparts. This Agreement, and other Loan Documents
-------------------------
which expressly so provide, may be executed in any number of counterparts, each
of which when executed and delivered will be deemed to be an original and all of
which, taken together, will be deemed to be one and the same instrument.
9.25 Incorporation. Exhibits A and B attached hereto are incorporated
------------- - -
into this Agreement.
9.26 Credit for Principal Payments. Any payment made upon the outstanding
-----------------------------
principal balance of the Loan shall be credited as of the business day upon
which the applicable following condition has occurred by no later than
11:00 a.m. (Pacific Standard Time or Pacific Daylight Time, as appropriate):
(a) In the case of a principal payment made by a federal funds wire
transfer, upon receipt by Lender of written advice from the Federal Reserve
System confirming that the transferred amount has been credited for the account
of Lender; or
-26-
<PAGE>
(b) In the case of a principal payment made by either a cashier's
check, or in the case of a check drawn upon a deposit account in which there are
then sufficient funds on deposit for the payment of said check, upon receipt by
Lender of such check or cashier's check at the address designated elsewhere
herein for the delivery to Lender of notices.
9.27 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT
--------------------------------
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION (a) ARISING UNDER THE LOAN DOCUMENTS OR THE ORIGINAL NOTE,
INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF OR
(b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS OR THE ORIGINAL
NOTE (AS NOW OR HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY
HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER
OF THEIR RIGHT TO TRIAL BY JURY.
9.28 Obligations Under Ground Lease. Nothing contained in this Agreement
------------------------------
shall be construed to relieve or excuse Borrower of any of its obligations in
its capacity as ground tenant under the Ground lease.
9.29 Nonrecourse.
-----------
(a) Borrower shall be liable upon the indebtedness evidenced by the
Note, for all sums to accrue or to become payable thereunder, and for
performance of any covenants contained in any of the Loan Documents to the
extent, but only the extent, of Lender's security for the same, including,
without limitation, all properties, rights, estates, and interests covered by
this Agreement and the Loan Documents. No attachment, execution or other writ
of process shall be sought, issued or levied upon any assets, properties or
funds of Borrower other than the properties, rights, estates and interest
described in this Agreement and the other Loan Documents. In the event of
foreclosure of such title, liens, mortgages or security interests, by private
power of sale or otherwise, no judgment for any deficiency upon such
indebtedness, sums and amounts shall be sought or obtained by Lender against
Borrower.
-27-
<PAGE>
(b) Subject to the limitations set forth in Subparagraph (a) above,
nothing herein contained shall be construed to prevent Lender from exercising
and enforcing any other remedy allowed at law or in equity or by any statute or
by the terms of any of the Loan Documents.
(c) Notwithstanding the foregoing provisions of Subparagraphs (a) and
(b) above, or any provision of the Deed of Trust or any other Loan Document to
the contrary, no limitation of liability set forth herein, in the Deed of Trust
or in any other Loan Documents shall be deemed to limit any right Lender might
otherwise have to obtain injunctive relief against Borrower or any partner of
Borrower related to the Leasehold Interest or the Improvements or any personal
property security or to take any action to preserve, enforce or foreclose the
liens, mortgages, assignments and security interests now or at any time
hereafter securing the payment and performance of all sums and obligations
hereunder or any of the Loan Documents, or to collect rents or to collect
amounts which may become owing or payable under or on account of insurance,
condemnation awards or damages for other public actions or surety bonds
maintained or provided by Borrower.
(d) In addition to the foregoing provisions of this Section 9.29,
neither the limitation of liability set forth herein, or in the Deed of Trust or
any other Loan Document:
(i) shall apply to any damages sustained by Lender by reason of:
(A) any misrepresentation by Borrower or any partner of
Borrower proving to have been an intentional or fraudulent
misrepresentation when made,
(B) waste or intentional damage to the Property or
Improvements thereon by Borrower or any partner of Borrower,
(C) any breach of Borrower's obligations under Section 8.03
------------
hereof,
(D) the failure of Borrower or any partner of Borrower to
pay any income or other taxes, assessments or charges attributable to
the Borrower or such partner (as the case may be) which can create
liens on any portion of the Leasehold Interest or Improvements (to the
full extent of any such taxes, assessments or other charges) as to
Borrower or the partner who fails to pay such taxes, assessments or
charges, or
-28-
<PAGE>
(E) the making of any payment or any distribution (cash,
profits, fees or otherwise) of any assets of Borrower to any partner
of Borrower or to any affiliate of a partner of Borrower without the
prior written consent of Lender; and
(ii) shall apply should Borrower, or any partner of Borrower,
claim or contend at any time that the Deed of Trust securing the Loan is,
for any reason, invalid or unenforceable to an extent that would:
(A) preclude Lender from foreclosing the Deed of Trust or
causing a trustee's sale in connection with the Deed of Trust upon the
occurrence of a Default hereunder, or
(B) preclude Lender from foreclosing or otherwise enforcing
its security interest in the personal property covered by the Deed of
Trust or the Security Agreement upon the occurrence of a Default
hereunder.
(e) Nothing herein contained shall limit or be construed to limit the
personal liability and obligations of Borrower in the event that and to the
extent that after a Default or an event or circumstance that with the passage of
time, the giving of notice, or both, could constitute a Default, Borrower
collects any rents, issues or profits of the Leasehold Interest or the
Improvements or derived from the Leasehold Interest or the Improvements and does
not apply the same to the normal operating expenses of the Leasehold Interest or
the Improvements or any payments due under any of the Loan Documents, it being
intended hereby that Borrower shall be personally liable and obligated hereunder
to the full extent of such rentals and other items so collected and not so
applied, and that Lender or other holder hereof or of the Note, the Original
Note or any of the Loan Documents shall not be limited in any way in enforcing
such personal liability and obligations of Borrower.
-29-
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement as of
the date appearing on the first page of this Agreement.
"Lender" "Borrower"
NEW ENGLAND LIFE WILLOWS CONCORD VENTURE,
PENSION PROPERTIES' A Real a California limited partnership,
Estate Limited Partnership,
a Massachusetts limited
partnership By:/s/ WILLIAM J. THORMAHLEN
-------------------------
Name: WILLIAM J. THORMAHLEN
----------------------
Title: GENERAL PARTNER
----------------------
By: Copley Properties Company, Inc.
By:/s/ WESLEY M. GARDINER
----------------------
Name: Wesley M. Gardiner
-------------------
Title: Vice President
-------------------
NEW ENGLAND LIFE PENSION
PROPERTIES, II; A Real Estate Limited
Partnership, a Massachusetts limited
partnership
By: Copley Properties Company II, Inc.
By: /s/ WESLEY M. GARDINER
------------------------
Name: Wesley M. Gardiner
-------------------
Title: Vice President
-------------------
-30-
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
-----------------
That certain real property located in the City of Concord, County of Contra
Costa, State of California, described as follows:
Parcel "B" as shown on the Parcel Map filed April 22, 1969, in Book 8
of Parcel Maps at Page 16, Contra Costa County Records (hereinafter, the
"Site").
Excepting therefrom the interest to Contra Costa County Flood Control
and Water Conservation District, in the Deed recorded May 16, 1969, in Book
5876, Page 838, of Official Records.
ALSO EXCEPTING THEREFROM the buildings, structures and improvements now or
hereafter erected on the Site, and any replacements thereof, which are and
shall remain real property (collectively, the "Improvements"), and the
furnishings, equipment, machinery and other items of personal property now
or hereafter necessary for the property operation and maintenance of the
Improvements and situated on, over or beneath the Site.
<PAGE>
EXHIBIT B
05/17/95 10:35 PM
The Willows
Section VII - 1994 & 1995 Summary 1995
Prepared By:
Ginger Bryant
<TABLE>
<CAPTION>
Actual Actual Actual Actual
Jan Feb Mar Apr May Jun
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rental Income 215,188 198,598 176,675 224,225 190,544 170,610
- --------------------------------------------------------------------------------------------------------------------------------
CAM, Taxes and Insurance 47,369 44,817 54,995 27,523 42,032 46,920
- --------------------------------------------------------------------------------------------------------------------------------
Other Income 113 585 263 638 250 250
- --------------------------------------------------------------------------------------------------------------------------------
Total Revenues 262,670 244,000 231,933 252,386 232,827 217,780
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Repairs and Maintenance 652 3,938 11,165 9,454 3,006 3,025
- --------------------------------------------------------------------------------------------------------------------------------
Parking Lot 1,911 0 1,040 520 740 740
- --------------------------------------------------------------------------------------------------------------------------------
Landscaping (100) 11,350 12,849 5,675 11,175 10,776
- --------------------------------------------------------------------------------------------------------------------------------
Utilities 60 4,358 5,931 4,521 12,000 4,000
- --------------------------------------------------------------------------------------------------------------------------------
HVAC 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Janitorial and Trash 0 19,428 16,972 5,792 21,100 13,600
- --------------------------------------------------------------------------------------------------------------------------------
Security and Other 2,336 12,226 16,657 5,894 12,510 8,585
- --------------------------------------------------------------------------------------------------------------------------------
Total CAM 4,859 51,300 64,514 31,856 60,631 40,676
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Property Taxes 0 27,000 54,000 (27,289) 27,018 27,018
- --------------------------------------------------------------------------------------------------------------------------------
Insurance 1,647 1,647 1,647 1,647 1,647 1,647
- --------------------------------------------------------------------------------------------------------------------------------
Management Fees 8,878 7,546 6,930 8,160 6,994 6,543
- --------------------------------------------------------------------------------------------------------------------------------
Management Salaries 6,191 7,149 9,385 4,156 7,264 7,264
- --------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 21,575 94,642 136,576 18,630 103,464 83,148
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Marketing 850 1,093 368 1,026 6,914 8,296
- --------------------------------------------------------------------------------------------------------------------------------
Professional Services 10,071 1,983 2,141 5,686 2,000 2,000
- --------------------------------------------------------------------------------------------------------------------------------
Administrative 5,358 1,349 9,460 3,930 3,525 4,639
- --------------------------------------------------------------------------------------------------------------------------------
Bad Debt 0 (609) (305) (305) (305) (305)
- --------------------------------------------------------------------------------------------------------------------------------
Total Expenses 37,654 98,458 148,240 28,667 115,588 97,778
- --------------------------------------------------------------------------------------------------------------------------------
Net Operating Income 224,616 145,542 83,693 223,619 117,238 120,003
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Interest Paid 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Other Expenses Paid 0 0 0 800 0 0
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Tenant Improvements/Vanilla (105,503) (22,618) (10,443) (2,775) (46,000) (124,000)
- --------------------------------------------------------------------------------------------------------------------------------
Leasing Commissions 7,172 (4,292) (2,880) (13,947) (34,435) (12,000)
- --------------------------------------------------------------------------------------------------------------------------------
Renovation and Replacements (80,902) (54,309) 2,139 (5,464) 0 (60,000)
- --------------------------------------------------------------------------------------------------------------------------------
Total Capital (179,233) (81,219) (11,164) (22,186) (80,435) (196,000)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Loan/Other Funding 308,165 0 0 49,380 (250,000) (17,000)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Cash Accrual Adjustments (185,520) (338,603) 73,913 (153,808) 27,018 142,583
- --------------------------------------------------------------------------------------------------------------------------------
Net Cash Flow 168,245 (274,280) 146,422 96,105 (186,179) 49,586
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Beginning Cash 170,606 338,854 64,575 210,997 307,103 120,924
- --------------------------------------------------------------------------------------------------------------------------------
Ending Cash 338,854 64,575 210,997 307,103 120,924 170,509
- --------------------------------------------------------------------------------------------------------------------------------
Target Working Capital 50,000 50,000 50,000 50,000
Property Tax Reserve 135,000 0 27,000 54,000
Excess/Funding Need 25,997 257,103 43,924 66,509
Cumulative Funding 308,185 308,185 308,185 357,565 357,565 357,565
Balance in Coplay Cash account 0 0 0 0 250,000 267,000
Potential Pad B REG pyml
Potential Pad B costs above demo (in T/S)
</TABLE>
<TABLE>
<CAPTION>
Jul Aug Sep Oct Nov Dec
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rental Income 189,076 212,876 194,200 216,400 205,150 217,875
- --------------------------------------------------------------------------------------------------------------------------------
CAM, Taxes and Insurance 43,715 47,050 49,212 49,931 54,053 64,291
- --------------------------------------------------------------------------------------------------------------------------------
Other Income 250 250 250 250 250 250
- --------------------------------------------------------------------------------------------------------------------------------
Total Revenues 233,041 260,176 243,663 266,682 259,453 282,416
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Repairs and Maintenance 2,506 2,654 2,878 6,665 4,518 5,037
- --------------------------------------------------------------------------------------------------------------------------------
Parking Lot 3,740 740 740 920 920 920
- --------------------------------------------------------------------------------------------------------------------------------
Landscaping 7,225 8,375 9,766 5,725 6,225 9,616
- --------------------------------------------------------------------------------------------------------------------------------
Utilities 12,000 4,000 12,000 4,300 10,500 5,500
- --------------------------------------------------------------------------------------------------------------------------------
HVAC 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Janitorial and Trash 13,600 13,600 13,600 14,100 14,100 14,100
- --------------------------------------------------------------------------------------------------------------------------------
Security and Other 8,960 8,510 8,585 8,510 8,960 9,485
- --------------------------------------------------------------------------------------------------------------------------------
Total CAM 48,031 37,879 47,669 40,220 47,223 44,668
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Property Taxes 27,018 27,018 27,018 27,018 27,018 27,018
- --------------------------------------------------------------------------------------------------------------------------------
Insurance 1,647 1,647 1,729 1,729 1,729 1,729
- --------------------------------------------------------------------------------------------------------------------------------
Management Fees 7,000 7,814 7,319 8,007 7,793 8,482
- --------------------------------------------------------------------------------------------------------------------------------
Management Salaries 7,264 7,264 7,264 7,264 7,264 13,832
- --------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 90,961 61,622 90,898 84,238 91,026 96,718
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Marketing 1,149 3,617 2,671 2,639 9,921 11,171
- --------------------------------------------------------------------------------------------------------------------------------
Professional Services 2,000 2,000 2,000 2,000 5,000 2,000
- --------------------------------------------------------------------------------------------------------------------------------
Administrative 3,525 3,501 4,463 3,501 3,975 4,439
- --------------------------------------------------------------------------------------------------------------------------------
Bad Debt (305) (305) (305) (305) (305) (305)
- --------------------------------------------------------------------------------------------------------------------------------
Total Expenses 97,330 90,436 89,727 92,073 109,617 113,023
- --------------------------------------------------------------------------------------------------------------------------------
Net Operating Income 136,710 169,740 143,936 174,609 149,836 169,393
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Interest Paid 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Other Expenses Paid 0 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Tenant Improvements/Vanilla (165,000) (300,000) (559,150) (356,250) (198,400) (32,000)
- --------------------------------------------------------------------------------------------------------------------------------
Leasing Commissions (13,150) (46,000) (26,348) (55,250) (45,435) (54,500)
- --------------------------------------------------------------------------------------------------------------------------------
Renovation and Replacements (20,000) 0 0 0 0 0
- --------------------------------------------------------------------------------------------------------------------------------
Total Capital (198,150) (346,000) (685,498) (411,500) (243,835) (66,500)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Loan/Other Funding 57,000 53,000 157,000 426,000 222,000 94,000
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Cash Accrual Adjustments 29,168 174,868 266,516 (146,980) (140,647) (292,425)
- --------------------------------------------------------------------------------------------------------------------------------
Net Cash Flow 23,728 61,608 (16,047) 42,029 (12,646) (116,632)
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
Beginning Cash 170,509 194,238 245,846 227,800 269,829 257,183
- --------------------------------------------------------------------------------------------------------------------------------
Ending Cash 194,238 245,846 227,800 269,829 257,183 141,651
- --------------------------------------------------------------------------------------------------------------------------------
Target Working Capital 50,000 50,000 50,000 50,000 50,000 50,000
Property Tax Reserve 81,000 108,000 135,000 135,000 27,000 54,000
Excess/Funding Need 63,238 87,846 42,800 84,829 180,183 37,651
Cumulative Funding 357,565 357,565 357,565 783,565 1,005,565 1,099,565
Balance in Coplay Cash account 210,000 157,000 0 0 0 0
Potential Pad B REG pyml 250,000
Potential Pad B costs above demo (in T/S) (1,350,000)
</TABLE>
<TABLE>
<CAPTION>
Current Yr.
Total Forecast Change
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Rental Income 2,411,421 2,565,726 (154,304)
- ------------------------------------------------------------------------------
CAM, Taxes and Insurance 571,908 624,826 (52,917)
- ------------------------------------------------------------------------------
Other Income 3,599 3,000 599
- ------------------------------------------------------------------------------
Total Revenues 2,986,929 3,193,561 (206,623)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Repairs and Maintenance 55,497 45,180 10,316
- ------------------------------------------------------------------------------
Parking Lot 12,931 12,960 (29)
- ------------------------------------------------------------------------------
Landscaping 100,607 99,624 983
- ------------------------------------------------------------------------------
Utilities 79,170 90,400 (11,230)
- ------------------------------------------------------------------------------
HVAC 0 0 0
- ------------------------------------------------------------------------------
Janitorial and Trash 159,992 164,700 (1,232)
- ------------------------------------------------------------------------------
Security and Other 111,218 109,120 2,098
- ------------------------------------------------------------------------------
Total CAM 619,416 621,964 908
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Property Taxes 269,855 401,395 (131,540)
- ------------------------------------------------------------------------------
Insurance 20,093 20,094 (1)
- ------------------------------------------------------------------------------
Management Fees 91,465 95,657 (4,191)
- ------------------------------------------------------------------------------
Management Salaries 91,559 95,098 (3,539)
- ------------------------------------------------------------------------------
Total Operating Expenses 992,388 1,134,227 (138,363)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Marketing 49,714 51,257 (1,543)
- ------------------------------------------------------------------------------
Professional Services 38,378 37,500 878
- ------------------------------------------------------------------------------
Administrative 51,668 50,829 839
- ------------------------------------------------------------------------------
Bad Debt (3,659) 5,000 (8,659)
- ------------------------------------------------------------------------------
Total Expenses 1,126,489 1,278,813 (146,848)
- ------------------------------------------------------------------------------
Net Operating Income 1,868,440 1,914,738 (59,774)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Interest Paid 0 (0) 0
- ------------------------------------------------------------------------------
Other Expenses Paid 800 0 800
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Tenant Improvements/Vanilla (1,922,139) (1,928,150) 6,011
- ------------------------------------------------------------------------------
Leasing Commissions (301,065) (394,900) 93,835
- ------------------------------------------------------------------------------
Renovation and Replacements (218,536) (200,000) (18,536)
- ------------------------------------------------------------------------------
Total Capital (2,441,740) (2,523,060) 81,310
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Loan/Other Funding 1,099,565 0 1,099,565
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Cash Accrual Adjustments (543,917) 0 (543,917)
- ------------------------------------------------------------------------------
Net Cash Flow (28,452) (606,312) 676,384
- ------------------------------------------------------------------------------
- ---------------------------------------------
Beginning Cash 170,606
- ----------------------------------------------
Ending Cash 142,154
- ----------------------------------------------
Target Working Capital
Property Tax Reserve
Excess/Funding Need
Cumulative Funding
Balance in Coplay Cash account
before
Potential Pad B REG pyml contingency
Potential Pad B costs above demo (in T/S) 2,199,565
</TABLE>
<PAGE>
PROMISSORY NOTE
---------------
1. Defined Terms. As used in this Promissory Note (this "Note"), the
-------------
following terms shall have the following meanings:
Accrual Balance shall have the meaning assigned to it in Paragraph
---------------
3(a)(ii).
Accrued Amount shall have the meaning assigned to it in Paragraph
--------------
3(a)(ii).
Assignment of Leases shall mean that certain Assignment of Leases and
--------------------
Rents dated as of June 13, 1991, executed by Maker in favor of Lender, recorded
on June 18, 1991 as Instrument No. 91-110715 in the Official Records of Contra
Costa County, California, as amended by that certain Modification Agreement and
First Amendment to Loan Documents dated as of August 15, 1991, as further
amended by that certain Modification Agreement and Second Amendment to Loan
Documents dated as of September 12, 1991, as further amended by that certain
Modification Agreement and Third Amendment to Loan Documents dated as of October
15, 1991, as further amended by that certain Fourth Amendment to Loan Documents
dated as of December 17, 1992, and as further amended by that Fifth Amendment to
Loan Documents (as defined herein).
Date of Disbursement shall mean the date of this Note.
--------------------
Deed of Trust shall mean that certain Deed of Trust and Security
-------------
Agreement dated as of June 13, 1991, by Maker, as Trustor, to Chicago Title
Company, as Trustee, for the benefit of Lender, recorded in June 18, 1991 as
Instrument No. 91-116714 in the Official Records of Contra Costa County,
California, as amended by that certain Modification Agreement and First
Amendment to Loan Documents dated as of August 15, 1991, as further amended by
that certain Modification Agreement and Second Amendment to Loan Documents dated
as of September 12, 1991, as further amended by that certain Modification
Agreement and Third Amendment to Loan Documents dated as of October 15, 1991, as
further amended by that certain Fourth Amendment to Loan Documents dated as of
December 17, 1992, and as further amended by the Fifth Amendment to Loan
Documents (as defined herein).
Fifth Amendment to Loan Documents shall mean that certain Fifth
---------------------------------
Amendment to Loan Documents of even date herewith by and between Maker and
Lender.
<PAGE>
Fiscal Year shall mean the calendar year. As used in this Note, a Fiscal
-----------
Year shall include any partial Fiscal Year at the beginning and end of the term
of this Note.
Ground Lease shall mean that certain Amended and Completely Restated
------------
Ground Lease effective as of June 18, 1991 by and between Maker, as ground
tenant, and Lender, as ground landlord.
Improvements shall mean the shopping center and any and all other
------------
improvements located on the Property.
Interest Rate shall mean eleven percent (11%) per annum compounded monthly.
-------------
Leasehold Interest shall mean Maker's leasehold interest under the Ground
------------------
Lease.
Lender shall mean New England Life Pension Properties; A Real Estate
------
Limited Partnership, and New England Life Pension Properties II; A Real Estate
Limited Partnership, each a Massachusetts limited partnership, together with
their respective successors and assigns (collectively referred to herein as
"Lender").
Loan shall mean the loan in the amount of the Principal Sum made by Lender
----
to Maker pursuant to the Loan Agreement.
Loan Agreement shall mean that certain Construction Loan Agreement by and
--------------
between Maker and Lender of even date herewith.
Maker shall mean Willows Concord Venture, a California limited
-----
partnership, having an address at 18802 Bardeen Avenue, Irvine, California
92715.
Maturity Date shall mean December 31, 1997.
-------------
Net Operating Cash Flow shall have the meaning assigned to it in Paragraph
-----------------------
3(a)(iii).
Operating Expenses shall have the meaning assigned to it in Paragraph
------------------
3(a)(iv).
Original Note shall mean that certain Amended and Restated Promissory Note
-------------
effective as of June 14, 1991 made by Maker in favor of Lender in the principal
amount of Fourteen
-2-
<PAGE>
Million Eight Hundred Sixty Three Thousand Two Hundred Six and 38/100 Dollars
($14,863,206.38), which Original Note replaced and superseded in its entirety
that certain Promissory Note dated June 14, 1991 made by Maker in favor of
Lender in the principal amount of Fourteen Million Eight Hundred Sixty Three
Thousand Two Hundred Six and 38/100 Dollars ($14,863,206.38).
Principal Sum shall mean $2,500,000.00.
-------------
Property shall mean the real property located in the County of Contra
--------
Costa, State of California and more particularly described in Exhibit A to the
---------
Deed of Trust.
Security Agreement shall mean that certain Security Agreement of even date
------------------
herewith executed by Maker in favor of Lender.
Any initially-capitalized terms used and not otherwise defined herein shall
have the meanings given to such terms in the Deed of Trust.
2. Debt. FOR VALUE RECEIVED, Maker promises to pay upon the Maturity Date
----
to the order of Lender the unpaid portion of the Principal Sum, together with
interest on the unpaid principal from the Date of Disbursement to the Maturity
Date at the Interest Rate, in accordance with the terms hereof. Interest
payable hereunder shall be calculated on the basis of a 365-day year.
3. Payments of Interest and Principal.
----------------------------------
(a) Time and Method of Payment.
--------------------------
(i) If the Disbursement Date does not occur on the first day of a
month, there shall be paid on the first day of the first month following
the Disbursement Date, for the period commencing on the Disbursement Date
and ending on and including the last day of the month in which the
Disbursement Date occurs, interest only on the portion of the Principal Sum
disbursed on the Disbursement Date at the Interest Rate. Thereafter,
subject to Paragraph 3(a)(ii) below, Maker shall pay the Principal Sum to
Lender, together with interest thereon calculated in arrears, in monthly
installments commencing on the first day of the second month following the
Disbursement Date and continuing on the first day of each month thereafter
until the Maturity Date. Each installment shall be in an amount sufficient
to amortize the Principal Sum in equal payments based upon a fifteen (15)
year
-3-
<PAGE>
amortization schedule at the Interest Rate, which schedule shall be deemed
to have commenced on the first day of the first month following the
Disbursement Date regardless of the date of any subsequent disbursement of
the Principal Sum by Lender under the Loan Agreement. Lender shall
recalculate the amount of such monthly installments after each disbursement
of the Principal Sum under the Loan Agreement.
(ii) Notwithstanding the provisions of Paragraph 3(a)(i) above,
until January 1, 1996 Maker shall be required to make monthly installments
of interest and principal due to Lender only from and to the extent of Net
Operating Cash Flow realized by Maker for any month ending prior to January
1, 1996. Each such monthly installment (or portion thereof) of interest
and principal which is not paid by Maker when due in accordance with the
foregoing sentence shall accrue interest at the Interest Rate from the date
the same was due. The total of all such unpaid monthly installments (or
portions thereof), together with all interest accruals thereon, shall be
referred to herein as the "Accrued Amount." The Accrued Amount, or any
portion thereof remaining unpaid at any time and from time to time during
the term of this Note (the "Accrual Balance") shall bear interest at the
Interest Rate until fully repaid by Maker to Lender. At any time and from
time to time up to the Maturity Date, Maker may pay the then outstanding
Accrual Balance to Lender, in whole or in part. Notwithstanding the
foregoing, Maker hereby agrees to apply all Net Operating Cash Flow
realized by Maker for any month during the term of this Note (in excess of
the amount required to be paid pursuant to the first sentence of this
Paragraph 3(a)(ii)) (A) to reduce the outstanding Accrual Balance until
paid in full, and (B) after the outstanding Accrual Balance has been paid
in full, to reduce the outstanding Principal Sum. In all events, the
Principal Sum, including any Accrual Balance, remaining unpaid on the
Maturity Date shall be paid to Lender in full on the Maturity Date.
(iii) Net Operating Cash Flow. For purposes of this Note, the
-----------------------
term "Net Operating Cash Flow" shall mean, as to any particular Fiscal Year
or portion thereof, the difference between (i) the aggregate of all fixed,
minimum and guaranteed rents, fees, overage rents, percentage or
participation rents and all rents and receipts from licenses and
concessions received from the Property, including all amounts received for
parking and all fees, income and revenue of a non-rental nature received by
Maker during such Fiscal
-4-
<PAGE>
Year, less (ii) Operating Expenses, capital expenditures and reserves
therefor (to the extent permitted by Lender under the Loan Agreement), cost
of tenant improvements, payments of principal, interest, loan fees or other
charges or amounts on the Original Note which are paid by Maker during such
Fiscal Year, all payments by Maker to Lender under the Ground Lease, and a
reasonable reserve as determined by Maker to cover such expenses in the
following Fiscal Year, all as determined on a cash accounting basis. Net
Operating Cash Flow shall be computed by Maker on a monthly basis.
(iv) Definition of Operating Expenses. "Operating Expenses"
--------------------------------
shall mean all reasonable and necessary charges and expenses actually
incurred by Maker for the maintenance, protection, management and operation
of the Property in the manner required by the Ground Lease and consistent
with the management and operation of like properties in the Greater San
Francisco area, and shall include, but not be limited to:
(A) normal, prevailing wages, salaries, and fringe benefits
and payroll taxes for on-site personnel engaged in the operation of
the Property (excluding home office personnel);
(B) a management fee not in excess of the "Maximum
Management Fee", if, in fact, such fee is incurred, plus the actual
cost of on-site management. The "Maximum Management Fee" shall be
three percent (3%) of gross collected revenue;
(C) payment of utilities, maintenance supplies, real estate
taxes, betterments and assessments (but not income taxes or interest
paid on taxes), cleaning, repairs, insurance, ordinary accounting,
auditing and legal fees, interest paid to others on funds held in
escrow, ordinary advertising;
(D) normal, prevailing brokerage commissions payable to
third parties; and
(E) expenses incurred for replacement of capital
improvements and reserves therefor (to the extent permitted by Lender
under the Loan Agreement).
"Operating Expenses" shall not include depreciation or any other non-
cash costs.
-5-
<PAGE>
(b) Maturity Date. On the Maturity Date, Maker shall pay to Lender
-------------
the entire then unpaid and outstanding Principal Sum, together with any accrued,
unpaid interest hereunder (including, without limitation any outstanding Accrual
Balance).
4. Books and Records, Reports and Audits. During the term of this Note,
-------------------------------------
Maker shall maintain books and records and cause reports and audits to be
prepared in accordance with the provisions of the Deed of Trust.
5. Additional Interest. All expenditures by Lender pursuant to this Note
-------------------
or the other Loan Documents which are not reimbursed by Maker immediately upon
demand, all amounts remaining due and unpaid after the Maturity Date and any
amounts due and unpaid after an Event of Default shall bear interest at the rate
of five percent (5%) per annum more than the Interest Rate, until such amounts
are paid to Lender.
6. Manner and Place of Payment. All payments hereunder shall be made in
---------------------------
lawful money of the United States of America, in immediately available funds, at
399 Boylston Street, Boston, Massachusetts 02116, c/o Copley Real Estate
Advisors, Inc., or at such other place as Lender may from time to time designate
in writing.
7. Application of Payments. Unless an Event of Default has occurred and
-----------------------
is continuing, all payments hereunder shall be applied first to costs of
collection or enforcement and other similar amounts due, if any, under this Note
and the other Loan Documents, then to any accrued, unpaid interest due under the
Note (including, without limitation, any outstanding interest included in the
Accrual Balance), and then to the outstanding Principal Sum (including any
portion of the Principal Sum included in the Accrual Balance). If an Event of
Default has occurred and is continuing, such payments may be applied to sums due
hereunder or under the Loan Documents in any order and combination that Lender
may, in its sole discretion, determine.
8. Waivers. Other than as expressly provided herein with respect to
-------
notice and cure rights, Maker waives presentment for payment, demand, notice of
nonpayment, notice of intention to accelerate the maturity of this Note,
diligence in collection, commencement of suit against any obligor, notice of
protest, and protest of this Note and all other notices in connection with the
delivery, acceptance, performance, default or enforcement of the payment of this
Note, before or after maturity of this Note, with or without notice to Maker,
and agrees that its liability shall
-6-
<PAGE>
not be in any manner affected by any indulgence, extension of time, renewal,
waiver or modification granted or consented to by Lender. Maker consents to any
and all extensions of time, renewals, waivers or modifications that may be
granted by Lender with respect to the payment or other provisions of this Note,
and to any substitution, exchange or release of the collateral for this Note, or
any part thereof, with or without substitution of said collateral.
9. No Usury. Lender and Maker intend to comply at all times with
--------
applicable usury laws. If at any time such laws would ever render usurious any
amounts called for under this Note or the other Loan Documents, then it is
Maker's and Lender's express intention that Maker shall not be required to pay
interest on this Note at a rate in excess of the maximum lawful rate, that the
provisions of this Paragraph shall control over all other provisions or this
Note and the Loan Documents which may be in apparent conflict hereunder, that
such excess amount shall be immediately credited on the principal balance of
this Note (or, if this Note has been fully paid, refunded by Lender to Maker),
and the provisions hereof shall be immediately reformed and the amounts
thereafter collectible under this Note reduced, without the necessity of the
execution of any further documents, so as to comply with applicable usury laws,
but so as to permit the recovery of the fullest amount otherwise called for
under this Note. Any such crediting or refund shall not cure or waive any
default by Maker under this Note or the other Loan Documents. If at any time
following any reduction in the interest rate payable by Maker there remains
unpaid any principal amount under this Note and the maximum interest rate not
prohibited by applicable law is increased or eliminated, then the interest rate
payable under this Note shall be readjusted, to the extent not prohibited by
applicable law, so that the total dollar amount of interest payable hereunder
shall be equal to the dollar amount of interest which would have been paid by
Maker without giving effect to the reduction in interest resulting from
compliance with applicable usury laws. Maker agrees that in determining whether
or not any interest payable under this Note or the other Loan Documents exceeds
the highest rate not prohibited by law, any non-principal payment (except
payments specifically stated in this Note or in the other Loan Documents to be
"interest"), shall, to the maximum extent not prohibited by law, be an expense,
fee, or premium rather than interest. The term "applicable law" as used in this
Note shall mean the laws of the State of California, or the laws of the United
States, whichever laws allow the greater rate of interest, as such laws now
exist or may be changed or amended or come into effect in the future.
-7-
<PAGE>
10. Remedies. The rights and remedies of Lender are set forth in the Loan
--------
Documents and include, without limitation, in case of an Event of Default, the
right to declare the outstanding Principal Sum and any accrued and unpaid
interest due under this Note (including, without limitation, any outstanding
Accrual Balance) immediately due and payable.
11. Amendments. This Note may not be changed or amended orally but only
----------
by an agreement in writing, signed by the party against whom enforcement is
sought.
12. Governing Law. This Note shall be governed and construed by the laws
-------------
of the State of California.
13. Permitted Prepayment. Maker may prepay the entire unpaid Principal
--------------------
Sum, with accrued and unpaid interest (including, without limitation, any
outstanding Accrual Balance), in whole or in part, at any time, without
prepayment penalty. Unless Lender otherwise agrees, the amount of the monthly
installments of principal and interest payable hereunder shall not be reduced in
the event of any partial prepayment.
14. Non-Recourse Debt.
-----------------
(a) Maker shall be liable upon the indebtedness evidenced by this
Note, for all sums to accrue or to become payable thereunder, and for
performance of any covenants contained in any of the Loan Documents to the
extent, but only the extent, of Lender's security for the same, including,
without limitation, all properties, rights, estates, and interests covered by
the Loan Agreement and the Loan Documents. No attachment, execution or other
writ of process shall be sought, issued or levied upon any assets, properties or
funds of Maker other than the properties, rights, estates and interest described
in Loan Agreement and the other Loan Documents. In the event of foreclosure of
such title, liens, mortgages or security interests, by private power of sale or
otherwise, no judgment for any deficiency upon such indebtedness, sums and
amounts shall be sought or obtained by Lender against Maker.
(b) Subject to the limitations set forth in Subparagraph (a) above,
nothing herein contained shall be construed to prevent Lender from exercising
and enforcing any other remedy allowed at law or in equity or by any statute or
by the terms of any of the Loan Documents.
-8-
<PAGE>
(c) Notwithstanding the foregoing provisions of Subparagraphs (a) and
(b) above, or of any provision of the Deed of Trust or any other Loan Document
to the contrary, no limitation of liability set forth herein, in the Deed of
Trust or in any other Loan Document shall be deemed to limit any right Lender
might otherwise have to obtain injunctive relief against Maker or any partner of
Maker related to the Leasehold Interest or the Improvements or any personal
property security or to take any action to preserve, enforce or foreclose the
liens, mortgages, assignments and security interests now or at any time
hereafter securing the payment and performance of all sums and obligations
hereunder or any of the Loan Documents, or to collect rents or to collect
amounts which may become owing or payable under or on account of insurance,
condemnation awards or damages for other public actions or surety bonds
maintained or provided by Maker.
(d) In addition to the foregoing provisions of this Paragraph 14,
neither the limitation of liability set forth herein, or in the Deed of Trust or
any other Loan Document:
(i) shall apply to any damages sustained by Lender by reason of:
(A) any misrepresentation by Maker or any partner of Maker
proving to have been an intentional or fraudulent misrepresentation
when made,
(B) waste or intentional damage to the Property or
Improvements thereon by Maker or any partner of Maker,
(C) any breach of Maker's obligations under Section 8.03 of
------------
the Loan Agreement,
(D) the failure of Maker or any partner of Maker to pay any
income or other taxes, assessments or charges attributable to the
Maker or such partner (as the case may be) which can create liens on
any portion of the Leasehold Interest or Improvements (to the full
extent of any such taxes, assessments or other charges) as to Maker or
the partner who fails to pay such taxes, assessments or charges, or
(E) the making of any payment or any distribution (cash,
profits, fees or otherwise) of any assets of Maker to any partner of
Maker or to any
-9-
<PAGE>
affiliate of a partner of Maker without the prior written consent of
Lender; and
(ii) shall apply should Maker, or any partner of Maker, claim or
contend at any time that the Deed of Trust securing the Loan is, for any
reason, invalid or unenforceable to an extent that would:
(A) preclude Lender from foreclosing the Deed of Trust or causing
a trustee's sale in connection with the Deed of Trust upon the occurrence
of a Default under the Loan Agreement, or
(B) preclude Lender from foreclosing or otherwise enforcing its
security interest in the personal property covered by the Deed of Trust or
the Security Agreement upon the occurrence of a Default under the Loan
Agreement.
(e) Nothing herein contained shall limit or be construed to limit the
personal liability and obligations of Maker in the event that and to the extent
that after a Default or an event or circumstance that with the passage of time,
the giving of notice, or both, could constitute a Default, Maker collects any
rents, issues or profits of the Leasehold Interest or the Improvements or
derived from the Leasehold Interest or the Improvements and does not apply the
same to the normal operating expenses of the Leasehold Interest or the
Improvements or any payments due under any of the Loan Documents, it being
intended hereby that Maker shall be personally liable and obligated hereunder to
the full extent of such rentals and other items so collected and not so applied,
and that Lender or other holder hereof or of this Note, the Original Note or any
of the Loan Documents shall not be limited in any way in enforcing such personal
liability and obligations of Maker.
15. Security. This Note is secured, in part, by the Deed of Trust, the
--------
Assignment of Leases, the Security Agreement and all amendments, modifications,
supplements, substitutions, additions, renewals, replacements and extensions
thereof.
16. Collection. Any check, draft, money order or other instrument given
----------
in payment of all or any portion hereof may be accepted by Lender and handled by
collection in the customary manner, but the same shall not constitute payment
hereunder or diminish any rights of Lender except to the extent that actual
-10-
<PAGE>
cash proceeds of such instrument are unconditionally received by Lender and
applied to this indebtedness in the manner elsewhere herein provided.
17. Attorneys' Fees. Upon any Event of Default, Maker shall pay all costs
---------------
of collection, including without limitation, reasonable attorneys' fees and
expenses, whether or not suit is filed hereon.
IN WITNESS WHEREOF, this Note has been executed and delivered of the 1st
day of January, 1995.
"Maker" WILLOWS CONCORD VENTURE, a
California limited partnership
By: /s/ John S. Hagestad
------------------------------
John S. Hagestad
Its: General Partner
By: /s/ Carl F. Willgeroth
------------------------------
Carl F. Willgeroth
Its: General Partner
By: /s/ William J. Thormahlen
------------------------------
William J. Thormahlen
Its: General Partner
-11-
<PAGE>
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT ("Agreement") is entered into as of January 1,
1995, by WILLOWS CONCORD VENTURE, a California limited partnership ("Borrower"),
whose principal place of business is located at 18802 Bardeen Avenue, Irvine,
California 92715, in favor of NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE
LIMITED PARTNERSHIP, and NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE
LIMITED PARTNERSHIP, each a Massachusetts limited partnership (collectively
"Lender").
RECITALS
--------
A. Borrower proposes to borrow from Lender, pursuant to the terms of that
certain Construction Loan Agreement (the "Loan Agreement") between Borrower and
Lender, dated as of the date of this Agreement, the principal sum of TWO MILLION
FIVE HUNDRED THOUSAND and 00/100THS DOLLARS ($2,500,000.00) (the "Loan") for the
purposes specified in the Loan Agreement and relating to the real property and
improvements described in the Loan Agreement (which property and improvements
are collectively referred to herein as the "Subject Property"). The Loan is
evidenced by a Promissory Note (the "Note") of Borrower payable to Lender in the
principal amount of the Loan and is secured by the Deed of Trust (as defined on
the Loan Agreement) on the Subject Property, the security interests granted
under this Agreement and any other security instruments specified in the Loan
Agreement.
B. The Loan Documents (as defined and described in the Loan Agreement)
include this Agreement, the Loan Agreement, the Deed of Trust, the Note, and the
Lease Assignment (as defined in the Loan Agreement). Initially-capitalized
terms used and not otherwise defined herein shall have the meanings given to
such terms in the Loan Agreement.
NOW, THEREFORE, in consideration of Lender's agreement to make the Loan,
Borrower agrees as follows:
1. Security interest. Borrower grants and assigns to Lender as of the
-----------------
Effective Date (as defined in the Loan Agreement) a security interest in all of
the following described personal property in which Borrower now or at any time
hereafter has any interest (collectively, the "Collateral"):
All goods, building and other materials, supplies, work in progress,
equipment, machinery, fixtures, furniture, furnishings, signs and other
personal property, wherever
<PAGE>
situated, which are or are to be incorporated into, used in connection
with, or appropriated for use on (i) the real property described on Exhibit
A to the Deed of Trust or (ii) the improvements described in the Loan
Agreement (which real property and improvements are collectively referred
to herein as the Subject Property); together with all rents, issues,
deposits and profits of the Subject Property; all inventory, accounts, cash
receipts, deposit accounts (including, without limitation, demand deposit
account no. 180206050 in the name of Willows Concord General Checking of
the First Interstate Bank, 1018 North Main Street, Santa Ana, California
982701 established pursuant to the Loan Agreement and demand deposit
account no. 9364452404 of Fleet Bank, Boston, Massachusetts; accounts
receivable, contract rights, general intangibles, chattel paper,
instruments, documents, notes, drafts, letters of credit, insurance
policies, insurance and condemnation awards and proceeds, any other rights
to the payment of money, trade names, trademarks and service marks arising
from or related to the Subject Property or any business now or hereafter
conducted thereon by Borrower; all permits, consents, approvals, licenses,
authorizations and other rights granted by, given by or obtained from, any
governmental entity with respect to the Subject Property; all deposits or
other security now or hereafter made with or given to utility companies by
Borrower with respect to the Subject Property; all advance payments of
insurance premiums made by Borrower with respect to the Subject Property;
all plans, drawings and specifications relating to the Subject Property;
all loan funds held by Lender, whether or not disbursed; all funds
deposited with Lender pursuant to any loan agreement; all reserves,
deferred payments, deposits, accounts, refunds, cost savings and payments
of any kind related to the Subject Property or any portion thereof;
together with all replacements and proceeds of, and additions and
accessions to, any of the foregoing; together with all books, records and
files relating to any of the foregoing.
2. Obligations Secured. This Agreement secures the payment and
-------------------
performance of all present and future obligations of Borrower to Lender under
the Loan, that certain Amended and Restated Promissory Note dated effective as
of June 14, 1991 made by Borrower in favor of Lender in the principal amount of
$14,863,206.38, the other Loan Documents and under any other agreement which
recites that it is secured hereby.
3. Representations and Warranties. Borrower represents and warrants
------------------------------
that: (a) Borrower has, or will have, good title to the Collateral; (b)
Borrower has not previously assigned or encumbered
-2-
<PAGE>
the Collateral to any person or entity other than Lender, and no financing
statement covering any of the Collateral has been delivered to any other person
or entity other than Lender; and (c) Borrower's principal place of business is
located at the address specified above.
4. Rights of Lender. In addition to Lender's rights as a "Secured
----------------
Party" under the California Uniform Commercial Code, as amended or recodified
from time to time ("UCC"), Lender may, but shall not be obligated to, at any
time without notice and at the expense of Borrower: (a) give notice to any
person of Lender's rights hereunder and, upon the occurrence of a Default,
enforce such rights; (b) insure, protect, defend and preserve the Collateral or
any rights or interests of Lender therein; (c) inspect the Collateral; and (c)
endorse, collect and receive any right to payment of money owing to Borrower
under or from the Collateral. Lender shall have no duty or obligation to make
or give any presentments, demands for performance, notice of nonperformance,
notice of protest or notices of dishonor in connection with any of the
Collateral.
5. Collateral Designation Statement. Borrower shall, from time to
--------------------------------
time within ten (10) days of Lender's request, deliver to Lender a written
statement showing the description and location of all Collateral then subject to
this Agreement.
6. Miscellaneous Undertakings. In addition to Borrower's
--------------------------
undertakings under the other Loan Documents, Borrower, at its sole cost and
expense, agrees to pay within fifteen (15) days of Lender's demand, all
expenses, including without limitation, reasonable attorneys' fees and court
costs, incurred by Lender in connection with the creation, perfection,
preservation or enforcement of any of the security interests granted under this
Agreement.
7. Default. "Default" shall mean (i) the failure to perform any
-------
obligation hereunder or the failure to be true of any representation or warranty
of Borrower herein, and the continuance of such failure for fifteen (15) days
after notice or within any longer grace period, if any, allowed in the Loan
Agreement for such failure, or (ii) the existence of any Default as defined in
the Loan Agreement.
8. Lender's Rights on Default. Upon the occurrence of a Default
--------------------------
under this Agreement, then in addition to all of Lender's rights as a "Secured
Party" under the UCC or otherwise by law:
8.1. Lender may (i) upon written notice, require Borrower to assemble
any or all of the Collateral and make it
-3-
<PAGE>
available to Lender at a place designated by Lender; (ii) without prior notice,
enter upon the Subject Property or other place where any of the Collateral may
be located and take possession of, collect, sell, and dispose of any or all of
the Collateral, and store the same at locations acceptable to Lender at
Borrower's expense; (iii) sell, assign and deliver at any place or in any lawful
manner all or any part of the Collateral and bid and become purchaser at any
such sale; and
8.2. Lender may, for the account of Borrower and at Borrower's
expense: (i) operate, use, consume, sell or dispose of the Collateral as Lender
deems appropriate for the purpose of performing any or all of the obligations
secured by this Agreement; (ii) enter into any agreement, compromise, or
settlement, including insurance claims, which Lender may deem desirable or
proper with respect to any of the Collateral; (iii) endorse and deliver
evidences of title for, and receive, enforce and collect by legal action or
otherwise, all indebtedness and obligations now or hereafter owing to Borrower
in connection with or on account of any or all of the Collateral; and (iv)
perform any of the obligations secured by this Agreement.
Notwithstanding any other provisions of this Agreement, Lender shall
not be deemed to have accepted any property other than cash in satisfaction of
any obligation of Borrower to Lender unless Lender shall make an express written
election of said remedy under UCC Section 9505, or other applicable law.
9. Power of Attorney. Borrower hereby irrevocably appoints Lender as
-----------------
Borrower's attorney-in-fact (such agency being coupled with an interest), and as
such attorney-in-fact lender may, without the obligation to do so, in Lender's
name or in the name of Borrower, prepare, execute and file or record financing
statements, continuation statements, applications for registration and like
papers necessary to create, perfect or preserve any of Lender's security
interests and rights in or to any of the Collateral, and, upon a Default
hereunder take any other action specified in Section 8 hereof; provided that
Lender as such attorney-in-fact shall be accountable only for such funds as are
actually received by Lender.
10. Possession and Use of Collateral. Except as otherwise provided
--------------------------------
in this Agreement or the other Loan Documents, so long as no Default exists
under this Agreement or any of the Loan Documents, Borrower may possess, use,
move, transfer or dispose of any of the Collateral in the ordinary course of
Borrower's business and in accordance with the Loan Agreement.
-4-
<PAGE>
11. Integration. This Agreement and the other Loan documents contain
-----------
the entire agreement of the parties and supersede any and all prior
negotiations. This Agreement is supplemented by those provisions of the Loan
Agreement which apply to the Loan Documents and said provisions are incorporated
herein by this reference.
IN WITNESS WHEREOF, Borrower has executed this Security Agreement as of the
date appearing on the first page of this Agreement.
"Borrower"
WILLOWS CONCORD VENTURE
a California limited partnership
By: /s/ William J. Thormahlen
--------------------------------
Name: WILLIAM J. THORMAHLEN
---------------------------
Title: GENERAL PARTNER
-------------------------
-5-
<PAGE>
RECORDING REQUESTED BY
AND WHEN RECORDED MAIL TO:
NEW ENGLAND LIFE PENSION PROPERTIES;
A REAL ESTATE LIMITED PARTNERSHIP
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP
c/o Hale and Dorr
60 State Street
Boston, Massachusetts 02109
Attention: Kenneth A. Hoxsie, Esq.
- --------------------------------------------------------------------------------
(Space Above For Recorder's Use)
FIFTH AMENDMENT TO LOAN DOCUMENTS
---------------------------------
THIS FIFTH AMENDMENT TO LOAN DOCUMENTS (this "Amendment") is entered into
as of the 1st day of January, 1995, by and between WILLOWS CONCORD VENTURE, a
California limited partnership ("Trustor"), and NEW ENGLAND LIFE PENSION
PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP, a Massachusetts limited
partnership, and NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE LIMITED
PARTNERSHIP, a Massachusetts limited partnership (collectively, "Beneficiary").
R E C I T A L S:
- - - - - - - -
A. Beneficiary has made a loan to Trustor in the principal amount of
Fourteen Million Eight Hundred Sixty-Three Thousand Two Hundred Six and 38/100
Dollars ($14,863,206.38) (the "Original Loan"). The Original Loan is evidenced
by that certain Amended and Restated Secured Promissory Note ("Original Note")
dated effective as of June 14, 1991 in the original principal amount of Fourteen
Million Eight Hundred Sixty-Three Thousand Two Hundred Six and 38/100 Dollars
($14,863,206.38). The Original Note is secured by (i) that certain Deed of
Trust and Security Agreement dated as of June 13, 1991 by and among Trustor, as
trustor, Chicago Title Company, as trustee, and Beneficiary, as beneficiary, and
recorded on June 18, 1991 as Instrument No. 91-116714 in the Official Records of
Contra Costa County, California (the "Registry"), as amended by that certain
Modification Agreement and First Amendment to Loan Documents dated as of August
13, 1991 (the "First Amendment"), as further amended by that certain
Modification Agreement and Second Amendment to Loan Documents dated as of
September 12, 1991 (the "Second Amendment"), as further amended by that certain
Modification and Third
<PAGE>
Amendment to Loan Documents dated as of October 15, 1991 (the "Third
Amendment"), and as further amended that certain Fourth Amendment to Loan
Documents (the "Fourth Amendment") dated as of December 17, 1992 recorded in the
Official Records of Contra Costa County, California as Instrument Nos. 93-
121110, 93-121111, 93-121112, 93-121113, respectively (as so amended, the
"Indenture") and (ii) that certain Assignment of Leases and Rents dated as of
June 13, 1991 executed by Trustor in favor of Beneficiary and recorded on June
18, 1991 as Instrument No. 91-116715 in the Official Records of Contra Costa
County, California, as amended by the First Amendment, the Second Amendment, the
Third Amendment and the Fourth Amendment (as so amended, the "Lease
Assignment"). The Indenture and the Lease Assignment encumber, among other
things, Trustor's leasehold interest under that certain Amended and Completely
Restated Ground Lease dated effective as of June 18, 1991 ("Ground Lease")
pursuant to which Beneficiary has leased to Trustor certain real property in
Contra Costa County, California, more particularly described on Exhibit "A"
-----------
attached to the Indenture (the "Property"). Except as otherwise provided in
this Amendment, all capitalized terms used herein without definition shall have
meanings given in the Indenture.
B. Beneficiary has made an additional loan to Trustor in the principal
amount of Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00)
(the "Construction Loan") pursuant to that certain Construction Loan Agreement
by and between Trustor and Beneficiary of even date herewith (the "Construction
Loan Agreement"). The Construction Loan is evidenced by a Promissory Note of
even date herewith in the principal amount of Two Million Five Hundred Thousand
and 00/100 Dollars ($2,500,000.00) (the "Construction Note").
C. Trustor and Beneficiary desire to amend the Indenture and the Lease
Assignment to, among other things, secure all of Trustor's obligations under the
Construction Note and the Construction Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing Recitals (which are
incorporated herein by this reference) and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Trustor and Beneficiary hereby agree as follows:
A G R E E M E N T:
- - - - - - - - -
1. Amendments to Indenture. The Indenture is hereby amended as follows:
-----------------------
-2-
<PAGE>
(a) Cover Sheet.
-----------
(i) The definition of the term "Trustor's Notice Address" is
deleted in its entirety from the Cover Sheet to the Indenture
and the following definition is hereby inserted in place
thereof:
"c/o Mr. William J. Thormahlen
Sares-Regis Group
18802 Bardeen Avenue
Irvine, California 92715-1521"
(ii) The definition of the term "Note Amount" is deleted in its
entirety from the Cover Sheet to the Indenture and the
following definitions are hereby inserted in place thereof:
"Original Note Amount: $14,863,206.38
"Construction Note Amount: $2,500,000.00"
Any and all references in the Indenture to the term "Note
Amount" shall mean and refer jointly to the Original Note
Amount and the Construction Note Amount.
(iii) The definition of the term "Maturity Date" is hereby deleted
in its entirety from the Cover Sheet to the Indenture and the
following definitions are hereby inserted in place thereof:
"Maturity Date of Original Note: June 18, 2001"
"Maturity Date of Construction Note:
December 31, 1997."
Any and all references in the Indenture to the "Maturity Date"
shall mean and refer jointly to the Maturity Date of the
Original Note and the Maturity Date of the Construction Note.
(b) Section 1.15 of the Indenture is hereby amended by deleting the
definition of the term "Loan Documents" in its entirety and inserting
the following definition in place thereof:
-3-
<PAGE>
"Loan Documents: this Indenture, the Original Note, the
Construction Note, the Lease Assignment, the Construction Loan
Agreement, the Security Agreement and any and all other
documents or instruments related thereto or to the Secured
Debt now or hereafter given by or on behalf of Trustor to
Beneficiary."
(c) Section 1.16 of the Indenture is hereby amended by deleting the
definition of the term "Note" in its entirety and inserting the
following definitions in place thereof:
"Original Note: that certain Amended and Restated
-------------
Promissory Note dated effected as of June 14, 1991 made by
Trustor in favor of Beneficiary in the Original Note Amount
and all replacements, substitutions, modifications, renewals
and extensions thereof, which Original Note is payable on the
Maturity Date of the Original Note. The Original Note replaces
and supersedes in its entirety that certain Promissory Note
dated June 14, 1991 made by Trustor in favor of Beneficiary in
the principal amount of $14,863,206.83."
"Construction Note: that certain Promissory Note dated as
-----------------
of January 1, 1995 made by Trustor in favor of Beneficiary in
the Construction Note Amount, and all replacements,
substitutions, modifications, renewals and extensions thereof,
which Construction Note is payable on the Maturity Date of the
Construction Note."
"Notes: the Original Note and the Construction Note."
-----
Any and all references in the Indenture to the term "Note"
shall mean and refer jointly to the Notes.
(d) The following definition is hereby added as Section 1.32 of the
Indenture:
"Loan Agreement: that certain Construction Loan Agreement
--------------
by and between Trustor and Beneficiary dated as of
January 1, 1995."
-4-
<PAGE>
(e) The following definition is hereby added as Section 1.33 of the
Indenture:
"Security Agreement: that certain Security Agreement by and
------------------
between Trustor and Beneficiary dated as of January 1,
1995."
(f) Section 4.5(b) of the Indenture is hereby amended by inserting the
following at the end thereof:
"Notwithstanding the foregoing, Beneficiary shall not
unreasonably withhold or delay its consent to any (i)
distribution to any general or limited partner of Trustor of
its respective interest therein or (ii) assignment or transfer
by any general or limited partner of Trustor of its respective
interest so distributed to any person or entity controlling,
controlled by, or under common control with such general or
limited partner (each an "Affiliate"), provided that (A) such
distribution, assignment or transfer is made for the purpose
of accomplishing a tax free exchange under Section 1031 of the
Internal Reveue Code of 1986, as amended, and (B) any and all
such Affiliates agree to assume all of the liabilities and
obligations of Trustor and such general or limited partner to
Beneficiary pursuant to a written instrument satisfactory to
Beneficiary."
(g) Section 4.16 of the Indenture is hereby deleted in its entirety.
(h) Section 8.2 of the Indenture is hereby amended by deleting the
grammatical paragraph next following subparagraph (l) in its entirety
and inserting the following in place thereof:
"Any sums advanced by Beneficiary under this Paragraph 8.2
shall bear interest at the higher of the interest rates
specified in the Notes plus 2% per annum, shall be payable by
Trustor on demand, and together with such interest, shall
constitute part of the Secured Debt."
-5-
<PAGE>
(i) Section 10.13 of the Indenture is hereby deleted in its entirety and
the following new Section 10.13 is hereby inserted in place thereof:
"Non-Recourse Debt.
-----------------
(a) Trustor shall be liable upon the indebtedness
evidenced by the Notes, for all sums to accrue or to become
payable thereunder, and for performance of any covenants
contained in any of the Loan Documents to the extent, but
only the extent, of Beneficiary's security for the same,
including, without limitation, all properties, rights,
estates, and interests covered by the this Indenture and the
Loan Documents. No attachment, execution or other writ of
process shall be sought, issued or levied upon any assets,
properties or funds of Trustor other than the properties,
rights, estates and interest described in this Indenture and
the other Loan Documents. In the event of foreclosure of
such title, liens, mortgages or security interests, by
private power of sale or otherwise, no judgment for any
deficiency upon such indebtedness, sums and amounts shall be
sought or obtained by Beneficiary or Trustee against
Trustor.
(b) Subject to the limitations set forth in
Subparagraph (a) above, nothing herein contained shall be
construed to prevent Beneficiary from exercising and
enforcing any other remedy allowed at law or in equity or by
any statute or by the terms of any of the Loan Documents.
(c) Notwithstanding the foregoing provisions of
Subparagraphs (a) and (b) above, or of any provision of any
other Loan Document to the contrary, no limitation of
liability set forth herein or in any other Loan Document
shall be deemed to limit any right Beneficiary might
otherwise have to obtain injunctive relief against Trustor
or any partner of Trustor related to the Leasehold Interest
or the Improvements or any personal property security or to
take any action to preserve, enforce or foreclose the liens,
mortgages, assignments and security interests now or at
-6-
<PAGE>
any time hereafter securing the payment and performance of
all sums and obligations hereunder or any of the Loan
Documents, or to collect rents or to collect amounts which
may become owing or payable under or on account of insurance
condemnation awards or damages for other public actions or
surety bonds maintained or provided by Trustor.
(d) In addition to the foregoing provisions of this
Section 10.13, neither the limitation of liability set forth
herein or any other Loan Document:
(i) shall apply to any damages sustained by Beneficiary
by reason of:
(A) any misrepresentation by Trustor or any partner
of Trustor proving to have been an intentional or fraudulent
misrepresentation when made,
(B) waste or intentional damage to the Property or
Improvements thereon by Trustor or any partner of Trustor,
(C) any breach of Trustor's obligations under
Section 8.03 of the Loan Agreement,
------------
(D) the failure of Trustor or any partner of
Trustor to pay any income or other taxes, assessments or
charges attributable to the Trustor or such partner (as the
case may be) which can create liens on any portion of the
Leasehold Interest or Improvements (to the full extent of
any such taxes, assessments or other charges) as to Trustor
or the partner who fails to pay such taxes, assessments or
charges, or
(E) the making of any payment or any distribution
(cash, profits, fees or otherwise) of any assets of Trustor
to any partner of Trustor or to any affiliate of a partner
of Trustor without the prior written consent of Beneficiary;
and
-7-
<PAGE>
(ii) shall apply should Trustor, or any partner of
Trustor, claim or contend at any time that this Indenture
is, for any reason, invalid or unenforceable to an extent
that would:
(A) preclude Beneficiary from foreclosing this
Indenture causing a trustee's sale in connection with this
Indenture upon the occurrence of an Event of Default, or
(B) preclude Beneficiary from foreclosing or
otherwise enforcing its security interest in the personal
property covered by this Indenture or the Security Agreement
upon the occurrence of an Event of Default.
(e) Nothing herein contained shall limit or be construed
to limit the personal liability and obligations of Trustor
in the event that and to the extent that after an Event of
Default or an event or circumstance that with the passage of
time, the giving of notice, or both, could constitute an
Event of Default, Trustor collects any rents, issues or
profits of the Leasehold Interest or the Improvements or
derived from the Leasehold Interest or the Improvements and
does not apply the same to the normal operating expenses of
the Leasehold Interest or the Improvements or any payments
due under any of the Loan Documents, it being intended
hereby that Trustor shall be personally liable and obligated
hereunder to the full extent of such rentals and other items
so collected and not so applied, and that Beneficiary or
other holder hereof or of either of the Notes or any of the
Loan Documents shall not be limited in any way in enforcing
such personal liability and obligations of Trustor."
2. Amendments to Lease Assignment. The Lease Assignment is hereby
------------------------------
amended as follows:
(a) Cover Sheet.
-----------
(i) The definition of the term "Assignor's Notice of Address"
is deleted in its entirety from the Cover Sheet to the
Lease Assignment and the following definition is hereby
inserted in place thereof:
-8-
<PAGE>
"c/o Mr. William J. Thormahlen
Sares-Regis Group
18802 Bardeen Avenue
Irvine, California 92715-1521"
(ii) The definition of the term "Note Amount" is hereby deleted
in its entirety from the Cover Sheet to the Lease
Assignment and the following definitions are hereby
inserted in place thereof:
"Original Note Amount: $14,863,206.38"
"Construction Note Amount: $2,500,000.00"
Any and all references in the Lease Assignment to the term
"Note Amount" shall mean and refer jointly to the Original
Note Amount and the Construction Note Amount.
(iii) The definition of the term "Maturity Date" is hereby
deleted in its entirety from the Cover Sheet to the Lease
Assignment and the following definitions are hereby
inserted in place thereof:
"Maturity Date of Original Note: June 18, 2001"
"Maturity Date of Construction Note: December 31,
1997."
Any and all references in the Lease Assignment to the term
"Maturity Date" shall mean and refer jointly to the
Maturity Date of Original Note and the Maturity Date of
Construction Note.
(iii) The definition of the term "Note" is hereby deleted in its
entirety from the Cover Sheet to the Lease Assignment and
the following definitions are hereby inserted in place
thereof:
"Original Note: that certain Amendment and Restated
Promissory Note dated effective as of June 14, 1991
made by Assignor in favor of Assignee in the Original
Note Amount and all
-9-
<PAGE>
replacements, substitutions, modifications, renewals
and extensions thereof, which Original Note is payable
on the Maturity Date of the Original Note. The Original
Note replaces and supersedes in its entirety that
certain Promissory Note dated June 14, 1991 made by
Assignor in favor of Assignee in the principal amount
of $14,863,206.83."
"Construction Note: that certain Promissory Note dated
as of January 1, 1995 made by Assignor in favor of
Assignee in the Construction Note Amount and all
replacements, substitutions, modifications, renewals
and extensions thereof, which Construction Note is
payable on the Maturity Date of the Construction Note."
"Notes: the Original Note and the Construction Note."
Any and all references in the Lease Assignment to the
term "Note" shall mean and refer jointly to Notes."
(b) Paragraph 1.10 of the Lease Assignment is hereby amended by deleting
the definition of the term "Loan Documents" in its entirety and
inserting the following definition in place thereof:
"Loan Documents: the Indenture, the Original Note, the
--------------
Construction Note, this Lease Assignment, the Construction
Loan Agreement, the Security Agreement and any and all other
documents or instruments related thereto or to the Secured
Debt now or hereafter given by or on behalf of Assignor to
Assignee."
(c) The following definition is hereby added as Paragraph 1.17 of the
Lease Assignment:
"Loan Agreement: that certain Construction Loan Agreement
--------------
by and between Assignor and Assignee dated as of January 1,
1995."
(d) The following definition is hereby added as Paragraph 1.18 of the
Lease Assignment:
-10-
<PAGE>
"Security Agreement: that certain Security Agreement by and
------------------
between Assignor and Assignee dated as of January 1, 1995."
(e) Paragraph 6.2 of the Lease Assignment is hereby amended by deleting
the last grammatical paragraph thereof in its entirety and inserting
the following in place thereof:
"Any sums advanced by Assignee under this Paragraph 6.2
shall bear interest at the higher of the interest rates
specified in the Notes plus 2% per annum, shall be payable
by Assignor on demand, and shall constitute a part of the
Secured Debt."
(f) Paragraph 7.14 of the Lease Agreement is hereby deleted in its
entirety and the following new Paragraph 7.14 is hereby inserted in
place thereof:
"Non-Recourse Debt.
-----------------
(a) Assignor shall be liable upon the indebtedness
evidenced by the Notes, for all sums to accrue or to become
payable thereunder, and for performance of any covenants
contained in any of the Loan Documents to the extent, but
only the extent, of Assignee's security for the same,
including, without limitation, all properties, rights,
estates, and interests covered by this Lease Assignment and
the Loan Documents. No attachment, execution or other writ
of process shall be sought, issued or levied upon any
assets, properties or funds of other than the properties,
rights, estates and interest described in this Lease
Assignment and the other Loan Documents. In the event of
foreclosure of such title, liens, mortgages or security
interests, by private power of sale or otherwise, no
judgment for any deficiency upon such indebtedness, sums and
amounts shall be sought or obtained by Assignee against
Assignor.
(b) Subject to the limitations set forth in
Subparagraph (a) above, nothing herein contained shall be
construed to prevent Assignee from exercising and enforcing
any other remedy allowed at law or in equity or by
-11-
<PAGE>
any statute or by the terms of any of the Loan Documents.
(c) Notwithstanding the foregoing provisions of
Subparagraphs (a) and (b) above, or of any provision of this
Lease Assignment or any other Loan Document to the contrary,
no limitation of liability set forth herein, in the
Indenture or in any other Loan Document shall be deemed to
limit any right Assignee might otherwise have to obtain
injunctive relief against Assignor or any partner of
Assignor related to the Leasehold Interest or the
Improvements or any personal property security or to take
any action to preserve, enforce or foreclose the liens,
mortgages, assignments and security interests now or at any
time hereafter securing the payment and performance of all
sums and obligations hereunder or any of the Loan Documents,
or to collect rents or to collect amounts which may become
owing or payable under or on account of insurance,
condemnation awards or damages for other public actions or
surety bonds maintained or provided by Assignor.
(d) In addition to the foregoing provisions of this
Section 7.14, neither the limitation of liability set forth
herein, or in the Indenture or any other Loan Document:
(i) shall apply to any damages sustained by
Assignee by reason of:
(A) any misrepresentation by Assignor or any partner
of Assignor proving to have been an intentional or
fraudulent misrepresentation when made,
(B) waste or intentional damage to the Property or
Improvements thereon by Assignor or any partner of Assignor,
(C) any breach of Assignor's obligations under
Section 8.03 of the Loan Agreement,
------------
(D) the failure of Assignor or any partner of
Assignor to pay any income or other taxes, assessments or
charges attributable to
-12-
<PAGE>
the Assignor or such partner (as the case may be) which can
create liens on any portion of the Leasehold Interest or
Improvements (to the full extent of any such taxes,
assessments or other charges) as to Assignor or the partner
who fails to pay such taxes, assessments or charges, or
(E) the making of any payment or any distribution
(cash, profits, fees or otherwise) of any assets of Assignor
to any partner of Assignor or to any affiliate of a partner
of Assignor without the prior written consent of Assignee;
and
(ii) shall apply should Assignor, or any partner of
Assignor, claim or contend at any time that the Indenture
securing the Loan is, for any reason, invalid or
unenforceable to an extent that would:
(A) preclude Assignee from foreclosing the Indenture
or causing a trustee's sale in connection with the Indenture
upon the occurrence of an Event of Default under the
Indenture, or
(B) preclude Assignee from foreclosing or otherwise
enforcing its security interest in the personal property
covered by the Indenture or the Security Agreement upon the
occurrence of an Event of Default under the Indenture.
(e) Nothing herein contained shall limit or be construed
to limit the personal liability and obligations of Assignor
in the event that and to the extent that after an Event of
Default or an event or circumstance that with the passage of
time, the giving of notice, or both, could constitute an
Event of Default, Assignor collects any rents, issues or
profits of the Leasehold Interest or the Improvements or
derived from the Leasehold Interest or the Improvements and
does not apply the same to the normal operating expenses of
the Leasehold Interest or the Improvements or any payments
due under any of the Loan Documents, it being intended
hereby that Assignor shall be personally liable and
-13-
<PAGE>
obligated hereunder to the full extent of such rentals and
other items so collected and not so applied, and that
Assignee or other holder hereof or of either of the Notes or
any of the Loan Documents shall not be limited in any way in
enforcing such personal liability and obligations of
Assignor."
3. Affirmation of Lien; Full Force and Effect. Except as amended by this
------------------------------------------
Amendment, the Indenture and the Lease Assignment shall remain unmodified and in
full force and effect. The parties hereto hereby ratify and confirm the
Indenture and the Lease Assignment, as amended herein. Without limitation of
the foregoing, Trustor hereby certifies that (i) the representations and
warranties of Trustor set forth in Section 3 of the Indenture and Paragraph 3 of
--------- -----------
the Lease Assignment are true, correct and complete in all material respects on
and as of the date hereof as though made on and as of the date hereof; and (ii)
Trustor has performed and complied with, in all material respects, all
agreements, covenants and obligations required to be performed by Trustor under
the Indenture and the Lease Assignment prior to the date hereof.
4. References to Indenture and Lease Assignment. All references to the
--------------------------------------------
Indenture and the Lease Assignment in the Loan Documents shall be deemed to
refer to the Indenture and the Lease Assignment, respectively, as amended by
this Amendment.
5. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
6. Governing Law. This Amendment shall be governed by and construed in
-------------
accordance with the laws of the State of California.
7. Conflict. In the event of any inconsistencies between the provisions
--------
of this Amendment and the provisions of the Indenture and/or the Lease
Assignment, as applicable, the provisions of this Amendment shall govern and
prevail.
-14-
<PAGE>
IN WITNESS WHEREOF, Trustor and Beneficiary have executed this Amendment as
of the date first above written.
"Trustor" WILLOWS CONCORD VENTURE, a
California limited partnership
By: /s/ John S. Hagestad
-------------------------
John S. Hagestad
Its: General Partner
By: /s/ Carl F. Willgeroth
-------------------------
Carl F. Willgeroth
Its: General Partner
By: /s/ William J. Thormahlen
-------------------------
William J. Thormahlen
Its: General Partner
-15-
<PAGE>
"Beneficiary" NEW ENGLAND LIFE PENSION PROPERTIES;
A REAL ESTATE LIMITED PARTNERSHIP, a
Massachusetts limited partnership
By: Copley Properties Company,
Inc., a Massachusetts
corporation, General Partner
By: [SIGNATURE APPEARS HERE]
---------------------------------
Name: Wesley M. Gardiner
-------------------------------
Title: Vice President
------------------------------
By: [SIGNATURE APPEARS HERE]
---------------------------------
Name:[SIGNATURE APPEARS HERE]
--------------------------------
Title: Investment Officer
------------------------------
NEW ENGLAND LIFE PENSION PROPERTIES
II; A REAL ESTATE LIMITED
PARTNERSHIP, a Massachusetts limited
partnership
By: Copley Properties Company II,
Inc., a Massachusetts
corporation, General Partner
By: [SIGNATURE APPEARS HERE]
----------------------------------
Name: Wesley M. Gardiner
--------------------------------
Title: Vice President
-------------------------------
By: [SIGNATURE APPEARS HERE]
----------------------------------
Name: [SIGNATURE APPEARS HERE]
--------------------------------
Title: Investment Officer
-------------------------------
-16-
<PAGE>
ACKNOWLEDGMENT FOR WILLOWS CONCORD VENTURE
- ------------------------------------------
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On 10-18-95, before me, Cheryl A. Hyatt, a Notary Public in and
for said state, personally appeared John S. Hagestad, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he executed
the same in his authorized capacity, and that by his signature on the instrument
the person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Cheryl A. Hyatt
-------------------------------------
Notary Public in and for said State
[SEAL APPEARS HERE]
ACKNOWLEDGMENT FOR WILLOWS CONCORD VENTURE
- ------------------------------------------
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On 10-18-95, before me, Cheryl A. Hyatt, a Notary Public in and for
said state, personally appeared Carl F. Willgeroth, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to the within instrument and acknowledged to me that he executed
the same in his authorized capacity, and that by his signature on the instrument
the person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
/s/ Cheryl A. Hyatt
-------------------------------------
Notary Public in and for said State
[SEAL APPEARS HERE]
-17-
<PAGE>
ACKNOWLEDGMENT FOR WILLOWS CONCORD VENTURE
- ------------------------------------------
STATE OF CALIFORNIA )
) ss.
COUNTY OF ORANGE )
On 10-18-95, before me, Cheryl A. Hyatt, a Notary Public in and for
said state, personally appeared William J. Thormahlen, personally known to me
(or proved to me on the basis of satisfactory evidence) to be the person whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his authorized capacity, and that by his signature on the
instrument the person, or the entity upon behalf of which the person acted,
executed the instrument.
WITNESS my hand and official seal.
/s/ Cheryl A. Hyatt
-------------------------------------
Notary Public in and for said State
[SEAL APPEARS HERE]
-18-
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
On this 1 day of November, 1995, before me, the undersigned, a Notary
Public in and for said State, personally appeared Wes Gardiner and Marie
Stewart, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the Vice President AND Investment Officer OF COPLEY PROPERTIES
COMPANY, INC., a Massachusetts corporation, the corporation that executed the
within instrument on behalf of NEW ENGLAND LIFE PENSION PROPERTIES; A REAL
ESTATE LIMITED PARTNERSHIP, a Massachusetts limited partnership, the partnership
therein named, pursuant to its bylaws or resolution of its board of directors,
and acknowledged to me that Copley Properties Company, Inc., executed the within
instrument on behalf of New England Life Pension Properties; A Real Estate
Limited Partnership as its free act and deed.
[SEAL APPEARS HERE] /s/ Karyn E. Bates
-------------------------------
Notary Public in and for
the Commonwealth of Massachusetts
COMMONWEALTH OF MASSACHUSETTS )
) ss.
COUNTY OF SUFFOLK )
On this 1 day of November, 1995, before me, the undersigned, a Notary
Public in and for said State, personally appeared Wes Gardiner and Marie
Stewart, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the Vice President AND Investment Officer OF COPLEY PROPERTIES
COMPANY II, INC., a Massachusetts corporation, the corporation that executed the
within instrument on behalf of NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL
ESTATE LIMITED PARTNERSHIP, a Massachusetts limited partnership, the partnership
therein named, pursuant to its bylaws or resolution of its board of directors,
and acknowledged to me that Copley Properties Company II, Inc., executed the
within instrument on behalf of New England Life Pension Properties II; A Real
Estate Limited Partnership as its free act and deed.
[SEAL APPEARS HERE] /s/ Karyn E. Bates
-------------------------------
Notary Public in and for
the Commonwealth of Massachusetts
-19-
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
-----------------
That certain real property located in the City of Concord, County of Contra
Costa, State of California, described as follows:
Parcel "B" as shown on the Parcel Map filed April 22, 1969, in Book 8
of Parcel Maps at Page 16, Contra Costa County Records (hereinafter, the
"Site").
Excepting therefrom the interest to Contra Costa County Flood Control
and Water Conservation District, in the Deed recorded May 16, 1969, in Book
5876, Page 838, of Official Records.
ALSO EXCEPTING THEREFROM the buildings, structures and improvements now or
hereafter erected on the Site, and any replacements thereof, which are and
shall remain real property (collectively, the "Improvements"), and the
furnishings, equipment, machinery and other items of personal property now
or hereafter necessary for the property operation and maintenance of the
Improvements and situated on, over or beneath the Site.
<PAGE>
FIRST AMENDMENT TO AMENDED AND COMPLETELY
-----------------------------------------
RESTATED GROUND LEASE
---------------------
This First Amendment to Amended and Completely Restated Ground Lease
(this "Amendment") is made and entered into as of the 1st day of January, 1995,
by and between NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED
PARTNERSHIP, NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE LIMITED
PARTNERSHIP (jointly, the "Landlord"), whose address is c/o Copley Real Estate
Advisors, Inc., 399 Boylston Street, Boston, MA 02116, and WILLOWS CONCORD
VENTURE, a California limited partnership (the "Tenant"), whose address is 18802
Bardeen Avenue, Irvine California 92715-1521, who, for and in consideration of
the sum of Ten Dollars ($10.00) each to the other paid, and the mutual covenants
flowing between the parties hereto, the receipt and sufficiency of which are
hereby acknowledged, do hereby covenant, warrant and agree as follows:
1. Recitals. This Amendment is made with reference to the following
--------
facts and objectives:
a. Landlord and Tenant entered into a certain written Amended and
Completely Restated Ground Lease dated as of June 18, 1991 (the "Lease"),
pursuant to which Landlord leased to Tenant and Tenant leased from Landlord,
certain premises more particularly described therein (the "Premises").
b. The parties hereto desire to amend the Lease on the effective date
hereof on the terms and conditions set forth herein.
2. Representations. As an inducement to Landlord to enter into this
---------------
Amendment, Tenant represents that (a) Tenant has not made any assignment,
sublease, transfer, conveyance or other disposition of said lease or any
interest thereof; and that there exists no claim, demand, obligation, liability,
action or cause of action arising from said Lease; and (b) there are no liens
for past due taxes of any nature (except any lien for unpaid city, state and
county 1995 ad valorem taxes on said Premises), paving, sidewalk, curbing,
sewer, or any other street improvements of any kind against or affecting said
Premises.
3. Amendment of Lease.
------------------
a. Sections 16.08(b), 16.08(c) and 16.09 are hereby deleted in their entirety
from the Amended Lease, and the following new section 16.08(b) is hereby
substituted in their place:
<PAGE>
"16.08(b) On or after January 1, 1996, Landlord may at its sole
discretion offer the entire Property (Landlord's Estate together with
Tenant's Estate) for sale for such price and on such other terms and
conditions as the Landlord may determine in its sole discretion. In
connection with any such sale or proposed sale, the Landlord shall
have the right to cause the Property to be marketed to such
prospective purchasers and upon such terms as the Landlord shall
determine in its sole discretion and to take such other actions as it
deems necessary or appropriate in connection with such sale or
proposed sale. The Tenant agrees, at the direction of the Landlord, to
execute and deliver such documents, including without limitation
purchase and sale agreements, deeds or assignments of lease, as may be
reasonably required in connection with any such sale or proposed sale;
provided, however, that Landlord shall use commercially reasonable
efforts to cause such documents to provide that the partners of Tenant
will have no recourse liability pursuant to such documents."
b. Section 16.10 of the Amended Lease is hereby amended by adding the
following language at the end thereof:
"Notwithstanding the foregoing, Landlord shall not unreasonably
withhold or delay its consent to any (i) distribution to any general
or limited partner of Tenant of such partner's respective interest
therein or (ii) assignment or transfer by any general or limited
partner of Tenant of its respective interest so distributed to any
person or entity controlling, controlled by, or under common control
with such general or limited partner (each an "Affiliate"), provided
that (A) such distribution, assignment or transfer is made for the
purpose of accomplishing a tax free exchange under Section 1031 of the
Internal Revenue Code of 1986, as amended, and (B) any and all such
Affiliates agree to assume all of the liabilities and obligations of
Tenant and such general or limited partner to Landlord pursuant to a
written instrument satisfactory to Landlord."
4. Effective Date. The effective date of this Amendment shall be the
--------------
date first above written.
5. Successors. This Amendment shall be binding on and inure to the
----------
benefit of the parties hereto and their heirs, successors and assigns.
-2-
<PAGE>
6. No Other Modification. Except as specifically amended by this
---------------------
Amendment, no other provision of the Lease is hereby modified, and the Lease
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amended as a
sealed instrument on the date first above written.
LANDLORD:
NEW ENGLAND LIFE PENSION PROPERTIES;
A REAL ESTATE LIMITED PARTNERSHIP
By: Copley Properties Company,
Inc., General Partner
By: /s/ Wesley M. Gardiner
-----------------------------
Name: Wesley M. Gardiner
Title: Vice President
NEW ENGLAND LIFE PENSION PROPERTIES
II; A REAL ESTATE LIMITED
PARTNERSHIP
By: Copley Properties Company II,
Inc., General Partner
By: /s/ Wesley M. Gardiner
-----------------------------
Name: Wesley M. Gardiner
Title: Vice President
TENANT:
WILLOWS CONCORD VENTURE
By: /s/ William J. Thormahlen
----------------------------------
Name: WILLIAM J. THORMAHLEN
Title: GENERAL PARTNER
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,731,930
<SECURITIES> 2,525,926
<RECEIVABLES> 331,174
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,589,030
<PP&E> 32,957,648
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,074,700
<CURRENT-LIABILITIES> 567,902
<BONDS> 314,464
0
0
<COMMON> 0
<OTHER-SE> 38,192,334
<TOTAL-LIABILITY-AND-EQUITY> 39,074,700
<SALES> 5,020,296
<TOTAL-REVENUES> 5,313,944
<CGS> 1,063,651
<TOTAL-COSTS> 1,063,651
<OTHER-EXPENSES> 1,111,496
<LOSS-PROVISION> 1,428,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,710,797
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,710,797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,710,797
<EPS-PRIMARY> 42.43
<EPS-DILUTED> 42.43
</TABLE>
