<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------- ------------------
Commission File Number 0-15538
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First Capital Income Properties, Ltd. - Series XI
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3364279
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two North Riverside Plaza, Suite 1100, Chicago, Illinois 60606-2607
- --------------------------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 207-0020
-----------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act: -----------------
Limited Partnership Assignee Units
----------------------------------
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 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 ]
Documents incorporated by reference:
The First Amended and Restated Certificate and Agreement of Limited Partnership
filed as Exhibit A to the definitive Prospectus dated September 12, 1985,
included in the Registrant's Registration Statement on Form S-11 (Registration
No. 2-98749), is incorporated herein by reference in Part IV of this report.
Exhibit Index - Page A-1
- ------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
- ------- --------
The registrant, First Capital Income Properties, Ltd. - Series XI (the
"Partnership"), is a limited partnership organized in 1985 under the Uniform
Limited Partnership Act of the State of Illinois. The Partnership sold 57,621
Limited Partnership Assignee Units (the "Units") to the public from September
1985 to March 1987 pursuant to a Registration Statement on Form S-11 filed with
the Securities and Exchange Commission (Registration Statement No. 2-98749).
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement.
The business of the Partnership is to invest primarily in existing commercial
income-producing real estate, such as shopping centers, warehouses and office
buildings, and, to a lesser extent, in other types of commercial, income-
producing real estate. From May 1986 to September 1989, the Partnership: 1)
made one real property investment; 2) purchased 50% interests in four joint
ventures which were each formed with Affiliated partnerships for the purpose of
acquiring a 100% interest in certain real property; 3) purchased 50% interests
in four separate joint ventures which were each formed with Affiliated
partnerships for the purpose of acquiring a preferred majority interest in
certain real property and 4) purchased a 70% preferred majority undivided
interest in a joint venture with an unaffiliated third party that was formed for
the purpose of acquiring certain real property. All of these joint ventures,
prior to dissolution, are operated under the common control of First Capital
Financial Corporation (the "General Partner"). Through December 31, 1996, the
Partnership, with its respective joint venture partner, has dissolved one joint
venture with a 50% interest in real property and the four joint ventures with
50% preferred majority interests in real property as a result of the sales of
the real properties. In addition, the Partnership sold one 50% joint venture
interest with an Affiliated partnership to that Affiliated partnership.
Property management services for certain of the Partnership's real estate
investments are provided by independent real estate management companies for
fees calculated as a percentage of gross rents received from the properties. In
addition, Affiliates of the General Partner provide property management and
supervisory services for fees calculated as a percentage of gross rents received
from each of the Partnership's properties.
The real estate business is highly competitive. The results of operations of
the Partnership will depend upon the availability of suitable tenants, real
estate market conditions and general economic conditions which may impact the
success of these tenants. Properties owned by the Partnership frequently
compete for tenants with similar properties owned by others.
As of March 1, 1997, there were 34 employees at the Partnership's properties for
on-site property maintenance and administration.
2
<PAGE>
ITEM 2. PROPERTIES (a)(b)
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As of December 31, 1996, the Partnership owned directly or through a joint
venture, the following four properties, which were owned in fee simple and were
encumbered by mortgages. For complete details of the material terms of the
encumbrances, refer to Note 5 of the Notes to Financial Statements.
<TABLE>
<CAPTION>
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ---------------------------------------- ------------------------- --------------- -----------
<S> <C> <C> <C>
Shopping Centers:
- -----------------
Marquette Mall and Office Building Michigan City, Indiana 398,104 104 (1)
Regency Park Shopping Center (50%) Jacksonville, Florida 329,858 23 (3)
Office Buildings:
- -----------------
Burlington Office Center I, II and III(d) Ann Arbor, Michigan 173,215 40 (4)
Prentice Plaza (50%) Englewood, Colorado 157,311 33 (1)
</TABLE>
a) For a discussion of significant operating results and major capital
expenditures planned for the Partnership's properties refer to Item 7 -
Management's Discussion and Analysis of Financial Condition and Results
of Operations.
b) For federal income tax purposes, the Partnership depreciates the
portion of the acquisition costs of its properties allocable to real
property (exclusive of land), and all improvements thereafter, over
useful lives ranging from 19 years to 40 years, utilizing either the
Accelerated Cost Recovery System ("ACRS") or straight-line method. The
Partnership's portion of real estate taxes for Marquette Mall and
Office Building ("Marquette"), Burlington Office Center I, II and III
("Burlington"), Prentice Plaza and Regency Park Shopping Center
("Regency") was $588,200, $434,000, $143,000 and $134,700,
respectively, for the year ended December 31, 1996. In the opinion of
the General Partner, the Partnership's properties are adequately
insured and serviced by all necessary utilities.
c) Represents the total number of tenants as well as the number of
tenants, in parenthesis, that individually occupy more than 10% of the
net leasable square footage of the property.
d) The Partnership owns 70% preferred majority undivided interest in the
joint venture which owns this property.
3
<PAGE>
ITEM 2. PROPERTIES (Continued)
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The following table presents each of the Partnership's properties' occupancy
rates as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
Property Name 1996 1995 1994 1993 1992
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Marquette 83% 83% 79% 81% 86%
Burlington 96% 78% 91% 88% 97%
Regency 93% 87% 89% 78% 78%
Prentice Plaza 98% 99% 97% 92% 93%
</TABLE>
The amounts in the following table represent each of the Partnership's
properties' average annual rental rate per square foot for each of the last five
years ended December 31 and were computed by dividing each property's base
rental revenues by its average occupied square footage:
<TABLE>
<CAPTION>
Property Name 1996 1995 1994 1993 1992
------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Marquette $ 6.90 $ 6.74 $ 6.85 $ 6.71 $ 6.65
Burlington $17.32 $18.04 $17.23 $17.55 $16.33
Regency $ 6.67 $ 6.46 $ 6.34 $ 6.85 $ 6.97
Prentice Plaza $14.91 $14.31 $13.65 $12.63 $13.09
</TABLE>
4
<PAGE>
ITEM 2. PROPERTIES (Continued)
- ------- ----------
The following table summarizes the principal provisions of the leases for each
of the tenants which occupy ten percent or more of the rentable square footage
at each of the Partnership's properties:
<TABLE>
<CAPTION>
Partnership's Share of per
annum Base Rents (a) for Percentage of
--------------------------- Expiration Net Leasable Renewal Options
Final Twelve Date of Square Footage (Renewal
1997 Months of Lease Lease Occupied Options / Years)
-------- --------------- ---------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Marquette
- ---------
J.C. Penney
(department store) $139,000 $139,000 1/31/2003 28% 4 / 5
Burlington
- ----------
Network Express, Inc.
(Telecommunications company) $365,200 $375,700 7/31/2000 12% 1 / 3
Washtenaw Mortgage Company
(mortgage broker) $ 59,600 (b) 4/30/1997 12% 1 / 3 and 1 / 5
A.E. Clevite, Inc.
(transportation products
manufacturer) $343,200 $343,200 12/31/1997 11% None
Dykema Gossett
(legal firm) $324,500 $338,800 3/31/2001 10% 1 / 5
Regency
- -------
Rhodes Furniture (c)
(furniture store) $143,400 $143,400 1/15/2005 26% 3 / 5
Service Merchandise
(department store) $175,000 $175,000 2/28/2009 14% 10 / 5
Baby Superstore
(specialty store) $140,600 $150,600 9/30/2004 12% 3 / 5
Prentice Plaza
- --------------
ANTEC Corporation
(design, engineering, manufac-
turing and distribution of
cable television products) $213,500 $224,400 9/30/1999 17% None
</TABLE>
a) The Partnership's share of per annum base rents for each of the tenants
listed above for each of the years between 1997 and the final twelve
months for each of the above leases is no lesser or greater than the
amounts listed in the above table.
b) As of the date of this report the tenant has not exercised their option
to renew.
5
<PAGE>
ITEM 2. PROPERTIES (Continued)
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c) Space is sublet from Publix, who in turn sublet from Supervalue Inc.
Pursuant to the lease, Supervalue Inc. is lessee. In addition, Books-a-
Million, a retail book store, has sublet a portion of the Rhodes
Furniture space through an agreement with Rhodes Furniture.
The amounts in the following table represent the Partnership's portion of income
from leases in the year of expiration (assuming no lease renewals) through the
year ended December 31, 2006.
<TABLE>
<CAPTION>
Number Base Rents in Year % of Total
Year of Tenants Square Feet of Expiration (a) Base Rents (b)
---- ---------- ----------- ------------------ --------------
<S> <C> <C> <C> <C>
1997 71 150,101 $1,074,800 16.79%
1998 36 217,187 $ 716,600 14.69%
1999 23 107,617 $ 697,100 18.46%
2000 14 55,691 $ 630,000 21.55%
2001 15 111,789 $ 547,600 30.60%
2002 3 17,168 $ 115,400 9.66%
2003 2 13,683 $ 59,100 5.56%
2004 6 50,894 $ 238,400 27.29%
2005 5 114,055 $ 102,500 20.98%
2006 0 None None None
</TABLE>
a) Represents the amount of base rents to be collected each year on
expiring leases.
b) Represents the amount of base rents to be collected each year on
expiring leases as a percentage of the Partnership's portion of the
total base rents to be collected on leases in effect as of December 31,
1996.
ITEM 3. LEGAL PROCEEDINGS
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(a & b) The Partnership and its properties were not a party to, nor the subject
of, any material pending legal proceedings, nor were any such proceedings
terminated during the quarter ended December 31, 1996. Ordinary routine
litigation incidental to the business which is not deemed material was pursued
during the quarter ended December 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
(a,b,c & d) None.
6
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY AND RELATED SECURITY HOLDER MATTERS
----------------------------------------------------------------------
There has not been, nor is there expected to be, a public market for Units.
As of March 1, 1996, there were 4,950 Holders of Units.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $11,264,700 $10,436,500 $ 10,995,500 $ 11,456,300 $ 13,661,800
Net income (loss) $ 241,900 $(7,553,400) $ 10,580,500) $(10,373,500) $(12,422,000)
Net (loss) allocated to
Limited Partners None $(5,330,200) $(10,474,700) $(10,269,800) $(12,382,400)
Net (loss) allocated to
Limited Partners per
Unit (57,621 Units
outstanding) None $ (92.50) $ (181.79) $ (178.23) $ (214.89)
Total assets $43,459,800 $49,323,600 $ 55,551,600 $ 71,451,800 $ 88,430,500
Mortgage loans payable $34,803,200 $41,189,600 $ 40,369,100 $ 44,255,200 $ 50,674,500
Front-End Fees loan
payable to Affiliate(a) $ 8,295,200 $ 8,295,200 $ 8,295,200 $ 8,295,200 $ 8,295,200
OTHER DATA:
Investment in commercial
rental properties (net
of accumulated
depreciation and
amortization) $40,962,400 $46,724,100 $ 52,648,100 $ 68,506,700 $ 86,601,900
Number of real property
interests owned at
December 31 4 5 5 8 9
- --------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes deferred interest.
The following table includes a reconciliation of Cash Flow (as defined in the
Partnership Agreement) to cash flow provided by operating activities as
determined by generally accepted accounting principles ("GAAP"):
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flow (Deficit) (as
defined in the
Partnership
Agreement)(a) $ 152,200 $ (241,700) $ 18,900 $ 342,900 $ 620,600
Items of reconciliation:
Principal payments on
mortgage loans payable 923,200 630,100 551,700 548,600 565,000
Changes in current
assets and
liabilities:
Decrease (increase) in
current assets 64,100 (53,800) 304,900 (74,300) 203,700
(Decrease) increase in
current liabilities (31,500) (100,700) (125,600) (130,500) 54,000
- ------------------------------------------------------------------------------------------
Net cash provided by
operating activities $ 1,108,000 $ 233,900 $ 749,900 $ 686,700 $ 1,443,300
- ------------------------------------------------------------------------------------------
Net cash provided by
(used for) investing
activities $ 4,810,400 $(1,227,500) $ 3,392,500 $ 2,127,300 $(1,436,200)
- ------------------------------------------------------------------------------------------
Net cash (used for)
provided by financing
activities $(5,877,100) $ 712,600 $(3,981,900) $(1,585,800) $ (574,900)
- ------------------------------------------------------------------------------------------
</TABLE>
(a) Cash Flow is defined in the Partnership Agreement as Partnership revenues
earned from operations (excluding tenant deposits and proceeds from the
sale, disposition or financing of any Partnership properties or the
refinancing of any Partnership indebtedness), minus all expenses incurred
(including Operating Expenses, payments of principal (other than balloon
payments of principal out of Offering proceeds) and interest on any
Partnership indebtedness, and any reserves of revenues from operations
deemed reasonably necessary by the General Partner), except depreciation
and amortization expenses and capital expenditures and lease acquisition
expenditures.
The above selected financial data should be read in conjunction with the
financial statements and the related notes appearing on pages A-1 through A-9
in this report and the supplemental schedule on pages A-10 and A-11.
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The ordinary business of the Partnership is expected to pass through its life
cycle in three phases: (i) the Offering of Units and investment in properties;
(ii) the operation of properties and (iii) the sale or other disposition of
properties.
The Partnership commenced the Offering of Units on September 12, 1985 and began
operations on December 3, 1985 after reaching the required minimum subscription
level. On March 31, 1987, the Offering was Terminated upon the sale of 57,621
Units. From May 1986 to September 1989, the Partnership: 1) made one real
property investment; 2) purchased 50% interests in four joint ventures which
were each formed with Affiliated partnerships for the purpose of acquiring a
100% interest in certain real property; 3) purchased 50% interests in four
separate joint ventures which were each formed with Affiliated partnerships for
the purpose of acquiring a preferred majority interest in certain real property
and 4) purchased a 70% preferred majority undivided interest in a joint venture
with an unaffiliated third party that was formed for the purpose of acquiring
certain real property.
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
1993, the Partnership, in addition to being in the operation of properties
phase, entered the disposition phase of its life cycle. During the disposition
phase of the Partnership's life cycle, comparisons of operating results are
complicated due to the timing and effect of property sales and dispositions.
Components of the Partnership's operating results are generally expected to
decline as real property interests are sold or disposed of since the
Partnership no longer realizes income and incurs expenses from such real
property interests. Through December 31, 1996 the Partnership, with its
respective joint venture partner, has dissolved one joint venture with a 50%
interest in real property and four joint ventures with 50% preferred majority
interests in real property as a result of the sales of the real properties. In
addition, the Partnership sold one 50% joint venture interest with an
Affiliated partnership to that Affiliated partnership.
As disclosed in the Partnership's Annual Report for the year ended December 31,
1995, the Partnership was faced with significant financial obligations during
1996, including the maturity of two of its mortgage loans payable. In addition,
future operating results were expected to be affected by industry issues of its
tenants as well as unique matters related to certain of its individual
properties. During 1996, the General Partner was successful in selling one of
the two properties whose mortgage debt was maturing during 1996 and was able to
extend the other maturing loan's maturity date to December 31, 1997. In
addition, the Partnership has been able to maintain or increase occupancy
levels and improve operating results at its properties. The Partnership is
again faced with significant financial issues during 1997. In addition to
market issues affecting its tenants, the Partnership's properties are at risk
for potentially high tenant turnover, two mortgage loans mature in 1997 with no
extension provision and substantial expenditures for capital and tenant
improvements are projected.
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the years ended December 31, 1996, 1995 and 1994.
The discussion following the table should be read in conjunction with the
Financial Statements and Notes thereto appearing in this report.
<TABLE>
<CAPTION>
Comparative Operating Results
(a)
For the Years Ended December 31,
----------------------------------
1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
MARQUETTE MALL AND OFFICE BUILDING
Rental revenues $4,141,000 $4,012,400 $4,009,200
- -------------------------------------------------------------------
Property net income (loss) (b) $ 131,100 $ (171,300) $ (245,600)
- -------------------------------------------------------------------
Average occupancy 83% 82% 81%
- -------------------------------------------------------------------
BURLINGTON OFFICE CENTER I, II AND III
Rental revenues $2,766,400 $2,626,200 $2,973,200
- -------------------------------------------------------------------
Property net (loss) (b) $ (180,200) $ (224,000) $ (35,300)
- -------------------------------------------------------------------
Average occupancy 84% 76% 87%
- -------------------------------------------------------------------
REGENCY PARK SHOPPING CENTER (50%)
Rental revenues $1,198,600 $1,175,000 $1,046,500
- -------------------------------------------------------------------
Property net income (loss) (b) $ 21,100 $ (140,300) $ (326,200)
- -------------------------------------------------------------------
Average occupancy 90% 88% 79%
- -------------------------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues $1,270,700 $1,169,400 $1,072,900
- -------------------------------------------------------------------
Property net (loss) $ (19,900) $ (229,800) $ (250,400)
- -------------------------------------------------------------------
Average occupancy 99% 97% 93%
- -------------------------------------------------------------------
SENTRY PARK WEST OFFICE CAMPUS (50%) (C)
Rental revenues $1,009,500 $1,399,200 $1,149,500
- -------------------------------------------------------------------
Property net income (loss) (b) $ 244,700 $ (351,400) $ (396,100)
- -------------------------------------------------------------------
Average occupancy (c) 86% 76%
- -------------------------------------------------------------------
SENTRY PARK EAST OFFICE CAMPUS (50%)
Rental revenues $ 137,000
- -------------------------------------------------------------------
Property net (loss) (d) $ (32,800)
- -------------------------------------------------------------------
Average occupancy 61%
- -------------------------------------------------------------------
PARK CENTRAL OFFICE PARK I, II AND III (50%)
Rental revenues $ 371,500
- -------------------------------------------------------------------
Property net income (d) $ 5,100
- -------------------------------------------------------------------
Average occupancy (d)
- -------------------------------------------------------------------
</TABLE>
(a) Excludes certain income and expense items which are either not directly
related to individual property operating results such as interest income,
interest expense on the Partnership's Front-End Fees loan and general and
administrative expenses or are related to properties disposed of by the
Partnership prior to the periods under comparison.
(b) Property net (loss) excludes (losses) from provisions for value impairment
which were included in the Statements of Income and Expenses for the years
ended December 31, 1995 and 1994 (see Note 10 of Notes to Financial
Statements for additional information).
(c) The joint venture which owned Sentry Park West Office Campus ("Sentry
West"), in which the Partnership had a 50% interest, sold Sentry West on
August 28, 1996. Property net income excludes a gain on sale of property of
$816,100 which was recorded for the year ended December 31, 1996. The
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
large variance between 1996 income and 1995 (loss) is due to the property
being classified as "Held for Disposition" during 1996, which precluded the
recording of depreciation. For further information, see Note 10 of Notes to
Financial Statements.
(d) These properties were sold during 1994. The gains/losses realized on the
sales of these properties are excluded from property net income (loss). For
further information see Note 9 of Notes to the Financial Statements.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1996 TO THE YEAR ENDED DECEMBER 31,
1995
Net results for the Partnership changed from a (loss) of $(7,553,400) for the
year ended December 31, 1995 to income of $241,900 for the year ended December
31, 1996. The change was primarily the result of provisions for value
impairment totaling $5,600,000 recorded for the year ended December 31, 1995
and the gain of $816,100 recorded on the sale of Sentry West for the year ended
December 31, 1996.
Net (loss), exclusive of the provisions for value impairment, gain on the sale
of Sentry West and operations of Sentry West, improved by $783,100. The
improvement was primarily due to improved operating results at all of the
Partnership's properties with the most significant increases coming at
Marquette Mall and Office Building ("Marquette"), Prentice Plaza and Regency
Park Shopping Center ("Regency").
The following comparative discussion includes the results from the
Partnership's four remaining property investments.
Rental revenues increased by $393,800 or 4.4% for the year ended December 31,
1996 when compared to the year ended December 31, 1995. The increase was
primarily due to an increase in base rental income at Burlington Office Center
I, II and III ("Burlington") which was the result of the increase in the
average occupancy rate. Also contributing to the increase was increased tenant
expense reimbursements and base rents at Prentice Plaza. Partially offsetting
the increase was the 1996 absence at Prentice Plaza of a lease settlement.
Interest expense on the Partnership's mortgage loans decreased by $322,600 for
the year ended December 31, 1996 when compared to the year ended December 31,
1995. The decrease was primarily due to a reduced interest rate on the mortgage
loan collateralized by Regency and the lower average outstanding principal
balance on the mortgage loans collateralizing Marquette and Regency.
Marquette's outstanding principal balance was reduced by the application of the
net sale proceeds from the sale of Sentry West.
Depreciation and amortization expense decreased by $147,900 for the years under
comparison. The decrease was primarily due to the effects of provisions for
value impairment recorded during the year ended December 31, 1995 which reduced
the depreciable bases of Marquette, Burlington and Regency. In addition, the
periodic depreciation and amortization expense for certain assets for which the
depreciable and amortizable lives expired during 1996 exceeded the periodic
depreciation and amortization expense for depreciable and amortizable assets
placed in service during 1996.
Real estate tax expense increased by $138,300 for the year ended December 31,
1996 when compared to the year ended December 31, 1995. The increase was
primarily due to a projected increase in the tax rate at Marquette. The
increase was partially offset by the receipt in 1996 of a refund at Prentice
Plaza which was the culmination of a successful appeal of the 1989 through 1994
tax years.
Property operating expenses decreased by $70,700 for the years under
comparison. The decrease was primarily due to reduced professional fees and
utility costs at Marquette, partially offset by an increase in professional
fees and administrative salaries at Burlington, which was the result of the
significant increase in occupancy.
Repairs and maintenance increased by $49,100 for the year ended December 31,
1996 when compared to the year ended December 31, 1995. The increase was
primarily due to increases in janitorial expenses and the maintenance of the
energy plant at Marquette. In addition, the increase was due to increases in
janitorial and HVAC costs at Burlington. Partially offsetting the increase was
a decrease in janitorial salaries at Marquette.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1995 TO THE YEAR ENDED DECEMBER 31,
1994
Net (loss) for the Partnership decreased from $(10,580,500) for the year ended
December 31, 1994 to $(7,553,400) for the year ended December 31, 1995. The
effects of the sales of certain Partnership properties during 1994 and
provisions for value impairment recognized in 1994 and 1995 had a significant
impact on the comparison of net (loss) for the year ended December 31, 1995
when compared to the year ended December 31, 1994. The Partnership recorded
provisions for value impairment of $5,600,000 during 1995. During 1994, the
Partnership recorded provisions for value impairment of $10,000,000 and sold
the three remaining office buildings at Sentry East as well as Park Central.
Properties sold during 1994 accounted for net income (including operating
results and the net gain on sales of properties) of $160,700. For further
information, see Notes 9 and 10 of Notes to Financial Statements.
Excluding the effects on net income of the properties sold and provisions for
value impairment, net (loss) for the year ended December 31, 1995 decreased by
$78,300 when compared to the year ended December 31, 1994. The decrease in net
loss was primarily due to improved operating results at Regency, Marquette,
Sentry West and Prentice Plaza as well as lower general and administrative
expenses primarily due to lower fees for professional and data processing
services. Partially offsetting the decrease in net loss was diminished
operating results at Burlington and an increase in interest expense on the
Partnership's Front-End Fees loan due to an increase in the variable interest
rate and an increase in printing and mailing costs.
For purposes of the following comparative discussion, the operating results of
Park Central and Sentry East have been excluded.
Rental revenues increased by $130,900 or 1% for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The increase was
primarily due to: 1) increases in the average occupancy rate at Sentry West,
Regency and Prentice Plaza; 2) an increase in percentage rental income at
Marquette resulting from higher tenant sales which determine the amount of
percentage rents to be paid to the Partnership; 3) an increase in tenant
expense reimbursements at Regency as a result of the increase in the average
occupancy rate as well as the receipt in 1995 of tenant expense reimbursements
related to 1994 and 4) an increase in tenant expense reimbursements at Sentry
West
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
primarily as a result of the increase in the average occupancy rate. Partially
offsetting the 1995 increase in rental revenues was: 1) lower rental revenues
at Burlington due to a decrease in occupancy as a result of a major tenant
exercising a cancellation clause in its lease and downsizing its leasable
square footage from 19,700 square feet to 2,500 square feet, a decrease of 10%
of the total leasable square footage of the property; 2) the receipt of lease
termination fees in 1994 from two tenants at Marquette; 3) lower tenant expense
reimbursements as a result of a refund to tenants in 1995 of previously billed
1994 expense reimbursements at Marquette and Prentice Plaza as well as
additional 1993 expense reimbursements received in 1994 at Marquette and 4)
lower percentage rental income at Regency.
Depreciation and amortization expense decreased by $188,100 for the years under
comparison. The decrease was primarily due to the reduction in expense as a
result of the effects of provisions for value impairment recorded for several
Partnership properties for the year ended December 31, 1994. In addition, the
periodic depreciation and amortization expense for certain assets for which the
depreciable and amortizable lives expired during 1995 exceeded the period
depreciation and amortization expense for depreciable and amortizable assets
placed in service during 1995.
Real estate tax expense decreased by $82,900 for the year ended December 31,
1995 when compared to 1994. The decrease was primarily due to a decrease at
Marquette as a result of an overestimate of the 1994 tax liability paid in 1995
as well as a decrease in the 1995 projected liability payable in 1996 and a
lower expense at Burlington as a result of the Partnership's successful protest
in 1993 which resulted in reduced billings in subsequent periods. Partially
offsetting the decrease was an increase in real estate tax expense at Prentice
Plaza as a result of an increase in the assessed valuation of the property for
real estate tax purposes.
Interest expense on the Partnership's mortgage loans increased by $256,100 for
the year ended December 31, 1995 when compared to the year ended December 31,
1994. The increase was primarily due to increases in the principal balance and
variable interest rate on the junior mortgage loan collateralized by Marquette
as well as an increase in the variable interest rate on the mortgage loan
collateralized by Sentry West.
Property operating expense increased by $42,300 for the year ended December 31,
1995 when compared to the year ended December 31, 1994. The increase was
primarily due to: 1) increases in property management fees at Prentice Plaza,
Sentry West and Regency as a result of the increases in rental revenues which
is a factor in determining the amount of such fees; 2) an increase in
advertising and promotional fees, security costs and training and development
costs at Marquette; 3) an increase in professional service fees at Prentice
Plaza, Burlington, Sentry West and Regency and 4) increased utility costs at
Sentry West. Partially offsetting the increase in property operating expense
was: 1) lower utility costs at Burlington and Marquette; 2) lower professional
service fees as well as management and leasing fees at Marquette and 3) lower
advertising and promotional fees at Regency.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its Affiliated asset and property management
groups, continues to take the following actions: 1) implementation of marketing
programs, including hiring of third-party leasing agents or providing on-site
leasing personnel, advertising, direct mail campaigns and development of
building brochures; 2) early renewal of existing tenant leases and addressing
any expansion needs these tenants may have; 3) promotion of local broker events
and networking with local brokers; 4) networking with national level retailers;
5) cold-calling other businesses and tenants in the market area; and 6)
providing rental concessions or competitively pricing rental rates depending on
market conditions.
The rate of inflation has remained relatively stable during the years under
comparison and has had a minimal impact on the operating results of the
Partnership. The nature of various tenant lease clauses protects the
Partnership, to some extent, from increases in the rate of inflation. Certain
of the lease clauses provide for the following: (1) annual rent increases based
on the Consumer Price Index or graduated rental increases; (2) percentage
rentals at shopping centers, for which the Partnership receives as additional
rent a percentage of a tenant's sales over predetermined amounts and (3) total
or partial tenant reimbursement of property operating expenses (e.g., common
area maintenance, real estate taxes, etc.).
LIQUIDITY AND CAPITAL RESOURCES
One of the Partnership's objectives is to dispose of its properties when market
conditions allow for the achievement of the maximum possible sales price. In
the interim, the Partnership continues to manage and maintain its properties.
Cash Flow (as defined in the Partnership Agreement) is generally not equal to
Partnership net income (loss) or cash flows as defined by GAAP, since certain
items are treated differently under the Partnership Agreement than under GAAP.
The General Partner believes that to facilitate a clear understanding of the
Partnership's operations, an analysis of Cash Flow (as defined in the
Partnership Agreement) should be examined in conjunction with an analysis of
net income/(loss) or cash flows as defined by GAAP. The second table in
Selected Financial Data includes a reconciliation of Cash Flow (as defined in
the Partnership Agreement) to cash flows provided by operating activities as
determined by GAAP. Such amounts are not indicative of actual distributions to
Partners and should not necessarily be considered as an alternative to the
results disclosed in the Statements of Income and Expenses and Statements of
Cash Flows.
The increase in Cash Flow (as defined in the Partnership Agreement) of $393,900
for the year ended December 31, 1996 when compared to the year ended December
31, 1995 was primarily due to the change in net income, as previously
discussed, exclusive of depreciation, amortization, provisions for value
impairment and the gain on the sale of property. Partially offsetting the
increase was an increase in regularly scheduled principal payments made on the
Partnership's mortgage loans.
The increase of $41,300 in the Partnership's cash position for the year ended
December 31, 1996 was primarily the result of net cash provided by operating
activities exceeding payments for capital and tenant improvements, leasing
costs and principal amortization. The liquid assets of the Partnership as of
December 31, 1996 were comprised of amounts held for working capital purposes.
Net cash provided by operating activities increased by $874,100 for the year
ended December 31, 1996 when
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
compared to the year ended December 31, 1995. The increase was primarily the
result of the increase in net income, as previously discussed, along with the
timing of the liquidation of current assets at Burlington and the payment of
certain operating expenses at Regency.
Net cash (used for) provided by investing activities changed from $(1,227,500)
for the year ended December 31, 1995 to $4,810,400 for the year ended December
31, 1996. The change was primarily due to proceeds received in 1996 from the
sale of Sentry West and a decrease in 1996 in the cash used for capital and
tenant improvements and leasing costs. The Partnership maintains working
capital reserves to pay for capital expenditures such as building and tenant
improvements and leasing costs. During the year ended December 31, 1996, the
Partnership spent $875,900 for building and tenant improvements and leasing
costs and has budgeted to spend approximately $1,465,000 during 1997. Included
in the amount spent by the Partnership in 1996 is $300,000 related to the
refurbishment and modernization of one of the major department stores at
Marquette. Included in the 1997 budgeted amount are capital and tenant
improvements and leasing costs of approximately $650,000 at Burlington and
$535,000 at Marquette. As of December 31, 1996, the Partnership has accrued
$300,000 as an additional liability which also relates to the refurbishment and
modernization of the major department store at Marquette, which was paid by the
Partnership in February 1997. The General Partner believes these improvements
and leasing costs are necessary in order to increase and/or maintain occupancy
levels in very competitive markets, maximize rental rates charged to new and
renewing tenants and to prepare the remaining properties for eventual
disposition.
On August 28, 1996, the joint venture which owned Sentry West, in which the
Partnership had a 50% interest, consummated the sale of Sentry West for a price
of $11,650,000. The Partnership's share of the proceeds from this transaction,
net of closing prorations, selling expenses and the repayment of the mortgage
loan collateralized by Sentry West was approximately $894,500. Pursuant to an
amended agreement with the junior mortgage lender for Marquette, which was also
the mortgage lender for Sentry West, the Partnership's entire share of the net
proceeds from this sale was used to paydown the principal balance of the junior
mortgage loan collateralized by Marquette.
Net cash provided by (used for) financing activities changed from $712,600 for
the year ended December 31, 1995 to $(5,877,100) for the year ended December
31, 1996. The change was primarily due to the repayment of the Sentry West
mortgage loan and the paydown of the Marquette loan, both in conjunction with
the sale of Sentry West (see Notes 5 and 9 of Notes to Financial Statements)
and the absence of net proceeds received in 1995 on the refinanced mortgage
loans collateralized by Marquette and Prentice Plaza. Partially offsetting the
change was the 1996 deferral of interest payments on the Partnership's Front-
End Fees loan, which the Partnership elected to begin deferring starting with
the January 1, 1996 interest payment.
Pursuant to a modification of the Partnership's Front-End Fees loan agreement
with an Affiliate of the General Partner, the Partnership has the option to
defer payment of interest on this loan, for a 72-month period beginning January
1, 1993. In addition, any interest payments paid by the Partnership from
January 1, 1993 through December 31, 1998 may be borrowed from this Affiliate.
All deferred and subsequently borrowed amounts (including accrued interest
thereon) shall be due and payable on January 1, 1999, and shall not be
subordinated to payment of original Capital Contributions to Limited Partners.
As of March 1, 1996, the two senior mortgage loans collateralized by Marquette
Mall and Office Building were amended. The terms of the amendment to the
mortgage loan collateralized by Marquette Mall provided that during the period
beginning March 1, 1996 through February 28, 1998, accrued interest only shall
be paid and that on March 1, 1998 the original terms of the mortgage loan will
become effective. The terms of the amendment to the mortgage loan
collateralized by Marquette Office Building provided that during the period
beginning March 1, 1996 through February 28, 1998, monthly installments of
principal in the amount of $8,333 plus accrued interest shall be paid and that
on March 1, 1998 the original terms of the mortgage loan will become effective.
On March 29, 1996, the Partnership executed an amendment which modified and
amended the junior mortgage loan collateralized by Marquette, effective January
1, 1996. Terms of the amendment included: 1) a reduction in the loan commitment
amount from $9,770,000 to $9,350,000; 2) a change from quarterly principal
amortization payments of $125,000 each quarter beginning January 1, 1996 and
increasing to $150,000 on July 1, 1996 to monthly principal amortization
payments of $30,000; 3) a reduction in the variable interest rate from 30-day
LIBOR plus 300 basis points to 30-day LIBOR plus 250 basis points; 4) an
assignment to the lender of the net sale proceeds on the sale of Sentry West
(see Note 9 of Notes to Financial Statements) to reduce the outstanding
principal balance on the junior mortgage loan; 5) an option to extend the
maturity date of the loan to September 30, 1998 for a .5% extension fee, with a
change in the interest rate to 30-day LIBOR plus 275 basis points and an
increase in the monthly principal amortization payments to $50,000 and 6) to
the extent that proceeds from the sale of Sentry West utilized to reduce this
loan exceeded $700,000, a deferral of the monthly principal amortization
payments. Terms of the existing loan include a prohibition on distributions to
Limited Partners and a guarantee of repayment by the Partnership. As a result
of a principal paydown of $894,500 from the proceeds from the sale of Sentry
West, the Partnership is not obligated to pay the $30,000 monthly principal for
a period of six months, beginning September 1, 1996.
In August 1996, the joint venture which owns Regency, in which the Partnership
owns a 50% interest with Affiliated partnerships, executed an agreement with
the mortgage lender to modify the terms of its mortgage loan. Significant terms
of this agreement, which are retroactive to January 1, 1996, include: 1) an
extension of the maturity date to December 31, 1997; 2) monthly principal and
interest payments based on a 23-year amortization schedule with a per annum
interest rate of 7.5%; and 3) net property cash flow (as defined in the
agreement), if any, after deducting scheduled principal and interest payments,
approved capital and tenant improvements and leasing commissions, is required
to be deposited into a non-interest bearing reserve account maintained by the
lender to be used for capital and tenant improvements, leasing commissions and
operating deficits of Regency.
As of December 31, 1996, 26 of the 33 tenants at Prentice Plaza and 28 of the
40 tenants at Burlington, have leases
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONCLUDED)
totaling 233,019 square feet, that expire in the next three years. The
Partnership's share of total base rental revenues projected to be collected
from these tenants for the year ending December 31, 1997 is $2,279,400.
Notwithstanding the market rental rates that may be in effect at the time that
these leases mature, the Partnership faces a significant amount of uncertainty
with respect to the occupancy at its properties during 1997 and possibly
beyond. The General Partner and its Affiliated management companies intend to
address the possible renewal of these leases well in advance of their scheduled
maturities in an attempt to maintain occupancy and rental revenues at its
properties.
The Partnership has significant financial obligations during the year ending
December 31, 1997. As disclosed in Note 5 of Notes to Financial Statements,
payments due on the mortgage loans collateralized by the Partnership's
properties are substantial. The mortgage loan collateralized by Burlington
matures in 1997. While the General partner is currently negotiating to
refinance the mortgage note, there can be no assurance that such efforts will
be successful. Failure to secure a replacement mortgage could result in the
current lender foreclosing on the property through default of the terms of the
mortgage note. Also maturing in 1997 is the mortgage loan collateralized by
Regency. The General Partner is currently attempting to sell the property.
There can be no assurance that the General Partner will succeed in this effort.
Failure to sell the property could result in the loss of the property through
foreclosure. In connection with the potential replacement of tenants together
with ongoing required maintenance of the Partnership's properties, the
Partnership anticipates incurring substantial capital, tenant improvement and
leasing costs during 1997. Net cash provided by operating activities will not
be sufficient to meet the above debt and capital expenditure requirements for
the year ending December 31, 1997. As a result of this issue together with the
restriction on distributions to Limited Partners in the junior loan
collateralized by Marquette, the General Partner believes that it is in the
best interest of the Partnership to retain all cash available. Accordingly,
distributions to Partners continue to be suspended. For the year ended December
31, 1996, Cash Flow (as defined in the Partnership Agreement) of $152,200 was
retained to supplement working capital reserves. The General Partner continues
to review other sources of cash available to the Partnership, which includes
the sale of Regency and sale or refinancing of the Partnership's other
properties. There can be no assurance as to the timing or successful completion
of any future transactions, including the refinancing of Burlington and sale of
Regency. The Partnership may have inadequate liquidity to meet its mortgage
loan obligations, which could result in the foreclosure of one or Burlington
and Regency. The General Partner believes that such events would not affect the
Partnership's ability to continue business operations.
Based upon the current estimated value of its assets, net of its outstanding
liabilities, together with its expected operating results and capital
expenditure requirements, the General Partner believes that the Partnership's
cumulative distributions to its Limited Partners from inception through the
termination of the Partnership will be substantially less than such Limited
Partners' original Capital Investment.
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The response to this item is submitted as a separate section of this report.
See page A-1 "Index of Financial Statements, Schedule and Exhibits."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
12
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
(a) DIRECTORS
---------
The Partnership has no directors. First Capital Financial Corporation
("FCFC") is the General Partner. The Directors of FCFC, as of March 28,
1997, are shown in the table below. Directors serve for one year or until
their successors are elected. The next annual meeting of FCFC will be held
in June 1997.
Name Office
---- ------
Samuel Zell.......................................Chairman of the Board
Douglas Crocker II................................Director
Sheli Z. Rosenberg................................Director
Samuel Zell, 55, has been a Director of the General Partner since 1983
(Chairman of the Board since December 1985) and is Chairman of the Board of
Equity Financial and Management Company ("EFMC") and Equity Group
Investments, Inc. ("EGI"), and is a trustee and beneficiary of a general
partner of Equity Holdings Limited, an Illinois Limited Partnership, a
privately owned investment partnership. He is also Chairman of the Board of
Directors of Anixter International Inc., American Classic Voyages Co. and
Manufactured Home Communities Inc. ("MHC"). He is Chairman of the Board of
Trustees of Equity Residential Properties Trust. He is a Director of Chart
House Enterprises, Inc., Ramco Energy plc, TeleTech Holdings Inc., Quality
Food Centers, Inc. ("QFC") and Sealy Corporation. He is Chairman of the
Board of Directors and Chief Executive Officer of Capsure Holdings Corp.
and Co-Chairman of the Board of Revco D.S., Inc.
Douglas Crocker II, 56, has been President and Chief Executive Officer
since December 1992 and a Director since January 1993 of the General
Partner. Mr. Crocker has been an Executive Vice President of EFMC since
November 1992. Mr. Crocker has been President, Chief Executive Officer and
trustee of Equity Residential Properties Trust since March 31, 1993. He was
President of Republic Savings Bank, F.S.B. ("Republic") from 1989 to June
1992 at which time the Resolution Trust Company took control of Republic.
Mr. Crocker is a member of the Board of Directors of Horizon Group, Inc.
Sheli Z. Rosenberg, 55, was President and Chief Executive Officer of the
General Partner from December 1990 to December 1992 and has been a Director
of the General Partner since September 1983; was Executive Vice President
and General Counsel for EFMC from October 1980 to November 1994; has been
President and Chief Executive Officer of EFMC and EGI since November 1994;
has been a Director of Great American Management and Investment Inc.
("Great American") since June 1984 and is a Director of various
subsidiaries of Great American. She is also a Director of Anixter
International Inc., Capsure Holdings Corp., American Classic Voyages Co.,
Jacor Communications, Inc., Revco D.S., Inc., Sealy Corporation, QFC and
MHC. She is also a trustee of Equity Residential Properties Trust. Ms.
Rosenberg is a Principal of Rosenberg & Liebentritt, P.C., counsel to the
Partnership, the General Partner and certain of their Affiliates. She had
been Vice President of First Capital Benefit Administrators, Inc. ("Benefit
Administrators") since July 22, 1987 until its liquidation in November
1995. Benefit Administrators filed for protection under the Federal
bankruptcy laws on January 3, 1995.
13
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT--Continued
- -------- -------------------------------------------------------------
(b,c & e) EXECUTIVE OFFICERS
------------------
The Partnership does not have any executive officers. The executive officers
of the General Partner as of March 28, 1997 are shown in the table. All
officers are elected to serve for one year or until their successors are
elected and qualified.
Name Office
---- ------
Douglas Crocker II....................President and Chief Executive Officer
Gus J. Athas..........................Senior Vice President
Norman M. Field.......................Vice President - Finance and Treasurer
PRESIDENT AND CEO - See Table of Directors above.
Gus J. Athas, 60, has been Senior Vice President of the General Partner
since March 1995. Mr. Athas has served as Senior Vice President, General
Counsel and Assistant Secretary of Great American since March 1995. Mr.
Athas has served as Senior Vice President, General Counsel and Secretary of
Falcon Building Products, Inc. since March 1994 and served as Vice President
and Secretary from January 1994 to March 1994. Mr. Athas served as Senior
Vice President, General Counsel and Secretary of Eagle Industries, Inc.
("Eagle") since May 1993. From September 1992 to May 1993, Mr. Athas was
Vice President, General Counsel and Secretary of Eagle. From November 1987
to September 1992, Mr. Athas served as Vice President, General Counsel and
Assistant Secretary of Eagle.
Norman M. Field, 48, has been Vice President of Finance and Treasurer of the
General Partner since February 1984, and also served as Vice President and
Treasurer of Great American from July 1983 until March 1995. Mr. Field had
been Treasurer of Benefit Administrators since July 22, 1987 until its
liquidation in November 1995. Benefit Administrators filed for protection
under the Federal bankruptcy laws on January 3, 1995. He was Chief Financial
Officer of Equality Specialties, Inc. ("Equality"), a subsidiary of Great
American, from August 1994 to April 1995. Equality was sold in April 1995.
(d) FAMILY RELATIONSHIPS
--------------------
There are no family relationships among any of the foregoing directors and
officers.
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
----------------------------------------
With the exception of the bankruptcy matter disclosed under Items 10 (a),
(b), (c) and (e), there are no involvements in certain legal proceedings
among any of the foregoing directors and officers.
14
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------------------------------
(a,b,c & d) As stated in Item 10, the Partnership has no officers or directors.
Neither the General Partner, nor any director or officer of the General Partner,
received any direct remuneration from the Partnership during the year ended
December 31, 1996. However, the General Partner and its Affiliates do
compensate its directors and officers. For additional information see Item 13
(a) Certain Relationships and Related Transactions.
(e) None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(a) As of March 1, 1997, no person of record owned or was known by the
Partnership to own beneficially more than 5% of the Partnership's 57,621
Units then outstanding.
(b) The Partnership has no directors or executive officers. As of March 1,
1997, the executive officers and directors of the General Partner, as a
group, did not own any Units.
(c) None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
(a) Affiliates of the General Partner, provide leasing, property management and
supervisory services to the Partnership. Compensation to the General
Partner, its Affiliates and all other parties for property management
services may not exceed the lesser of the compensation customarily charged
in arm's-length transactions in the same geographic area and for a
comparable property or 6% of the gross receipts from the property being
managed where the General Partner or Affiliate provides leasing, re-leasing
and leasing related services, or 3% of gross receipts where the General
Partner or Affiliate does not perform leasing, re-leasing and leasing
related services and, in that event, may pay an unaffiliated party for
leasing services to the Partnership in an amount not to exceed the
compensation customarily charged in arm's-length transactions by persons
rendering similar services as an ongoing public entity in the same
geographic location for a comparable property. During the year ended
December 31, 1996, these Affiliates were entitled to leasing fees and
property management and supervisory fees of $506,800. In addition, other
Affiliates of the General Partner were entitled to fees and compensation of
$172,300 for insurance, personnel and other services. As of December 31,
1996, $55,000 of the these fees and reimbursements due to Affiliates were
unpaid. Services provided by Affiliates are on terms which are fair,
reasonable and no less favorable to the Partnership than reasonably could be
obtained from unaffiliated persons.
For the year ended December 31, 1996 an Affiliate of the General Partner was
entitled to interest on the Partnership's Front-End Fees loan in the amount
of $626,700. In accordance with the Partnership Agreement, neither the
General Partner nor its Affiliates shall lend money to the Partnership with
interest rates and other finance charges and fees in excess of the lesser of
the amounts that are charged by unrelated lending institutions on comparable
loans for the same purpose in the same locality or 2% above the prime rate
of interest charged by Chase Manhattan Bank.
Pursuant to a modification of the Partnership's Front-End Fees loan
agreement, the Partnership has the option to defer payment of interest on
this loan, for a 72-month period beginning January 1, 1993. All deferred
amounts (including accrued interest thereon) shall be due and payable on
January 1, 1999, and shall not be subordinated to repayment to the Limited
Partners of their original Capital Contributions. Beginning with the
interest payment due on January 1, 1996, the
15
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
- -------- ----------------------------------------------
Partnership elected to defer payment of interest. As of December 31, 1996,
$683,600 of deferred interest was due to an Affiliate.
In accordance with the Partnership Agreement, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from the sale, disposition or
provision for value impairment of Partnership properties) shall be allocated
1% to the General Partner and 99% to the Limited Partners. Net Profits from
the sale or disposition of a Partnership property are allocated: first,
prior to giving effect to any distributions of Sale or Refinancing Proceeds
from the transaction, to the General Partner and Limited Partners with
negative balances in their Capital Accounts, pro rata in proportion to such
respective negative balances, to the extent of the total of such negative
balances; second, to each Limited Partner in an amount, if any, necessary to
make the positive balance in its Capital Account equal to the Sale or
Refinancing Proceeds to be distributed to such Limited Partner with respect
to the sale or disposition of such property; third, to the General Partner
in an amount, if any, necessary to make the positive balance in its Capital
Account equal to the Sale or Refinancing Proceeds to be distributed to the
General Partner with respect to the sale or disposition of such property;
and fourth, the balance, if any, 25% to the General Partner and 75% to the
Limited Partners. Net Losses from the sale, disposition or provision for
value impairment of Partnership properties are allocated: first, after
giving effect to any distributions of Sale or Refinancing Proceeds from the
transaction, to the General Partner and Limited Partners with positive
balances in their Capital Accounts, pro rata in proportion to such
respective positive balances, to the extent of the total amount of such
positive balances; and second, the balance, if any, 1% to the General
Partner and 99% to the Limited Partners. Notwithstanding anything to the
contrary, there shall be allocated to the General Partner not less than 1%
of all items of Partnership income, gain, loss, deduction and credit during
the existence of the Partnership. For the year ended December 31, 1996, the
General Partner was allocated Net Profits of $241,900 which included a gain
on the sale of property of $816,100.
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 30% owned by Anixter International Inc. (formerly known as
Itel Corporation), an Affiliate of the General Partner, is obligated to the
Partnership under a lease of office space at Prentice Plaza. During the year
ended December 31, 1996, the Partnership's share of ANTEC's rent was
$293,400. The per square foot rent paid by ANTEC is comparable to that paid
by other tenants at Prentice Plaza.
Manufactured Homes Communities Inc. ("MHC") a real estate investment trust
which is in the business of owning and operating mobil home communities, an
Affiliate of the General Partner, is obligated to the Partnership under a
lease of office space at Prentice Plaza. During the year ended December 31,
1996, the Partnership's share of MHC's rent was $29,800. The per square foot
rent paid by MHC is comparable to that paid by other tenants at Prentice
Plaza.
(b) Rosenberg & Liebentritt, P.C. ("Rosenberg"), serves as legal counsel to the
Partnership, the General Partner and certain of their Affiliates. Sheli Z.
Rosenberg, President and Chief Executive Officer of the General Partner from
December 1990 to December 1992 and a director of the General Partner since
December 1983, is a Principal of Rosenberg. For the year ended December 31,
1996, Rosenberg was entitled to $132,000 for legal fees from the
Partnership. As of December 31, 1996, $7,000 was due to Rosenberg.
Compensation for these services are on terms which are fair, reasonable and
no less favorable to the Partnership than reasonably could be obtained from
unaffiliated parties.
(c) No management person is indebted to the Partnership.
(d) None.
16
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
- -------- ----------------------------------------------------------------
(a,c & d) See Index of Financial Statements, Schedule and Exhibits on page A-1
of Form 10-K.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the quarter ended December 31, 1996.
17
<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.
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES XI
BY: FIRST CAPITAL FINANCIAL CORPORATION
GENERAL PARTNER
Dated: March 28, 1997 By: /s/ DOUGLAS CROCKER II
-------------- --------------------------------------------
DOUGLAS CROCKER II
President and Chief Executive Officer
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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
/s/ SAMUEL ZELL March 28, 1997 Chairman of the Board and
- ------------------------- -------------- Director of the General Partner
SAMUEL ZELL
/s/ DOUGLAS CROCKER II March 28, 1997 President, Chief Executive Officer and
- ------------------------- -------------- Director of the General Partner
DOUGLAS CROCKER II
/s/ SHELI Z. ROSENBERG March 28, 1997 Director of the General Partner
- ----- ------------------ --------------
SHELI Z. ROSENBERG
/s/ GUS J. ATHAS March 28, 1997 Senior Vice President
- ------------------------- --------------
GUS J. ATHAS
/s/ NORMAN M. FIELD March 28, 1997 Vice President - Finance and Treasurer
- ------------------------- --------------
NORMAN M. FIELD
</TABLE>
18
<PAGE>
INDEX OF FINANCIAL STATEMENTS, SCHEDULE AND EXHIBITS
FINANCIAL STATEMENTS FILED AS PART OF THIS REPORT
<TABLE>
<CAPTION>
Pages
-------------
<S> <C>
Report of Independent Auditors A-2
Balance Sheets as of December 31, 1996 and 1995 A-3
Statements of Partners' Capital for the Years Ended
December 31, 1996, 1995, and 1994 A-3
Statements of Income and Expenses for the Years
Ended December 31, 1996, 1995, and 1994 A-4
Statements of Cash Flows for the Years Ended
December 31, 1996, 1995, and 1994 A-4
Notes to Financial Statements A-5 to A-9
SCHEDULE FILED AS PART OF THIS REPORT
III - Real Estate and Accumulated Depreciation as of
December 31, 1996 A-10 and A-11
</TABLE>
All other schedules have been omitted as inapplicable, or for the reason that
the required information is shown in the financial statements or notes thereto.
EXHIBITS FILED AS PART OF THIS REPORT
EXHIBITS (3 & 4) First Amended and Restated Certificate and Agreement of Limited
Partnership as set forth on pages A-1 through A-34 of the Partnership's
definitive Prospectus dated September 12, 1985; Registration Statement No. 2-
98749, filed pursuant to Rule 424 (b), is incorporated herein by reference.
EXHIBIT (10) Material Contracts
- ------------
Lease agreement for a tenant at Burlington Office Park I, II & III, one of the
Partnership's most significant properties. The revenues from this lease for
1997, exceed 10% of Burlington's 1997 budgeted rental revenues.
Real Estate Sale Agreement for the sale of the Partnership's investment in
Sentry Park West Office Campus filed as an exhibit to the Partnership's Report
on Form 8-K dated August 28, 1996 is incorporated herein by reference
EXHIBIT (13) Annual Report to Security Holders
- ------------
The 1995 Annual Report to Limited Partners is being sent under separate cover,
not as a filed document and not via EDGAR, for the information of the
Commission.
EXHIBIT (27) Financial Data Schedule
- ------------
A-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
First Capital Income Properties, Ltd. - Series XI
Chicago, Illinois
We have audited the accompanying balance sheets of First Capital Income
Properties, Ltd. - Series XI as of December 31, 1996 and 1995, and the related
statements of income and expenses, partners' capital and cash flows for each of
the three years in the period ended December 31, 1996, and the financial
statement schedule listed in the accompanying index. These financial statements
and schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Capital Income
Properties, Ltd. - Series XI at December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Chicago, Illinois
March 14, 1997
A-2
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
BALANCE SHEETS
December 31, 1996 and 1995
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 8,151,600 $ 8,948,500
Buildings and improvements 49,873,600 56,326,700
- ----------------------------------------------------------------------------
58,025,200 65,275,200
Accumulated depreciation and amortization (17,062,800) (18,551,100)
- ----------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 40,962,400 46,724,100
Cash and cash equivalents 1,372,900 1,331,600
Restricted escrow deposits 79,700
Rents receivable 624,400 626,800
Other assets (net of accumulated amortization on
loan acquisition costs of $967,200 and $938,300,
respectively) 500,100 561,400
- ----------------------------------------------------------------------------
$43,459,800 $49,323,600
- ----------------------------------------------------------------------------
LIABILITIES AND PARTNERS' (DEFICIT)
Liabilities:
Mortgage loans payable $34,803,200 $41,189,600
Front-End Fees loan payable to Affiliate 8,295,200 8,295,200
Accounts payable and accrued expenses 1,260,700 1,300,400
Due to Affiliates 745,600 114,700
Security deposits 186,300 200,700
Other liabilities 439,000 735,100
- ----------------------------------------------------------------------------
45,730,000 51,835,700
- ----------------------------------------------------------------------------
Partners' (deficit):
General Partner (deficit) (2,270,200) (2,512,100)
Limited Partners (57,621 Units issued and
outstanding)
- ----------------------------------------------------------------------------
(2,270,200) (2,512,100)
- ----------------------------------------------------------------------------
$43,459,800 $49,323,600
- ----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the years ended December 31, 1996, 1995 and 1994
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partner Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit) capital,
January 1, 1994 $ (183,100) $ 15,804,900 $ 15,621,800
Net (loss) for the year ended
December 31, 1994 (105,800) (10,474,700) (10,580,500)
- -------------------------------------------------------------------------------
Partners' (deficit) capital, December
31, 1994 (288,900) 5,330,200 5,041,300
Net (loss) for the year ended
December 31, 1995 (2,223,200) (5,330,200) (7,553,400)
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1995 (2,512,100) 0 (2,512,100)
Net income for the year ended
December 31, 1996 241,900 0 241,900
- -------------------------------------------------------------------------------
Partners' (deficit) capital,
December 31, 1996 $(2,270,200) $ 0 $ (2,270,200)
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 1996, 1995 and 1994
(All dollars rounded to nearest 00s
except per Unit amounts)
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Rental $10,386,100 $10,383,600 $ 10,759,900
Interest 62,500 52,900 47,200
Net gain on sale of properties 816,100 188,400
- ------------------------------------------------------------------------------
11,264,700 10,436,500 10,995,500
- ------------------------------------------------------------------------------
Expenses:
Interest:
Affiliate 626,600 673,000 570,400
Nonaffiliates 3,249,100 3,724,100 3,563,500
Depreciation and amortization 1,649,600 2,341,800 2,627,800
Property operating:
Affiliates 575,200 602,000 574,800
Nonaffiliates 1,972,300 2,162,500 2,326,100
Real estate taxes 1,382,300 1,285,100 1,397,900
Insurance--Affiliate 140,500 111,800 156,600
Repairs and maintenance 1,242,700 1,296,900 1,418,400
General and administrative:
Affiliates 37,800 41,500 41,100
Nonaffiliates 146,700 151,200 187,700
Provisions for value impairment 5,600,000 10,000,000
- ------------------------------------------------------------------------------
11,022,800 17,989,900 22,864,300
- ------------------------------------------------------------------------------
Income (loss) before Venture partner's
participation in loss of joint
venture 241,900 (7,553,400) (11,868,800)
Venture partner's participation in
loss of joint venture 1,288,300
- ------------------------------------------------------------------------------
Net income (loss) $ 241,900 $(7,553,400) $(10,580,500)
- ------------------------------------------------------------------------------
Net income (loss) allocated to General
Partner $ 241,900 $(2,223,200) $ (105,800)
- ------------------------------------------------------------------------------
Net (loss) allocated to Limited
Partners $ 0 $(5,330,200) $(10,474,700)
- ------------------------------------------------------------------------------
Net (loss) allocated to Limited
Partners per Unit (57,621 Units
outstanding) $ 0 $ (92.50) $ (181.79)
- ------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 241,900 $(7,553,400) $(10,580,500)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,649,600 2,341,800 2,627,800
Venture partner's participation in
(loss) of joint venture (1,288,300)
Net (gain) on sale of properties (816,100) (188,400)
Provisions for value impairment 5,600,000 10,000,000
Changes in assets and liabilities:
Decrease (increase) in rents
receivable 2,400 (55,300) 225,700
Decrease in other assets 61,700 1,500 79,200
(Decrease) in accounts payable and
accrued expenses (39,700) (169,600) (25,900)
Increase (decrease) in due to
Affiliates 4,300 2,000 (87,900)
Increase (decrease) in other
liabilities 3,900 66,900 (11,800)
- ------------------------------------------------------------------------------
Net cash provided by operating
activities 1,108,000 233,900 749,900
- ------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of commercial
rental properties 5,606,600 4,697,900
Payments for capital and tenant
improvements (875,900) (1,335,100) (1,230,400)
Maturity of (investment in)
restricted certificate of deposit
and escrow deposits 79,700 107,600 (75,000)
- ------------------------------------------------------------------------------
Net cash provided by (used for)
investing activities 4,810,400 (1,227,500) 3,392,500
- ------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on mortgage loans
payable (1,817,700) (929,500) (551,700)
Repayment of mortgage loan payable (4,568,700) (3,642,100)
Proceeds from mortgage loan payable 1,750,000 307,700
Interest deferred on Front-End Fees
loan payable to Affiliate 626,600
Payment of loan acquisition or
extension fees (102,900) (113,500) (76,100)
(Decrease) increase in security
deposits (14,400) 5,600 (19,700)
- ------------------------------------------------------------------------------
Net cash (used for) provided by
financing activities (5,877,100) 712,600 (3,981,900)
- ------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 41,300 (281,000) 160,500
Cash and cash equivalents at the
beginning of the year 1,331,600 1,612,600 1,452,100
- ------------------------------------------------------------------------------
Cash and cash equivalents at the end
of the year $ 1,372,900 $ 1,331,600 $ 1,612,600
- ------------------------------------------------------------------------------
Supplemental information:
Interest paid during the year $ 3,293,700 $ 4,404,100 $ 4,157,700
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-4
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
NOTES TO FINANCIAL STATEMENTS
December 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEFINITION OF SPECIAL TERMS:
Capitalized terms used in this report have the same meaning as those terms have
in the Partnership's Registration Statement filed with the Securities and
Exchange Commission on Form S-11. Definitions of these terms are contained in
Article III of the First Amended and Restated Certificate and Agreement of
Limited Partnership, which is included in the Registration Statement and
incorporated herein by reference.
ORGANIZATION:
The Partnership was formed on May 24, 1985, by the filing of a Certificate and
Agreement of Limited Partnership with the Recorder of Deeds of Cook County,
Illinois, and commenced the Offering of Units on September 12, 1985. The
Certificate and Agreement, as amended and restated, authorized the sale to the
public of 50,000 Units (with the General Partner's option to increase to
100,000 Units) and not less than 1,400 Units pursuant to the Prospectus. On
December 3, 1985, the required minimum subscription level was reached and the
Partnership's operations commenced. The General Partner exercised its option to
increase the Offering to 100,000 Units and the Partnership Agreement was
subsequently amended to extend the Offering until March 31, 1987, through which
date 57,621 Units had been sold. The Partnership was formed to invest primarily
in existing, improved, income-producing commercial real estate.
The Partnership Agreement provides that the Partnership will be dissolved on or
before December 31, 2015. The Limited Partners, by a majority vote, may
dissolve the Partnership at any time.
ACCOUNTING POLICIES:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Under this method of accounting,
revenues are recorded when earned and expenses are recorded when incurred.
Preparation of the Partnership's financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
The financial statements include the Partnership's 50% interest in three joint
ventures with Affiliated partnerships. Two of these joint ventures were formed
for the purpose of each acquiring a 100% interest in certain real property and
one of these joint ventures was formed for the purpose of acquiring a preferred
majority interest in certain real property. These joint ventures are operated
under the common control of the General Partner. Accordingly, the Partnership's
pro rata share of the joint ventures' revenues, expenses, assets, liabilities
and Partners' capital is included in the financial statements.
The financial statements also include the Partnership's 70% undivided interest
in a joint venture with an unaffiliated third party. The joint venture owns a
100% interest in the Burlington Office Center I, II and III ("Burlington").
This joint venture is operated under the control of the General Partner. The
Partnership has included 100% of the venture's revenues, expenses, assets,
liabilities and Partner's capital in the financial statements.
The Partnership is not liable for federal income taxes as the Partners
recognize their proportionate share of the Partnership income or loss in their
income tax returns; therefore, no provision for income taxes is made in the
financial statements of the Partnership. In addition, it is not practicable for
the Partnership to determine the aggregate tax bases of the individual
Partners; therefore, the disclosure of the differences between the tax bases
and the reported assets and liabilities of the Partnership would not be
meaningful.
Commercial rental properties held for investment are recorded at cost, net of
any provisions for value impairment, and depreciated (exclusive of amounts
allocated to land) on the straight-line method over their estimated useful
lives. Upon classifying a commercial rental property as held for disposition,
no further depreciation or amortization of such property is provided for in the
financial statements. Lease acquisition fees are recorded at cost and amortized
over the life of each respective lease. Repair and maintenance expenditures are
expensed as incurred; expenditures for improvements are capitalized and
depreciated over the estimated life of such improvements.
During the first quarter of 1996, the Partnership adopted Financial Accounting
Standards Board Statement No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (the "Standard"). The
Standard established guidance for determining if the value of defined assets is
impaired, and if so, how impairment losses should be measured and reported in
the financial statements. Management is not aware of any indicator that would
result in any significant impairment loss. The Standard also addressed the
accounting for long-lived assets that are expected to be disposed of.
Evaluation of the potential impairment of the value of the Partnership's assets
is performed on an individual property basis.
Loan acquisition costs are amortized over the term of the mortgage loan made in
connection with the acquisition of Partnership properties or refinancing of
Partnership loans. When a property is disposed of or a loan is refinanced, the
related loan acquisition costs and accumulated amortization are removed from
the respective accounts and any unamortized balance is charged to expense.
Property sales are recorded when title transfers and sufficient consideration
has been received by the Partnership. Upon disposition, the related costs and
accumulated depreciation and amortization are removed from the respective
accounts. Any gain on sale is recognized in accordance with GAAP.
Cash equivalents are considered all highly liquid investments with a maturity
of three months or less when purchased.
A-5
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
The Partnership's financial statements include financial instruments, including
receivables, trade liabilities and mortgage debt. The Partnership considers the
disclosure of the fair value of its mortgage debt to be impracticable due to
the general illiquid nature of the real estate financing market and an
inability to obtain comparable financing on certain properties. The fair value
of all other financial instruments, including cash and cash equivalents, was
not materially different from their carrying value at December 31, 1996 and
1995.
Certain reclassifications have been made to the previously reported 1995 and
1994 statements in order to provide comparability with the 1996 statements.
These reclassifications had no effect on net income (loss) or Partners' capital
(deficit).
2. RELATED PARTY TRANSACTIONS:
In accordance with the Partnership Agreement, Net Profits and Net Losses
(exclusive of Net Profits and Net Losses from the sale, disposition or
provision for value impairment of Partnership properties) shall be allocated 1%
to the General Partner and 99% to the Limited Partners. Net Profits from the
sale or disposition of a Partnership property are allocated: first, prior to
giving effect to any distributions of Sale or Refinancing Proceeds from the
transaction, to the General Partner and Limited Partners with negative balances
in their Capital Accounts, pro rata in proportion to such respective negative
balances, to the extent of the total of such negative balances; second, to each
Limited Partner in an amount, if any, necessary to make the positive balance in
its Capital Account equal to the Sale or Refinancing Proceeds to be distributed
to such Limited Partner with respect to the sale or disposition of such
property; third, to the General Partner in an amount, if any, necessary to make
the positive balance in its Capital Account equal to the Sale or Refinancing
Proceeds to be distributed to the General Partner with respect to the sale or
disposition of such property; and fourth, the balance, if any, 25% to the
General Partner and 75% to the Limited Partners. Net Losses from the sale,
disposition or provision for value impairment of Partnership properties are
allocated: first, after giving effect to any distributions of Sale or
Refinancing Proceeds from the transaction, to the General Partner and Limited
Partners with positive balances in their Capital Accounts, pro rata in
proportion to such respective positive balances, to the extent of the total
amount of such positive balances; and second, the balance, if any, 1% to the
General Partner and 99% to the Limited Partners. Notwithstanding anything to
the contrary, there shall be allocated to the General Partner not less than 1%
of all items of Partnership income, gain, loss, deduction and credit during the
existence of the Partnership. For the year ended December 31, 1996, the General
Partner was allocated Net Profits of $241,900 which included Net Profits from
sale of property of $816,100. For the year ended December 31, 1995, the General
Partner was allocated a Net (Loss) of $(2,223,200), which included a (loss)
from provisions for value impairment of $(2,203,700). For the year December 31,
1994, the General Partner was allocated a Net (Loss) of $(105,800), which
included a Net Profit from the sale of a Partnership property of $2,900, a Net
(Loss) from the sale of Partnership properties of $(1,000) and (loss) from
provisions for value impairment of $(87,200). The allocations to the General
Partner and Limited Partners for the years ended December 31, 1996 and 1995 are
computed on a basis that is different than in prior periods. Allocations of
losses to Limited Partners were limited to an amount that would result in
Limited Partners capital amounting to not less than zero.
Fees and reimbursements paid and payable by the Partnership to Affiliates were
as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------
1996 1995 1994
----------------- ------------------- -------------------
Paid Payable Paid Payable Paid Payable
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property management and
leasing fees $498,700 $ 51,700 $ 527,400 $ 43,600 $ 498,000 $ 61,200
Interest expense on
Front-End Fees loan
(Note 3) None 683,600 664,200 56,900 605,200 48,100
Reimbursement of
property insurance
premiums, at cost 140,500 None 107,200 None 149,700 None
Reimbursement of
expenses, at cost:
--Accounting 33,300 3,100 23,700 9,000 24,300 2,600
--Investor
communication 5,100 200 11,100 900 7,700 800
--Legal 129,300 7,000 95,800 4,300 144,500 None
--Other None None 900 None None None
- ----------------------------------------------------------------------------------
$806,900 $745,600 $1,430,300 $114,700 $1,429,400 $112,700
- ----------------------------------------------------------------------------------
</TABLE>
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 30% owned by Anixter International Inc. (formerly known as Itel
Corporation), an Affiliate of the General Partner, is obligated to the
Partnership under a lease of office space at Prentice Plaza. During the years
ended December 31, 1996, 1995 and 1994, the Partnership's share of ANTEC's rent
was $293,400, $189,100 and $194,100 (which excludes $93,200 in reimbursements
from ANTEC for tenant improvements), respectively. The per square foot rent
paid by ANTEC is comparable to that paid by other tenants at Prentice Plaza.
Manufactured Home Communities, Inc. ("MHC"), a real estate investment trust,
which is in the business of owning and operating mobil home communities, an
Affiliate of the General Partner, is obligated to the Partnership under a lease
of office space at Prentice Plaza. During the years ended December 31, 1996,
1995 and 1994, the Partnership's share of MHC's rent was $29,800, $22,100 and
$9,900, respectively. The per square foot rent paid by MHC is comparable to
that paid by other tenants at Prentice Plaza.
On-site property management for certain of the Partnership's properties is
provided by independent real estate management companies for fees ranging from
3% to 4% of gross rents received by the properties. In addition, Affiliates of
the General Partner provide on-site property management, leasing and
supervisory services for fees based upon various percentage rates of gross
rents for the properties. These fees range from 1% to 6% based upon the terms
of the individual management agreements.
A-6
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
3. FRONT-END FEES LOAN PAYABLE TO AFFILIATE:
The Partnership originally borrowed from an Affiliate of the General Partner an
amount needed for the payment of securities sales commissions, Offering and
Organizational Expenses and other Front-End Fees, other than Acquisition Fees.
Repayment of the principal amount of the Front-End Fees loan is subordinated to
payment to the Limited Partners of 100% of their Original Capital Contribution
from Sale or Refinancing Proceeds (as defined in the Partnership Agreement).
Interest on the outstanding balance of this loan is due and payable monthly at
a rate no greater than the cost of funds obtained by the Affiliate from
unaffiliated lenders.
As of December 31, 1996, the Partnership had drawn $8,295,200 under the Front-
End Fees loan agreement. The interest rate on the Front-End Fees loan is
subject to change in accordance with the loan agreement. The weighted average
interest rate for the year ended December 31, 1996 was 7.43%. As of December
31, 1996, the interest rate was 7.56%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan, for a 72-month period
beginning January 1, 1993. In addition, any interest payments paid by the
Partnership from January 1, 1993 through December 31, 1998 may be borrowed from
the Affiliate. All deferred and subsequently borrowed amounts (including
accrued interest thereon) shall be due and payable on January 1, 1999, and
shall not be subordinated to payment of original Capital Contributions to
Limited Partners. Beginning with the interest payment due on January 1, 1996,
the Partnership elected to defer payment of interest. During the year ended
December 31, 1996, this loan was transferred to another Affiliate of the
General Partner. As of December 31, 1996, the amount of interest deferred
pursuant to this modification was $683,600.
4. RESTRICTED ESCROW DEPOSITS:
Restricted escrow deposits at December 31, 1995 included $159,400, of which the
Partnership's share was 50%, being held by the mortgage holder of Regency in a
non-interest bearing escrow account as collateral for its mortgage loan. In
connection with a 1996 modification of the loan, the balance in this escrow
account was applied to the principal balance of the loan, effective January 1,
1996.
5. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at December 31, 1996 and 1995 consisted of the following
loans which are non-recourse unless otherwise noted:
<TABLE>
<CAPTION>
Property
Pledged Principal Balance at Average Estimated
as -------------------------- Interest Maturity Periodic Balloon
ollateralC 12/31/96 12/31/95 Rate (a) Date Payment (b) Payment (c)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Marquette Mall and
Office Building $ 2,202,200(d) $ 2,247,600 7.75% 7/1/2002 None $ 759,100
1,023,900(d) 1,135,600 7.75% 7/1/2002 (d) None
8,215,500(e) 9,350,000 7.94% 9/30/1997 (e) (e)
Burlington I, II and III
Office Center 10,814,200 10,926,700 9.88% 5/1/1997 $98,900 $10,774,100
Regency Park Shopping
Center (50%)(f) 7,709,200 7,917,100 7.50% 12/31/1997 $59,600 $ 7,554,800
Prentice Plaza (50%) 4,838,200 4,875,000 7.50% 12/19/2000 (g) $ 4,658,200
Sentry Park West Office
Campus (50%) (h) 4,737,600
- ------------------------------------------------------------------------------------------------
$34,803,200 $41,189,600
- ------------------------------------------------------------------------------------------------
</TABLE>
(a) The average interest rate represents an average for the year ended December
31, 1996. Interest rates are subject to change in accordance with the
provisions of the loan agreements on Marquette's junior mortgage loan and
Prentice Plaza's mortgage loan. As of December 31, 1996, interest rates on
the Marquette junior mortgage and the Prentice Plaza loan were 8.03% and
7.50%, respectively.
(b) Represents level monthly principal and interest payments, paid in arrears,
except as otherwise noted.
(c) This repayment will require either sale or refinancing of the respective
property.
(d) As of March 1, 1996, the two senior mortgage loans collateralized by
Marquette Mall and Office Building, individually, were amended. The terms
of the amendment to the mortgage loan collaterialized by Marquette Mall
provided that during the period beginning March 1, 1996 through February
28, 1998, accrued interest only shall be paid and that on March 1, 1998 the
original terms of the mortgage loan will become effective. The terms of the
amendment to the mortgage loan collaterialized by Marquette Office Building
provided that during the period beginning March 1, 1996 through February
28, 1998, monthly installments of principal in the amount of $8,333 plus
accrued interest shall be paid and that on March 1, 1998 the original terms
of the mortgage loan will become effective.
(e) On March 29, 1996, the Partnership executed an amendment to the agreement
which modified and amended the junior mortgage loan collaterialized by
Marquette. Significant terms of the amendment included: 1) a reduction in
the loan commitment amount from $9,770,000 to $9,350,000; 2) a change from
quarterly principal amortization payments of $125,000 on the first day of
each quarter beginning January 1, 1996 and increasing to $150,000 on July
1, 1996 to monthly principal amortization payments of $30,000; 3) a
reduction in the variable interest rate from 30-day LIBOR plus 300 basis
points to 30-day LIBOR plus 250 basis points; 4) an assignment to the
lender of a portion of the net sale proceeds received by the Partnership
from the joint venture which owned Sentry Park West Office Campus ("Sentry
West"), in which the Partnership has a 50% interest, on the sale of Sentry
West to reduce the outstanding principal balance on the junior mortgage
loan; 5) an option to extend the maturity date of the loan to September 30,
1998 for a .5% extension fee, with a change in the interest rate to 30-day
LIBOR plus 275 basis points and an increase in the monthly principal
amortization payments to $50,000 and 6) to the extent that proceeds from
the sale of Sentry West utilized to reduce this loan exceed $700,000, a
deferral of the monthly principal amortization payments. Terms of the
existing agreement include a maturity date of September 30, 1997, a
prohibition on distributions to Partners of the Partnership and a guarantee
of repayment by the Partnership. As a result of a principal paydown of
$894,500 from the
A-7
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
proceeds from the sale of Sentry West, the Partnership is not obligated to
pay the $30,000 monthly principal for a period of six months, beginning
September 1, 1996.
(f) In August 1996, the joint venture which owns Regency, in which the
Partnership has a 50% interest with Affiliated partnerships, executed an
agreement (the "Extension") with the mortgage lender to modify the terms
of this mortgage loan. Significant terms of the Extension, which are
retroactive to January 1, 1996, include: 1) an extension of the maturity
date to December 31, 1997; 2) monthly principal and interest payments
based on a 23-year amortization schedule with a per annum interest rate of
7.5%; and 3) net property cash flow (as defined in the Extension), if any,
after deducting scheduled principal and interest payments, approved
capital and tenant improvements and leasing commissions, is required to be
deposited into a non-interest bearing reserve account maintained by the
lender to be used for capital and tenant improvements, leasing commissions
and operating deficits of Regency. In connection with the execution of the
extension, the $79,700 which was being held by the lender as collateral,
referred to in Note 4, was utilized by the lender to reduce the principal
balance of the mortgage effective January 1, 1996.
(g) In addition to monthly interest, monthly principal payments are $3,070
starting February 1, 1996 and increasing to $3,343, $3,638, $3,960 and
$4,305 on January 1 of each subsequent year from 1997 through 2000,
respectively.
(h) This property was sold and the mortgage loan was fully repaid on August
28, 1996 (see Note 9 for additional information).
Principal amortization of mortgage loans payable for each of the next five
years and thereafter as of December 31, 1996 was as follows:
<TABLE>
<S> <C>
1997 $26,878,700
1998 456,600
1999 558,000
2000 5,259,700
2001 596,200
Thereafter 1,054,000
---------------
$34,803,200
---------------
</TABLE>
6. FUTURE MINIMUM RENTS:
The Partnership's share of future minimum rental income due on noncancelable
leases as of December 31, 1996 was as follows:
<TABLE>
<S> <C>
1997 $ 6,403,100
1998 4,876,800
1999 3,775,600
2000 2,923,300
2001 1,789,500
Thereafter 5,650,400
---------------
$25,418,700
---------------
</TABLE>
The Partnership is subject to the usual business risks associated with the
collection of the above-scheduled rentals. In addition to the amounts
scheduled above, the Partnership expects to receive rental revenue from (i)
operating expense and real estate tax reimbursements, (ii) parking income and
(iii) percentage rents. Percentage rents earned for the years ended December
31, 1996, 1995 and 1994 were $245,100, $239,500 and $189,500, respectively.
7. INCOME TAX:
The Partnership utilized the accrual basis of accounting for both income tax
reporting and financial statement purposes. Financial statement results will
differ from income tax results due to the use of differing depreciation lives
and methods, the recognition of rents received in advance as taxable income
and the Partnership's provisions for value impairment. The net effect of these
accounting differences for the year ended December 31, 1996 was that the
results for income tax reporting purposes was a loss of $5,966,200 and the net
income for financial statement purposes was $241,900. The aggregate cost of
commercial rental properties for federal income tax purposes at December 31,
1996 was $67,809,500.
8. DISTRIBUTIONS:
Commencing with the quarter ended September 30, 1990, cash distributions to
Limited Partners were suspended and no further distributions will be made
until such time as the Partnership's cash position is increased to a level
that is expected to be sufficient to meet all of the anticipated capital
expenditures, debt repayments, including the loan agreements restricting
distributions (see Note 5), and other working capital requirements.
9. PROPERTY SALES:
On August 28, 1996, the joint venture which owned Sentry West consummated the
sale of Sentry West for a price of $11,650,000. The Partnership's 50% share of
the proceeds from this transaction, which was net of closing prorations,
selling expenses and the repayment of the mortgage loan for Sentry West was
approximately $894,500. Pursuant to a letter agreement with the junior
mortgage lender for Marquette, the Partnership's entire share of the net
proceeds from this sale was used to paydown the principal balance of the
junior mortgage loan collateralized by Marquette. The net gain reported by the
Partnership for financial statement purposes was $816,100. For income tax
reporting purposes the Partnership will report a net (loss) of $(4,758,200)
for the year ended December 31, 1996 in connection with this sale. Provisions
for value impairment during prior periods reported cumulatively amounted to
$5,000,000.
A-8
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD.--SERIES XI
On June 29, 1994, the joint ventures which owned Park Central Office Park I, II
and III ("Park Central"), located in Greenville, South Carolina, in which the
Partnership had 50% interests, sold Park Central for a sale price of
$7,250,000. The outstanding indebtedness on Park Central I and II of $7,000,000
was satisfied at closing. The joint ventures incurred selling expenses of
$143,700. The joint ventures received net Sale Proceeds of $106,300, of which
the Partnership's share was $53,200. The (loss) reported by the Partnership for
financial statement purposes was $(4,654,100) of which a total of $(4,550,000)
was previously recorded as part of the provisions for value impairment in 1992
and 1993.
On April 22, 1994, the joint venture which owned Sentry East, located in Blue
Bell, Pennsylvania, in which the Partnership had a 50% interest, sold one of
the remaining three office buildings situated in this office campus for a sale
price of $1,198,500. The joint venture incurred selling expenses of $95,600.
The joint venture received net Sale Proceeds of $1,102,900, of which the
Partnership's share was $551,500. The (loss) reported by the Partnership for
financial statement purposes was $(280,700) and was previously recorded as part
of the provisions for value impairment in 1992.
On December 29, 1994, the joint venture which owned Sentry East sold the
remaining two office buildings situated in this office campus for a sale price
of $1,286,300. The joint venture incurred selling expenses of $99,900. The
joint venture received net Sale Proceeds of $1,186,400, of which the
Partnership's share was $593,200. The gain reported by the Partnership for
financial statement purposes was $292,500 which represented a partial recovery
of the (loss) from provisions for value impairment recorded in 1992.
All of the above sales were all-cash transactions, with no further involvement
on the part of the Partnership.
10. PROVISIONS FOR VALUE IMPAIRMENT:
Due to the depressed economic environment in the retail industry, regional
factors affecting the Partnership's retail and office properties and other
matters relating specifically to certain of the Partnership's properties, there
was uncertainty as to the Partnership's ability to recover the net carrying
basis of certain of its properties during the remaining estimated holding
periods. Accordingly, it was deemed appropriate to reduce the bases of such
properties in the Partnership's financial statements during the years ended
December 31, 1995 and 1994. The provisions for value impairment were considered
non-cash events for the purposes of the Statements of Cash Flows and were not
utilized in the determination of Cash Flow (as defined in the Partnership
Agreement). The following is a summary of the provisions for value impairment
reported by the Partnership for the years ended December 31, 1995 and 1994.
There were no provisions recorded for the year ended December 31, 1996.
<TABLE>
<CAPTION>
Property 1995 1994
--------------------------------------------
<S> <C> <C>
Marquette Mall and Office
Building $3,100,000 $ 4,000,000
Burlington Office Center
I, II and III 500,000 3,000,000
Regency Park Shopping
Center 2,000,000 1,500,000
Sentry Park West Office
Campus 1,500,000
--------------------------------------------
$5,600,000 $10,000,000
--------------------------------------------
</TABLE>
11. ASSET HELD FOR DISPOSITION:
During 1996, the Partnership modified the terms of the mortgage loan secured by
Regency. Among other provisions, the modification provides for a maturity date
of December 31, 1997. The Partnership is marketing Regency for sale and expects
to complete a sale prior to December 31, 1997. Accordingly, the Partnership
began classifying Regency as "Held for Disposition" as of December 31, 1996.
The Partnership's carrying basis, net of accumulated depreciation and
amortization, of Regency on the Balance sheet effective December 31, 1996 was
$7,751,600 and does not exceed the estimated fair value, less costs to sell.
The Partnership's share of net income (loss) (exclusive of provisions for value
impairment) from Regency included in the Statements of Income and Expenses for
the years ended December 31, 1996, 1995 and 1994 was $21,100, $(140,300) and
$(326,200), respectively.
A-9
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES XI
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ----------------------- ----------- ------------------------ --------------------- ---------------------------------------
Costs capi-
Initial cost talized subsequent Gross amount at which
to Partnership to acquisition carried at close of period
------------------------ --------------------- ---------------------------------------
Buildings Buildings
and and
Encum- Improve- Improve- Carrying Improve-
Description brances Land ments ments Costs (1) Land ments Total (2)(3)
- ----------------------- ----------- ----------- ----------- ---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopping Centers:
- ----------------
Marquette Mall
and Office Building
(Michigan City, IN)
(100% Interest) $11,441,600 $ 2,000,000 $20,306,700 $3,742,900 $164,800 $1,930,500 $17,114,400 $19,044,900(4)
Regency Park
Shopping Center
(Jacksonville, FL)
(50% Interest) 7,709,200 4,125,300 12,316,400 461,800 179,200 2,081,600(7) 8,306,100 10,387,700(4)
Office Buildings:
- ----------------
Burlington Office
Centers I, II and III
(Ann Arbor, MI)
(100% Interest) 10,814,200 3,000,000 17,597,800 1,795,300 72,500 3,000,000 15,964,600 18,964,600(4)
Prentice Plaza
(Englewood, Co
50% Interest) 4,838,200 1,139,600 7,390,200 1,057,400 40,800 1,139,600 8,488,400 9,628,000
----------- ----------- ----------- ---------- -------- ---------- ----------- -----------
$34,803,200 $10,264,900 $57,611,100 $7,057,400 $457,300 $8,151,700 $49,873,500 $58,025,200
=========== =========== =========== ========== ======== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Column A Column F Column G Column H Column I
- ----------------------- ----------- --------- --------- -------------
Life on which
depreciation
Accumu- in latest
lated Date of income
Deprecia- construc- Date statements
Description tion (2) tion Acquired is computed
- ----------------------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C>
Shopping Centers:
- ----------------
Marquette Mall
and Office Building
(Michigan City, IN) 35 (5)
(100% Interest) $ 6,489,300 1967 Dec. 1986 2-10 (6)
Regency Park
Shopping Center
(Jacksonville, FL) 35 (5)
(50% Interest) 2,636,100 1985 Feb. 1988 5-10 (6)
Office Buildings:
- ----------------
Burlington Office
Centers I, II and III
(Ann Arbor, MI) 35 (5)
(100% Interest) 4,851,500 (7) (7) 2-10 (6)
Prentice Plaza
(Englewood, CO) 35 (5)
(50% Interest) 3,085,900 1985 Mar. 1988 2-10 (6)
-----------
$17,062,800
===========
</TABLE>
See accompanying notes on the following page.
A-8
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES XI
NOTES TO SCHEDULE III
Note 1. Consists of legal fees, appraisal fees, title costs and other related
professional fees.
Note 2. The following is a reconciliation of activity in columns E and F:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995 December 31, 1994
----------------------------- --------------------------- ---------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
-------------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at the
beginning
of the year $ 65,275,200 $ 18,551,100 $ 68,940,100 $ 16,292,000 $ 84,445,700 $ 15,939,000
Additions
during
the year:
Improvement 875,900 1,935,100 1,230,400
Provisions for
depreciation 1,649,600 2,259,100 2,580,000
Deductions
during the
year:
Cost of real
estate sold (8,125,900) (6,736,000)
Accumulated
depreciation
on real
estate sold (3,137,900) (2,227,000)
Provisions
for value
impairment (5,600,000) (10,000,000)
-------------- ------------- ------------ ------------ ------------ ------------
Balance at
the end of
the year $ 58,025,200 $ 17,062,800 $ 65,275,200 $ 18,551,100 $ 68,940,100 $ 16,292,000
============== ============= ============ ============ ============ ============
</TABLE>
Note 3. The aggregate cost for federal income tax purposes as of December 31,
1996 was $67,809,500.
Note 4. Included provisions for value impairment. See Note 10 of Notes to
Financial Statements for additional information.
Note 5. Estimated useful life in years for building.
Note 6. Estimated useful life in years for improvements.
Note 7. Burlington Office Center I was completed in 1983, Burlington Office
Center II was completed in 1985 and Burlington Office Center III was
completed in 1989. Burlington Office Center I and II were purchased in
September 1988 and Burlington Office Center III was purchased in
September 1989.
A-9
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment (the "Amendment") is made and entered into as of
the 6th day of March, 1997, by and between Burlington Associates General
Partnership, an Illinois General Partnership ("Landlord") by its agent,
Equity Office Holdings, L.L.C., a Delaware limited liability company, and
Network Express, Inc., a Michigan corporation ("Tenant") and Cabletron
Systems, Inc., a Delaware Corporation ("Guarantor").
WITNESSETH
A. WHEREAS, Landlord and Tenant are parties to that certain lease dated
the 20th day of May, 1996, as amended by First Amendment dated November 18, 1996
(collectively, the "Lease") currently containing approximately 21,469 square
feet, consisting of 2,425 square feet on the 1st floor (office #112), 12,714
square feet on the 2nd floor and 6,330 square feet on the third floor (the
"Premises") of the building located at 305 E. Eisenhower Parkway, Ann Arbor, MI
48108 and commonly known as Building III at Burlington Office Center (the
"Building"); and
B. WHEREAS, Guarantor has purchased all of or a controlling interest in
Tenant; and
C. WHEREAS, Tenant and Guarantor have requested, in consideration for
Guarantor's agreement to guaranty Tenant's obligations under the Lease pursuant
to the terms and conditions of the Guaranty of Lease attached to and made a part
of this Amendment, that the Lease be amended to delete the requirement that the
Tenant thereunder maintain a Security Deposit; and
D. WHEREAS, Landlord has agreed to amend the lease in such a manner, all
upon the terms and conditions contained in this Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Landlord, Tenant and Guarantor
agree as follows:
1. GUARANTY. Simultaneous with its execution of this Amendment,
Guarantor agrees to execute and be bound by the terms of that certain Guaranty
of Lease attached hereto and made a part hereof.
2. SECURITY DEPOSIT. In consideration for Guarantor's agreement
to guaranty Tenant's obligations under the Lease, Section VI of the Lease
(Security Deposit) and Exhibit F of the Lease (Sample Letter of Credit) are
hereby deleted from the Lease in their entirety, it being agreed that Tenant
shall be under no obligation to maintain a Security Deposit. Landlord, Tenant
and Guarantor acknowledge that Landlord is unable to locate the letter of credit
that was intended to serve as a Security Deposit under the Lease due to either
Tenant's failure to provide Landlord with the letter of credit or Landlord's
misplacement of the letter of credit after initially being furnished by Tenant.
Regardless of the cause, Landlord hereby waives any interest in such letter of
credit, including any right to draw against such letter of credit in connection
with a default by Tenant under the Lease. In addition, Landlord agrees to
promptly execute any and all documents as are reasonably required by the issuer
of the letter of credit to cancel such letter of credit and render the same null
and void and of no further force and effect.
III. MISCELLANEOUS.
A. This Amendment sets forth the entire agreement between the
parties with respect to the matters set forth herein. There have been no
additional oral or written representations or agreements.
B. Except as herein modified or amended, the provisions, conditions
and terms of the Lease shall remain unchanged and in full force and effect.
C. In the case of any inconsistency between the provisions of the
Lease and this Amendment, the provisions of this Amendment shall govern and
control.
D. Submission of this Amendment by Landlord is not an offer to
enter into this Amendment but rather is a solicitation for such an offer by
Tenant. Landlord shall not be bound by this Amendment until Landlord has
executed and delivered the same to Tenant.
E. The capitalized terms used in this Amendment shall have the same
definitions as set forth in the Lease to the extent that such capitalized terms
are defined therein and not redefined in this Amendment.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment in
multiple original counterparts as of the day and year first above written.
WITNESS/ATTEST:
LANDLORD: BURLINGTON ASSOCIATES GENERAL
PARTNERSHIP, an Illinois General
Partnership
BY: EQUITY OFFICE HOLDINGS, L.L.C., a
Delaware limited liability company, as
agent
- ----------------------------------
Name (print): Angel Rivera By:
- ---------------------------------- --------------------------------------
Name: Eric Marx
- --------------------------------- ------------------------------------
Title: Vice-President, Asset Management
Name (print): -----------------------------------
-------------------- Date: 3/6/97
-----------------------------------
WITNESS/ATTEST:
TENANT: NETWORK EXPRESS, INC., a
Michigan corporation
- ---------------------------------
Name(print): Shawn L. Benoit By:
--------------------- -------------------------------------
Name: John R. Ternes
- --------------------------------- ------------------------------------
Name(print): Karen Coch Title: Controller
--------------------- ------------------------------------
Date: 3/6/97
------------------------------------
WITNESS/ATTEST:
GUARANTOR: CABLETRON SYSTEMS, INC., a
Delaware Corporation
- ---------------------------------
Name(print): Shawn L. Benoit By: David Kirkpatrick
-------------------- -------------------------------------
- --------------------------------- Name:
-----------------------------------
Name(print): Karen Coch Title: CFO
-------------------- -----------------------------------
Date: 3/6/97
-----------------------------------
2
<PAGE>
GUARANTY OF LEASE DATED MAY 20, 1996 BETWEEN
BURLINGTON ASSOCIATES GENERAL PARTNERSHIP,
AN ILLINOIS GENERAL PARTNERSHIP ("LANDLORD") AND
NETWORK EXPRESS, INC., A MICHIGAN CORPORATION ('TENANT')
This Guaranty is entered into with respect to that certain lease dated
the 20th day of May, 1996, as amended by First Amendment dated November 18, 1996
and a Second Amendment to be executed simultaneously herewith (collectively, the
"Lease") by and between Burlington Associates General Partnership, an Illinois
General Partnership ("Landlord") and Network Express, Inc., a Michigan
corporation ("Tenant"), which Lease currently contains approximately 21,469
square feet, consisting of 2,425 square feet on the 1st floor (office #112),
12,714 square feet on the 2nd floor and 6,330 square feet on the third floor of
the building located at 305 E. Eisenhower Parkway, Ann Arbor, MI 48108 and
commonly known as Building III at Burlington Office Center. For value received
and in consideration for and as an inducement to Landlord to enter into the
Second Amendment to the Lease, the undersigned, CABLETRON SYSTEMS, INC., a
Delaware Corporation, does hereby unconditionally and irrevocably guarantee to
Landlord the punctual payment of all Rent, (as such term is defined in the
Lease) payable by Tenant under the Lease throughout the term of the Lease and
any and all renewals and extensions thereof in accordance with and subject to
the provisions of the Lease, and the full performance and observance of all
other terms, covenants, conditions and agreements therein provided to be
performed and observed by Tenant under the terms of the Lease, for which the
undersigned shall be jointly and severally liable with Tenant. If any default
on the part of Tenant shall occur under the Lease, the undersigned does hereby
covenant and agree to pay to Landlord in each and every instance such sum or
sums of money and to perform each and every covenant, condition and agreement
under the Lease as Tenant is and shall become liable for or obligated to pay or
perform under the Lease, together with the costs reasonably incurred by Landlord
in connection therewith, including without limitation reasonable attorneys'
fees. Such payments of Rent and other sums shall be made monthly or at such
other intervals as the same shall or may become payable under the Lease,
including any accelerations thereof, all without requiring any notice from
Landlord (other than any notice required by the Lease) of such non-payment or
non performance, all of which the undersigned hereby expressly waives.
The maintenance of any action or proceeding by Landlord to recover any
sum or sums that may be or become due under the Lease and to secure the
performance of any of the other terms, covenants and conditions of the Lease
shall not preclude Landlord from thereafter instituting and maintaining
subsequent actions or proceedings for any subsequent default or defaults of
Tenant under the Lease. The undersigned does hereby consent that without
affecting the liability of the undersigned under this Guaranty and without
notice to the undersigned, time may be given by Landlord to Tenant for payment
of Rent and such other sums and performance of said other terms, covenants and
conditions, or any of them, and such time extended and indulgence granted, from
time to time, or Tenant may be dispossessed or Landlord may avail itself of or
exercise any or all of the rights and remedies against Tenant provided by law or
by the Lease, and may proceed either against Tenant alone or jointly against
Tenant and the undersigned or against the undersigned alone without first
prosecuting or exhausting any remedy or claim against Tenant. The undersigned
does hereby further consent to any subsequent change, modification or amendment
of the Lease in any of its terms, covenants or conditions, or in the Rent
payable thereunder, or in the premises demised thereby, or in the term thereof,
and to any assignment or assignments of the Lease, and to any subletting or
sublettings of the premises demised by the Lease, and to any renewals or
extensions thereof, all of which may be made without notice to or consent of the
undersigned and without in any manner releasing or relieving the undersigned
from liability under this Guaranty.
The undersigned does hereby agree that the bankruptcy of Tenant shall
have no effect on the obligations of the undersigned hereunder. The undersigned
does hereby further agree that in respect of any payments made by the
undersigned hereunder, the undersigned shall not have any rights based on
suretyship, subrogation or otherwise to stand in the place of Landlord so as to
compete with Landlord as a creditor of Tenant, unless and until all claims of
Landlord under the Lease shall have been fully paid and satisfied.
Neither this Guaranty nor any of the provisions hereof can be modified,
waived or terminated, except by a written instrument signed by Landlord. The
provisions of this Guaranty
<PAGE>
shall apply to, bind and inure to the benefit of the undersigned and Landlord
and their respective heirs, legal representatives, successors and assigns. The
undersigned, if there be more than one, shall be jointly and severally liable
hereunder, and for purposes of such several liability the word "undersigned"
wherever used herein shall be construed to refer to each of the undersigned
parties separately, all in the same manner and with the same effect as if each
of them had signed separate instruments, and this Guaranty shall not be revoked
or impaired as to any of such parties by the death or another party or by
revocation or release of any obligations hereunder of any other party. This
Guaranty shall be governed by and construed in accordance with the internal laws
of the state where the premises demised by the Lease are located. For the
purpose solely of litigating any dispute under this Guaranty, the undersigned
submits to the jurisdiction of the courts of said state.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of
the _____ day of ____________________, 1997.
WITNESS/ATTEST:
GUARANTOR: CABLETRON SYSTEMS, INC., a
Delaware Corporation
_________________________________
Name(print):_____________________ By:_____________________________________
_________________________________ Name:___________________________________
Name(print):_____________________ Title:__________________________________
Date:___________________________________
STATE OF )
COUNTY OF )ss:
On this the _____ day of ________, 1997, before me a Notary Public
duly authorized in and for the said County in the State aforesaid to take
acknowledgments personally appeared _____________________________ known to me to
be ____________ President of _________________________, the Guarantor under the
foregoing instrument, and acknowledged that as such officer, being authorized so
to do, (s)he executed the foregoing instrument on behalf of said corporation by
subscribing the name of such corporation by himself/herself as such officer and
caused the corporate seal of said corporation to be affixed thereto, as a free
and voluntary act, and as the free and voluntary act of said corporation, for
the uses and purposes therein set forth.
IN WITNESS WHEREOF, I hereunto set my hand and official seal as of the
date set forth above.
___________________________________
Notary Public
My Commission Expires: ____________________________
<PAGE>
BURLINGTON OFFICE CENTER - BUILDING III
STANDARD FORM OFFICE LEASE
BETWEEN
BURLINGTON ASSOCIATES GENERAL PARTNERSHIP ("LANDLORD") by its agent,
Equity Office Holdings, L.L.C., a Delaware limited liability company
AND
NETWORK EXPRESS, INC., a Michigan corporation ("TENANT").
<PAGE>
TABLE OF CONTENTS
I. Basic Lease Information; Definitions. . . . . . . . . . 1
II. Lease Grant . . . . . . . . . . . . . . . . . . . . . . 2
III. Possession. . . . . . . . . . . . . . . . . . . . . . . 2
IV. Use . . . . . . . . . . . . . . . . . . . . . . . . . . 3
V. Rent. . . . . . . . . . . . . . . . . . . . . . . . . . 4
VI. Security Deposit. . . . . . . . . . . . . . . . . . . . 7
VII. Services to be Furnished by Landlord. . . . . . . . . . 8
VIII. Leasehold Improvements. . . . . . . . . . . . . . . . . 9
IX. Repairs and Alterations by Tenant . . . . . . . . . . . 9
X. Use of Electrical Services by Tenant. . . . . . . . . . 10
XI. Entry by Landlord . . . . . . . . . . . . . . . . . . . 11
XII. Assignment and Subletting . . . . . . . . . . . . . . . 11
XIII. Liens . . . . . . . . . . . . . . . . . . . . . . . . . 12
XIV. Indemnity and Waiver of Claims. . . . . . . . . . . . . 12
XV. Insurance . . . . . . . . . . . . . . . . . . . . . . . 12
XVI. Subrogation . . . . . . . . . . . . . . . . . . . . . . 13
XVII. Casualty Damage . . . . . . . . . . . . . . . . . . . . 13
XVIII. Demolition. . . . . . . . . . . . . . . . . . . . . . . 14
XIX. Condemnation. . . . . . . . . . . . . . . . . . . . . . 14
XX. Events of Default . . . . . . . . . . . . . . . . . . . 15
XXI. Remedies. . . . . . . . . . . . . . . . . . . . . . . . 15
XXII. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . 16
XXIII. No Waiver . . . . . . . . . . . . . . . . . . . . . . . 17
XXIV. Relocation. . . . . . . . . . . . . . . . . . . . . . . 17
XXV. Holding Over. . . . . . . . . . . . . . . . . . . . . . 17
XXVI. Subordination to Mortgages; Estoppel Certificate. . . . 17
XXVII. Notice. . . . . . . . . . . . . . . . . . . . . . . . . 18
XXVIII. Landlord's Lien . . . . . . . . . . . . . . . . . . . . 18
XXIX. Excepted Rights . . . . . . . . . . . . . . . . . . . . 18
XXX. Surrender of Premises . . . . . . . . . . . . . . . . . 18
XXXI. Miscellaneous . . . . . . . . . . . . . . . . . . . . . 19
XXXII. Entire Agreement. . . . . . . . . . . . . . . . . . . . 20
EXHIBIT A-1 - Outline and Location of Premises on 1st floor
EXHIBIT A-2 - Outline and Location of Premises on 2nd floor
EXHIBIT A-3 - Outline and Location of Premises on 3rd floor
EXHIBIT B - Cleaning Specifications
EXHIBIT C - Building Rules and Regulations
EXHIBIT D - Additional Terms and Conditions
EXHIBIT E - Commencement Letter Agreement
EXHIBIT F - Form of Letter of Credit
EXHIBIT G - Form of Subordination, Non-disturbance and Attornment Agreement
i
<PAGE>
OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease") is made and entered into as of the
20th day of May, 1996 by and between Burlington Associates General Partnership,
an Illinois General Partnership ("Landlord") by its agent, Equity Office
Holdings, L.L.C., a Delaware limited liability company, and Network Express,
Inc., a Michigan corporation ("Tenant"), whose address for the purpose of
notices to Tenant prior to commencement of the Term of this Lease shall be at
4251 Plymouth Road, Ann Arbor, MI 48105, Attn: Vice President, Finance.
I. BASIC LEASE INFORMATION; DEFINITIONS.
A. The following is some of the basic lease information and defined
terms used in this Lease.
1. "Additional Base Rental" shall mean Tenant's Pro Rata
Share of Basic Costs and any other sums (exclusive of Base Rental)
that are required to be paid by Tenant to Landlord hereunder.
Additional Base Rental and Base Rental sometimes collectively are
referred to herein as "Rent".
2. "Base Rental" shall mean the sum of one million two
hundred seventy-seven thousand eight hundred thirty-nine and 68/100
dollars ($1,277,839.68), payable by Tenant to Landlord in
forty-eight (48) monthly installments as follows:
a. twenty-four (24) equal installments of twenty-six thousand
two hundred forty-five and 22/100 dollars ($26,245.22), each
payable on or before the first day of each month during the
period beginning on the Commencement Date and ending on the day
prior to the second (2nd) anniversary of the Commencement Date.
b. twenty-four (24) equal installments of twenty-six thousand
nine hundred ninety-eight and 10/100 dollars ($26,998.10), each
payable on or before the first day of each month during the
period beginning on the second (2nd) anniversary of the
Commencement Date and ending on the day prior to the fourth
(4th) anniversary of the Commencement Date.
3. "Base Year" shall mean the 1996 calendar year.
4. "Building" shall mean the office building located at 305
E. Eisenhower Parkway, Ann Arbor, MI 48108 and commonly known as
Building III at Burlington Office Center.
5. The "Lease Term" shall mean a period of four (4) years
commencing on the earlier to occur of (i) sixty (60) days after
Tenant is issued a building permit to perform the Initial
Alterations (hereinafter defined), or (ii) August 1, 1996 (the
earlier of such dates being referred to as the "Commencement Date")
and, unless sooner terminated as provided herein, ending on the day
prior to the fourth (4th) anniversary of the Commencement Date (the
"Termination Date"). For example, if the Commencement Date is July
1, 1996, the Termination Date will be June 30, 2000. Promptly after
the determination of the Commencement Date by Landlord, Landlord
shall prepare a letter agreement (the "Commencement Letter") on the
form attached hereto as Exhibit E setting forth the Commencement
Date, the Termination Date and any other dates that are affected by
the adjustment of the Commencement Date. Tenant, within ten (10)
days after receipt thereof from Landlord, shall execute the
Commencement Letter and return the same to Landlord.
6. Intentionally Omitted.
7. "Notice Addresses" shall mean the Premises for Tenant
after the commencement of the Term of this Lease, and, for
Landlord, shall mean: Ann Arbor Associates, 315 E. Eisenhower
Parkway, Suite 220, Ann Arbor, MI 48108, with a copy to Equity
Office Properties, L.L.C., Two North Riverside Plaza, Suite 2200,
Chicago, Illinois 60606, Attention: General Counsel.
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8. "Permitted Use" shall mean: General office use and
research and development. In addition, with respect to the 2,425
square foot portion of the Premises located on the first floor, the
Permitted Use shall include the assembly and repair of computer
equipment for third parties. A minor amount of assembly and repair
of Tenant owned computer equipment shall also be permitted in other
portions of the Premises outside of the first floor space.
Notwithstanding the foregoing or anything in this Lease to the
contrary, the first floor space shall be designed in such a manner
that the unique use of the first floor space will not be apparent
from outside the Building or any of the Common Areas on the first
floor of the Building. Landlord shall be deemed to be acting
reasonably in withholding its consent to any plans and
specifications for the first floor space that fails to accomplish
such purpose. Landlord's approval of the final plans, however,
shall also constitute Landlord's approval of Tenant's design of the
first floor space.
9. "Premises" shall mean the area located on the 1st, 2nd and
3rd floors of the Building and outlined on Exhibits A-1, A-2 and
A-3 attached hereto and incorporated herein. Landlord and Tenant
hereby stipulate and agree that the square footage of the Premises
shall mean 18,069 square feet, consisting of 2,425 square feet on
the 1st floor (office #112), 12,714 square feet on the 2nd floor
and 2,930 square feet on the third floor. The square footage of
the Building" shall mean approximately 34,456 square feet.
10. Intentionally Omitted.
11. "Tenant's Pro Rata Share" shall mean fifty-two and
forty-four one hundredths percent (52.44%), which is the quotient
(expressed as a percentage) derived by dividing the Rentable Area
of the Premises by the Rentable Area of the Building.
B. The following are additional definitions of some of the defined
terms used in the Lease: (1) "Common Areas" shall mean those areas provided by
Landlord within the Building for the common use or benefit of all tenants
generally and/or the public; (2) "Owner" shall mean the entity(ies), from time
to time, which own the Property or any portion thereof; (3) "Prime Rate" shall
mean the per annum interest rate publicly announced by The First National Bank
of Chicago or any successor thereof from time to time (whether or not charged in
each instance) as its prime or base rate in Chicago, Illinois; and (4)
"Property" shall mean the Building and the parcel of land on which it is located
and all other improvements serving the Building and the tenants thereof and the
parcel(s) of land on which they are located.
II. LEASE GRANT.
Subject to and upon the terms herein set forth, Landlord leases to Tenant
and Tenant leases from Landlord the Premises. In addition, Tenant shall have
the right to use the Common Areas of the Building (including, without
limitation, the parking areas on the Property and ingress and egress thereto) in
common with the other tenants and occupants of the Building. Tenant, in common
with the other tenants of Burlington Office Center, shall also be entitled to
use the walkways, picnic tables and other outdoor amenities at Burlington Office
Center so long as either (i) the Building and the buildings commonly known as
Building I and Building II at Burlington Office Center are owned by the same
party, or (ii) reciprocal easement agreements are in place to permit such use.
III. POSSESSION.
A. Upon the full and final execution of this Lease by Landlord and
Tenant, Tenant shall have the right to occupy the Premises for the performance
of the Initial Alterations (as defined in Exhibit D). Notwithstanding the
foregoing, Tenant and its contractors shall not have the right to perform
Initial Alterations in the Premises unless and until Tenant has complied with
all of the terms and conditions of Article IX.B. of this Lease, including,
without limitation, approval by Landlord of the final plans for the Initial
Alterations and the contractors to be retained by Tenant to perform such Initial
Alterations. Landlord agrees to act reasonably in connection with its approval
of Tenant's plans and specifications for the Initial Alterations and in its
approval of any contractor proposed by Tenant, provided that in no event shall
Landlord be required to grant its approval to any contractor that is not
licensed, is not capable of being bonded for the amount of the Initial
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Alterations or does not maintain insurance of the types and amounts required by
this Lease. Tenant's occupancy of the Premises for the period prior to the
Commencement Date shall be subject to all of the terms and conditions of the
Lease, provided that, with the exception of electricity charges and charges for
special services requested by Tenant, Tenant shall not be required to pay Base
Rental or Additional Base Rental with respect to the period of time prior to the
Commencement Date. Notwithstanding the foregoing, if Tenant begins to conduct
its business in the Premises prior to the Commencement Date, Tenant shall pay
Base Rental to Landlord for the period beginning on the date Tenant first begins
to conduct its business and ending on the day prior to the Commencement Date at
the rate of twenty-six thousand two hundred forty-five and 22/100 dollars
($26,245.22), pro rated for any partial months.
B. Tenant hereby accepts the Premises in its as-is condition and
configuration, with no representation or warranty by Landlord as to the
condition of the Premises or suitability thereof for Tenant's use. Landlord
hereby represents that the Building is zoned to permit general office use. In
addition, Landlord, to the best of its knowledge, hereby represents that as of
the date hereof the Building is in good condition and in compliance with all
applicable building codes. In the event it is discovered that the Building is
not in compliance with certain building codes as of the date hereof, Landlord,
at its sole cost and expense, shall be responsible for correcting such
violations.
C. Notwithstanding anything to the contrary contained in the Lease,
Landlord shall not be obligated to tender possession of any portion of the
Premises or other space leased by Tenant from time to time hereunder that, on
the date possession is to be delivered, is occupied by a tenant or other
occupant or that is subject to the rights of any other tenant or occupant, nor
shall Landlord have any other obligations to Tenant under this Lease with
respect to such space until the date Landlord: (1) recaptures such space from
such existing tenant or occupant; and (2) regains the legal right to possession
thereof. This Lease shall not be affected by any such failure to deliver
possession and Tenant shall have no claim for damages against Landlord as a
result thereof, all of which are hereby waived and released by Tenant.
Notwithstanding the foregoing, if Landlord is unable to provide Tenant with
possession of the Premises on or before seven (7) days after the full and final
execution and delivery of this Lease, Tenant, as its sole remedy, shall be
entitled to terminate this Lease by providing written notice of termination to
Landlord on or before the date on which Landlord provides Tenant with possession
of the Premises.
IV. USE.
The Premises shall be used for the Permitted Use and for no other
purpose. Tenant agrees not to use or permit the use of the Premises for any
purpose which is illegal, dangerous or which, in Landlord's opinion, creates a
nuisance or which would increase the cost of insurance coverage with respect to
the Building. Tenant shall conduct its business and control its agents,
servants, contractors, employees, customers, licensees, and invitees
(collectively, the "Tenant Related Parties") in such a manner as not to
unreasonably interfere with, annoy or disturb other tenants, or in any way
unreasonably interfere with Landlord in the management and operation of the
Building, provided that, while such parties are outside of the Premises, Tenant
shall only be required to use good faith efforts to cause its agents,
contractors, customers, licensees and invitees to comply with the terms of this
sentence. Tenant will maintain the Premises in a clean and healthful condition,
and comply with all laws, ordinances, orders, rules and regulations of any
governmental entity with reference to the operation of Tenant's business and to
the use, condition, configuration or occupancy of the Premises, including
without limitation, the Americans with Disabilities Act (collectively referred
to as "Laws"). Tenant, within ten (10) days after receipt thereof, shall provide
Landlord with copies of any written notices it receives with respect to a
violation or alleged violation of any Laws. Landlord, within ten (10) days
after receipt thereof, shall provide Tenant with copies of any written notices
it receives with respect to a violation or alleged violation of any Laws with
regard to the condition of the Premises. Tenant will comply with the rules and
regulations of the Building attached hereto as Exhibit C and such other
reasonable rules and regulations adopted and altered by Landlord from time to
time and of which Tenant has received prior written notice. Tenant will also
cause all Tenant Related Parties to comply with the rules and regulations,
provided that, while such parties are outside of the Premises, Tenant shall only
be required to use good faith efforts to cause its agents, contractors,
customers, licensees and invitees to comply with the rules and regulations.
Landlord shall make reasonable efforts to enforce all such rules and regulations
in a non-discriminatory and uniform manner.
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V. RENT.
A. During each calendar year (excluding the Base Year), or portion
thereof, falling within the Lease Term, Tenant shall pay to Landlord as
Additional Base Rental hereunder Tenant's Pro Rata Share of the amount, if any,
by which Basic Costs for the applicable calendar year exceed the Basic Costs for
the Base Year (the "Excess"). In the event that Basic Costs in any calendar year
decrease below the amount of Basic Costs for the Base Year, Tenant's Pro Rata
Share of Basic Costs for such calendar year shall be deemed to be $0, it being
understood that Tenant shall not be entitled to any credit or offset if Basic
Costs decrease below the corresponding amount for the Base Year. Prior to
January 1, 1997 and prior to January 1 of each subsequent calendar year during
the Lease Term, or as soon thereafter as practical, Landlord shall make a good
faith estimate of the Excess for the applicable calendar year. On or before the
first day of each month during such calendar year, Tenant shall pay to Landlord,
as Additional Base Rental, a monthly installment equal to one-twelfth of
Tenant's Pro Rata Share of Landlord's estimate of the Excess. Landlord shall
have the right from time to time during any such calendar year to revise the
estimate of the Excess for such year and provide Tenant with a revised statement
therefor, and thereafter the amount Tenant shall pay each month shall be based
upon such revised estimate. If Landlord does not provide Tenant with an estimate
of the Excess by January 1 of any calendar year, Tenant shall continue to pay a
monthly installment based on the previous year's estimate until such time as
Landlord provides Tenant with an estimate of the Excess for the current year.
Upon receipt of such current year's estimate, an adjustment shall be made for
any month during the current year with respect to which Tenant paid monthly
installments of Additional Base Rental based on the previous year's estimate of
the Excess. Tenant shall pay Landlord for any underpayment within thirty (30)
days after demand. Any overpayment shall be credited against the installment of
Base Rental and Additional Base Rental due for the months immediately following
the furnishing of such estimate. Any amounts paid by Tenant based on Landlord's
estimate of the Excess shall be subject to adjustment pursuant to the
immediately following paragraph when actual Basic Costs are determined for such
calendar year.
As soon as is practical following the end of each calendar year during
the Lease Term, Landlord shall furnish to Tenant a statement of Landlord's
actual Basic Costs and the actual Excess for such previous calendar year,
provided that Landlord shall use good faith efforts to provide Tenant with such
statement on or before April 15th of each such calendar year. If the estimated
Excess actually paid by Tenant for the prior year is in excess of Tenant's
actual Pro Rata Share of the Excess for such prior year, then Landlord shall
apply such overpayment against Base Rental and Additional Base Rental due or to
become due hereunder, provided if the Lease Term expires prior to the
determination of such overpayment, Landlord shall refund such overpayment to
Tenant after first deducting the amount of any Rent due hereunder. Likewise,
Tenant shall pay to Landlord, within thirty (30) days after demand, any
underpayment with respect to the prior year, whether or not the Lease has
terminated prior to receipt by Tenant of a statement for such underpayment, it
being understood that this clause shall survive the expiration of the Lease.
Within sixty (60) days after written request from Tenant from time to time (but
not more than one time per year), Landlord shall provide Tenant with a detailed
statement containing a breakdown of the various categories of Expenses for the
Base Year and the calendar year for which Landlord's statement is being issued,
provided that Landlord shall not be required to provide Tenant with a detailed
statement for the Base Year more than three (3) years after the Commencement
Date.
Notwithstanding anything herein to the contrary, for purposes of
computing Tenant's Pro Rata Share of Basic Costs, Controllable Basic Costs
(hereinafter defined) shall not increase by more than eight percent (8%) per
calendar year on a cumulative basis over the course of the Lease Term. In other
words, Controllable Basic Costs for the first calendar year after the Base Year
shall not exceed 108% of the Controllable Basic Costs for the Base Year.
Controllable Basic Costs for the second calendar year after the Base Year shall
not exceed 116.64% of the Controllable Basic Costs for the Base Year, etc.
"Controllable Basic Costs" shall mean all Basic Costs exclusive of the cost of
Taxes, insurance and utilities.
B. Basic Costs shall mean all costs and expenses paid or incurred in
each calendar year in connection with operating, maintaining, repairing,
managing and owning the Building and the Property, including, but not limited
to, the following:
1. All labor costs for all persons performing services
required or utilized in connection with the operation, repair,
replacement and maintenance of and
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control of access to the Building and the Property, including but
not limited to amounts incurred for wages, salaries and other
compensation for services, payroll, social security, unemployment
and other similar taxes, workers' compensation insurance, uniforms,
training, disability benefits, pensions, hospitalization,
retirement plans, group insurance or any other similar or like
expenses or benefits. Notwithstanding the foregoing, Basic Costs
shall not include wages, salaries and other compensation for
employees of Landlord above the level of general manager.
2. All management fees, the cost of equipping and maintaining
a management office at the Building, accounting services, legal
fees not attributable to leasing and collection activity, and all
other administrative costs relating to the Building and the
Property.
3. All rental and/or purchase costs of materials, supplies,
tools and equipment used in the operation, repair, replacement and
maintenance and the control of access to the Building and the
Property. Notwithstanding the foregoing, except as provided in
section V.B.11. below, replacements shall not be included in Basic
Costs if such replacements would be considered to be capital
improvements under generally accepted accounting principles.
4. All amounts charged to Landlord by contractors and/or
suppliers for services, replacement parts, components, materials,
equipment and supplies furnished in connection with the operation,
repair, maintenance, replacement of and control of access to any
part of the Building, or the Property generally, including the
heating, air conditioning, ventilating, plumbing, electrical,
elevator and other systems and equipment. At Landlord's option,
major repair items may be amortized over a period of up to five (5)
years. Notwithstanding the foregoing, except as provided in section
V.B.11. below, replacements shall not be included in Basic Costs if
such replacements would be considered to be capital improvements
under generally accepted accounting principles.
5. All premiums and deductibles paid by Landlord for fire and
extended coverage insurance, earthquake and extended coverage
insurance, liability and extended coverage insurance, rental loss
insurance, elevator insurance, boiler insurance and other insurance
customarily carried from time to time by lessors of comparable
office buildings or required to be carried by Landlord's Mortgagee.
6. Charges for all utilities other than gas and electricity,
it being agreed that Tenant's obligation to pay for gas and
electricity is contained in Article X of this Lease.
7. "Taxes," which for purposes hereof, shall mean: (a) all
real estate taxes and assessments on the Property, the Building or
the Premises, and taxes and assessments levied in substitution or
supplementation in whole or in part of such taxes, (b) all personal
property taxes for the Building's personal property, including
license expenses, (c) all taxes imposed on services provided to the
Tenant's of the Building by Landlord's agents and employees, (d)
all other taxes, fees or assessments now or hereafter levied by any
governmental authority on the Property, the Building or its
contents or on the operation and use thereof (except as relate to
specific tenants), and (e) all costs and fees incurred in
connection with seeking reductions in or refunds in Taxes
including, without limitation, any reasonable costs incurred by
Landlord to challenge the tax valuation of the Building, but
excluding income taxes. For the purpose of determining real estate
taxes and assessments for any given calendar year, the amount to be
included in Taxes for such year shall be as follows: (1) with
respect to any special assessment that is payable in installments,
Taxes for such year shall include the amount of the installment
(and any interest) due and payable during such year; and (2) with
respect to all other real estate taxes, Taxes for such year shall,
at Landlord's election, include either the amount accrued, assessed
or otherwise imposed for such year or the amount due and payable
for such year, provided that Landlord's election shall be applied
consistently throughout the Lease Term. If a reduction in Taxes is
obtained for any year of the Lease Term during which Tenant paid
its Pro Rata Share of Basic Costs,
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then Basic Costs for such year will be retroactively adjusted and
Landlord shall provide Tenant with a credit, if any, based upon
such adjustment. Likewise, if a reduction is subsequently obtained
for the tax component of Basic Costs for the Base Year (if Tenant's
Pro Rata Share is based upon increases in Basic Costs over a Base
Year), Basic Costs for the Base Year shall be restated and the
Excess for all subsequent years recomputed. Tenant shall pay
Landlord Tenant's Pro Rata Share of any such increase in the Excess
within thirty (30) days after Tenant's receipt of a statement
therefor from Landlord.
8. All costs of maintaining, repairing, resurfacing and
striping of the parking areas and garages of the Property, if any.
9. Cost of all maintenance service agreements with respect to
the Building, including those for equipment, alarm service, window
cleaning, janitorial services, pest control, uniform supply, plant
maintenance, landscaping, and any parking equipment.
10. Cost of all other repairs, replacements and general
maintenance of the Property and Building neither specified above
nor directly billed to tenants.
11. The amortized cost of capital improvements made to the
Building or the Property which are: (a) primarily for the purpose
of reducing operating expense costs or otherwise improving the
operating efficiency of the Property or Building; or (b) required
to comply with any laws, rules or regulations of any governmental
authority or a requirement of Landlord's insurance carrier. The
cost of such capital improvements shall be amortized over a period
of five (5) years and shall, at Landlord's option, include interest
at a rate that is reasonably equivalent to the interest rate that
Landlord would be required to pay to finance the cost of the
capital improvement in question as of the date such capital
improvement is performed, provided if the payback period for any
capital improvement is less than five (5) years, Landlord may
amortize the cost of such capital improvement over the payback
period. Except as specifically provided in this section V.B.11,
Basic Costs shall not include the cost of capital improvements. In
no event, however, shall Basic Costs include the cost of correcting
any existing (as of the date hereof) violations of any laws, rules
or regulations of any governmental authority. In addition, the
portion of the annual amortized costs to be included in Basic Costs
in any calendar year with respect to a capital improvement which is
intended to reduce expenses or improve the operating efficiency of
the Property or Building shall equal the lesser of: a) such annual
amortized costs; and b) the projected annual amortized reduction in
expenses for that portion of the useful life of the capital
improvement which falls within the Lease Term (based on the total
cost savings for such period, as reasonably estimated by Landlord).
12. Any other expense or charge of any nature whatsoever
which, in accordance with general industry practice with respect to
the operation of a first-class office building, would be construed
as an operating expense.
Notwithstanding the foregoing, if Landlord incurs any common
expenses in connection with the Building and one or more of the buildings
commonly known as Building I at Burlington Office Center, located at 325
Eisenhower Parkway, and/or Building II at Burlington Office Center, located at
315 Eisenhower Parkway, the cost of such expenses shall be equitably prorated
between the Building and such other buildings based upon the portion of such
services that are being provided to each building in question. If the Building
is not at least ninety-five percent (95%) occupied during the Base Year (if
applicable) or any calendar year of the Lease Term or if Landlord is not
supplying services to at least ninety-five percent (95%) of the total square
footage of the Building at any time during the Base Year (if applicable) or any
calendar year of the Lease Term, actual Basic Costs for purposes hereof shall,
at Landlord's option, be determined as if the Building had been ninety-five
percent (95%) occupied and Landlord had been supplying services to ninety-five
percent (95%) of the square footage of the Building during such year. Any
necessary extrapolation of Basic Costs under this Article shall be performed by
adjusting the cost of those components of Basic Costs that are impacted by
changes in the occupancy of the Building to the cost that would have been
incurred if the Building had been ninety-five percent (95%) occupied and
Landlord had been supplying services to ninety-five percent (95%) of the
Rentable Area of the Building.
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C. If Basic Costs for any calendar year increase by more than five
percent (5%) over Basic Costs for the immediately preceding calendar year,
Tenant, within ninety (90) days after receiving Landlord's statement of actual
Basic Costs for a particular calendar year, shall have the right to provide
Landlord with written notice (the "Review Notice") of its intent to review
Landlord's books and records relating to the Basic Costs for such calendar year.
Within a reasonable time after receipt of a timely Review Notice, Landlord shall
make such books and records available to Tenant or Tenant's agent for its review
at either Landlord's home office or the office of the Building, provided that if
Tenant retains an agent to review Landlord's books and records for any calendar
year, such agent must be CPA firm licensed to do business in the state in which
the Building is located. If Tenant fails to give Landlord written notice of
objection within sixty (60) days after its review or fails to provide Landlord
with a Review Notice within the ninety (90) day period provided above, Tenant
shall be deemed to have approved Landlord's statement of Basic Costs in all
respects and shall thereafter be barred from raising any claims with respect
thereto. Upon Landlord's receipt of a timely objection notice from Tenant,
Landlord and Tenant shall work together in good faith to resolve the discrepancy
between Landlord's statement and Tenant's review. If Landlord and Tenant
determine that Basic Costs for the calendar year in question are less than
reported, Landlord shall provide Tenant with a refund of such overpayment within
thirty (30) days after the determination thereof. Likewise, if Landlord and
Tenant determine that Basic Costs for the calendar year in question are greater
than reported, Tenant shall, within thirty (30) days after the determination
thereof, pay to Landlord the amount of underpayment by Tenant. Any information
obtained by Tenant pursuant to the provisions of this Section shall be treated
as confidential. Notwithstanding anything herein to the contrary, Tenant shall
not be permitted to examine Landlord's books and records or to dispute any
statement of Basic Costs unless Tenant has paid to Landlord the amount due as
shown on Landlord's statement of actual Basic Costs, said payment being a
condition precedent to Tenant's right to examine Landlord's books and records.
D. Tenant covenants and agrees to pay to Landlord during the Lease
Term, without any setoff or deduction whatsoever, the full amount of all Base
Rental and Additional Base Rental due hereunder from time to time. In addition,
Tenant shall pay and be liable for, as additional Rent, all rental, sales and
use taxes or other similar taxes, if any, levied or imposed by any city, state,
county or other governmental body having authority upon the Rent required to be
paid by Tenant under this Lease, such payments to be in addition to all other
payments required to be paid to Landlord by Tenant under the terms and
conditions of this Lease. Any such payments shall be paid concurrently with the
payments of the Rent on which the tax is based. The Base Rental, Tenant's Pro
Rata Share of Basic Costs and any recurring monthly charges due hereunder shall
be due and payable in advance on the first day of each calendar month during the
Lease Term without demand. All other items of Rent shall be due and payable by
Tenant on or before thirty (30) days after billing by Landlord. If the Lease
Term commences on a day other than the first day of a calendar month or
terminates on a day other than the last day of a calendar month, then the
monthly Base Rental and Tenant's Pro Rata Share of Basic Costs for such month
shall be prorated for the number of days in such month occurring within the Term
based on a fraction, the numerator of which is the number of days of the Lease
Term that fell within such calendar month and the denominator of which is thirty
(30).
E. All Rent not paid when due and payable shall bear interest from the
date due until paid at the lesser of: (1) the Prime Rate plus four percent (4%)
per annum; or (2) the Maximum Rate. In addition, if Tenant fails to pay any
installment of Rent when due and payable hereunder and such failure continues
for five (5) days after written notice from Landlord to Tenant, a service fee
equal to five percent (5%) of such unpaid amount will be due and payable
immediately by Tenant to Landlord.
VI. SECURITY DEPOSIT.
A. A Security Deposit in the amount of one hundred twenty thousand and
00/100 dollars ($120,000.00) shall be delivered to Landlord upon the execution
of this Lease by Tenant and shall be held by Landlord without liability for
interest and as security for the performance of Tenant's obligations under this
Lease. Notwithstanding the foregoing, if Tenant exercises its rights with
respect to the Leasehold Improvement Loan described in Section 2 of Exhibit D to
the Lease, Tenant shall be required to increase the amount of the Security
Deposit as described in such Section 2 of Exhibit D. The Security Deposit shall
be in the form of a letter of credit, which letter of credit shall (a) be in the
form and substance of the sample letter of credit attached hereto as Exhibit F,
(b) name Landlord as its beneficiary, (c) expire no earlier than sixty (60) days
after
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the Termination Date, and (d) be drawn on an FDIC-insured financial
institution satisfactory to Landlord. If the initial term of the letter of
credit will expire prior to sixty (60) days after the Termination Date, Tenant
shall from time to time, as necessary, renew or replace the original and any
subsequent letter of credit not less than sixty (60) days prior to its stated
expiration date so that it will remain in full force and effect until sixty (60)
days after the Termination Date of the Lease. If Tenant fails to furnish such
renewal or replacement at least sixty (60) days prior to the stated expiration
date of the letter of credit then held by Landlord, Landlord may draw upon such
letter of credit and hold the proceeds thereof (and such proceeds need not be
segregated) as a Security Deposit pursuant to the terms of this Article VI. Any
renewal of or replacement for the original or any subsequent letter of credit
shall meet the requirements for the original letter of credit as set forth
above, except that such replacement or renewal shall be issued by a national
bank satisfactory to Landlord at the time of the issuance thereof.
B. Landlord may, from time to time, without prejudice to any other
remedy, use all or a portion of the Security Deposit to make good any arrearages
of Rent, to repair damages to the Premises caused by Tenant, to clean the
Premises upon termination of this Lease or otherwise to satisfy any other
covenant or obligation of Tenant hereunder. Following any such application of
the Security Deposit, Tenant shall, upon demand, either (i) restore the letter
of credit to its full amount, or (ii) provide Landlord with an additional cash
security deposit in an amount equal to the amount of Security Deposit applied by
Landlord. If Tenant is not in default at the termination of this Lease, after
Tenant surrenders the Premises to Landlord in accordance with this Lease and all
amounts due Landlord from Tenant are finally determined and paid by Tenant or
through application of the Security Deposit, the balance of the Security Deposit
shall be returned to Tenant. If Landlord transfers its interest in the Premises
during the Lease Term, Landlord shall assign the Security Deposit to the
transferee and, provided the transferee accepts such assignment, Landlord shall
thereafter shall have no further liability for the return of such Security
Deposit. Landlord shall not be required to segregate the Security Deposit from
its other accounts.
C. Notwithstanding anything herein to the contrary, provided Tenant
has not been in default under this Lease prior to the effective date of any
reduction of the Security Deposit, Tenant shall have the right to reduce the
amount of the Security Deposit (i.e. the letter of credit) by twenty-five
percent (25%) of the original amount thereof effective as of the first (1st)
anniversary of the Commencement Date, the second (2nd) anniversary of the
Commencement Date and the third (3rd) anniversary of the Commencement Date.
Such reduction shall be accomplished by having Tenant provide Landlord with a
substitute letter of credit in the reduced amount. For example, assuming that
the initial amount of the letter of credit is one hundred sixty thousand dollars
($160,000.00), the letter of credit shall be reduced to (i) $120,000.00
effective as of the first anniversary of the Commencement Date, (ii) $80,000.00
effective as of the second anniversary of the Commencement Date, and (iii)
$40,000.00 effective as of the third anniversary of the Commencement Date.
VII. SERVICES TO BE FURNISHED BY LANDLORD.
Landlord, as part of Basic Costs (except as provided herein to the
contrary), agrees to provide the following services to Tenant at the Premises:
(a) cold water at those points of supply provided for general use of tenants in
the Building; (b) central heat, ventilation and air conditioning in season
during Landlord's normal business hours and at such temperatures as are
necessary for comfortable occupancy, or as otherwise required by law; (c)
routine maintenance and electric lighting service for all Common Areas of the
Building; (d) janitor service on business days exclusive of Saturdays, Sundays
and holidays in accordance with the cleaning specifications attached hereto as
Exhibit B (or such reasonably comparable specifications as Landlord may
designate from time to time); (e) elevator service in common with other tenants
of the Building for ingress and egress to and from the floor of the Premises
during Landlord's normal business hours, and (f) the replacement of building
standard light bulbs. For purposes of this section, Landlord's normal business
hours are hereby agreed to be 7:30 a.m. to 6:00 p.m. Monday through Friday,
holidays excluded. The failure by Landlord to any extent to furnish, or the
interruption or termination of these services in whole or in part, shall not
render Landlord liable in any respect nor be construed as an eviction of Tenant
or breach of any implied warranty of habitability, nor give rise to an abatement
of Rent, nor relieve Tenant from the obligation to fulfill any covenant or
agreement hereof. Notwithstanding anything to the contrary contained in this
Section VII if: (i) Landlord ceases to furnish any service in the Building for a
period in excess of ten (10) consecutive days after Tenant notifies Landlord of
such
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cessation (the "Interruption Notice"), (ii) such cessation does not arise as a
result of an act or omission of Tenant, (iii) such cessation is not caused by a
fire or other casualty (in which case Article XVII shall control), (iv) the
restoration of such service is reasonably within the control of Landlord, and
(v) as a result of such cessation, the Premises or a material portion thereof,
is rendered untenantable (meaning that Tenant is unable to use the Premises in
the normal course of its business) and Tenant in fact ceases to use the
Premises, or material portion thereof, then Tenant, as its sole remedy, shall be
entitled to receive an abatement of Base Rental and Additional Base Rental
payable hereunder during the period beginning on the eleventh (11th) consecutive
day of such cessation and ending on the day when the service in question has
been restored. In the event the entire Premises has not been rendered
untenantable by the cessation in service, the amount of abatement that Tenant is
entitled to receive shall be prorated based upon the percentage of the Premises
so rendered untenantable and not used by Tenant. Tenant expressly acknowledges
that if Landlord, from time to time, elects to provide security services,
Landlord shall not be deemed to have warranted the efficiency of any such
security personnel, service, procedures or equipment and Landlord shall not be
liable in any manner for the failure of any such security personnel, services,
procedures or equipment to prevent or control, or apprehend any one suspected of
personal injury, property damage or criminal conduct in, on or around the
Property.
VIII. LEASEHOLD IMPROVEMENTS.
Any and all alterations, additions and improvements to the Premises, all
attached furniture, equipment and non-trade fixtures (collectively, "Leasehold
Improvements") shall be owned and insured by Landlord and shall remain upon the
Premises, all without compensation to Tenant. Any unattached and movable
equipment or furniture, trade fixtures or other personalty ("Tenant's Property")
shall be owned and insured by Tenant. Landlord may, nonetheless, at any time
within one (1) month after the expiration or earlier termination of this Lease
or Tenant's right to possession, require Tenant to remove any Leasehold
Improvements performed by or for the benefit of Tenant (other than electronic,
phone and data cabling) as are designated by Landlord (the "Required
Removables") at Tenant's sole cost. In the event that Landlord so elects, Tenant
shall remove such Required Removables within ten (10) days after notice from
Landlord, provided that in no event shall Tenant be required to remove such
Required Removables prior to the expiration or earlier termination of this Lease
or Tenant's right to possession. In addition to Tenant's obligation to remove
the Required Removables, Tenant shall repair any damage caused by such removal
and perform such other work as is reasonably necessary to remove any evidence
that the Required Removable in question has been removed. For example, if Tenant
removes a work station, Tenant may be required to patch the portion of carpet
upon which the work station was located and repaint the portion of the wall
against which the work station was placed. If Tenant fails to remove the
Required Removables after Landlord's request therefor, Landlord may remove,
store or dispose of the Required Removables at Tenant's cost, and repair any
damage caused by such removal and Tenant shall pay Landlord as additional Rent
hereunder, on demand, all such costs. Notwithstanding the foregoing, except for
any vault, stairway, structural alterations or supplemental HVAC equipment
installed in the Premises, Tenant shall not be required to remove any portion of
the Initial Alterations. In addition, with respect to any subsequent
alterations, additions or improvements performed by Tenant, Tenant may request
in writing at the time it submits its plans and specifications for an
alteration, addition or improvement, that Landlord advise Tenant whether
Landlord will require Tenant to remove, at the termination of this Lease or
Tenant's right to possession hereunder, such alteration, addition or
improvement, or any particular portion thereof. Landlord, within ten (10) days
after receipt of Tenant's request, shall advise Tenant as to whether Landlord
will require removal of such alteration, addition or improvement, or any
particular portion thereof, provided, however, Landlord shall have the right to
require Tenant to remove any vault, stairway or structural alterations in the
Premises, regardless of whether Landlord timely notified Tenant that it would
require such removal.
IX. REPAIRS AND ALTERATIONS BY TENANT.
A. Tenant shall, at Tenant's own cost and expense, keep the Premises
in good condition and repair. Such repairs shall maintain the Premises in as
good a condition and repair as it was at the Commencement Date and shall be
effected in compliance with the reasonable directions of Landlord. If Tenant
fails to make such repairs to the Premises within thirty (30) days after written
notice by Landlord, Landlord may, at its option, make such repairs, and Tenant
shall pay the reasonable cost thereof to the Landlord on demand as additional
Rent.
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Notwithstanding the foregoing, the thirty (30) day notice period shall not be
required in the event of an emergency.
B. Tenant shall not make or allow to be made any alterations,
additions or improvements ("Alterations") to the Premises, without first
obtaining the written consent of Landlord, which consent shall not be
unreasonably withheld. Notwithstanding the foregoing, Landlord's consent shall
not be required for any alteration, addition or improvement that satisfies all
of the following criteria: 1) costs less than $10,000.00, 2) is of a cosmetic
nature such as painting, wallpapering, hanging pictures and installing
carpeting, 3) is not visible from the exterior of the Premises or Building, and
4) will not affect the systems or structure of the Building and does not require
work to be performed inside the walls or above the ceiling of the Premises;
provided that even if consent is not required, Tenant shall still comply with
all the other provisions of this Section IX.B. Prior to commencing any such
work and as a condition to obtaining Landlord's consent, Tenant must furnish
Landlord with plans and specifications; names and addresses of contractors;
copies of contracts; necessary permits (if required by applicable law); evidence
of contractor's and subcontractor's insurance in a type and amount acceptable to
Landlord; and payment bond or other security, all in form and amount
satisfactory to Landlord. All such Alterations shall be installed in a good
workmanlike manner using new materials. Landlord shall have the right to
designate the time when any such alterations, additions and improvements may be
performed and to otherwise designate reasonable rules, regulations and
procedures for the performance of work in the Building. Upon completion, Tenant
shall furnish "as-built" plans, contractor's affidavits and full and final
waivers of lien and receipted bills covering all labor and materials. All
Alterations shall comply with all insurance requirements, codes, ordinances,
laws and regulations, including without limitation, the Americans with
Disabilities Act. Tenant shall reimburse Landlord within thirty (30) days after
demand as additional Rent for all sums expended by Landlord for examination of
the architectural, mechanical, electric and plumbing plans for any Alterations.
If Landlord so requests, Tenant shall permit Landlord to supervise construction
operations, but no such supervision shall impose any liability upon Landlord. If
due to the nature of the alterations, additions or improvements, work needs to
be performed in the Premises after normal business hours, Tenant, within thirty
(30) days after demand, shall reimburse Landlord for the reasonable cost (on an
hourly basis) of having Landlord's management or engineering personnel oversee
the performance of such work. Landlord's approval of Tenant's plans and
specifications or supervision of any work performed for or on behalf of Tenant
shall not be deemed to be a representation by Landlord that such plans and
specifications comply with applicable insurance requirements, building codes,
ordinances, laws or regulations or that any such alterations, additions and
improvements will be adequate for Tenant's use.
X. USE OF ELECTRICAL SERVICES BY TENANT.
A. All electricity consumed in the Premises for lighting and power
shall be paid for by Tenant on a quarterly basis by a separate charge that is
over and above the Base Rental and Additional Base Rental payable under the
other provisions of this Lease. Such charge for electricity shall be based upon
the amount of electricity consumed in the Premises during each such quarterly
period as measured by a submeter installed in or about the Premises. Tenant
shall pay such charge to Landlord as additional Rent within thirty (30) days
after receipt of an invoice from Landlord setting forth such charge.
Notwithstanding the foregoing, Tenant acknowledges that the portion of the
Premises located on the third (3rd) floor is not currently submeter and that
Landlord shall bill Tenant for electricity with respect to such space based upon
Tenant's proportionate share of all spaces connected to the shared meter on the
third (3rd) floor. Tenant shall have the right to review the readings on such
shared meter and the manner in which Landlord allocates the electricity measured
by such meter. In addition, Tenant shall have the right to install a submeter
at its sole cost and expense for the purpose of measuring electricity consumed
by Tenant in such third (3rd) floor space. From and after the installation of
such submeter, Tenant's charge for electricity for the third (3rd) floor space
shall be based upon the electricity consumed in such space as measured by the
submeter. Tenant's use of electrical service in the Premises shall not exceed,
either in voltage, rated capacity, use or overall load, that which Landlord
deems to be standard for the Building.
B. In addition to the electrical charges set forth in Section X.A.
above, Tenant shall pay for its Pro Rata Share of all electricity and gas
consumed in connection with the operation of the Building and Property,
including, without limitation, all electricity and gas consumed in the operation
of the Building HVAC system. The electrical charge to be paid by Tenant under
this Section X.B. shall not, however, include the cost of electricity provided
to individual tenant
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premises in the Building for lighting and power. Tenant shall pay for its Pro
Rata Share of all electricity and gas consumed in connection with the operation
of the Building and Property on a quarterly basis by a separate charge that is
over and above the Base Rental and Additional Base Rental payable under the
other provisions of this Lease. Tenant shall pay such charge to Landlord as
additional Rent within thirty (30) days after receipt of an invoice from
Landlord setting forth such charge. Notwithstanding the foregoing, in no event
shall the charge payable by Tenant for electricity and gas under this Section
X.B. exceed the sum of thirty-two thousand five hundred twenty-four and 20/100
($32,524.20) (i.e. $1.80 per square foot) during any calendar year during the
Lease Term.
XI. ENTRY BY LANDLORD.
Landlord and its agents or representatives shall have the right to enter
the Premises to inspect the same, or to show the Premises to prospective
purchasers, mortgagees, tenants or insurers, or to clean or make repairs,
alterations or additions thereto, including any work that Landlord deems
necessary for the safety, protection or preservation of the Building or any
occupants thereof, or to facilitate repairs, alterations or additions to the
Building or any other tenants' premises. Except for any entry by Landlord in an
emergency situation or to provide normal cleaning and janitorial service,
Landlord shall provide Tenant with reasonable prior notice of any entry into the
Premises, which notice may be given verbally. If reasonably necessary for the
protection and safety of Tenant and its employees, Landlord shall have the right
to temporarily close the Premises to perform repairs, alterations or additions
in the Premises. Entry by Landlord hereunder shall not constitute a constructive
eviction or entitle Tenant to any abatement or reduction of Rent by reason
thereof. Notwithstanding anything to the contrary contained herein, Landlord
shall perform any entry into the Premises in a manner that is reasonably
designed to minimize any interference with Tenant's access to or use of the
Premises. In the event the making of any such repair, alteration, improvement
or addition shall cause the Premises to be inaccessible or unusable by Tenant,
as determined in Tenant's reasonable judgment, for a period of ten (10) days,
then Base Rental and Additional Base Rental payable under the Lease shall abate
during the period beginning on the eleventh (11th) day that the Premises are
inaccessible or unusable and ending on the date on which the Premises are once
again accessible and usable by Tenant.
XII. ASSIGNMENT AND SUBLETTING.
Tenant shall not assign, sublease, transfer or encumber this Lease or any
interest therein or grant any license, concession or other right of occupancy of
the Premises or any portion thereof or otherwise permit the use of the Premises
or any portion thereof by any party other than Tenant (any of which events is
hereinafter called a "Transfer") without the prior written consent of Landlord,
which consent shall not be unreasonably withheld with respect to a subletting or
assignment. If Tenant requests Landlord's consent to a Transfer, Tenant,
together with such consent, shall provide Landlord with the name of the proposed
transferee and the nature of the business of the proposed transferee, the term,
use, rental rate and all other material terms and conditions of the proposed
Transfer, including, without limitation, a copy of the proposed assignment,
sublease or other contractual documents and evidence satisfactory to Landlord
that the proposed transferee is financially responsible. Landlord may, within
thirty (30) days after receipt of all information and documentation required
herein, (a) consent to or refuse to consent to such Transfer in writing; or (b)
negotiate directly with the proposed transferee and upon execution of a lease
with such transferee, terminate this Lease (in part or in whole, as appropriate)
upon thirty (30) days' notice; or (c) cancel and terminate this Lease, in whole
or in part as appropriate, upon thirty (30) days' notice. In the event Landlord
consents to any such Transfer, Tenant shall bear all actual reasonable costs and
expenses (including attorney review fees) incurred by Landlord in connection
with the review and approval of such documentation. Tenant hereby covenants and
agrees to pay to Landlord all rent and other consideration which it receives
which is in excess of the Rent payable hereunder within ten (10) days following
receipt thereof by Tenant. In addition to any other rights Landlord may have,
Landlord shall have the right to contact any transferee and require that all
payments made pursuant to the Transfer shall be made directly to Landlord. For
purposes of this Article XII, an assignment shall be deemed to include a change
in the majority control of Tenant, if Tenant is a partnership or a corporation
whose stock is not traded publicly. Any Transfer consented to by Landlord in
accordance with this Article XII shall be only for the Permitted Use and for no
other purpose, and in no event shall any Transfer release or relieve Tenant or
any Guarantors from any obligations under this Lease.
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XIII. LIENS.
Tenant will not permit any mechanic's liens or other liens to be placed
upon the Premises or Tenant's leasehold interest therein, the Building, or the
real estate associated therewith. In the event any such lien does attach, Tenant
shall, within five (5) days of notice of the filing of said lien, discharge such
lien to the satisfaction of Landlord and Landlord's Mortgagee (as hereinafter
defined). If Tenant shall fail to so discharge such lien, then, in addition to
any other right or remedy of Landlord, Landlord may, but shall not be obligated
to, discharge the same. Any amount paid by Landlord for any of the aforesaid
purposes, including reasonable attorneys' fees, shall be paid by Tenant to
Landlord on demand as additional Rent. Notwithstanding the foregoing, if any
mechanics lien or other lien is placed solely against Tenant's leasehold
interest (and not the Building or Property), Tenant shall have the right to
diligently contest such lien in accordance with applicable law. Landlord shall
have the right to post and keep posted on the Premises any notices that may be
provided by law or which Landlord may deem to be proper for the protection of
Landlord, the Premises and the Building from such liens.
XIV. INDEMNITY AND WAIVER OF CLAIMS.
A. Tenant shall indemnify, defend and hold Landlord, its partners,
managing agents, and Mortgagee(s) (collectively the "Landlord Related Parties")
harmless against and from all liabilities, obligations, damages, penalties,
costs, charges and expenses, including, without limitation, reasonable
architects' and attorneys' fees (if and to the extent permitted by law), which
may be imposed upon, incurred by, or asserted in connection with any third party
claims brought against Landlord or any of the Landlord Related Parties and
arising out of or in connection with the acts and omissions of Tenant and, while
such parties are either (i) in the Premises, or (ii) outside the Premises but
acting within the scope of Tenant's control or authority, the acts or omissions
of Tenant's transferees, agents, servants, contractors, employees or licensees.
In case any action or proceeding is brought against Landlord or any of the
Landlord Related Parties by reason of any of the foregoing, Tenant shall, at
Tenant's sole cost and expense, resist and defend such action or proceeding with
counsel reasonably acceptable to Landlord.
B. Landlord and the Landlord Related Parties shall not be liable for,
and Tenant waives, all claims for loss or damage to Tenant's business or damage
to person or property sustained by Tenant or any person claiming by, through or
under Tenant (including Tenant's employees) resulting from any accident or
occurrence in, on or about the Premises, the Building or the Property,
including, without limitation, claims for loss, theft or damage resulting from:
1. wind or weather; 2. any defect in any sprinkler, heating or air-conditioning
equipment, electric wiring, gas, water or steam pipes; 3. the backing up of any
sewer pipe or downspout; 4. the bursting, leaking or running of any tank, water
closet, drain or other pipe; 5. the escape of steam or water; 6. water, snow or
ice being upon or coming through the roof, skylight, stairs, doorways, windows,
walks or any other place upon or near the Building; 7. the falling of any
fixture, plaster, tile or other material; 8. any act, omission or negligence of
other tenants, licensees or any other persons or occupants of the Building or of
adjoining or contiguous buildings, of owners of adjacent or contiguous property
or the public, or by construction of any private, public or quasi-public work;
except where such loss or damage is due to Landlord's negligence or willful
failure to make repairs required to be made pursuant to other provisions of this
Lease, after the expiration of a reasonable time after written notice to
Landlord of the need for such repairs. Notwithstanding the foregoing, nothing
contained herein shall be construed to be a waiver by Tenant of its right to
receive an abatement of Rent in accordance with the terms and conditions of
Articles VII, XI and/or XVII of this Lease.
C. Landlord shall indemnify, defend and hold Tenant harmless against
and from all liabilities, obligations, damages, penalties, costs, charges and
expenses, including, without limitation, reasonable architects' and attorneys'
fees (if and to the extent permitted by law), which may be imposed upon,
incurred by, or asserted in connection with any third party claims brought
against Tenant and arising, directly or indirectly, out of or in connection with
the acts and omissions of Landlord and, if and to the extent such parties are
acting within the scope of Landlord's control or authority, the acts or
omissions of Landlord's agents, servants, contractors or employees. In case any
action or proceeding is brought against Tenant or any of the Tenant Related
Parties by reason of any of the foregoing, Landlord shall, at Landlord's sole
cost and expense, resist and defend such action or proceeding with counsel
reasonably acceptable to Tenant.
XV. INSURANCE.
A. Tenant shall, at all times, carry and maintain, at its sole cost
and expense: (a) Commercial General Liability Insurance applicable to the
Premises and its appurtenances
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providing, on an occurrence basis, a minimum combined single limit of Two
Million Dollars ($2,000,000.00); (b) All Risks of Physical Loss Insurance
written at replacement cost value and with a replacement cost endorsement
covering all of Tenant's Property in the Premises; (c) Workers' Compensation
Insurance as required by the state in which the Premises is located and in
amounts as may be required by applicable statute, and Employers Liability
Coverage of Five Hundred Thousand Dollars ($500,000.00) per occurrence; (d)
additional insurance as reasonably required by Landlord to insure against risks
related to Tenant's use of the Premises for purposes other than general office
use. Any company writing any insurance to be maintained pursuant to the terms of
this Lease (all such insurance being referred to as "Tenant's Insurance"), as
well as the form of such insurance, shall at all times be subject to Landlord's
reasonable approval. All policies evidencing Tenant's Insurance (except for
Workers' Compensation) shall specify Tenant and the "owner(s) of the Building
and its respective managing agents, partners and mortgagee(s)" as additional
insureds. All policies of Tenant's Insurance shall contain endorsements that the
insurer(s) will give to Landlord and its designees at least thirty (30) days'
advance written notice of any change, cancellation, termination or lapse of said
insurance. Tenant shall deliver to Landlord at least fifteen (15) days prior to
the time Tenant's Insurance is first required to be carried by Tenant, and upon
renewals at least fifteen (15) days prior to the expiration of any such
insurance coverage, a certificate of insurance of all policies procured by
Tenant in compliance with its obligations under this Lease. The limits of
Tenant's Insurance shall in no event limit Tenant's liability under this Lease.
B. Landlord shall maintain all-risk, extended coverage property
insurance on the Building and the Leasehold Improvements (excluding Tenant's
Property) in an amount equal to not less than ninety percent (90%) of the full
replacement value. The cost of all such insurance shall be included as a part of
the Basic Costs, and payments for losses and recoveries thereunder shall be made
solely to Landlord or the Mortgagees of Landlord as their interests shall
appear.
XVI. SUBROGATION.
Notwithstanding anything set forth in this Lease to the contrary,
Landlord and Tenant do hereby agree to cause their respective insurance carriers
to waive any and all right of recovery, claim, action or cause of action against
the other, their respective principals, beneficiaries, partners, officers,
directors, agents, and employees, and, with respect to Landlord, its
Mortgagee(s), for any loss or damage that may occur to Landlord or Tenant or any
party claiming by, through or under Landlord or Tenant, as the case may be, with
respect to their respective property, the Building, the Property or the Premises
or any addition or improvements thereto, or any contents therein including the
negligence of Landlord or Tenant, or their respective principals, beneficiaries,
partners, officers, directors, agents and employees and, with respect to
Landlord, its Mortgagee(s), which loss or damage is (or would have been, had the
insurance required by this Lease been carried) covered by insurance.
XVII. CASUALTY DAMAGE.
A. If the Premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give prompt written notice thereof to Landlord. In
case the Building shall be so damaged that substantial alteration or
reconstruction of the Building shall, in Landlord's sole opinion, be required
(whether or not the Premises shall have been damaged by such casualty) or in the
event the Premises have been damaged and there is less than two (2) years of the
Lease Term remaining on the date of such casualty or in the event any Mortgagee
should require that the insurance proceeds payable as a result of a casualty be
applied to the payment of the mortgage debt or in the event of any material
uninsured loss to the Building or in the event Landlord will not be permitted by
applicable law to rebuild the Building in substantially the same form as existed
prior to the fire or casualty, Landlord may, at its option, terminate this Lease
by notifying Tenant in writing of such termination within ninety (90) days'
after the date of such casualty. Such termination shall be effective as of the
date of fire or casualty, with respect to any portion of the Premises that was
rendered untenantable, and the date specified in Landlord's notice, with respect
to any portion of the Premises that remained tenantable. If Landlord does not
elect to terminate this Lease, Landlord, as soon as reasonably possible, shall
commence (and thereafter diligently pursue to completion) the restoration of
the Premises (but excluding any improvements, alterations or additions made by
Tenant in violation of this Lease) to substantially the same condition they were
in immediately prior to the happening of the casualty. Notwithstanding the
foregoing, Landlord's obligation to restore the Building, and the
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Leasehold Improvements shall not require Landlord to expend for such repair and
restoration work more than the insurance proceeds actually received by the
Landlord as a result of the casualty, provided if Landlord has insufficient
insurance proceeds to restore the Premises and Landlord elects not to fund such
shortfall, Landlord shall so notify Tenant (the "Insurance Notice") and Tenant
shall have the right to terminate this Lease by written notice to Landlord
within ten (10) days after the date of Landlord's Insurance Notice. When the
repairs have been completed by Landlord, Tenant shall complete the restoration
or replacement of all Tenant's Property necessary to permit Tenant's reoccupancy
of the Premises, and Tenant shall present Landlord with evidence satisfactory to
Landlord of Tenant's ability to pay such costs prior to Landlord's commencement
of repair and restoration of the Premises. Landlord shall not be liable for any
inconvenience or annoyance to Tenant or injury to the business of Tenant
resulting in any way from such damage or the repair thereof, except that,
subject to the provisions of the next sentence, Landlord shall allow Tenant an
abatement of Rent on a per diem basis during the time and to the extent any
damage to the Premises causes the Premises to be rendered untenantable. If the
Premises or any other portion of the Building is damaged by fire or other
casualty resulting from the fault or negligence of Tenant or any of Tenant's
agents, employees, or contractors, the Rent hereunder shall not be diminished
during any period during which the Premises, or any portion thereof, is
untenantable, and Tenant shall be liable to Landlord for the cost of the repair
and restoration of the Building caused thereby to the extent such cost and
expense is not covered by insurance proceeds. Landlord and Tenant hereby waive
the provisions of any law from time to time in effect during the Lease Term
relating to the effect upon leases of partial or total destruction of leased
property. Landlord and Tenant agree that their respective rights in the event of
any damage to or destruction of the Premises shall be those specifically set
forth herein.
B. Notwithstanding Section XVII above to the contrary, if all or any
portion of the Premises shall be made untenantable or inaccessible by a fire or
other casualty, Landlord shall within sixty (60) days of the fire or other
casualty, cause an architect or general contractor selected by Landlord to
estimate the amount of time required to substantially complete repair and
restoration of the Premises and make the Premises tenantable and accessible
again, using standard working methods (the "Completion Estimate"). If the
Completion Estimate indicates that the Premises cannot be made tenantable and
accessible within nine (9) months from the date the repair and restoration is
started, Tenant shall have the right to terminate this Lease by giving written
notice to Landlord within ten (10) days after its receipt of the Completion
Estimate. In addition, in the event that there is less than two (2) years
remaining in the Lease Term and the Completion Estimate indicates that the
remaining Lease Term of this Lease following such restoration period is less
than 2.5 times as long as such restoration period, then Tenant may terminate
this Lease by written notice to Landlord within ten (10) days following Tenant's
receipt of the Completion Estimate. If the Completion Estimate indicates that
the Premises can be made tenantable and accessible within nine (9) months from
the date the repair and restoration is started and neither Tenant (with respect
to the last two years of the Lease Term) nor Landlord has otherwise exercised
its right to terminate the Lease pursuant to the terms hereof, or if the
Completion Estimate indicates that the Premises cannot be made tenantable and
accessible within nine (9) months but neither party terminates this Lease
pursuant to this Article XVII, Landlord shall proceed to repair and restore the
Premises as provided in section XVII.A. above. Notwithstanding the foregoing,
if Landlord does not substantially complete the repair and restoration of the
Premises by the expiration of the estimated period of time set forth in the
Completion Estimate, which period shall be extended to the extent of any
Reconstruction Delays, then Tenant may terminate this Lease by written notice
to Landlord within fifteen (15) days after the expiration period, as the same
may be extended. For purposes of this Lease, the term "Reconstruction Delays"
shall mean" (i) any delays caused by Tenant, and (ii) any delays caused by
events of Force Majeure, provided that Landlord shall only be entitled to claim
Force Majeure delays of which Landlord has provided Tenant written notice. Such
termination shall be effective as of the date of fire or casualty, with respect
to any portion of the Premises that was rendered untenantable or inaccessible,
and the effective date of termination specified in Tenant's notice, with respect
to any portion of the Premises that remained tenantable and accessible.
XVIII. DEMOLITION.
Intentionally Omitted.
XIX. CONDEMNATION.
If (a) the whole or any substantial part of the Premises or (b) any
portion of the Building or Property which would leave the remainder of the
Building unsuitable for use as an office building comparable to its use on the
Commencement Date, shall be taken or condemned for any public or quasi-public
use, then Landlord may, at its option, terminate this Lease effective as of the
date the physical taking of said Premises or said portion of the Building or
Property
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shall occur. In addition, if (x) the whole or any material part of the Premises
or access thereto shall be taken or condemned for any public or quasi-public use
under governmental law, ordinance or regulation, or by right of eminent domain,
or by private purchase in lieu thereof, or (x) all or any portion of the
parking for the Building shall be taken or condemned for any public or
quasi-public use under governmental law, ordinance or regulation, or by right of
eminent domain, or by private purchase in lieu thereof so as to reduce the
parking ratio for the Building below applicable zoning requirements (and
provided Landlord does not furnish reasonable substitute parking), Tenant shall
also have the right to terminate this Lease effective as of the date of such
physical taking. Such right to terminate shall be exercised by written notice
to Landlord within thirty (30) days after the date on which Tenant is first
notified by Landlord of the taking. In the event this Lease is not terminated,
the square footage of the Building, the square footage of the Premises and
Tenant's Pro Rata Share shall be appropriately adjusted. In addition, Rent for
any portion of the Premises so taken or condemned shall be abated during the
unexpired term of this Lease effective when the physical taking of said portion
of the Premises shall occur. All compensation awarded for any such taking or
condemnation, or sale proceeds in lieu thereof, shall be the property of
Landlord, and Tenant shall have no claim thereto, the same being hereby
expressly waived by Tenant. Notwithstanding the foregoing, Tenant shall have
the right to bring a separate claim provided that such claim does not reduce the
amount of the award that would otherwise be payable to Landlord.
XX. EVENTS OF DEFAULT.
The following events shall be deemed to be events of default under this
Lease: (a) Tenant shall fail to pay when due any Base Rental, Additional Base
Rental or other Rent under this Lease and such failure shall continue for five
(5) business days after written notice from Landlord (hereinafter sometimes
referred to as a "Monetary Default"); (b) any failure by Tenant (other than a
Monetary Default) to comply with any term, provision or covenant of this Lease,
which failure is not cured within thirty (30) days after delivery to Tenant of
notice of the occurrence of such failure, provided that if such failure creates
a hazardous condition, such failure must be cured immediately. Notwithstanding
the foregoing, except in the case of a hazardous condition, if such failure or
default cannot practicably be cured within the thirty (30) day period provided
in the foregoing sentence, then such thirty (30) day cure period shall be
extended to the extent reasonably necessary to permit Tenant to cure such
default, provided further that Tenant shall diligently proceed to cure such
default and, from time to time upon request, shall furnish Landlord with
evidence of Tenant's efforts to cure such default. Notwithstanding subsections
(a) above, if Tenant fails to cure a monetary default within applicable grace
periods on three (3) occasions during any twelve (12) month period, any
subsequent monetary default shall, at Landlord's option, be considered to be an
incurable default by Tenant; (c) Tenant or any Guarantor shall become insolvent,
or shall make a transfer in fraud of creditors, or shall commit an act of
bankruptcy (provided that Tenant shall have the right to discharge any
involuntary bankruptcy within applicable statutory periods) or shall make an
assignment for the benefit of creditors, or Tenant or any Guarantor shall admit
in writing its inability to pay its debts as they become due; (d) the leasehold
estate hereunder shall be taken on execution or other process of law or equity
in any action against Tenant; or (e) Tenant shall be in default beyond any
notice and cure period under any other lease with Landlord.
XXI. REMEDIES.
A. Upon the occurrence of any event or events of default under this
Lease, Landlord shall have the option to pursue any one or more of the following
remedies without any notice (except as expressly prescribed herein):
1. Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord. If Tenant fails to
surrender the Premises upon termination of the Lease hereunder,
Landlord may enter upon and take possession of the Premises and
expel or remove Tenant and any other person who may be occupying
said Premises, or any part thereof, by force, if necessary, without
being liable for prosecution or any claim of damages therefor, and
Tenant hereby agrees to pay to Landlord on demand the amount of all
loss and damage which Landlord may suffer by reason of such
termination, whether through inability to relet the Premises on
satisfactory terms or otherwise, specifically including but not
limited to all reasonable costs of reletting (which for purposes of
this Lease shall include all costs of preparing the Premises for
occupancy and all costs of concessions and brokerage commissions in
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connection with any new lease for the Premises) and any deficiency
that may arise by reason of any reletting or failure to relet.
2. Enter upon and take possession of the Premises and expel
or remove Tenant or any other person who may be occupying said
Premises, or any part thereof, without liability therefor and
without terminating this Lease. Landlord may (but shall be under no
obligation to) relet the Premises or any part thereof for the
account of Tenant, upon such terms, conditions and uses as Landlord
in its absolute discretion may determine, and Landlord may collect
and receive any rents payable by reason of such reletting. Tenant
agrees to pay Landlord on demand all costs of reletting and any
deficiency that may arise by reason of such reletting or failure to
relet. Landlord shall not be responsible or liable for any failure
to relet the Premises. No such re-entry or taking of possession of
the Premises by Landlord shall be construed as an election on
Landlord's part to terminate this Lease unless a written notice of
such termination is given to Tenant.
3. Terminate this Lease, in which event, Tenant shall
immediately surrender the Premises to Landlord and pay to Landlord
the sum of: (a) all Rent accrued hereunder through the date of
termination, and, upon Landlord's determination thereof, (b) an
amount equal to the total Rent that Tenant would have been required
to pay for the remainder of the Lease Term discounted to present
value at the prime rate then in effect, minus the then present fair
rental value of the Premises for the remainder of the Lease Term,
similarly discounted, after deducting all anticipated costs of
reletting. Landlord's determination of such amount shall be
conclusive and binding on Tenant, and shall be deemed to have been
made in good faith, subject only to manifest error.
B. No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy, and each and every right
and remedy shall be cumulative and in addition to any other right or remedy
given hereunder or now or hereafter existing by agreement, applicable law or in
equity. Tenant shall be liable for all costs, expenses, and reasonable
attorneys' fees incurred by Landlord in connection with the exercise of any of
its remedies hereunder.
XXII. LIMITATION OF LIABILITY.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE
LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD HEREUNDER) TO TENANT SHALL
BE LIMITED TO THE INTEREST OF LANDLORD IN THE BUILDING, AND TENANT AGREES TO
LOOK SOLELY TO LANDLORD'S INTEREST IN BURLINGTON CENTER FOR THE RECOVERY OF ANY
JUDGMENT OR AWARD AGAINST THE LANDLORD, IT BEING INTENDED THAT NEITHER LANDLORD
NOR ANY MEMBER, PRINCIPAL, PARTNER, SHAREHOLDER, OFFICER, DIRECTOR OR
BENEFICIARY OF LANDLORD SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR
DEFICIENCY. TENANT HEREBY COVENANTS THAT, PRIOR TO THE FILING OF ANY SUIT FOR AN
ALLEGED DEFAULT BY LANDLORD HEREUNDER, IT SHALL GIVE LANDLORD AND ALL MORTGAGEES
WHOM TENANT HAS BEEN NOTIFIED HOLD MORTGAGES OR DEED OF TRUST LIENS ON THE
PROPERTY, BUILDING OR PREMISES NOTICE AND THIRTY (30) DAY PERIOD IN WHICH TO
CURE SUCH ALLEGED DEFAULT BY LANDLORD. NOTWITHSTANDING THE FOREGOING, IF SUCH
ALLEGED DEFAULT CANNOT PRACTICABLY BE CURED WITHIN THE THIRTY (30) DAY PERIOD
PROVIDED IN THE FOREGOING SENTENCE, THEN SUCH THIRTY (30) DAY CURE PERIOD SHALL
BE EXTENDED TO THE EXTENT REASONABLY NECESSARY TO PERMIT LANDLORD AND ANY
MORTGAGEE TO CURE SUCH DEFAULT, PROVIDED FURTHER THAT EITHER LANDLORD OR SUCH
MORTGAGEE SHALL DILIGENTLY PROCEED TO CURE SUCH DEFAULT AND, FROM TIME TO TIME
UPON REQUEST, SHALL FURNISH TENANT WITH EVIDENCE OF LANDLORD'S OR SUCH
MORTGAGEE'S EFFORTS TO CURE SUCH DEFAULT. NOTHING HEREIN, HOWEVER, SHALL BE
CONSTRUED TO IMPOSE ANY OBLIGATION ON ANY MORTGAGEE TO CURE A DEFAULT BY
LANDLORD. IN ADDITION, TENANT ACKNOWLEDGES THAT EQUITY OFFICE HOLDINGS, L.L.C.,
EQUITY OFFICE PROPERTIES, L.L.C., AND ANN ARBOR ASSOCIATES ARE ACTING SOLELY IN
THEIR CAPACITY AS AGENTS FOR LANDLORD.
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XXIII. NO WAIVER.
Failure of Landlord to declare any default immediately upon its
occurrence, or delay in taking any action in connection with an event of default
shall not constitute a waiver of such default, nor shall it constitute an
estoppel against Landlord. Failure by Landlord to enforce its rights with
respect to any one default shall not constitute a waiver of its rights with
respect to any subsequent default. Receipt by Landlord of Tenant's keys to the
Premises shall not constitute an acceptance or surrender of the Premises.
XXIV. RELOCATION.
Intentionally Omitted.
XXV. HOLDING OVER.
In the event of holding over by Tenant after expiration or other
termination of this Lease or Tenant's right to possession, occupancy of the
Premises subsequent to such termination or expiration shall be that of a tenancy
at sufferance and in no event for month-to-month or year-to-year, but Tenant
shall, throughout the entire holdover period, be subject to all the terms and
provisions of this Lease and shall pay for its use and occupancy an amount (on a
per month basis without reduction for any partial months during any such
holdover) equal to one hundred fifty percent (150%) of the sum of the Base
Rental and Additional Base Rental due for the period immediately preceding such
holding over, provided if such holding over continues for more than thirty (30)
days, effective as of the thirty-first (31st) day, the amount of such holdover
rental shall increase to two hundred percent (200%) of the sum of the Base
Rental and Additional Base Rental due for the period immediately preceding such
holding over. No holding over by Tenant or payments of money by Tenant to
Landlord after the expiration of the term of this Lease shall be construed to
extend the Lease Term or prevent Landlord from recovery of immediate possession
of the Premises by summary proceedings or otherwise. In addition to the
obligation to pay the amounts set forth above during any such holdover period,
Tenant shall also be liable to Landlord for all damage, including any
consequential damage, which Landlord may suffer by reason of any holding over by
Tenant.
XXVI. SUBORDINATION TO MORTGAGES; ESTOPPEL CERTIFICATE.
A. Tenant accepts this Lease subject and subordinate to any mortgage,
deed of trust, ground lease or other lien presently existing or hereafter
arising upon the Premises, or upon the Building and/or the Property and to any
renewals, modifications, refinancings and extensions thereof (any such mortgage,
deed of trust, lease or other lien being hereinafter referred to as a
"Mortgage", and the person or entity having the benefit of same being referred
to hereinafter as a "Mortgagee"), but Tenant agrees that any such Mortgagee
shall have the right at any time to subordinate such Mortgage to this Lease on
such terms and subject to such conditions as such Mortgagee may deem appropriate
in its discretion. This clause shall be self-operative and no further instrument
of subordination shall be required. If any person shall succeed to all or part
of Landlord's interests in the Premises whether by purchase, foreclosure, deed
in lieu of foreclosure, power of sale, termination of lease or otherwise, and if
and as so requested or required by such successor-in-interest, Tenant shall,
without charge, attorn to such successor-in-interest. Tenant agrees that it will
from time to time upon request by Landlord and as soon as reasonably possible
following the date of such request (but in no event later than fifteen days
after the date of the request), execute and deliver to such persons as Landlord
shall request a subordination agreement or an estoppel certificate or other
similar statement in recordable form certifying (if and to the extent true to
the best of Tenant's knowledge) that this Lease is unmodified and in full force
and effect, stating the dates to which Rent and other charges payable under this
Lease have been paid, stating that Landlord is not in default hereunder and
further stating such other matters as Landlord shall reasonably require.
B. Notwithstanding Section XXVI.A. above to the contrary, Landlord
will use reasonable efforts to obtain a non-disturbance, subordination and
attornment agreement from its current Mortgagee on such Mortgagee's current
standard form of agreement, a copy of which is attached hereto as Exhibit G.
Tenant agrees to execute such agreement simultaneously with its execution of
this Lease. In addition, Landlord will use reasonable efforts to obtain a
non-disturbance, subordination and attornment agreement in favor of Tenant from
any future Mortgagee on such Mortgagee's then current form of agreement. Tenant
will execute such Mortgagee's form of non-disturbance, subordination and
attornment agreement and return the same to Landlord for
17
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execution by the Mortgagee. "Reasonable efforts" of Landlord shall not require
Landlord to incur any cost, expense or liability to obtain such agreement, it
being agreed that Tenant shall be responsible for any fee or review costs
charged by the Mortgagee.
XXVII. NOTICE.
Whenever any demand, request, approval, consent or notice ("Notice")
shall or may be given to either of the parties by the other, each such Notice
shall be in writing and shall be sent by registered or certified mail with
return receipt requested, or sent by overnight courier service (such as Federal
Express) provided that if Tenant has vacated the Premises or is in default of
this Lease Landlord may serve notice by any manner permitted by Law. Any Notice
under this Lease delivered by registered or certified mail shall be deemed to
have been given and effective on the earlier of (a) the third day following the
day on which the same shall have been mailed with sufficient postage prepaid or
(b) the delivery date indicated on the return receipt. Notice sent by overnight
courier service shall be deemed given and effective upon the day after such
notice is delivered to or picked up by the overnight courier service. Either
party may, at any time, change its Notice Address by giving the other party
Notice stating the change and setting forth the new address.
XXVIII. LANDLORD'S LIEN.
Intentionally Omitted.
XXIX. EXCEPTED RIGHTS.
This Lease does not grant any rights to light or air over or about the
Building. Landlord specifically excepts and reserves to itself the use of such
areas within the Premises as are required for installation of utility lines and
other installations required to serve any occupants of the Building and the
right to maintain and repair the same, and no rights with respect thereto are
conferred upon Tenant unless otherwise specifically provided herein. Landlord
further reserves to itself the right from time to time: (a) to change the
Building's name or street address; (b) to install, fix and maintain signs on the
exterior and interior of the Building; (c) to designate and approve window
coverings; (d) to make any decorations, alterations, additions, improvements to
the Building, or any part thereof (including the Premises) which Landlord shall
desire, or deem necessary for the safety, protection, preservation or
improvement of the Building, or as Landlord may be required to do by law; (e) to
retain at all times and to use pass-keys to all locks within and into the
Premises; (f) to approve the weight, size, or location of heavy equipment and
articles in and about the Premises; (g) to close or restrict access to the
Building at all times other than normal business hours subject to Tenant's right
to admittance at all times under such regulations as Landlord may prescribe from
time to time, or to close (temporarily or permanently) any of the entrances to
the Building; (h) to change the arrangement and/or location of entrances of
passageways, doors and doorways, and Common Areas of the Building; (i) if Tenant
has vacated the Premises during the last six (6) months of the Lease Term, to
perform additions, alterations and improvements to the Premises in connection
with a reletting or anticipated reletting thereof without being responsible or
liable for the value or preservation of any then existing improvements to the
Premises; and (j) to grant to anyone the exclusive right to conduct any business
or undertaking in the Building. Any and all entries into the Premises pursuant
to this Article XXIX shall be performed in accordance with the terms and
conditions of Article XI and, if and to the extent applicable, shall entitle
Tenant to the same rental abatement rights as are set forth in such Article XI.
XXX. SURRENDER OF PREMISES.
At the expiration or earlier termination of this Lease or Tenant's right
of possession hereunder, Tenant shall remove all Tenant's Property from the
Premises, remove all Required Removables designated by Landlord and quit and
surrender the Premises to Landlord, broom clean, and in good order, condition
and repair, ordinary wear and tear and damage by fire or other casualty
excepted. If Tenant fails to remove any of Tenant's Property within three (3)
business days after the termination of this Lease or Tenant's right to
possession hereunder, Landlord, at Tenant's sole cost and expense, shall be
entitled to remove and/or store such Tenant's Property and Landlord shall in no
event be responsible for the value, preservation or safekeeping thereof. Tenant
shall pay Landlord, upon demand, any and all expenses caused by such removal and
all storage charges against such property so long as the same shall be in the
possession of Landlord or under the control of Landlord. In addition, if Tenant
fails to remove
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any Tenant's Property from the Premises or storage, as the case may be, within
ten (10) days after written notice from Landlord, Landlord, at its option, may
deem all or any part of such Tenant's Property to have been abandoned by Tenant
and title thereof shall immediately pass to Landlord.
XXXI. MISCELLANEOUS.
Landlord and Tenant hereby agree that: (a) If any term or provision of
this Lease shall, to any extent, be invalid or unenforceable, the remainder of
this Lease shall not be affected thereby, and each term and provision of this
Lease shall be valid and enforced to the fullest extent permitted by law;
(b)Tenant shall not record this Lease or any memorandum hereof; (c) This Lease
shall be interpreted, construed, and enforced in accordance with the laws of the
state in which the Building is located; (d) Events of "Force Majeure" shall
include strikes, riots, acts of God, shortages of labor or materials, war,
governmental law, regulations or restrictions and any other cause whatsoever
that is beyond the control of Landlord or Tenant, as the case may be, and
whenever a period of time is herein prescribed for the taking of any action by
Landlord or Tenant (other than the payment of Rent and the determination of the
Commencement Date), such party shall not be liable or responsible for, and there
shall be excluded from the computation of such period of time, any delays due to
events of Force Majeure; (e) Landlord shall have the right to transfer and
assign, in whole or in part, all of its rights and obligations hereunder and in
the Building and Property referred to herein, and in such event and upon such
transfer to and assumption by Landlord's transferee, Landlord shall be released
from any further obligations hereunder, and Tenant agrees to look solely to such
successor in interest of Landlord for the performance of such obligations; (f)
Tenant hereby represents to Landlord that it has not dealt with a broker (other
than Friedman Real Estate Group) in connection with this Lease and Tenant agrees
to indemnify and hold Landlord and the Landlord Related Parties harmless from
all claims of any brokers other than Friedman Real Estate Group claiming to have
represented Tenant in connection with this Lease. Landlord agrees to indemnify
and hold Tenant harmless from all claims of any brokers claiming to have
represented Landlord in connection with this Lease; (g) If there is more than
one Tenant, or if the Tenant is comprised of more than one person or entity, the
obligations hereunder imposed upon Tenant shall be joint and several obligations
of all such parties and all notices, payments, and agreements given or made by,
with or to any one of such persons or entities shall be deemed to have been
given or made by, with or to all of them; (h) Tenant hereby covenants, warrants
and represents: (1) that the individual executing this Lease on its behalf is
duly authorized to execute or attest and deliver this Lease on behalf of Tenant
in accordance with the organizational documents of Tenant; (2) that this Lease
is binding upon Tenant; (3) that Tenant is duly organized and legally existing
in the state of its organization, and is qualified to do business in the state
in which the Premises is located; and (4) that the execution and delivery of
this Lease by Tenant will not result in any breach of, or constitute a default
under, any mortgage, deed of trust, lease, loan, credit agreement, partnership
agreement or other contract or instrument to which Tenant is a party or by which
Tenant may be bound. Landlord hereby covenants, warrants and represents: (1)
that the individual executing this Lease on its behalf is duly authorized to
execute or attest and deliver this Lease on behalf of Landlord in accordance
with the management agreement for the Building and the organizational documents
of Landlord's agent; (2) that this Lease is binding upon Landlord; (3) that
Landlord is duly organized and legally existing in the state of its
organization, and is qualified to do business in the state in which the Premises
is located; and (4) that the execution and delivery of this Lease by Landlord
will not result in any breach of, or constitute a default under, any mortgage,
deed of trust, lease, loan, credit agreement, partnership agreement or other
contract or instrument to which Landlord is a party or by which Landlord may be
bound.; (i) At any time during the Lease Term, Tenant shall provide Landlord,
upon ten (10) days' prior written notice from Landlord, with (y) a current
financial statement and financial statements of the two (2) years prior to the
current financial statement year and such statements shall be prepared in
accordance with generally accepted accounting principles and shall be audited by
an independent certified public accountant, and (z) such other information as
Landlord or its Mortgagee many reasonably request in order to create a
"business-profile" of Tenant and determine Tenant's ability to fulfill its
obligations under this Lease; (j) With respect to all required acts of Tenant,
time is of the essence of this Lease; (k) This Lease and the covenants and
conditions herein contained shall inure to the benefit of and be binding upon
Landlord and Tenant and their respective permitted successors and assigns; (l)
Notwithstanding anything to the contrary contained in this Lease, the expiration
of the Lease Term, whether by lapse of time or otherwise, shall not relieve
Tenant from Tenant's obligations accruing prior to the expiration of the Lease
Term and such obligations shall survive any such expiration or other termination
of the Lease Term. Except as
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provided in subsection XXXI (e) above, the expiration of the Lease Term, whether
by lapse of time or otherwise, shall not relieve Landlord from Landlord's
obligations accruing prior to the expiration of the Lease Term and such
obligations shall survive any such expiration or other termination of the Lease
Term; (m) The headings and titles to the paragraphs of this Lease are for
convenience only and shall have no effect upon the construction or
interpretation of any part hereof; (n) This Lease may be modified only by a
written agreement signed by Landlord and Tenant; (o) Landlord has delivered a
copy of this Lease to Tenant for Tenant's review only, and the delivery hereof
does not constitute an offer to Tenant or option.
XXXII. ENTIRE AGREEMENT.
This Lease Agreement, including the following Exhibits, constitutes the
entire agreement between the parties hereto with respect to the subject matter
of this Lease: (a) Exhibit A-1 Outline and Location of the 1st floor Premises;
Exhibit A-2 Outline and Location of the 2nd floor Premises (b) Exhibit B -
Cleaning Specifications; (c) Exhibit C - Rules and Regulations (d) Exhibit D -
Additional Terms and Conditions; (e) Exhibit E - Commencement Letter; (f)
Exhibit F - Form of Letter of Credit; (g) Exhibit G - Subordination,
Non-disturbance and attornment agreement.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in
multiple original counterparts as of the day and year first above written.
WITNESS/ATTEST:
LANDLORD: BURLINGTON ASSOCIATES GENERAL
PARTNERSHIP, an Illinois General
Partnership
BY: EQUITY OFFICE HOLDINGS, L.L.C., a
Delaware limited liability company, as
agent
- ---------------------------------
Name (print): /s/ Angel Rivera By:
------------------- --------------------------------------
Name: /s/ Eric Marx
- --------------------------------- ------------------------------------
Name (print): Title: Vice President
-------------------- -----------------------------------
Date: 5/20/96
------------------------------------
WITNESS/ATTEST:
TENANT: NETWORK EXPRESS, INC., a
Michigan corporation
- ---------------------------------
Name (print): /s/ R. Hawkins By:
------------------- --------------------------------------
Name: /s/ John R. Ternes
- --------------------------------- ------------------------------------
Name (print): Title: V.P. Finance & CFO
-------------------- -----------------------------------
Date: 5/20/96
------------------------------------
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EXHIBIT A-3
OUTLINE AND LOCATION OF 3RD FLOOR PREMISES
<PAGE>
EXHIBIT B
CLEANING SPECIFICATIONS
TO BE ATTACHED
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
TO BE ATTACHED
<PAGE>
EXHIBIT D
ADDITIONAL TERMS AND CONDITIONS
This exhibit is attached to and made a part of the Lease dated May 20, 1996,
by and between Burlington Associates General Partnership, an Illinois General
Partnership, by its agent Equity Office Holdings, L.L.C., ("Landlord"), and
Network Express, Inc., a Michigan corporation ("Tenant") for space in the
building located at 305 E. Eisenhower Parkway, Ann Arbor, MI 48108.
1. INITIAL ALTERATIONS. Landlord, provided Tenant is not in default after
the expiration of applicable cure periods, agrees to contribute (the "Work
Allowance") an amount not to exceed eighty-one thousand three hundred ten and
50/100 dollars ($81,310.50) toward the cost of performing improvements to the
Premises in preparation of Tenant's occupancy thereof (the "Initial
Alterations"), the cost of preparing design and construction documents for the
Initial Alterations, and the cost of preparing mechanical and electrical plans
for the Initial Alterations. The Work Allowance, less a 10% retainage (which
retainage shall be payable as part of the final draw) shall be paid to Tenant
within thirty (30) days after receipt of the following documentation: (i) an
application for payment and sworn statement of contractor substantially in the
form of AIA Document G-702 covering all work for which disbursement is to be
made to a date specified therein; (ii) a certification from an AIA architect
substantially in the form of the Architect's Certificate for Payment which is
located on AIA Document G702, Application and Certificate of Payment; (iii)
Contractor's, subcontractor's and material supplier's waivers of liens which
shall cover all Initial Alterations for which disbursement is being requested,
which waivers of lien shall be on the form specified by the mechanics' lien laws
of the State of Michigan, together with all such invoices, contracts, or other
supporting data as Landlord or Landlord's Mortgagee may reasonably require; (iv)
a cost breakdown for each trade or subcontractor performing the Initial
Alterations; (v) plans and specifications for the Initial Alterations, together
with a certificate from an AIA architect that such plans and specifications
comply in all material respects with all laws affecting the Building, Property
and Premises; (vi) copies of all construction contracts for the Initial
Improvements, together with copies of all change orders, if any, and (vii) a
request to disburse from Tenant containing an approval by Tenant of the work
done and a good faith estimate of the cost to complete the Initial Alterations.
In no event shall Landlord be required to disburse the Work Allowance more than
one time per month. If the cost of the Initial Alterations exceeds the Work
Allowance, the Work Allowance shall be disbursed in the proportion that the Work
Allowance bears to the total cost of the Initial Alterations. If the cost of
the Initial Alterations is less than the Work Allowance, any such unused Work
Allowance shall accrue to the sole benefit of Landlord.
2. LEASEHOLD IMPROVEMENT LOAN. In the event that Tenant has used the
entire eighty-one thousand three hundred ten and 50/100 dollars ($81,310.50)
Work Allowance for the performance of Initial Alterations, Tenant, provided it
is not in default under this Lease, shall have the right to borrow up to
forty-five thousand one hundred seventy-two and 50/100 dollars ($45,172.50)(the
"Additional Work Allowance") from Landlord in order to help finance the amount
by which the cost of the Initial Alterations exceeds the Work Allowance. Such
Additional Work Allowance shall be disbursed to Tenant in accordance with the
provisions of Section 1. Any Additional Work Allowance borrowed by Tenant
hereunder shall be repaid to Landlord as additional Base Rental in equal monthly
installments over the initial Lease Term, together with interest at an annual
rate of thirteen percent (13%). In addition, the amount of the Security Deposit
to be furnished by Tenant to Landlord shall be increased by the amount of the
Additional Work Allowance actually borrowed by Tenant from Landlord. In the
event that Tenant is in default under this Lease after the expiration of
applicable cure periods, the entire unamortized balance of the Additional Work
Allowance borrowed by Tenant shall become immediately due and payable and,
except to the extent required by applicable law, shall not be subject to
mitigation or reduction in connection with a reletting of the Premises by
Landlord. Upon request by Landlord, Tenant shall enter into an amendment to this
Lease to document any Additional Work Allowance borrowed by Tenant and to
reflect any corresponding increases in the Security Deposit and the Base Rental
to be paid by Tenant hereunder.
3. SIGNAGE.
A. Tenant, at its sole cost and expense, shall have the right to
install a sign on the exterior portion of the east face of the Building (the
"Sign") in a location mutually agreed upon by Landlord and Tenant. Such Sign
shall list the name of Tenant. Tenant, at its sole cost and expense, shall
obtain all necessary building permits and zoning and regulatory approval in
connection with the Sign. All costs of design, materials, fabrication,
installation, supervision of installation, wiring and maintaining and repairing
the Sign will be at Tenant's expense. Tenant
<PAGE>
shall submit to Landlord reasonably detailed drawings of the Sign, including
without limitation, the size, material, shape and lettering for review and
approval by Landlord. Any such Sign shall conform to the standards of design and
motif reasonably established by Landlord for the exterior of the Building and
the Property on which it is located. Tenant shall reimburse Landlord for any
costs associated with Landlord's review and supervision as hereinbefore provided
including, but not limited to, engineers and other professional consultants.
B. Tenant shall be responsible for maintaining the Sign in a first
class manner and, except to the extent any damage is caused by the negligence of
Landlord or any Landlord Related Parties, for all costs of repairing the Sign,
including, without limitation, all cost of repairing or replacing any damaged
portions of the Sign and the cost of replacing any lightbulbs, florescent or
neon tubes or other illumination device. All such work shall be performed with
reasonable prior notice to Landlord by contractors approved by Landlord.
Notwithstanding the foregoing, if Tenant fails to properly maintain and repair
the Sign and such failure continues for thirty (30) days after written notice
from Landlord setting forth the items that are in need or maintenance or repair,
Landlord shall have the right to maintain and repair the Sign with contractors
selected by Landlord and to bill Tenant for the reasonable cost thereof as
additional Rent.
C. Tenant, upon the expiration date or sooner termination of this
Lease, shall remove the Sign and restore any damage to the Property at Tenant's
expense. Such removal and restoration work shall be performed by contractors
reasonably approved by Landlord. In addition, Landlord shall have the right to
remove Tenant's name from the Sign at Tenant's sole cost and expense, if, at any
time during the Lease Term: (1) Tenant assigns this Lease, (2) Tenant sublets
more than 25% of the Premises, (3) Tenant ceases to occupy at least 75% of the
Premises, or (4) Tenant defaults under any term or condition of the Lease and
fails to cure such default within any applicable grace period.
4. RIGHT OF REFUSAL.
A. Tenant shall have the one time right of refusal with respect to
any space that comes available for lease in the Building, ( the "Refusal
Space"). Tenant's right with respect to the Refusal Space on the first (1st)
floor of the Building shall be a right of first refusal. Tenant's right with
respect to the Refusal Space on the third (3rd) floor of the Building shall be a
right of second refusal, subject and subordinate to the rights of Environmental
Resourse Management. In addition, if Landlord provides Tenant with an Advice
that contains expansion rights (whether such rights are described as an
expansion option, right of first refusal, right to first offer or otherwise) and
Tenant does not exercise its Right of First Refusal to lease the Refusal Space
described in the Advice, Tenant's Right of First Refusal shall be subject and
subordinate to all such expansion rights contained in the Advice.
Tenant's right of refusal shall be exercised as follows: when Landlord
has a prospective tenant ("Prospect") interested in leasing all or any portion
of the Refusal Space, Landlord shall advise Tenant (the "Advice") of the terms
under which Landlord is prepared to lease the Refusal Space to such Prospect and
Tenant may lease the Refusal Space, under such terms, by providing Landlord with
written notice of exercise ("Notice of Exercise") within five (5) business days
after the date of the Advice. If the Refusal Space is located on the third
floor, Landlord may either postpone sending Tenant an Advice until after the
Refusal Space has been offered to Environmental Resource Management or
simultaneously send Tenant an Advice, which Advice will be subject to the
superior rights of Environmental Resource Management. Notwithstanding the
foregoing, Tenant shall have no such Right of Refusal and Landlord need not
provide Tenant with an Advice if:
1. Tenant is in default under the Lease at the time Landlord would
otherwise deliver the Advice; or
2. the Premises, or any portion thereof, is sublet at the time
Landlord would otherwise deliver the Advice; or
3. the Lease has been assigned prior to the date Landlord would
otherwise deliver the Advice; or
4. the Refusal Space is not intended for the exclusive use of
Tenant during the Lease Term; or
<PAGE>
5. the Tenant is not occupying the Premises on the date Landlord
would otherwise deliver the Advice.
B. The term for the Refusal Space shall commence upon the
commencement date stated in the Advice and thereupon such Refusal Space shall be
considered a part of the Premises, provided that all of the terms stated in the
Advice (including, without limitation, the expiration date set forth in the
Advice) shall govern Tenant's leasing of the Refusal Space and only to the
extent that they do not conflict with the Advice, the terms and conditions of
this Lease shall apply to the Refusal Space. Notwithstanding the foregoing, if
the lease term for the Refusal Space will expire prior to the Termination Date
of this Lease, Landlord, to the extent it is able to do so without violating the
rights of any other tenant in the Building, shall work together with Tenant in
good faith to agree upon the terms under which Tenant may lease the Refusal
Space for a term that expires coterminously with the Termination Date. The
Refusal Space (including improvements and personalty, if any) shall be accepted
by Tenant in its condition and as-built configuration existing on the earlier of
the date Tenant takes possession of the Refusal Space or the date the term for
such Refusal Space commences, unless the Advice specifies work to be performed
by Landlord in the Refusal Space, in which case Landlord shall perform such work
in the Refusal Space.
C. The rights of Tenant hereunder with respect to any portion of
the Refusal Space for which Landlord has a Prospect shall terminate on the
earlier to occur of (i) Tenant's failure to exercise its Right of First Refusal
within the five (5) business day period provided in paragraph A above, and (ii)
the date Landlord would have provided Tenant an Advice if Tenant had not been in
violation of one or more of the conditions set forth in Paragraph A above.
Notwithstanding the foregoing, if (i) Tenant was entitled to exercise its Right
of First Refusal, but failed to provide Landlord with a Notice of Exercise
within the five (5) business day period provided in paragraph A above, and (ii)
Landlord does not enter into a lease for the Refusal Space with the Prospect or
any other prospect within a period of six (6) months following the date of the
Advice, Tenant shall once again have a Right of First Refusal with respect to
such Refusal Space. In addition, Tenant shall once again have the Right of First
Refusal with respect to the Refusal Space if, within such six (6) months period,
Landlord proposes to lease the Refusal Space to the Prospect or any other
Prospect on terms that are substantially different than those set forth in the
Advice. For purposes hereof, the terms offered to a prospect shall be deemed to
be substantially the same as those set forth in the Advice as long as there is
no more than a ten percent (10%) reduction in the "bottom line" cost per
rentable square foot of the Refusal Space to the Prospect when compared with the
"bottom line" cost per rentable square foot under the Advice, considering all of
the economic terms of the both deals, respectively, including, without
limitation, the net rent, any tax or expense escalation or other financial
escalation and any financial concessions. To the extent such rights have not
terminated on an earlier date, Tenant's rights hereunder shall terminate on July
1, 1999.
D.1. If Tenant exercises its Right of First Refusal, Landlord shall
prepare an amendment (the "Refusal Space Amendment") adding the Refusal Space to
the Premises on the terms set forth in the Advice and reflecting the changes in
the Base Rental, square footage of the Premises, Tenant's Pro Rata Share and
other appropriate terms.
2. A copy of the Refusal Space Amendment shall be (i) sent to
Tenant within a reasonable time after Landlord's receipt of the Notice of
Exercise, and (ii) executed by Tenant and returned to Landlord within ten (10)
days thereafter.
5. RENEWAL OPTION.
A. Tenant shall have the right to extend the Lease Term for one
additional period of three (3) years commencing on the day following the
Termination Date of the initial Lease Term and ending on the third (3rd)
anniversary of the Termination Date of the initial Lease Term (the "Renewal
Term"), if:
1. Landlord receives notice of exercise ("Initial Renewal Notice")
not less then twelve (12) full calendar months prior to the expiration
of the initial Lease Term and not more than fifteen (15) full calendar
months prior to the expiration of the initial Lease Term; and
2. Tenant is not in default under the Lease beyond any applicable
cure periods at the time that Tenant delivers its Initial Renewal
Notice or at the time Tenant delivers its
<PAGE>
Binding Renewal Notice; and
3. No part of the Premises is sublet at the time that Tenant
delivers its Initial Renewal Notice or at the time Tenant delivers its
Binding Renewal Notice; and
4. The Lease has not been assigned prior to the date that Tenant
delivers its Initial Renewal Notice or prior to the date Tenant
delivers its Binding Renewal Notice.
B. The initial Base Rental rate per rentable square foot for the
Premises during the Renewal Term shall equal the Prevailing Market (hereinafter
defined) rate per rentable square foot for the Premises.
C. Tenant shall pay Additional Base Rental (i.e. Basic Costs) for
the Premises during the Renewal Term in accordance with the terms and conditions
of the Lease, provided that the eight percent (8%) cap on Controllable Expenses
shall not be applicable during the Renewal Term.
D. Within thirty (30) days after receipt of Tenant's Initial
Renewal Notice, Landlord shall advise Tenant of the applicable Base Rental rate
for the Premises for the Renewal Term. Tenant, within fifteen (15) days after
the date on which Landlord advises Tenant of the applicable Base Rental rate for
the Renewal Term, shall either (i) give Landlord final binding written notice
("Binding Notice") of Tenant's exercise of its option, or (ii) if Tenant
disagrees with Landlord's determination, provide Landlord with written notice of
rejection (the "Rejection Notice"). If Tenant fails to provide Landlord with
either a Binding Notice or Rejection Notice within such fifteen (15) day period,
Tenant's Renewal Option shall be null and void and of no further force and
effect. If Tenant provides Landlord with a Binding Notice, Landlord and Tenant
shall enter into the Renewal Amendment upon the terms and conditions set forth
herein. If Tenant provides Landlord with a Rejection Notice, Landlord and
Tenant shall work together in good faith to agree upon the Prevailing Market
Base Rental rate for the Premises during the Renewal Term. Upon agreement
Tenant shall provide Landlord with Binding Notice and Landlord and Tenant shall
enter into the Renewal Amendment in accordance with the terms and conditions
hereof. Notwithstanding the foregoing, if Landlord and Tenant are unable to
agree upon the Prevailing Market Base Rental rate for the Premises within thirty
(30) days after the date on which Tenant provides Landlord with a Rejection
Notice, Tenant's Renewal Option shall be null and void and of no force and
effect.
E. If Tenant is entitled to and properly exercises its Renewal
Option, Landlord shall prepare an amendment (the "Renewal Amendment") to reflect
changes in the Base Rental, Lease Term, Termination Date and other appropriate
terms. The Renewal Amendment shall be:
1. sent to Tenant within a reasonable time after receipt of the
Renewal Notice; and
2. executed by Tenant and returned to Landlord within fifteen (15)
days thereafter.
F. For purposes hereof, "Prevailing Market" shall mean the arms
length fair market annual rental rate per rentable square foot under renewal
leases and amendments entered into on or about the date on which the Prevailing
Market is being determined hereunder for space comparable to the Premises in the
Building and office buildings comparable to the Building in Ann Arbor, Michigan.
The determination of Prevailing Market shall take into account any material
economic differences between the terms of this Lease and any comparison lease,
such as rent abatements, construction costs and other concessions and the
manner, if any, in which the landlord under any such lease is reimbursed for
operating expenses and taxes. The determination of Prevailing Market shall also
take into consideration any reasonably anticipated changes in the Prevailing
Market rate from the time such Prevailing Market rate is being determined and
the time such Prevailing Market rate will become effective under this Lease.
6. RULES AND REGULATIONS. Notwithstanding anything to the contrary in
rule #7 of the Rules and Regulations attached to this Lease as Exhibit C, Tenant
shall be permitted to store bicycles in the first floor portion of the Premises
so long as (i) Tenant uses the side entrance of the Building for the purpose of
bringing any bicycles into the first floor portion of the Premises,
<PAGE>
and (ii) bringing such bicycles through the Building into the first floor
portion of the Premises does not unreasonably disturb any of the other tenants
and occupants of the Building.
7. BROKERAGE COMMISSION. Landlord and Tenant acknowledge that the Base
Rental set forth in Section I.A.2. of the Lease assumes that (i) Landlord will
pay the brokerage commission due to Friedman Real Estate Group in connection
with this Lease, and (ii) Tenant will repay Landlord for such commission as part
of Base Rental at the rate of (a) $632.41 per month with respect to the first
twenty-four (24) months of the Lease Term and (b) $647.47 per month with respect
to the second twenty-four (24) months of the Lease Term. Notwithstanding the
foregoing, Tenant, by notice to Landlord within fifteen (15) days after the full
and final execution of this Lease, shall have the right to pay such brokerage
commission directly to Friedman Real Estate Group. If Tenant elects to pay such
commission directly to Friedman Real Estate Group and, in addition, provides
Landlord with a waiver of claims from Friedman Real Estate Group on a form
reasonably acceptable to Landlord, the Base Rental schedule set forth in Section
I.A.2. shall automatically be amended to be as follows:
2. "Base Rental" shall mean the sum of one million two hundred
forty-seven thousand one hundred twenty-two and 56/100 dollars
($1,247,122.56), payable by Tenant to Landlord in forty-eight
(48) monthly installments as follows:
a. twenty-four (24) equal installments of twenty-five
thousand six hundred twelve and 81/100 dollars ($25,612.81),
each payable on or before the first day of each month during
the period beginning on the Commencement Date and ending on the
day prior to the second (2nd) anniversary of the Commencement
Date.
b. twenty-four (24) equal installments of twenty-six thousand
three hundred fifty and 63/100 dollars ($26,350.63), each
payable on or before the first day of each month during the
period beginning on the second (2nd) anniversary of the
Commencement Date and ending on the day prior to the fourth
(4th) anniversary of the Commencement Date.
In order to be acceptable to Landlord, any waiver from Friedman Real
Estate Group must contain (i) a statement from Friedman Real Estate Group
acknowledging that it has been paid in full for any and all commissions and
other sums due in connection with this Lease, and (ii) a waiver or any and all
claims against Landlord in connection with this Lease.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in multiple
original counterparts as of the day and year first above written.
WITNESS/ATTEST:
LANDLORD: BURLINGTON ASSOCIATES GENERAL
PARTNERSHIP, an Illinois General
Partnership
BY: EQUITY OFFICE HOLDINGS, L.L.C., a
Delaware limited liability company, as
agent
- -----------------------------------
Name (print): Angel Rivera By:
- ----------------------------------- -------------------------------------
Name: Eric Marx
- ----------------------------------- -----------------------------------
Name (print): Title: Vice President
---------------------- ----------------------------------
Date: 5/20/96
----------------------------------
WITNESS/ATTEST:
TENANT: NETWORK EXPRESS, INC., a
Michigan corporation
- ---------------------------------
Name(print): R. Hawkins By:
--------------------- -------------------------------------
Name: John R. Ternes
- --------------------------------- -----------------------------------
Name(print): Title: V P Finance & CFO
--------------------- ----------------------------------
Date: 5/20/96
----------------------------------
<PAGE>
and (ii) bringing such bicycles through the Building into the first floor
portion of the Premises does not unreasonably disturb any of the other tenants
and occupants of the Building.
7. BROKERAGE COMMISSION. Landlord and Tenant acknowledge that the Base
Rental set forth in Section I.A.2. of the Lease assumes that (i) Landlord will
pay the brokerage commission due to Friedman Real Estate Group in connection
with this Lease, and (ii) Tenant will repay Landlord for such commission as part
of Base Rental at the rate of (a) $632.41 per month with respect to the first
twenty-four (24) months of the Lease Term and (b) $647.47 per month with respect
to the second twenty-four (24) months of the Lease Term. Notwithstanding the
foregoing, Tenant, by notice to Landlord within fifteen (15) days after the full
and final execution of this Lease, shall have the right to pay such brokerage
commission directly to Friedman Real Estate Group. If Tenant elects to pay such
commission directly to Friedman Real Estate Group and, in addition, provides
Landlord with a waiver of claims from Friedman Real Estate Group on a form
reasonably acceptable to Landlord, the Base Rental schedule set forth in Section
I.A.2. shall automatically be amended to be as follows:
2. "Base Rental" shall mean the sum of one million two hundred
forty-seven thousand one hundred twenty-two and 56/100 dollars
($1,247,122.56), payable by Tenant to Landlord in forty-eight
(48) monthly installments as follows:
a. twenty-four (24) equal installments of twenty-five
thousand six hundred twelve and 81/100 dollars ($25,612.81),
each payable on or before the first day of each month during
the period beginning on the Commencement Date and ending on the
day prior to the second (2nd) anniversary of the Commencement
Date.
b. twenty-four (24) equal installments of twenty-six thousand
three hundred fifty and 63/100 dollars ($26,350.63), each
payable on or before the first day of each month during the
period beginning on the second (2nd) anniversary of the
Commencement Date and ending on the day prior to the fourth
(4th) anniversary of the Commencement Date.
In order to be acceptable to Landlord, any waiver from Friedman Real
Estate Group must contain (i) a statement from Friedman Real Estate Group
acknowledging that it has been paid in full for any and all commissions and
other sums due in connection with this Lease, and (ii) a waiver or any and all
claims against Landlord in connection with this Lease.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease in multiple
original counterparts as of the day and year first above written.
WITNESS/ATTEST:
LANDLORD: BURLINGTON ASSOCIATES GENERAL
PARTNERSHIP, an Illinois General
Partnership
BY: EQUITY OFFICE HOLDINGS, L.L.C., a
Delaware limited liability company, as
agent
_________________________________
Name (print):____________________ By:_____________________________________
_________________________________ Name:___________________________________
Name (print):____________________ Title:__________________________________
Date:___________________________________
WITNESS/ATTEST:
TENANT: NETWORK EXPRESS, INC., a
Michigan corporation
_________________________________
Name(print):_____________________ By:_____________________________________
_________________________________ Name:___________________________________
Name(print):_____________________ Title:__________________________________
Date:__________________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000771983
<NAME> First Capital Income Properties, LTD. - Series XI
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,372,900
<SECURITIES> 0
<RECEIVABLES> 624,400
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0
0
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<TOTAL-LIABILITY-AND-EQUITY> 43,459,800
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<TOTAL-REVENUES> 11,264,700
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<TOTAL-COSTS> 5,313,000
<OTHER-EXPENSES> 184,500
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