<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, 1998
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OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 1000, 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
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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
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<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 Partnership was formed 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. The joint ventures, prior to
dissolution, are operated under the common control of First Capital Financial
Corporation (the "General Partner"). Through December 31, 1998, the
Partnership, with its respective joint venture partners, has dissolved two 50%
joint ventures 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 a 50% joint venture interest to an Affiliated partner.
Property management services for certain of the Partnership's real estate
investments are provided by third-party real estate management companies for
fees calculated as a percentage of gross rents received from the properties. In
addition, an Affiliate of the General Partner provides property management
services for fees calculated as a percentage of gross rents received for one of
the Partnership's office properties. Affiliates of the General Partner provide
property supervisory services for all 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, 1999, there were 26 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, 1998, the Partnership owned directly or through joint
ventures, the following three properties, all of which were owned in fee simple
and encumbered by mortgages. For details of the material terms of the
mortgages, refer to Note 4 of Notes to Financial Statements.
<TABLE>
<CAPTION>
Net Leasable Number of
Property Name Location Sq. Footage Tenants (c)
- ------------------------------------------ ------------------------ ----------------------- -------------------
<S> <C> <C> <C>
Shopping Center:
- ----------------
Marquette Mall and Office Building Michigan City, Indiana 398,104 87 (1)
Office Buildings:
- -----------------
Burlington Office Center I, II and III (d) Ann Arbor, Michigan 173,215 33 (4)
Prentice Plaza (50%) Englewood, Colorado 157,311 32 (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") and Prentice Plaza was
$606,800, $448,200 and $233,100, respectively, for the year ended December
31, 1998. 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 a 70% preferred majority undivided interest in a 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 property's occupancy
rates as of December 31 for each of the last five years:
<TABLE>
<CAPTION>
Property Name 1998 1997 1996 1995 1994
- ---------------------- --------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Marquette 82% 80% 83% 83% 79%
Burlington 88% 97% 96% 78% 91%
Prentice Plaza 100% 95% 98% 99% 97%
</TABLE>
The amounts in the following table represent each of the Partnership's
property's 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 1998 1997 1996 1995 1994
- ---------------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Marquette $ 7.08 $ 7.17 $ 6.90 $ 6.74 $ 6.85
Burlington $17.83 $17.58 $17.32 $18.04 $17.23
Prentice Plaza $17.48 $15.68 $14.91 $14.31 $13.65
</TABLE>
4
<PAGE>
ITEM 2. PROPERTIES (Continued)
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The following table summarizes the principal provisions of the leases for each
of the tenants which occupy ten percent or more of the leasable square footage
at each of the Partnership's properties:
<TABLE>
<CAPTION>
Partnership's Share of per Percentage Renewal
annum Base Rents (a) for of Net Options
-------------------------------------- Leasable (Renewal
Final Twelve Expiration Square Footage Options /
1999 Months of Lease Date of Lease Occupied Year
---------------- ----------------- ------------- -------------- ----------------
<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) $ 375,700 $ 375,700 7/31/2000 12% 1 / 3
Washtenaw Mortgage Company
(mortgage broker) $ 224,400 284,200 8/31/2001 10% None
University of Michigan
(spinal research) $ 357,000 $ 375,100 9/30/2003 11% None
Dykema Gossett
(law firm) $ 333,300 $ 338,800 3/31/2001 10% 1 / 5
Prentice Plaza
- --------------
ANTEC
(design, engineering,
manufacturing and
distribution of cable
television products) $ 113,200 $ 150,900 9/30/1999 11% 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 1999 and the final twelve months
for each of the above leases is no lesser or greater than the amounts
listed in the above table.
5
<PAGE>
ITEM 2. PROPERTIES (Continued)
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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 ending December 31, 2008:
<TABLE>
<CAPTION>
Base Rents in
Number Year of % of Total
Year of Tenants Square Feet Expiration (a) Base Rents (b)
- -------------- ----------------- ----------------- -------------------- ---------------
<S> <C> <C> <C> <C>
1999 65 141,377 $946,400 16.84%
2000 34 107,023 $939,000 21.58%
2001 22 75,564 $682,800 23.32%
2002 7 33,485 $346,900 16.06%
2003 9 165,137 $666,900 45.90%
2004 6 9,109 $166,200 22.03%
2005 3 29,055 $101,500 16.96%
2006 0 None None 0%
2007 2 83,480 $ 31,000 7.22%
2008 3 23,652 $314,200 84.22%
</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, 1998.
ITEM 3. LEGAL PROCEEDINGS
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(a & b) In July 1998, the Partnership was named as a defendant in a cost
recovery action for a superfund site related to Marquette. In October 1998, the
case against the Partnership was voluntarily dismissed by the plaintiff as a
result of the Partnership demonstrating that all of the disposal activities
predated the Partnership's ownership of Marquette.
With the exception of the above, 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, 1998.
Ordinary routine legal matters incidental to the business which was not deemed
material were pursued during the quarter ended December 31, 1998.
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, 1999, there were 4,532 Holders of Units.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 9,134,200 $10,926,100 $11,264,700 $10,436,500 $ 10,995,500
Net income (loss) $ 214,100 $ 1,280,900 $ 241,900 $(7,553,400) $(10,580,500)
Net income (loss)
allocated to Limited
Partners None None None $(5,330,200) $(10,474,700)
Net income (loss)
allocated to Limited
Partners per Unit
(57,621 Units
outstanding) None None None $ (92.50) $ (181.79)
Total assets $36,930,500 $36,756,800 $43,459,800 $49,323,600 $ 55,551,600
Mortgage loans payable $25,646,200 $26,735,900 $34,803,200 $41,189,600 $ 40,369,100
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) $31,663,000 $32,428,200 $40,962,400 $46,724,100 $ 52,648,100
Number of real property
interests owned at
December 31 3 3 4 5 5
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Excludes deferred interest payable.
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,
---------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash Flow (deficit) (as
defined in the
Partnership Agreement)
(a) $ 615,700 $ 534,600 $ 152,200 $ (241,700) $ 18,900
Items of reconciliation:
Principal payments on
mortgage loans payable 1,089,700 653,700 923,200 630,100 551,700
Changes in current
assets and
liabilities:
(Increase) decrease in
current assets (130,800) 48,200 64,100 (53,800) 304,900
Increase (decrease) in
current liabilities 380,800 (256,800) (31,500) (100,700) (125,600)
- ------------------------------------------------------------------------------------------
Net cash provided by
operating activities $ 1,955,400 $ 979,700 $ 1,108,000 $ 233,900 $ 749,900
- ------------------------------------------------------------------------------------------
Net cash (used for)
provided by investing
activities $(2,141,600) $ 6,925,100 $ 4,810,400 $(1,227,500) $ 3,392,500
- ------------------------------------------------------------------------------------------
Net cash (used for)
provided by financing
activities $ (421,200) $(7,580,200) $(5,877,100) $ 712,600 $(3,981,900)
- ------------------------------------------------------------------------------------------
</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-8
in this report and the supplemental schedule on pages A-9 and A-10.
8
<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.
Statements contained in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, which are not historical facts, may be
forward-looking statements. Such statements are subject to certain risks and
uncertainties, which could cause actual results to differ materially from those
projected. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date hereof.
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, 1998 the Partnership, with its
respective joint venture partners, has dissolved two joint ventures 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 a 50% joint venture interest to
an Affiliated partner.
OPERATIONS
The table below is a recap of certain operating results of each of the
Partnership's properties for the years ended December 31, 1998, 1997 and 1996.
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,
--------------------------------
1998 1997 1996
- -----------------------------------------------------
<S> <C> <C> <C>
MARQUETTE MALL AND OFFICE BUILDING
Rental revenues $4,319,600 $4,141,100 $4,141,000
- -----------------------------------------------------
Property net income $ 291,900 $ 99,400 $ 131,100
- -----------------------------------------------------
Average occupancy 81% 82% 83%
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Comparative Operating Results
(a)
For the Years Ended December 31,
---------------------------------
1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
BURLINGTON OFFICE CENTER I, II AND III
Rental revenues $3,075,400 $3,231,700 $2,766,400
- --------------------------------------------------------------
Property net income (loss) $ 291,000 $ 337,200 $ (180,200)
- --------------------------------------------------------------
Average occupancy 88% 96% 84%
- --------------------------------------------------------------
PRENTICE PLAZA (50%)
Rental revenues $1,468,600 $1,253,500 $1,270,700
- --------------------------------------------------------------
Property net income (loss) $ 173,200 $ (114,800) $ (19,900)
- --------------------------------------------------------------
Average occupancy 96% 96% 99%
- --------------------------------------------------------------
SOLD PROPERTIES (B)
Rental revenues $ 570,000 $2,208,100
- --------------------------------------------------------------
Property net income $ 35,700 $ 265,800
- --------------------------------------------------------------
</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) Sold Properties includes the results of Regency Park Shopping Center
("Regency"), sold in 1997, and Sentry Park West Office Campus ("Sentry
West"), sold in 1996. Property net income excludes the gains recorded on
these sales (see Note 7 of Notes to Financial Statements for additional
information).
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997
Net income decreased by $1,066,800 for the year ended December 31, 1998 when
compared to the year ended December 31, 1997. The decrease was primarily due to
the 1997 gain recorded on the sale of Regency. The decrease was also due to the
absence of operating results in 1998 due to the sale of Regency. The decrease
was partially offset by improved operating results at Marquette Mall and Office
Building ("Marquette") and Prentice Plaza.
Net results, exclusive of Sold Properties, changed from $(353,600) for the year
ended December 31, 1997 to $214,100 for the year ended December 31, 1998. The
change was primarily due to the improved operating results at Marquette and
Prentice Plaza. The change was also due to an increase in interest earned on
the Partnership's short-term investments, which was due to an increase in cash
available for investment. The change was partially offset by diminished
operating results at Burlington Office Center I, II & III ("Burlington").
The following comparative discussion excludes the results of Sold Properties.
Rental revenues increased by $237,300 or 2.8% for the year ended December 31,
1998 when compared to the year ended December 31, 1997. The increase was
primarily due to an
9
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
increase in base rental income at Prentice Plaza, which was due to an increase
in rates charged to new and renewing tenants. The increase was also due to an
increase in tenant expense reimbursements at Marquette. The increase was
partially offset by a decrease in base rental revenues at Burlington, which was
due to the loss of a significant tenant at Burlington I. During the third
quarter of 1998, this vacant space was leased for five years. The tenant began
paying rent during December.
Mortgage interest expense decreased by $160,600 for the year ended December 31,
1998 when compared to the year ended December 31, 1997. The decrease was
primarily due to the effects of the 1997 refinancing of the mortgage loan
collateralized by Burlington, which resulted in a lower average interest rate.
The effects of principal reductions on the mortgage loans collateralized by
Marquette also contributed to the decrease.
Repair and maintenance expense decreased by $55,400 for the year ended December
31, 1998 when compared to the year ended December 31, 1997. The decrease was
primarily due to a decrease in costs associated with snow removal at Burlington
and in general repairs to the elevators and HVAC at Prentice Plaza.
Real estate tax expense increased by $85,000 for the year ended December 31,
1998 when compared to the year ended December 31, 1997. The increase was
primarily due to an underestimate of 1997 real estate taxes for Marquette,
adjusted during 1998. The increase was also due to an increase in real estate
taxes at Marquette. The increase was partially offset by a decrease in real
estate taxes at Prentice Plaza.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 TO THE YEAR ENDED DECEMBER 31,
1996
Net income increased by $1,039,000 for the year ended December 31, 1997 when
compared to the year ended December 31, 1996. The increase was primarily due to
a larger gain recorded in 1997 on the sale of Regency when compared to the gain
recorded on the 1996 sale of Sentry West. Also contributing to the increase was
improved operating results at Burlington. The increase was partially offset by
the absence of operating results in 1997 due to the 1996 sale of Sentry West.
Net operating results, exclusive of the gains on sale and operating results of
the Sold Properties, improved by $486,400. The improvement was primarily due to
the improved operating results at Burlington. Also contributing to the
improvement was an increase in interest income earned on the Partnership's
short-term investments resulting from the proceeds from the sale of Regency
being added to the amounts available for investment. Partially offsetting the
improvement was diminished operating results at Prentice Plaza and Marquette.
The following comparative discussion excludes the results of the Sold
Properties.
Rental revenues increased by $448,200 or 5.5% for the year ended December 31,
1997 when compared to the year ended December 31, 1996. The increase was
primarily due to the increase in base rental income at Burlington which was due
to the successful leasing of the majority of the vacant space in Burlington III
during 1996. Also contributing to the increase was a receipt in 1997 of
consideration for an early lease termination at Prentice Plaza. The increase
was partially offset by a decrease in tenant expense reimbursements at Prentice
Plaza due to the successful appeal of 1996 real estate taxes which resulted in
a 1997 credit against amounts due from tenants for tenant expense
reimbursements.
Interest expense decreased by $170,300 for the year ended December 31, 1997
when compared to the year ended December 31, 1996. The decrease was primarily
due to a decrease in the average effective interest rate on the mortgage loan
collateralized by Burlington.
Real estate tax expense increased by $37,800 for the year ended December 31,
1997 when compared to the year ended December 31, 1996. The increase was
primarily due to the 1996 receipt of refunds for 1995 real estate taxes at
Prentice Plaza. Refunds received in 1997 at Prentice Plaza for 1996 taxes were
offset by a significant increase in real estate taxes which was due to a
reassessment of the taxing authorities value of Prentice Plaza. Partially
offsetting the increase was a decrease in expense at Marquette, which was due
to an overestimate of 1996 real estate taxes, adjusted in 1997.
Depreciation and amortization increased by $87,600 for the year ended December
31, 1997 when compared to the year ended December 31, 1996. The increase was
primarily due to the depreciable assets placed in service at Burlington during
the past 24 months exceeding the depreciable assets whose lives expired during
1996 and 1997.
Repair and maintenance expenses increased by $48,900 for the year ended
December 31, 1997 when compared to the year ended December 31, 1996. The
increase was primarily due to an increase in janitorial services at Burlington
due to the increase in the average occupancy and an increase in salaries.
Property operating expenses increased by $52,600 for the year ended December
31, 1997 when compared to the year ended December 31, 1996. The increase was
primarily due to an increase in professional services, advertising and
promotional expenses at Marquette. The increase in professional services at
Marquette was due to expenses incurred in the exploration of a possible sale
and/or refinancing of the property.
To increase and/or maintain occupancy levels at the Partnership's properties,
the General Partner, through its 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
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
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 or cash flows as determined 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 or cash flows as determined 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 $81,100
for the year ended December 31, 1998 when compared to the year ended December
31, 1997 was primarily due to the improvement in operating results, as
previously discussed, exclusive of depreciation, amortization and gain on the
sale of property. The increase was partially offset by an increase in regularly
scheduled principal payments made on the Partnership's mortgage loans.
The decrease of $607,400 in the Partnership's cash position for the year ended
December 31, 1998 was primarily the result of payments for capital and tenant
improvements, principal amortization of mortgage debt and investments in debt
securities exceeding net cash provided by operating activities. The liquid
assets of the Partnership as of December 31, 1998 were comprised of amounts
held for working capital purposes.
Net cash provided by operating activities increased by $975,700 for the year
ended December 31, 1998 when compared to the year ended December 31, 1997. The
increase was due to improved operating results, exclusive of depreciation,
amortization and gain on sale of property, as previously discussed. The
increase was also due to the timing of the payment of certain expenses at
Burlington.
Net cash provided by (used for) investing activities changed from $6,995,100
for the year ended December 31, 1997 to $(2,141,600) for the year ended
December 31, 1998. The change was primarily due to proceeds received in 1997
from the sale of Regency.
Investments in debt securities is a result of the extension of the maturities
of certain of the Partnership's short-term investments in an effort to maximize
the return on these amounts while they are held for working capital purposes.
These investments are of investment-grade and mature less than one year from
their date of purchase.
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, 1998, the Partnership spent $633,500 for building
and tenant improvements and leasing costs and has budgeted to spend
approximately $400,000 during 1999. Included in the 1999 budget are building
and tenant improvements and leasing costs of approximately $200,000 at
Marquette and $175,000 at Prentice Plaza. 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.
Net cash used for financing activities decreased by $7,159,000 for the year
ended December 31, 1998 when compared to the year ended December 31, 1997. The
decrease was primarily due to the 1997 repayment of a mortgage loan with a
portion of the proceeds from the sale of Regency. The decrease was partially
offset by an increase in principal amortization payments on the mortgage loans
collateralized by Marquette.
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 an 84-month period beginning January
1, 1993. In addition, any interest payments paid by the Partnership from
January 1, 1993 through December 31, 1999 may be borrowed from this Affiliate.
All deferred and subsequently borrowed amounts (including accrued interest
thereon) shall be due and payable on January 1, 2000, and is not subordinated
to payment of Original Capital Contributions to Limited Partners. As of
December 31, 1998, the Partnership has deferred the payment of $1,967,000 of
interest.
The junior mortgage collateralized by Marquette with a balance of $7,220,000 as
of December 31, 1998, matures on September 30, 1999. This loan contains a
prohibition on the payment of distributions to Partners and is recourse to the
Partnership. The Partnership is currently evaluating possible alternative
financing. There can be no assurance that these efforts will be successful.
The Year 2000 problem is the result of the inability of existing computer
programs to distinguish between a year beginning with "20" rather than "19".
This is the result of computer programs using two rather than four digits to
define an applicable year. If not corrected, any program having time sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a variety of problems including miscalculations,
loss of data and failure of entire systems. Critical areas that could be
effected are accounts receivable and rent collections, accounts payable,
general ledger, cash management, fixed assets, investor services, computer
hardware, telecommunications systems and health, security, fire and safety
systems.
The Partnership has engaged Affiliated and unaffiliated entities to perform all
of its critical functions that utilize software that may have time-sensitive
applications. All of these service providers are providing these services for
their
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS--(CONTINUED)
own organizations as well as for other clients. The General Partner, on behalf
of the Partnership, has been in close communications with each of these service
providers regarding steps that are being taken to assure that there will be no
serious interruption of the operations of the Partnership resulting from Year
2000 problems. Based on the results of the inquiries, as well as a review of
the disclosures by these service providers, the General Partner believes that
the Partnership will be able to continue normal business operations and will
incur no material costs related to Year 2000 issues.
The Partnership has not formulated a contingency plan. However, the General
Partner believes that based on the size of the Partnership's portfolio and its
limited number of transactions, aside from catastrophic failure of banks,
government agencies, etc., it could carry out substantially all of its critical
operations on a manual basis or easily convert to systems that are Year 2000
compliant.
The Partnership continues to face significant short-term financial issues. In
addition to substantial payment requirements on its mortgage loans
collateralized by the Partnership's properties, the junior mortgage loan
collateralized by Marquette matures in September 1999. Failure to secure a
replacement mortgage or generate sufficient cash to repay the mortgage at its
maturity date could result in the current lender foreclosing on the property.
The Partnership anticipates incurring substantial capital and tenant
improvement and leasing costs during 1999 in connection with ongoing required
maintenance of the Partnership's properties. Net cash provided by operating
activities might not be sufficient to meet the above capital expenditure
requirements for the year ending December 31, 1999. As a result of this issue,
together with the prohibition on distributions to Limited Partners contained in
the junior mortgage loan collateralized by Marquette and the mortgage loan
collateralized by Burlington, the General Partner believes that it is in the
best interest of the Partnership to retain all cash available. Accordingly
distributions to Limited Partners continue to be suspended. For the year ended
December 31, 1998, Cash Flow (as defined in the Partnership Agreement) of
$615,700 was retained to supplement working capital reserves.
The General Partner continues to review other sources of cash available to the
Partnership, which include the possible refinancing or sale of certain of the
Partnership properties. While there can be no assurance as to the timing or
successful completion of any future transactions or as to the properties'
future operating results, the General Partner currently believes that the
amount of the Partnership's existing cash reserves, future Cash Flow (as
defined in the Partnership Agreement) to be earned as well as additional
proceeds to be received from any sale, disposition or refinancing of any
properties or any mortgage loan modifications or extensions are sufficient to
cover planned expenditures for the ensuing twelve month period.
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 Contribution.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
With the exception of variable rate mortgage debt, the Partnership has no
financial instruments for which there are significant risks. Based on variable
rate debt outstanding as of December 31, 1998, for every 1% change in interest
rates, the Partnership's annual interest expense would change by $229,700. Due
to the timing of the maturities and liquid nature of its investments in debt
securities, the Partnership believes that it does not have material risk.
12
<PAGE>
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.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
(a) & (e) DIRECTORS
---------
The Partnership has no directors. First Capital Financial Corporation
("FCFC") is the General Partner. The directors of FCFC, as of March 31, 1999,
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
1999.
Name Office
---- ------
Douglas Crocker II...................................... Director
Sheli Z. Rosenberg...................................... Director
Douglas Crocker II, 58, has been President and Chief Executive Officer since
December 1992 and a Director since January 1993 of the General Partner. Mr.
Crocker has been President, Chief Executive Officer and trustee of Equity
Residential Properties Trust since March 31, 1993. Mr. Crocker is a member of
the Board of Directors of Wellsford Real Properties, Inc. and Ventas Inc. and
was a member of the Board of Directors of Horizon Group, Inc. from July 1996
to June 1998. Mr. Crocker was an Executive Vice President of Equity Financial
and Management Company ("EFMC") from November 1992 until March 1997.
Sheli Z. Rosenberg, 57, 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 Equity Group Investments, LLC ("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., Capital Trust Inc., CVS Corporation, Illinova Corporation,
Illinois Power Co., Jacor Communications, Inc., and Manufactured Home
Communities, Inc. She is also a trustee of Equity Residential Properties
Trust and Equity Office Properties Trust. Ms. Rosenberg was a Principal of
Rosenberg & Liebentritt, P.C., counsel to the Partnership, the General Partner
and certain of their Affiliates from 1980 until September 1997. 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.
14
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (continued)
- -------- --------------------------------------------------------------
(b) & (e) EXECUTIVE OFFICERS
------------------
The Partnership does not have any executive officers. The executive officers
of the General Partner as of March 31, 1999 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
Donald J. Liebentritt.............................. Vice President
Norman M. Field.................................... Vice President - Finance
and Treasurer
PRESIDENT AND CEO - See Table of Directors above.
Donald J. Liebentritt, 48, has been Vice President of the General Partner
since July 1997 and is Chief Operating Officer and General Counsel of EGI,
Vice President and Assistant Secretary of Great American and Principal and
Chairman of the Board of Rosenberg & Liebentritt, P.C.
Norman M. Field, 50, has been Vice President of Finance and Treasurer of the
General Partner since February 1984, and also served as Vice President of
Great American from July 1983 until March 1995 and from July 1997 to the
present. Mr. Field had been Treasurer of Benefit Administrators since July
22, 1987 until its liquidation in November 1995. He was Chief Financial
Officer of Equality Specialties, Inc. ("Equality"), a subsidiary of Great
American, from August 1994 to 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)
and (e), there are no involvements in certain legal proceedings among any of
the foregoing directors and officers.
15
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
(a - 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, 1998. However, the General Partner and its
Affiliates do compensate its directors and officers.
For additional information see Item 13 Certain Relationships and Related
Transactions.
(e) None.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(a) As of March 1, 1999, 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, 1999,
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, 1998, these Affiliates were entitled to leasing fees and
property management and supervisory fees of $85,800. In addition, other
Affiliates of the General Partner were entitled to fees and compensation of
$128,700 for insurance, personnel and other services. As of December 31,
1998, $3,800 of these fees and reimbursements due to Affiliates were unpaid
and $15,500 was due from Affiliates. 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, 1998 an Affiliate of the General Partner was
entitled to interest on the Partnership's Front-End Fees loan in the amount
of $640,800. 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 an 84-month period beginning January 1, 1993. All deferred
amounts (including accrued interest thereon) shall be due and payable on
January 1, 2000, 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 Partnership elected to defer
payment of interest. As of December 31, 1998, the total deferred interest
was $1,967,000.
16
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
- ------- ----------------------------------------------------------
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, 1998, the General Partner was allocated Net Profits
of $214,100.
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 18.5% owned by Anixter International Inc., 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, 1998,
the Partnership's share of ANTEC's rent was $177,800. 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 mobile 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, 1998, the Partnership's share of MHC's rent was $39,000. 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. Donald J.
Liebentritt, Vice President, is a Principal and the Chairman of the Board
of Rosenberg. For the year ended December 31, 1998, Rosenberg was entitled
to $91,600 for legal fees from the Partnership. 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. As of December 31, 1998, $1,500 is due to Rosenberg.
(c) No management person is indebted to the Partnership.
(d) None
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,
1998.
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 26, 1999 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.
/s/ DOUGLAS CROCKER II March 26, 1999 President, Chief Executive
- ---------------------------- -------------- Officer and Director of the
DOUGLAS CROCKER II General Partner
/s/ SHELI Z. ROSENBERG March 26, 1999 Director of the General Partner
- ---------------------------- --------------
SHELI Z. ROSENBERG
/s/ DONALD J. LIEBENTRITT March 26, 1999 Vice President
- ---------------------------- --------------
DONALD J. LIEBENTRITT
/s/ NORMAN M. FIELD March 26, 1999 Vice President - Finance and
- ---------------------------- -------------- Treasurer
NORMAN M. FIELD
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, 1998 and 1997 A-3
Statements of Partners' (Deficit) for the Years
Ended December 31, 1998, 1997 and 1996 A-3
Statements of Income and Expenses for the Years
Ended December 31, 1998, 1997 and 1996 A-4
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 A-4
Notes to Financial Statements A-5 to A-8
SCHEDULE FILED AS PART OF THIS REPORT
III - Real Estate and Accumulated Depreciation
as of December 31, 1998 A-9 and A-10
</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 attached as an exhibit to this Report
on Form 10-K.
Real Estate Sale Agreement and Closing Documents for the sale of the
Partnership's investment in Regency Park Shopping Center filed as an exhibit to
the Partnership's Report on Form 8-K filed on June 26, 1997 is incorporated
herein by reference.
EXHIBIT (13) Annual Report to Security Holders
- ------------
The 1997 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, 1998 and 1997, and the related
statements of income and expenses, partners' (deficit) and cash flows for each
of the three years in the period ended December 31, 1998. Our audit also
included 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, 1998 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1998, 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
February 26, 1999
A-2
<PAGE>
BALANCE SHEETS
December 31, 1998 and 1997
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in commercial rental properties:
Land $ 6,070,100 $ 6,070,100
Buildings and improvements 42,793,500 42,160,000
- -----------------------------------------------------------------------------
48,863,600 48,230,100
Accumulated depreciation and amortization (17,200,600) (15,801,900)
- -----------------------------------------------------------------------------
Total investment properties, net of accumulated
depreciation and amortization 31,663,000 32,428,200
Cash and cash equivalents 1,160,100 1,767,500
Investments in debt securities 2,995,700 1,487,600
Rents receivable 811,900 666,100
Other assets (including loan acquisition costs,
net of accumulated amortization of $568,500 and
$475,900, respectively) 299,800 407,400
- -----------------------------------------------------------------------------
$ 36,930,500 $ 36,756,800
- -----------------------------------------------------------------------------
LIABILITIES AND PARTNERS' (DEFICIT)
Liabilities:
Mortgage loans payable $ 25,646,200 $ 26,735,900
Front-End Fees loan payable to Affiliate 8,295,200 8,295,200
Accounts payable and accrued expenses 1,294,100 1,065,200
Due to Affiliates, net 1,956,800 1,311,500
Security deposits 211,500 183,800
Other liabilities 301,900 154,500
- -----------------------------------------------------------------------------
37,705,700 37,746,100
- -----------------------------------------------------------------------------
Partners' (deficit):
General Partner (deficit) (775,200) (989,300)
Limited Partners (57,621 Units issued and
outstanding)
- -----------------------------------------------------------------------------
(775,200) (989,300)
- -----------------------------------------------------------------------------
$ 36,930,500 $ 36,756,800
- -----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF PARTNERS' (DEFICIT)
For the years ended December 31, 1998, 1997 and 1996
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' (deficit), January 1, 1996 $(2,512,100) $ 0 $(2,512,100)
Net income for the year ended December 31,
1996 241,900 0 241,900
- ------------------------------------------------------------------------------
Partners' (deficit), December 31, 1996 (2,270,200) 0 (2,270,200)
Net income for the year ended December 31,
1997 1,280,900 0 1,280,900
- ------------------------------------------------------------------------------
Partners' (deficit), December 31, 1997 (989,300) 0 (989,300)
Net income for the year ended December 31,
1998 214,100 0 214,100
- ------------------------------------------------------------------------------
Partners' (deficit), December 31, 1998 $ (775,200) $ 0 $ (775,200)
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-3
<PAGE>
STATEMENTS OF INCOME AND EXPENSES
For the years ended December 31, 1998, 1997 and 1996
(All dollars rounded to nearest 00s except per Unit amounts)
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Rental $8,934,600 $9,201,000 $10,386,100
Interest 199,600 126,300 62,500
Gain on sale of properties 1,598,800 816,100
- -----------------------------------------------------------------------------
9,134,200 10,926,100 11,264,700
- -----------------------------------------------------------------------------
Expenses:
Interest:
Affiliate 640,800 642,700 626,600
Nonaffiliates 2,070,700 2,573,000 3,249,100
Depreciation and amortization 1,491,300 1,506,200 1,649,600
Property operating:
Affiliates 166,600 269,800 575,200
Nonaffiliates 1,992,200 2,014,100 1,972,300
Real estate taxes 1,288,000 1,264,300 1,382,300
Insurance--Affiliate 104,200 118,200 140,500
Repairs and maintenance 1,003,500 1,096,300 1,242,700
General and administrative:
Affiliates 27,800 28,000 37,800
Nonaffiliates 135,000 132,600 146,700
- -----------------------------------------------------------------------------
8,920,100 9,645,200 11,022,800
- -----------------------------------------------------------------------------
Net income $ 214,100 $1,280,900 $ 241,900
- -----------------------------------------------------------------------------
Net income allocated to General Partner $ 214,100 $1,280,900 $ 241,900
- -----------------------------------------------------------------------------
Net allocated to Limited Partners $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------
Net allocated to Limited Partners per Unit
(57,621 Units outstanding) $ 0 $ 0 $ 0
- -----------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998, 1997 and 1996
(All dollars rounded to nearest 00s)
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 214,100 $ 1,280,900 $ 241,900
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 1,491,300 1,506,200 1,649,600
(Gain) on sale of properties (1,598,800) (816,100)
Changes in assets and liabilities:
(Increase) decrease in rents
receivable (145,800) (41,700) 2,400
Decrease in other assets 15,000 89,900 61,700
Increase (decrease) in accounts
payable and accrued expenses 228,900 (195,500) (39,700)
Increase (decrease) in due to
Affiliates 4,500 (76,800) 4,300
Increase in other liabilities 147,400 15,500 3,900
- -------------------------------------------------------------------------------
Net cash provided by operating
activities 1,955,400 979,700 1,108,000
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of commercial
rental properties 9,375,100 5,606,600
Payments for building and tenant
improvements (633,500) (892,400) (875,900)
(Increase) in investments in debt
securities, net (1,508,100) (1,487,600)
Maturity of restricted certificate of
deposit 79,700
- -------------------------------------------------------------------------------
Net cash (used for) provided by
investing activities (2,141,600) 6,995,100 4,810,400
- -------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments on mortgage loans
payable (1,089,700) (653,700) (1,817,700)
Repayment of mortgage loans payable (18,413,600) (4,568,700)
Proceeds from mortgage loan payable 11,000,000
Interest deferred on Front-End Fees
loan payable to Affiliiate 640,800 642,700 626,600
Payment of loan acquisition or
extension fees (153,100) (102,900)
Increase (decrease) in security
deposits 27,700 (2,500) (14,400)
- -------------------------------------------------------------------------------
Net cash (used for) financing
activities (421,200) (7,580,200) (5,877,100)
- -------------------------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (607,400) 394,600 41,300
Cash and cash equivalents at the
beginning of the year 1,767,500 1,372,900 1,331,600
- -------------------------------------------------------------------------------
Cash and cash equivalents at the end of
the year $ 1,160,100 $ 1,767,500 $ 1,372,900
- -------------------------------------------------------------------------------
Supplemental information:
Interest paid during the year $ 2,072,100 $ 2,786,800 $ 3,293,700
- -------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
A-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
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 were sold. The Partnership was formed to invest primarily in
existing, improved, income-producing commercial real estate.
In 1998, the Company adopted the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which was effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for the way that public business enterprises report information about
operating segments and major customers in their annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports in the second year of application. The
Partnership has one reportable segment as the Partnership is in the disposition
phase of its life cycle, wherein it is seeking to liquidate its remaining
operating assets. Management's main focus, therefore, is to prepare its assets
for sale and find purchasers for its remaining assets when market conditions
warrant such an action. The adoption of Statement 131 did not affect the
results of operations or financial position. The Partnership has one tenant who
occupies 15% of the Partnership's rental space at the Partnership's properties.
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"). The Partnership utilizes the accrual
method of accounting. Under this method, revenues are recorded when earned and
expenses are recorded when incurred. Effective July 1, 1998, the Partnership
recognizes rental income which is contingent upon tenants' achieving specified
targets only to the extent that such targets are attained.
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 a joint
venture with an Affiliated partnership. This joint venture was formed for the
purpose of acquiring a 100% interest in Prentice Plaza. This joint venture is
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 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 federal 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.
The Partnership evaluates its commercial rental properties for impairment when
conditions exist which may indicate that it is probable that the sum of
expected future cash flows (undiscounted) from a property is less than its
carrying basis. Upon determination that an impairment has occurred, the
carrying basis in the rental property is reduced to its estimated fair value.
Management was not aware of any indicator that would result in a significant
impairment loss during the periods reported.
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
A-5
<PAGE>
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.
Investments in debt securities are comprised of obligations of the United
States government and are classified as held-to-maturity. These investments are
carried at their amortized cost basis in the financial statements which
approximated fair value. All of these securities had a maturity of less than
one year when purchased.
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 of its 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, 1998 and
1997.
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, 1998 the General
Partner was allocated 100% of Net Profits of $214,100. For the year ended
December 31, 1997, the General Partner was allocated 100% of the Net Profits of
$1,280,900 which included the gain on the sale of property of $1,598,800. For
the year ended December 31, 1996, the General Partner was allocated 100% of the
Net Profits of $241,900 which included the gain on the sale of property of
$816,100. No amounts will be allocated to Limited Partners until such time as
the cumulative computation of Limited Partners' capital account would result in
a positive balance.
Fees and reimbursements paid and payable/(receivable) by the Partnership
to/(from) Affiliates were as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------
1998 1997 1996
------------------- ------------------- -----------------
Paid Payable Paid Payable Paid Payable
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Property management and
leasing fees $ 85,300 $ (15,500) $263,600 $ (16,000) $498,700 $ 51,700
Interest expense on
Front-End Fees loan
(Note 3) None 1,967,000 None 1,326,300 None 683,600
Reimbursement of
property insurance
premiums 104,100 None 118,200 None 140,500 None
Legal 90,100 1,500 138,800 None 129,300 7,000
Reimbursement of
expenses, at cost:
--Accounting 18,500 3,200 20,400 1,100 33,300 3,100
--Investor
communication 3,500 600 2,900 100 5,100 200
- ------------------------------------------------------------------------------------
$301,500 $1,956,800 $543,900 $1,311,500 $806,900 $745,600
- ------------------------------------------------------------------------------------
</TABLE>
The variance between the amounts listed in the above table and the Statement of
Income and Expense is due to capitalized legal costs.
ANTEC Corporation ("ANTEC"), which is in the business of designing,
engineering, manufacturing and distributing cable television products, and
approximately 18.5% owned by Anixter International Inc., 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, 1998, 1997 and 1996, the
Partnership's share of ANTEC's rent and reimbursement of expenses was $177,800,
$137,000 and $293,400, 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 an Affiliate of the General Partner and is in the business of owning
and operating mobile home communities, is obligated to the Partnership under a
lease of office space at Prentice Plaza. During the years ended December 31,
1998, 1997 and 1996, the Partnership's share of MHC's rent and reimbursement of
expenses was $39,000, $21,800 and $29,800, respectively. The per square foot
rent paid by MHC is comparable to that paid by other tenants at Prentice Plaza.
A-6
<PAGE>
On-site property management for certain of the Partnership's properties is
provided by third-party management companies for fees ranging from 3% to 6% 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.
3. FRONT-END FEES LOAN PAYABLE TO AFFILIATE:
The Partnership 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, 1998, 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, 1998 was 7.72%. As of December
31, 1998, the interest rate was 7.63%.
Pursuant to a modification of this loan agreement, the Partnership has the
option to defer payment of interest on this loan, for an 84-month period
beginning January 1, 1993. In addition, any interest payments paid by the
Partnership from January 1, 1993 through December 31, 1999 may be borrowed from
the Affiliate. All deferred and subsequently borrowed amounts (including
accrued interest thereon) shall be due and payable on January 1, 2000, and
shall not be subordinated to payment of Original Capital Contribution to
Limited Partners. Beginning with the interest payment due on January 1, 1996,
the Partnership elected to defer payment of interest. As of December 31, 1998,
the amount of interest deferred pursuant to this modification was $1,967,000.
4. MORTGAGE LOANS PAYABLE:
Mortgage loans payable at December 31, 1998 and 1997 consisted of the following
loans which are non-recourse unless otherwise noted:
<TABLE>
<CAPTION>
Property Principal Balance at Average Estimated
Pledged as ----------------------------- Interest Maturity Periodic Balloon
Collateral <S> <C> Rate (a) Date Payment Payment (b)
12/31/98 12/31/97
- ---------------------------------------------------------------------------------------------------
Marquette Mall and
Office Building $ 1,941,800 $ 2,202,200 7.75% 7/1/2002 $37,142 $ 759,100
730,000 915,600 7.75% 7/1/2002 $21,458 None
7,220,000(c)(d) 7,820,000 8.38% 9/30/1999 (c) (c)
Burlington I, II and III
Office Center 11,000,000(d) 11,000,000 7.38% 5/15/1999(e) (g) $11,000,000
Prentice Plaza (50%) 4,754,400 4,798,100 7.50% 12/19/2000 (f) $ 4,655,200
- ---------------------------------------------------------------------------------------------------
$25,646,200 $26,735,900
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) The average interest rate represents an average for the year ended December
31, 1998. Interest rates are subject to change in accordance with the
provisions of the loan agreements on Marquette's junior mortgage loan,
Burlington's and Prentice Plaza's mortgage loans. As of December 31, 1998,
interest rates on the Marquette junior loan and the Burlington and Prentice
Plaza loans were 8.38%, 7.25% and 7.87%, respectively.
(b) Repayment may require sale or refinancing of the respective property.
(c) On September 30, 1998, the Partnership exercised its option to extend the
maturity date of the junior mortgage loan collateralized by Marquette.
Significant terms include a 0.5% extension fee, interest at 30-day LIBOR
plus 275 basis points and monthly principal amortization payments of
$50,000. Additional terms include a maturity date of September 30, 1999 and
a prohibition on distributions to Partners of the Partnership.
(d) Loan is recourse to the Partnership and prohibits distributions to
Partners.
(e) In March, 1999, the Partnership exercised its option to extend the maturity
date of this loan to May 15, 2000.
(f) In addition to monthly interest, monthly principal payments of $3,960 and
$4,305 are required commencing on January 1 of 1999 and 2000, respectively.
(g) Interest only payments due monthly.
Principal amortization of mortgage loans payable for the duration of the loans
based on their terms as of December 31, 1998 was as follows:
<TABLE>
<S> <C>
1999 $18,781,600
2000 5,262,300
2001 600,100
2002 1,002,200
--------
$25,646,200
--------
</TABLE>
5. FUTURE MINIMUM RENTS:
The Partnership's share of future minimum rental income due on noncancelable
leases as of December 31, 1998 was as follows:
<TABLE>
<S> <C>
1999 $ 5,619,700
2000 4,352,200
2001 2,928,000
2002 2,159,700
2003 1,452,900
Thereafter 3,075,200
--------------
$19,587,700
--------------
</TABLE>
The Partnership is subject to the usual business risks associated with the
collection of the above-scheduled rents. 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,
1998, 1997 and 1996 were $396,800, $271,500 and $245,100, respectively.
A-7
<PAGE>
6. INCOME TAX:
The Partnership utilizes the accrual method 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. For the year ended December
31, 1998, the results for income tax reporting purposes was net income of
$30,900. The aggregate cost of commercial rental properties for federal income
tax purposes at December 31, 1998 was $59,463,600.
7. PROPERTY SALES:
On June 16, 1997, a joint venture in which the Partnership owned a 50% interest
sold Regency for a sale price of $19,325,000, of which the Partnership's share
was $9,662,500. The Partnership's share of net proceeds from this transaction
was $1,735,600, which is net of closing expenses and the repayment of the
mortgage loan encumbering the property. The Partnership recorded a gain of
$1,598,800 for the year ended December 31, 1997 in connection with this sale.
Net proceeds received from this transaction were retained to supplement working
capital reserves. For income tax purposes the Partnership reported a (loss) of
$(4,631,700) for the year ended December 31, 1997.
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 selling expenses and the
repayment of the mortgage loan for Sentry West was approximately $894,500.
Pursuant to an 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 purposes the Partnership reported a
(loss) of $(4,758,200) for the year ended December 31, 1996 in connection with
this sale.
All of the above sales were all-cash transactions, with no further involvement
on the part of the Partnership.
8. CONTINGENCY:
In July 1998, the Partnership was named as a defendant in a cost recovery
action for a superfund site related to Marquette. In October 1998, the case
against the Partnership was voluntarily dismissed by the plaintiff as a result
of the Partnership demonstrating that all of the disposal activities predated
the Partnership's ownership of Marquette.
A-8
<PAGE>
FIRST CAPITAL INCOME PROPERTIES, LTD. - SERIES XI
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ---------------------- ------------- ------------------------- ------------------------ --------------------------------------
Initial cost Costs capitalized Gross amount at which
to Partnership subsequent 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 Center:
Marquette Mall
and Office Building
(Michigan City, IN)
(100% Interest) $ 9,891,800 $ 2,000,000 $ 20,306,700 $ 3,947,700 $ 164,800 $ 1,930,500 $ 17,319,200 $ 19,249,700 (4)
Office Buildings:
Burlington Office
Centers I, II and III
(Ann Arbor, MI)
(100% Interest) 11,000,000 3,000,000 17,597,800 2,435,500 72,500 3,000,000 16,605,800 19,605,800 (4)
Prentice Plaza
(Englewood, CO)
(50% Interest) 4,754,400 1,139,600 7,390,200 1,437,500 40,800 1,139,600 8,868,500 10,008,100
------------ ----------- ------------ ----------- ------------ ----------- ------------ ------------
$ 25,646,200 $ 6,139,600 $ 45,294,700 $ 7,820,700 $ 278,100 $ 6,070,100 $ 42,793,500 $ 48,863,600
============ =========== ============ =========== ============ =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
Column F Column G Column H Column I
--------------- ------------ -------- ---------------------
Life on which
depreciation in latest
Accumulated Date of Date income statements
Depreciation (2) Construction Acquired is computed
---------------- ------------ --------- ----------------------
<S> <C> <C> <C> <C>
Shopping Center:
- ----------------
Marquette Mall
and Office Building
(Michigan City, IN) 35 (5)
(100% Interest) $ 7,558,600 1967 Dec. 1986 2-10 (6)
Office Buildings:
- -----------------
Burlington Office
Centers I, II and III
(Ann Arbor, MI) 35 (5)
(100% Interest) $ 5,917,900 (7) (7) 2-10 (6)
Prentice Plaza
(Englewood, CO) 35 (5)
(50% Interest) $ 3,724,100 1985 Mar. 1988 2-10 (6)
----------------
$ 17,200,600
================
</TABLE>
See accompanying notes on following page.
A-9
<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>
Years ended
-----------------------------------------------------------------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
----------------------------- --------------------------- --------------------------
Accumulated Accumulated Accumulated
Cost Depreciation Cost Depreciation Cost Depreciation
----------- ------------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance
at the
beginning
of the year $48,230,100 $15,801,900 $58,025,200 $17,062,800 $65,275,200 $18,551,100
Additions
during
the year:
Improvements 633,500 592,400 875,900
Provisions for
depreciation 1,398,700 1,375,200 1,649,600
Deductions
during the
year:
Cost of real
estate sold (10,387,500) (8,125,900)
Accumulated
depreciation
on real
estate sold (2,636,100) (3,137,900)
----------- ----------- ----------- ----------- ----------- -----------
Balance at
the end of
the year $48,863,600 $17,200,600 $48,230,100 $15,801,900 $58,025,200 $17,062,800
=========== =========== =========== =========== =========== ===========
</TABLE>
Note 3. The aggregate cost for federal income tax purposes as of December 31,
1998 was $59,463,600.
Note 4. Includes cumulative provisions for value impairment of $7,100,000 and
$3,500,000 for Marquette and Burlington, respectively.
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-10
<PAGE>
Exhibit 10
BURLINGTON OFFICE CENTER - BUILDING I
STANDARD FORM OFFICE LEASE
BETWEEN
BURLINGTON ASSOCIATES GENERAL PARTNERSHIP ("LANDLORD") by its agent,
Equity Office Properties Management Corp., a Delaware corporation
AND
THE REGENTS OF THE UNIVERSITY OF MICHIGAN, a Michigan Constitutional corporation
("TENANT")
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
I. Basic Lease Information; Definitions.................................. 1
II. Lease Grant........................................................... 3
III. Adjustment of Commencement Date/Possession............................ 3
IV. Use................................................................... 5
V. Rent.................................................................. 6
VI. Security Deposit......................................................11
VII. Services to be Furnished by Landlord..................................11
VIII. Leasehold Improvements................................................12
IX. Repairs and Alterations by Tenant.....................................12
X. Use of Electrical Services by Tenant..................................13
XI. Entry by Landlord.....................................................14
XII. Assignment and Subletting.............................................14
XIII. Liens.................................................................16
XIV. Indemnity and Waiver of Claims........................................16
XV. Tenant's Insurance....................................................17
XVI. Subrogation...........................................................18
XVII. Casualty Damage.......................................................19
XVIII. Demolition............................................................20
XIX. Condemnation..........................................................20
XX. Events of Default.....................................................20
XXI. Remedies..............................................................21
XXII. LIMITATION OF LIABILITY...............................................22
XXIII. No Waiver.............................................................22
XXIV. Relocation............................................................22
XXV. Holding Over..........................................................22
XXVI. Subordination to Mortgages; Estoppel Certificate......................23
XXVII. Notice................................................................23
XXVIII. Landlord's Lien.......................................................24
XXIX. Excepted Rights.......................................................24
XXX. Surrender of Premises.................................................24
XXXI. Miscellaneous.........................................................25
XXXII. Entire Agreement......................................................26
</TABLE>
EXHIBIT A - Outline and Location of Premises
EXHIBIT B - Building Rules and Regulations
EXHIBIT C - Additional Terms and Conditions
EXHIBIT D - Landlord Work
i
<PAGE>
OFFICE LEASE AGREEMENT
This Office Lease Agreement (the "Lease") is made and entered into as of
__________________ by and between Burlington Associates General Partnership, an
Illinois General Partnership ("Landlord") by its agent, Equity Office Properties
Management Corp., a Delaware corporation and THE REGENTS OF THE UNIVERSITY OF
MICHIGAN, a Michigan Constitutional corporation ("Tenant"), whose address for
the purpose of notices to Tenant prior to commencement of the Term of this Lease
shall be at University of Michigan Hospital and Health Centers, 300 North
Ingalls, Room N16E10, Ann Arbor, Michigan 48109-0444.
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. "Monthly Rent" (sometimes referred to herein as "Base Rental")
shall mean the sum of One Million Eight Hundred Twenty Seven
Thousand Two Hundred Thirty and 04/100 Dollars ($1,827,230.04)
(plus any Monthly Rent payable for any partial calendar month at
the beginning of the term of the Lease), payable by Tenant to
Landlord in Sixty (60) monthly installments as follows:
a. Twelve equal installments of Twenty Nine Thousand Six
Hundred Fifty Two and 42/100 Dollars ($29,652.42), each
payable on or before the first day of each month during the
period beginning on the first day of the first (1st) full
calendar month of the term of the Lease and ending on the
last day of the twelfth (12th) full calendar month of the
term of the Lease. If the Commencement Date does not occur
on the first day of a calendar month, Tenant shall pay
monthly rent for such initial calendar month at the rate of
Nine Hundred Eighty Eight and 41/100 Dollars ($988.41) per
day. Such monthly rent shall be payable on the Commencement
Date, provided that the installment of monthly rent for the
first full calendar month of the term of the Lease shall be
payable upon the execution of this Lease by Tenant.
b. Twelve (12) equal installments of Thirty Thousand Fifty
Three and 13/100 Dollars ($30,053.13) each payable on or
before the first day of each month during the period
beginning on the first day of the thirteenth (13th) full
calendar month following the
1
<PAGE>
Commencement Date, and ending on the last day of the twenty
fourth (24th) full calendar month of the term of the Lease.
c. Twelve (12) equal installments of Thirty Thousand Four
Hundred Fifty Three and 83/100 Dollars ($30,453.83) each
payable on or before the first day of each month during the
period beginning on the first day of the twenty fifth (25th)
full calendar month following the Commencement Date, and
ending on the last day of the thirty sixth (36th) full
calendar month of the term of the Lease.
d. Twelve (12) equal installments of Thirty Thousand Eight
Hundred Fifty Four and 54/100 Dollars ($30,854.54) each
payable on or before the first day of each month during the
period beginning on the first day of the thirty seventh
(37th) full calendar month following the Commencement Date,
and ending on the last day of the forty eighth (48th) full
calendar month of the term of the Lease.
e. Twelve (12) equal installments of Thirty One Thousand Two
Hundred Fifty Five and 25/100 Dollars ($31,255.25) each
payable on or before the first day of each month during the
period beginning on the first day of the forty ninth (49th)
full calendar month following the Commencement Date, and
ending on the last day of the sixtieth (60th) full calendar
month of the term of the Lease.
3. "Base Year" shall mean 1998.
4. "Building" shall mean the office building located at 325 E.
Eisenhower Parkway, Ann Arbor, MI 48108 and commonly known as
Building I at Burlington Office Center.
5. The "Commencement Date", "Lease Term" and "Termination Date"
shall have the meanings set forth in subsection I.A.5.b. below:
a. INTENTIONALLY OMITTED.
b. The "Lease Term" shall mean a period of sixty (60) months
commencing on the later to occur of (1) September 1, 1998
(the "Target Commencement Date") and (2) the date upon which
Landlord Work in the Premises has been substantially
completed, as such date is determined pursuant to Section
III.A. hereof (the later to occur of such dates being
defined as the "Commencement Date"). The "Termination Date"
shall, unless sooner terminated as provided herein, mean the
last day of the Lease Term. Notwithstanding the foregoing,
if the Termination Date, as determined herein, does not
occur on the last day of a calendar month, Landlord, at its
option, may extend the Lease Term by the number of days
necessary to cause the Termination
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Date to occur on the last day of the last calendar month of
the Lease Term. Tenant shall pay Base Rental and Additional
Base Rental for such additional days at the same rate
payable for the portion of the last calendar month
immediately preceding such extension.
6. "Landlord Work" shall mean the work, if any, that Landlord is
obligated to perform pursuant to Exhibit D.
7. "Notice Addresses" shall mean Real Estate Coordinator, University
of Michigan Health Systems, 300 North Ingalls, Room N16E10, Ann
Arbor, Michigan 48109-0444, for Tenant prior to and 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
Management Corp., Two North Riverside Plaza, Suite 2200, Chicago,
Illinois 60606, Attention: General Counsel of Properties
Operation.
8. "Permitted Use" shall mean: General and Medical office use,
subject to the provisions of Exhibit C attached hereto.
9. "Premises" shall mean the area located on the second (2nd) floor
of the Building and outlined on Exhibit A attached hereto and
incorporated herein. Landlord and Tenant hereby stipulate and
agree that the square footage of the Premises shall mean 19,234
rentable square feet. The square footage of the Building shall
mean approximately 68,620 rentable square feet.
10. "Prepaid Rental": INTENTIONALLY OMITTED.
11. "Tenant's Pro Rata Share" shall mean twenty eight and two hundred
ninety seven ten thousandths percent (28.0297%), which is the
quotient (expressed as a percentage) derived by dividing the
square footage of the Premises by the square footage 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 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
Bank of America, National Trust and Savings Association or any
successor thereof from time to time (whether or not charged in each
instance) as its prime or base rate; and (4) "Property" shall mean the
Building and the parcel of land on which it is located and, at
Landlord's discretion, the Building garage, if any, and all other
improvements serving the Building and the tenants thereof and the
parcel(s) of land on which they are located.
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II. Lease Grant.
Subject to and upon the terms herein set forth, Landlord leases to Tenant
and Tenant leases from Landlord the Premises.
III. Adjustment of Commencement Date/Possession.
A. If the Lease Term, Commencement Date and Termination Date are to be
determined in accordance with subsection I.A.5.b., the Lease Term
shall not commence until the later to occur of the Commencement Date
specified above and the date that Landlord has substantially completed
the Landlord Work; provided, however, that if Landlord shall be
delayed in substantially completing the Landlord Work as a result of
the occurrence of any delays caused by Tenant or its agents, employees
or contractors then, for purposes of determining the Commencement
Date, the date of substantial completion shall be deemed to be the day
that said Landlord Work would have been substantially completed absent
any delay(s). The Premises shall be deemed to be substantially
completed on the date that Landlord reasonably determines that all
Landlord's Work has been performed (or would have been performed
absent any delays), other than any details of construction, mechanical
adjustment or any other matter, the noncompletion of which does not
materially interfere with Tenant's use of the Premises; provided there
has been a satisfactory final inspection by the city of Ann Arbor in
anticipation of the issuance of a Certificate of Occupancy. The
adjustment of the Commencement Date and, accordingly, the postponement
of Tenant's obligation to pay Rent shall be Tenant's sole remedy and
shall constitute full settlement of all claims that Tenant might
otherwise have against Landlord by reason of the Premises not being
ready for occupancy by Tenant on the Commencement Date specified
above. Landlord's determination of the Commencement Date shall be
final and binding on all parties. 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 C setting forth the Commencement Date, the Termination Date
and any other dates that are affected by the adjustment of the
Commencement Date. Tenant, within five (5) days after receipt thereof
from Landlord, shall execute the Commencement Letter and return the
same to Landlord. Landlord, in its sole discretion, may elect not to
adjust the Commencement Date as provided above, in which case Rent
shall not commence until the date that Landlord Work has been
substantially completed (or would have been substantially completed
absent any delays).
B. By taking possession of the Premises, Tenant is deemed to have: (1)
accepted the Premises and agreed that the Premises is in good order
and satisfactory condition; and (2) agreed that Landlord has no
obligation to clean, decorate, alter, remodel, improve or repair the
Premises or the Building unless said obligation is specifically set
forth in this Lease. Landlord and Tenant acknowledge that, upon
completion of the Landlord Work and approval after a final inspection
performed by the City of Ann Arbor Building Department or
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equivalent governing agency, the Premises will be suitable for
Tenant's intended use as shown on the Plans, as defined in Exhibit D,
as approved by Landlord. Tenant's acceptance of the Premises shall be
subject to Landlord's obligation to correct portions of the Landlord
Work as set forth on a construction "punch list" prepared by Landlord
and Tenant in accordance with the terms hereof. Within fifteen (15)
business days after the substantial completion of the Landlord Work,
Landlord and Tenant shall together conduct an inspection of the
Premises and prepare the punch list setting forth any portions of the
Landlord Work that are not in conformity with the Landlord Work as
required by the terms of this Lease. Notwithstanding the foregoing, at
the request of Landlord, such construction punch list shall be
mutually prepared by Landlord and Tenant prior to the date on which
Tenant first begins to move its furniture, equipment or other personal
property into the Premises. Landlord, as part of the Landlord Work,
shall use good faith efforts to correct all such items within a
reasonable time following the completion of the punch list. If an
existing tenant holds over in the Premises, the Lease Term shall not
commence until the vacation of the Premises by such holdover tenant.
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. If Tenant takes possession of the Premises prior
to the Commencement Date for any reason whatsoever, such possession
shall be subject to all the terms and conditions of the Lease and
Tenant shall pay Base Rental and Additional Base Rental to Landlord on
a per diem basis for each day of occupancy prior to the Commencement
Date. Notwithstanding the foregoing, if Tenant, with Landlord's prior
approval, takes possession of the Premises prior to the Commencement
Date for the sole purpose of performing any Landlord-approved
improvements therein or installing furniture, equipment or other
personal property of Tenant, such possession shall be subject to all
of the terms and conditions of the Lease, except that 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. Tenant shall,
however, be liable for the cost of any services (e.g. electricity,
HVAC, freight elevators) that are provided to Tenant or the Premises
during the period of Tenant's possession prior to the Commencement
Date.
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 interfere with, annoy or
disturb other tenants, or in any way interfere with Landlord in the management
and operation of the Building. Tenant will maintain the Premises in a clean and
healthful condition, and comply with all applicable 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
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provide Landlord with copies of any notices it receives with respect to a
violation or alleged violation of any Laws. Tenant will comply with the rules
and regulations of the Building attached hereto as Exhibit B and such other
rules and regulations adopted and altered by Landlord from time to time and will
cause all Tenant Related Parties to do so. Landlord, at its sole cost and
expense (except to the extent properly included in operating expenses), shall be
responsible for correcting any violations of Title III of the Americans with
Disabilities Act with respect to the Premises and the Common Areas of the
building, provided that Landlord's obligation with respect to the Premises shall
be limited to violations that arise out of the Landlord Work and/or the
condition of the Premises prior to the installation of any furniture, equipment
and other personal property of Tenant. Notwithstanding the foregoing, Landlord
shall have the right to contest any alleged violation in good faith, including,
without limitation, the right to apply for and obtain a waiver or deferment of
compliance, the right to assert any and all defenses allowed by law and the
right to appeal any decisions, judgments or rulings to the fullest extent
permitted by law. Landlord, after the exhaustion of any and all rights to appeal
or contest, will make all repairs, additions, alterations or improvements
necessary to comply with the terms of any final order or judgment.
Notwithstanding the foregoing, Tenant, not Landlord, shall be responsible for
the correction of any violations that arise out of or in connection with any
claims brought under any provision of the Americans with Disabilities Act other
than Title III, the specific nature of Tenant's business in the Premises (other
than general office use), the acts or omission of Tenant, its agents, employees
and contractors, Tenant's arrangement of any furniture, equipment or other
property in the Premises, any repairs, alterations, additions or improvements
performed by or on behalf of Tenant (other than the Landlord Work) and any
design or configuration of the Premises specifically requested by Tenant after
being informed that such design or configuration may not be in strict compliance
with the ADA.
V. Rent.
A. During each calendar year, or portion thereof, falling within the
Lease Term, Tenant shall pay to Landlord as Additional Base Rental
hereunder the sum of (1) Tenant's Pro Rata Share of the amount, if
any, by which Taxes (hereinafter defined) for the applicable calendar
year exceed Taxes for the Base Year plus (2) Tenant's Pro Rata Share
of the amount, if any, by which Expenses (hereinafter defined) for the
applicable calendar year exceed Expenses for the Base Year. For
purposes hereof, "Expenses" shall mean all Basic Costs with the
exception of Taxes. Tenant's Pro Rata Share of increases in Taxes and
Tenant's Pro Rata Share of increases in Expenses shall be computed
separate and independent of each other prior to being added together
to determine the "Excess". In the event that Taxes and/or Expenses, as
the case may be, in any calendar year decrease below the amount of
Taxes or Expenses for the Base Year, Tenant shall be entitled to its
Pro Rata Share of the decrease in Taxes and/or Expenses below the
corresponding amount for the Base Year.
Landlord shall have the option of either (i) billing Tenant for its
actual Pro Rata Share of Expenses and Taxes on an annual basis; or
(ii) billing Tenant for its estimated Pro Rata Share of Taxes and
Expenses on a monthly or quarterly basis and providing Tenant with a
reconciled billing of such estimated amounts when the actual Taxes and
Expenses for the period in question have been
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determined. If Landlord elects to bill Tenant based upon monthly or
quarterly estimates, prior to the Commencement Date and prior to
January 1 of each 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 and Tenant's Pro Rata
Share thereof. On or before the first day of each month (or each
quarter, as the case may be) during such calendar year, Tenant shall
pay to Landlord, as Additional Base Rental, an installment equal to
one-twelfth (or one quarter, as the case may be) 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 Basic Costs and the Excess for such year and provide
Tenant with a revised statement therefor, and thereafter the amount
Tenant shall pay each month (or quarter, as the case may be) shall be
based upon such revised estimate. If Landlord does not provide Tenant
with an estimate of the Basic Costs and the Excess by January 1 of any
calendar year, Tenant shall continue to pay an installment based on
the previous year's estimate until such time as Landlord provides
Tenant with an estimate of Basic Costs and the Excess for the current
year. Upon receipt of such current year's estimate, an adjustment
shall be made for any period during the current year with respect to
which Tenant paid installments of Additional Base Rental based on the
previous year's estimate. Tenant shall pay Landlord for any
underpayment within thirty (30) days. Any overpayment equal to or less
than one (1) month's installment of Base Rental plus Additional Base
Rental shall, at Landlord's option, be refunded to Tenant or credited
against the installments of Base Rental and Additional Base Rental due
for the month(s) immediately following the furnishing of such
estimate. In the event of any overpayment in excess of the equivalent
of one (1) month's installment of Base Rental plus Additional Base
Rental, the excess shall, at Tenant's option, be refunded to Tenant or
credited against the installment(s) 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 any estimate 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
Tenant's Pro Rata Share of the actual Excess for the previous calendar
year. Landlord shall use reasonable efforts to furnish the statement
of actual Basic Costs on or before March 1 of the calendar year
immediately following the calendar year to which the statement
applies. Tenant shall pay such Pro Rata Share to Landlord within
thirty (30) days after receipt of an invoice from Landlord setting
forth such amount. Any estimated amounts paid by Tenant to Landlord in
accordance with the foregoing paragraph shall be credited against
Tenant's Pro Rata Share of the actual Excess. If the estimated amounts
actually paid by Tenant for the prior year are in excess of Tenant's
actual Pro Rata Share of the Excess for such prior year, then Landlord
shall refund to Tenant any overpayment in excess of the equivalent of
one (1) month's installment of Base Rental plus Additional Base Rental
and apply the one (1) month's equivalent against Base Rental plus
Additional Base Rental due or to become due hereunder (or, at Tenant's
option, Landlord shall apply the entirety of such overpayment against
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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.
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 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.
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.
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,
phone-in access system, and other systems and equipment. At
Landlord's option, major repair items may be amortized over a
period of up to five (5) years.
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, including but not limited to water and
sewer, but excluding electricity provided to leased space for
power and lighting and those charges which Tenant is required to
reimburse Landlord under Article X of this Lease.
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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 of
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 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, 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 landscape expenses and 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, including those for
equipment, alarm service, window cleaning, janitorial services,
pest control, uniform supply, plant maintenance, landscaping, and
any parking equipment.
10. 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
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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.
11. 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 II at Burlington Office
Center, located at 315 Eisenhower Parkway, and/or Building III at
Burlington Office Center, located at 305 Eisenhower Parkway, the
cost of such Expenses shall be equitably prorated between the
Building and such other buildings. 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.
C. If Basic Costs for any calendar year increase by more than five
percent (5%) over Basic Costs for the immediately preceding calendar
year (the "Review Threshold"), 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
thirty (30) days 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 thirty (30) 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. Any information obtained by Tenant
pursuant to the provisions of this Section shall be treated as
confidential to the extent permitted by law. 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
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Tenant has paid to Landlord the amount due as shown on Landlord's
statement of actual Basic Costs, less any disputed increase which is
in excess of said Review Threshold, 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 except as expressly set
forth in this Lease, the full amount of all Base Rental and Additional
Base Rental due hereunder. 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, 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 within fifteen (15) days of the date it is due and
payable shall bear interest from the date due until paid at the lesser
of: (1) the Prime Rate per annum; or (2) the greatest per annum rate
of interest permitted from time to time under applicable law.
VI. Security Deposit.
INTENTIONALLY OMITTED.
VII. Services to be Furnished by Landlord.
Landlord, as part of Basic Costs (except as provided herein to the
contrary), agrees to furnish Tenant the following services: (a) hot and
cold water at those points of supply provided for general use of tenants in
the Building; (b) central heat and air conditioning in season during
Tenant's normal business hours; (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 Janitorial Specifications attached hereto as Exhibit E, or such
other reasonably comparable specifications designated, from time to time,
by Landlord; and (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. The failure by Landlord to any
extent to furnish, or the interruption or termination of these services in
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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 except as
expressly set forth herein. 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 two (2) consecutive days
after Tenant notifies Landlord of such 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, such interruption shall be referred
to herein as a "Landlord Curable Cessation of Services", then Tenant shall
be entitled to receive an abatement of Base Rental payable hereunder during
the period beginning on the third (3rd) 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
Landlord Curable Cessation of Services, 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. In addition to
such abatement and in addition to Tenant's remedies provided for herein and
any remedies available to Tenant at law or equity, should there be a
Landlord Curable Cessation of Services which continues for ten (10)
consecutive business days after the Interruption Notice and is not being
diligently remedied by Landlord, Tenant may elect, ten (10) days following
a second interruption notice (the "Second Interruption Notice") to remedy
the Cessation of Services and Landlord shall be obligated to Tenant for the
cost incurred by Tenant thereunder. If Landlord fails to reimburse Tenant
for the costs incurred in curing the landlord Curable Cessation of Services
within thirty (30) days following Tenant's demand therefor, Tenant may
deduct any and all sums owing to Tenant plus interest at the Prime Rate
from the next due installment(s) of Base Rental and Additional Base Rental
and each subsequent installment of Base Rental and Additional Base Rental
until Tenant is fully reimbursed. In the event that the Landlord Curable
Cessation of Services: (a) continues for ninety (90) consecutive days after
the Interruption Notice; and (b) is not being diligently remedied by
Landlord, and (c) Tenant has not elected to cure the Landlord Curable
Cessation of Services, Tenant shall have the right to elect to terminate
this Lease within ten (10) days after the expiration of said ninety (90)
day period without penalty, by delivering written notice to Landlord of its
election thereof. 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.
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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 thirty (30) days 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 and all 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 restore the Premises to a
reasonably good condition less normal wear and tear. 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.
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 keep the Premises in
reasonably good condition less normal wear and tear and shall be
effected in compliance with the reasonable directions of Landlord. If
Tenant fails to make such repairs to the Premises promptly, Landlord
may, at its option, make such repairs, and Tenant shall pay the cost
thereof to the Landlord on demand as additional Rent.
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. Except with regard to
requests for consent or approval that require Landlord to make a
determination of the aesthetics of certain signage, alterations or
other things that would be visible from outside the Premises or
Building or to assume certain risks, including, without limitation,
the risk that a certain alteration, addition and/or improvement could
adversely affect the mechanical systems or structure of the Building
or require excess removal costs, Landlord and Tenant agree to act
reasonably in granting approval or disapproval of any request by the
other for consent or approval. 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; 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
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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 upon 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, and Tenant agrees or Tenant requests and
Landlord agrees, Tenant shall permit Landlord to supervise
construction operations, but no such supervision shall impose any
liability upon Landlord. In the event Landlord supervises such
construction, Landlord shall be entitled to a supervisory fee in the
amount of five percent (5%) of the cost of such construction.
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 used by Tenant in the Premises for lighting, power,
heating and cooling shall be paid for by Tenant by a separate charge
billed by the utility company supplying electricity and payable by
Tenant directly to such utility company. 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
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.
XI. Entry by Landlord.
Landlord and its agents or representatives shall have the right to enter
the Premises with twenty four (24) hour notice except in case of emergency 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
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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. Notwithstanding the foregoing, except in emergency situations
or to perform routine cleaning of the Premises, Landlord shall provide at least
twenty four (24) hours notice of such entry, which notice may be given verbally
to the Tenant's representative at the Premises. 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.
XII. Assignment and Subletting.
A. 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. 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. Notwithstanding the foregoing, Landlord
shall not have the right to terminate pursuant to b or c above if the
proposed transferee is a wholly owned corporation or controlled
subsidiary or affiliate of Tenant or a successor to Tenant by
purchase, merger, consolidation or reorganization. In addition,
Tenant, within five (5) days after receipt of Landlord's notice of
intent to terminate, may withdraw its request for consent to the
Transfer. In such event, Landlord's election to terminate the Lease
shall be null and void and of no force and effect. In the event
Landlord consents to any such Transfer, Tenant shall bear all
reasonable costs and expenses incurred by Landlord in connection with
the review and approval of such documentation. In the event Landlord
fails to respond to any request for consent within the thirty (30) day
period set forth above, Tenant shall have the right to provide
Landlord with a second request for consent. If Landlord's failure to
respond continues for ten (10) days after its receipt of such second
request for consent, the Transfer for which Tenant has requested
consent shall be deemed to have been approved by Landlord. Except with
respect to a Transfer to an affiliate, Tenant hereby covenants and
agrees to pay to Landlord fifty percent (50%) of all rent and other
consideration which it receives which is in excess of the Rent payable
hereunder within thirty (30) days following receipt thereof by Tenant.
In
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determining excess rent in connection with an assignment or
subletting, Tenant may deduct the following expenditures resulting
from such subletting or assignment: (1) brokerage and marketing fees;
(2) legal fees; (3) construction costs; and (4) financial concessions
granted in such sublease or assignment. 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; provided this sentence shall not be
applicable to the original Tenant named hereunder. 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. Notwithstanding anything to the
contrary contained herein, Tenant may assign its entire interest under
this Lease or sublet the Premises to a wholly owned corporation,
partnership or other legal entity or controlled subsidiary, affiliate
or parent of Tenant or to any successor to Tenant by purchase, merger,
consolidation or reorganization (hereinafter, collectively, referred
to as "Permitted Transfer") without the consent of Landlord, provided:
(i) Tenant is not in default under this Lease; (ii) if such proposed
transferee is a successor to Tenant by purchase, merger, consolidation
or reorganization, the continuing or surviving entity shall own all or
substantially all of the assets of Tenant and shall have a net worth
which is at least equal to the greater of Tenant's net worth at the
date of this Lease or Tenant's net worth at the date of the Transfer;
(iii) such proposed transferee operates the business in the Premises
for the Permitted Use and no other purpose; and (iv) in no event shall
any Transfer release or relieve Tenant from any of its obligations
under this Lease. Tenant shall give Landlord written notice at least
thirty (30) days prior to the effective date of such Permitted
Transfer. As used herein: (a) `parent' shall mean a company which owns
a majority of Tenant's voting equity; (b) "controlled" or "subsidiary"
shall mean a entity wholly owned by Tenant or at least fifty-one
percent (51%) of whose voting equity is owned by Tenant; and (c)
"affiliate" shall mean an entity controlled, controlling or under
common control with Tenant. Notwithstanding the foregoing, sale of the
shares of equity of any affiliate or subsidiary to which this Lease
has been assigned or transferred other than to another parent,
subsidiary or affiliate of the original Tenant named hereunder shall
be deemed to be an assignment requiring the consent of Landlord
hereunder.
B. Notwithstanding anything to the contrary contained herein, Tenant may
assign its entire interest under this Lease or sublet the Premises to
a wholly owned corporation, partnership or other legal entity,
affiliate, subsidiary or parent of Tenant or to any successor to
Tenant by purchase, merger, consolidation or reorganization
(hereinafter, collectively, referred to as "Permitted Transfer")
without the consent of Landlord, provided: (i) Tenant is not in
default under this Lease; (ii) if such proposed transferee is a
successor to Tenant by purchase, merger, consolidation or
reorganization, the continuing or surviving entity shall own all or
substantially all of the assets of Tenant and shall have a net worth
which is at least equal to the greater of Tenant's net worth at the
date of this
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Lease or Tenant's net worth at the date of the Transfer; (iii) such
proposed transferee operates the business in the Premises for the
Permitted Use and no other purpose; and (iv) in no event shall any
Transfer release or relieve Tenant from any of its obligations under
this Lease. Tenant shall give Landlord written notice at least thirty
(30) days prior to the effective date of such Permitted Transfer. As
used herein: (a) `parent' shall mean a company which owns a majority
of Tenant's voting equity; (b) "controlled" or "subsidiary" shall mean
a entity wholly owned by Tenant or at least fifty-one percent (51%) of
whose voting equity is owned by Tenant; and (c) `affiliate' shall mean
an entity controlled, controlling or under common control with Tenant.
Notwithstanding the foregoing, sale of the shares of equity of any
affiliate or subsidiary to which this Lease has been assigned or
transferred other than to another parent, subsidiary or affiliate of
the original Tenant named hereunder shall be deemed to be an
assignment requiring the consent of Landlord hereunder.
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. 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. Except to the extent such losses, liabilities, obligations, damages,
penalties, claims, costs, charges, and expenses result from the
negligence of Landlord and/or its agents, employees or contractors,
Tenant shall indemnify, defend and hold Landlord, its members,
principals, beneficiaries, partners, officers, directors, employees,
Mortgagee(s) (if any) and agents, and the respective principals and
members of any such agents, (collectively the "Landlord Related
Parties") harmless against and from all liabilities, obligations,
damages (other than consequential damages), penalties, claims, costs,
charges and expenses, including, without limitation, reasonable
attorneys' fees and other professional fees (if and to the extent
permitted by law), which may be imposed upon, incurred by, or asserted
against Landlord or any of the Landlord Related Parties and arising,
directly or indirectly, out of or in connection with the acts and
omissions of Tenant or any of its Transferees or employees.
B. To the maximum extent this Lease may be made effective according to
law, 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
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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) the Premises, Building, or Property, or any
equipment or appurtenances becoming out of repair; (2) force majeure;
(3) any defect in or failure to operate, for whatever reason, any
sprinkler, heating or air-conditioning equipment, electric wiring,
gas, water or steam pipes; (4) 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; or (5) any other cause of
any nature except, as to items 1-5, where such loss or damage is due
to Landlord's negligence or Landlord's willful failure to make repairs
required to be made pursuant to other provisions of this Lease, after
the expiration of a reasonable time after notice to Landlord of the
need for such repairs. Notwithstanding the foregoing, except as
provided in Article XVI to the contrary, Tenant shall not be required
to waive any claims against Landlord (other than for loss or damage to
Tenant's business) where such loss or damage is due to Landlord's
negligence. Nothing herein shall be construed as to diminish the
repair and maintenance obligations of Landlord contained elsewhere in
this Lease.
C. Except to the extent such losses, liabilities, obligations, damages,
penalties, claims, costs, charges and expenses result from the
negligence of Tenant or any Tenant Related Parties, Landlord shall
indemnify and hold Tenant harmless from and against all liabilities,
obligations, damages (other than consequential damages), penalties,
claims, costs, charges and expenses, including, without limitation,
reasonable attorneys' fees, which may be imposed upon, incurred by, or
asserted against Tenant by any third parties and arising, directly or
indirectly, out of or in connection with any act or omission of
Landlord or its employees.
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 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 One Million Dollars ($1,000,000.00) per occurrence; (d)
additional insurance as reasonably required by Landlord. 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 approval. All policies evidencing Tenant's Insurance
(except for Workers' Compensation) shall specify Tenant and the
"owner(s) of the Building and its (or their) respective members,
principals, beneficiaries, partners, officers, directors,
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employees, agents (and their respective members and principals) and
mortgagee(s)" (and any other designees of Landlord as the interest of
such designees shall appear) 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 property insurance on the Building in such
amounts as Landlord reasonably elects, cost thereof (including
Leasehold Improvements approved by Landlord) at the time in question
provided that during the Lease Term Landlord shall maintain standard
so-called "all risk" property insurance covering the Building in an
amount equal to the replacement cost thereof (including Leasehold
Improvements approved by Landlord but excluding foundations and
footings) at the time in question. Landlord shall also maintain
Commercial General Liability coverage written on an occurrence basis
with a combined single limit of Five Million Dollars ($5,000,000.00)
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.
C. Provided Tenant is the original Tenant named hereunder and provided
Tenant self insures for "All Risks of Physical Loss", Tenant may self-
insure for the "All Risks of Physical Loss" coverage specified in this
Section. If at any time Tenant is no longer the original Tenant named
hereunder, then Tenant must obtain, provide, and keep in full force
and effect the above referenced insurance coverage with respect to the
Premises and provide Landlord with evidence of the same.
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.
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XVII. Casualty Damage.
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. In addition to
Landlord's rights to terminate as provided herein, Tenant shall have the right
to terminate this Lease if: (1) a substantial portion of the Premises has been
damaged by fire or other casualty and such damage cannot reasonably be repaired
within sixty (60) days after the date of such fire or other casualty; (2) there
is less than one (1) year of the Lease Term remaining on the date of such
casualty; (3) the casualty was not caused by the negligence or willful
misconduct of Tenant or its agents, employees or contractors; and (4) Tenant
provides Landlord with written notice of its intent to terminate within thirty
(30) days after the date of the fire or other casualty. If neither Landlord nor
Tenant elect to terminate this Lease, Landlord shall commence and proceed with
reasonable diligence to restore 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, provided that if Landlord does not have sufficient proceeds to
substantially complete the restoration of the Leasehold Improvements in the
Premises and Landlord elects not to fund any shortfall, Landlord shall so notify
Tenant and Tenant, within ten (10) days thereafter, shall have the right to
terminate this Lease by the giving of written notice to Landlord.
Notwithstanding the foregoing, Landlord's obligation to restore the Building,
and the Leasehold Improvements, if any, 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. 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.
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 a fair diminution 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. 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.
XVIII. Demolition.
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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 shall occur. Notwithstanding the foregoing, if the whole or any
substantial part of the Premises 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, Tenant shall also have
the right to terminate this Lease effective as of the date the physical taking
of the Premises occurs. 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 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. In addition, Tenant may file a claim at its sole
cost and expense and receive an award for the Tenant's Property and Tenant's
reasonable relocation expenses, provided the filing of any claim for relocation
expenses does not adversely affect or diminish the award which would otherwise
have been received by Landlord had Tenant not filed such a claim and received
such award.
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
fifteen (15) 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, (or such longer period of time as may
be reasonably necessary to cure [not to exceed 60 days], provided that Tenant
commences to cure such default within thirty [30] days after notice from
Landlord and, from time to time upon request of Landlord, furnishes Landlord
with evidence that demonstrates, in Landlord's reasonable judgment, that Tenant
is diligently pursuing a course that will remedy such failure) provided that if
any such failure creates a hazardous condition, such failure must be cured
immediately; (c) Tenant or any Guarantor shall become insolvent, or shall make a
transfer in fraud of creditors, or shall commit an act of bankruptcy 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; (e) Tenant shall abandon or vacate
any substantial portion of the Premises without the prior written permission of
Landlord; or (f) Tenant shall fail to take
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possession of and occupy the Premises within forty five (45) days following the
Commencement Date.
XXI. Remedies.
A. Landlord Remedies.
------------------
Upon the occurrence of any event or events of default under this
Lease, whether enumerated in Article XX or not, Landlord may seek to
take possession pursuant to legal proceedings or any notice provided
for by law. Landlord may either terminate this Lease or from time to
time, without terminating this Lease, relet the premises or any part
thereof on such terms and conditions as Landlord shall in its sole
discretion deem advisable. Any payments received as a result of such
reletting shall be applied: first, to the payment of any indebtedness
of Tenant to Landlord other than rent due hereunder; second, to the
payment of any reasonable costs incurred by Landlord in obtaining
possession of and reletting the premises, including, without
limitation, legal fees, brokerage commissions and the cost of any
reasonable alterations and repairs to the premises; third, to the
payment of rent due and unpaid hereunder; and the residue, if any,
shall be held by Landlord and applied in payment of future rent as the
same may become due and payable hereunder. Tenant shall be liable to
Landlord for any deficiency.
All rights and remedies herein conferred upon or reserved to Landlord
shall be cumulative and none shall be exclusive of any other rights or
remedies now or hereafter existing by agreement, applicable law or in
equity.
B. Tenant Remedies.
----------------
1. If Landlord shall fail to perform any obligation under this Lease
required to be performed by Landlord, Landlord shall not be
deemed to be in default hereunder nor subject to claims for
damages of any kind, unless such failure shall have continued for
a period of thirty (30) days after written notice thereof by
Tenant or such additional time as may be required due to Force
Majeure. If Landlord shall fail to cure within the time permitted
for cure herein, Landlord shall be subject to such claims for
damages and remedies as may be available to Tenant, (subject to
the other provisions of this Lease); provided, Tenant shall have
no right of self-help to perform repairs or any other obligation
of Landlord, except as set forth in 2 and 3 below, and shall have
no right to abate Rent except such abatement expressly permitted
in this Lease.
2. Should Landlord fail to pay within sixty (60) days of Tenant's
written demand and Tenant's compliance with its obligations under
this Lease any portion of a judgment obtained by Tenant against
Landlord as a result of a default by Landlord under this Lease,
Tenant shall have the right, on thirty (30) days' notice, to
deduct any and all sums owing Tenant, plus statutory interest
from the next due installment of Base
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Rental and each subsequent installment of Base Rental and
Additional Base Rental until Tenant is fully reimbursed. This
exercise of set-off shall not constitute an election of remedies
except any amounts so recovered shall not be subsequently
recovered from Landlord.
3. Notwithstanding the provisions in 2 and 3 above, in the event of
a Landlord Curable Cessation of Services as set forth in Article
VII hereof, Tenant shall have the self help rights and set off
rights set forth in said Article VII.
XXII. LIMITATION OF LIABILITY.
Notwithstanding anything to the contrary contained in this Lease, the
liability of either party (and of any successor to such party hereunder) to the
other party shall be limited to a sum equal to the interest of Landlord in the
Building, and each party agrees to that its recovery of any judgment or award
against the other shall be limited solely to an amount equal to the amount of
Landlord's interest in the Building it being intended that neither the parties
hereto nor any member, principal, partner, shareholder, officer, director or
beneficiary of such parties shall be personally liable for any judgment or
deficiency. Each party hereby covenants that, prior to the filing of any suit
for an alleged default by the other party hereunder, it shall give the other
party (and, in the case of notices to Landlord, all Mortgagees whom Tenant has
been notified hold Mortgages or deed of trust liens on the Property, Building or
Premises) notice and reasonable time to cure such alleged default. Landlord's
notice to Tenant shall be sufficient if given pursuant to the provisions of
Article XX, and Tenant's notice to Landlord shall be sufficient if given
pursuant to the provisions of Article XX1.B, with copies to Mortgagees as set
forth above. In addition, Tenant acknowledges that Equity Office Properties
Management Corp. is acting solely in its capacity as agent for Landlord and
shall not be liable for any obligations, liabilities, losses or damages arising
out of or in connection with this Lease, all of which are expressly waived by
Tenant.
XXIII. No Waiver.
Failure of either party 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 such party. Failure by either party 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.
A. In the event of holding over by Tenant after expiration of this Lease,
occupancy of the Premises subsequent to such expiration shall be that
of a tenancy on a
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month-to-month basis, and 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 110% 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.
B. In the event of holding over by Tenant after a default under this
Lease and a termination of Tenant's rights to possession or occupancy
of the Premises as a result of such default, such possession or
occupancy subsequent to such default and termination 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
125% of the sum of the Base Rental and Additional Base Rental due for
the period immediately preceding such holding over. In addition to the
obligation to pay the amounts set forth in this paragraph B, during
any such holdover period after a default under this Lease and a
termination of Tenant's rights to possession or occupancy of the
Premises as a result of such default, Tenant shall also be liable to
Landlord for all damage, including any consequential damage, which
Landlord may suffer by reason of such holding over by Tenant.
XXVI. Subordination to Mortgages; Estoppel Certificate.
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, within five (5) days of the date of
such 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 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.
24
<PAGE>
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. Notice shall be sent to the addressees
set forth in Article I of the Lease.
XXVIII. Landlord's Lien.
INTENTIONALLY OMITTED, provided that the deletion of this Article shall not
be construed to be a waiver of Landlord's lien rights as provided by law.
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 Tenant's normal business hours (which are
deemed to be between 7:00 a.m. and 7:00 p.m., Monday through Friday) 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, provided such business or
undertaking is not in direct competition with Tenant's business activity in the
Premises.
25
<PAGE>
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 excepted. If Tenant fails to remove any of
Tenant's Property within ten (10) 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 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 a party and whenever a period of time is herein prescribed for
the taking of any action by that party, the 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 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 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 claiming to have
represented Tenant in connection with this Lease; (g) Should either party
institute any suit against the other party for violation of any of the covenants
or conditions of this Lease, or should either party intervene in any suit in
which the other is a party to enforce or protect its interest or rights
hereunder, the prevailing party in any such suit shall be entitled to all of its
costs, expenses and reasonable fees of its attorney(s) (if and to the extent
permitted by law) in connection therewith; (h) In the event Tenant is a
corporation (including any form of professional association), partnership
(general or limited), or other form of organization other than an individual
(each such entity is individually referred to herein as an "Organizational
Entity"), then each individual executing or attesting this Lease on behalf of
Tenant hereby covenants, warrants and represents: (1) that such individual 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; (4) that the execution and delivery of
26
<PAGE>
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; (i) At any time during the Lease Term, except when deemed
to be confidential buy Tenant, Tenant shall provide Landlord, upon ten (10)
days' prior written notice from Landlord, with 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, (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; (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. This Lease shall not be
effective until an original of this Lease executed by both Landlord and Tenant
and an original Guaranty, if any, executed by each Guarantor is delivered to and
accepted by Landlord, and this Lease has been approved by Landlord's Mortgagees,
if required.
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-Outline and Location of the Premises;
(b) Exhibit B-Rules and Regulations; (c) Exhibit C-Additional Terms and
Conditions; (d) Exhibit D-Work Letter; and (e) Exhibit E-Janitorial
Specifications.
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 PROPERTIES MANAGEMENT
______________________________ CORP., a Delaware corporation, as agent
Name (print): ________________ By: _______________________________
______________________________ Name: Arvid Povilaitis
Name (print): ________________ Title: Vice President
Date: _____________________________
WITNESS/ATTEST:
TENANT: REGENTS OF THE UNIVERSITY OF MICHIGAN,
a Michigan Constitutional corporation
27
<PAGE>
__________________________________
By: ________________________________
Name(print):______________________
Name: ______________________________
__________________________________
Title: _____________________________
Name(print): _____________________ Date: ______________________________
28
<PAGE>
THE ACKNOWLEDGMENTS ON THESE PAGES ARE REQUIRED IF PROPERTY IS IN
DELAWARE, MICHIGAN, OHIO, UTAH, WASHINGTON, D. C. OR WASHINGTON STATE
LANDLORD ACKNOWLEDGMENTS
STATE OF ILLINOIS )
COUNTY OF COOK ) ss:
I, the undersigned, a Notary Public, in and for the County and State
aforesaid, do hereby certify that _______________________, personally known to
me to be the Vice President of Equity Office Properties Management Corp., a
Delaware corporation and personally known to me to be the same person whose name
is subscribed to the foregoing instrument, appeared before me this day in person
and acknowledged that as such officer of said corporation being authorized so to
do, (s)he executed the foregoing instrument on behalf of said corporation, by
subscribing the name of such corporation by herself/himself as such officer, as
a free and voluntary act, and as the free and voluntary act and deed of said
corporation, as agent for the Landlord designated in the foregoing instrument,
for the uses and purposes therein set forth.
GIVEN under my hand and official seal this ____ day of _________, ____.
________________________________________
Notary Public
My Commission Expires: _______________________
TENANT ACKNOWLEDGMENTS
(Corporation)
STATE OF MICHIGAN)
COUNTY OF )ss:
On this the _____ day of ________, 19___, 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 _________________________, one of the parties
described in 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: _______________________
29
<PAGE>
EXHIBIT A
OUTLINE AND LOCATION OF PREMISES
--------------------------------
This exhibit is attached to and made a part of the Lease dated
__________________, by and between Burlington Associates General Partnership, an
Illinois General Partnership ("Landlord") by its agent Equity Office Properties
Management Corp., a Delaware corporation, and THE REGENTS OF THE UNIVERSITY OF
MICHIGAN, a Michigan Constitutional corporation ("Tenant") for space in the
building located at 325 E. Eisenhower Parkway, Ann Arbor, MI 48108.
<PAGE>
EXHIBIT B
BUILDING RULES AND REGULATIONS
------------------------------
The following rules and regulations shall apply, where applicable, to the
Premises, the Building, the parking garage associated therewith (if any), the
Property and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways and other similar areas
shall not be obstructed by Tenant or used by Tenant for any purpose other
than ingress and egress to and from the Premises. No rubbish, litter,
trash, or material of any nature shall be placed, emptied, or thrown in
those areas. At no time shall Tenant permit Tenant's employees to loiter in
common areas or elsewhere in or about the Building or Property.
2. Plumbing fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. Damage resulting to any such
fixtures or appliances from misuse by Tenant or its agents, employees or
invitees, shall be paid for by Tenant, and Landlord shall not in any case
be responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on or to
any windows, doors or other parts of the Building, except those of such
color, size, style and in such places as shall be first approved in writing
by Landlord. No nails, hooks or screws shall be driven or inserted into any
part of the Premises or Building except by the Building maintenance
personnel, except for the hanging of light weight pictures nor shall any
part of the Building be defaced by Tenant.
4. Landlord may provide and maintain in the first floor (main lobby) of the
Building an alphabetical directory board listing all Tenants, and no other
directory shall be permitted unless previously consented to by Landlord in
writing.
5. Tenant shall not place any additional lock or locks on any door in the
Premises or Building without Landlord's prior written consent. A reasonable
number of keys to the locks on the doors in the Premises shall be furnished
by Landlord to Tenant at the cost of Tenant, and Tenant shall not have any
duplicate keys made. All keys shall be returned to Landlord at the
expiration or earlier termination of this Lease.
6. All contractors, contractor's representatives, and installation technicians
performing work in the Building shall be subject to Landlord's prior
approval and shall be required to comply with Landlord's standard rules,
regulations, policies and procedures, as the same may be revised from time
to time. Tenant shall be solely responsible for complying with all
applicable laws, codes and ordinances pursuant to which said work shall be
performed.
7. Movement in or out of the Building of furniture or office equipment, or
dispatch or receipt by Tenant of any merchandise or materials which require
the use of elevators,
<PAGE>
stairways, lobby areas, or loading dock areas, shall be restricted to hours
designated by Landlord. Tenant must seek Landlord's prior approval by
providing in writing a detailed listing of any such activity. If approved
by Landlord, such activity shall be under the supervision of Landlord and
performed in the manner stated by Landlord. Landlord may prohibit any
article, equipment or any other item from being brought into the Building.
Tenant is to assume all risk for damage to articles moved and injury to any
persons resulting from such activity. If any equipment, property, and/or
personnel of Landlord or of any other tenant is damaged or injured as a
result of or in connection with such activity, Tenant shall be solely
liable for any and all damage or loss resulting therefrom.
8. Landlord shall have the power to prescribe the weight and position of safes
and other heavy equipment or items, which in all cases shall not in the
opinion of Landlord exceed acceptable floor loading and weight distribution
requirements. All damage done to the Building by the installation,
maintenance, operation, existence or removal of any property of Tenant
shall be repaired at the expense of Tenant.
9. Corridor doors, when not in use, shall be kept closed.
10. Tenant shall not: (1) make or permit any improper, objectionable or
unpleasant noises or odors in the Building, or otherwise interfere in any
way with other tenants or persons having business with them; (2) solicit
business or distribute, or cause to be distributed, in any portion of the
Building excluding the Premises any handbills, promotional materials or
other advertising; or (3) conduct or permit any other activities in the
Building that might constitute a nuisance.
11. No animals, except seeing eye dogs, shall be brought into or kept in, on or
about the Premises.
12. No inflammable, explosive or dangerous fluid or substance shall be used or
kept by Tenant in the Premises or Building. Tenant shall not, without
Landlord's prior written consent, use, store, install, spill, remove,
release or dispose of within or about the Premises or any other portion of
the Property, any asbestos-containing materials or any solid, liquid or
gaseous material now or hereafter considered toxic or hazardous under the
provisions of 42 U.S.C. Section 9601 et seq. or any other applicable
environmental law which may now or hereafter be in effect. If Landlord does
give written consent to Tenant pursuant to the foregoing sentence, Tenant
shall comply with all applicable laws, rules and regulations pertaining to
and governing such use by Tenant, and shall remain liable for all costs of
cleanup or removal in connection therewith.
13. Tenant shall not use or occupy the Premises in any manner or for any
purpose which would injure the reputation or impair the present or future
value of the Premises or the Building; without limiting the foregoing,
Tenant shall not use or permit the Premises or any portion thereof to be
used for lodging, sleeping or for any illegal purpose.
14. Tenant shall not take any action which would violate Landlord's labor
contracts affecting the Building or which would cause any work stoppage,
picketing, labor disruption or dispute, or any interference with the
business of Landlord or any other
<PAGE>
tenant or occupant of the Building or with the rights and privileges of any
person lawfully in the Building. Tenant shall take any actions necessary to
resolve any such work stoppage, picketing, labor disruption, dispute or
interference and shall have pickets removed and, at the request of
Landlord, immediately terminate at any time any construction work being
performed in the Premises giving rise to such labor problems, until such
time as Landlord shall have given its written consent for such work to
resume. Tenant shall have no claim for damages of any nature against
Landlord or any of the Landlord Related Parties in connection therewith,
nor shall the date of the commencement of the Term be extended as a result
thereof.
15. If Tenant requires pest extermination in addition to the pest extermination
included as part of Basic Costs, Tenant shall, at Tenant's cost utilize the
termite and pest extermination service designated by Landlord to control
termites and pests in the Premises.
16. Tenant shall not install, operate or maintain in the Premises or in any
other area of the Building, any electrical equipment which does not bear
the U/L (Underwriters Laboratories) seal of approval, or which would
overload the electrical system or any part thereof beyond its capacity for
proper, efficient and safe operation as determined by Landlord, taking into
consideration the overall electrical system and the present and future
requirements therefor in the Building. Tenant shall not furnish any cooling
or heating to the Premises, including, without limitation, the use of any
electronic or gas heating devices, without Landlord's prior written
consent. Tenant shall not use more than its proportionate share of
telephone lines available to service the Building.
17. Tenant shall not operate or permit to be operated on the Premises any coin
or token operated vending machine or similar device (including, without
limitation, telephones, lockers, toilets, scales, amusement devices and
machines for sale of beverages, foods, candy, cigarettes or other goods),
except for those vending machines or similar devices which are for the sole
and exclusive use of Tenant's employees, and then only if such operation
does not violate the lease of any other tenant of the Building.
18. Bicycles and other vehicles are not permitted inside or on the walkways
outside the Building, except in those areas specifically designated by
Landlord for such purposes.
19. Landlord may from time to time adopt appropriate systems and procedures for
the security or safety of the Building, its occupants, entry and use, or
its contents. Tenant, Tenant's agents, employees, contractors, guests and
invitees shall comply with Landlord's reasonable requirements relative
thereto.
20. Landlord shall have the right to prohibit the use of the name of the
Building or any other publicity by Tenant that in Landlord's opinion may
tend to impair the reputation of the Building or its desirability for
Landlord or other tenants. Upon written notice from Landlord, Tenant will
refrain from and/or discontinue such publicity immediately.
21. Tenant shall carry out Tenant's permitted repair, maintenance, alterations,
and improvements in the Premises only during times agreed to in advance by
Landlord and in a manner which will not interfere with the rights of other
tenants in the Building.
<PAGE>
22. Canvassing, soliciting, and peddling in or about the Building is
prohibited. Tenant shall cooperate and use its best efforts to prevent the
same.
23. At no time shall Tenant permit or shall Tenant's agents, employees,
contractors, guests, or invitees smoke in any common area of the Building,
unless such common area has been declared a designated smoking area by
Landlord.
24. Tenant shall observe Landlord's rules with respect to maintaining standard
window coverings at all windows in the Premises so that the Building
presents a uniform exterior appearance. Tenant shall ensure that to the
extent reasonably practicable, window coverings are closed on all windows
in the Premises while they are exposed to the direct rays of the sun.
25. All deliveries to or from the Premises shall be made only at such times, in
the areas and through the entrances and exits designated for such purposes
by Landlord. Tenant shall not permit the process of receiving deliveries to
or from the Premises outside of said areas or in a manner which may
interfere with the use by any other tenant of its premises or of any common
areas, any pedestrian use of such area, or any use which is inconsistent
with good business practice.
26. The work of cleaning personnel shall not be hindered by Tenant before 7:00
a.m. or after 7:00 p.m. and such cleaning work may be done at any time when
the offices are vacant. Windows, doors and fixtures may be cleaned at any
time. Tenant shall provide adequate waste and rubbish receptacles necessary
to prevent unreasonable hardship to Landlord regarding cleaning service.
Any cost for cleaning requested by Tenant in excess of Landlord's as set
forth on Exhibit E attached hereto, shall be the responsibility of Tenant.
<PAGE>
EXHIBIT C
ADDITIONAL TERMS AND CONDITIONS
-------------------------------
This exhibit is attached to and made a part of the Lease dated
__________________, by and between Burlington Associates General Partnership, an
Illinois General Partnership ("Landlord") by its agent Equity Office Properties
Management Corp., a Delaware corporation, and THE REGENTS OF THE UNIVERSITY OF
MICHIGAN, a Michigan Constitutional corporation ("Tenant") for space in the
building located at 325 E. Eisenhower Parkway, Ann Arbor, MI 48108.
I. Right of First Offer.
---------------------
A. Tenant shall have the right of first offer with respect to any space
that becomes Available for Lease (hereinafter defined) on the
remaining balance of the building (the "Offering Space"). Offering
Space shall be deemed to be "Available for Lease" as follows: (i) with
respect to any Offering Space that is under lease from time to time to
third parties, such Offering Space shall be deemed to be Available for
Lease when Landlord has determined that such third party will not
extend or renew the term of its lease for the Offering Space, or (ii)
with respect to any vacant Offering Space, such Offering Space shall
be deemed to be available when Landlord has located a prospective
tenant that may be interested in leasing such Offering Space. Within a
reasonable time after Landlord has determined that a particular
portion of the Offering Space is Available for Lease (but prior to
leasing such portion of the Offering Space to a third party), Landlord
shall advise Tenant (the "Advice") of the square footage and location
of such portion of the Offering Space. Tenant may lease such portion
of the Offering Space in its entirety only, under the terms and
conditions set forth herein, by delivering written notice of exercise
to Landlord ("Notice of Exercise") within ten (10) days after the date
of the Advice, except that Tenant shall have no such Right of First
Offer 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. Tenant is not occupying the premises on the date Landlord would
otherwise deliver the Advice; or
5. the Offering Space is not intended for the exclusive use of
Tenant during the Lease Term; or
<PAGE>
6. the existing tenant in the Offering Space is interested in
extending or renewing its lease for the Offering Space or
entering into a new lease for such Offering Space.
B. 1. The term for the Offering Space shall commence upon the
commencement date stated in the Advice and thereupon such
Offering Space shall be considered a part of the Premises,
provided that all of the terms stated in the Advice shall govern
Tenant's leasing of the Offering Space only to the extent that
they do not conflict with the Lease.
2. Tenant shall pay Base Rental and Additional Base Rental for the
Offering Space in accordance with the terms and conditions of the
Advice, which terms and conditions shall reflect the Prevailing
Market rate for the Offering Space as determined in Landlord's
reasonable judgment.
3. The Offering 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 Offering Space or as of the date the term for
such Offering Space commences, provided that such Offering Space
shall be delivered to Tenant vacant, broom clean, except as
mutually agreed to by Tenant and Landlord prior to the execution
of the agreement leasing the Offering Space, and free of claims
and possession of third parties.
C. The rights of Tenant hereunder with respect to any portion of the
Offering Space for which Landlord provides Tenant with an Advice shall
terminate on the earlier to occur of: (i) Tenant's failure to exercise
its Right of First Offer within the ten (10) 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. In addition, if
Landlord provides Tenant with an Advice for any portion of the
Offering Space that contains expansion rights (whether such rights are
described as an expansion option, right of first refusal, right of
first offer or otherwise) with respect to any other portion of the
Offering Space (such other portion of the Offering Space subject to
such expansion rights is referred to herein as the "Encumbered
Offering Space") and Tenant does not exercise its Right of First Offer
to lease the Offering Space described in the Advice, Tenant's Right of
First Offer with respect to the Encumbered Offering Space shall be
subject and subordinate to all such expansion rights contained in the
Advice.
D. 1. If Tenant exercises its Right of First Offer, Landlord shall
prepare an amendment (the "Offering Amendment") adding the
Offering Space to the Premises on the terms set forth in the
Advice and reflecting the changes in the rent, rentable area of
the premises, Tenant's pro rata share and other appropriate
terms.
<PAGE>
2. A copy of the Offering Amendment shall be (i) sent to Tenant
within a reasonable time after receipt of the Notice of Exercise
executed by Tenant, and (ii) revised by Landlord to address any
requested changes by Tenant that are necessary to accurately
reflect the terms and conditions hereof; (iii) executed by Tenant
and returned to Landlord within thirty (30) days thereafter; but
an otherwise valid exercise of the Right of First Offer shall be
fully effective whether or not the Offering Amendment is
executed.
E. For purposes hereof, Prevailing Market rate shall mean the annual
rental rate per square foot for space comparable to the Offering Space
in the Building and office buildings comparable to the Building in Ann
Arbor, Michigan, under leases and renewal and expansion amendments
being entered into at or about the time that Prevailing Market is
being determined giving appropriate consideration to tenant
concessions, brokerage commissions, tenant improvement allowances, and
the method of allocating operating expenses and taxes. Notwithstanding
the foregoing, space leased under any of the following circumstances
shall not be considered to be comparable for purposes hereof: (i) the
lease term is for less than the lease term of the Offering Space, (ii)
the space is encumbered by the option rights of another tenant, or
(iii) the space has a lack of windows and/or an awkward or unusual
shape or configuration. The foregoing is not intended to be an
exclusive list of space that will not be considered to be comparable.
II. Permitted Use Restrictions.
---------------------------
A. Tenant shall use the Premises for the Permitted Use and for no other
purpose. The Premises shall not be used as an emergency clinic or
emergency medical facility, no patients shall be permitted to stay
overnight in the Premises; and no patients shall be transported to the
Premises on gurneys or transported to the building in emergency
vehicles. Further, in no event shall Tenant use or occupy the Premises
in a manner that would be inconsistent with the character and dignity
of the building and Landlord may require Tenant to immediately cease
any business, procedures, activities or other use which is causing (i)
disturbance of, or interference with Landlord's operation and
management of the building or the use and occupancy thereof by any
tenant therein, or (ii) any public disputes, demonstrations or
unflattering media attention involving the building or any business
conducted therein.
B. Without limiting the limitations imposed by the Permitted Use clause,
Tenant shall not use or permit the Premises to be used for any purpose
that would allow medical or medicinal odors or fumes to emanate from
the Premises. In the event such odors or fumes do emanate from the
Premises, Tenant, at its sole cost and expense, shall be responsible
for taking whatever steps are necessary to either eliminate such odors
or fumes or to keep such odors or fumes from emanating from the
Premises, including, without limitation, the installation of direct
ventilation to the outside of the building in a manner approved by
Landlord.
<PAGE>
C. Tenant agrees to be solely responsible for the disposal of all
medical, infectious and hazardous waste that is generated in the
Tenant's Premises and to indemnify and hold Landlord harmless against
and from all liabilities, obligations, damages, penalties, claims,
costs, charges and expenses which may be imposed upon, incurred by, or
asserted against Landlord in connection with the generation and
existence of such medical, infectious and/or hazardous waste and the
removal thereof from the Premises. Tenant agrees to comply with all
laws, ordinances, orders, rules and regulations of any governmental or
regulatory agency with respect to the generation, existence, removal
and disposal of any such medical, infectious and/or hazardous waste.
D. Tenant agrees to contract with a licensed and insured medical waste
disposal vendor acceptable to Landlord and to provide a copy of such
contract to Landlord. If vendors are changed, Tenant agrees to notify
Landlord of such change prior to the effective date thereof and to
provide the appropriate documentation to Landlord. In no event shall
any medical, infectious and/or hazardous waste be place or stored
outside of the Premises, it being agreed that all such materials shall
be kept in the Premises until picked up by the approved medical waste
disposal vendor. Any such medical, infectious and/or hazardous waste
shall be removed from the building by use of the freight elevators and
in no event shall the passenger elevators be used for such purpose.
E. Tenant, at Tenant's sole cost and expense, shall obtain and maintain
throughout the Term any licenses, permits or zoning approvals required
by any governmental body for the conduct of Tenant's business and
medical uses within the Premises.
III. Environmental.
--------------
A. Tenant shall not use, generate, manufacture, store or dispose of, on
or about the Premises, or transport to or from the Premises, any
flammable explosives, radioactive materials, hazardous wastes, toxic
substances, or any related materials or substances, including, without
limitation, any substance defined as or included in the definition of
"hazardous substances" under any applicable federal, state or local
law, regulation or ordinance (collectively, "Hazardous Materials").
B. Notwithstanding the foregoing, Tenant and Landlord shall have the
right to use, generate and store on the Premises and the Building, and
transport to and from the Premises and the Building, those Hazardous
Materials which are generally used in the ordinary course in first
class office buildings and in the performance of Tenant's business in
the Premises; provided, however, that Tenant's use, generation,
storage and transport thereof is in compliance with all applicable
federal, state and local laws, regulations and ordinances.
<PAGE>
C. Promptly, upon either Landlord's or Tenant's obtaining actual
knowledge thereof, such party shall immediately notify the other party
in writing of (i) any and all enforcement, cleanup, removal or other
governmental or regulatory actions instituted, completed or threatened
with respect to Hazardous Materials pursuant to any applicable
federal, state or local law, ordinance or regulation, and (ii) all
claims made or threatened by any third party against Landlord, Tenant,
or the Premises relating to any damage, loss or injury, whether to
person or property, resulting from the Hazardous Materials. The
parties acknowledge that as a state agency, Tenant may have a legal
obligation to report releases or threatened releases under state law.
D. Except as disclosed hereby, Landlord represents, to the best of its
knowledge, that the Premises will be free of Hazardous Materials in
amounts, and conditions which pose danger to human beings, and that
Landlord, at Landlord's sole cost and expense following notice of any
violation, will cause the Premises to be in full compliance with any
and all current or future governmental conditions and requirements
including, but not limited to, those relating to asbestos, PCB's and
other Hazardous Materials.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Exhibit 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 PROPERTIES MANAGEMENT
_______________________________ CORP., a Delaware corporation, as agent
Name (print): _________________ By: __________________________________
_______________________________ Name: Arvid Povilaitis
Name (print): _________________ Title: Vice President
Date: ________________________________
WITNESS/ATTEST:
TENANT: REGENTS OF THE UNIVERSITY OF MICHIGAN,
a Michigan Constitutional corporation
_______________________________
By: _______________________________________
Name(print): __________________
Name: _____________________________________
_______________________________
Title: ____________________________________
Name(print): __________________ Date: _____________________________________
<PAGE>
EXHIBIT D
WORK LETTER
-----------
This exhibit is attached to and made a part of the Lease dated
__________________, by and between Burlington Associates General Partnership, an
Illinois General Partnership ("Landlord") by its agent Equity Office Properties
Management Corp., a Delaware corporation and THE REGENTS OF THE UNIVERSITY OF
MICHIGAN, a Michigan Constitutional corporation ("Tenant") for space in the
building located at 325 E. Eisenhower Parkway, Ann Arbor, MI 48108.
1. This Work Letter shall set forth the obligations of Landlord and Tenant
with respect to the preparation of the Premises for Tenant's occupancy. All
improvements described in this Work Letter to be constructed in and upon
the Premises by Landlord are hereinafter referred to as the "Landlord
Work." It is agreed that construction of the Landlord Work will be
completed at Tenant's sole cost and expense, subject to the Allowance (as
defined below). Landlord shall enter into a direct contract for the
Landlord Work with a general contractor selected by Landlord. In addition,
Landlord shall have the right to select and/or approve of any
subcontractors used in connection with the Landlord Work.
2. Space planning, architectural and engineering (mechanical, electrical and
plumbing) drawings for the Landlord Work shall be prepared by Tenant's
architect or Landlord's architect at Tenant's sole cost and expense,
subject to the Allowance. The space planning, architectural and mechanical
drawings are collectively referred to herein as the "Plans".
3. Tenant and Tenant's architect shall devote such time in consultation with
Landlord and Landlord's architect and/or engineer as may be required to
provide Landlord with Plans for the Landlord Work by not later than 5:00
p.m. on April 30, 1998 (the "Plans Due Date").
4. In the event Landlord's estimate and/or the actual cost of construction
shall exceed the Allowance, Landlord, prior to commencing any construction
of Landlord Work, shall submit to Tenant a written estimate setting forth
the anticipated cost of the Landlord Work, including but not limited to
labor and materials, contractor's fees and permit fees. Within five (5)
business days thereafter, Tenant shall either notify Landlord in writing of
its approval of the cost estimate, or specify its objections thereto and
any desired changes to the proposed Landlord Work. In the event Tenant
notifies Landlord of such objections and desired changes, Tenant shall work
with Landlord to reach a mutually acceptable alternative cost estimate.
5. In the event Landlord's estimate and/or the actual cost of construction
shall exceed the Allowance, if any (such amounts exceeding the Allowance
being herein referred to as the "Excess Costs"), Tenant shall pay to
Landlord ninety percent (90%) of such Excess Costs as approved under
section 4 above as Additional Base Rental in three (3) installments prior
to the Commencement Date upon presentation of three (3) individual detailed
statements to Tenant by Landlord describing the portion of Excess Work
<PAGE>
completed per the statements. The final ten percent (10%) of the Excess
Cost shall be paid to Landlord by Tenant as Additional Base Rental after
completion of Landlord's Work, including any punch list items and following
the passing of the final inspection pursuant to the provisions of Section
III.B of the Lease. The statements of costs submitted to Landlord by
Landlord's contractors shall be conclusive for purposes of determining the
actual cost of the items described therein. The amounts payable hereunder
constitute Rent payable pursuant to the Lease, and the failure to timely
pay same constitutes an event of default under the Lease.
6. If Tenant shall request any change, addition or alteration in any of the
Plans after approval by Landlord, Tenant shall have such revisions to the
drawings prepared, at Tenant's cost. Promptly upon completion of the
revisions, Landlord shall notify Tenant in writing of the increased cost
which will be chargeable to Tenant by reason of such change, addition or
deletion. Tenant, within five (5) business days, shall notify Landlord in
writing whether it desires to proceed with such change, addition or
deletion. In the absence of such written authorization, Landlord shall have
the option to continue work on the Premises disregarding the requested
change, addition or alteration, or Landlord may elect to discontinue work
on the Premises until it receives notice of Tenant's decision. In the event
such revisions result in a higher estimate of the cost of construction
and/or higher actual construction costs which exceed the Allowance, such
increased estimate or costs shall be deemed Excess Costs pursuant to
Paragraph 5 hereof and Tenant shall pay such Excess Costs upon demand.
7. Following approval of the Plans, which also signifies Tenant's agreement to
pay the Excess Costs, if any, in accordance with the terms hereof, Landlord
shall cause the Landlord Work to be constructed substantially in accordance
with the approved Plans. Landlord shall notify Tenant of substantial
completion of the Landlord Work.
8. Landlord, provided Tenant is not in default, agrees to provide Tenant with
an allowance (the "Allowance") in an amount not to exceed One Hundred Fifty
Three Thousand Eight Hundred Seventy Two and 00/100 Dollars ($153,872.00)
(i.e., $8.00 per rentable square foot of the Premises) to be applied toward
the cost of the Landlord Work in the Premises. In the event the Allowance
shall not be sufficient to complete the Landlord Work, Tenant shall pay the
Excess Costs as prescribed in paragraph 5 above. In the event the Allowance
exceeds the cost of Landlord Work, any remaining Allowance shall accrue to
the sole benefit of Landlord, it being agreed that Tenant shall not be
entitled to any credit, offset, abatement or payment with respect thereto.
9. This Exhibit D shall not be deemed applicable to any additional space added
to the original Premises at any time or from time to time, whether by any
options under the Lease or otherwise, or to any portion of the original
Premises or any additions to the Premises in the event of a renewal or
extension of the original Term of this Lease, whether by any options under
the Lease or otherwise, unless expressly so provided in the Lease or any
amendment or supplement to the Lease.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Exhibit 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 PROPERTIES MANAGEMENT
_____________________________ CORP., a Delaware corporation, as agent
Name (print): _______________ By: __________________________________
_____________________________ Name: Arvid Povilaitis
Name (print): _______________ Title: Vice President
Date: ________________________________
WITNESS/ATTEST:
TENANT: REGENTS OF THE UNIVERSITY OF MICHIGAN,
a Michigan Constitutional corporation
_____________________________
By: _______________________________________
Name(print): ________________
Name: _____________________________________
_____________________________
Title: ____________________________________
Name(print): ________________
Date: _____________________________________
<PAGE>
EXHIBIT E
CLEANING SPECIFICATIONS
-----------------------
This Exhibit is attached to and made a part of the Lease dated
__________________, by and between Burlington Associates General Partnership, an
Illinois general partnership ("Landlord") by its agent Equity Office Properties
Management Corp., a Delaware corporation and THE REGENTS OF THE UNIVERSITY OF
MICHIGAN, a Michigan Constitutional corporation ("Tenant") for space in the
building located at 325 East Eisenhower Parkway, Ann Arbor, MI 48108.
DAILY SERVICES:
Five times per week
1. Empty waste baskets.
2. Empty and clean ash trays.
3. Dust desk tops which are clear of working papers.
4. Sweep or vacuum floor area.
5. Toilet rooms:
a. Empty and disinfect all waste receptacles.
b. Clean and disinfect all fixtures and clean mirrors and shelves
c. Refill paper and soap dispensers.
WEEKLY SERVICES:
1. Damp mop floors, stairways, lobbies and corridors.
2. Dust tops of file cabinets, ledges, baseboards and heat conductors.
3. Wash and disinfect all ceramic tile, toilet partitioning, and fixtures.
4. Remove smudges and scuff marks from all painted surfaces and glass
office partitions wherever possible.
5. Sweep and wet mop floors as needed.
6. Wash entrance door glass.
SERVICES AS NEEDED:
1. Wax and polish floor in reception area.
2. Wash all glass in office partitions.
3. Clean windows.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,160,100
<SECURITIES> 2,995,700
<RECEIVABLES> 811,900
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,967,700
<PP&E> 48,863,600
<DEPRECIATION> 17,200,600
<TOTAL-ASSETS> 36,930,500
<CURRENT-LIABILITIES> 1,495,400
<BONDS> 33,941,400
0
0
<COMMON> 0
<OTHER-SE> (775,200)
<TOTAL-LIABILITY-AND-EQUITY> 36,930,500
<SALES> 0
<TOTAL-REVENUES> 9,134,200
<CGS> 0
<TOTAL-COSTS> 4,554,500
<OTHER-EXPENSES> 162,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,711,500
<INCOME-PRETAX> 214,100
<INCOME-TAX> 0
<INCOME-CONTINUING> 214,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,100
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
