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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required] For the fiscal year ended December 31,
1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission File Number 33-11064
EREIM LP ASSOCIATES
(Exact name of registrant as specified in governing instrument)
New York 58-1739527
(State of organization) (IRS Employer Identification No.)
787 Seventh Avenue, New York, N.Y. 10019
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 554-1926
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
The Investment Guarantee Agreement (Title of Class) has
not been registered as of the date of this Report
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
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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]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant.
Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the Prospectus of ML/EQ Real Estate Portfolio, L.P., a
Delaware limited partnership, dated April 23, 1987, as supplemented by
supplements dated March 3, 1988 and March 17, 1988 (File No. 33-11064) filed
pursuant to Rule 424 of the Securities Act of 1933, as amended, are incorporated
by reference in Parts I and II of this Annual Report on Form 10-K.
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PART I.
ITEM 1. BUSINESS
Certain of the statements contained in this Annual Report on Form 10-K
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. These statements include, without limitation,
statements regarding future plans with respect to the sale of the properties and
future capital expenditures relating to renovation and development activities.
These forward-looking statements are included in this Annual Report on Form 10-K
based on the intent, belief or current expectations of the Partnership (as
hereinafter defined). However, such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties, and actual
results may differ materially from those projected in the forward-looking
statements as a result of various factors. Although the Partnership believes
that the expectations reflected in such forward-looking statements are based
upon reasonable assumptions, it can give no assurance that its expectations will
be achieved. Factors that could cause actual results to differ materially from
the Partnership's current expectations include general local market conditions,
the investment climate for particular property types, individual property
issues, construction delays due to unavailability of materials, leasing
activities, weather conditions or other causes, and the other risks detailed
from time to time in the Partnership's reports filed with the Securities and
Exchange Commission (the "SEC").
General. The registrant, EREIM LP Associates (the "Partnership"), is a
general partnership formed on December 18, 1986 under the Partnership Law of the
State of New York.
The Partnership's two general partners are EREIM LP Corp., a Delaware
corporation ("LP Corp."), and The Equitable Life Assurance Society of the United
States, a New York mutual life insurance company ("Equitable", and, together
with LP Corp., the "General Partners"). LP Corp. is an indirect, wholly-owned
subsidiary of Equitable.
The Partnership has issued an investment guaranty agreement dated as of
March 10, 1988 (the "Guaranty Agreement") to EML Associates (the "Venture"), a
joint venture formed in March 1988, between the Partnership and ML/EQ Real
Estate Portfolio, L.P. ("ML/EQ"), a Delaware limited partnership of which an
indirect, wholly-owned subsidiary of Equitable, EREIM Managers Corp., is the
Managing General Partner and an affiliate of Merrill Lynch & Co., Inc., MLH Real
Estate Associates Limited Partnership, is the Associate General Partner (the
"Associate General Partner"). The Guaranty Agreement has been assigned to ML/EQ.
Capitalized terms used in this annual report that are not defined herein have
the same meaning as in the Partnership Agreement of ML/EQ dated as of February
9, 1988, which is included as an exhibit to this annual report.
The Managing General Partner of ML/EQ was a wholly-owned subsidiary of
Equitable Real Estate Investment Management, Inc. ("Equitable Real Estate"),
which was a wholly owned subsidiary of Equitable. On June 10, 1997, Equitable
sold Equitable Real Estate to a subsidiary of Lend Lease
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Corporation Limited ("Lend Lease"). The shares of the Managing General Partner
were not included in the sale and the Managing General Partner continues to be a
wholly-owned indirect subsidiary of Equitable. Lend Lease merged its existing
U.S. real estate investment advisor, The Yarmouth Group, Inc., into Equitable
Real Estate and changed the name of Equitable Real Estate to ERE Yarmouth, Inc.
("ERE Yarmouth"). ERE Yarmouth was retained by the Managing General Partner, at
the Managing General Partner's expense, to continue providing the same services
with respect to the Venture, ML/EQ and the properties that Equitable Real Estate
has historically provided to the Managing General Partner. See "Advisory
Agreement."
ML/EQ offered to the public $150,000,000 of Beneficial Assignee
Certificates (the "BACs"), which evidence the economic rights attributable to
limited partnership interests in ML/EQ (the "Interests"), in an offering (the
"Offering") which commenced in 1987. The Offering was made pursuant to a
Prospectus dated April 23, 1987, as supplemented by Supplements dated December
29, 1987 (the "December Supplement"), March 3, 1988 (the "March 3 Supplement")
and March 17, 1988 (the "March 17 Supplement"), filed with the Securities and
Exchange Commission (the "SEC") in connection with a Registration Statement on
Form S-11 (No. 33-11064). The Prospectus as supplemented is hereinafter referred
to as the "Prospectus." The Offering terminated on March 29, 1988. On March 10,
1988, ML/EQ's initial investor closing occurred at which time ML/EQ received
$92,190,120, representing the proceeds from the sale of 4,609,506 BACs. On May
3, 1988, ML/EQ's final investor closing occurred at which time ML/EQ received
$16,294,380, representing the proceeds from the sale of an additional 814,719
BACs. In total, ML/EQ realized gross proceeds of $108,484,500 from the Offering,
representing the sale of 5,424,225 BACs.
Effective as of January 1, 1997, ML/EQ entered into an amendment to the
Joint Venture Agreement of the Venture between ML/EQ and the Partnership
pursuant to which the Partnership agreed to defer, without interest, its rights
to receive 20% of the Venture's distributions of sale or financing proceeds
until ML/EQ has received aggregate distributions from the Venture in an amount
equal to the capital contributions made to ML/EQ by the BAC holders plus a
noncompounded cumulative return computed at the rate of 9.75% per annum on
contributions outstanding from time to time. Prior to the amendment, the
Partnership had a right to receive 20% of all of the Venture's distributions of
sale or financing proceeds on a pari passu basis with ML/EQ. The amendment will
have the effect of accelerating the return of original contributions to BAC
holders to the extent that sale and financing proceeds are realized prior to the
dissolution of ML/EQ.
Business of the Partnership. The Partnership was formed to invest in a
diversified portfolio of properties and mortgage loans. The Partnership
considers its business to represent one industry segment, investment in real
property. The Partnership has, however, a concentration of retail real estate
investments with the inclusion of the Venture's interest in Northland Center,
which was transferred to the Venture and Equitable on July 22, 1994. The
Venture's interest in Northland Center represented approximately 37%, 32% and
31% of the real estate investments owned by the Venture as of December 31, 1997,
1996 and 1995, respectively, and approximately 42%, 46% and 54% of total
revenues of the Venture for the years ended December 31, 1997, 1996 and 1995,
respectively. The Venture's interest in Brookdale Center, which was sold in
November 1997,
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represented approximately 12% of the real estate investments owned by the
Venture as of December 31, 1996 and approximately 20% and 15% of total revenues
of the Venture in the years ended December 31, 1997 and 1996, respectively.
Combined retail real estate investments represented approximately 50%, 53% and
55% of real estate investments owned by the Venture as of December 31, 1997,
1996 and 1995, respectively, and approximately 68%, 67% and 66% of total
revenues of the Venture for the years ended December 31, 1997, 1996 and 1995,
respectively. The Partnership was formed to invest in a diversified portfolio of
properties and mortgage loans. The Partnership conducts its real estate
investment business through the Venture. The capital of the Venture was provided
approximately 20% by the Partnership through the contribution of interests in
two zero coupon mortgage notes (see Item 2. PROPERTIES) and approximately 80% by
ML/EQ, the managing partner of the Venture, through the contribution of net
proceeds of the Offering.
Following the Offering, the Venture acquired a diversified portfolio of
real properties and mortgage loans secured by real properties. Based on original
acquisition prices, approximately 52% of the Venture's original contributed
capital was invested in existing income-producing real properties acquired
without permanent mortgage indebtedness (the "Properties"), approximately 25% of
such capital was invested in zero coupon or similar mortgage notes (the "Zero
Notes"), and the balance was invested in fixed-rate first mortgage loans (the
"Mortgage Loans"). The Properties and the properties that secured the mortgage
loans included commercial, industrial, residential and warehouse/distribution
properties.
At December 31, 1997, the Venture owned six properties (one of which
consists of two adjacent office buildings) and an undivided interest in one
property (Northland Center) (collectively, the "Properties"), as a tenant in
common with Equitable. All references herein to the Venture's ownership of
Northland Center shall be deemed to refer to the Venture's undivided interest as
a tenant in common with Equitable unless otherwise indicated. Five of the
Properties were purchased at an aggregate cost of approximately $61.5 million.
Two of the Properties, Northland Center and 300 Delaware (originally properties
that secured a Zero Note and a fixed rate first mortgage loan), respectively,
were transferred to the Venture during 1994 in separate deed in lieu of
foreclosure transactions. The estimated fair market value of the Venture's
undivided interest in the Northland Center Zero Coupon Mortgage Note Receivable
immediately preceding the transfer was approximately $32.2 million and the
estimated fair market value of the 300 Delaware Mortgage Loan immediately
preceding the transfer was approximately $8.5 million. In addition, at December
31, 1997, the Venture owned one remaining Mortgage Loan in the principal amount
of $6.0 million (the "Mortgage Loan"). (Amounts identified are exclusive of
closing costs.) Reference is made to Item 2. PROPERTIES for information
concerning the Properties and the Mortgage Loan.
Real estate investments are recorded at historical cost less
accumulated depreciation. For purposes of financial statement presentation, the
Properties are stated at cost, unless it is determined that the value of the
Properties has been impaired to a level below depreciated cost. Impairment is
determined by calculating the sum of the estimated undiscounted future cash
flows including the projected undiscounted future net proceeds from sale of the
Property. In the event this sum is less than the depreciated cost of the
Property, the Property will be written down to
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estimated fair market value. With respect to the Mortgage Loan, management
reviews the valuation of the underlying security. If the Venture's portion of
the estimated fair market value of the underlying collateral declines below the
recorded investment in the Mortgage Loan, impairment will be recognized through
the creation of a valuation allowance.
Neither the Partnership nor the Venture has any real property
investments located outside the United States. The Partnership has no employees.
Leasing Information. See Item 2. PROPERTIES for information regarding
percentages of space under lease for each of the Properties and the property
that secures the Mortgage Loan, as well as information relating to the
percentage of rentable space at each Property covered by leases that are
scheduled to expire in each of the years 1998 to 2000.
Competition. The Properties and the property that secures the Mortgage
Loan may compete with other properties in the areas in which they are located
for, among other things, desirable tenants. Competitors may include properties
owned or managed directly or indirectly by Equitable or ERE Yarmouth or their
subsidiaries or affiliates or by affiliates of the Associate General Partner.
Owners of some of these properties may have greater resources than the Venture
or the owners of the property that secures the Mortgage Loan and/or may be
willing or able to make greater concessions (e.g., lower rent or higher
allowances for tenant improvements) to attract tenants. Similarly, tenants of
the Properties may compete for business with other businesses in the area. Such
competition may adversely affect the business (and, in some cases, the
viability) of such tenants and, particularly in the case of retail tenants, may
reduce the amount of rent received by the Venture under percentage rent
provisions.
The Venture's income from Properties may be affected by many factors,
including reductions in rental income due to an inability to maintain occupancy
levels, adverse changes in general economic conditions, adverse local conditions
(such as decreases in demand for similar or competing facilities or competitive
over-building, adverse changes in tax, real estate, zoning and environmental
laws or decreases in employment), energy shortages or increased energy costs, or
acts of God (such as earthquakes and floods). In addition, the ability of the
borrower on the Mortgage Loan to meet its obligations under such loan will be
affected by these same factors. See Item 2. PROPERTIES for a description of
difficulties experienced by certain of the Properties.
The holding period for the Properties was originally intended to be 7
to 10 years. However, the original 7 to 10 year holding period for most of the
Properties ends in May 1998 and ML/EQ does not expect to sell the remaining
Properties prior to such time. ML/EQ continues to evaluate appropriate
strategies for the ownership of each of the Properties in order to achieve
maximum value. In this regard, ML/EQ considers improving capital markets and
investment markets for most types of real estate; local market conditions;
future capital needs, including potential lease exposure for specific
properties; prevailing interest rates; the availability of mortgage financing at
the time that the Properties are offered for sale and other issues that impact
property performance. Similarly, such factors may affect the ability of the
borrower under the Mortgage Loan held by the Venture to sell or refinance the
property that secures such loan, which may adversely affect the
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ability of the borrower to pay such loan at maturity. As described in the ML/EQ
Partnership Agreement, liquidation or dissolution of the Venture will be delayed
until the sale, retirement or other disposition of the Mortgage Loan and
Properties held by the Venture (other than purchase money notes from the sale of
a property) or the liquidation of ML/EQ, but not beyond December 31, 2002. See
INVESTMENT GUARANTY AGREEMENT AND RELATED MATTERS below.
Conflicts of Interest. Equitable and its subsidiaries and affiliates
and its advisor, ERE Yarmouth, are among the largest owners and managers of real
estate assets in the country and certain activities in which they currently or
in the future may engage will be competitive with the Partnership, ML/EQ, and
the Venture. As Managing General Partner of the managing partner of the Venture,
EREIM Managers Corp. may encounter various conflicts of interest in managing
ML/EQ's and the Venture's businesses. These conflicts may, for example, arise in
connection with the allocation of leasing or sale opportunities, selection of
service providers such as property managers (including whether to retain an
affiliate or a non-affiliate), determination to exercise or forbear exercise of
certain rights (e.g., eviction or foreclosure), or the timing of investment
dispositions or liquidations. While EREIM Managers Corp. believes that it will
be able to resolve such conflicts in an equitable manner, it is possible that
such conflicts may not be resolved in favor of ML/EQ, the Venture, or the
Partnership.
Presently, five Properties are managed and leased by Compass Management
and Leasing, Inc. ("Compass") and ERE Yarmouth Retail, Inc. (formerly Compass
Retail, Inc.) ("ERE Yarmouth Retail"), affiliates of ERE Yarmouth, which until
June 10, 1997 were affiliates of Equitable. The property management agreements
are at market rates but not in excess of the rates permitted under the
Partnership Agreement. Property management fees for properties managed by
Compass and ERE Yarmouth Retail were approximately $396,000, $407,000 and
$443,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Leasing commissions are based on a percentage of the rent payable during the
term of the lease as specified in each lease agreement. Leasing commissions paid
by the Venture to Compass and ERE Yarmouth Retail were approximately $276,000,
$124,000 and $94,000 during 1997, 1996 and 1995, respectively. Leasing
commissions are capitalized in deferred leasing costs on the Venture's balance
sheet or expensed in real estate operating expenses on the Venture's statements
of operations in accordance the Venture's capitalization policy. The Venture
reimbursed Compass and ERE Yarmouth Retail for payroll incurred of approximately
$1.8 million, $1.7 million and $2.0 million during 1997, 1996 and 1995,
respectively. Payroll reimbursements are included in real estate operating
expenses on the Venture's statements of operations. Additionally, the Venture
paid construction management fees to Compass and ERE Yarmouth Retail of
approximately $12,000, $92,000 and $168,000 during 1997, 1996 and 1995,
respectively. The construction management fees have been capitalized as a
portion of the construction projects to which they relate.
The General Partners or their affiliates are entitled to receive
various recurring fees for the supervision and administration of partnership
assets and for providing the guaranty of minimum return to BAC holders and to be
reimbursed for certain expenses incurred on behalf of ML/EQ. At December 31,
1997, 1996 and 1995 the accrued balance for these fees and reimbursements
totaled approximately $630,000, $608,000 and $610,000, respectively. Supervisory
and mortgage
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loan servicing fees paid by ML/EQ to the Managing General Partner were
approximately $747,000, $687,000 and $683,000 for the years ended December 31,
1997, 1996 and 1995, respectively. These amounts, which were then paid by the
Managing Partner at its sole expense to ERE Yarmouth or its predecessor as asset
management fees, are included in ML/EQ's statements of operations as asset
management fees and as components of general and administrative expense.
Advisory Agreement. On June 10, 1997, in connection with Lend Lease's
purchase of Equitable Real Estate, the Managing General Partner entered into a
real estate investment advisory agreement with Equitable Real Estate whereby
Equitable Real Estate (currently known as ERE Yarmouth) agreed to perform, at
the Managing General Partner's sole expense, certain duties and obligations in
respect of the Venture. The agreement automatically terminates upon such date as
(i) all of the Properties are sold, (ii) all Mortgage Loans are paid and
discharged and (iii) the affairs of ML/EQ and the Venture are fully wound up,
unless sooner terminated by the Managing General Partner. The agreement is
terminable by the Managing General Partner (a) upon a material breach by ERE
Yarmouth, (b) for any reason or without cause upon ten days prior written notice
to ERE Yarmouth by the Managing General Partner or (c) upon the termination of
the investment advisory agreement between ERE Yarmouth and Equitable with
respect to Equitable's general account.
Working Capital Reserves. The Partnership has not established working
capital reserves at any level. The Partnership may establish and maintain such
working capital reserves as the General Partners from time to time may determine
appropriate, in light of the nature of the Venture's investments and other
considerations.
Insurance. The Properties are covered under insurance contracts that
provide comprehensive general liability as well as physical damage protection.
Such insurance contracts also cover other properties in which Equitable, its
subsidiaries, or its insurance company separate accounts have an ownership
interest.
Although the Venture carries comprehensive insurance on the Properties
and the terms of the Venture's Mortgage Loan requires the borrower to obtain and
maintain general liability, property damage and certain other insurance in
specified amounts, there are certain risks (such as earthquakes, floods and
wars) that may be uninsurable or not fully insurable at a cost believed to be
economically feasible. Moreover, there can be no assurance that particular risks
that are currently insurable will continue to be so, or that current levels of
coverage will continue to be available at a cost believed to be economically
feasible. The Managing General Partner, on behalf of ML/EQ as managing partner
of the Venture, will use its discretion in determining the scope of coverage,
limits and deductible provisions on insurance, with a view to maintaining
appropriate insurance on the Properties at an appropriate cost. Similarly, the
Managing General Partner will use its discretion in determining whether and when
to permit the borrower under the Mortgage Loan to obtain and maintain coverage
that differs from the requirements of the mortgage, with a view to requiring
appropriate insurance on the property which secures the Mortgage Loan in light
of prevailing insurance market, economic, and other factors. This may result in
insurance which will not cover the full extent of a loss or claim.
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Investment Guaranty Agreement and Related Matters. Under an investment
guaranty agreement dated March 10, 1988 by and between the Partnership and the
Venture (the "Guaranty Agreement"), The Partnership has guaranteed to pay the
Venture, if necessary, ninety days after the earlier of the sale, retirement, or
other disposition of the Mortgage Loan and Properties or the liquidation of
ML/EQ, an amount which when added to all distributions from ML/EQ to the holders
of BACs ("BAC Holders") will enable ML/EQ to provide the BAC Holders with a
minimum return (the "Minimum Return") equal to their Capital Contributions plus
a simple annual return equal to 9.75% multiplied by their Adjusted Capital
Contributions (as defined in the Guaranty Agreement), calculated from the
investor closing at which the BAC Holder acquired its BACs.
The Venture has assigned the Guaranty Agreement to ML/EQ in exchange
for ML/EQ's assumption of the Venture's obligations thereunder, including the
obligation to pay the Guaranty Fee. Any moneys distributed by ML/EQ to BAC
Holders and/or limited partners of ML/EQ ("Limited Partners") on account of
payments made under the Guaranty Agreement will be distributed to BAC Holders
and/or Limited Partners based on the total number of BACs or Interests owned by
each BAC Holder and/or Limited Partner as of the date the Minimum Return is
calculated.
If the Venture holds a purchase money note from the sale of a Property
at the time all other investments of ML/EQ and the Venture have been disposed of
and the proceeds distributed, any remaining obligation of the Partnership under
the Guaranty Agreement will be reduced by (i) the aggregate amount of all cash
payments to BAC Holders and Limited Partners and (ii) the discounted value (at
the market rate of interest of a U.S. Treasury security having a comparable
term) of principal and interest payments on the purchase money note. The
Partnership will be required to either purchase the purchase money note from the
Venture at its discounted value or guarantee timely payment of principal and
interest under the note, but only to the extent such note reduces obligations
under the Guaranty Agreement and so long as the note does not reduce obligations
below zero. If the Venture sells a purchase money note at a premium over the
discounted value of the note, the premium will be paid to the Partnership to the
extent of any payments made under the Guaranty Agreement. Moreover, the
Partnership will be entitled to receive any cash payments paid to ML/EQ (other
than payments from a purchase money note guaranteed by the Partnership) to the
extent that it has made any payment under the Guaranty Agreement.
The obligation of the Partnership to pay the Minimum Return is subject
to reduction for (i) any Federal, state or local corporate income or franchise
tax imposed upon ML/EQ or the Venture, and (ii) any Federal, state or local
income, gross receipts, value-added, excise or similar tax imposed on ML/EQ or
the Venture not imposed under law at the time of the Offering, other than any
such local tax imposed as a result of owning real property in the locality. All
distributions from ML/EQ to BAC Holders from whatever source will reduce the
amount of the Partnership's obligation under the Guaranty Agreement. The
obligations of the Partnership under the Guaranty Agreement will terminate in
the event that upon the written consent or the affirmative vote of BAC Holders
or Limited Partners owning more than 50% of the Interests either (i) EREIM
Managers
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Corp. is removed as the Managing General Partner of ML/EQ or (ii) ML/EQ is
dissolved without the consent of EREIM Managers Corp. The Guaranty Agreement
states that the maximum liability of the Partnership under the Guaranty
Agreement is $271,211,250. Based upon the assumption that the last Property is
sold on December 31, 2002, upon expiration of the term of ML/EQ, and subject to
the foregoing description of the Guaranty Agreement, the obligations of the
Partnership under the Guaranty Agreement as of December 31, 1997 are limited to
$202,642,593. The Keep Well Agreement provides that only LP Corp. and its
successors will have the right to enforce Equitable's obligations thereunder.
The obligations of the Partnership under the Guaranty Agreement are
nonrecourse to Equitable but are recourse as to LP Corp. Equitable has entered
into an agreement dated as of March 10, 1988 (the "Keep Well Agreement") with LP
Corp. which provides that Equitable will make capital contributions to LP Corp.
in such amounts as to permit LP Corp. to pay its obligations with respect to the
Guaranty Agreement as they become due; provided, however, that the maximum
liability of Equitable under the Keep Well Agreement is an amount equal to the
lesser of (i) two percent of the total admitted assets of Equitable (as
determined in accordance with New York Insurance Law) or (ii) $271,211,250.
Subject to the foregoing, the obligations of Equitable under the Keep Well
Agreement as of December 31, 1997 are $202,642,593. The Keep Well Agreement
provides that only LP Corp. and its successors will have the right to enforce
Equitable's obligations thereunder.
The Keep Well Agreement is an unsecured contractual liability of
Equitable and is not a policy of insurance. Since the Guaranty Agreement is
nonrecourse as to Equitable and the obligation under the Keep Well Agreement to
pay all obligations of LP Corp. is not for the benefit of third parties,
including ML/EQ and BAC Holders, BAC Holders will have no direct cause of action
against Equitable to enforce the obligations of Equitable under the Keep Well
Agreement. However, if the assets of the Partnership and LP Corp. are
insufficient to satisfy the Partnership's obligations under the Guaranty
Agreement, a proceeding in bankruptcy could be commenced against LP Corp. In
such event the debtor-in-possession or trustee in bankruptcy would have a claim
against Equitable to compel performance under the Keep Well Agreement. If the
Managing General Partner, which is an affiliate of Equitable, did not commence
an involuntary bankruptcy proceeding against LP Corp. on behalf of ML/EQ, MLH
Real Estate Assignor Inc., the initial limited partner of ML/EQ ("the Initial
Limited Partner") on behalf of BAC Holders would have a right to compel ML/EQ to
commence such involuntary bankruptcy proceeding.
The New York Insurance Law contains provisions limiting the amount of
an investment by a New York life insurance company, such as Equitable, in
certain of its subsidiaries and in real estate. The Keep Well Agreement provides
that Equitable's obligation thereunder is subject to compliance with any
applicable limitation on investment contained in the New York Insurance Law.
At December 31, 1997, 1996 and 1995, Equitable's total surplus,
calculated in accordance with the statutory method of accounting, was
approximately $2.46 billion, $2.26 billion and $2.20 billion, respectively. At
December 31, 1997, 1996 and 1995, Equitable's total consolidated capital,
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calculated in accordance with the statutory method of accounting and consisting
of surplus and the Asset Valuation Reserve, was approximately $3.91 billion,
$3.56 billion and $3.55 billion, respectively.
The Equitable Companies Incorporated (the "Holding Company"), a
Delaware corporation, owns all of Equitable's outstanding capital stock.
Equitable and the Holding Company are subject to the informational requirements
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith file reports and other information, including financial
statements, with the Securities Exchange Commission under Commission File No. 0-
25280 and 1-11166, respectively. Such reports and other information filed by
Equitable and the Holding Company can be inspected and copied at the public
reference facilities maintained by the SEC in Washington, D.C. and at certain of
its Regional Offices, and copies may be obtained from the Public Reference
Section of the SEC, Washington, D.C. 20549, at prescribed rates.
Equitable is a diversified financial service organization serving a
broad spectrum of insurance, investment management, and investment banking
customers. It has been in business since 1859. In 1992, it converted from a
mutual life insurance company into a stock life insurance company through a
process called "demutualization."
ITEM 2. PROPERTIES
At December 31, 1997, approximately 78% of the aggregate rentable
square feet of the Venture's Properties was leased. Leases covering
approximately 1.8%, 10.1% and 14.6% of the Properties rentable square feet are
scheduled to expire in 1998, 1999 and 2000, respectively.
In November 1997, the Venture sold Brookdale Center to Talisman
Brookdale L.L.C. for approximately $24.8 million, of which ML/EQ's portion was
approximately $17.8 million. The Venture, in which ML/EQ holds an 80% interest,
held a 71.66% participation interest in Brookdale Center. The sale generated
approximately $17.7 million in net sales proceeds. ML/EQ made a special
distribution of the net proceeds in December 1997. See ITEM 5 MARKET FOR
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
In December 1997, the Venture sold the warehouse/office Properties
located at 701 Maple Lane, 733 Maple Lane, 7550 Plaza Court and 800 Hollywood,
all in Chicago (the "Chicago Industrial Properties") to SSP Real Estate O'Hare,
Inc. for approximately $7.9 million. The sale generated approximately $7.6
million in net sales proceeds. ML/EQ made a distribution of the net proceeds
from the sale and from previous sale and financing events in February 1998. See
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Set forth below is a brief description of each of the Venture's
investments at December 31, 1997. Reference is made to Notes 3, 4, 5 and 9 of
the Notes to Consolidated Financial Statements in Item 8. FINANCIAL STATEMENTS.
The Venture has fee ownership of the land and improvements relating to each of
the Properties.
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<TABLE>
<CAPTION>
Name, Location Approximate Date of Year of
and Type of Property Size Acquisition Completion
- ---------------------------- ------------ ----------- ----------
<C> <C> <C> <C>
1200 Whipple Road 257,500 3/17/88 1963
Union City, CA sq. ft.
warehouse/distribution
Richland Mall 185,794 7/19/88 1974-75
Bucks County, PA sq. ft.
shopping center
16/18 Sentry Park West 187,333 12/22/88 1988
Montgomery County, PA sq. ft.
office buildings
1850 Westfork Drive 103,505 1/6/89 1988
Lithia Springs, GA sq. ft.
warehouse/distribution
1345 Doolittle Drive 326,414 5/18/89 1964
San Leandro, CA sq. ft.
warehouse/distribution
Northland Center 468,823(1) 7/22/94 1954
Southfield, MI sq. ft.
regional mall
300 Delaware 314,313 1/15/94 1970
Wilmington, DE sq. ft.
office building
</TABLE>
- -------------
(1) Excludes square feet of properties owned by certain anchor stores.
Projected Annual Aggregate Lease Payments to be Received (in dollars)(1)
<TABLE>
<CAPTION>
Name of Property 1998 1999 2000 2001 2002 Thereafter
- --------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1200 Whipple Rd. $1,098,200 $1,261,675 $1,261,675 $1,261,675 $1,261,675 $ 817,376
Richland Mall 1,014,816 1,015,274 988,899 933,036 931,978 8,573,940
16/18 Sentry Park West 3,205,929 2,899,434 1,992,546 836,089 602,630 1,795,626
1850 Westfork Dr. 0 0 0 0 0 0
1345 Doolittle Dr. 1,153,290 1,041,568 760,957 396,141 101,076 0
Northland Center (2) 3,629,268 3,256,984 2,842,648 2,474,882 1,986,104 4,210,477
300 Delaware 1,383,736 1,367,936 1,347,953 1,143,597 1,014,993 2,015,806
----------- ------------ ---------- ---------- ---------- -----------
$11,485,239 $10,842,871 $9,194,678 $7,045,420 $5,898,456 $17,413,225
=========== ============ ========== ========== ========== ===========
</TABLE>
- ---------------------
(1) Lease payments to be received under noncancelable operating leases in
effect as of December 31, 1997.
(2) Montgomery Ward filed for Chapter 11 Bankruptcy during 1997. The store
closed in January 1998, yet will continue to pay ground rent through
March 31, 1998. This ground rent has been included in the schedule of
projected annual aggregate lease payments to be received.
-11-
<PAGE> 12
Range of Lease Expirations
<TABLE>
<CAPTION>
Name of Property Years
- -------------------------------- ---------
<C> <C>
1200 Whipple Road 2003
Richland Mall 1999-2017
16/18 Sentry Park West 1998-2007
1850 Westfork Drive (1)
1345 Doolittle Drive 1999-2002
Northland Center 1998-2014
300 Delaware 1998-2007
</TABLE>
- -----------------------
(1) Vacant as of December 31, 1997
Major Tenants
The following list sets forth major tenants for the Properties together
with percentage of space used by such tenants as of December 31, 1997:
<TABLE>
<CAPTION>
Properties Major Tenants Percentage of Leasable Space
----------------- ------------- ----------------------------
<S> <C> <C>
1200 Whipple Road Broadway Stores, Inc. 100%
Richland Mall Bon Ton Department Store 45.4%
Redner's Market 29.3%
16/18 Sentry Park West Liberty Mutual 15.2%
J&B Software 10.8%
1850 Westfork Drive N/A (1)
1345 Doolittle Drive Treasure Chest Advertising 44.1%
National Distribution Agency 23.5%
Jay-N Company 18.6%
Northland Center Hudson's Department Store (2)
J.C. Penney (2)
Montgomery Ward (2)
Target (2)
300 Delaware PNC Bank 32.7%
</TABLE>
- ------------
(1) At December 31, 1997, 1850 Westfork Drive was 100% vacant.
(2) Hudson's Department Store, J.C. Penney, Montgomery Ward, and Target
independently constructed and operate their stores at Northland Center and
each contributes common area maintenance payments
-12-
<PAGE> 13
for operating expenses and real estate taxes under separate agreements.
These stores covering 511,509 square feet, 283,534 square feet, 117,750
square feet, and 116,222 square feet, respectively, are not included in the
gross leasable area of the mall. In addition, J.C. Penney and Montgomery
Ward pay ground rent.
Description of Properties
1200 Whipple Road is a one-story warehouse/distribution property located in
the Hayward-Union City market area, approximately 25 miles southeast of San
Francisco. At December 31, 1997, the property was 100% leased to Broadway
Stores, Inc. under a lease that runs through August 2003. The lease was
assigned to Broadway Stores, Inc. by Permer Control in February 1996. The
lease is guaranteed by Broadway Stores, Inc. and management expects all
obligations under the lease to be fulfilled.
Richland Mall is located in Richland Township, Pennsylvania. It was
converted to a community shopping center in 1997. The primary tenants
include Bon Ton Department Store, Redner's Market Grocery Store, CVS, and
Radio Shack. At December 31, 1997, the Mall was approximately 86% leased
with 26,308 square feet vacant. Excluding the two anchor stores, the Mall
was 44% leased. Leases covering approximately 0.6% and 1.4% of the space
are scheduled to expire in 1999 and 2000, respectively.
In an effort to strengthen Richland Mall's position in this market,
management embarked on a plan in 1997 to (i) address the physical drawbacks
of the center and (ii) enhance tenant mix. The redevelopment of the
property from an enclosed mall to a community shopping center was near
completion at December 31, 1997. Redner's Market, Radio Shack and CVS have
taken occupancy in their new locations and opened for business in November
1997, September 1997 and July 1997, respectively. Currently, the vacant
space is being actively marketed by management.
Wal-Mart, which has been attempting to enter this market for the past few
years, has received zoning approval and has already begun construction of a
Wal-Mart store, which is expected to open in June 1998. The Wal-Mart
Shopping Center store is expected to open in June 1998. The Wal-Mart
Shopping Center (including the Wal-Mart store) is likely to compete with
Richland Mall.
16/18 Sentry Park West are two four-story office buildings located
approximately 15 miles northwest of the Philadelphia central business
district. Tenants include Liberty Mutual Insurance Company and J&B
Software. At December 31, 1997, the property was 99% leased. Leases
covering approximately 2.1%, 23.0% and 45.2% of the space are scheduled to
expire in 1998, 1999 and 2000, respectively.
1850 Westfork Drive is a one-story warehouse/distribution facility located
approximately 15 miles west of the Atlanta central business district. On
August 30, 1997, the lease with Treadway Exports Limited ("Treadway")
expired and Treadway vacated the property. At December 31, 1997 the
property was 100% vacant. Management is actively marketing the space for
lease.
-13-
<PAGE> 14
1345 Doolittle Drive is a one-story warehouse/distribution property located
in San Leandro, California approximately one mile south of Oakland
International Airport. At December 31, 1997, the property was 100% leased.
Major tenants include Treasure Chest Advertising and Publishing,
Stericycle, Inc., National Distribution Agency and Jay-N Company. Leases
covering approximately 25.5% and 44.1% of the space are scheduled to expire
in 1999 and 2000, respectively.
Northland Center, which was transferred to the Venture and Equitable
(collectively, the "Owners") by a deed in lieu of foreclosure on July 22,
1994, is a regional enclosed mall located in Southfield, Michigan. Major
tenants include Hudson's Department Store, J.C. Penney, Montgomery Ward and
Target. As of December 31, 1997, the Center was approximately 67% leased
(excluding the anchor stores). Leases covering approximately 5.7%, 12.3%
and 5.8% of the space (excluding the anchor stores) are scheduled to expire
in 1998, 1999 and 2000, respectively.
Montgomery Ward filed for bankruptcy protection in July 1997. At December
31, 1997, the Northland Center store was still open for business. On
January 4, 1998, the store closed, although Montgomery Ward continues to
pay ground rent. Under Federal Bankruptcy Law, Montgomery Ward has the
right to reject, assume or assign its lease. In order to control the use of
the space, the ML/EQ agreed to pay Montgomery Ward's assignee $100,000 in
exchange for a rejection of the lease, which is expected to be effective
March 31, 1998.
The space vacated by the Montgomery Ward store and the vacant Kohl's
Department Store's ("Kohl's") space containing 60,806 square feet (which
has been vacant since March 1995) represent challenges for the Owners.
While conditions in the retail industry have seen some improvement, the
Montgomery Ward and Kohl's vacancies and the age of the mall place the
property at a competitive disadvantage.
300 Delaware, which was transferred to the Venture by deed in lieu of
foreclosure on November 15, 1994, is a seventeen story office building in
Wilmington, Delaware. PNC Bank, a major tenant, occupies 102,808 square
feet, or 32.7% of the building. PNC's lease expires in May 2005 and
contains an option to renew. PNC's rent is substantially below market
rates. As of December 31, 1997, the building was approximately 61% leased.
Over the past year, management has removed asbestos from a number of the
vacant floors in the building. Currently, approximately 46,492 square feet
of the 121,871 square feet of vacant space still contain asbestos, removal
of which is scheduled for 1998 and 1999. The majority of deferred
maintenance has been corrected, and thus contemplated capital expenditures
in 1998 will generally be for asbestos abatement, tenant improvements and
leasing commissions in connection with actual leasing. Leases
covering approximately 1.0%, 0.2% and 3.7% are scheduled to expire in 1998,
1999 and 2000 respectively.
Management has established an enhancement/stabilization and renovation
program for 300 Delaware. See Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for further information
regarding this renovation program.
-14-
<PAGE> 15
Outstanding Mortgage Loan
<TABLE>
<CAPTION>
Principal &
Name, Location Accrued Int.
and Type of Date of at Date of Interest
Property Investment Investment Rate Maturity
-------------- ---------- ------------ -------- --------
<S> <C> <C> <C> <C>
Jericho Village 1/31/89 $6,000,000 10.25% 2/1/99
Weston, MA
apartment complex
</TABLE>
Jericho Village Loan is a first mortgage loan to the Wilcon Company
secured by an apartment complex in Weston, Massachusetts. Interest-only
payments on the loan in the amount of $51,250 are due monthly in
arrears during the term of the loan, with the full principal amount of
the loan due upon maturity of the loan on February 1, 1999. The
borrower may prepay the loan in full subject to a prepayment penalty
based on a yield maintenance formula, but not less than 2% of the
principal balance of the loan. The property that secures the loan
consists of 22 free-standing one and two-story apartment buildings,
containing a total of 99 apartment units. At December 31, 1997, the
property was approximately 99% leased.
Brookdale Center
Brookdale Zero Note was a first mortgage note secured by Brookdale
Center, a regional shopping mall located approximately five miles
northwest of the central business district of Minneapolis, Minnesota.
The Venture acquired its 71.66% participation interest in 1988 from
Equitable which held the remaining 28.34% interest. The Venture's
participation interest had a fair value (including accrued interest) at
the time of acquisition of approximately $12.3 million. The borrower
was Midwest Real Estate Shopping Center, L.P. ("Midwest"), formerly
Equitable Real Estate Shopping Center, L.P. The note had an implicit
interest rate of 10.2% compounded semiannually, with the Venture's
portion of the principal and accrued interest totaling approximately
$25.3 million due June 30, 1995.
Management discontinued the accrual of interest relating to the
Brookdale note beginning with the second quarter of 1995 as the
accreted value of the mortgage approximated the estimated fair market
value of the Brookdale Center. The Venture's share of the note plus
accrued interest at the time was approximately $24.7 million.
An internal review of the property, performed for the Venture as of
September 30, 1995, estimated the fair market value of Brookdale Center
to be approximately $30.0 million. The Venture recorded a valuation
allowance of approximately $3.2 million to value its interest in the
Brookdale Zero Note at an amount equal to the Venture's participation
interest in the note multiplied by the estimated fair market value of
the Center, or approximately $21.5 million. This valuation allowance
was presented on the consolidated balance sheets as a decrease in
assets and partners' capital and on the consolidated statements of
operations as a provision for impairment on zero coupon mortgage. See
"MANAGEMENT'S
-15-
<PAGE> 16
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS."
On December 16, 1996, Brookdale Center was transferred to the Venture
and Equitable, as tenants in common pursuant to a Chapter 11 bankruptcy
plan for Midwest that was approved by the Bankruptcy Court on November
25, 1996. The consideration for this transfer was (i) release of
Midwest from its obligations under the Brookdale zero coupon note and
(ii) payment to Midwest of $500,000, of which the Venture's portion was
approximately $358,000. An internal review of the property, performed
for the Venture as of the date of transfer, estimated the fair market
value of Brookdale Center to be approximately $21.7 million, of which
the Venture's portion was approximately $15.6 million. Following the
transfer, Brookdale Center was reclassified from zero coupon mortgage
note receivable to rental properties and income and expenses were
recorded from that date. The Venture recognized a loss of approximately
$6.2 million to record Brookdale Center at its estimated fair market
value. The Venture recorded its proportionate share of the assets,
liabilities, revenues, and expenses of the undivided interest in
Brookdale Center in accordance with the Participation Agreement dated
March 3, 1988 between the Venture and Equitable, as amended on March
10, 1988, which is included as an exhibit to this annual report.
In November 1997, the Venture sold Brookdale Center to Talisman
Brookdale L.L.C. for approximately $24.8 million, of which ML/EQ's
portion was approximately $17.8 million. ML/EQ made a special
distribution of the net proceeds in December 1997.
Midwest is subject to the informational requirements under the Exchange
Act, and in accordance therewith files reports and other information,
including financial statements, with the Securities Exchange Commission
under Commission File No. 1-9331. Such reports and other information
filed by Midwest can be inspected and copied at the public reference
facilities maintained by the SEC in Washington, D.C. and at certain of
its Regional Offices, and copies may be obtained from the Public
Reference Section of the SEC, Washington, D.C. 20549, at prescribed
rates.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is a defendant in a consolidated action brought in the
Court of Chancery of the State of Delaware entitled IN RE: ML/EQ Real Estate
Partnership Litigation. The consolidated action results from two related cases.
Scher v. ML/EQ Real Estate Portfolio, L.P., et al., was served on ML/EQ on July
14, 1997. On September 8, 1997, the Partnership was named as a defendant in
Folette v. ML/EQ Real Estate Portfolio, L.P., et al., a substantially similar
complaint, also brought in the Court of Chancery of the State of Delaware. The
cases were consolidated pursuant to a stipulation between the parties by order
of the court on October 3, 1997. In addition to the Partnership, the complaint
names as defendants the Managing General Partner, Equitable, Equitable Real
Estate, EREIM L.P. Corp. and ML/EQ.
The Plaintiffs purport to sue on behalf of a class of all limited
partners of ML/EQ who purportedly have been or will be adversely affected by the
conduct of the defendants. The complaint
-16-
<PAGE> 17
alleges that the defendants have caused the Venture to accumulate excessive cash
rather than distribute it to the limited partners, and that defendants' motive
in so doing was (i) to manipulate ML/EQ's cash flow so as to limit certain
defendants' exposure under the guarantee agreement and (ii) to secure for
certain defendants additional fees. The complaint also alleges that defendants
have utilized the Venture to provide liquidity for illiquid assets and to
acquire and continue to hold under-performing properties. The complaint purports
to state claims for breach of fiduciary duties, breach of contract, and aiding
and abetting breach of fiduciary duties. The complaint requests, among other
things, money damages in an unspecified amount and orders that defendants
distribute to the purported class the cash which defendants have allegedly
wrongfully failed to distribute and disgorge all earnings, profits, interests
and other benefits which they have realized on account of their allegedly
wrongful conduct. The Partnership intends to defend vigorously against these
claims. On November 6, 1997, defendants answered the complaint, denying any
wrongdoing. Additionally, defendants have noticed a motion to dismiss a portion
of the case on the pleadings in the Delaware Court of Chancery. Although the
outcome of any litigation cannot be predicted with certainty, particularly in
the early stages of an action, the Partnership's management believes that the
ultimate resolution of the litigation will not have a material adverse effect on
the financial condition of the Partnership. Due to the early stage of such
litigation, the Partnership's management cannot make an estimate of loss, if
any, or predict whether or not such litigation will have a material adverse
effect on the Partnership's results of operations in any particular period.
Several class action suits have been filed against Midwest, the general
partner of Midwest, certain officers of such general partner, Lehman Brothers,
Inc., Equitable and Equitable Real Estate. The complaints allege, among other
things, that defendants breached their fiduciary duties and violated federal
securities laws in connection with the initial sale of BACs, the operation of
Midwest and Midwest's sale of Northland Center to the Venture and Equitable. The
Venture, ML/EQ, and the Partnership have not been named as parties to the
lawsuits. A settlement of these class actions was approved by the District Court
on February 20, 1998.
On October 30, 1996, the plaintiffs in one of the class action suits
previously filed against Midwest, Equitable and others filed a claim for
equitable subordination against Equitable in the Midwest bankruptcy proceeding.
The claim alleges, among other things, that Equitable breached a fiduciary duty
to Midwest's investors and violated federal securities laws in connection with
the initial sale of interests in Midwest and, as such, that Equitable should not
be entitled to preferential treatment in bankruptcy court. On December 16, 1996,
Brookdale Center was transferred to the Venture and Equitable in a bankruptcy
court proceeding free and clear of any claims that Midwest or any other
creditors may have. Ultimate resolution of this claim is expected to have no
effect on Brookdale Center or the Venture. On October 31, 1997, this proceeding
was dismissed, subject to the District Court's approval of the class action
settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-17-
<PAGE> 18
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCK HOLDER MATTERS
There is no market for the Guaranty Agreement and it is not expected
that one will develop. Accordingly, accurate information as to the market value
of a BAC at any given date is not available. Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("MLPF&S") has generally offered a limited partnership
secondary service through the Merrill Lynch Limited Partnership Secondary
Transaction Department ("LPSTD").
BACs are transferable as provided in Article Seven of the Partnership
Agreement. Subject to certain restrictions, the General Partners of ML/EQ are
authorized to impose restrictions on the transfer of BACs or Interests (or take
such other action as they deem necessary or appropriate) so that ML/EQ is not
treated as a "publicly-traded partnership" as defined in Section 7704(b) of the
Internal Revenue Code of 1986 (or any similar provision of succeeding law) which
could result in adverse tax consequences. See "AMENDMENTS TO PARTNERSHIP
AGREEMENT--TRANSFER OF INTERESTS" in the March 3 Supplement.
BAC Holders will receive cash distributions, allocations of taxable
income and tax loss and guaranty proceeds as provided in Article Four of the
Partnership Agreement. For additional information regarding the Guaranty
Agreement, see Item 1. BUSINESS.
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth the selected financial data for the
Partnership on a consolidated basis for the years ended December 31, 1993, 1994,
1995, 1996 and 1997:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue $ 3,043,112 $ 1,562,188 $ 2,199,500 $ 2,909,580 $ 596,866
Net income $ 3,015,062 $ 1,405,198 $ 2,024,609 $ 2,860,139 $ 578,581
(loss)
Total assets $31,699,217 $33,087,819 $32,743,147 $31,940,356 $21,940,317
</TABLE>
The above selected financial data for the years 1993 through 1997
should be read in conjunction with the financial statements and the related
notes appearing elsewhere in this annual report.
-18-
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
As of December 31, 1997, the Partnership had cash of $10,000. The cash
is expected to be used for general working capital purposes. The Partnership may
establish additional working capital reserves as the General Partners, from time
to time, determine are appropriate.
The Partnership owns a 20% interest in the Venture. At December 31,
1997, the Venture owned six real properties, an undivided interest in one real
property as a tenant in common with Equitable and one Mortgage Loan on a real
property. Five of the Properties were purchased at an aggregate cost of
approximately $61.5 million. Two of the properties, Northland Center and 300
Delaware (originally properties that secured a Zero Note and a Fixed-Rate
Mortgage Loan, respectively), were transferred to the Venture during 1994 in
separate deed in lieu of foreclosure transactions. The estimated fair market
value of the Venture's undivided interest in the Northland Center Zero Coupon
Mortgage Note Receivable immediately preceding the transfer was approximately
$32.2 million and the estimated fair market value of the 300 Delaware Mortgage
Note immediately preceding the transfer was approximately $8.5 million.
Brookdale Center (originally a property that secured a Zero Note) was
transferred to the Venture during December 1996 pursuant to a Chapter 11
bankruptcy plan for Midwest. The estimated fair market value of the Venture's
undivided interest in the Zero Note immediately preceding the transfer was
approximately $15.6 million. Brookdale Center was sold by the Venture in
November 1997. At December 31, 1997 the Venture also had approximately $19.3
million in cash and cash equivalents. $15.6 million was distributed to ML/EQ in
February 1998, of which $14.9 million was distributed to BAC Holders in February
1998. The remaining $700,000 was used to pay various semi-annual fees incurred
by ML/EQ. An additional $320,000 was distributed to the Partnership,
representing the Partnership's 20% interest in amounts distributed to cover
fees. The remaining cash and cash equivalents of approximately $3.4 million is
intended to be utilized primarily to fund the renovation work on the 300
Delaware, to fund possible costs incurred to increase tenancy at Richland Mall
and Northland Mall, to fund capital improvements at the Venture's other
Properties, and to cover general working capital requirements.
All of the Venture's Properties and the Mortgage Loan were acquired
without mortgage indebtedness, and neither the Venture nor the Partnership has
incurred any borrowings. In the aggregate, the Venture's Properties and its
Mortgage Loan are currently producing operating cash flow to the Venture which,
net of expenses of the Venture and the establishment or increase of reserves, is
distributable 20% to the Partnership and 80% to ML/EQ.
Management continues to evaluate appropriate strategies for the
ownership of each of the assets in its portfolio in order to achieve maximum
value. In this regard, Management considers improving capital markets and
investment markets for most types of real estate; local market conditions;
future capital needs, including potential lease exposure for specific
properties; and other issues that impact property performance. Among other
things, this analysis will provide the basis for hold/sell recommendations for
the properties.
-19-
<PAGE> 20
On December 16, 1996, Brookdale Center was transferred to the Venture
and Equitable, as tenants in common (collectively, the "Owners"), following
default by the borrower on the mortgage note securing the property. The Owners
considered alternative strategies for Brookdale Center and ultimately determined
that the best course of action was to sell the property. In July 1997, the
Owners received an offer to purchase Brookdale Center and subsequently executed
a binding purchase and sale agreement in October whereby Talisman Brookdale
L.L.C. agreed to purchase Brookdale Center for approximately $24.8 million, of
which the Venture's portion was approximately $17.8 million. In November 1997,
the Venture sold Brookdale Center to Talisman Brookdale L.L.C. and made a
special distribution of the net proceeds in December 1997. Based on the
amendment to the Joint Venture Agreement effective as of January 1, 1997, the
Partnership agreed to defer, without interest, its right to receive 20% of the
Venture's distribution of sale and financing proceeds, thereby entitling the
ML/EQ to receive currently 100% of the sale and financing proceeds attributable
to the sale.
Management of the Venture has established an enhancement, stabilization
and renovation program for 300 Delaware which was transferred to the Venture by
deed in lieu of foreclosure on November 15, 1994. Estimated costs for this
program total $4.4 million, of which $1.6 million was incurred in 1995, $1.2
million was incurred in 1996, $398,000 was incurred in 1997, and the remaining
balance is expected to be expended through 1999. As of December 31, 1997,
approximately $3.1 million of these costs have been expended. Approximately
$98,000 in capital costs at 300 Delaware have been accrued but not paid as of
December 31, 1997.
Included in the estimated $4.4 million of renovation expenditures is
approximately $2.3 million for asbestos abatement of which approximately $1.4
million has been expended. Also included in the $4.4 million is $400,000 for
sprinkler installation, $400,000 for exterior deferred maintenance and $600,000
for interior and exterior common area cosmetic upgrades. Management expects the
cosmetic upgrades to give the building a fresher, more inviting look. Additional
costs not included in the above figures are estimated tenant improvements of
$3.0 million. The tenant improvement costs are directly associated with actual
leasing and will only be expended as leasing transactions occur in the building.
As of December 31, 1997, approximately $946,000 had been expended for tenant
improvements. The remaining tenant improvement costs of approximately $2.1
million are expected to be expended over the next few years to lease the
currently vacant space.
As of December 31, 1997, the Venture has incurred costs of
approximately $3.7 million to increase tenancy at Richland Mall and, in 1998,
expects to incur an additional $100,000 to finish the project.
For 1997, the Partnership's distributions received from the Venture
totaled $3,820,000. In addition, the Partnership received payments totaling
$362,200 in respect of the fee for providing the guarantee of minimum return
pursuant to the Guaranty Agreement. The Partnership will continue to be entitled
to the recurring portion of the Guaranty Fee at the rate of .35% of average
annual adjusted capital contributions of BAC Holders. The Partnership currently
distributes all or substantially all of its share of cash distributions from the
Venture (as well as payments of the Guaranty Fee) to its partners and expects to
continue to do so.
-20-
<PAGE> 21
Under the terms of the Guaranty Agreement which has been assigned to
ML/EQ, following the earlier of the sale or other disposition of all of the
Properties and Mortgage Loans or the liquidation of ML/EQ, the Partnership has
guaranteed to pay an amount which, when added to all distributions from ML/EQ to
the BAC Holders, will enable ML/EQ to provide the BAC Holders with a minimum
return equal to their original capital contributions plus a simple annual return
equal to 9.75% simple interest per annum multiplied by their adjusted capital
contributions, calculated from the investor closing at which an investor
acquired his or her BACs, subject to certain limitations. Since inception, ML/EQ
has made the following distributions:
<TABLE>
<CAPTION>
Period Ended Date Paid Distribution per BAC
------------ --------- --------------------
<S> <C> <C>
December 31, 1990 February 28, 1991 $0.25
June 30, 1991 August 31, 1991 $0.50
December 31, 1991 February 28, 1992 $0.50
June 30, 1992 August 31, 1992 $0.662(1)
December 31, 1992 February 28, 1993 $0.40
June 30, 1993 -- $0.00
December 31, 1993 February 28, 1994 $0.10(2)
June 30, 1994 August 31, 1994 $0.10(2)
December 31, 1994 February 28, 1995 $0.15(2)
June 30, 1995 August 31, 1995 $0.15(2)
December 31, 1995 February 29, 1996 $0.10(2)
June 30, 1996 August 29, 1996 $0.10(2)
December 31, 1996 February 28, 1997 $0.15(2)
June 30, 1997 August 29, 1997 $2.70(3)
November 30, 1997 December 23, 1997 $3.26(4)
December 31, 1997 February 27, 1998 $2.75(5)
</TABLE>
(1) The distribution made on August 31, 1992 to holders of record on June
30, 1992 includes a $0.162 distribution of sale or financing proceeds
associated with the termination of the lease with Saab-Scania of
America, Inc. at 1850 Westfork Drive.
(2) All of the distributions made from 1994 through February 28, 1997
constitute distributions of sale or financing proceeds derived from a
portion of the proceeds from the pay-off of the Mortgage Loan to the
Second Merritt Seven Joint Venture on November 22, 1993.
(3) The August 29, 1997 distribution represents a distribution of
distributable cash from operations. ML/EQ made a decision to distribute
a major portion of the monies previously held following its decision to
sell Brookdale Center.
(4) The December 23, 1997 distribution constitutes distributions of sale or
financing proceeds derived from the sale of Brookdale Center.
(5) The February 27, 1998 distribution constitutes distributions of sale or
financing proceeds derived from the sale of the Chicago Industrial
Properties during 1997, remaining proceeds from both the sale of
Brookdale Center and the pay-off of the mortgage loan to the second
Merritt Seven Joint Venture and early lease termination payments.
-21-
<PAGE> 22
The determination to withhold the 1995 distributions of distributable
cash was based on the uncertainty regarding the level and timing of expenditures
relating to Brookdale Center as well as the likelihood of significant capital
expenditures for the renovation of 300 Delaware. The determination to withhold
the 1996 distributions of distributable cash was based on the needs of Brookdale
Center expenditures, the needs of the Venture to fund significant capital
expenditures for the renovation of 300 Delaware, costs incurred at Richland Mall
to increase tenancy, and the Venture's pro rata share of costs incurred in
connection with the Brookdale zero coupon mortgage note. The levels of future
cash distributions principally will be dependent on the distributions to the
Partnership by the Venture, which in turn will be dependent on returns from the
Venture's investments and future reserve requirements, including but not limited
to renovations at 300 Delaware and Richland Mall.
The levels of cash distributions from the Venture to the Partnership
and ML/EQ principally will be dependent on returns from the Venture's
investments, after taking account of capital expenditures and future reserve
requirements. These amounts are expected to fluctuate from time to time based on
changes in occupancy, rental and expense rates at the Venture's properties,
mortgage loan payment and maturity schedules, and other factors.
During 1995, 1996 and 1997, the Venture received approximately $1.5
million, $179,000 and $133,000, respectively, for early lease termination
payments. These early lease termination payments were classified as sale or
financing proceeds and were distributed in 1998. See Item 5. MARKET FOR
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The amount and
timing of distributions from sale or financing proceeds depend upon payments of
the Mortgage Loan and maturity schedule, the timing of disposition of Properties
as well as the need to allocate such funds to increase reserves.
The Venture, ML/EQ, and the Partnership are all intended to be
self-liquidating in nature, meaning that proceeds from the sale of properties or
principal repayments of loans will not be reinvested but instead will be
distributed to BAC Holders and partners, subject to certain limitations. Under
the terms of the Guaranty Agreement which has been assigned to ML/EQ, following
the earlier of the sale or other disposition of all of the Properties and
Mortgage Loans or the liquidation of ML/EQ, the Partnership has guaranteed to
pay an amount which, when added to all distributions from the Partnership to the
BAC Holders, will enable the Partnership to provide the BAC Holders with a
minimum return equal to their original capital contributions plus a simple
annual return equal to 9.75% simple interest per annum multiplied by their
adjusted capital contributions calculated from the investor closing at which an
investor acquired his BACs, subject to certain limitations. Capital
contributions by the BAC Holders totaled $108,484,500. As of December 31, 1997,
the cumulative 9.75% simple annual return was $102,048,149. As of December 31,
1997, cumulative distributions by ML/EQ to the BAC Holders totaled $49,479,767,
or $9.12 per BAC, of which $26,307,492 is attributable to income from operations
and $23,172,275 is attributable to sales of Venture assets, principal payments
on Mortgage Loans and other capital events. Another $14,916,619 in capital
proceeds was distributed to the BAC Holders in February 1998.
-22-
<PAGE> 23
Financial Condition
The Partnership's financial statements reflect its proportional
ownership interest in, and its share of the results of operations of, the
Venture, through which the Partnership conducts its business of investment in
real property. Although the Partnership was formed in 1986, it did not commence
operations until March 1988, following ML/EQ's receipt of the first proceeds of
the offering of BACs. Thereafter, utilizing the net proceeds of the Offering,
the Partnership and ML/EQ (through the Venture) began the acquisition of real
estate investments. The Venture substantially completed its acquisition phase in
1989.
The decrease in investment in joint venture of approximately $1.4
million, or 4.2%, from $32.9 million at December 31, 1996 to $31.5 million at
December 31, 1997 resulted from the excess of actual cash distributions from the
Venture over equity in net income of the Venture.
The increase in EREIM LP Corp.'s capital account of approximately
$233,000, or 23.6%, from ($985,000) at December 31, 1996 to ($752,000) at
December 31, 1997 is attributable to its share of net income of the Partnership
in excess of cash distributions by the Partnership to EREIM LP Corp. Conversely,
the decrease in Equitable's capital account of approximately $1.3 million, or
4.2%, from $32.5 million at December 31, 1996 to $31.2 million at December 31,
1997 resulted from the excess of cash distributions by the Partnership to
Equitable over Equitable's share of net income of the Partnership.
Results of Operations
Equity in net income of the Venture increased approximately $1.5
million, or 156.8%, from $948,000 in 1996 to $2.4 million in 1997 due to an
increase in the Venture's net income. The Venture's net income increased as a
result of a $3.3 million gain recorded by the Venture on the sale of Brookdale
Center and the Chicago Industrial properties during 1997 compared to a loss of
approximately $6.2 million on write down of zero coupon mortgage in 1996.
Equity in net income of the Venture decreased approximately $632,000,
or 40.0%, from $1.6 million in 1995 to $948,000 in 1996 due to a decrease in the
Venture's net income. The Venture's net income decreased as a result of a loss
approximately $6.2 million that was recorded during 1996 to record the Venture's
undivided interest in Brookdale Center at its estimated fair market value
compared to a valuation allowance of approximately $3.2 million that was
recorded during 1995 to value the Brookdale Zero Note at an amount equal to the
Venture's participation interest on the note multiplied by the estimated fair
market value of Brookdale Center.
Year 2000
The inability of computers, software and other equipment to recognize
and properly process data fields containing a 2 digit year is commonly referred
to as the Year 2000 compliance issue. As the year 2000 approaches, such systems
may be unable to accurately process certain date-based information.
-23-
<PAGE> 24
ML/EQ and the Venture rely on the services of third-party providers,
including Merrill Lynch and ERE Yarmouth, for all its computing needs. ML/EQ and
the Venture are in the process of communicating with such third-party providers
to obtain assurance that such providers will be Year 2000 compliant. There can
be no assurance that the systems of such providers will be Year 2000 compliant
or that any third party's failure to have Year 2000 compliant systems would not
have a material adverse effect on the Partnership, ML/EQ and the Venture.
-24-
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are included in Item 14 of this
annual report:
EREIM LP ASSOCIATES
Independent Auditors' Report
Balance Sheets, December 31, 1997 and 1996
Statements of Income for the years ended
December 31, 1997, 1996 and 1995
Statements of Partners' Capital for the years ended
December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Financial Statements
EML ASSOCIATES
Independent Auditor's Report
Balance Sheets, December 31, 1997 and 1996
Statements of Operations for the years ended
December 31, 1997, 1996, and 1995
Statements of Partners' Capital for the years ended
December 31, 1997, 1996, and 1995
Statements of Cash Flows for the years ended
December 31, 1997, 1996, and 1995
Notes to Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
-25-
<PAGE> 26
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is a general partnership and has no directors or
officers.
For informational purposes only, certain information regarding LP Corp.
and its directors and officers is set forth below.
The names and titles of the directors and officers of LP Corp. as of
March 15, 1998 are as follows:
<TABLE>
<CAPTION>
Name Age Office
- ---- --- ------
<S> <C> <C>
Peter D. Noris............................42 Director
Anthony C. Pasquale.......................50 Director
John H. Kirst.............................36 President, Chief Executive Officer
and Director
Patricia C. Snedeker......................41 Vice President, Controller and Treasurer
J. Mark Hillis............................34 Vice President
Michael L. Jacobson.......................44 Vice President
Douglas L. Brown..........................56 Secretary
</TABLE>
All of the directors have been elected to serve until the next annual
meeting of the shareholder of LP Corp. or until their successors are elected and
qualify. All of the officers have been elected to serve until their successors
are elected and qualify.
The business experience of the directors and executive officers of LP
Corp. is set forth below.
Peter D. Noris has been Executive Vice President and Chief Investment
Officer of Equitable, since May 1995. In this position, he manages Equitable's
General Account investment portfolio backing the company's traditional life
insurance and annuity business, and oversees certain accounts managed for third
parties by Equitable's investment subsidiary, Alliance Capital Management. Mr.
Noris joined Equitable in 1995. Prior thereto, he was Vice President and Manager
at Salomon Brothers Inc. from November 1992 to May 1995, where he provided
investment and asset/liability expertise to insurance companies. Before joining
Salomon in 1992, Mr. Noris was Principal of Morgan Stanley & Co., Inc. where he
worked since 1984 in its Insurance Group and its Synthetic Equity Group.
Anthony C. Pasquale has been Senior Vice President of Equitable, since
June 1991. He has held numerous managerial positions within Pension and
Investment Organizations of Equitable
-26-
<PAGE> 27
since joining the Equitable in 1965. Mr. Pasquale has been working in the
Chief Investment Office for the last eight years where he brings professional
expertise along with experience and knowledge of each business segment,
investment subsidiaries and Equitable's General Account. He is responsible for
all investment financial reporting to the Investment Committee of Equitable's
Board which includes forecasting investment income, capital gains and losses and
assets under management and he is Chairman of the Investments Under Surveillance
Committee.
John H. Kirst has been Senior Vice President of Equitable since
September 1997. In this position he oversees the investment strategy and
management of Equitable's $10 billion real estate and mortgage portfolio. Mr.
Kirst joined Equitable in 1997. Prior thereto, he was Managing Director of
Landauer Associates, Inc. from 1996 through August 1997 and Managing Director of
Sutton Advisors throughout 1995, in both capacities, providing advisory and
transaction counseling services to institutional investors. Mr. Kirst was
previously affiliated with NLI Properties, Inc., the U.S. real estate subsidiary
of Nippon Life Insurance Company, where as Vice President and Director of Asset
Management from 1992 through 1994, he managed a $2.5 billion portfolio of
office, retail and hotel investments. Mr. Kirst worked for ten years at IBM
where he was responsible for joint venture development projects across the
country and for overseeing the planning, leasing, design and construction of IBM
facilities.
Patricia C. Snedeker has been Vice President, Controller and Treasurer
of the Managing General Partner since January 1995 and Chief Financial Officer
from June 1994 to June 1997. Mrs. Snedeker is also a Senior Vice President of
ERE Yarmouth responsible for overseeing the Investor Reporting Department which
handles the accounting and financial reporting for all of the organization's
real estate portfolios. Mrs. Snedeker has been with Equitable since October
1982.
J. Mark Hillis has been Vice President of the Managing General Partner
since 1997. Mr. Hillis is a Vice President of ERE Yarmouth, where he is the
assistant portfolio manager for several limited partnerships. Mr. Hillis joined
ERE Yarmouth in August 1994 as Director of Appraisal, where he was responsible
for preparing annual valuations of properties owned by Equitable. Before he
joined ERE Yarmouth, he was employed by Price Waterhouse in their Real Estate
Valuation Group since 1991, where he was responsible for audit valuation
compliance, general real estate appraisal and due diligence services.
Michael L. Jacobson has been Vice President of the Managing General
Partner since 1997. Mr. Jacobson has been a Senior Vice President of ERE
Yarmouth since 1989, where he is responsible for overseeing fund and joint
venture investments for certain Japanese accounts and Equitable's general
account. Mr. Jacobson joined Equitable in 1976 in the accounting area and has
held various management positions.
Douglas L. Brown has been Secretary of the Managing General Partner
since March 1996. He has been a Senior Vice President and Secretary of ERE
Yarmouth since April 1993.
-27-
<PAGE> 28
ITEM 11. EXECUTIVE COMPENSATION
All of the directors and officers of the LP Corp. are employees of
Equitable and ERE Yarmouth. Neither they, nor any officer or director of
Equitable or Equitable Real Estate is separately compensated for services
provided to the General Partners or, on behalf of the General Partners or the
Partnership, to the Venture.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Partnership has not issued any voting securities. There are no
arrangements known to the Partnership, the operation of which may, at a
subsequent date, result in change in control of the Partnership. Certain
information regarding ownership of BACs is set forth under Item 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Annual Report on
Form 10-K of ML/EQ for the fiscal year ended December 31, 1997, which is filed
as an exhibit to this annual report and incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to Item 2. PROPERTIES (and the relevant portions of
the Prospectus and Supplements thereto incorporated therein) for information
relating to the acquisition by the Venture of the Notes from Equitable.
-28-
<PAGE> 29
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) 1. The following financial statements are filed with this report
on the pages indicated:
<TABLE>
<CAPTION>
EREIM LP ASSOCIATES Page
- ------------------- ----
<S> <C> <C>
Independent Auditors' Report................................................................................... 37
Balance Sheets, December 31, 1997 and 1996..................................................................... 38
Statements of Income for the years ended
December 31, 1997, 1996 and 1995............................................................................. 39
Statements of Partners' Capital for the years ended
December 31, 1997, 1996 and 1995............................................................................. 40
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995............................................................................. 41
Notes to Financial Statements.................................................................................. 42
EML ASSOCIATES Page
- -------------- ----
Independent Auditor's Report................................................................................... 50
Balance Sheets, December 31, 1997 and 1996..................................................................... 51
Statements of Operations for the years ended
December 31, 1997, 1996 and 1995............................................................................. 52
Statements of Partners' Capital for the years ended
December 31, 1997, 1996 and 1995............................................................................. 53
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995............................................................................. 54
Notes to Financial Statements.................................................................................. 55
</TABLE>
-29-
<PAGE> 30
2. The following audited financial statement schedules are filed
with this report on the pages indicated:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Supplemental Schedules:
Real Estate and Accumulated Depreciation
as of December 31, 1997 and for the years
ended December 31, 1997, 1996 and
1995 (Schedule III).......................................... 62
Mortgage Loans on Real Estate as of
December 31, 1997 and for the years
ended December 31, 1997, 1996 and
1995 (Schedule IV).......................................... 63
</TABLE>
Schedules Not Filed:
All schedules except those indicated above have been omitted as the
required information is not applicable or the information is shown in the
financial statements or notes thereto.
3. Exhibits
See Item 14(c) below.
(b) The Partnership filed no current Reports on Form 8-K during the last
quarter of the period covered by this Report.
(c) Exhibits.
4. (a) Amended and Restated Agreement of Limited Partnership
of ML/EQ Estate Portfolio, L.P. dated April 23, 1987.
Included as an Exhibit to the Prospectus (see Exhibit
99(a)).
(b) Amendment to Amended and Restated Agreement of
Limited Partnership dated February 9, 1988
(incorporated by reference to Exhibit 4(b) to the
Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1987 of ML/EQ Real Estate Portfolio,
L.P. (File No. 33-11064) (the "1987 10-K")).
-30-
<PAGE> 31
10. Material Contracts.
(a) Real Estate Investment Advisory Agreement by and
between EREIM Managers Corp. and Equitable Real
Estate Investment Management, Inc. (currently ERE
Yarmouth, Inc.) dated as of June 10, 1997.
(b) Purchase and Sale Agreement by and between The
Equitable Life Assurance Society of the United States
and Talisman Brookdale L.L.C., dated September 2,
1997.
(c) Purchase and Sale Agreement by and between EML
Associates and SPP Real Estate (O'Hare), Inc., dated
December 31, 1997.
(d) Form of Beneficial Assignee Certificate (incorporated
by reference to Exhibit 10(a) to Pre-Effective
Amendment No. 1 to the Registration Statement of the
Partnership (File No. 33-11064)).
(e) Agreement Between General Partners of ML/EQ
(incorporated by reference to Exhibit 10(c) to the
1987 10-K).
(f) Joint Venture Agreement of EML Associates
(incorporated by reference to Exhibit 10(d) to the
1987 10-K).
(g) Investment Guaranty Agreement between the Venture and
the Partnership (incorporated by reference to Exhibit
10(e) to the 1987 10-K).
(h) Assignment Agreement between ML/EQ and Venture
(incorporated by reference to Exhibit 10(f) to the
1987 10-K).
(i) Keep Well Agreement between The Equitable Life
Assurance Society of the United States and EREIM LP
Corp. (incorporated by reference to Exhibit 10(g) to
the 1987 10-K).
(j) Amended and Restated Agreement of General Partnership
of EREIM LP Associates (incorporated by reference to
Exhibit 10(h) to the 1987 10-K).
(k) Form of Participation Agreement between The Equitable
Life Assurance Society of The United States and EML
Associates dated September 27, 1988 (incorporated by
reference to Exhibit No. 2 to Form 8-K dated
September 27, 1988 of ML/EQ Real Estate Portfolio,
L.P. (File No. 33-11064)).
-31-
<PAGE> 32
(l) Note and Mortgage and Security Agreement dated
January 31, 1989 relating to loan by EML to The
Wilcon Company (incorporated by reference to Exhibit
No. 4 to Form 8-K dated December 27, 1988 of ML/EQ
Real Estate Portfolio, L.P. (File No. 33-11064)).
27. Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
99. Additional Exhibits.
(a) Prospectus dated April 23, 1987, as supplemented by
supplements dated March 3, 1988 and March 17, 1988
(incorporated by reference to Exhibit 28 to the 1987
10-K).
(b) Amendment to Joint Venture Agreement dated as of
January 1, 1997 between ML/EQ Real Estate Portfolio,
L.P. and EREIM LP Associates (incorporated by
reference to Exhibit 99(i) of the Form 10-K of the
Partnership for the year ended December 31, 1996)
-32-
<PAGE> 33
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 behalf by the undersigned, thereunto duly authorized on the 30th day of
March, 1998.
EREIM LP ASSOCIATES
By: EREIM LP CORP.
(General Partner)
By: /s/ John H. Kirst
---------------------------------
JOHN H. KIRST
President, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities on March 30, 1998.
President, Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ John H. Kirst of EREIM LP Corp.
- -----------------------------
JOHN H. KIRST
Vice President, Controller and Treasurer
/s/ Patricia C. Snedeker (Principal Financial Officer)
- ----------------------------- of EREIM LP Corp.
PATRICIA C. SNEDEKER
/s/ Peter D. Noris Director of EREIM LP Corp.
- -----------------------------
PETER D. NORIS
/s/ Anthony C. Pasquale Director of EREIM LP Corp.
- -----------------------------
ANTHONY C. PASQUALE
-33-
<PAGE> 34
EXHIBIT INDEX
4. (a) Amended and Restated Agreement of Limited Partnership of ML/EQ
Estate Portfolio, L.P. dated April 23, 1987. Included as an
Exhibit to the Prospectus (see Exhibit 99(a)).
(b) Amendment to Amended and Restated Agreement of Limited Partnership
dated February 9, 1988 (incorporated by reference to Exhibit 4(b)
to the Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1987 of ML/EQ Real Estate Portfolio, L.P. (File No.
33-11064) (the "1987 10-K")).
10. Material Contracts.
(a) Real Estate Investment Advisory Agreement by and between EREIM
Managers Corp. and Equitable Real Estate Investment Management,
Inc. (currently ERE Yarmouth, Inc.) dated as of June 10, 1997.
(b) Purchase and Sale Agreement by and between The Equitable Life
Assurance Society of the United States and Talisman Brookdale
L.L.C., dated September 2, 1997.
(c) Purchase and Sale Agreement by and between EML Associates and SPP
Real Estate (O'Hare), Inc., dated December 31, 1997.
(d) Form of Beneficial Assignee Certificate (incorporated by reference
to Exhibit 10(a) to Pre-Effective Amendment No. 1 to the
Registration Statement of the Partnership (File No. 33-11064)).
(e) Agreement Between General Partners of ML/EQ (incorporated by
reference to Exhibit 10(c) to the 1987 10-K).
(f) Joint Venture Agreement of EML Associates (incorporated by
reference to Exhibit 10(d) to the 1987 10-K).
(g) Investment Guaranty Agreement between the Venture and the
Partnership (incorporated by reference to Exhibit 10(e) to the
1987 10-K).
-34-
<PAGE> 35
(h) Assignment Agreement between ML/EQ and Venture (incorporated by
reference to Exhibit 10(f) to the 1987 10-K).
(i) Keep Well Agreement between The Equitable Life Assurance Society of
the United States and EREIM LP Corp. (incorporated by reference to
Exhibit 10(g) to the 1987 10-K).
(j) Amended and Restated Agreement of General Partnership of EREIM LP
Associates (incorporated by reference to Exhibit 10(h) to the 1987
10-K).
(k) Form of Participation Agreement between The Equitable Life
Assurance Society of The United States and EML Associates dated
September 27, 1988 (incorporated by reference to Exhibit No. 2 to
Form 8-K dated September 27, 1988 of ML/EQ Real Estate Portfolio,
L.P. (File No. 33-11064)).
(l) Note and Mortgage and Security Agreement dated January 31, 1989
relating to loan by EML to The Wilcon Company (incorporated by
reference to Exhibit No. 4 to Form 8-K dated December 27, 1988 of
ML/EQ Real Estate Portfolio, L.P. (File No. 33-11064)).
27. Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not
filed.
99. Additional Exhibits.
(a) Prospectus dated April 23, 1987, as supplemented by supplements
dated March 3, 1988 and March 17, 1988 (incorporated by reference
to Exhibit 28 to the 1987 10-K).
(b) Amendment to Joint Venture Agreement dated as of January 1, 1997
between ML/EQ Real Estate Portfolio, L.P. and EREIM LP Associates
(incorporated by reference to Exhibit 99(i) of the Form 10-K of the
Partnership for the year ended December 31, 1996)
-35-
<PAGE> 36
EREIM LP ASSOCIATES
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996
AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995:
Balance Sheets 2
Statements of Income 3
Statements of Partners' Capital 4
Statements of Cash Flows 5
Notes to Financial Statements 6
</TABLE>
-36-
<PAGE> 37
INDEPENDENT AUDITORS' REPORT
EREIM LP Associates:
We have audited the accompanying balance sheets of EREIM LP Associates (the
"Partnership") as of December 31, 1997 and 1996 and the related statements of
income, partners' capital, and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
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, such financial statements present fairly, in all material
respects, the financial position of the Partnership at December 31, 1997 and
1996 and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 6, 1998
-37-
<PAGE> 38
EREIM LP ASSOCIATES
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
Cash $ 10,000 $ 10,000
Guaranty fee receivable from affiliate (Notes 3 and 4) 180,367 182,980
Investment in Joint Venture, at equity (Note 5) 31,508,850 32,894,839
------------ ------------
$ 31,699,217 $ 33,087,819
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Deferred guaranty fee (Notes 3 and 4) $ 1,247,572 $ 1,497,086
Due to affiliates 10,590 5,260
Accrued liabilities 18,219 22,712
------------ ------------
Total liabilities 1,276,381 1,525,058
PARTNERS' CAPITAL:
General partners:
Equitable 31,175,140 32,548,098
EREIM LP Corp. (752,304) (985,337)
------------ ------------
Total partners' capital 30,422,836 31,562,761
------------ ------------
$ 31,699,217 $ 33,087,819
============ ============
</TABLE>
See notes to financial statements.
-38-
<PAGE> 39
EREIM LP ASSOCIATES
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
REVENUE:
Equity in net income of Joint Venture (Note 5) $2,434,011 $ 947,766 $1,579,979
Guaranty fee from affiliate (Notes 3 and 4) 609,101 614,422 619,521
---------- ---------- ----------
Total revenue 3,043,112 1,562,188 2,199,500
EXPENSES:
Advisory fees -- 126,811 119,830
General and administrative 28,050 30,179 55,061
---------- ---------- ----------
Total expenses 28,050 156,990 174,891
---------- ---------- ----------
NET INCOME $3,015,062 $1,405,198 $2,024,609
========== ========== ==========
</TABLE>
See notes to financial statements.
-39-
<PAGE> 40
EREIM LP ASSOCIATES
STATEMENTS OF PARTNERS' CAPITAL
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EREIM
EQUITABLE LP CORP. TOTAL
<S> <C> <C> <C>
BALANCE - December 31, 1994 $ 31,434,573 $(1,490,332) $ 29,944,241
Capital contributions 139,860 1,413 141,273
Distributions to partners (767,250) (379,944) (1,147,194)
Net income 1,391,037 633,572 2,024,609
------------ ----------- ------------
BALANCE - December 31, 1995 32,198,220 (1,235,291) 30,962,929
Capital contributions 161,010 1,626 162,636
Distributions to partners (594,000) (374,002) (968,002)
Net income 782,868 622,330 1,405,198
------------ ----------- ------------
BALANCE - December 31, 1996 32,548,098 (985,337) 31,562,761
Capital contributions 26,941 272 27,213
Distributions to partners (3,781,800) (400,400) (4,182,200)
Net income 2,381,901 633,161 3,015,062
------------ ----------- ------------
BALANCE - December 31, 1997 $ 31,175,140 $ (752,304) $ 30,422,836
============ =========== ============
</TABLE>
See notes to financial statements.
-40-
<PAGE> 41
EREIM LP ASSOCIATES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,015,062 $ 1,405,198 $ 2,024,609
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net income of Joint Venture (2,434,011) (947,766) (1,579,979)
Distributions from Joint Venture 3,820,000 600,000 775,000
Decrease in deferred guaranty fee (249,514) (249,515) (249,514)
Increase (decrease) in due to affiliates 5,330 (3,773) 9,033
Increase (decrease) in accrued liabilities (4,493) (1,872) 24,584
Decrease in guaranty fee receivable from
affiliate 2,613 3,094 2,188
----------- ----------- -----------
Net cash provided by operating activities 4,154,987 805,366 1,005,921
FINANCING ACTIVITIES:
Contributions from partners 27,213 162,636 141,273
Distributions to partners (4,182,200) (968,002) (1,147,194)
----------- ----------- -----------
Net cash used in financing activities (4,154,987) (805,366) (1,005,921)
----------- ----------- -----------
NET CHANGE IN CASH -- -- --
CASH:
Beginning of year 10,000 10,000 10,000
----------- ----------- -----------
End of year $ 10,000 $ 10,000 $ 10,000
=========== =========== ===========
</TABLE>
See notes to financial statements.
-41-
<PAGE> 42
EREIM LP ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
- -------------------------------------------------------------------------------
1. ORGANIZATION
EREIM LP Associates (the "Partnership") was formed on December 18, 1986
for the primary purpose of serving as a general partner of EML Associates
(the "Venture"), a joint venture with ML/EQ Real Estate Portfolio, L.P.
("ML/EQ"). The Venture was formed to invest in existing income-producing
real properties, zero coupon or similar mortgage notes, and fixed rate
mortgage loans. The Partnership owns a 20% interest in the Venture.
The Partnership is a New York general partnership between The Equitable
Life Assurance Society of the United States ("Equitable") and EREIM LP
Corp., a wholly owned subsidiary of Equitable.
On June 10, 1997, Equitable sold Equitable Real Estate Investment
Management, Inc. ("ERE") to a subsidiary of Lend Lease Corporation Limited
("Lend Lease"). Lend Lease merged its existing U.S. real estate investment
advisor, The Yarmouth Group, Inc., into ERE and changed the name of ERE to
ERE Yarmouth, Inc. ("ERE Yarmouth"). The sale did not affect the
ownership of EREIM LP Associates, the guarantor under the Guaranty
Agreement, as ERE has no interest therein. The obligations of EREIM LP
Associates under the Guaranty Agreement and of Equitable under the Keep
Well Agreement were not affected by the sale.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Partnership Allocations - In accordance with the provisions of the Amended
and Restated Agreement of General Partnership of EREIM LP Associates, all
income, gains, losses, deductions, credits, and distributions are
allocated to each partner in proportion to their respective capital
contributions (99% to Equitable and 1% to EREIM LP Corp.) except for fees
received under the Guaranty Agreement which are to be distributed entirely
to the 1% partner, EREIM LP Corp. Accordingly, all guarantee fee income is
allocated to EREIM LP Corp.
Investment in Joint Venture - The Partnership's investment in the Venture
is accounted for using the equity method.
-42-
<PAGE> 43
Guaranty Fees - Guaranty fees are recognized as income ratably over the
15-year estimated life of the Partnership.
Income Taxes - No provisions for income taxes have been made since all
income and losses are allocated to the partners for inclusion in their
respective tax returns.
3. GUARANTY AGREEMENT
The Partnership has entered into a guaranty agreement with the Venture to
provide a minimum return to ML/EQ's limited partners on their capital
contributions. Payments on the guaranty are due 90 days following the
earlier of the sale or other disposition of all the properties and
mortgage loans and notes or the liquidation of ML/EQ. The minimum return
will be an amount which, when added to the cumulative distributions from
ML/EQ to its limited partners, will enable ML/EQ to provide its limited
partners with a minimum return equal to their capital contributions plus a
simple annual return of 9.75% on their adjusted capital contributions,
calculated from the dates of ML/EQ's investor closings at which investors
acquired their Beneficial Assignee Certificates ("BACs"). Adjusted capital
contributions are the limited partners' original cash contributions
reduced by distributions of sale or financing proceeds and by
distributions of certain funds in reserves, as more particularly described
in ML/EQ's Partnership Agreement. The limited partners' original cash
contributions have been adjusted by that portion of distributions paid
through December 31, 1996, resulting from cash available to ML/EQ as a
result of sale or financing proceeds paid to the Venture.
The minimum return is subject to reduction in the event that certain
taxes, other than local property taxes, are imposed on ML/EQ or the
Venture, and is also subject to certain other limitations. Based upon the
assumption that the last property is sold on December 31, 2002, upon
expiration of the term of ML/EQ, the maximum liability of the Partnership
to the Venture under the guaranty agreement as of December 31, 1997 is
limited to $202,642,593 plus the value of the Partnership's interest in
the Venture less any amounts contributed by the Partnership to fund cash
deficits. The Venture has assigned its rights under the guaranty agreement
to ML/EQ. ML/EQ will have recourse under the guaranty agreement only to
the Partnership and EREIM LP Corp. as a general partner of the Partnership
but not to Equitable. Equitable has entered into a Keep Well Agreement
with EREIM LP Corp. to permit EREIM LP Corp. to pay its obligations with
respect to the guaranty agreement as they become due; provided, however,
that the maximum liability of Equitable under the Keep Well Agreement is
an amount equal to the lesser of (i) 2% of the total admitted assets of
Equitable (as determined in accordance with New York Insurance Law) or
(ii) $271,211,250. The Keep Well Agreement provides that only EREIM LP
Corp. and its successors will have the right to enforce Equitable's
obligations to make capital contributions to EREIM LP Corp. to pay its
obligation with respect to the guaranty agreement.
Capital contributions by the BAC Holders totaled $108,484,500. As of
December 31, 1997, the cumulative 9.75% simple annual return was
$102,048,149. As of December 31, 1997, cumulative distributions by ML/EQ
to the BAC Holders totaled $49,479,767 of which $26,307,492 is
attributable to income from operations and $23,172,275 is attributable to
sales of Venture assets, principal payments on Mortgage Loans and other
capital events. Another $14,916,619 in sale and financing proceeds was
distributed to the BAC Holders in February 1998. To the extent that future
cash distributions to the limited partners of ML/EQ are insufficient to
meet the specified minimum return, any shortfall will be funded by the
guaranty.
-43-
<PAGE> 44
Effective as of January 1, 1997, ML/EQ entered into an amendment to the
Joint Venture Agreement of the Venture between ML/EQ and the Partnership
pursuant to which the Partnership agreed to defer, without interest, its
rights to receive 20% of the Venture's distributions of Sale or Financing
Proceeds until ML/EQ has received aggregate distributions from the Venture
in an amount equal to the capital contributions made to ML/EQ by the BAC
holders plus a noncompounded cumulative return computed at the rate of
9.75% per annum on contributions outstanding from time to time. Prior to
the amendment, the Partnership had a right to receive 20% of all of the
Venture's distribution of Sale or Financing Proceeds on a pari passu basis
with ML/EQ. The amendment has the effect of accelerating the return of
original contributions to BAC holders to the extent that Sale and
Financing Proceeds are realized prior to the dissolution of ML/EQ.
4. GUARANTY FEE
The guaranty fee was initially paid by ML/EQ to the Partnership in six
semiannual installments, which commenced on June 30, 1988 and ended on
December 31, 1990, at an annual rate of 1.15% of gross proceeds from
ML/EQ's offering of BACs plus .35% of average annual adjusted capital
contributions of ML/EQ's limited partners. Subsequent to December 31,
1990, the fee is payable on a semiannual basis at an annual rate of .35%
of the average annual adjusted capital contributions of ML/EQ's limited
partners.
5. INVESTMENT IN JOINT VENTURE
On March 10, 1988, ML/EQ had its initial investor closing. ML/EQ
contributed $90,807,268 to the Venture. The Partnership contributed zero
coupon mortgage notes to the Venture in the amount of $22,701,817. The
Venture purchased an additional $5,675,453 of zero coupon mortgage notes
from Equitable.
On May 3, 1988, ML/EQ had its second and final investor closing. ML/EQ
contributed $14,965,119 to the Venture. The Partnership contributed zero
coupon mortgage notes to the Venture in the amount of $3,741,280 including
accrued interest. The Venture purchased an additional $935,320 of zero
coupon mortgage notes from Equitable to bring the total amount of zero
coupon mortgage notes owned by the Venture to $33,053,870 including
accrued interest as of the dates of acquisition. One of the zero notes was
accounted for as a deed in lieu of foreclosure by the Venture on July 22,
1995. The remaining note was due on June 30, 1996. The borrower defaulted
on its obligation to repay the loan, and the collateral, Brookdale Center
was transferred to Equitable and the Venture on December 16, 1996, as
tenants in common, pursuant to a Chapter 11 bankruptcy plan of
reorganization filed with the Bankruptcy Court by the borrower.
During 1997, the Venture consummated the sale of Brookdale Center and the
Chicago Industrial properties. Brookdale Center was sold for a cash price
of $24,830,000, of which the Venture's portion was $17,793,352. Prior to
the sale, the Venture held a 71.66% interest in Brookdale Center. The sale
of Brookdale Center resulted in net sales proceeds of $17,734,260. The
Chicago Industrial properties were sold for a cash price of $7,860,000,
which resulted in net sales proceeds of $7,649,000
-44-
<PAGE> 45
The financial position and results of operations of the Venture are
summarized as follows:
<TABLE>
<CAPTION>
SUMMARY OF FINANCIAL POSITION
DECEMBER 31, 1997 AND 1996: 1997 1996
<S> <C> <C>
Assets:
Rental properties $ 127,606,639 $ 145,197,804
Accumulated depreciation (18,371,261) (15,886,436)
------------- -------------
Net rental properties 109,235,378 129,311,368
Mortgage loan receivable 6,000,000 6,000,000
Cash and cash equivalents 19,282,597 25,329,713
Accounts receivable and accrued investment income 3,364,216 3,532,898
Deferred rent concessions 2,159,595 2,178,371
Deferred leasing costs 1,399,382 1,167,420
Prepaid expenses and other assets 807,596 683,920
Interest income receivable 99,848 111,134
------------- -------------
$ 142,348,612 $ 168,314,824
============= =============
Liabilities and equity:
Accounts payable and accrued real estate expenses $ 1,737,566 $ 2,194,256
Accrued capital expenditures 1,566,226 1,120,796
Security deposits and unearned rent 683,546 525,578
Joint venturers' equity 138,361,274 164,474,194
------------- -------------
$ 142,348,612 $ 168,314,824
============= =============
Partnership's share of Joint Venture equity $ 31,508,850 $ 32,894,839
============= =============
</TABLE>
-45-
<PAGE> 46
<TABLE>
<CAPTION>
SUMMARY STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995: 1997 1996 1995
<S> <C> <C> <C>
Revenue:
Rental income $ 24,458,345 $ 20,700,739 $ 21,137,579
Lease termination income 132,840 179,149 1,502,020
Interest on loans receivable 615,000 4,101,334 1,734,586
------------ ------------ ------------
Total revenue 25,206,185 24,981,222 24,374,185
Operating expenses:
Real estate operating expenses 9,664,185 8,254,939 8,231,795
Depreciation and amortization 4,280,526 4,044,983 3,129,283
Real estate taxes 3,076,092 2,365,348 2,437,099
Property management fees 554,471 477,385 507,820
------------ ------------ ------------
Total operating expenses 17,575,274 15,142,655 14,305,997
------------ ------------ ------------
Income from property operations 7,630,911 9,838,567 10,068,188
Other income (expense):
Gain on sale of real estate 3,288,138
Loss on write-down of zero coupon
mortgage notes (6,211,644) (3,232,210)
Interest and other nonoperating income 1,251,852 1,115,979 1,068,026
General and administrative (847) (4,073) (4,110)
------------ ------------ ------------
Total other income (expense), net 4,539,143 (5,099,738) (2,168,294)
------------ ------------ ------------
Net income $ 12,170,054 $ 4,738,829 $ 7,899,894
============ ============ ============
Partnership's share of equity in net income
of Joint Venture $ 2,434,011 $ 947,766 $ 1,579,979
============ ============ ============
</TABLE>
-46-
<PAGE> 47
6. TAXABLE NET INCOME AND TAX NET WORTH
The following is a reconciliation of the Partnership's financial net
income to taxable net income and a reconciliation of partner's capital for
financial reporting purposes to net worth on a tax basis:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Financial net income $ 3,015,062 $ 1,405,198 $ 2,024,609
Book to tax difference on guaranty
fee income (249,514) (249,514) (249,514)
Net book to tax difference from
Joint Venture (434,021) (421,694) 659,751
------------ ------------ ------------
Taxable net income $ 2,331,527 $ 733,990 $ 2,434,846
============ ============ ============
Capital balance, financial reporting $ 30,422,836 $ 31,562,761 $ 30,962,929
Cumulative book to tax difference on
guaranty fee income 432,379 681,893 931,407
Cumulative book to tax income
differences from Joint Venture (165,609) 268,412 690,106
------------ ------------ ------------
Net worth, tax basis $ 30,689,606 $ 32,513,066 $ 32,584,442
============ ============ ============
</TABLE>
7. LEGAL PROCEEDINGS
The Partnership is a defendant in a consolidated action brought in the
Court of Chancery of the State of Delaware entitled IN RE: ML/EQ Real
Estate Partnership Litigation. The consolidated action results from two
related cases. Scher v. ML/EQ Real Estate Portfolio, L.P., et al., was
served on ML/EQ on July 14, 1997. On September 8, 1997, the Partnership
was named as a defendant in Folette v. ML/EQ Real Estate Portfolio, L.P.,
et al., a substantially similar complaint, also brought in the Court of
Chancery of the State of Delaware. The cases were consolidated pursuant to
a stipulation between the parties by order of the court on October 3,
1997. In addition to the Partnership, the complaint names as defendants
EREIM Managers Corp., Equitable, ERE, EREIM L.P. Corp., and ML/EQ.
The Plaintiffs purport to sue on behalf of a class of all limited partners
of ML/EQ who purportedly have been or will be adversely affected by the
conduct of the defendants. The complaint alleges that the defendants have
caused the Venture to accumulate excessive cash rather than distribute it
to the limited partners, and that defendants' motive in so doing was (i)
to manipulate ML/EQ's cash flow so as to limit certain defendants'
exposure under the guarantee agreement and (ii) to secure for certain
defendants additional fees. The complaint also alleges that defendants
have utilized the Venture to provide liquidity for illiquid assets and to
acquire and continue to hold under-performing properties. The complaint
purports to state claims for breach of fiduciary duties, breach of
contract, and aiding and abetting breach of fiduciary duties. The
complaint requests, among other things, money damages in an unspecified
amount and orders that defendants distribute to the purported class the
cash which defendants have allegedly wrongfully failed to distribute and
disgorge all earnings, profits, interests, and other benefits, which they
have realized on account of their allegedly wrongful conduct. The
Partnership intends to defend vigorously against these claims. On November
6, 1997, defendants answered the complaint,
-47-
<PAGE> 48
denying any wrongdoing. Additionally, defendants have noticed a motion to
dismiss the case on the pleadings in the Delaware Court of Chancery.
Although the outcome of any litigation cannot be predicted with certainty,
particularly in the early stages of an action, the Partnership's management
believes that the ultimate resolution of the litigation will not have a
material adverse effect on the financial condition of the Partnership. Due
to the early stage of such litigation, the Partnership's management cannot
make an estimate of loss, if any, or predict whether or not such litigation
will have a material adverse effect on the Partnership's results of
operations in any particular period.
-48-
<PAGE> 49
EML ASSOCIATES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ 14
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996 AND
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
Balance Sheets............................................ 15
Statements of Operations.................................. 16
Statements of Partners' Capital........................... 17
Statements of Cash Flows.................................. 18
Notes to Financial Statements............................. 19
SUPPLEMENTAL SCHEDULES AS OF DECEMBER 31, 1997 AND FOR THE
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995:
Schedule III -- Real Estate and Accumulated Depreciation..
Schedule IV -- Mortgage Loans on Real Estate.............. 26
</TABLE>
-49-
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
EML Associates:
We have audited the accompanying balance sheets of EML Associates (the
"Venture") as of December 31, 1997 and 1996 and the related statements of
operations, partners' capital, and cash flows for each of the three years in the
period ended December 31, 1997. Our audits also included the financial statement
schedules listed in the table of contents as supplemental schedules. These
financial statements and the supplemental schedules discussed below are the
responsibility of the Venture's management. Our responsibility is to express an
opinion on these financial statements and supplemental schedules 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, such financial statements present fairly, in all material
respects, the financial position of EML Associates at December 31, 1997 and 1996
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles. Also, in our opinion, such supplemental schedules, when
considered in relation to the basic financial statements, present fairly in all
material respects the information shown therein.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 6, 1998
-50-
<PAGE> 51
EML ASSOCIATES
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS:
Rental properties, net of accumulated depreciation (Note
3)..................................................... $109,235,378 $129,311,368
Mortgage loan receivable (Note 5)......................... 6,000,000 6,000,000
------------ ------------
Total real estate investments..................... 115,235,378 135,311,368
OTHER ASSETS:
Cash and cash equivalents................................. 19,282,597 25,329,713
Accounts receivable and accrued investment income, net of
allowance for doubtful accounts of $759,545 in 1997 and
$748,994 in 1996....................................... 3,364,216 3,532,898
Deferred rent concessions................................. 2,159,595 2,178,371
Deferred leasing costs, net of accumulated amortization of
$781,403 in 1997 and $604,828 in 1996.................. 1,399,382 1,167,420
Prepaid expenses and other assets......................... 807,596 683,920
Interest income receivable................................ 99,848 111,134
------------ ------------
Total other assets................................ 27,113,234 33,003,456
------------ ------------
$142,348,612 $168,314,824
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued real estate expenses......... $ 1,737,566 $ 2,194,256
Accrued capital expenditures.............................. 1,566,226 1,120,796
Security deposits and unearned rent....................... 683,546 525,578
------------ ------------
Total liabilities................................. 3,987,338 3,840,630
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 6)
PARTNERS' CAPITAL........................................... $138,361,274 $164,474,194
============ ============
</TABLE>
See notes to financial statements.
-51-
<PAGE> 52
EML ASSOCIATES
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Rental income (Note 8)............................ $24,458,345 $20,700,739 $ 2,137,579
Lease termination income (Note 8)................. 132,840 179,149 1,502,020
Interest on loans receivable (Note 4)............. 615,000 4,101,334 1,734,586
----------- ----------- -----------
Total revenue............................. 25,206,185 24,981,222 24,374,185
OPERATING EXPENSES:
Real estate operating expenses.................... 9,664,185 8,254,939 8,231,795
Depreciation and amortization..................... 4,280,526 4,044,983 3,129,283
Real estate taxes................................. 3,076,092 2,365,348 2,437,099
Property management fees (Note 7)................. 554,471 477,385 507,820
----------- ----------- -----------
Total operating expenses.................. 17,575,274 15,142,655 14,305,997
----------- ----------- -----------
INCOME FROM PROPERTY OPERATIONS..................... 7,630,911 9,838,567 10,068,188
OTHER INCOME (EXPENSE):
Gain on sale of real estate (Note 3).............. 3,288,138
Loss on write-down of zero coupon mortgage (Note
4)............................................. (6,211,644) (3,232,210)
Interest and other nonoperating income............ 1,251,852 1,115,979 1,068,026
General and administrative........................ (847) (4,073) (4,110)
----------- ----------- -----------
Total other income (expense), net......... 4,539,143 (5,099,738) (2,168,294)
----------- ----------- -----------
NET INCOME................................ $12,170,054 $ 4,738,829 $ 7,899,894
=========== =========== ===========
</TABLE>
See notes to financial statements.
-52-
<PAGE> 53
EML ASSOCIATES
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
ML/EQ
EREIM LP REAL ESTATE
ASSOCIATES PORTFOLIO, L.P. TOTAL
----------- --------------- ------------
<S> <C> <C> <C>
BALANCE -- December 31, 1994......................... $31,742,094 $126,968,377 $158,710,471
Net income......................................... 1,579,979 6,319,915 7,899,894
Cash distributions................................. (775,000) (3,100,000) (3,875,000)
----------- ------------ ------------
BALANCE -- December 31, 1995......................... 32,547,073 130,188,292 162,735,365
Net income......................................... 947,766 3,791,063 4,738,829
Cash distributions................................. (600,000) (2,400,000) (3,000,000)
----------- ------------ ------------
BALANCE -- December 31, 1996......................... 32,894,839 131,579,355 164,474,194
Net income......................................... 2,434,011 9,736,043 12,170,054
Cash distributions................................. (3,820,000) (34,462,974) (38,282,974)
----------- ------------ ------------
BALANCE -- December 31, 1997......................... $31,508,850 $106,852,424 $138,361,274
=========== ============ ============
</TABLE>
See notes to financial statements.
-53-
<PAGE> 54
EML ASSOCIATES
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Tenant rentals received............................ $ 24,621,341 $ 20,889,645 $ 20,922,265
Interest received.................................. 1,878,138 5,247,100 2,122,704
------------ ------------ ------------
Cash received from operations................... 26,499,479 26,136,745 23,044,969
------------ ------------ ------------
Cash paid for operating activities................. (13,875,961) (11,492,967) (10,826,016)
------------ ------------ ------------
Net cash provided by operating
activities............................... 12,623,518 14,643,778 12,218,953
INVESTING ACTIVITIES:
Net proceeds from sales of real estate............. 25,383,260
Purchases and additions to rental properties....... (5,157,525) (5,350,466) (7,884,868)
Expenditures for deferred leasing costs............ (613,395) (698,540) (450,045)
------------ ------------ ------------
Net cash provided by (used in) investing
activities............................... 19,612,340 (6,049,006) (8,334,913)
FINANCING ACTIVITY -- Cash distributions to General
Partners........................................... (38,282,974) (3,000,000) (3,875,000)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................................ (6,047,116) 5,594,772 9,040
CASH AND CASH EQUIVALENTS:
Beginning of year.................................. 25,329,713 19,734,941 19,725,901
------------ ------------ ------------
End of year........................................ $ 19,282,597 $ 25,329,713 $ 19,734,941
============ ============ ============
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Net income......................................... $ 12,170,054 $ 4,738,829 $ 7,899,894
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 4,280,526 4,044,983 3,129,283
Loss on write-down of zero coupon mortgage...... 6,211,644 3,232,210
Gain on sale of real estate..................... (3,288,138)
Changes in assets decrease (increase):
Interest accrual on zero coupon mortgage
notes......................................... (614,944)
Interest receivable............................. 11,286 29,787 (56,075)
Accounts receivable and accrued investment
income........................................ 28,043 129,517 (1,449,518)
Prepaid expenses and other assets............... (123,676) (31,760) 104,121
Deferred rent concessions....................... (155,855) (147,644) (278,299)
Changes in liabilities increase (decrease):
Accounts payable and accrued real estate
expenses...................................... (456,690) (359,462) 260,828
Security deposits and unearned rent............. 157,968 27,884 (8,547)
------------ ------------ ------------
Total adjustments.......................... 453,464 9,904,949 4,319,059
------------ ------------ ------------
Net cash provided by operating
activities............................... $ 12,623,518 $ 14,643,778 $ 12,218,953
============ ============ ============
</TABLE>
SUPPLEMENTAL INFORMATION REGARDING NONCASH INVESTING ACTIVITIES:
The Venture accrued $1,566,226 and $1,120,796 in capital expenditures
that were not paid before December 31, 1997 and 1996, respectively.
The Venture reclassified $15,550,364 relating to Brookdale Center from
zero coupon mortgage note receivable to rental properties as a result of
Brookdale Center being conveyed to the Venture and Equitable on December
16, 1996.
See notes to financial statements.
-54-
<PAGE> 55
EML ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996 AND FOR THE
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1. ORGANIZATION
EML Associates (the "Venture") is a New York general partnership formed
March 10, 1988 between EREIM LP Associates, an affiliate of The Equitable Life
Assurance Society of the United States ("Equitable") and ML/EQ Real Estate
Portfolio, L.P., a Delaware limited partnership ("ML/EQ"). The Venture was
formed to invest in existing income-producing real properties, zero coupon or
similar mortgage notes, and fixed-rate mortgage loans. EREIM LP Associates and
ML/EQ own 20% and 80% interests in the Venture, respectively.
On June 10, 1997, Equitable sold Equitable Real Estate Investment
Management, Inc. ("ERE") to a subsidiary of Lend Lease Corporation Limited
("Lend Lease"). The shares of EREIM Managers Corp. (the "Managing General
Partner of ML/EQ") were not included in the sale and the Managing General
Partner of ML/EQ continues to be a wholly owned indirect subsidiary of
Equitable. Lend Lease merged its existing U.S. real estate investment advisor,
The Yarmouth Group, Inc. into ERE and changed the name of ERE to ERE Yarmouth,
Inc. ("ERE Yarmouth"). ERE Yarmouth was retained by the Managing General Partner
of ML/EQ, at the Managing General Partner of ML/EQ's expense, to continue
providing the same services with respect to the Venture, ML/EQ, and the
properties that ERE has historically provided to the Managing General Partner of
ML/EQ. The sale did not affect the ownership of EREIM LP Associates, the
guarantor under the Guaranty Agreement, as ERE has no interest therein. The
obligations of EREIM LP Associates under the Guaranty Agreement and of Equitable
under the Keep Well Agreement were not affected by the sale.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Pro-rata Consolidation -- The Venture records its proportionate share of
the assets, liabilities, revenues, and expenses of the undivided interests in
Northland Center and Brookdale Center.
Rental Properties -- Rental properties are stated at cost. Cost is
allocated between land and buildings based upon preacquisition appraisals of
each property. Impairment is determined by calculating the sum of the estimated
undiscounted future cash flows including the projected undiscounted future net
proceeds from sale of property. In the event such sum is less than the
depreciated cost of the property, the property will be written down to estimated
fair market value.
Depreciation -- Depreciation of buildings and building improvements is
provided using the straight-line method over estimated useful lives of five to
forty years. Tenant improvements are amortized using the straight-line method
over the life of the related lease.
Rental Income -- Rental income is recognized on a straight-line basis over
the terms of the leases.
Zero Coupon Mortgage Note Receivable -- The Venture measures impairment of
the zero coupon mortgage note receivable based upon the estimated fair market
value of the underlying collateral. If the Venture's portion of the estimated
fair market value of the collateral declines below the recorded investment in
the loans, impairment will be recognized through the creation of a valuation
allowance. The Venture records interest received on the cash method (Note 4).
Mortgage Loan Receivable -- The mortgage loan receivable is stated at cost
(Note 5).
-55-
<PAGE> 56
EML ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents -- Cash equivalents include cash, demand
deposits, money market accounts and highly liquid short-term investments
purchased with original maturities of three months or less.
Income Taxes -- No provisions for income taxes have been made since all
income and losses are allocated to the partners for inclusion in their
respective tax returns.
Reclassifications -- Certain prior year amounts have been reclassified to
conform with the 1997 presentation.
Fair Value of Financial Instruments -- Management has reviewed the various
assets and liabilities of the Venture and has concluded that the estimated fair
market value of the Venture's financial instruments, including the mortgage loan
receivable, have terms such that the carrying value approximates the estimated
fair market value.
3. RENTAL PROPERTIES
As of December 31, 1997, the Venture's rental properties consisted of the
following:
<TABLE>
<CAPTION>
SQUARE
FEET LEASED
------- ------
<S> <C> <C> <C>
OFFICE
16 and 18 Sentry Park West Montgomery County, 187,333 99%
Pennsylvania
300 Delaware Wilmington, Delaware 314,313 61%
INDUSTRIAL
1200 Whipple Road Union City, California 257,500 100%
1850 Westfork Drive Lithia Springs, Georgia 103,505 0%
1345 Doolittle Drive San Leandro, California 326,414 100%
RETAIL
Richland Mall Richland Township, 185,794 86%
Pennsylvania
Northland Center Southfield, Michigan 468,823 67%
</TABLE>
The costs related to the rental properties are summarized below.
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Land........................................................ $ 22,768,048 $ 27,551,185
Buildings and improvements.................................. 104,838,591 117,646,619
------------ ------------
Total............................................. 127,606,639 145,197,804
Accumulated depreciation.................................... (18,371,261) (15,886,436)
------------ ------------
Net rental properties............................. $109,235,378 $129,311,368
============ ============
Office...................................................... $ 42,446,798 $ 40,714,046
Retail...................................................... 61,371,007 73,447,730
Industrial.................................................. 23,788,834 31,036,028
------------ ------------
Total............................................. 127,606,639 145,197,804
Accumulated depreciation.................................... (18,371,261) (15,886,436)
------------ ------------
Net rental properties............................. $109,235,378 $129,311,368
============ ============
</TABLE>
-56-
<PAGE> 57
EML ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, the Venture consummated the sale of Brookdale Center and the
Chicago Industrial properties. Brookdale Center was sold for a cash price of
$24,830,000, of which the Venture's portion was $17,793,352. Prior to the sale,
the Venture held a 71.66% interest in Brookdale Center.
<TABLE>
<CAPTION>
SALES COST NET GAIN ON
PROPERTY PRICE TO SELL PROCEEDS SALE
- -------- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Brookdale Center............................... $17,793,352 $ 59,092 $17,734,260 $1,918,951
Chicago Industrials............................ 7,860,000 211,000 7,649,000 1,369,187
----------- -------- ----------- ----------
$25,653,352 $270,092 $25,383,260 $3,288,138
=========== ======== =========== ==========
</TABLE>
4. ZERO COUPON MORTGAGE NOTES RECEIVABLE
Brookdale Center
The Venture held a 71.66% participation interest in a zero coupon mortgage
note. The property which secured this first mortgage note is Brookdale Center
which is located outside of Minneapolis, Minnesota. The Venture acquired its
participation interest in 1988 from Equitable which held the remaining 28.34%
interest. The Venture's participation interest had an estimated fair market
value (including accrued interest) at the time of acquisition of $12,278,885.
The borrower was Midwest Real Estate Shopping Center L.P. ("Midwest"), a
publicly traded limited partnership, (formerly Equitable Real Estate Shopping
Centers, L.P.). The note had an implicit interest rate of 10.2% compounded
semiannually with the Venture's portion of the entire amount of principal and
accrued interest totaling $25,345,353 due on June 30, 1996.
Midwest defaulted on its obligation to repay the Brookdale zero note in
full on the maturity date. Notice of default was given to Midwest. For book
purposes, beginning with the second quarter of 1996, Management discontinued the
accrual of interest on the Brookdale zero note as the accreted value of the
mortgage approximated the estimated fair market value of the Brookdale Center.
Under the terms of the mortgage agreement, however, the Venture continued to
accrue interest off the books at the effective implicit rate of 10.2% until June
30, 1995. On July 1, 1995, the Venture began to accrue interest off the books on
the Brookdale zero note at the default rate of 19.0%. Equitable and the Venture
(collectively referred to as "Lender") commenced foreclosure by advertisement
proceedings and a court-appointed receiver was named. The receiver was
responsible for collecting rent proceeds from the tenants at Brookdale Center
and applying the proceeds to payments of operating costs at Brookdale Center.
Any remaining funds were paid to Lender on account of the Brookdale zero note.
The Venture recorded cash received from the operation of Brookdale Center on a
cash basis as interest income. During 1996 and 1995, approximately $1,975,000
and $700,000, respectively, was remitted under the terms of the receivership.
The Venture's portion of these payments was approximately $1,415,000 and
$502,000, respectively.
As of September 30, 1995, an internal review of Brookdale Center was
performed for the Venture. Based on this review, the estimated fair market value
of Brookdale Center was $30,000,000. The Venture recorded a valuation allowance
of $3,232,210 to value the note at an amount equal to the Venture's
participation interest in the note multiplied by the estimated fair market value
of Brookdale Center, or $21,498,199.
In April 1996, the Lender agreed in principle to a workout arrangement with
Midwest on the Brookdale zero note under which Midwest would file for Chapter 11
bankruptcy protection and, with the support of the Lender, submit a plan of
reorganization to Bankruptcy Court for approval. The workout arrangement was
memorialized in a nonbinding letter agreement dated April 11, 1996 (the "Letter
Agreement") between Midwest and Equitable and approved by the Board of Directors
of EREIM Managers Corp., the general partner of the Partnership, on behalf of
the Venture.
On June 20, 1996, Midwest filed a voluntary petition for Chapter 11
bankruptcy protection, as contemplated by the Letter Agreement, staying the
Brookdale foreclosure proceeding and terminating the
-57-
<PAGE> 58
EML ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
receivership arrangement. As further contemplated by the Letter Agreement,
Midwest subsequently obtained Bankruptcy Court approval to retain the management
company that had served as receiver prior to the bankruptcy filing as
Brookdale's property manager.
In addition, the Bankruptcy Court, with the agreement of Midwest and
Lender, entered a cash collateral order as contemplated by the Letter Agreement,
pursuant to which all positive cash flow generated by the property in excess of
property-related expenses and certain administrative costs of the bankruptcy,
not to exceed $25,000, was paid to the Lender during the bankruptcy. The Venture
recorded cash received from the operation of Brookdale Center as interest
income. During 1996, approximately $2,890,000 was remitted under the terms of
the cash collateral order. The Venture's portion of these payments was
approximately $2,071,000.
On December 16, 1996, Brookdale Center was transferred to the Venture and
Equitable, as tenants in common, pursuant to a Chapter 11 bankruptcy plan for
Midwest that was approved by the Bankruptcy Court on November 25, 1996. The
consideration for this transfer was (i) release of Midwest from its obligations
under the Brookdale Zero Note and (ii) payment to Midwest of $500,000, of which
the Venture's portion was $358,303. An internal review of the property,
performed for the Venture as of the date of transfer, estimated the fair market
value of the Brookdale Center to be $21,700,000, of which the Venture's portion
was $15,550,364. Following the transfer, Brookdale Center was reclassified from
zero coupon mortgage note receivable to rental properties and income and
expenses were recorded from that date. In connection with the December 1996
transfer, the Venture recognized a loss of $6,211,644 to record Brookdale Center
at its fair market value. In November 1997, the Venture sold Brookdale Center to
Talisman Brookdale L.L.C. for $24,830,000 of which the Venture's portion was
approximately $17,793,000.
Northland Center
Until July 22, 1994, the Venture also held a 71.66% participation interest
in a zero coupon mortgage note and the first mortgage on Northland Center which
is located outside of Detroit, Michigan. The Venture acquired its participation
interest in 1988 from Equitable which held the remaining 28.34% interest. The
Venture's participation interest had an estimated fair market value (including
accrued interest) at the time of acquisition of $20,774,985. The borrower was
Midwest. The note had an implicit interest rate of 10.2% compounded semiannually
with the Venture's portion of the entire amount of principal and accrued
interest totaling $42,882,504 due on June 30, 1995. The note provided that the
borrower could elect to pay interest currently; however, no interest was paid
through July 22, 1994.
On July 22, 1995, Midwest transferred Northland Center to the Venture and
Equitable in proportion to their respective undivided interests in the Northland
Center mortgage. Following the transfer, which was retroactive as of January 1,
1994, Northland Center was reclassified from other real estate assets to rental
properties and income and expenses were adjusted as of that date. The Venture
records its proportionate share of the assets, liabilities, revenues, and
expenses of the undivided interests in Northland Center in accordance with the
tenancy in common arrangements in the Participation Agreement between the
Venture and Equitable. The Venture and Equitable paid the owner $6.6 million at
the time of transfer (an amount which was determined to approximate the net
present value of the anticipated cash flow from Northland Center, subject to
closing adjustments, for the period from January 1, 1994 through June 30, 1995,
the date the Northland Center mortgage would have matured).
In connection with the transfer of Northland Center, the Venture and
Equitable modified the agreement with Dayton Hudson, which operates one of the
anchor stores at Northland Center, and entered into an agreement to add
Montgomery Ward as an additional anchor. The Venture and Equitable also
commenced a renovation program at Northland Center. The renovations were
completed during the second quarter of 1995 at a total cost of approximately
$11.0 million, of which the Venture's share was approximately $7.9 million.
-58-
<PAGE> 59
EML ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
5. MORTGAGE LOANS RECEIVABLE
In 1989, the Venture made a $6,000,000 nonrecourse first mortgage loan to
the Wilcon Company. The loan is collateralized by an apartment complex in
Weston, Massachusetts. The loan bears interest at 10.25% per annum with interest
only of $51,250 due monthly to the maturity date of February 1999.
6. GUARANTY AGREEMENT
EREIM LP Associates has entered into a guaranty agreement with the Venture
to provide a minimum return to ML/EQ's limited partners on their capital
contributions. The Venture has assigned its rights under the guaranty agreement
to ML/EQ. Payments on the guaranty are due 90 days following the earlier of the
sale or other disposition of all the properties and mortgage loans and notes or
the liquidation of ML/EQ. The minimum return will be an amount which, when added
to the cumulative distribution to the limited partners of ML/EQ, will enable
ML/EQ to provide their limited partners with a minimum return equal to their
capital contributions plus a simple annual return of 9.75% on their adjusted
capital contributions, calculated from the dates of ML/EQ's investor closings at
which investors acquired their Beneficial Assignee Certificates ("BACs"). The
BACs evidence the economic rights attributable to limited partnership interests
in ML/EQ. Adjusted capital contributions are the limited partners' original cash
contributions reduced by distributions of sale or financing proceeds and by
distributions of certain funds in reserves, as more particularly described in
ML/EQ's Partnership Agreement. The limited partners' original cash contributions
have been adjusted by that portion of distributions paid through December 31,
1997, resulting from cash available to ML/EQ as a result of sale or financing
proceeds paid to the Venture. The minimum return is subject to reduction in the
event that certain taxes, other than local property taxes, are imposed on ML/EQ
or the Venture and is also subject to certain other limitations set forth in
ML/EQ's prospectus. Based upon the assumption that the last property is sold on
December 31, 2002, upon expiration of the term of ML/EQ, the maximum liability
of EREIM LP Associates under the guaranty agreement as of December 31, 1997 is
limited to $202,642,593, plus the value of EREIM LP Associates' interest in the
Venture less any amounts contributed by EREIM LP Associates to the Venture to
fund cash deficits.
Capital contributions by the BAC holders totaled $108,484,500. As of
December 31, 1997, the cumulative 9.75% simple annual return was $102,048,149.
As of December 31, 1997, cumulative distributions by ML/EQ to the BAC holders
totaled $49,479,767, of which $26,307,492 is attributable to income from
operations and $23,172,275 is attributable to sales of Venture assets, principal
payments on mortgage loans and other capital events. Another $14,916,619 in sale
and financing proceeds was distributed to the BAC holders in February 1998. To
the extent that future cash distributions to the limited partners are
insufficient to provide the specified minimum return, any shortfall will be
funded by the guarantor, up to the above described maximum.
Effective as of January 1, 1997, ML/EQ entered into an amendment to the
Joint Venture Agreement of the Venture between ML/EQ and EREIM LP Associates
pursuant to which EREIM LP Associates agreed to defer, without interest, its
rights to receive 20% of the Venture's distributions of sale or financing
proceeds until ML/EQ has received aggregate distributions from the Venture in an
amount equal to the capital contributions made to ML/EQ by the BAC holders plus
a noncompounded cumulative return computed at the rate of 9.75% per annum on
contributions outstanding from time to time. Prior to the amendment, EREIM LP
Associates had a right to receive 20% of all of the Venture's distribution of
sale or financing proceeds on a pari passu basis with ML/EQ. The amendment has
the effect of accelerating the return of original contributions to BAC holders
to the extent that sale or financing proceeds are realized prior to the
dissolution of ML/EQ.
7. PROPERTY MANAGEMENT FEES
Properties are managed and leased by third-party managing and leasing
agents, including Compass Management and Leasing, Inc. ("Compass") and ERE
Yarmouth Retail, Inc. ("Retail"), affiliates of ERE
-59-
<PAGE> 60
EML ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Yarmouth. As discussed in Note 1, until June 10, 1997, ERE, the predecessor
company to ERE Yarmouth, was an affiliate of Equitable. Property management fees
are generally established at specified percentages of 1% to 5% of the gross
receipts of the properties as defined in the management agreements. Property
management fees for properties managed by Compass and Retail were $396,440,
$406,995, and $442,906 in 1997, 1996, and 1995, respectively.
Leasing commissions are based on a percentage of the rent payable during
the term of the lease as specified in each lease agreement. Leasing commissions
paid by the Venture to Compass and Retail were $276,314, $123,611, and $93,519,
in 1997, 1996, and 1995, respectively. Leasing commissions are capitalized in
deferred leasing costs on the balance sheet or expensed in real estate operating
expenses on the statement of operations in accordance with the Venture's
capitalization policy. The Venture has reimbursed Compass and Retail for payroll
incurred of $1,785,133, $1,678,348, and $1,974,425 in 1997, 1996, and 1995
respectively. Payroll reimbursements are included in real estate operating
expenses on the statement of operations. Additionally, the Venture has paid
construction management fees to Compass and Retail of $11,829, $92,024, and
$167,861 in 1997, 1996, and 1995, respectively. The construction management fees
have been capitalized as a portion of the construction projects to which they
relate.
Retail performed certain due diligence work with regard to the workout
arrangement with Midwest on the Brookdale zero note. Consulting fees paid to
Retail during 1996 for due diligence work were $72,047, of which the Venture's
portion was $51,630. The consulting fees are included in the statements of
operations as a component of real estate operating expenses.
8. LEASES
Future minimum rentals to be received for the properties under
noncancelable operating leases in effect as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1998........................................................ $11,485,239
1999........................................................ 10,842,871
2000........................................................ 9,194,678
2001........................................................ 7,045,420
2002........................................................ 5,898,456
Thereafter.................................................. 17,413,225
-----------
Total............................................. $61,879,889
===========
</TABLE>
In addition to the minimum lease amounts, certain leases provide for
escalation charges to tenants for common area maintenance and real estate taxes.
The amount of escalation charges included in rental income totaled $9,172,055,
$7,686,606, and $7,792,848 for the years ended December 31, 1997, 1996, and
1995, respectively.
In the case of retail tenants, certain leases provide for percentage rents.
Contingent rentals which include percentage rents included in rental income for
the years ended December 31, 1997, 1996, and 1995 totaled $621,290, $615,400,
and $601,316, respectively.
Information with respect to significant individual leases is as follows:
- Treasure Chest Advertising, formerly Gruner & Jahr Printing Company,
occupies approximately 44.1% (143,852 square feet) of Doolittle Drive
at an annual base rent of $518,956 under a lease which expires in
August 2000.
- Hudson's Department Store, J.C. Penney, Montgomery Ward, and Target
operate stores at Northland Center and each contributes common area
maintenance payments for operating
-60-
<PAGE> 61
EML ASSOCIATES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
expenses and real estate taxes under separate agreements. These
stores, covering 511,509 square feet, 283,534 square feet, 117,750
square feet, and 116,222 square feet, respectively, are not included
in the gross leasable area of the mall. In addition, Montgomery Ward
filed Chapter 11 Bankruptcy during 1997. The store was open for
business as of December 31, 1997, but subsequently closed during
January 1998. In order to control the use of the space, ML/EQ agreed
to pay HK/MW, LLC $100,000 in exchange for a rejection of the lease,
which is anticipated to take effect on March 31, 1998.
- Pursuant to an agreement with Kohl's Department Stores, Inc.
("Kohl's") finalized on February 17, 1995, Equitable agreed to accept
$1,750,000 in connection with the termination of the Kohl's lease at
Northland Center on behalf of the tenancy in common arrangement
between the Venture and Equitable. The Venture's portion of the
termination payment was approximately $1,254,062. Upon termination of
the lease, Kohl's was released from any remaining lease obligation
under the original lease agreement.
- PNC Bank occupies approximately 32.7% of The Bank of Delaware Building
at an annual rent of $359,471. The majority of the lease commitment
expires in May 2005.
- Broadway Stores, Inc. occupies the entire Whipple Road property
(257,500 square feet) at an annual rent of $1,098,200 under a lease
which expires in August 2003.
- Bon-Ton and Redner's Market occupy approximately 45.4% and 29.3%
(84,405 and 54,471 square feet), respectively, of Richland Mall.
Bon-Ton and Redner's Market pay an annual base rent of $295,579 and
$435,768 under leases which expire December 2006 and November 2017,
respectively.
-61-
<PAGE> 62
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997 AND FOR THE YEARS ENDED DECEMBER 31, 1997, 1996,
AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COSTS GROSS COST
INITIAL COST TO COMPANY CAPITALIZED AT WHICH CARRIED AT END OF THE YEAR
--------------------------- SUBSEQUENT TO ---------------------------------------
BUILDINGS ACQUISITION BUILDINGS
AND ----------- AND
DESCRIPTION LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
<S> <C> <C> <C> <C> <C> <C>
Industrial
1200 Whipple Road, Union City, California $ 2,759,162 $ 5,108,652 $ 161,659 $ 2,762,332 $ 5,267,141 $ 8,029,473
1850 Westfork Drive, Lithia Springs, Georgia 750,000 3,009,802 134,330 788,008 3,106,124 3,894,132
1345 Doolittle Drive, San Leandro, California 4,000,000 6,264,526 1,600,703 4,026,312 7,838,917 11,865,229
Retail
Richland Mall, Richland Township, Pennsylvania 1,115,321 11,648,922 3,701,511 1,115,535 15,350,219 16,465,754
Northland Center, Southfield, Michigan 7,424,476 24,822,493 12,658,284 7,424,476 37,480,777 44,905,253
Office
Sentry Park West, Montgomery County,
Pennsylvania 2,624,777 23,971,032 2,916,298 2,651,385 26,860,722 29,512,107
The Bank of Delaware Building
Wilmington, Delaware 4,000,000 4,500,000 4,434,691 4,000,000 8,934,691 12,934,691
----------- ----------- ----------- ----------- ------------ ------------
$22,673,736 $79,325,427 $25,607,476 $22,768,048 $104,838,591 $127,606,639
=========== =========== =========== =========== ============ ============
<CAPTION>
Accumulated Date of Date
Depreciation Construction Acquired
<S> <C> <C> <C>
Industrial
1200 Whipple Road, Union City, California $ 1,291,290 1963 3/17/88
1850 Westfork Drive, Lithia Springs, Georgia 700,629 1988 1/6/89
1345 Doolittle Drive, San Leandro, California 2,026,051 1964 5/18/89
Retail
Richland Mall, Richland Township, Pennsylvania 2,904,444 1974-75 7/19/88
Northland Center, Southfield, Michigan 4,111,201 1954 7/22/94
Office
Sentry Park West, Montgomery County,
Pennsylvania 6,626,380 1988 12/22/88
The Bank of Delaware Building
Wilmington, Delaware 711,266 1970 11/15/94
-------------
$ 18,371,261
=============
</TABLE>
<TABLE>
<CAPTION>
Reconciliation of Beginning and Ending
Balances 1997 1996 1995
<S> <C> <C> <C>
Rental Properties:
Balance at beginning of year $ 145,197,804 $ 126,336,402 $ 118,933,102
Cost of real estate sold (23,154,113)
Brookdale Center Acquisition 15,550,364
Improvements 5,562,948 3,311,038 7,403,300
Balance at end of year $ 127,606,639 $ 145,197,804 $ 126,336,402
Accumulated Depreciation:
Balance at beginning of year $ 15,886,436 $ 12,421,010 $ 9,734,036
Depreciation for year 2,484,825 3,465,426 2,686,974
Balance at end of year $ 18,371,261 $ 15,886,436 $ 12,421,010
</TABLE>
-62-
<PAGE> 63
SUPPLEMENTAL SCHEDULES
(SEE INDEPENDENT AUDITORS' REPORT)
SCHEDULE IV
EML ASSOCIATES
SCHEDULE OF MORTGAGE LOANS ON REAL ESTATE
AS OF DECEMBER 31, 1997 AND FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
FINAL PERIODIC FACE CARRYING BALLOON
INTEREST MATURITY PAYMENT AMOUNT OF AMOUNT OF PAYMENT AT
DESCRIPTION RATE DATE TERMS MORTGAGES MORTGAGES MATURITY
- ----------- -------- ------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
First mortgage loan on
apartment complex in
Massachusetts....... 10.25% February 1999 (d) $6,000,000 $6,000,000(a)(c) $6,000,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
---------- ------------ -----------
<S> <C> <C> <C>
Balance at beginning of year......................... $6,000,000 $ 27,498,199 $30,115,465
Interest accrued on zero coupon...................... 614,944
Write-down of zero coupon mortgage................... (6,211,644)(b) (3,232,210)
Loans reclassified as rental properties.............. (15,286,555)
---------- ------------ -----------
Balance at end of year............................... $6,000,000 $ 6,000,000 $27,498,199
========== ============ ===========
</TABLE>
- ---------------
Notes:
(a) This loan is not subject to any delinquencies.
(b) The Venture recorded a valuation allowance of $3,232,210 at September 30,
1995 to value the note at an amount equal to the Venture's participation
interest in the note multiplied by the estimated fair market value of the
underlying collateral. On December 16, 1997, upon acquiring its undivided
interest in the shopping mall securing the zero coupon mortgage, the Venture
recorded a loss of $6,211,644 and recorded the property on its balance sheet
at an amount equal to the Venture's participation in the property multiplied
by the property's estimated fair market value.
(c) The aggregate tax basis is $6,000,000.
(d) Payments of interest only of $51,250 are due monthly until the maturity date
of February 1999.
-63-
<PAGE> 1
EXHIBIT 10A
===============================================================================
Real Estate Investment Advisory Agreement
between
EREIM Managers Corp.
and
Equitable Real Estate
Investment Management, Inc.
dated June 10, 1997
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
PREAMBLE ....................................................................1
Article I Engagement; Compensation; and Standard of Performance......2
1.1 Engagement and Acceptance..................................2
1.2 Compensation; Fees for Services............................2
1.3 Standard of Performance....................................4
Article II Duties of the Advisor......................................4
2.1 Performance of EMC's Obligations...........................4
2.2 Investment Advice, Services and Assistance Generally.......4
2.3 Mortgage Loan Servicing....................................4
2.4 Advisory and Investment Management Services................5
2.5 Dispositions...............................................7
2.6 Books, Records, Instruments, Documents and Files...........7
2.7 Reports and Information....................................8
2.8 Cooperation; Meetings......................................8
2.9 Administrative and Other Services..........................9
Article III Authority of the Advisor..................................11
3.1 Authority.................................................11
3.2 Limitations on Authority..................................12
Article IV Covenants of the Advisor..................................12
4.1 Status and Registration of the Advisor....................12
4.2 Other Business............................................12
4.3 No Assignment or Delegation...............................12
4.4 Confidentiality; Proprietary Materials....................13
4.5 No Affiliate Benefits.....................................13
4.6 Information Relating to the Advisor.......................13
4.7 Insurance.................................................14
4.8 Environmental Compliance..................................15
4.9 Property Managers and Other Service Providers.............15
Article V Rights of EMC.............................................16
5.1 Execution of Documents....................................16
5.2 Audit Review..............................................16
5.3 Legal Counsel.............................................17
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Page
5.4 Other Advisors............................................17
5.5 Personnel.................................................17
Article VI Indemnification and Related Matters.......................18
6.1 Indemnification By the Advisor............................18
6.2 Indemnification By EMC....................................19
6.3 Notices...................................................19
6.4 Defense of Claims.........................................19
6.5 Subrogation...............................................20
Article VII Term and Termination......................................20
7.1 Term......................................................20
7.2 Termination Due to Material Breach........................20
7.3 Termination Without Cause.................................21
7.4 Termination By Reason of ELAS Termination.................21
7.5 Additional Remedies.......................................21
7.6 Obligations Upon Termination..............................22
7.7 Further Assurances on Termination.........................22
7.8 License After Termination.................................22
7.9 Deliveries and Retention of Records.......................23
7.10 Obligations that Survive Termination......................24
Article VIII Notices...................................................24
8.1 Notices...................................................24
Article IX Definitions...............................................26
Article X Miscellaneous.............................................28
10.1 Dispute Resolution; Arbitration...........................28
10.2 Agreements of EMC.........................................28
10.3 Entire Agreement..........................................29
10.4 Amendments and Waivers....................................29
10.5 Governing Law.............................................29
10.6 Consent to Jurisdiction, etc..............................29
10.7 Waiver of Punitive and Other Damages and Jury Trial.......30
10.8 Interpretation............................................31
10.9 Cumulative Remedies.......................................31
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Page
10.10 Binding Effect............................................31
10.11 Further Assurances........................................31
10.12 Publicity.................................................31
10.13 Counterparts..............................................32
10.14 Section Headings..........................................32
10.15 Severability..............................................32
10.16 No Third Party Rights.....................................32
10.17 Successors and Assigns....................................32
Schedule 1.2(b) - Principles Applicable to Additional Fees
Exhibit 2.3 - Mortgage Loan Servicing
Exhibit 2.4(h) - Mortgage Reinspection Program
Schedule 2.7(b) - List of Reports
Schedule 5.5.1 - List of Continuing Employees
Schedule 5.5.2 - List of Employee Positions Subject to EMC Approval
Schedule IX - List of Certain Agreements
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Real Estate Investment
Advisory Agreement
Real Estate Investment Advisory Agreement, dated as of June 10,
1997, between EREIM Managers Corp., a Delaware corporation ("EMC"), and
Equitable Real Estate Investment Management, Inc., a Delaware corporation (the
"Advisor").
PREAMBLE
EMC is the Managing General Partner of ML/EQ Real Estate
Portfolio, L.P., a Delaware limited partnership (the "Partnership"), and the
Partnership is the Managing General Partner of EML Associates, a Delaware
general partnership (the "Venture"). Lend Lease Corporation Limited is, on the
date hereof, purchasing the Advisor. Prior to the date hereof, EMC was a wholly
owned subsidiary of the Advisor and the Advisor was a wholly owned indirect
subsidiary of The Equitable Life Assurance Society of the United States
("ELAS"). After the date hereof, EMC will not be a subsidiary of the Advisor
but will continue to be a wholly owned indirect subsidiary of ELAS. As the
managing general partner of the Partnership, EMC is obligated under the
Partnership Agreement to perform certain duties and obligations in respect of
the Partnership and, as the managing general partner of the Venture, the
Partnership is obligated under the Venture Agreement to perform certain duties
and obligations in respect of the Venture. Prior to the date hereof, EMC
performed its obligations as managing general partner of the Partnership and
the Partnership's obligations as managing general partner of the Venture by
utilizing the staff, resources and expertise of the Advisor. The Advisor and
EMC now wish to enter into this Agreement in order to provide for the
continuation of the services provided by the Advisor to EMC to enable EMC to
continue to perform such obligations subsequent to the date hereof. It is the
intention and objective of the parties that EMC is not delegating its duties
under the Partnership Agreement or the Venture Agreement, and that all actions
by the Advisor under this Agreement will be taken on behalf of and at the
direction of EMC.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, EMC and the Advisor hereby agree as
follows:
<PAGE> 6
Article I
Engagement; Compensation; and Standard of Performance
1.1 Engagement and Acceptance. (a) EMC hereby engages the Advisor to
provide nondiscretionary investment advisory and asset management services (i)
of the kinds required by this Agreement and previously provided by the Advisor
to EMC to enable EMC to perform its obligations as managing general partner of
the Partnership and the Partnership's obligations as managing general partner
of the Venture and (ii) as may otherwise be reasonably requested of the Advisor
by EMC during the term of this Agreement, in each case as described in this
Agreement and upon the terms and conditions set forth in this Agreement. The
Advisor hereby accepts such engagement, acknowledges that EMC shall have
complete and absolute discretion with respect to decisions to be made regarding
EMC, the Partnership, the Venture and the Investments (as such term and certain
other terms used in this Agreement are defined in Article IX), and agrees to
perform the covenants and obligations under this Agreement on its part to be
performed. In accepting such engagement, the Advisor recognizes that EMC has
special circumstances and needs as the managing general partner of the
Partnership, including the need to be kept informed by the Advisor of its
obligations and to receive recommendations from the Advisor with respect
thereto, all on a regular basis to enable EMC to avoid the occurrence of any
default by EMC under the Partnership Agreement or by the Partnership under the
Venture Agreement or by EMC, the Partnership or the Venture under any contract
or other agreement of which the Advisor is aware or under any Regulatory
Requirement. Notwithstanding any other provision of this Agreement, the Advisor
shall not, in connection with new or additional services requested by EMC
hereunder, be required to undertake any new line of business or to engage in
any business activity other than those in which the Advisor has been engaged on
or prior to the date of this Agreement.
(b) The Advisor hereby acknowledges that all members of the Board
of Directors and the President of EMC shall be ELAS officers or employees and
that, although certain other officers of EMC may, as provided in Section
2.4(l), be officers or employees of the Advisor, all decisions to be made and
actions to be taken by EMC under this Agreement shall not in any event be made
or taken by the Advisor or such officers or employees of the Advisor but rather
shall be made or taken by the Board of Directors of EMC or by officers of EMC
who are ELAS officers or employees.
1.2 Compensation; Fees for Services. (a) Subject to Section 1.2(b),
EMC shall pay to the Advisor, as the sole compensation for the services to be
rendered by the Advisor under this Agreement and for all of the Advisor's costs
and expenses incurred in
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the performance of its duties under this Agreement, amounts equal to (i) the
Venture Supervisory Fee payable under Section 5.2.x, the Mortgage Loan
Servicing Fee payable under Section 5.2.xi and the Disposition Fees payable
under Section 5.2.xv of the Partnership Agreement, to the extent such Fees are
paid under the Partnership Agreement (which fees shall be paid before
distributions to EMC), and (ii) any costs, expenses or charges incurred by the
Advisor which, if incurred by EMC, would be reimbursed to EMC pursuant to the
terms of the Partnership Agreement or the Venture Agreement or otherwise in
accordance with current practice. Payment of fees shall be made by EMC
directing the Partnership to make such payment, on behalf of EMC, directly to
the Advisor in accordance with current practice. Reimbursement of costs,
expenses or charges shall also be made in accordance with current practice.
Except as payable under this Section 1.2 , or as chargeable to the Partnership,
the Venture or any Investment under this Section 1.2 in accordance with current
practice, the Advisor shall not be reimbursed for any costs and expenses
relating to its duties under this Agreement or to the general operation of its
business.
(b) The compensation provided in Section 1.2(a) shall cover all
services to be provided by the Advisor under this Agreement, provided that, if
any such service (i) is not contemplated by the Agreements, or by any other
contract or agreement currently in effect and binding on EMC, the Partnership
or the Venture of which the Advisor is aware, and constitutes a unique or
special project (such as, by way of example and not of limitation, the
provision of data and information in support of EMC in connection with a major
litigation (other than a litigation arising with respect to an Investment or
any matter as to which the Advisor is required to provide indemnification under
Section 6.1)), or (ii) is not required by the Agreements or any Regulatory
Requirement and is not currently provided by the Advisor to EMC but may,
pursuant to the terms of this Agreement, be required to be provided by the
Advisor if requested by EMC or at the direction of EMC and results in an
increase in services which is materially more extensive or burdensome than
those currently provided, EMC will, in addition to the fees payable to the
Advisor under Section 1.2(a), compensate the Advisor in respect of the
provision of such service in accordance with the principles set forth in
Schedule 1.2(b). As a condition to the payment of any amount due the Advisor
under this paragraph (b), prior to providing a service which the Advisor
believes is subject to this Section 1.2(b), the Advisor shall so notify EMC in
writing, which notice shall also contain the information required by
Schedule 1.2(b). With respect to any services provided which fall within this
Section 1.2(b), the Advisor shall submit invoices to EMC setting forth the
amounts chargeable in respect of such services, the basis of the calculation
thereof and in such other detail and with such back-up documentation as
reasonably requested by EMC. Payments of such invoices shall be made to the
Advisor within 15 days after the submission thereof.
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1.3 Standard of Performance. The Advisor shall (a) discharge its
duties hereunder with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims and (b) discharge its duties in a manner
consistent with the fiduciary duties owed by EMC to the other partners in the
Partnership and by the Partnership to the other partners in the Venture,
provided that the Advisor shall not be liable for actions taken or omitted to
be taken by it at the direction of EMC.
Article II
Duties of the Advisor
2.1 Performance of EMC's Obligations. The Advisor shall perform such
services, on behalf and at the direction of EMC, as shall enable EMC to fulfill
and perform its duties and obligations as managing general partner of the
Partnership, which obligations shall include without limitation the
Partnership's duties and obligations as managing general partner of the
Venture, in each case as provided in and in accordance with the Agreements and
this Agreement. As part of such obligations, the Advisor shall maintain the
Partnership and, through the Partnership, maintain the Venture, conduct all
dealings with and perform all obligations with respect to the other partners in
the Partnership and the co-venturer in the Venture, keep accounts of EMC, the
Partnership and the Venture, make required filings with Regulatory Authorities,
advise, oversee, keep informed and report and make recommendations to EMC with
respect to the compliance by EMC, the Partnership and the Venture with
applicable Regulatory Requirements, prepare, distribute and file financial
reports and tax returns for the Partnership and the Venture and otherwise take
such actions as may be necessary to satisfy the obligations of EMC, the
Partnership and the Venture, as the case may be, under the Agreements.
2.2 Investment Advice, Services and Assistance Generally. The Advisor
shall advise, assist and provide services and make recommendations to EMC with
respect to the Investments. The Advisor shall provide EMC with the advice,
analyses, recommendations and other services and support set forth in this
Agreement.
2.3 Mortgage Loan Servicing. The Advisor shall, with respect to
Mortgage Loans, perform standard mortgage loan servicing functions in
accordance with current practice or as EMC may from time to time otherwise
reasonably direct. Such functions shall include the preparation of reports, the
making of recommendations, the assistance and the services described in Exhibit
2.3 attached hereto.
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<PAGE> 9
2.4 Advisory and Investment Management Services. The Advisor shall
provide real estate investment advice and advisory services for EMC as set
forth herein. As part of such services, the Advisor shall perform the following
asset management services, in each case in accordance with current practice or
as EMC may from time to time direct and subject to the provisions of Section
1.2 hereof:
(a) report and make recommendations to EMC with respect to
the sale, ownership, management, leasing, operation, maintenance and
improvement of Properties held by the Venture and advise and assist
EMC regarding the uses of cash flow from operations and capital
transactions and the establishment of investment and operational
goals, policies and procedures;
(b) report and make recommendations to EMC with respect to
on-site property management, leasing, operation, maintenance and
improvement of each Property, including without limitation,
recommendations relating to the collection of revenues therefrom, the
payment of operating and capital expenses relating thereto and the
establishment and maintenance of reserves;
(c) supervise and institute appropriate procedures with
respect to the activities of the property manager and leasing agent
for each Property and monitor the operational results of each Property
and formulate operating policies and leasing guidelines and report and
make recommendations to EMC with respect thereto;
(d) implement all transactions and conduct negotiations with
respect to Investments, supervise compliance with contractual
undertakings of EMC with respect to the Partnership and the Venture
and of the Partnership and the Venture with respect to Investments,
manage and act on behalf of EMC with respect to participants in
Mortgage Loans and co-owners with respect to Investments, assist EMC
with respect to third-party financing for Investments, and report and
make recommendations to EMC with respect thereto;
(e) maintain and make recommendations concerning financial,
banking, recordkeeping, accounting, management and information systems
and controls for the Investments;
(f) develop for EMC's approval annual and other operating
plans for each Property, including forecasts, operating programs and
budgets, capital expenditures, insurance data and marketing or leasing
strategies;
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<PAGE> 10
(g) timely report and make recommendations to EMC with
respect to any pending or threatened litigation or Regulatory
Authority investigation or proceeding concerning or relating to the
Investments or any actual or alleged conduct or practices of EMC, the
Partnership, the Venture, the Advisor or any of their agents with
respect thereto and monitor and assist EMC with respect thereto;
(h) physically inspect each Property on a regular basis, in
accordance with past practice, to monitor that it is being maintained
in a good state of repair and in compliance with applicable legal and
insurance requirements, and comply with EMC's mortgage reinspection
program (as set forth in Exhibit 2.4(h) hereto) with respect to each
Mortgage Loan property;
(i) timely report and make recommendations to EMC with
respect to any damage, destruction or condemnation of a Property or
any other event or development which may be covered by insurance and
assist EMC with respect thereto, with respect to the repair or other
cure of any such damage or damage caused thereby and with respect to
timely notification of appropriate insurance carriers, negotiation and
settlement with such carriers and the collection of insurance proceeds
and condemnation awards with respect thereto;
(j) provided the Advisor is permitted to do so under
agreements applicable to such Investments, oversee and monitor the
preparation and delivery by each property manager of, and review and
recommend for approval by EMC, an annual operating and capital budget
for each Property, using its best efforts to cause the same to be
delivered to EMC for approval by not less than 90 days (or such
shorter period as may be required under the Partnership Agreement or
the Venture Agreement) prior to the beginning of each calendar year
(and, unless and until EMC disapproves such budget, the property
manager may operate such Property in accordance with such budget);
(k) timely notify EMC if the Advisor becomes aware of any
material violation of a Regulatory Requirement applicable to any
Investment;
(l) maintain and qualify to do business EMC, the Partnership
and the Venture and provide two or more employees to serve as Vice
President, Secretary and Treasurer, respectively, of EMC (it being
agreed that, in addition to such other officers as the Board of
Directors of EMC may appoint, there shall at all times be a President
and Chief Executive Officer who is an employee of ELAS); and
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<PAGE> 11
(m) prepare presentations and related reports, resolutions
and similar materials relating to Investments, and assist EMC in
responding to any requests, investigations or inquiries by any partner
or investor in the Partnership or partner or joint venturer in the
Venture and any direct or indirect parent of EMC or any Regulatory
Authority.
2.5 Dispositions. The Advisor shall make recommendations for the
disposition of Investments. In connection therewith, the Advisor shall
recommend, for the approval of EMC, real estate brokers to assist in marketing,
selling and otherwise disposing of a particular Investment or group of
Investments and negotiate for such dispositions on such terms and conditions as
EMC shall determine.
2.6 Books, Records, Instruments, Documents and Files. The Advisor
shall, in accordance with current practice or as EMC may from time to time
reasonably direct, keep accurate books, records, data and files (including
without limitation, computerized material) with respect to the Partnership, the
Venture and the Investments in accordance with the requirements of the
Partnership Agreement and the Venture Agreement, in such detail as is
appropriate under the circumstances. In accordance with and subject to
Regulatory Requirements, the Advisor shall have full responsibility for the
maintenance, care and safe-keeping of all Investment Information presently
being maintained by the Advisor or hereafter generated or obtained by the
Advisor in performing its obligations under this Agreement. All Investment
Information shall be kept and maintained by the Advisor at such locations as
required under the Partnership Agreement or the Venture Agreement or, to the
extent no such location is required, at its office address set forth in Section
8.1 or such other office addresses or locations as EMC may approve, which
approval shall not be unreasonably withheld , or, to the extent in accordance
with current practice and permitted by the Agreements and with the consent of
EMC (which consent shall not be unreasonably withheld), at the regional offices
of the Advisor, as the same may change from time to time, and the Advisor will
give EMC prior notice of any such change. All Investment Information shall be
and remain the sole and exclusive property of, and shall belong to and remain
under the ultimate control of, EMC, the Partnership or the Venture, as the case
may be. EMC shall at all times have complete and unrestricted access to all
Investment Information. The Advisor shall not in any way interfere with or
deprive EMC, the Partnership or the Venture, as the case may be, of its
ownership, control or right of access to such written and computerized
Investment Information which may be enforced by EMC, the Partnership or the
Venture, as the case may be, by an action at law or in equity, whether for
specific performance or injunction or otherwise, even if EMC is in default
hereunder or after this Agreement has terminated. All Investment Information
shall be open to inspection and audit, at all reasonable times, by EMC, its
designees, such parties as may be entitled to inspect or review such Investment
7
<PAGE> 12
Information under the Partnership Agreement or the Venture Agreement, and
Regulatory Authorities, and the Advisor shall, if requested, make and deliver
copies and extracts therefrom to any such person, without charge (unless
copying costs become unreasonable in which case EMC, the Partnership or the
Venture shall reimburse the Advisor therefor). All Investment Information may
be audited from time to time by independent accountants selected by EMC and
paid for by EMC, the Partnership or the Venture.
2.7 Reports and Information. Subject to Section 1.2, the Advisor shall
prepare and provide to EMC and to such other parties to whom EMC is required to
deliver such reports and information pursuant to the Agreements or any
Regulatory Authority, the following reports and information:
(a) within the time periods required under the Agreements or
otherwise in accordance with Regulatory Requirements, all such
reports, securities filings, tax returns, financial statements and
other filings, information or communications as are required to be
prepared by EMC as managing general partner of the Partnership or by
the Partnership as managing general partner of the Venture pursuant to
the Agreements (including without limitation, Section 9.4 of each of
the Venture Agreement and the Partnership Agreement) or any Regulatory
Requirement;
(b) at such times as are set forth in Schedule 2.7(b), such
additional reports as are currently provided by the Advisor to EMC as
set forth on Schedule 2.7(b); and
(c) such additional data, reports, analyses and information
as EMC shall otherwise reasonably request, whether in connection with
the Partnership, the Venture or the Investments.
2.8 Cooperation; Meetings. EMC and the Advisor shall cooperate and
carry on a regular dialogue with each other concerning the affairs of EMC, the
Partnership and the Venture. The Advisor, represented by such officers and
other employees of the Advisor responsible for the performance of services
hereunder as EMC may reasonably require, shall meet with representatives of
EMC, and at EMC's request, of the Partnership or the Venture, regularly at such
times as are reasonably established by EMC, at the offices of ELAS or the
Advisor or such other locations as may be reasonably requested by EMC, to
discuss and review the performance of the Investments, the performance of the
Advisor under this Agreement and any other matters relating or pertaining to
this Agreement.
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<PAGE> 13
2.9 Administrative and Other Services. The Advisor shall provide the
following administrative and other services:
(a) Cash Management Services. The Advisor shall (i) maintain
all bank accounts for EMC in the name of EMC, for the Partnership in
the name of the Partnership and for the Venture in the name of the
Venture, and deposit into such bank accounts the funds belonging to
EMC, the Partnership and the Venture, respectively, (ii) deposit all
payments related to Mortgage Loans collected by the Advisor in a
commingled lockbox account in the name of the Advisor or, if EMC so
requests, in a Designated Account, and if deposited in a commingled
lockbox, transfer the same to a Designated Account within one business
day and pay all expenses with respect to Mortgage Loans from such
Designated Account, (iii) cause all property managers of Equity
properties to deposit all revenues collected therefrom into and pay
all expenses relating thereto out of Designated Accounts in accordance
with annual operating and capital budgets with respect thereto
approved by EMC or otherwise as agreed to by EMC and the Advisor and
(iv) adopt appropriate check and electronic funds transfer fraud
prevention procedures. The Advisor will pay the cost of maintaining
any commingled lockbox account (and will be entitled to retain all
interest earned in respect thereof) referred to above, and the cost of
any Designated Account (interest on which shall belong to the Venture)
will be charged to the Investment for which such Account has been
established.
(b) Accounting Services. The Advisor shall, in accordance
with current practice or as otherwise required by EMC, (i) maintain
records for each Investment on tax, GAAP, and other bases as are
currently being maintained or as may be requested by EMC, (ii) make
accounting entries and prepare accounting reports (including without
limitation, schedules for periodic and annual filings with Regulatory
Authorities) required by EMC to meet its, the Partnership's and the
Venture's reporting obligations, (iii) consult with EMC with respect
to proposed or new accounting/regulatory rules applicable to EMC, the
Partnership or the Venture, (iv) consult with EMC regarding
implications of proposed and actual transactions, and (v) prepare all
financial statements and perform all accounting services required by
EMC, the Partnership and the Venture in accordance with current
practice.
(c) Tax Related Services. The Advisor shall, in accordance
with current practice or as otherwise required by EMC, and in
coordination with outside tax advisors and counsel, (i) assemble and
maintain information and data with respect to the Investments, prepare
quarterly and annual financial statement
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<PAGE> 14
tax liabilities and forecasts and federal, state, local and foreign
tax returns, and represent EMC, the Partnership and the Venture as to
any audits, examinations or administrative or legal proceedings
related thereto or any contractual tax indemnity rights or
obligations, (ii) arrange for the provision of tax planning for the
Partnership, the Venture and the Investments, including without
limitation, preparation of projections of gains, losses and tax
obligations, depreciation schedules and related tax treatment of
particular items, (iii) prepare, file and send to appropriate persons
(including Partnership and Venture tax accountants and counsel)
applicable tax information reporting forms with respect to the
Investments and transactions involving the Investments (including
without limitation, information reporting forms, whether on Form 1099
or otherwise, with respect to sales, foreclosures, interest received,
interest paid, partnership reports and other transactions), and (iv)
prepare or cause to be prepared and deliver to EMC any tax returns
required to be filed by the Partnership or the Venture and file such
returns once executed by EMC in accordance with Regulatory
Requirements.
(d) Public Relations Services. The Advisor shall, in each
case to the extent in accordance with current practice, (i) submit to
EMC, for approval, public relations plans and strategies pertaining to
the Investments, (ii) pursuant to guidelines, submit to EMC for prior
review and approval advertising, marketing and other public
communications materials with respect to the Investments, (iii)
promptly notify EMC of any issues, events and activities with respect
to Investments, the Partnership or the Venture which may generate
adverse media interest, and (iv) not communicate with or respond to
any inquiry of the media with respect to the foregoing, other than
pursuant to guidelines, without the prior approval of EMC on a case by
case basis or pursuant to a strategy previously approved by EMC in
writing. The Advisor may include EMC, the Partnership or the Venture
in its list of clients or make reference to EMC, the Partnership or
the Venture as a client in any proposal, advertising or other
communication, but may not otherwise mention EMC, the Partnership or
the Venture or any of their affiliates in any of the foregoing or
otherwise use or display the name or logo of EMC or any EMC affiliate
without EMC's prior written consent. None of the foregoing shall limit
the right of the Advisor to continue to provide investor relations
services in accordance with current practice.
(e) Insurance Services. The Advisor shall, in accordance with
current practice or as otherwise required by EMC, (i) place and
maintain policies of insurance on the properties in compliance with
the requirements of the Partnership Agreement and the Venture
Agreement, (ii) provide EMC and EMC's, the
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<PAGE> 15
Partnership's and the Venture's insurers, if so requested, with timely
notice of any loss or claim with respect to any property, (iii) deal
with EMC's, the Partnership's and the Venture's insurers in the
assertion and collection of any insurance claims and in the defense of
any actions brought against EMC, the Partnership or the Venture in
connection therewith, and (iv) establish and monitor EMC's, the
Partnership's and the Venture's compliance with insurance and risk
management requirements.
(f) Other Services. The Advisor shall continue to provide the
following services for EMC, the Partnership and the Venture to the
extent currently provided or as otherwise required from time to time
by EMC: engineering, appraisal, valuation, investor relations, data
processing and computer services. Subject to Section 1.2(b), the
Advisor shall also provide such other services as EMC may reasonably
request from time to time in relation to EMC, the Partnership or the
Venture consistent with the purposes of this Agreement or related to
the unique requirements of EMC and its affiliates in respect of their
contractual relationships with the Partnership or the Venture.
Article III
Authority of the Advisor
3.1 Authority. The Advisor on the one hand and EMC, the Partnership
and the Venture on the other are not partners or joint venturers with each
other under or with respect to this Agreement or the investments and properties
covered by this Agreement, and nothing contained in this Agreement nor any
transaction or activity conducted pursuant to this Agreement shall be so
construed or interpreted or impose any liability as such on the Advisor or EMC,
the Partnership or the Venture. The Advisor shall perform its duties under this
Agreement as an independent contractor and not as an agent of EMC, the
Partnership or the Venture. Except as contemplated by Section 2.4(l), no
officer, employee or agent of the Advisor shall, under any circumstances or for
any purpose, become or be an officer, employee or agent of EMC, the Partnership
or the Venture by reason of this Agreement, and the Advisor's officers,
employees and agents shall, when acting on behalf of EMC, represent themselves
as officers, employees or agents, as the case may be, of the Advisor and not of
EMC, the Partnership or the Venture. The Advisor and EMC acknowledge and agree
that the Advisor is not a partner in the Partnership or the Venture and is not
an agent or independent contractor of the Partnership or the Venture. The
Advisor also acknowledges and agrees that it has no contractual relationship
with, and will not assert any claim against, either the Partnership or the
Venture, and will look solely to EMC for the performance of EMC's obligations
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under this Agreement, including without limitation, the obligation, which EMC
hereby acknowledges and agrees to, of EMC to cause the Partnership to pay, in
accordance with the Partnership Agreement, the fees contemplated by Section
1.2(a) and the Partnership and the Venture to effect appropriate reimbursement
of costs, fees or charges as contemplated by Section 1.2(a).
3.2 Limitations on Authority. The Advisor shall be governed by the
investment policies, practices and procedures reasonably established by EMC
from time to time for the Partnership and the Venture, as communicated to the
Advisor by EMC. In providing the services contemplated by this Agreement, the
Advisor will comply in all material respects with applicable provisions of
federal, state and other laws.
Article IV
Covenants of the Advisor
4.1 Status and Registration of the Advisor. The Advisor shall at all
times (a) be validly existing and in good standing under the laws of its state
of incorporation, (b) be duly registered with the United States Securities and
Exchange Commission as an investment adviser under the Investment Advisers Act
of 1940, as amended, to the extent required to perform its obligations under
this Agreement, (c) be duly qualified to do business and duly registered or
licensed as an investment adviser, a real estate broker and a mortgage broker
in each state or jurisdiction necessary to perform its obligations under this
Agreement, and (d) have completed, obtained or performed all registrations,
filings, approvals, licenses, consents and examinations required by any
Regulatory Authority which are required in connection with the performance of
its obligations under this Agreement.
4.2 Other Business. The Advisor may engage in any other business or
act as advisor to or investment manager for any other person, even though such
other person has or may have investment policies similar to those of the
Partnership or the Venture.
4.3 No Assignment or Delegation. (a) Neither this Agreement nor any of
the Advisor's right, title or interest herein or hereunder may be directly or
indirectly (in cluding without limitation, by any "assignment" within the
meaning of the Investment Advisers Act of 1940, as amended, whether direct or
indirect, and whether by operation of law or otherwise) assigned, transferred,
conveyed or otherwise disposed of to any person, including without limitation,
any subsidiary or other affiliate of the Advisor, without the prior written
consent of EMC, and any attempt to so assign, transfer, convey
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or otherwise dispose of any thereof without such prior written consent shall be
null and void.
(b) No duty or obligation of the Advisor hereunder may be contracted
for or otherwise delegated by the Advisor to any person, including without
limitation, any subsidiary or other affiliate of the Advisor, without the prior
written consent of EMC, and any attempt to so contract or otherwise delegate
any thereof without such prior written consent shall be null and void, provided
that the Advisor may, with the consent of EMC, which shall not be unreasonably
withheld, delegate any service to be provided by the Advisor under this
Agreement, other than investment advisory services, asset management services,
disposition services, and tax, accounting and recordkeeping services. If EMC
consents to the contracting or other delegation to any person of any duty or
the performance of any function required to be performed hereunder by the
Advisor, the Advisor shall pay all costs and expenses incurred in connection
therewith. No consent to any contracting or other delegation shall release the
Advisor from its obligations hereunder to perform the duty or function so
delegated, the Advisor shall continue to be liable to EMC with respect to such
delegated duty or function and with respect to the performance thereof by such
other person, notwithstanding such con tracting or other delegation, and any
person to whom any duty or function hereunder is so delegated shall be deemed
an agent of the Advisor for purposes of this Agreement.
4.4 Confidentiality; Proprietary Materials. Except as may be required
by applicable law or as may be necessary to perform its obligations hereunder,
the Advisor and its affiliates shall maintain in strict confidence and shall
not disclose, and shall neither use nor permit to be used, for any purpose, any
Investment Information or other non-public information with respect to or
concerning EMC, the Partnership or the Venture.
4.5 No Affiliate Benefits. Without the prior written consent of EMC,
none of the Advisor, its affiliates or their respective officers, directors or
employees shall (a) be retained by the Advisor (other than in their capacities
as officers, directors or employees of the Advisor) to provide any services to
EMC, the Partnership or the Venture or (b) receive any benefit from EMC, the
Partnership, the Venture or any Investment other than as contemplated by this
Agreement. Notwithstanding the foregoing, the continuation of any services with
respect to a specific Investment being provided to the Partnership or the
Venture by any affiliate of the Advisor or Lend Lease Corporation Limited or
any of their respective officers, directors or employees as of the date of this
Agreement shall not constitute a violation of the preceding sentence.
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4.6 Information Relating to the Advisor. The Advisor will notify EMC
promptly of any changes in the ownership (whether direct or indirect, other
than in respect of Lend Lease Corporation Limited so long as its shares are
publicly traded), control (whether direct or indirect) or corporate structure
of the Advisor. The Advisor shall promptly notify EMC in writing of any
material change in the Advisor's or any of its affiliates' business or
financial or other condition or any investigation, action, suit or proceeding
commenced or threatened against the Advisor or any of its affiliates, in each
case which may adversely affect the Advisor's ability to perform its duties and
obligations hereunder or may otherwise adversely affect EMC, the Partnership or
the Venture. No later than 90 days following the last day of each fiscal year
of the Advisor, the Advisor will prepare and deliver to EMC the Advisor's
consolidated balance sheet and related consolidated statement of income,
shareholder's equity and cash flows at and for each year end, including
supporting footnotes, all in accordance with generally accepted accounting
standards and related reports of independent accountants. All such financial
and other information shall be held in confidence by EMC.
4.7 Insurance. The Advisor shall maintain the following insurance
coverages, with such deductibles as are reasonable and customary practice in
the industry or as EMC may otherwise approve:
(a) Workers Compensation in accordance with statutory
requirements and Employers Liability in an amount not less than
$1,000,000;
(b) commercial general liability insurance and umbrella
liability insurance, on an occurrence basis, in an amount not less
than $25,000,000 Combined Single Limit and annual aggregate;
(c) a comprehensive crime policy, or fidelity bond, covering
all officers, directors and employees of the Advisor with
responsibility for any monies belonging to the Venture in an amount
not less than $10,000,000 per occurrence and annual aggregate;
(d) errors and omissions insurance, covering all services
provided by the Advisor to EMC, in an amount not less than $5,000,000
per claim and annual aggregate;
(e) comprehensive automobile liability insurance covering the
Ad visor's owned, leased and hired vehicles in an amount not less than
$5,000,000 Combined Single Limit; and
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(f) such other insurance as may be reasonably required by EMC
at any time or from time to time and which is in accordance with
reasonable and customary practice in the industry.
EMC and the Advisor will from time to time, at the request of EMC, review and,
as appropriate, increase the amounts set forth in Sections 4.7(a) through (e)
to reflect reasonable and customary practice in the industry. All insurance
required hereunder shall be written with insurance companies authorized to do
business in the State of New York, and having a Best's rating of not less than
A VIII, shall be in a form and with insurers reasonably satisfactory to EMC,
and shall include a provision that coverage provided by such policy shall not
be cancelled or materially changed without giving EMC at least thirty (30)
days' prior written notice. EMC, the Partnership, the Venture and their
respective subsidiaries, officers, directors and employees shall be named as
additional insureds with respect to the coverages required in Sections 4.7(b)
and (e), and the Venture shall be named as a joint loss payee as its interests
may appear with respect to the coverage required in Section 4.7(c). A
certificate or certificates of insurance evidencing the coverages required
hereunder shall be delivered to EMC at the time this Agreement is executed, and
at least ten (10) days prior to each renewal of such insurance.
4.8 Environmental Compliance. The Advisor shall promptly notify EMC
whenever the Advisor acquires knowledge that there exists, with respect to any
property which is the subject of an Investment, any violation or alleged
violation of any Regulatory Requirement relating to any environmental condition
on, under or adjacent to such property or that any person has used, generated,
manufactured, stored or disposed of on, under or about such property or
transported to or from such property any hazardous materials or substances in
violation of any applicable Regulatory Requirement. In the event consideration
is given to the acquisition of any property by way of foreclosure, the Advisor
shall implement appropriate procedures in order to evaluate any potential
exposure to EMC, the Partnership or the Venture under any Regulatory
Requirement with respect to hazardous materials or substances as a result of
the acquisition or ownership of any interest in such property. In addition,
with respect to any existing Investment, the Advisor shall, as reasonably
directed by EMC, arrange for and supervise environmental assessments (including
Phase I and Phase II assessments), studies, testing, remediation, monitoring
and reporting with respect to environmental conditions, provided the same may
be properly charged to the Partnership or the Venture, and the Advisor shall
review and analyze the same and shall submit to EMC the Advisor's review,
analysis and recommendations with respect thereto.
4.9 Property Managers and Other Service Providers. Subject to Section
4.3(b), the Advisor may, from time to time, recommend, for the approval of EMC,
on behalf of
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the Venture, property managers, real estate and leasing brokers, engineering
and environmental consultants, appraisers and other independent service
providers to perform services not normally or ordinarily provided heretofore by
the Advisor to EMC as part of the Advisor's services. Any such property
manager, broker, consultant, appraiser or other service provider shall be
retained and the cost thereof shall be charged to the Venture. In recommending
any such property manager, broker, consultant, appraiser or other service
provider, the Advisor shall recommend only such service providers (which may
include affiliates of the Advisor) that are capable of providing the optimum
level of service consistent with investment strategy and competitive pricing.
If requested by EMC, the Advisor shall furnish EMC with the information on
which the Advisor is relying to establish the capabilities and competitiveness
of the pricing for a provider it has recommended. The Advisor shall not
recommend an affiliate of the Advisor (other than Hyperion Capital Advisors
L.L.C., Compass Management and Leasing, Inc., Compass Retail, Inc. or The
Yarmouth Group) to act as such property manager, broker or other service
provider unless the Advisor shall disclose such affiliation to EMC in writing.
Subject to its obligations under Section 1.3 in recommending and monitoring any
such third party service provider, the Advisor shall not be responsible for or
liable in respect of the performance of its services by such third party
service provider.
Article V
Rights of EMC
5.1 Execution of Documents. Only EMC or a duly authorized designee of
EMC may execute documents with respect to EMC, the Partnership, the Venture or
any Investment or otherwise effect any transaction on behalf of EMC, the
Partnership or the Venture. The Advisor shall not execute any documents or
effect any transactions on behalf of EMC, the Partnership or the Venture
without the express prior written authorization of EMC. The Advisor shall and
shall cause its officers to, if, as and when requested by EMC, execute and
deliver documents on behalf of EMC for itself or for EMC on behalf of the
Partnership or the Venture with respect to the Investments pursuant to a power
of attorney to be provided by EMC or in the capacities contemplated by Section
2.4(l).
5.2 Audit Review. EMC shall have the absolute right (even if EMC is in
default hereunder or after this Agreement has expired or been terminated), at
any time and from time to time upon reasonable notice, to undertake or cause to
be undertaken an audit review of all Investments, the Advisor's performance of
its services under this Agreement, the fees payable to the Advisor hereunder
and all reimbursable costs and expenses hereunder, if any, and the Advisor's
compliance herewith. Such audit review
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may be undertaken directly by EMC, either on its own behalf or on behalf of the
Partnership or the Venture, or by third parties engaged by EMC, for itself or
on behalf of the Partnership or the Venture, and the costs of such audit shall
be borne by EMC or by the Partnership or the Venture, as appropriate. The
Advisor shall, as provided in Section 2.6, cooperate fully with EMC, the
Partnership and the Venture and each such third party in connection with any
such audit review. The rights of EMC, the Partnership and the Venture under
this Section 5.2 may be enforced by an action at law or in equity, whether for
specific performance or injunction or otherwise.
5.3 Legal Counsel. EMC shall have the exclusive authority to engage,
at the cost and expense of the Partnership or the Venture, as appropriate,
legal counsel to act on behalf of EMC, the Partnership or the Venture in
connection with Investments, including without limitation, dispositions,
investment management, property management and leasing, mortgage loan servicing
and any other matters contemplated by or arising under this Agreement or the
Agreements, provided that, with respect to day-to-day and routine legal issues
arising in connection with the management and operation of specific
Investments, the Advisor may, at the cost and expense of EMC or of the
Partnership or the Venture, as appropriate, engage local counsel selected from
a list from time to time furnished or approved in writing by EMC.
5.4 Other Advisors. EMC shall not appoint or engage other advisors to
provide advisory or investment management services in respect of Investments
which are the same as or similar to the services to be performed by the Advisor
under this Agreement, provided that, without affecting EMC's obligation to pay
the Advisor fees and costs and expenses to the extent required by Section 1.2,
EMC may so engage other advisors (a) to provide services in respect of
Investments relating to matters falling within the scope of this Agreement
which the Advisor is not able to provide, in which case the Advisor shall be
responsible for recommending to EMC, in accordance with Section 4.9,
appropriate service providers for such purpose, and (b) to provide second
opinions in respect of advice or recommendations of the Advisor hereunder or to
provide specialized assistance on a non-recurring basis to supplement the
services of the Advisor when so requested by EMC.
5.5 Personnel. The Advisor shall at all times assign officers and
employees with appropriate background and expertise to fulfill the Advisor's
duties under this Agreement, provided that the Advisor's portfolio manager
responsible for the Investments and all personnel of the Advisor performing any
of the Advisor's duties under this Agreement shall report to and be under the
supervision of the Advisor's portfolio manager in charge of Investments in
ELAS's general account. All persons at or above the level of Vice President (or
equivalent level in the future) assigned at any time and from time to time by
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the Advisor to perform all or any part of the Advisor's duties under this
Agreement shall, unless hereafter expressly approved by EMC in writing, be
direct employees of the Advisor and not of any subsidiary or other affiliate
thereof, whether or not such persons are presently employed by any such
subsidiary or other affiliate. Schedule 5.5.1 identifies certain persons who
currently perform those duties of the Advisor indicated on Schedule 5.5.1, and
the Advisor agrees that, unless otherwise directed by EMC or otherwise approved
in advance by EMC in each case, such persons shall continue to be assigned to
work regularly in the performance of such duties and will not be reassigned
from such duties for the period ending on the later of June 30, 1998 and six
months from the date of this Agreement, provided that they remain employed by
or otherwise controlled by or responsible to the Advisor. Schedule 5.5.2
identifies certain employee positions relevant to the performance of the
Advisor's duties hereunder, and the Advisor agrees that such positions shall
only be held by persons who, after consultation between the Advisor and EMC,
have been and continue to be approved by EMC. Subject to the foregoing, the
Advisor may assign and reassign any person performing all or any part of the
Advisor's duties under this Agreement. Any dispute concerning the nature or the
adequacy of the performance of any employee assigned by the Advisor to perform
any of its duties hereunder shall be resolved in accordance with the procedures
provided for in Section 10.1. In addition, if special circumstances arise
relating to incompatibilities between Advisor personnel and EMC personnel or
other persons with whom Advisor personnel must interact in the performance of
their duties hereunder in reference to a specific situation or transaction, any
disputes concerning changes or reassignments of personnel in response to such
situation shall be resolved by executives of the Advisor at a higher level of
management than the persons with direct responsibility for administration of
this Agreement and by executives of ELAS.
Article VI
Indemnification and Related Matters
6.1 Indemnification By the Advisor. The Advisor shall indemnify,
defend and hold harmless EMC and its directors, officers, agents and employees
(each an "EMC Indemnitee" and collectively, the "EMC Indemnitees") from and
against any and all losses, costs, liabilities, damages or deficiencies,
including interest, penalties and reasonable attorneys' fees and disbursements
(collectively, "Losses") incurred as a result of, pursuant to or in connection
with any action, suit, proceeding or claim of any nature whatsoever (a "Claim")
by any third party arising out of, based upon or resulting from (a) a breach of
any representation, warranty, covenant or agreement of the Advisor contained in
this Agreement, or (b) any act, omission or failure to act by the Advisor or
any of its directors, officers, agents or employees constituting a breach of
the standard of
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conduct set forth in Section 1.3 or bad faith, willful misconduct, gross
negligence or reckless disregard of its duties in connection with the
performance by the Advisor or any of its directors, officers, agents or
employees of any of the Advisor's obligations under this Agreement.
6.2 Indemnification By EMC. EMC and its indirect parent, ELAS, shall
indemnify, defend and hold harmless the Advisor and its directors, officers,
agents and employees, whether in their capacities as directors, officers,
agents or employees of the Advisor or in their capacities as officers of EMC as
contemplated by Section 2.4(l) (each an "Advisor Indemnitee" and collectively,
the "Advisor Indemnitees") from and against any and all Losses incurred as a
result of, pursuant to or in connection with any Claim by any third party
arising out of, based upon or resulting from (i) any Investment or proposed
Investment where the Advisor is acting on behalf of EMC under this Agreement,
(ii) the performance by the Advisor or any of its directors, officers, agents
or employees of the Advisor's obligations under this Agreement or (iii) any
matter relating to the Partnership or the Venture or the management, operation
or business thereof, but only to the extent such Claim does not arise out of,
is not based upon or does not result from (a) a breach of any representation,
warranty, covenant or agreement of the Advisor contained in this Agreement or
(b) any act, omission or failure to act by the Advisor or any of its directors,
officers, agents or employees, whether in their capacities as directors,
officers, agents or employees of the Advisor or in their capacities as officers
of EMC as contemplated by Section 2.4(l) constituting a breach of the standard
of conduct set forth in Section 1.3 or bad faith, willful misconduct, gross
negligence or reckless disregard of the Advisor's obligations under this
Agreement.
6.3 Notices. If any Advisor Indemnitee or EMC Indemnitee shall obtain
knowledge of any Claim indemnified against under this Article VI, such
Indemnitee shall give prompt written notice thereof to the Advisor and EMC,
provided that the failure of such Indemnitee to so notify the Advisor and EMC
shall not affect the indemnification obligations to such Indemnitee under this
Article VI except to the extent of any increase in the amount of such Claim
resulting from such failure or to the extent the contest of such Claim is
impaired as a result of such failure.
6.4 Defense of Claims. The Advisor shall control the defense of any
Claim as to which the Advisor is required to provide indemnification under
Section 6.1 and EMC shall control the defense of any Claim as to which EMC is
required to provide in demnification under Section 6.2, in either case with
counsel selected by the Advisor or EMC, as the case may be, which counsel shall
be reasonably acceptable to the other party. Neither the Advisor nor EMC may
settle any claim without the consent of the other party, which consent shall
not be unreasonably withheld. EMC or the Advisor, as
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the case may be, shall be entitled, at its sole cost and expense and acting
through counsel reasonably acceptable to the other party, to participate in the
defense and settlement of any claim for which the other party is required to
provide indemnification. If the party entitled to control the defense of any
Claim does not assume the defense thereof, the other party shall have the right
to select its own counsel and control the defense thereof at the expense of the
party failing to assume such defense.
6.5 Subrogation. Upon payment of any Claim pursuant to this Article
VI, to or on behalf of an EMC Indemnitee or an Advisor Indemnitee, the party
paying such Claim, whether the Advisor or EMC, as the case may be, shall be
subrogated to any and all claims that such Indemnitee may have in respect of
the matters against which such indemnity was given. Such Indemnitee shall
cooperate with the Advisor or EMC, as the case may be, and shall execute such
further instruments to permit the Advisor or EMC, as the case may be, to pursue
such claims.
Article VII
Term and Termination
7.1 Term. This Agreement shall have an initial term from the date
hereof until all the Properties are sold, all Mortgage Loans are paid and
discharged and the affairs of the Partnership and the Venture are fully wound
up, unless sooner terminated pursuant to Section 7.2, 7.3 or 7.4.
7.2 Termination Due to Material Breach. EMC may terminate this
Agreement at any time on not less than thirty days prior written notice in the
event of a Material Breach of this Agreement by the Advisor. A "Material
Breach" is a breach (or a series of breaches constituting a pattern of behavior
or practice) of the representations, covenants or obligations of the Advisor
hereunder that reflects willful misconduct or willful failure to comply with
such representations or to perform such covenants or obligations, or gross
negligence in the compliance with such representations or the performance of
such covenants or obligations, that is, either individually or in the
aggregate, material in relation to the activities and responsibilities of the
Advisor under this Agreement as a whole, provided that no breach or series of
breaches shall be considered a Material Breach if such breach or breaches and
all material consequences thereof have been cured as provided below. Prior to
providing notice terminating this Agreement on the basis of any Material
Breach, EMC shall provide written notice to the Advisor describing the nature
of the Advisor's default with specificity, and the Advisor shall have a period
of 30 days following receipt of any such notice to cure such default. If during
such 30-day period, the Advisor takes reasonable actions to commence a cure of
such default and if
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the nature of such default is such that it cannot, through the exercise of
reasonable diligence, be cured during such 30-day period, such 30-day period
shall be extended for up to 60 additional days so long as the Advisor shall
continue to take reasonable actions to cure such default during such 60-day
period. A Material Breach on the part of the Advisor and the consequences
thereof shall be deemed to be cured for the purpose of this Section 7.2:
(a) if the Material Breach and such consequences can be
completely cured by the payment of money, if all such money is paid in
cash within the 30-day period immediately following receipt of such
notice to cure such default; and
(b) if the Material Breach and such consequences cannot be
completely cured by the payment of money and the actions required for
cure are such that they could be taken within the time periods for
cure set forth above in this Section 7.2, if such actions are taken in
all material respects within such time periods.
Notwithstanding anything to the contrary contained in this Section, the
occurrence of any event constituting a default under Section 4.3(a) of this
Agreement shall be a Material Breach hereunder, and no cure period shall be
available with respect thereto.
7.3 Termination Without Cause. EMC may terminate this Agreement at any
time on not less than ten days' prior written notice to the Advisor, for any
reason or without cause.
7.4 Termination By Reason of ELAS Termination. Contemporaneously
herewith ELAS and the Advisor have entered into a Real Estate Investment
Advisory Agreement (general account) with respect to ELAS's general account
(the "ELAS Agreement"). If the ELAS Agreement shall at any time terminate or be
terminated for any reason whatsoever, EMC may, contemporaneously therewith or
at any time thereafter, terminate this Agreement on not less than thirty days
prior written notice.
7.5 Additional Remedies. The right to terminate this Agreement as
provided in this Article VII is not exclusive of any rights or remedies that
the Advisor or EMC may otherwise have at law or in equity for breaches of this
Agreement, whether for in demnification or otherwise. In addition, EMC and the
Advisor agree that fines, penalties, costs, charges and damages for breaches of
any provision of this Agreement may be assessed by any mediator or arbitrator
in connection with proceedings conducted pursuant to Section 10.1.
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7.6 Obligations Upon Termination. Except as provided in Section 7.7,
from and after the effective date of termination of this Agreement for any
reason whatsoever, the Advisor shall not be entitled to compensation for
further services hereunder but shall be paid all compensation accrued and
unpaid to the date of termination, if any. Any compensation so accrued at the
time of termination, but payable only upon the occur rence of one or more
conditions subsequent, shall be paid only after satisfaction of all such
conditions.
7.7 Further Assurances on Termination. Upon the termination of this
Agreement for any reason whatsoever, the Advisor shall cooperate fully with
EMC, the Partnership and the Venture, including without limitation, providing
to EMC, the Partnership and the Venture access to and opportunity to consult
with the Advisor's officers and employees, in order to facilitate a smooth
transition of the responsibilities and records so as to avoid a disruption of
services to EMC, the Partnership and the Venture. In the case of a termination
by notice, any such transition shall begin immediately upon the giving of such
termination notice and the parties shall use their best efforts to complete
such transition by the termination date. If such transition is not completed by
the termination date or if EMC requests that the Advisor continue to provide
services or undertake duties and responsibilities under this Agreement after
such termination date, the Advisor shall do so for a period of up to 12 months,
unless otherwise mutually agreed between the Advisor and EMC, and this
Agreement shall be deemed to continue in effect with respect to the services so
provided or duties or responsibilities so undertaken and the Advisor shall be
entitled to receive such compensation as shall reasonably reflect the nature,
scope and extent of such services, duties or responsibilities. If the Advisor
and EMC are unable to reach agreement on such compensation, they shall submit
the dispute for resolution pursuant to Section 10.1.
7.8 License After Termination. (a) If notice of termination is given
under this Agreement, EMC shall have the right to receive from the Advisor, in
accordance with Section 7.8(b), a perpetual, worldwide, non-exclusive license
to reproduce, distribute, make derivative works from and otherwise use all, or,
at EMC's sole discretion, part of the Advisor Software in connection with the
provision of investment advisory, asset management and other services to EMC of
the types provided under this Agreement. Such license shall include the right
to sublicense the foregoing to any third party in connection with such party's
provision of services to EMC. In connection with the foregoing, the Advisor
shall have no obligation, except as provided in Section 7.7, to maintain,
correct or otherwise support any of the Advisor Software so licensed to EMC.
"Advisor Software" shall mean the source code and object code versions of the
ap plication, operating, reporting and other software used by the Advisor in
the performance of accounting, valuation, reporting, treasury, data processing
and computing and other
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services for EMC and its affiliates under this Agreement. If EMC wishes to
exercise such right, it shall give notice thereof promptly after notice of
termination is given under this Agreement and, upon receipt of such notice, the
Advisor shall promptly deliver to EMC copies of the Advisor Software (other
than the Third-Party Software) in a form and medium reasonably acceptable to
EMC. Any such license would be subject to obtaining required approvals, if any,
from third parties, which the Advisor will use its reasonable efforts (which
shall not include incurring additional cost on the part of the Advisor) to
obtain. With respect to any Advisor Software hereafter purchased or licensed by
the Advisor, the Advisor will use its reasonable efforts to negotiate terms
which, without additional cost to the Advisor, would permit the granting of the
foregoing license. In the event that the Advisor has not obtained the rights to
sublicense any Advisor Software to EMC (such software, the "Third-Party
Software"), the Advisor shall use its reasonable efforts (which shall not
include incurring additional cost on the part of the Advisor) to assist EMC in
obtaining licenses to such software directly from the relevant third parties,
which shall include providing to EMC a list of all Third-Party Software used by
the Advisor in connection with the Partnership or the Venture and waiving any
of the Advisor's rights of exclusivity that it may have with respect to its
licensing of such software.
(b) Upon termination of this Agreement for any reason, the
Advisor shall grant EMC the license described in Section 7.8(a) without
additional charge to EMC and EMC shall be responsible for all license fees to
be paid to third parties for the Third-Party Software.
7.9 Deliveries and Retention of Records. The Advisor shall forthwith
upon any termination of this Agreement:
(a) as soon as practicable after such termination, pay over
to EMC, the Partnership or the Venture, as appropriate, all monies
held for the account of EMC, the Partnership or the Venture pursuant
to this Agreement;
(b) as soon as practicable after such termination, deliver to
EMC, the Partnership and the Venture a report containing, among other
things, a statement of Investments covered by this Agreement as of the
date of termination and such other information regarding such
Investments as EMC may reasonably request; and
(c) retain or, to the extent EMC does not then possess such
Investment Information, deliver to EMC or its designee all or such
part thereof and at such time or times as EMC and any other party
entitled to access to such Investment Information pursuant to the
Partnership Agreement or the Venture Agreement so
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requests, all Investment Information for seven years after termination
of this Agreement, provided that the Advisor shall have the right,
subject to Regulatory Requirements, to have such Investment
Information held in the custody of a responsible third party service
provider, and provided further that the Advisor or such third party
service provider shall give EMC and any other party entitled to access
to such Investment Information pursuant to the Partnership Agreement
or the Venture Agreement access to all Investment Information in
accordance with the provisions of Section 2.6 and EMC, the Partnership
or the Venture, as appropriate, shall reimburse the Advisor for its
reasonable costs incurred in retaining such records, including its
costs for the third party service provider and provided further that,
notwithstanding the foregoing, the Advisor shall have the right, at
any time after such termination but subject to Section 7.7, to deliver
to EMC or such other party as may be designated by EMC all such
Investment Information together with any other books or records the
property of the Partnership or the Venture, following the delivery of
which the Advisor shall have no further obligations under this Section
7.9(c).
7.10 Obligations that Survive Termination. The provisions of
Section 4.4, Section 5.2, Article VI, this Article VII and Section 10.1 and
each party's respective rights to bring claims arising in connection with the
statements and obligations set forth in this Agreement shall survive the
termination of this Agreement.
Article VIII
Notices
8.1 Notices. Any notice or other communication provided hereunder
shall be in writing and shall be delivered personally or by telefacsimile with
confirmed answerback or sent by certified, registered and return receipt
requested mail or by a nationally-recognized overnight courier, postage
prepaid, and shall be deemed given when so delivered personally or by
telefacsimile with confirmed answerback or sent by overnight mail or courier
and three days after the date of mailing if sent by certified or registered
mail to the following addresses:
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To EMC:
EREIM Managers Corp.
c/o The Equitable Life Assurance Society
of the United States
1290 Avenue of the Americas
New York, NY 10104
Attention: President
Fax No.: (212) 707-1550
with a copy to:
The Equitable Life Assurance Society
of the United States
1290 Avenue of the Americas
New York, NY 10104
Attention: Law Department
Counsel, Real Estate Law Group
Fax No.: (212) 707-7981
To the Advisor:
Equitable Real Estate Investment
Management, Inc.
3424 Peachtree Road, N.E.
Suite 800
Atlanta, GA 30326
Attention: Chief Operating Officer
Fax No.: (404) 848-8904
with a copy to:
Equitable Real Estate Investment
Management, Inc.
3424 Peachtree Road, N.E.
Suite 800
Atlanta, GA 30326
Attention: General Counsel
Fax No.: (404) 848-8904
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and:
Neptune Real Estate, Inc.
Swiss Bank Tower
10 East 50th Street
New York, NY 10022
Attention: Chief Financial Officer
Fax No.: (212) 593-5186
Either party hereto may from time to time by notice in writing served
upon the other as aforesaid designate a different mailing address or
telefacsimile number or a different or additional person to which all such
notices or demands to that party thereafter are to be addressed.
Article IX
Definitions
The following terms shall have the following meanings:
"the Agreements" shall mean the Partnership Agreement, the
Venture Agreement and the agreements, instruments and documents described in
Schedule IX.
"Designated Account" shall mean a lockbox account or, with
ELAS's prior approval, a depository account in ELAS's name in a bank designated
by ELAS with such signatories as ELAS shall designate, which signatories may
include officers and employees of the Advisor and/or the appropriate property
manager.
"guidelines" shall mean guidelines, requirements and/or
procedures mutually established by EMC and the Advisor and any modifications
thereof, in each case as approved by the Board of Directors of EMC and by the
Advisor.
"Investment Information" shall mean such books, records,
data, information, instruments, documents, files, reports, manuals, policies,
guidelines and procedures (including without limitation, computerized
materials), as relate to EMC, the Partnership, the Venture and the Investments.
"Investment Information" shall not include any of the foregoing prepared by the
Advisor generally for use in its business or generally for use by its clients.
"Investments" shall mean the Properties and the Mortgage
Loans.
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"Mortgage Loans" shall mean all loans now or hereafter held
by the Venture on the security of real properties or interests therein
(including, without limitation, leasehold interests), and on the security of
personal property, if any, associated with such real property whether junior or
senior to other security interests in such real properties and all extensions,
renegotiations, replacements or renewals thereof. "Mortgage Loans" include any
Mortgage Loans which are deep discount or zero coupon or similar mortgage
notes, including mortgage notes which permit the deferral of interest and which
are acquired with the expectation that interest will be deferred, but do not
include participating mortgage loans made by the Venture and the security
therefor.
"Partnership Agreement" shall mean the Amended and Restated
Agreement of Limited Partnership of the Partnership dated as of April 23, 1987
among EREIM Managers L.P., MLH Real Estate Associates Limited Partnership, MLH
Real Estate Assignor Inc. and MLH Real Estate Inc., as amended by that certain
Amendment to the Amended and Restated Agreement of Limited Partnership of ML/EQ
Real Estate Portfolio, L.P. dated as of February 8, 1988, among EMC, MLH Real
Estate Inc. and MLH Real Estate Assignor Inc.
"Properties" shall mean the properties in or with respect to
which the Venture, or another partnership or joint venture in which the Venture
now or hereafter shall be a partner or have a direct or indirect interest, now
owns or hereafter acquires an interest (including without limitation,
properties acquired by foreclosure, satisfaction or deed in lieu of a Mortgage
Loan), together with all improvements on the real estate constituting any such
property and replacements or renewals thereof and all personal property which
is used in connection therewith, but excluding Mortgage Loans and security
therefor. "Properties" shall also include participating mortgage loans made by
the Venture and the security therefor.
"Regulatory Authority" shall mean any nation or government,
any state, county, municipality or other political subdivision thereof or any
entity exercising exe cutive, legislative, judicial, regulatory or
administrative functions of or pertaining to government or any rating agency or
entity which sets accounting and/or reporting standards.
"Regulatory Requirement" shall mean any statute, law, rule,
ruling, code, ordinance, decision, official pronouncement, regulation,
requirement, procedure, permit, directive, decree, judgment or order of any
Regulatory Authority now or hereafter in effect, in each case, as and to the
extent available in published or other publicly available form, and, in each
case, as amended from time to time and any interpretation thereof published by
any Regulatory Authority.
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<PAGE> 32
"Venture Agreement" shall mean the Joint Venture Agreement of
the Venture, dated as of March 10, 1988, among the Partnership as Managing
Venturer and EREIM Associates, L.P. as the Equitable Venturer, as amended by
that certain Amendment to the Joint Venture Agreement of the Venture, effective
as of January 1, 1997, among the Partnership as Managing Venturer and EREIM
Associates, L.P. as the Equitable Venturer.
Article X
Miscellaneous
10.1 Dispute Resolution; Arbitration. The Advisor and EMC shall
attempt in good faith to resolve any dispute arising out of or relating to this
Agreement promptly by negotiation between executives who have authority to
settle the dispute and who are at a higher level of management (who may be
officers of EMC's parent in the case of EMC) than the persons with direct
responsibility for administration of this Agreement. All reasonable requests
for information by one party to the other will be honored and all negotiations
shall be confidential and treated as compromise and settlement negotiations. If
the dispute has not been resolved by negotiation within 20 days after either
party notifies the other in writing that a dispute exists, the parties shall
endeavor to settle the dispute by mediation under the then current CPR Model
Mediation Procedure for Business Disputes. The parties have selected Mr. Blake
Eagle of Massachusetts Institute of Technology as the mediator in any such
dispute and he has agreed to serve in that capacity. In the event that
Mr. Blake Eagle is unwilling or unable to serve, the parties have selected Mr.
Peter Linnemann of The Wharton School as an alternative mediator and he has
agreed to serve in that capacity. In the event that Mr. Peter Linnemann is
unwilling or unable to serve, the mediator shall be the most senior real
property consultant at Frank Russell and Associates at that time. In the event
that he/she is unwilling or unable to serve, the mediator shall be a person of
similar stature selected by the CPR Institute for Dispute Resolution. If the
dispute has not been resolved by such mediation within 30 days following the
submission of such dispute to mediation, either party may submit such dispute
to binding arbitration under the Rules for Non-Administered Arbitration of
Business Disputes of the CPR Institute for Dispute Resolution, and judgment on
the award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. In any such arbitration there shall be three arbitrators,
each of whom shall have experience in the real estate investment advisory
industry, and the arbitration shall take place in New York, New York.
10.2 Agreements of EMC. EMC agrees and acknowledges that (a) the
Advisor makes no representation or warranty as to the investment performance of
the Investments or any particular Investment, and (b) immediately following the
execution and delivery hereof, the Advisor will not be in breach of any of its
duties or obligations hereunder. EMC also
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<PAGE> 33
agrees that the Advisor shall be named as an additional insured under the
liability insurance maintained in respect of each Investment to the extent EMC
is able to do so without additional cost to EMC, the Partnership or the
Venture.
10.3 Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the provision of investment advisory
and asset management services by the Advisor to EMC whether directly or on
behalf of the Partnership and the Venture and supersedes all prior agreements,
written and oral, with respect thereto. EMC and the Advisor agree that, to the
extent there is any conflict between the duties and obligations required on the
part of the Advisor hereunder in respect of the Partnership or the Venture and
the duties and obligations of EMC as the general partner of the Partnership
under the Partnership Agreement or the duties and obligations of the
Partnership as the managing general partner of the Venture under the Venture
Agreement, the provisions of the Partnership Agreement or the Venture
Agreement, as the case may be, shall control in determining the applicable
duties and obligations of the Advisor to EMC hereunder in respect of the
Partnership or the Venture.
10.4 Amendments and Waivers. This Agreement may be amended, modified,
superseded, canceled, renewed, extended or supplemented, and the terms and
conditions hereof may be waived, only by a written instrument signed by EMC and
the Advisor or, in the case of a waiver, by the party waiving compliance,
provided that no such amendment, modification, renewal, extension or supplement
shall authorize or permit any assets of EMC, the Partnership or the Venture to
be used or directed to purposes other than for the exclusive benefit of EMC,
the Partnership or the Venture, as the case may be. No delay on the part of
either party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of either party
of, or failure on the part of either party to exercise, any right, power or
privilege hereunder, nor any single or partial exercise of any right, power or
privilege hereunder, preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder.
10.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York as at the time in effect.
10.6 Consent to Jurisdiction, etc. (a) Each of the parties hereto
acknowledges that mediation and arbitration under the provisions of Section
10.1 is intended to be the ex clusive method for resolution of disputes arising
under this Agreement, and agrees that neither party to this Agreement shall
commence any action or proceeding in any court with respect to such dispute,
except (i) to enforce Section 10.1; (ii) to obtain provisional judicial
assistance in aid of arbitration under Section 10.1; or (iii) to enforce an
arbitral award made under Section 10.1. The provisions of Section 10.6(b)
through 10.6(d) below and of Section 10.7
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<PAGE> 34
shall be interpreted in a manner consistent with the parties' acknowledgment and
agreement set forth in the preceding sentence.
(b) Each of the parties hereto hereby irrevocably and
unconditionally submits, for itself and its property, to the exclusive
jurisdiction of any New York State court or Federal court of the United States
of America sitting in New York City, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, and each of the parties hereto hereby ir
revocably and unconditionally agrees that all claims in respect of any such
action or pro ceeding may be heard and determined in such New York State court
or, to the extent permitted by law, in such Federal court. Each of the parties
hereto agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.
(c) Each of the parties hereto hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement or
the transactions contemplated hereby in any New York State or Federal court.
Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to
service of process in any manner permitted by law at such party's address as
set forth in Section 8.1.
10.7 Waiver of Punitive and Other Damages and Jury Trial. (a) THE
PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER
PUNITIVE, EXEMPLARY, LOST PROFITS, CONSEQUENTIAL OR SIMILAR DAMAGES IN ANY
ARBITRATION, LAWSUIT, LITIGATION OR PRO CEEDING ARISING OUT OF OR RESULTING
FROM ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANS ACTIONS CONTEMPLATED HEREBY.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND
DIFFICULT ISSUES, AND THEREFORE IT HERE BY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
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<PAGE> 35
(c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE EITHER OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS
CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS
VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREE MENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICA TIONS IN THIS SECTION
10.7.
10.8 Interpretation. This Agreement has been negotiated at arm's
length and between persons sophisticated and knowledgeable in the matters dealt
with in this Agree ment and each party has been represented by experienced and
knowledgeable legal counsel. Accordingly, any rule of law or legal decisions
that would require interpretation of any ambiguities in this Agreement against
the party that has drafted it shall not be applicable and are hereby waived.
The provisions of this Agreement shall be interpreted in a reasonable manner to
effectuate the purpose of the parties and this Agreement.
10.9 Cumulative Remedies. The rights and remedies herein provided are
cumu lative and not exclusive of any rights or remedies which either party may
have hereunder or otherwise at law or in equity.
10.10 Binding Effect. This Agreement and the rights, covenants,
conditions and obligations of the respective parties hereto and any instrument
or agreement executed pursuant hereto shall be binding upon the parties and
their respective successors and assigns.
10.11 Further Assurances. Each of the parties hereto shall execute
such further documents and other papers and perform such further acts as may be
reasonably required or desirable to carry out the provisions hereof.
10.12 Publicity. No publicity release, public statement or
announcement con cerning this Agreement or any Investment or any aspect hereof
or thereof or the transactions contemplated hereby shall be issued by the
Advisor or any affiliate of the Advisor without the prior written approval of
the form and substance thereof by EMC, nor shall any such publicity release,
public statement or announcement which names or otherwise refers to the Advisor
be issued by EMC or any affiliate of EMC without the prior written approval of
the form and substance thereof by the Advisor.
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<PAGE> 36
10.13 Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
10.14 Section Headings. The section headings of this Agreement are for
con venience of reference only and shall not be deemed to alter or affect any
provision hereof.
10.15 Severability. Should one or more provisions of this Agreement be
held by any court to be invalid, void or unenforceable, the remaining
provisions shall nevertheless continue in full force.
10.16 No Third Party Rights. By execution of this Agreement EMC and
the Advisor do not intend to create any rights of any kind in any third parties
and nothing in this Agreement shall confer any rights upon any person or entity
which is not a party or a successor or permitted assignee of a party to this
Agreement.
10.17 Successors and Assigns. This Agreement shall inure to the
benefit of the parties hereto and their respective successors and assigns to
the extent permitted by Section 4.3.
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<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their indicated officers thereunto duly authorized,
as of the day and year first above written.
EREIM MANAGERS CORP.
By /s/ Timothy J. Welch
---------------------------------------------
Name: Timothy J. Welch
Title: President and Chief Executive Officer
EQUITABLE REAL ESTATE
INVESTMENT MANAGEMENT, INC.
By /s/ James Quille
---------------------------------------------
Name: James Quille
Title: Chief Operating Officer
THE EQUITABLE LIFE INSURANCE SOCIETY OF THE UNITED STATES has caused this
Agreement to be executed by its indicated officer thereunto duly authorized, as
of the day and year first above written, in order to establish and confirm its
agreement to provide the indemnification set forth in Section 6.2 of this
Agreement in accordance with the terms of this Agreement, including without
limitation, Article VI and Sections 10.6 and 10.7.
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By: /s/ Peter D. Noris
--------------------------------------------
Name: Peter D. Noris
Title: Executive Vice President and
Chief Investment Officer
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<PAGE> 38
Schedule 5.5.1
List of Continuing Employees
Michael L. Jacobson, Portfolio Manager
Patricia C. Snedecker, Chief Accountant
Mark Hillis, Vice President
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<PAGE> 39
Schedule 5.5.2
List of Employee Positions Subject to EMC Approval
Portfolio Manager
Chief Accountant
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<PAGE> 40
Schedule IX
1. Prospectus of ML/EQ Real Estate Portfolio, L.P. dated April 23, 1987.
2. Agency Agreement dated April 23, 1987 among ML/EQ Real Estate
Portfolio, L.P., EREIM Managers L.P., MLH Real Estate Associates
Limited Partnership, EREIM LP Associates and Merrill Lynch.
3. Letter dated March 10, 1988 from Equitable Real Estate Investment
Management, Inc. to Merrill Lynch, Hubbard Inc. concerning EREIM
Managers Corp.'s obligations and responsibilities under the Agency
Agreement.
4. Agreement between General Partners dated March 10, 1988 between ML/EQ
Real Estate Portfolio, L.P., EREIM Managers L.P., MLH Real Estate
Associates Limited Partnership, MHL Depositary Inc. and EREIM LP
Associates.
5. Participation Agreement dated March 10, 1988 between The Equitable
Life Assurance Society of the United States and EML Associates with
respect to the Zero Coupon Mortgage Note secured by Northland Mall, as
amended on May 3, 1988.
6. Participation Agreement dated March 10, 1988 between The Equitable
Life Assurance Society of the United States and EML Associates with
respect to the Zero Coupon Mortgage Note secured by Brookdale Center,
as amended on May 3, 1988.
7. Investment Guaranty Agreement dated March 10, 1988 between EML
Associates and EREIM LP Associates, as assigned and assumed pursuant
to Assumption Agreement dated March 10, 1988 between EML Associates
and ML/EQ Real Estate Portfolio, L.P.
8. Letter dated March 10, 1988 from Equitable Real Estate Investment
Management, Inc. to Merrill Lynch, Hubbard Inc. concerning the net
worth responsibilities of the general partners of ML/EQ Real Estate
Portfolio, L.P.
<PAGE> 1
EXHIBIT 10.B
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is made as of the __
day of August, 1997 (the "Effective Date"), by and between THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation ("Equitable"),
and EML ASSOCIATES, a New York general partnership ("EML") (Equitable and EML
together called "Seller"), having its home office at 1290 Avenue of the
Americas, New York, New York 10104 and TALISMAN BROOKDALE L.L.C., a Delaware
limited liability company ("Purchaser"), having an office c/o The Schlesinger
Companies, at 1500 San Remo Avenue, Suite 185A, Coral Gables, Florida 33146.
W I T N E S S E T H:
ARTICLE I
PURCHASE AND SALE
1.1 Agreement of Purchase and Sale. Subject to the terms and
conditions hereinafter set forth, Seller agrees to sell and convey and Purchaser
agrees to purchase the following:
(a) that certain tract or parcel of land situated in
Henepin County, Minnesota, more particularly described on Exhibit A
attached hereto and made a part hereof, together with all and singular
the rights and appurtenances pertaining to such property, including any
right, title and interest of Seller in and to adjacent streets, alleys,
rights-of-way, strips, gores, privileges, easements, and appurtenances
pertaining thereto, and any unpaid award for any taking by condemnation
or any damage thereto or by reason of a change in the grade of any
street or highway (the property described in clause (a) of this Section
1.1 being herein referred to collectively as the "Land");
(b) all of Seller's right, title and interest in and to
the buildings, structures, fixtures and other improvements on the Land,
including specifically, without limitation, the enclosed mall building
containing approximately 200,000 square feet of gross leasable area and
known as "Brookdale Center" (the property described in clause (b) of
this Section 1.1 being herein referred to collectively as the
"Improvements");
(c) all of Seller's right, title and interest in and to
all tangible personal property upon the Land or within the
Improvements, including specifically, without limitation, appliances,
machinery, equipment, signage, furniture, carpeting, draperies and
curtains,
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<PAGE> 2
tools and supplies, and other items of personal property (excluding
cash and proprietary software and electronic work product) used
exclusively in connection with the operation of the Land and any
replacements to any of the same, and the Improvements (the property
described in clause (c) of this Section 1.1 being herein referred to
collectively as the "Personal Property");
(d) all of Seller's right, title and interest in and to
all agreements listed and described on Exhibit B (the "Lease Schedule")
attached hereto and made a part hereof, pursuant to which any portion
of the Land or Improvements is used or occupied by anyone other than
Seller (the property described in clause (d) of this Section 1.1 being
herein referred to collectively as the "Leases");
(e) all of Seller's right, title and interest in and to
all agreements, if any, described in the Title Commitment (as
hereinafter defined) relating to the rights and obligations of Seller
and the other owners of the anchor stores in the shopping center (the
"Anchors") (the property described in clause (e) of this Section 1.1
being herein referred to collectively as the "Operating Agreements");
(f) all of Seller's right, title and interest in and to
(i) all assignable contracts and agreements (collectively, the "Service
Contracts") listed and described on Exhibit O (the "Service Contracts
Schedule") attached hereto and made a part hereof, relating to the
upkeep, repair, maintenance or operation of the Land, Improvements or
Personal Property which will extend beyond the date of Closing (as such
term is defined in Section 4.1 hereof), including specifically, without
limitation, all assignable equipment leases, (ii) all assignable
existing warranties and guaranties (expressed or implied) issued to
Seller in connection with the Improvements or the Personal Property,
and (iii) the right to use the name "Brookdale Mall," and (iv) any
other agreements relating to the Center in which Seller has an interest
and which Purchaser may elect to assume (the property described in this
Section 1.1(f) being sometimes herein referred to collectively as the
"Intangibles"); and
(g) all of Seller's right, title and interest, if any, in
and to governmental permits, certificates, licenses, authorizations,
approvals, and variances relating to the ownership and operation of the
Property, only to the extent same are assignable (the "Permits").
1.2 Property Defined. The Land, the Improvements, the Personal
Property, the Leases, the Operating Agreements, the Intangibles, and the Permits
are hereinafter sometimes referred to collectively as the "Property." Property
does not include Seller's right, title and interest in any real estate tax
refund with respect to the Land and Improvements for periods prior to Closing.
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<PAGE> 3
1.3. Permitted Exceptions. The Property shall be conveyed subject
only to the matters which are, or are deemed to be, Permitted Exceptions
pursuant to Article II hereof (herein referred to collectively as the "Permitted
Exceptions").
1.4 Purchase Price. Seller is to sell and Purchaser is to purchase
the Property for a total of TWENTY-FIVE MILLION AND NO/100 DOLLARS
($25,000,000.00) (the "Purchase Price").
1.5 Payment of Purchase Price. The Purchase Price, as increased or
decreased by prorations and adjustments as herein provided, shall be payable in
full at Closing in cash by wire transfer of immediately available federal funds
to a bank account designated by Seller in writing to Purchaser prior to the
Closing.
1.6 Earnest Money. Within two (2) business days after the
execution and delivery of this Agreement, Purchaser shall deposit with Guaranty
Title, Inc., as agent for Lawyers Title Insurance Company, having its office at
330 Second Ave. South, Suite 750, Minneapolis, Minnesota; Attention: Thomas
McMannis (the "Escrow Agent"), the sum of Five Hundred Thousand and No/100
Dollars ($500,000.00) (the "Earnest Money") in good funds, either by certified
bank or cashier's check or by federal wire transfer. The Escrow Agent shall hold
the Earnest Money in an interest-bearing account in accordance with the terms
and conditions of an escrow agreement entered into among Seller, Purchaser and
Escrow Agent simultaneously with the execution of this Agreement. All interest
accruing on such sum shall become a part of the Earnest Money and shall be
credited against the Purchase Price upon closing and/or shall be distributed as
Earnest Money in accordance with the terms of this Agreement.
ARTICLE II
TITLE AND SURVEY
2.1 Title Examination; Commitment for Title Insurance. Purchaser
shall have until seven (7) business days after receipt of the Title Commitment
and the Survey (as such terms are defined below), but in no event later than
September 30, 1997 (the "Title Inspection Period") to examine title to the
Property. During the Title Inspection Period, Purchaser shall obtain from
Lawyers Title Insurance Corporation or, at Purchaser's election, First American
Title Insurance Company (the "Title Company") at Purchaser's expense, an ALTA
title insurance commitment (the "Title Commitment") covering the Property,
showing all matters affecting title to the Property and binding the Title
Company to issue at Closing an Owner's Policy of Title Insurance in the full
amount of the Purchase Price pursuant to Section 2.4 hereof. Purchaser shall
instruct the Title Company to deliver, upon completion, to Purchaser, Seller and
the surveyor described in Section 2.2 below copies of the Title Commitment and
copies of all instruments referenced in Schedule B and Schedule C thereof.
2.2 Survey. Prior to the expiration of the Title Inspection
Period, Purchaser shall, at Purchaser's expense, employ a reputable surveyor or
surveying firm, licensed by the state in
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<PAGE> 4
which the Property is located, to survey the Property and prepare and deliver,
upon completion, to Purchaser, the Title Company and Seller an ALTA survey
thereof (the "Survey") reflecting the total area of the Property, the location
of all improvements, recorded easements and encroachments, if any, located
thereon and all building and set back lines and other matters of record with
respect thereto.
2.3 Title Objections; Cure of Title Objections. Purchaser shall
have until the expiration of the Title Inspection Period to notify Seller, in
writing, of such objections as Purchaser may have to anything contained in the
Title Commitment or the Survey. Any item contained in the Title Commitment or
any matter shown on the Survey to which Purchaser does not object during the
Title Inspection Period shall be deemed a Permitted Exception. In the event
Purchaser shall notify Seller of objections to title or to matters shown on the
Survey prior to the expiration of the Title Inspection Period, Seller shall have
the right, but not the obligation, to cure such objections; provided, however,
Seller shall be obligated to cure any objections relating to financing
instruments executed, assumed or taken subject to by Seller, mortgages,
mechanics liens resulting from contracts let by Seller or its agents
(specifically excluding any mechanics liens resulting from the acts or omissions
of any tenants). Within ten (10) days after receipt of Purchaser's notice of
objections, Seller shall notify Purchaser in writing whether Seller elects to
attempt to cure such objections as to which Seller does not have an obligation
to cure. If Seller elects to attempt to cure, and provided that Purchaser shall
not have terminated this Agreement in accordance with Section 3.2 hereof, Seller
shall have until the date of Closing to attempt to remove, satisfy or cure the
same and for this purpose Seller shall be entitled to a reasonable adjournment
of the Closing if additional time is required, but in no event shall the
adjournment exceed sixty (60) days after the date for Closing set forth in
Section 4.1 hereof, provided such adjournment does not cause a material adverse
effect upon the closing conditions or financing terms of any commitment for
financing obtained by Purchaser, it being understood, however, that Purchaser's
obligations hereunder are not conditioned upon Purchaser obtaining financing. If
Seller elects not to cure any objections specified in Purchaser's notice as to
which Seller does not have an obligation to cure, or if Seller is unable to
effect a cure prior to the Closing (or any date to which the Closing has been
adjourned), Purchaser shall have the following options: (i) to accept a
conveyance of the Property subject to the Permitted Exceptions, specifically
including any matter objected to by Purchaser which Seller is unwilling or
unable to cure, and without reduction of the Purchase Price (except as to
objections that Seller has an obligation to cure as described above); or (ii) to
terminate this Agreement by sending written notice thereof to Seller, and upon
delivery of such notice of termination, this Agreement shall terminate and the
Earnest Money shall be returned to Purchaser, and thereafter neither party
hereto shall have any further rights, obligations or liabilities hereunder
except to the extent that any right, obligation or liability set forth herein
expressly survives termination of this Agreement. If Seller notifies Purchaser
that Seller does not intend to attempt to cure any title objection as to which
it has no obligation to cure; or if, having commenced attempts to cure any
objection, Seller later notifies Purchaser that Seller will be unable to effect
a cure thereof; Purchaser shall, within five (5) business days after such notice
has been given, notify Seller in writing whether Purchaser shall elect to accept
the conveyance under clause (i) or to terminate this Agreement under clause
(ii).
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2.4 Conveyance of Title. At Closing, Seller shall convey and
transfer to Purchaser such title to the Property as will enable the Title
Company to issue to Purchaser, at Purchaser's expense, an ALTA Owner's Policy of
Title Insurance (the "Title Policy") covering the Land and Improvements, in the
full amount of the Purchase Price. Notwithstanding anything contained herein to
the contrary, the Property shall be conveyed subject only to the following
matters, which shall be deemed to be Permitted Exceptions:
(a) the rights of tenants under the Leases and any new
Leases entered into between the Effective Date and Closing and, where
required, approved by Purchaser in accordance with the terms of this
Agreement;
(b) the lien of all ad valorem real estate taxes and
assessments not yet due and payable as of the date of Closing;
(c) local, state and federal laws, ordinances or
governmental regulations, including but not limited to, building and
zoning laws, ordinances and regulations, now or hereafter in effect
relating to the Property;
(d) the Operating Agreements; and
(e) items appearing of record or shown on the Survey and,
in either case, not objected to by Purchaser or waived or deemed waived
by Purchaser in accordance with Sections 2.3 or 2.5 hereof.
2.5 Pre-Closing "Gap" Title Defects. Whether or not Purchaser
shall have furnished to Seller any notice of title objections pursuant to the
foregoing provisions of this Agreement, Purchaser may, at or prior to Closing,
notify Seller in writing of any objections to title first raised by the Title
Company or the Surveyor between (a) the effective date of the Title Commitment
referred to above, and (b) the date on which the transaction contemplated herein
is scheduled to close. With respect to any objections to title set forth in such
notice, Seller shall have the same option to cure and Purchaser shall have the
same option to accept title subject to such matters or to terminate this
Agreement as those which apply to any notice of objections made by Purchaser
before the expiration of the Title Inspection Period. If Seller is required to
or elects to attempt to cure any such matters, the date for Closing shall be
automatically extended by a reasonable additional time to effect such a cure,
but in no event shall the extension exceed sixty (60) days after the date for
Closing set forth in Section 4.1 hereof, provided such extension does not void
or materially alter any financing secured or to be secured by Purchaser, it
being understood, however, that Purchaser's obligations hereunder are not
conditioned upon Purchaser obtaining financing.
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ARTICLE III
INSPECTION PERIOD
3.1 Right of Inspection. During the period beginning as of July
18, 1997 and ending at 5:00 p.m. (local time at the Property) on September 15,
1997 (the "Inspection Period"), and thereafter until Closing, Purchaser shall
have the right to make a physical inspection of the Property, to perform
non-invasive tests on the Property and to examine at such place or places at the
Property, in the offices of the property manager or elsewhere as the same may be
located, any operating files maintained by Seller or its property manager in
connection with the leasing, maintenance and/or management of the Property,
including, without limitation, the Leases, lease files, Operating Agreements,
Service Contracts, Records (as defined below), Permits, insurance policies,
bills, real estate tax bills, invoices, receipts and other general records
relating to the income and expenses of the Property, correspondence, surveys,
plans and specifications, warranties for services and materials provided to the
Property, engineering reports, environmental audits and similar materials, but
excluding materials not directly related to the leasing, maintenance and/or
management of the Property such as Seller's internal memoranda, financial
projections, budgets, appraisals, accounting and tax records and similar
proprietary or confidential information. Purchaser understands and agrees that
any on-site inspections or testing of the Property shall be conducted upon at
least twenty-four (24) hours' prior written notice to Seller and in the presence
of Seller or its representative (if the same are available). Any such
inspections and testing shall be performed by companies selected by Purchaser
and approved by Seller, which approval shall not be unreasonably withheld or
delayed. Upon request, Seller shall furnish to Purchaser such written requests
and/or authorizations as Purchaser and its agents may reasonably require to make
inquiry with respect to the Property. Purchaser agrees to repair any damage to
the Property and to indemnify Seller against and hold Seller harmless from any
claim for liabilities, costs, expenses (including reasonable attorneys' fees
actually incurred) damages or injuries arising out of or resulting from the
inspection or testing of the Property by Purchaser or its consultants or agents,
and notwithstanding anything to the contrary in this Agreement, such obligation
to repair and to indemnify and hold harmless Seller shall survive Closing or any
termination of this Agreement. Purchaser shall maintain and shall ensure that
Purchaser's consultants maintain public liability and property damage insurance
in the amount of $1,000,000 and in form and substance adequate to insure against
all liability of Purchaser and its consultants, respectively, and each of its
agents, employees or contractors, arising out of the inspections or testing. All
inspections and testing shall occur at reasonable times agreed upon by Seller
and Purchaser and shall be conducted so as not to interfere unreasonably with
use of the Property by Seller or its tenants.
3.2 Environmental Termination. Seller agrees that in the event
Purchaser determines that the environmental condition of the Property either (i)
is not in material compliance with all applicable environmental laws, which
determination shall be based solely on an environmental report prepared by
Purchaser's environmental consultant or (ii) renders alterations to the
Improvements unduly expensive in Purchaser's reasonable judgement, Purchaser
shall have the right to terminate this Agreement by giving written notice
thereof, together with a copy of said environmental report, to Seller prior to
the expiration of the Inspection Period. If Purchaser gives
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such notice of termination within the Inspection Period and such report
indicates that the Property is not in material compliance with all applicable
environmental laws, this Agreement shall terminate and the Earnest Money shall
be returned to Purchaser. Time is of the essence with respect to the provisions
of this Section 3.2. If Purchaser fails to give Seller a notice of termination
and a copy of said environmental report prior to the expiration of the
Inspection Period, Purchaser shall no longer have any right to terminate this
Agreement under this Section 3.2 and (subject to the provisions of Sections 2.5
and 4.6) and shall be bound to proceed to Closing and consummate the transaction
contemplated hereby pursuant to the terms of this Agreement.
ARTICLE IV
CLOSING
4.1 Time and Place. The consummation of the transaction
contemplated hereby ("Closing") shall be held at the offices of Seller's
counsel, Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago,
Illinois, or Purchaser's lender if necessary, at 10:00 a.m. on a date mutually
agreed to by Seller or Purchaser, but in no event later than the first business
day after sixty (60) days following the Effective Date. Purchaser shall have the
right to extend the date of Closing by up to thirty (30) days by giving Seller
notice thereof on or before the first business day after forty-five (45) days
after the Effective Date, and depositing with Escrow Agent, on the date such
notice is given, an additional Earnest Money deposit of $250,000. At Closing,
Seller and Purchaser shall perform the obligations set forth in, respectively,
Section 4.2 and Section 4.3, the performance of which obligations shall be
concurrent conditions.
4.2 Seller's Obligations at Closing. At Closing, Seller shall:
(a) deliver to Purchaser a duly executed limited warranty
deed (the "Deed") in recordable form, conveying the Land and
Improvements, subject only to the Permitted Exceptions; the warranty of
title in the Deed will be only as to claims made by, through or under
Seller and not otherwise;
(b) deliver to Purchaser a duly executed bill of sale
conveying the Personal Property with limited warranty of title but
without warranty, expressed or implied, as to merchantability and
fitness for any purpose;
(c) assign to Purchaser, and Purchaser shall assume, the
landlord/lessor interest in and to the Leases by duly executed
assignment and assumption agreement pursuant to which (i) Seller shall
indemnify Purchaser and hold Purchaser harmless from and against any
and all claims pertaining to the Leases arising prior to Closing and
(ii) Purchaser shall indemnify Seller and hold Seller harmless from and
against any and all claims pertaining to the Leases arising from and
after the Closing, including without limitation, claims made by tenants
with respect to tenants' security deposits to the extent paid, credited
or assigned to Purchaser;
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(d) assign to Purchaser, and Purchaser shall assume, the
Seller's interest in and to any Operating Agreements by duly executed
assignment and assumption agreement pursuant to which (i) Seller shall
indemnify Purchaser and hold Purchaser harmless from and against any
and all claims pertaining to the Operating Agreements arising prior to
Closing and (ii) Purchaser shall indemnify Seller and hold Seller
harmless from and against any and all claims pertaining to the
Operating Agreements arising from and after the Closing;
(e) to the extent assignable, assign to Purchaser, and
Purchaser shall assume, Seller's interest in the Service Contracts and
the other Intangibles by duly executed assignment and assumption
agreement pursuant to which (i) Seller shall indemnify Purchaser and
hold Purchaser harmless from and against any and all claims pertaining
to the Service Contracts or the other Intangibles arising prior to
Closing and (ii) Purchaser shall indemnify Seller and hold Seller
harmless from and against any and all claims pertaining to the Service
Contracts or the other Intangibles arising from and after the Closing;
(f) deliver to Purchaser such Anchor Estoppels and Tenant
Estoppels (both as defined in Section 5.4(b) hereof) received by
Seller;
(g) join with Purchaser to execute a notice in form and
content reasonably satisfactory to Purchaser and Seller which Purchaser
shall send to each tenant under each of the Leases and Anchor informing
such tenant and Anchor of the sale of the Property and of the
assignment to Purchaser of Seller's interest in, and obligations under,
the Leases (including, if applicable any security deposits) and the
Operating Agreement, as applicable, and directing that all rent and
other sums payable after the Closing under each such Lease or Operating
Agreement shall be paid as set forth in the notice;
(h) deliver to Purchaser a certificate, dated as of the
date of Closing and executed on behalf of Seller by a duly authorized
officer thereof, stating that the representations and warranties of
Seller contained in this Agreement are true and correct in all material
respects as of the date of Closing (with appropriate modifications of
those representations and warranties made in Section 5.1 hereof to
reflect any changes therein including without limitation any changes
resulting from actions under Section 5.4 hereof) or identifying any
representation or warranty which is not, or no longer is, true and
correct and explaining the state of facts giving rise to the change,
which change shall be subject to the provisions of Section 4.6(b)
below, if applicable, and provided no such change dealing with issues
unrelated to the rental income of the Property shall have a material
adverse effect upon the Property. In no event shall Seller be liable to
Purchaser for, or be deemed to be in default hereunder by reason of,
any breach of representation or warranty which results from any change
that (i) occurs between the Effective Date and the date of Closing and
(ii) is expressly permitted under the terms of this Agreement or is
beyond the reasonable control of Seller to prevent, provided, however,
that the occurrence of a change which is not permitted hereunder or is
beyond the reasonable control of Seller to prevent shall, if materially
adverse to Purchaser, constitute the non-
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fulfillment of the condition set forth in Section 4.6(b); if, despite
changes or other matters described in such certificate, the Closing
occurs, Seller's representations and warranties set forth in this
Agreement shall be deemed to have been modified by all statements made
in such certificate;
(i) deliver to Purchaser such evidence as Purchaser's
counsel and/or the Title Company may reasonably require as to the
authority of the person or persons executing documents on behalf of
Seller;
(j) deliver to Purchaser an affidavit duly executed by
Seller stating that Seller is not a "foreign person" as defined in the
Federal Foreign Investment in Real Property Tax Act of 1980 and the
1984 Tax Reform Act;
(k) deliver to Purchaser the original (to the extent
available, and if not available, copies thereof certified by Seller as
being the true, correct and complete copy of the) Leases, Operating
Agreements, Service Contracts and licenses and Permits, if any, in the
possession of Seller or Seller's agents, together with copies of such
leasing and property files and records which are material in connection
with the continued operation, leasing and maintenance of the Property.
Purchaser shall cooperate with Seller for a period of seven (7) years
after Closing in case of Seller's need in response to any legal
requirement, a tax audit, tax return preparation or litigation
threatened or brought against Seller, by allowing Seller and its agents
or representatives access, upon reasonable advance notice (which notice
shall identify the nature of the information sought by Seller), at all
reasonable times to examine and make copies, at Seller's sole cost and
expense, of any and all instruments, files and records, which right
shall survive the Closing;
(l) deliver to Purchaser possession and occupancy of the
Property, subject to the Permitted Exceptions in its present condition
excepting casualty and condemnation (subject to the provisions of
Article VII below), reasonable wear and tear and natural deterioration
between the date hereof and Closing;
(m) deliver such additional documents as shall be
reasonably required to consummate the transaction contemplated by this
Agreement;
(n) Exhibits updating Exhibits B, G, and H certified by
Seller in accordance with this Agreement with respect to each of the
Leases, which in effect updates all of the information contained in
said Exhibits;
(o) Keys to all locks on the Property which Seller has in
its possession or control;
(p) A credit to Purchaser of the amount of any net
adjustments in favor of Purchaser;
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(q) All other deliveries required to be made at the
Closing by Seller to Purchaser pursuant to the terms of this Agreement;
(r) Seller's ALTA Statement in the form required by the
Title Company;
(s) Any consents, approvals or notices as are necessary
in connection with the transfer of the Properties under the Leases
and/or Operating Agreements; and
(t) deliver to Purchaser originals (to the extent
available) of all surveys, site plans, building plans, specifications,
as-built drawings, and operating manuals to the extent the same are in
Seller's or Seller's agents' possession and all other books, records,
files and other documents, relating to the day to day operations of the
Property (collectively, the "Records").
4.3 Purchaser's Obligations at Closing. At Closing, Purchaser
shall:
(a) pay to Seller the full amount of the Purchase Price,
as increased or decreased by prorations and adjustments as herein
provided, in immediately available wire transferred funds pursuant to
Section 1.5 above, it being agreed that at Closing the Earnest Money
shall be delivered to Seller and applied towards payment of the
Purchase Price;
(b) join Seller in execution of the instruments described
in Sections 4.2(c), 4.2(d), 4.2(e), and 4.2(g) above;
(c) deliver to Seller a letter duly executed by
Purchaser, confirming that Purchaser is not acquiring the Property with
the assets of an employee benefit plan as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974 ("ERISA"), and, in
the event Purchaser is unable or unwilling to make such a
representation, Purchaser shall be deemed to be in default hereunder,
and Seller shall have the right to terminate this Agreement and to
receive and retain the Earnest Money;
(d) deliver to Seller such evidence as Seller's counsel
and/or the Title Company may reasonably require as to the authority of
the person or persons executing documents on behalf of Purchaser; and
(e) deliver such additional documents as shall be
reasonably required to consummate the transaction contemplated by this
Agreement.
4.4 Credits and Prorations.
(a) The following shall be apportioned with respect to
the Property as of 12:01 a.m., on the day of Closing, as if Purchaser
were vested with title to the Property during the entire day upon which
Closing occurs:
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(i) rents, if any, as and when collected (the
term "rents" as used in this Agreement includes all
payments due and payable by tenants under the
Leases);
(ii) taxes (including personal property taxes on
the Personal Property) and assessments levied against
the Property which are not then due and payable
("Taxes"), other than Taxes which are payable
directly to the taxing authority by tenants under
their respective Leases;
(iii) payments under the Operating Agreements and
the Service Contracts;
(iv) gas, electricity and other utility charges
for which Seller is liable, if any, such charges to
be apportioned at Closing on the basis of the most
recent meter reading occurring prior to Closing (but
not more than 60 days prior to Closing); and
(v) any other operating expenses or other items
pertaining to the Property which are customarily
prorated between a purchaser and a seller in the area
in which the Property is located.
(b) Notwithstanding anything contained in the foregoing
provisions:
(i) At Closing, (A) Seller shall, at Seller's
option, either deliver to Purchaser any security
deposits actually held by Seller pursuant to the
Leases or credit to the account of Purchaser the
amount of such security deposits (to the extent such
security deposits are not applied against delinquent
rents or otherwise as provided in the Leases and
noted on Exhibit B, provided however that said
security deposits shall not be applied against
delinquent rents relating to the month in which the
Closing occurs unless the subject Tenant has vacated
its premises (Seller shall provide Purchaser with
notice of its intent to apply any security deposits
against any delinquent rents), and (B) Purchaser
shall credit to the account of Seller all refundable
cash or other deposits posted with utility companies
serving the Property, or, at Seller's option, Seller
shall be entitled to receive and retain such
refundable cash and deposits.
(ii) Any Taxes paid at or prior to Closing shall
be prorated based upon the amounts actually paid. If
Taxes for the current year have not been paid before
Closing, Seller shall be charged at Closing an amount
equal to that portion of such Taxes which relates to
the period before Closing and Purchaser shall pay the
Taxes prior to their becoming delinquent. Any such
apportionment made with respect to a tax year for
which the tax rate or assessed valuation, or both,
have not yet been fixed shall be based upon the tax
rate and/or assessed valuation last fixed. To the
extent that the actual
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Taxes for the current year differ from the amount
apportioned at Closing, the parties shall make all
necessary adjustments by appropriate payments between
themselves following Closing.
(iii) Charges referred to in Section 4.4(a) above
which are payable by any tenant to a third party
shall not be apportioned hereunder, and Purchaser
shall accept title subject to any of such charges
unpaid, and Purchaser shall look solely to the tenant
responsible therefor for the payment of the same. If
Seller shall have paid any of such charges on behalf
of any tenant, and shall not have been reimbursed
therefor by the time of Closing, Purchaser shall
credit to Seller an amount equal to all such charges
so paid by Seller.
(iv) As to gas, electricity and other utility
charges referred to in Section 4.4(a)(iv) above,
Seller may on notice to Purchaser elect to pay one or
more of all of said items accrued to the date
hereinabove fixed for apportionment directly to the
person or entity entitled thereto, and to the extent
Seller so elects, such item shall not be apportioned
hereunder, and Seller's obligation to pay such item
directly in such case shall survive the Closing.
(v) Purchaser shall be responsible for the
payment of (A) all Tenant Inducement Costs (as
hereinafter defined) and leasing commissions which
become due and payable (whether before or after
Closing) (1) as a result of any renewals or
expansions of existing Leases, which are approved or
deemed approved in accordance with Section 5.4
hereof, between the Effective Date and the date of
Closing, and (2) under any new Leases, approved or
deemed approved in accordance with Section 5.4
hereof, entered into between the Effective Date and
the date of Closing, (B) all Tenant Inducement Costs
which become due and payable from and after the date
of Closing pursuant to the Leases and any new
Lease(s) entered into after the Effective Date, which
are approved or deemed approved pursuant to Section
5.4(d) and (C) leasing commissions which become due
and payable from and after the date of Closing but
only to the extent payable pursuant to commission
agreements referenced on Exhibit G (except as
expressly provided in Section 5.4(d). If, as of the
date of Closing, Seller shall have paid any Tenant
Inducement Costs or leasing commissions for which
Purchaser is responsible pursuant to the foregoing
provisions, Purchaser shall reimburse Seller therefor
at Closing. For purposes hereof, the term "Tenant
Inducement Costs" shall mean any out-of-pocket
payments required under a Lease to be paid by the
landlord thereunder to or for the benefit of the
tenant thereunder which is in the nature of a tenant
inducement, including specifically, without
limitation, tenant improvement costs, lease buyout
costs, and moving, design and refurbishment
allowances. The term "Tenant Inducement Costs" shall
not include loss of income resulting from any free
rental period, it being agreed that Seller shall bear
the loss resulting from any free rental period until
the date of Closing and that Purchaser shall bear
such
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loss from and after the date of Closing.
Nothwithstanding the foregoing, Seller shall be
responsible for all Tenant Inducement Costs which
become due and payable until the date of Closing
pursuant to the express terms and provisions of any
Leases in existence as of the Effective Date except
that Purchaser shall reimburse Seller for the tenant
improvement allowance provided to Twinstown in the
amount of $45,000.
(vi) Unpaid and delinquent rent collected by
Seller and Purchaser after the date of Closing shall
be delivered as follows: (a) if Seller collects any
unpaid or delinquent rent for the Property, Seller
shall, within fifteen (15) days after the receipt
thereof, deliver to Purchaser any such rent which
Purchaser is entitled to hereunder relating to the
date of Closing and any period thereafter, and (b) if
Purchaser collects any unpaid or delinquent rent from
the Property, Purchaser shall, within fifteen (15)
days after the receipt thereof, deliver to Seller any
such rent which Seller is entitled to hereunder
relating to the period prior to the date of Closing.
Seller and Purchaser agree that all rent received by
Seller or Purchaser after the date of Closing shall
be applied first to current rentals and then to
delinquent rentals, if any, in inverse order of
maturity. Purchaser will make a good faith effort
after Closing to collect all rents in the usual
course of Purchaser's operation of the Property, but
Purchaser will not be obligated to institute any
lawsuit or other collection procedures to collect
delinquent rents. In the event that there shall be
any rents or other charges under any Leases which,
although relating to a period prior to Closing, do
not become due and payable until after Closing or are
paid prior to Closing but are subject to adjustment
after Closing (such as reimbursements for real estate
taxes and year end common area expense reimbursements
and the like), then any rents or charges of such type
received by Purchaser or its agents or Seller or its
agents subsequent to Closing shall, to the extent
applicable to a period extending through the Closing,
be prorated between Seller and Purchaser as of
Closing and Seller's portion thereof shall be
remitted promptly to Seller by Purchaser.
(vii) With respect to percentage rents, upon
receipt by Purchaser, Purchaser shall furnish to
Seller copies of all sales reports received from
tenants relative thereto, including, without
limitation, all sales reports with respect to any
tenants whose lease years have expired as of the
Closing but whose sales reports were not available on
Closing and sales reports of any tenants whose lease
year expires after the Closing, and the amount of any
percentage rents, payable by any tenant in accordance
with such tenant's Lease. Purchaser shall promptly
pay to Seller a pro-rata portion of such percentage
rents based upon apportionment being made as of the
Closing, promptly after the date when such percentage
rents are received from the tenant.
(c) The provisions of this Section 4.4 shall survive
Closing.
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4.5 Closing Costs. Seller shall pay (a) the fees of any counsel
representing it in connection with this transaction (b) one-half (1/2) of any
escrow fee which may be charged by the Escrow Agent or Title Company and (c)
one-half (1/2) of any transfer tax, documentary stamp tax or similar tax which
becomes payable by reason of the transfer of the Property. Purchaser shall pay:
(t) the fees of any counsel representing Purchaser in connection with this
transaction; (u) the fee for the title examination and the Title Commitment and
the premium for the Owner's Policy of Title Insurance to be issued to Purchaser
by the Title Company at Closing; (v) the cost of the Survey; (w) the fees for
recording the deed conveying the Property to Purchaser; (x) one-half (1/2) of
any transfer tax, documentary stamp tax or similar tax which becomes payable by
reason of the transfer of the Property and (z) one-half (1/2) of any escrow fees
charged by the Escrow Agent or Title Company. All other costs and expenses
incident to this transaction and the closing thereof shall be paid by the party
incurring same.
4.6 Conditions Precedent to Obligation of Purchaser. The
obligation of Purchaser to consummate the transaction hereunder shall be subject
to the fulfillment on or before the date of Closing of all of the following
conditions, any or all of which may be specifically waived in writing by
Purchaser in its sole discretion:
(a) Seller shall have delivered to Purchaser all of the
items required to be delivered to Purchaser pursuant to the terms of
this Agreement, including but not limited to, those provided for in
Section 4.2.
(b) All of the representations and warranties of Seller
contained in this Agreement shall be true and correct in all material
respects when made and as of the date of Closing (with appropriate
modifications permitted under this Agreement); provided, however, that,
notwithstanding the provisions of Section 4.2(h) above, this condition
shall not be satisfied if such modification(s) to Seller's
representations and warranties discloses that the net operating income
of the Property would decrease by a factor of more than ten percent
(10%) on an annualized basis excluding the effect of any Lease(s) which
have terminated pursuant to its terms and not as a result of Seller's
default thereunder. Notwithstanding that any representation may be
qualified as being "to the knowledge of Seller" or a similar
qualification, it shall be a condition precedent that the facts
underlying any representation be materially true and correct in all
material respects without qualification on the Closing Date and such
failure shall not have a material adverse effect on Purchaser.
(c) Seller shall have performed and observed, in all
material respects, all covenants and agreements of this Agreement to be
performed and observed by Seller as of the date of Closing or any
failure to perform shall not have a material adverse effect on
Purchaser.
(f) Purchaser shall have received such Anchor Estoppels
and Tenant Estoppels (both as defined in Section 5.4(b) hereof) each
dated no earlier than September 17, 1997, as are in Seller's
possession, but in no event less than the following:
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(1) Anchor Estoppels from all of the Anchors
under their Leases and Operating Agreements (to the extent the
same are in full force and effect and not terminated)
indicating an absence of material defaults and otherwise in
material conformance with the applicable Lease previously
delivered to Purchaser; and
(2) Tenant Estoppels from any entities
controlled by "The Limited" and such other Tenants
whose aggregate net rental income accounts for 80% of
the net income of the Property (including the income
related to the Anchors and the Limited entities) each
indicating an absence of material defaults and
otherwise in material conformance with the applicable
Lease previously delivered to Purchaser; provided,
however, if Purchaser has not received the requisite
number of Tenant Estoppels by Closing, Seller shall
have the right, but not the obligation, to satisfy
this condition by delivering to Purchaser the
remaining Tenant Estoppels executed by Seller (the
"Seller Estoppel") to make up the requisite number of
Tenant Estoppels. Seller's obligations under any
Seller Estoppels shall survive the Closing for a
period of two hundred and seventy (270) days;
provided, however, no claim for a breach under any
Seller Estoppel may be made (a) if the breach in
question results from or is based on a condition,
state of facts or other matter which was known to
Purchaser prior to Closing, and (b) unless written
notice containing a description of the specific
nature of such breach shall have been given by
Purchaser to Seller prior to the expiration of said
two hundred and seventy (270) day period and an
action shall have been commenced by Purchaser against
Seller within three hundred (300) days of Closing.
Notwithstanding the forgoing, if, after the Closing,
Purchaser receives a Tenant Estoppel from a Tenant
for which Seller delivered a Seller Estoppel,
Seller's obligations under such Seller Estoppel shall
terminate except to the extent Seller's Estoppel
differs from such Tenant Estoppel.
(g) The Anchor Leases are in full force and effect at
Closing.
In the event any of the foregoing conditions are not fulfilled or specifically
waived in writing by Purchaser by Closing and Purchaser does not proceed to
Closing, Purchaser shall have the option, as its sole and exclusive remedy,
either to (i) terminate this Agreement and the Earnest Money shall be returned
to Purchaser, (ii) waive said condition(s) and proceed to Closing without
abatement to the Purchase Price, or (iii) if Seller failed to perform its
obligations under this Agreement in accordance with Sections 4.6(a) and (c)
above, to specifically enforce this Agreement without abatement of the Purchase
Price.
4.7 Conditions Precedent to Obligation of Seller. The obligation
of Seller to consummate the transaction hereunder shall be subject to the
fulfillment on or before the date of Closing of all of the following conditions,
any or all of which may be waived by Seller in its sole discretion:
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(a) Seller shall have received the Purchase Price as
adjusted pursuant to and payable in the manner provided for in this
Agreement.
(b) Purchaser shall have delivered to Seller all of the
items required to be delivered to Seller pursuant to the terms of this
Agreement, including but not limited to, those provided for in Section
4.3.
(c) All of the representations and warranties of
Purchaser contained in this Agreement shall be true and correct in all
material respects as of the date of Closing or such failure shall not
have a material adverse effect on Seller.
(d) Purchaser shall have performed and observed, in all
material respects, all covenants and agreements of this Agreement to be
performed and observed by Purchaser as of the date of Closing or any
failure to perform shall not have a material adverse effect Seller.
In the event any of the foregoing conditions are not fulfilled or specifically
waived in writing by Seller by Closing and Seller does not proceed to Closing,
Seller shall have the option to terminate this Agreement and enforce such other
remedy, if applicable, as expressly provided in Section 6.1 hereof.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
5.1 Representations and Warranties of Seller. Seller hereby makes
the following representations and warranties to Purchaser as of the Effective
Date:
(a) Organization and Authority. Seller has been duly
organized and is validly existing under the laws of the State of New
York. Seller has the full right and authority to enter into this
Agreement and, subject to the provisions of Section 10.6 hereof, to
transfer all of the Property to be conveyed by Seller pursuant hereto
and to consummate or cause to be consummated the transactions
contemplated herein to be made by Seller. The persons signing this
Agreement on behalf of Seller are authorized to do so.
(b) Pending Actions. To Seller's knowledge, there is no
action, suit, arbitration, unsatisfied order or judgment, governmental
investigation or proceeding threatened or pending against the Seller,
the Property or the transaction contemplated by this Agreement, which,
if adversely determined, could individually or in the aggregate have a
material adverse effect on title to the Property or any portion thereof
or which could in any material way interfere with the consummation by
Seller of the transaction contemplated by this Agreement or which would
otherwise materially and adversely affect the Property.
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(c) Leases.
(1) Seller is the lessor or landlord or the
successor lessor or landlord under the Leases. Except as set
forth in the Lease Schedule, to Seller's knowledge, (i) there
are no other leases or occupancy agreements to which Seller is
a party affecting the Property, (ii) such Leases are in full
force and effect, (iii) represent the entire agreement between
the parties, and (iv) have not been modified, amended or
extended except pursuant to instruments previously delivered
to Purchaser. Except as otherwise set forth in the Leases, to
Seller's knowledge, no presently effective rent concessions
have been given to any tenants and no rent has been paid in
advance by any tenants respecting a period subsequent to the
Closing. To Seller's knowledge, Seller has previously
delivered or made available to Purchaser true, correct and
complete copies of the Leases described on Exhibit B attached
hereto.
(2) Except as disclosed to Purchaser on Exhibit
H, no tenants have asserted in writing any claims, defenses or
offsets to rent accruing from and after the date of Closing.
To Seller's knowledge, except as disclosed to Purchaser on
Exhibit H, no material default, delinquency or breach exists
on the part of any tenant. There are no material defaults or
breaches on the part of the landlord under any Lease.
Notwithstanding anything to the contrary contained in this
Agreement, Seller does not represent or warrant that any
particular Lease will be in force or effect at Closing or that
the tenants under the Leases will have performed their
obligations thereunder. Except to the extent provided in
Section 4.6(f) above, the termination of any Lease prior to
Closing by reason of the tenant's default shall not affect the
obligations of Purchaser under this Agreement in any manner or
in any event entitle Purchaser to an abatement of or credit
against the Purchase Price or give rise to any other claim on
the part of Purchaser, other than the right to terminate this
Agreement as expressly provided in Section 4.6 above.
(d) Lease Brokerage. To Seller's knowledge, there are no
lease brokerage agreements, leasing commission agreements or other
agreements providing for payments of any amounts for leasing activities
or procuring tenants with respect to the Property other than as
disclosed in Exhibit G.
(e) No Violations. To Seller's knowledge, Seller has not
received prior to the Effective Date any written notification from any
governmental or public authority (i) that the Property is in violation
of any applicable fire, health, building, use, occupancy or zoning laws
where such violation remains outstanding and, if unaddressed, would
have a material adverse effect on the use of the Property as currently
owned and operated or (ii) that any work is required to be done upon or
in connection with the Property, where such work remains outstanding
and, if unaddressed, would have a material adverse effect on the use of
the Property as currently owned and operated.
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(f) Taxes and Assessments. True and complete copies of
the most recent real estate tax bills for the Property have been
delivered to Purchaser. Except as disclosed to Purchaser in writing, no
unpaid special assessments have been levied against the Property nor,
to the knowledge of Seller, are there any proposed special assessments
against the Property presently pending or threatened.
(g) Condemnation, Etc. To Seller's knowledge, no
condemnation proceedings relating to the Property are pending or
threatened.
(h) Insurance. To Seller's knowledge, Seller has not
received any written notice from any insurance company or board of fire
underwriters of any defects or inadequacies in or on the Property or
any part or component thereof that would materially and adversely
affect the insurability of the Property or cause any material increase
in the premiums for insurance for the Property that have not been cured
or repaired.
(i) Environmental Matters. Except as set forth in any
environmental assessment reports in Seller's possession, disclosed to
Purchaser and identified in Exhibit I (collectively, "Seller's
Environmental Reports"), to Seller's knowledge, Seller has received no
written notification that any governmental or quasi-governmental
authority has determined that there are any violations of environmental
statutes, ordinances or regulations affecting the Property. As used
herein, "Hazardous Substances" means all hazardous or toxic materials,
substances, pollutants, contaminants, or wastes currently identified as
a hazardous substance or waste in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (commonly known as
"CERCLA"), as amended, the Superfund Amendments and Reauthorization Act
(commonly known as "SARA"), the Resource Conservation and Recovery Act
(commonly known as "RCRA"), or any other federal, state or local
legislation or ordinances applicable to the Property.
(j) Agreements. Seller has entered into no agreements
with governmental authorities, agencies, quasi-governmental entities,
or utility companies which affect the Property or, upon closing, would
affect Purchaser or the Property except for month-to-month agreements
for utilities.
5.2 Knowledge Defined. References to the "knowledge" of Seller
shall refer only to the actual knowledge of the Designated Employees (as
hereinafter defined) of ERE Yarmouth, Seller's asset manager, and shall not be
construed, by imputation or otherwise, to refer to the knowledge of Seller, ERE
Yarmouth or any affiliate of either of them, to any property manager, or to any
other officer, agent, manager, representative or employee of Seller or ERE
Yarmouth or any affiliate thereof or to impose upon such Designated Employees
any duty to investigate the matter to which such actual knowledge, or the
absence thereof, pertains. As used herein, the term "Designated Employees" shall
refer to M. Gregory Moore, who has consulted with Sharon Paulson, the property
manager.
5.3 Survival of Seller's Representations and Warranties. The
representations and warranties of Seller set forth in Section 5.1 as updated by
the certificate of Seller to be delivered
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to Purchaser at Closing in accordance with Section 4.2(h) hereof and the terms
contained in any Seller Estoppel delivered to Purchaser, shall survive Closing
for a period of one hundred eighty (180) days. No claim for a breach of any
representation or warranty of Seller shall be actionable or payable (a) if the
breach in question results from or is based on a condition, state of facts or
other matter which was known to Purchaser prior to Closing, (b) unless the valid
claims for all such breaches collectively aggregate more than Two Hundred Fifty
Thousand Dollars ($250,000), in which event the full amount of such claims shall
be actionable, and (c) unless written notice containing a description of the
specific nature of such breach shall have been given by Purchaser to Seller
prior to the expiration of said one hundred eight (180) day period (or such
other period specifically provided for herein) and an action shall have been
commenced by Purchaser against Seller within two hundred ten (210) days of
Closing.
5.4 Covenants of Seller. Seller hereby covenants with Purchaser as
follows:
(a) From the Effective Date hereof until the Closing or
earlier termination of this Agreement, Seller shall use reasonable
efforts to operate and maintain the Property in a manner generally
consistent with the manner in which Seller has operated and maintained
the Property prior to the date hereof.
(b) Seller shall use commercially reasonable efforts (but
without obligation to incur any cost or expense) to obtain and deliver
to Purchaser prior to Closing, a written estoppel certificate in the
form of Exhibit E attached hereto and made a part hereof signed by each
tenant occupying space in the Improvements with such modifications as
are necessary to comport with the specific requirements of each Lease
as requested by the Tenants thereunder. The signed certificates are
referred to herein as the "Tenant Estoppels".
(c) Seller shall use commercially reasonable efforts (but
without obligation to incur any cost or expense) to obtain and deliver
to Purchaser prior to Closing a written estoppel certificate in the
form of Exhibit F attached hereto and made a part hereof signed by each
of the Anchors with such modifications as are necessary to comport with
the specific requirements of each Anchor Lease as requested by any
Anchor thereunder. The signed certificates are referred to herein as
the "Anchor Estoppels".
(d) A copy of any renewal or expansion of an existing
Lease or of any new Lease with a new or renewal term exceeding six (6)
months (collectively "Long Term Lease") which Seller wishes to execute
between the Effective Date and the date of Closing will be submitted to
Purchaser prior to execution by Seller. Purchaser agrees to notify
Seller in writing within ten (10) days after its receipt thereof of
either its approval or disapproval, including all Tenant Inducement
Costs and leasing commissions to be incurred in connection therewith.
In the event Purchaser informs Seller that Purchaser does not approve
the renewal or expansion of the existing Long Term Lease or the new
Long Term Lease (which approval shall not be unreasonably withheld if
the terms of such Long Term Lease, in Purchaser's reasonable judgement,
are acceptable to Purchaser), Seller shall not enter into same. In the
event Purchaser fails to notify Seller in writing of
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its approval or disapproval within the ten (10) day time period for
such purpose set forth above, such failure shall be deemed the approval
by Purchaser. At Closing, Purchaser shall reimburse Seller for any
Tenant Inducement Costs, leasing commissions or other expenses,
including legal fees, incurred by Seller pursuant to a renewal, an
expansion or a new Long Term Lease approved (or deemed approved) by
Purchaser. Seller shall have the unrestricted right to extend the term
of any existing Lease by no more than six (6) months or to enter into
any new Leases with terms less than six (6) months so long as Seller
remains fully responsible for all Tenant Inducement Costs and leasing
commissions associated with such non-Long Term Leases, including
without limitation such Tenant Inducement Costs and leasing commissions
which may become due after the Closing with respect to such non-Long
Term Leases. Purchaser agrees to provide copies of all such non-Long
Term Leases to Seller promptly after executing the same.
5.5 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to Seller:
(a) Purchaser is not acquiring the Property with the
assets of an employee benefit plan as defined in Section 3(3) of ERISA.
(b) Purchaser has the full right, power and authority to
purchase the Property as provided in this Agreement and to carry out
Purchaser's obligations hereunder, and all requisite action necessary
to authorize Purchaser to enter into this Agreement and to carry out
its obligations hereunder have been, or by the Closing will have been,
taken. The person signing this Agreement on behalf of Purchaser is
authorized to do so.
(c) There is no action, suit, arbitration, unsatisfied
order or judgment, government investigation or proceeding pending
against Purchaser which, if adversely determined, could individually or
in the aggregate materially interfere with the consummation of the
transaction contemplated by this Agreement.
5.6 Survival of Purchaser's Representations and Warranties. The
representation and warranties of Purchaser set forth in Section 5.5(a) shall
survive Closing and shall be a continuing representation and warranty without
limitation. All other representations and warranties of Purchaser shall survive
Closing for one hundred eighty (180) days.
5.7 Covenants of Purchaser. Purchaser hereby covenants with Seller
that Purchaser shall, in connection with its investigation of the Property
during the Inspection Period, inspect the Property for the presence of Hazardous
Substances (as defined in Section 5.1(i) hereof), and shall furnish to Seller
copies of any reports received by Purchaser in connection with any such
inspection. Purchaser hereby assumes full responsibility for such inspections
and, except for claims based on representations or warranties contained in
Section 5.1(i), irrevocably waives any claim against Seller arising from the
presence of Hazardous Substances on the Property. Purchaser shall also furnish
to Seller copies of any other reports received by Purchaser relating to any
other inspections of the Property conducted on Purchaser's behalf, if any
(including, specifically, without limitation, any reports analyzing compliance
of the Property with the
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provisions of the Americans with Disabilities Act ("ADA"), 42 U.S.C. ss.12101,
et seq., if applicable).
ARTICLE VI
DEFAULT
6.1 Default by Purchaser. If Purchaser defaults for any reason
other than Seller's default or the permitted termination of this Agreement by
either Seller or Purchaser as herein expressly provided, Seller shall be
entitled, as its sole remedy, to terminate this Agreement and receive the
Earnest Money as liquidated damages for the breach of this Agreement, it being
agreed between the parties hereto that the actual damages to Seller in the event
of such breach are impractical to ascertain and the amount of the Earnest Money
is a reasonable estimate thereof.
6.2 Default by Seller. In the event that Seller fails to
consummate this Agreement for any reason other than Purchaser's default or the
permitted termination of this Agreement by Seller or Purchaser as herein
expressly provided, Purchaser shall be entitled, as its sole remedy, either (a)
to receive the return of the Earnest Money, which return shall operate to
terminate this Agreement and release Seller from any and all liability
hereunder, or (b) to enforce specific performance of Seller's obligations under
this Agreement without abatement of the Purchase Price. Purchaser expressly
waives its rights to seek damages in the event of Seller's default hereunder.
Purchaser shall be deemed to have elected to terminate this Agreement and
receive back the Earnest Money if Purchaser fails to file suit for specific
performance against Seller in a court having jurisdiction in the county and
state in which the Property is located, on or before sixty (60) days following
the date upon which Closing was to have occurred.
ARTICLE VII
RISK OF LOSS
7.1 Minor Damage. In the event of loss or damage to the Property
or any portion thereof which is not "major" (as hereinafter defined), this
Agreement shall remain in full force and effect provided Seller performs any
necessary repairs or, at Seller's option, provided such insurance is sufficient
to effectuate repairs completely, Seller assigns to Purchaser all of Seller's
right, title and interest to any claims and proceeds Seller may have with
respect to any casualty insurance policies or condemnation awards relating to
the premises in question. In the event that Seller elects to perform repairs
upon the Property, Seller shall use reasonable efforts to complete such repairs
promptly, and if such repairs are not completed by the Closing Date, Purchaser
shall have the option of either (i) extending the Closing Date by a reasonable
time in order to allow for the completion of such repairs, or (ii) receiving a
credit against the Purchase Price in an amount necessary to complete such
repairs, which amount shall be determined by a contractor jointly selected by
Purchaser and Seller. If Seller elects to assign a casualty claim to Purchaser,
the Purchase Price shall be reduced by an amount equal to the deductible amount
under Seller's
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insurance policy. Upon Closing, full risk of loss with respect to the Property
shall pass to Purchaser.
7.2 Major Damage. In the event of a "major" loss or damage,
Purchaser may terminate this Agreement by written notice to Seller, in which
event the Earnest Money shall be returned to Purchaser. If Purchaser does not
elect to terminate this Agreement within ten (10) business days after Seller
sends Purchaser written notice of the occurrence of major loss or damage, then
Seller and Purchaser shall be deemed to have elected to proceed with Closing, in
which event Seller shall, at Seller's option, either (a) perform any necessary
repairs, or (b) assign to Purchaser all of Seller's right, title and interest to
any claims and proceeds Seller may have with respect to any casualty insurance
policies or condemnation awards relating to the premises in question. In the
event that Seller elects to perform repairs upon the Property, Seller shall use
reasonable efforts to complete such repairs promptly and the date of Closing
shall be extended a reasonable time in order to allow for the completion of such
repairs. If Seller elects to assign a casualty claim to Purchaser, the Purchase
Price shall be reduced by an amount equal to the deductible amount under
Seller's insurance policy. Upon Closing, full risk of loss with respect to the
Property shall pass to Purchaser.
7.3 Definition of "Major" Loss or Damage. For purposes of Sections
7.1 and 7.2, "major" loss or damage refers to the following: (i) loss or damage
to the Property or any portion thereof such that the cost of repairing or
restoring the premises in question to a condition substantially identical to
that of the premises in question prior to the event of damage would be, in the
opinion of an architect selected by Seller and reasonably approved by Purchaser,
equal to or greater than One Million Dollars ($1,000,000.00); (ii) any loss due
to a condemnation which permanently and materially impairs the current use of
the Property; (iii) any loss which allows an Anchor(s) or Tenant(s) whose
combined rent is more than ten percent (10%) of the aggregate net income of the
Property to terminate their Lease(s) or Operating Agreement(s), as applicable.
Any related abatement of rental shall be subject to assignment of rent loss
insurance proceeds. If Purchaser does not give notice to Seller of Purchaser's
reasons for disapproving an architect within five (5) business days after
receipt of notice of the proposed architect, Purchaser shall be deemed to have
approved the architect selected by Seller.
ARTICLE VIII
COMMISSIONS
8.1 Brokerage Commissions. Each party represents to the other that
there has been no broker or finder engaged in connection with the sale of the
Property other than The Wyndam Group, Inc. (the "Broker"). Purchaser agrees to
pay any fee payable to Broker pursuant to a separate agreement between Purchaser
and Broker. Each party agrees that should any claim be made for brokerage
commissions or finder's fees by any broker or finder other than the Broker by,
through or on account of any acts of said party or its representatives, said
party will indemnify and hold the other party free and harmless from and against
any and all loss, liability, cost,
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damage and expense in connection therewith. The provisions of this paragraph
shall survive Closing.
ARTICLE IX
DISCLAIMERS AND WAIVERS
9.1 No Reliance on Documents. Except as expressly stated herein
(including any documents referenced or described in the Exhibits attached
hereto), Seller makes no representation or warranty as to the truth, accuracy or
completeness of any materials, data or information delivered by Seller to
Purchaser in connection with the transaction contemplated hereby. Purchaser
acknowledges and agrees that all materials, data and information delivered by
Seller to Purchaser in connection with the transaction contemplated hereby are
provided to Purchaser as a convenience only and that any reliance on or use of
such materials, data or information by Purchaser shall be at the sole risk of
Purchaser, except as otherwise expressly stated herein. Without limiting the
generality of the foregoing provisions, Purchaser acknowledges and agrees that
(a) any environmental or other report with respect to the Property which is
delivered by Seller to Purchaser shall be for general informational purposes
only, (b) Purchaser shall not have any right to rely on any such report
delivered by Seller to Purchaser, but rather will rely on its own inspections
and investigations of the Property and any reports commissioned by Purchaser
with respect thereto, and (c) neither Seller, any affiliate of Seller nor the
person or entity which prepared any such report delivered by Seller to Purchaser
shall have any liability to Purchaser for any inaccuracy in or omission from any
such report.
9.2 DISCLAIMERS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME
MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR
IMPLIED, WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, TITLE (OTHER THAN SELLER'S LIMITED WARRANTY OF
TITLE TO BE SET FORTH IN THE DEED), ZONING, TAX CONSEQUENCES, LATENT OR PATENT
PHYSICAL OR ENVIRONMENTAL CONDITION, UTILITIES, OPERATING HISTORY OR
PROJECTIONS, VALUATION, GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE PROPERTY
WITH GOVERNMENTAL LAWS, THE TRUTH, ACCURACY OR COMPLETENESS OF THE PROPERTY
DOCUMENTS OR ANY OTHER INFORMATION PROVIDED BY OR ON BEHALF OF SELLER TO
PURCHASER, OR ANY OTHER MATTER OR THING REGARDING THE PROPERTY. PURCHASER
ACKNOWLEDGES AND AGREES THAT UPON CLOSING SELLER SHALL SELL AND CONVEY TO
PURCHASER AND PURCHASER SHALL ACCEPT THE PROPERTY "AS IS, WHERE IS, WITH ALL
FAULTS", EXCEPT TO THE EXTENT EXPRESSLY PROVIDED OTHERWISE IN THIS AGREEMENT.
PURCHASER HAS NOT RELIED AND WILL NOT RELY ON, AND SELLER IS NOT LIABLE FOR OR
BOUND BY, ANY EXPRESSED OR IMPLIED WARRANTIES, GUARANTIES, STATEMENTS,
REPRESENTATIONS OR INFORMATION PERTAINING
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TO THE PROPERTY OR RELATING THERETO (INCLUDING SPECIFICALLY, WITHOUT LIMITATION,
PROPERTY INFORMATION PACKAGES DISTRIBUTED WITH RESPECT TO THE PROPERTY) MADE OR
FURNISHED BY SELLER, THE MANAGER OF THE PROPERTY, OR ANY REAL ESTATE BROKER OR
AGENT REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR GIVEN,
DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET FORTH IN
THIS AGREEMENT. PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS CONDUCTED, OR
WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING
BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS
PURCHASER DEEMS NECESSARY TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY
AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO
ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND WILL
RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF
SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO, OTHER THAN SUCH
REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AS ARE EXPRESSLY SET FORTH
IN THIS AGREEMENT. UPON CLOSING, AND EXCEPT AS OTHERWISE PROVIDED HEREIN,
PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS, INCLUDING BUT NOT LIMITED
TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY
NOT HAVE BEEN REVEALED BY PURCHASER'S INVESTIGATIONS, AND PURCHASER, UPON
CLOSING, SHALL BE DEEMED TO HAVE WAIVED, RELINQUISHED AND RELEASED SELLER (AND
SELLER'S PARTNERS AND THEIR RESPECTIVE OFFICERS, DIRECTORS, SHAREHOLDERS,
EMPLOYEES AND AGENTS) FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, CAUSES OF
ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES, LIABILITIES, COSTS
AND EXPENSES (INCLUDING ATTORNEYS' FEES AND COURT COSTS) OF ANY AND EVERY KIND
OR CHARACTER, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT HAVE ASSERTED OR ALLEGED
AGAINST SELLER (AND SELLER'S PARTNERS AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
SHAREHOLDERS, EMPLOYEES AND AGENTS) AT ANY TIME BY REASON OF OR ARISING OUT OF
ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF
ANY APPLICABLE LAWS (INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAWS) AND
ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING
THE PROPERTY. PURCHASER AGREES THAT SHOULD ANY CLEANUP, REMEDIATION OR REMOVAL
OF HAZARDOUS SUBSTANCES OR OTHER ENVIRONMENTAL CONDITIONS ON THE PROPERTY BE
REQUIRED AFTER THE DATE OF CLOSING, SUCH CLEAN-UP, REMOVAL OR REMEDIATION SHALL
BE THE RESPONSIBILITY OF AND SHALL BE PERFORMED AT THE SOLE COST AND EXPENSE OF
PURCHASER.
9.3 Effect and Survival of Disclaimers. Seller and Purchaser
acknowledge that the compensation to be paid to Seller for the Property takes
into account that the Property is being
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sold subject to the provisions of this Article IX. Seller and Purchaser agree
that the provisions of this Article IX shall survive Closing.
ARTICLE X
MISCELLANEOUS
10.1 Confidentiality. Purchaser and its representatives shall hold
in strictest confidence all data and information obtained with respect to Seller
or its business, whether obtained before or after the execution and delivery of
this Agreement, and shall not disclose the same to others; provided, however,
that it is understood and agreed that Purchaser may disclose such data and
information to the employees, consultants, accountants and attorneys of
Purchaser provided that such persons agree in writing to treat such data and
information confidentially, and may disclose the content as may be required in
connection with any suit or proceeding, by law, or in connection with the
financing of the Property, it being understood, however, that Purchaser's
obligations hereunder are not conditioned upon Purchaser obtaining financing. In
the event this Agreement is terminated or Purchaser fails to perform hereunder,
Purchaser shall promptly return to Seller any statements, documents, schedules,
exhibits or other written information obtained from Seller in connection with
this Agreement or the transaction contemplated herein. It is understood and
agreed that, with respect to any provision of this Agreement which refers to the
termination of this Agreement and the return of the Earnest Money to Purchaser,
such Earnest Money shall not be returned to Purchaser unless and until Purchaser
has fulfilled its obligation to return to Seller the materials described in the
preceding sentence. In the event of a breach or threatened breach by Purchaser
or its agents or representatives of this Section 10.1, Seller shall be entitled
to an injunction restraining Purchaser or its agents or representatives from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Seller from pursuing any other available
remedy at law or in equity for such breach or threatened breach. The provisions
of this Section 10.1 shall survive Closing.
10.2 Public Disclosure. Prior to Closing, any release to the public
of information with respect to the sale contemplated herein or any matters set
forth in this Agreement will be made only in the form approved by Purchaser and
Seller and their respective counsel.
10.3 Discharge of Obligations. The acceptance of the Deed by
Purchaser shall be deemed to be a full performance and discharge of every
representation and warranty made by Seller herein and every agreement and
obligation on the part of Seller to be performed pursuant to the provisions of
this Agreement, except those which are herein specifically stated to survive
Closing.
10.4 Assignment. Purchaser may not assign its rights under this
Agreement without first obtaining Seller's written approval, which approval may
be given or withheld in Seller's sole discretion; provided, however, Seller
shall permit Purchaser to assign its rights under this Agreement under the
following conditions: (i) Purchaser remains liable under the terms of this
Agreement, (ii) James Schlesinger owns an interest in an entity which has an
interest in such
-25-
<PAGE> 26
assignee, and (iii) any such assignee complies with the requirements of the
following sentence. Under no circumstances shall Purchaser have the right to
assign this Agreement to any person or entity owned or controlled by an employee
benefit plan if Seller's sale of the Property to such person or entity would, in
the reasonable opinion of Seller's ERISA advisor, create or otherwise cause a
"prohibited transaction" under ERISA. In the event Purchaser assigns this
Agreement or transfers any ownership interest in Purchaser, and such assignment
or transfer would make the consummation of the transaction hereunder a
"prohibited transaction" under ERISA and necessitate the termination of this
Agreement then, notwithstanding any contrary provision which may be contained
herein, Seller shall have the right to pursue any remedy available at law or in
equity as a result of such assignment or transfer. Any transfer, directly or
indirectly, of any stock, partnership interest or other ownership interest in
Purchaser without Seller's written approval, which approval may be given or
withheld in Seller's sole discretion, shall constitute a default by Purchaser
under this Agreement.
10.5 Notices. Any notice pursuant to this Agreement shall be given
in writing by (a) personal delivery, or (b) reputable overnight delivery service
with proof of delivery, or (c) United States Mail, postage prepaid, registered
or certified mail, return receipt requested, or (d) legible facsimile
transmission sent to the intended addressee at the address set forth below, or
to such other address or to the attention of such other person as the addressee
shall have designated by written notice sent in accordance herewith, and shall
be deemed to have been given either at the time of personal delivery, or, in the
case of expedited delivery service or mail, as of the date of first attempted
delivery at the address and in the manner provided herein, or, in the case of
facsimile transmission, as of the date of the facsimile transmission provided
that an original of such facsimile is also sent to the intended addressee by
means described in clauses (a), (b) or (c) above. Unless changed in accordance
with the preceding sentence, the addresses for notices given pursuant to this
Agreement shall be as follows:
If to Seller:
c/o ERE Yarmouth
5775-D Peachtree Dunwoody Road
Suite 600
Atlanta, Georgia 30342
Attn.: M. Gregory Moore
TELECOPY: (404) 705-5840
with a copy to: ERE Yarmouth
3424 Peachtree Road, N.E.
Suite 800
Atlanta, Georgia 30325
Attn.: Sharon Riley
TELECOPY: (404) 848-8905
-26-
<PAGE> 27
and to: The Equitable Life Assurance Society of the
United States
1290 Avenue of the Americas
New York, New York 10104
Attn.: Corporate and Investments -- Law
Department
TELECOPY: (212) 314-3963
and to: Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attn.: Ira J. Swidler, Esq. and Scott E.
Jordan, Esq.
TELECOPY: (312) 577-8671
If to Purchaser: Talisman Brookdale L.L.C.
c/o The Schlesinger Companies
1500 San Remo Avenue
Suite 185A
Coral Gables, Florida 33146
Attn.: James A. Schlesinger
TELECOPY: 305-662-9616
with a copy to: Fischbein Badillo Wagner & Hardy
909 Third Avenue
New York, New York 10022
Attn.: Robert W. Claeson, Esq.
TELECOPY: 212-644-3601
10.6 Binding Effect. This Agreement shall not be binding in any way
upon Seller unless and until (a) Seller shall execute and deliver the same to
Purchaser, (b) each stage of Seller's investment approval process has approved
this transaction, and (c) Seller's Investment Committee has thereafter given its
written approval thereof. If Seller has not given Purchaser written notice (the
"Approval Notice") of such approvals on or before September 17, 1997 (the
"Approval Deadline"), or if prior to the Approval Deadline Seller notifies
Purchaser in writing that this Agreement has been disapproved by the persons or
entities referred to in clauses (b) or (c) of the preceding sentence, then this
Agreement shall be deemed terminated and Purchaser shall be entitled to the
return of the Earnest Money. It is understood and agreed that at each stage of
Seller's investment approval process, Seller or its investment advisor, ERE
Yarmouth shall each have the right, in its unfettered discretion, to disapprove
the transaction contemplated by this Agreement for any reason whatsoever,
without obligation thereafter to proceed to the next stage
-27-
<PAGE> 28
of Seller's investment approval process. Seller's approval of this Agreement
shall be evidenced only by both Seller's execution of this Agreement and
Seller's sending of the Approval Notice to Purchaser prior to the Approval
Deadline and, accordingly, Purchaser acknowledges and agrees that Purchaser
cannot and will not rely upon any other statement or action of Seller or its
representatives as evidence of Seller's approval of this Agreement or the
subject matter hereof.
10.7 Modifications. This Agreement cannot be changed orally, and no
executory agreement shall be effective to waive, change, modify or discharge it
in whole or in part unless such executory agreement is in writing and is signed
by the parties against whom enforcement of any waiver, change, modification or
discharge is sought.
10.8 Tenant Notification Letters. Purchaser shall deliver to each
and every tenant of the Property under a Lease thereof a signed statement
acknowledging Purchaser's receipt and responsibility for each tenant's security
deposit (to the extent delivered by Seller to Purchaser at Closing), if any, all
in compliance with and pursuant to the applicable provisions of applicable law.
The provisions of this paragraph shall survive Closing.
10.9 Calculation of Time Periods. Unless otherwise specified, in
computing any period of time described in this Agreement, the day of the act or
event after which the designated period of time begins to run is not to be
included and the last day of the period so computed is to be included, unless
such last day is a Saturday, Sunday or legal holiday under the laws of the State
in which the Property is located, in which event the period shall run until the
end of the next day which is neither a Saturday, Sunday or legal holiday. The
final day of any such period shall be deemed to end at 5 p.m., local time.
10.10 Successors and Assigns. The terms and provisions of this
Agreement are to apply to and bind the permitted successors and assigns of the
parties hereto.
10.11 Entire Agreement. This Agreement, including the Exhibits,
contains the entire agreement between the parties pertaining to the subject
matter hereof and fully supersedes all prior written or oral agreements and
understandings between the parties pertaining to such subject matter.
10.12 Further Assurances. Each party agrees that it will without
further consideration execute and deliver such other documents and take such
other action, whether prior or subsequent to Closing, as may be reasonably
requested by the other party to consummate more effectively the purposes or
subject matter of this Agreement. Without limiting the generality of the
foregoing, Purchaser shall, if requested by Seller, execute acknowledgments of
receipt with respect to any materials delivered by Seller to Purchaser with
respect to the Property. The provisions of this Section 10.12 shall survive
Closing.
10.13 Counterparts. This Agreement may be executed in counterparts,
and all such executed counterparts shall constitute the same agreement. It shall
be necessary to account for only one such counterpart in proving this Agreement.
-28-
<PAGE> 29
10.14 Severability. If any provision of this Agreement is determined
by a court of competent jurisdiction to be invalid or unenforceable, the
remainder of this Agreement shall nonetheless remain in full force and effect.
10.15 Applicable Law. This Agreement is performable in the state in
which the Property is located and shall in all respects be governed by, and
construed in accordance with, the substantive federal laws of the United States
and the laws of such state. Seller and Purchaser hereby irrevocably submit to
the jurisdiction of any state or federal court sitting in the state in which the
Property is located in any action or proceeding arising out of or relating to
this Agreement and hereby irrevocably agree that all claims in respect of such
action or proceeding shall be heard and determined in a state or federal court
sitting in the state in which the Property is located. Purchaser and Seller
agree that the provisions of this section 10.15 shall survive the Closing of the
transaction contemplated by this Agreement.
10.16 No Third Party Beneficiary. The provisions of this Agreement
and of the documents to be executed and delivered at Closing are and will be for
the benefit of Seller and Purchaser only and are not for the benefit of any
third party, and accordingly, no third party shall have the right to enforce the
provisions of this Agreement or of the documents to be executed and delivered at
Closing.
10.17 Exhibits and Schedules. The following schedules or exhibits
attached hereto shall be deemed to be an integral part of this Agreement:
(a) Exhibit A - Legal Description of the Land
(b) Exhibit B - Lease Schedule
(c) Exhibit C - Intentionally Deleted
(d) Exhibit D - Service Contracts Schedule
(e) Exhibit E - Tenant Estoppel Form
(f) Exhibit F - Anchor Estoppel Form
(g) Exhibit G - Leasing Commission Agreements
(h) Exhibit H - Notice of Tenant Defaults
(i) Exhibit I - Seller's Environmental Reports
10.18 Captions. The section headings appearing in this Agreement are
for convenience of reference only and are not intended, to any extent and for
any purpose, to limit or define the text of any section or any subsection
hereof.
-29-
<PAGE> 30
10.19 Construction. The parties acknowledge that the parties and
their counsel have reviewed and revised this Agreement and that the normal rule
of construction to the effect that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of this Agreement
or any exhibits or amendments hereto.
10.20 Termination of Agreement. It is understood and agreed that if
either Purchaser or Seller terminates this Agreement pursuant to a right of
termination granted hereunder, such termination shall operate to relieve Seller
and Purchaser from all obligations under this Agreement, except for such
obligations as are specifically stated herein to survive the termination of this
Agreement.
10.21 Survival. The provisions of the following Sections of this
Agreement shall survive Closing and shall not be merged into the execution and
delivery of the Deed: 3.1; 4.2(j); 4.4; 5.3; 5.6; 8.1; 9.3; 10.1; 10.8; 10.12;
10.15; 10.21; and 10.22.
10.22 Attorneys' Fees. If there is any legal action or proceeding
between Seller, on the one hand, and Purchaser, on the other, arising from or
based on this Agreement, the unsuccessful party to such action or proceeding
shall pay to the prevailing party all costs and expenses, including reasonable
attorneys' fees, incurred by such prevailing party in or in connection with such
action or proceeding, any appeal in connection therewith, and the enforcement of
any relief granted therein. If such prevailing party recovers a judgment in any
such action, proceeding or appeal, such costs, expenses and attorneys' fees
shall be included in and as a part of such judgment. This Paragraph shall
survive the Closing or any termination of this Agreement.
-30-
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the Effective Date.
SELLER:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF
THE UNITED STATES, a New York corporation
By:
---------------------------------
Name:
--------------------------------
Title:
-------------------------------
EML ASSOCIATES, a New York general partnership
By: ML/EQ REAL ESTATE PORTFOLIO, LP,
its Managing Venturer
By: EREIM Managers Corp.,
its Managing General Partner
By:
----------------------------
Name:
---------------------------
Title:
-------------------------
PURCHASER:
TALISMAN BROOKDALE, L.L.C., a Delaware
limited liability company
By:
--------------------------------
Name:
--------------------------
Title:
-------------------------
-31-
<PAGE> 32
Exhibit A
LEGAL DESCRIPTION OF THE LAND
[See Attached]
<PAGE> 33
Exhibit B
LEASE SCHEDULE
[See Attached]
<PAGE> 34
Exhibit C
INTENTIONALLY DELETED
<PAGE> 35
Exhibit D
SERVICE CONTRACTS SCHEDULE
[See Attached]
<PAGE> 36
Exhibit E
TENANT ESTOPPEL FORM
TENANT:
--------------------
TO:
--------------------
RE: BROOKDALE MALL, MINNEAPOLIS, MINNESOTA (THE "CENTER")
THIS IS TO CERTIFY THAT:
1. The undersigned is the "Tenant" under that certain Lease, dated
________________, 19__ (the "Lease") between Tenant and THE EQUITABLE
LIFE ASSURANCE SOCIETY OF THE UNITED STATES and EML ASSOCIATES, as
tenants in common, as successor to ________________________
("Landlord"), covering those certain premises commonly known as Space
No. ___ consisting of ____ square feet, in the Brookdale Mall,
Minneapolis, Minnesota (the "Premises").
2. The Lease has not been modified, changed, altered, assigned,
supplemented or amended in any respect, except as indicated below,
(insert dates of all modifications, amendments, supplements or
assignments; if none, state "none"), and the Lease is valid and in full
force and effect on the date hereof.
--------------------------
--------------------------
--------------------------
3. The Lease constitutes the entire agreement between Landlord and Tenant,
and Tenant has no other agreements of any kind with Landlord except as
stated in the Lease or in any amendments thereto specified above.
4. Tenant has accepted and now occupies the Premises. The Lease term
commenced on _____________, 19__ and will expire on __________________.
Tenant has options to renew the initial term of the Lease, each for a
period of ____ years (if none, state "none").
5. Tenant has paid rent for the Premises for a period up to and including
_________________, 1997. The fixed minimum rent payable by Tenant
presently is $_____________ per month. No such rent has been-paid more
than one (1) month in advance of its due date except as indicated below
(if none, state "none"). Tenant's security deposit is $______________.
Tenant has paid in full all other sums presently due and payable under
the Lease.
-32-
<PAGE> 37
6. No event has occurred and no condition exists which, with the giving of
notice or the lapse of time or both, will constitute a default under
the Lease on the part of the Tenant.
To the best knowledge of Tenant, no event has occurred and no condition
exist which, with the giving of notice or the lapse of time or both,
will constitute a default under the Lease on the part of Landlord, and
Tenant has no existing defenses or offsets against the enforcement of
the Lease by Landlord.
7. All conditions under the Lease to be performed by Landlord have been
satisfied. All required contributions by Landlord to Tenant on account
of Tenant's improvements have been received by Tenant.
8. Tenant has no right or option whatsoever to purchase or otherwise
acquire the Premises or any portion whereof, except as set forth in the
Lease.
9. The undersigned is authorized to execute this Tenant Estoppel
Certificate on behalf of Tenant and realizes that Landlord is proposing
to sell the Center and any proposed buyer and its lender shall be
entitled to rely upon this certification by Tenant.
Dated this __ day of _______________, 1997.
TENANT:
---------------------
By:
------------------
Its:
-----------------
<PAGE> 38
Exhibit F
ANCHOR ESTOPPEL FORM
TENANT:
----------------------
TO:
----------------------
RE: BROOKDALE MALL, MINNEAPOLIS, MINNESOTA (THE "CENTER")
THIS IS TO CERTIFY THAT:
1. The undersigned is the "Tenant" under that certain Lease, dated
_____________________, 19 (the "Lease") between Tenant and THE
EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES and EML
ASSOCIATES, as tenants in common, as successor to _____________________
("Landlord"), covering those certain premises commonly known as Space
No. ___ consisting of _____ square feet, in the Brookdale Mall,
Minneapolis, Minnesota (the "Premises").
2. The Lease has not been modified, changed, altered, assigned,
supplemented or amended in any respect, except as indicated below,
(insert dates of all modifications, amendments, supplements or
assignments; if none, state "none"), and the Lease is valid and in full
force and effect on the date hereof.
--------------------------------
--------------------------------
--------------------------------
3. The Lease constitutes the entire agreement between Landlord and Tenant,
and Tenant has no other agreements of any kind with Landlord except as
stated in the Lease or in any amendments thereto specified above.
4. Tenant has accepted and now occupies the Premises. The Lease term
commenced on _________________, 19__ and will expire on
_________________. Tenant has ____ options to renew the initial term of
the Lease, each for a period of ____ years (if none, state "none").
5. Tenant has paid rent for the Premises for a period up to and including
___________, 1997. The fixed minimum rent payable by Tenant presently
is $_____________ per month. No such rent has been-paid more than one
(1) month in advance of its due date except as indicated below (if
none, state "none"). Tenant's security deposit is $________________.
Tenant has paid in full all other sums presently due and payable under
the Lease.
6. No event has occurred and no condition exists which, with the giving of
notice or the lapse of time or both, will constitute a default under
the Lease on the part of the Tenant. To the best knowledge of Tenant,
no event has occurred and no condition exist which, with the
<PAGE> 39
giving of notice or the lapse of time or both, will constitute a
default under the Lease on the part of Landlord, and Tenant has no
existing defenses or offsets against the enforcement of the Lease by
Landlord.
7. All conditions under the Lease to be performed by Landlord have been
satisfied. All required contributions by Landlord to Tenant on account
of Tenant's improvements have been received by Tenant.
8. Tenant has no right or option whatsoever to purchase or otherwise
acquire the Premises or any portion whereof, except as set forth in the
Lease.
9. [TO BE MODIFIED TO CONFORM WITH EACH DECLARATION AND/OR OPERATING
AGREEMENT IN EFFECT] The undersigned is a party to that certain
[Declaration of Restrictions and Grant of Easements and/or Operating
Agreement] executed as of ______________ __, 19__, by
_______________________, as Declarant (the "Declaration") and Tenant.
The Declaration affects a portion of the Center.
10. The Declaration is in full force and effect except as set forth below,
has not been amended or any respect.
----------------------------------
----------------------------------
----------------------------------
11. To Tenant's knowledge, no notice of default has been given to the
Declarant, or to any successor in interest to the Declarant, which
remains uncared. To Tenant's knowledge, _____________________ is the
present record owner of the real property affected by the Declaration,
is not in default under the Declaration and no event has occurred
which, with the giving of notice or passage of time, or both, would
constitute such a default.
12. The undersigned is authorized to execute this Tenant Estoppel
Certificate on behalf of Tenant and realizes that Landlord is proposing
to sell the Center and any proposed buyer and its lender shall be
entitled to rely upon this certification by Tenant. Moreover, Tenant
hereby consents to the sale of the Center to such buyer and agrees that
upon such sale, Landlord shall be relieved from all of its obligations
arising under the Lease and the Declaration from and after the date of
such sale provided such proposed buyer assumes all of such obligations.
Dated this day of , 1997.
----- --------------------
TENANT:
-----------------------------
By:
-------------------------
Its:
-------------------------
<PAGE> 40
Exhibit G
Leasing Commission Agreements
None
<PAGE> 41
Exhibit H
Notice of Tenant Defaults
[See Attached]
<PAGE> 42
Exhibit I
Seller's Environmental Reports
1. Phase I Environmental Site Assessment, prepared by Braun Intertec,
January 15, 1977.
2. Asbestos Testing, prepared by Hygeia, Inc., October 15, 1986.
<PAGE> 43
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Amendment")
is made as of the 17th day of October, 1997, by and between THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation ("Equitable"),
and EML ASSOCIATES, a New York general partnership ("EML") (Equitable and EML
together called "Seller"), having its home office at 1290 Avenue of the
Americas, New York, New York 10104 and TALISMAN BROOKDALE L.L.C., a Delaware
limited liability company ("Purchaser"), having an office c/o The Schlesinger
Companies, at 1500 San Remo Avenue, Suite 185A, Coral Gables, Florida 33146.
W I T N E S S E T H:
WHEREAS, Purchaser and Seller entered into that certain Purchase and
Sale Agreement dated as of September 2, 1997, as amended by those certain letter
agreements dated September 15 and 17, 1997 (collectively, the "Agreement"),
whereby Seller agreed to sell and Purchaser agreed to purchase the enclosed mall
building commonly known as "Brookdale Center" located in Henepin County,
Minnesota and further described in the Agreement (collectively, the "Property").
WHEREAS, the parties now desire to amend certain provisions contained
in the Agreement pursuant to the terms and provisions contained in this
Amendment.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Defined Terms. All terms not otherwise defined herein shall
have the same meaning ascribed to them in the Agreement.
2. Purchase Price. The Purchase Price shall be reduced by ONE
HUNDRED SEVENTY THOUSAND AND NO/100 DOLLARS ($170,000.00) and shall now be
TWENTY-FOUR MILLION EIGHT HUNDRED THIRTY THOUSAND AND NO/100 DOLLARS
($24,830,000.00).
3. Waiver of Environmental Termination. Purchaser has completed
its inspection of the Property pursuant to Section 3.1 of the Agreement and
hereby forever waives its right to terminate the Agreement in accordance with
Section 3.2 of the Agreement. Purchaser acknowledges and agrees that Seller
shall have no liability whatsoever regarding any matters disclosed in that
certain letter report dated September 25, 1997 from Aaron & Wright Technical
Services Incorporated
-1-
<PAGE> 44
addressed to Mr. James Schlesinger of Talisman Companies, L.L.C. (the
"Environmental Letter"). In consideration for the reduction in the Purchase
Price as described in Section 2 above, Purchaser hereby agrees to indemnify,
defend and hold Seller free and harmless from and against any losses,
liabilities, claims, damages, costs or expenses (including, without limitation,
reasonable attorneys fees and expenses) incurred or suffered by Seller with
respect to the matters disclosed or addressed in the Environmental Letter,
including, without limitation, any such losses, liabilities, claims, damages,
costs or expenses arising out of Purchaser's remediation of any such matters.
The definition of Seller's Environmental Reports in the Agreement shall include
the Environmental Letter. The terms and provisions of this Section shall survive
the closing indefinitely.
4. Title and Survey. Subject to Seller's compliance with Item
Nos. 1, 2, 3 and 4 described in the letter dated September 30, 1997 (the "Title
Letter") from Scott Jordan of Katten Muchin & Zavis, Seller's counsel, to
Purchaser, Purchaser hereby approves the status of the title to the Property as
contained in the Commitment for Title Insurance dated July 15, 1997 issued by
the Title Company as Case No. 43030 (the "Title Commitment") and the survey
delivered under cover letter dated October 8, 1997 and prepared by C.E. Coulter
& Associates, Inc. (the "Survey"), and all matters disclosed in the Title
Commitment and the Survey (other than the matters described in the Title Letter)
shall be Permitted Exceptions. Purchaser covenants to send Seller, its counsel,
and the Title Company a copy of the Survey within three (3) business days.
5. Extended Closing Date. Section 4.1 of the Agreement is hereby
deleted in its entirety and the following language is substituted in lieu
thereof:
"4.1 Time and Place. The consummation of the transaction
contemplated hereby ("Closing") shall be held at the offices of
Seller's counsel, Katten Muchin & Zavis, 525 West Monroe Street, Suite
1600, Chicago, Illinois, or Purchaser's lender if necessary, at 10:00
a.m. on a date mutually agreed to by Seller or Purchaser, but in no
event later than November 17, 1997. Purchaser shall deposit with Escrow
Agent an additional $100,000 Ernest Money Deposit on or before November
22, 1997, time being of the essence. Purchaser shall have the right to
extend the date of Closing until December 2, 1997 by giving Seller
notice thereof on or before November 14, 1997, and depositing with
Escrow Agent, on the date such notice is given, an additional Earnest
Money deposit of $250,000. At Closing, Seller and Purchaser shall
perform the obligations set forth in, respectively, Section 4.2 and
Section 4.3, the performance of which obligations shall be concurrent
conditions."
6. Entire Agreement. The Agreement, together with this Amendment
and the Title Letter, contain the entire agreement between the parties
pertaining to the subject matter hereof and fully supersedes all prior written
or oral agreements and understandings between the parties pertaining to such
subject matter. No modification, waiver or amendment of the provisions of the
Agreement, as modified by this Amendment and the Title Letter, shall be
effective unless made in writing and signed by the parties hereto.
7. Counterparts. This Amendment may be executed in counterparts,
and all such executed counterparts shall constitute the same agreement. It shall
be necessary to account for only one such counterpart in proving this Amendment.
-2-
<PAGE> 45
8. Severability. If any provision of this Amendment is determined
by a court of competent jurisdiction to be invalid or unenforceable, the
remainder of this Amendment shall nonetheless remain in full force and effect.
9. Agreement in Full Force and Effect. Except as amended hereby,
all of the terms and provisions of the Agreement shall remain in full force and
effect.
10. Facsimile Transmissions. Signed copies of this Amendment
transmitted via facsimile shall be deemed original provided each party shall be
obligated to send original executed copies of this Amendment to the other party
within three (3) days from the date hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-3-
<PAGE> 46
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first written above.
SELLER:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES, a New York corporation
By:
------------------------------------
Name:
---------------------------------
Title:
---------------------------------
EML ASSOCIATES, a New York general partnership
By: ML/EQ REAL ESTATE PORTFOLIO, LP,
its Managing Venturer
By: EREIM Managers Corp.,
its Managing General Partner
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
-4-
<PAGE> 47
PURCHASER:
TALISMAN BROOKDALE, LLC, a Delaware limited
liability company
By: BZA Brookdale Mall Corp, a managing
member
By:
-----------------------------
Name:
-----------------------------
Title:
-----------------------------
By: CS Brookdale Realty Corp., a managing
member
By:
----------------------------
Name:
----------------------------
Title:
----------------------------
-5-
<PAGE> 48
SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Amendment")
is made as of the 14th day of November, 1997, by and between THE EQUITABLE LIFE
ASSURANCE SOCIETY OF THE UNITED STATES, a New York corporation ("Equitable"),
and EML ASSOCIATES, a New York general partnership ("EML") (Equitable and EML
together called "Seller"), and TALISMAN BROOKDALE L.L.C., a Delaware limited
liability company ("Purchaser").
W I T N E S S E T H:
WHEREAS, Purchaser and Seller entered into that certain Purchase and
Sale Agreement dated as of September 2, 1997, as amended by those certain letter
agreements dated September 15 and 17, 1997 and that certain First Amendment to
Purchase Agreement dated October 17, 1997 (collectively, the "Agreement"),
whereby Seller agreed to sell and Purchaser agreed to purchase the enclosed mall
building commonly known as "Brookdale Center" located in Henepin County,
Minnesota and further described in the Agreement (collectively, the "Property").
WHEREAS, the parties now desire to amend certain provisions contained
in the Agreement pursuant to the terms and provisions contained in this
Amendment.
NOW, THEREFORE, in consideration of the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Defined Terms. All terms not otherwise defined herein shall
have the same meaning ascribed to them in the Agreement.
2. Extended Closing Date. Section 4.1 of the Agreement is hereby
deleted in its entirety and the following language is substituted in lieu
thereof:
"4.1 Time and Place. The consummation of the transaction
contemplated hereby ("Closing") shall be held at the offices of
Seller's counsel, Katten Muchin & Zavis, 525 West Monroe Street, Suite
1600, Chicago, Illinois, or Purchaser's lender if necessary, at 10:00
a.m. on November 25, 1997 (unless Purchaser and Seller agree
otherwise); provided, however, Seller shall have the unilateral right
to extend the date of Closing until December 2, 1997 by giving
Purchaser notice thereof on or before November 21, 1997. Purchaser has
deposited with Escrow Agent an additional $100,000 Ernest Money
Deposit. At Closing, Seller and
-1-
<PAGE> 49
Purchaser shall perform the obligations set forth in, respectively,
Section 4.2 and Section 4.3, the performance of which obligations shall
be concurrent conditions."
6. Entire Agreement. The Agreement, together with this Amendment,
contain the entire agreement between the parties pertaining to the subject
matter hereof and fully supersedes all prior written or oral agreements and
understandings between the parties pertaining to such subject matter. No
modification, waiver or amendment of the provisions of the Agreement, as
modified by this Amendment, shall be effective unless made in writing and signed
by the parties hereto.
7. Counterparts. This Amendment may be executed in counterparts,
and all such executed counterparts shall constitute the same agreement. It shall
be necessary to account for only one such counterpart in proving this Amendment.
8. Severability. If any provision of this Amendment is determined
by a court of competent jurisdiction to be invalid or unenforceable, the
remainder of this Amendment shall nonetheless remain in full force and effect.
9. Agreement in Full Force and Effect. Except as amended hereby,
all of the terms and provisions of the Agreement shall remain in full force and
effect.
10. Facsimile Transmissions. Signed copies of this Amendment
transmitted via facsimile shall be deemed original provided each party shall be
obligated to send original executed copies of this Amendment to the other party
within three (3) days from the date hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 50
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first written above.
SELLER:
THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES, a New York corporation
By:
------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
EML ASSOCIATES, a New York general partnership
By: ML/EQ REAL ESTATE PORTFOLIO, LP,
its Managing Venturer
By: EREIM Managers Corp.,
its Managing General Partner
By:
-------------------------------
Name:
-----------------------------
Title:
-----------------------------
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<PAGE> 51
PURCHASER:
TALISMAN BROOKDALE, LLC, a Delaware limited
liability company
By: BZA Brookdale Mall Corp, a managing
member
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
By: CS Brookdale Realty Corp., a managing
member
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
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<PAGE> 1
EXHIBIT 10.C
PURCHASE AND SALE AGREEMENT
BETWEEN
EML ASSOCIATES,
a New York general partnership
as Seller
and
SPP REAL ESTATE (O'HARE), INC.
as Purchaser
As of December ____, 1997
<PAGE> 2
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is made as of
December _____, 1997, by and between EML ASSOCIATES, a joint venture in the form
of a New York general partnership ("Seller"), having an office c/o The Equitable
Life Assurance Society of the United States, 787 Seventh Avenue, New York, New
York 10019, and SPP REAL ESTATE (O'HARE), INC. ("Purchaser"), having an office
at c/o AMB Institutional Realty Advisors, Inc., 505 Montgomery Street, San
Francisco, California 94111.
WITNESSETH:
ARTICLE I
PURCHASE AND SALE
1.1 Agreement of Purchase and Sale. Subject to the terms and
conditions hereinafter set forth, Seller agrees to sell and convey and Purchaser
agrees to purchase the following:
(a) that certain tract or parcel of land situated in DuPage
County, Illinois commonly known as 7550 Plaza Court, Willowbrook,
Illinois and more particularly described on Exhibit A-1 attached hereto
and made a part hereof, together with all and singular the rights and
appurtenances pertaining to such property, including any right, title
and interest of Seller in and to adjacent streets, alleys or
rights-of-way (collectively the "Willowbrook Land");
(b) that certain tract or parcel of land situated in DuPage
County, Illinois commonly known as 800 Hollywood, Itasca, Illinois and
more particularly described on Exhibit A-2 attached hereto and made a
part hereof, together with all and singular the rights and
appurtenances pertaining to such property, including any right, title
and interest of Seller in and to adjacent streets, alleys or
rights-of-way (collectively the "Itasca Land");
(c) that certain tract or parcel of land situated in DuPage
County, Illinois commonly known as 701-707 Maple Lane, Bensenville,
Illinois and more particularly described on Exhibit A-3 attached hereto
and made a part hereof, together with all and singular the rights and
appurtenances pertaining to such property, including any right, title
and interest of Seller in and to adjacent streets, alleys or
rights-of-way (collectively the "Bensenville #1 Land");
(d) that certain tract or parcel of land situated in DuPage
County, Illinois commonly known as 733 Maple Lane, Bensenville,
Illinois and more particularly described on Exhibit A-4 attached hereto
and made a part hereof, together with all and singular the rights and
appurtenances pertaining to such property, including any right, title
and interest of Seller in and to adjacent streets, alleys or rights-of-
way (collectively the "Bensenville #2 Land");
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<PAGE> 3
(e) the buildings, structures, fixtures and other improvements
on the Willowbrook Land, the Itasca Land, the Bensenville #1 Land and
the Bensenville #2 Land (collectively the "Improvements");
(f) all of Seller's right, title and interest in and to all
tangible personal property upon the Willowbrook Land, the Itasca Land,
the Bensenville #1 Land and the Bensenville #2 Land or within the
Improvements, including specifically, without limitation, appliances,
furniture, carpeting, draperies and curtains, tools and supplies, and
other items of personal property (excluding cash) used exclusively in
connection with the operation of the Willowbrook Land, the Itasca Land,
the Bensenville #1 Land and/or the Bensenville #2 Land and the
Improvements (collectively the "Personal Property");
(g) all of Seller's right, title and interest in and to all
agreements listed and described on Exhibit B-1, Exhibit B-2, Exhibit
B-3 and Exhibit B-4 (collectively the "Lease Schedules") attached
hereto and made a part hereof, pursuant to which any portion of the
Willowbrook Land, the Itasca Land, the Bensenville #1 Land and/or the
Bensenville #2 Land, respectively, or the Improvements thereon, are
used or occupied by anyone other than Seller (collectively the
"Leases"); and
(h) all of Seller's right, title and interest in and to any
intangible property used in connection with the Willowbrook Land, the
Itasca Land, the Bensenville #1 Land and/or the Bensenville #2 Land,
the Improvements or the Personal Property, including, without
limitation, (i) all assignable contracts and agreements (collectively
the "Operating Agreements") listed and described on Exhibit C-1,
Exhibit C-2, Exhibit C-3 and Exhibit C-4, respectively (collectively
the "Operating Agreements Schedules") attached hereto and made a part
hereof, relating to the upkeep, repair, maintenance or operation of the
Willowbrook Land, the Itasca Land, the Bensenville #1 Land and the
Bensenville #2 Land, Improvements or Personal Property which will
extend beyond the date of Closing (as such term is defined in Section
4.1 hereof), including specifically, without limitation, all assignable
equipment leases, and (ii) all assignable existing warranties and
guaranties (expressed or implied) issued to Seller in connection with
the Improvements or the Personal Property (collectively the
"Intangibles").
1.2 Properties Defined. The Willowbrook Land, together with the
Improvements, the Personal Property, the Leases and the Intangibles thereon or
in connection therewith, are hereinafter sometimes referred to collectively as
the "Willowbrook Property." The Itasca Land, together with the Improvements, the
Personal Property, the Leases and the Intangibles thereon or in connection
therewith, are hereinafter sometimes referred to collectively as the "Itasca
Property". The Bensenville #1 Land, together with the Improvements, the Personal
Property, the Leases and the Intangibles thereon or in connection therewith, are
hereinafter sometimes referred to collectively as the "Bensenville #1 Property".
The Bensenville #2 Land, together with the Improvements, the Personal Property,
the Leases and the Intangibles thereon or in connection therewith, are
hereinafter sometimes referred to collectively as the "Bensenville #2 Property".
The Willowbrook Land, the Itasca Land, the Bensenville #1 Land and the
Bensenville #2 Land are sometimes referred to collectively as the "Land". The
Willowbrook Property, the Itasca Property, the Bensenville #1 Property and the
Bensenville #2 Property are sometimes referred to collectively as the
"Properties".
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<PAGE> 4
1.3 Permitted Exceptions. The Properties shall be conveyed by one
or more special warranty deeds subject to the matters which are, or are deemed
to be, Permitted Exceptions pursuant to Article II hereof (herein referred to
collectively as the "Permitted Exceptions").
1.4 Purchase Price. Seller is to sell and Purchaser is to
purchase the Properties for a total of SEVEN MILLION EIGHT HUNDRED SIXTY
THOUSAND DOLLARS ($7,860,000.00)(the "Purchase Price").
1.5 Intentionally Omitted.
1.6 Payment of Purchase Price. The Purchase Price, as increased or
decreased by prorations and adjustments as herein provided, shall be payable in
full at Closing in cash by wire transfer of immediately available federal funds
to a bank account designated by Seller in writing to Purchaser prior to the
Closing,
ARTICLE II
TITLE AND SURVEY
2.1 Title Examination; Commitment for Title Insurance. Purchaser
shall have until the expiration of the Inspection Period (defined in Section 3.1
hereof) to examine title to the Properties. Seller shall obtain from First
American Title Insurance Company or another nationally recognized title
insurance company (the "Title Company") at Seller's expense, one or more ALTA
title insurance commitments (collectively the "Title Commitment") covering the
Properties, showing all matters affecting title to the Properties and binding
the Title Company to issue at Closing its current form of ALTA Form B (rev.
10/17/70) extended coverage Owner's Policy of Title Insurance in the full amount
of the Purchase Price pursuant to Section 2.4 hereof. Seller shall instruct the
Title Company to deliver to Purchaser, Seller and the surveyors described in
Section 2.2 below copies of the Title Commitment and copies of all instruments
referenced in Schedule B and Schedule C thereof.
2.2 Survey. Seller, at Seller's expense, has engaged one or more
reputable surveyors or surveying firms, licensed by the state in which the
Properties are located, to survey the Properties and prepare and deliver to
Purchaser, the Title Company and Seller ALTA surveys thereof (collectively the
"Surveys") reflecting, with respect to each of the Properties, the total area of
the Property, the location of all improvements, recorded easements and
encroachments, if any, located thereon and all building and set back lines and
other matters of record with respect thereto.
2.3 Title Objections; Cure of Title Objections. Purchaser shall
have until the expiration of the Inspection Period to notify Seller, in writing,
of such objections as Purchaser may have to anything contained in the Title
Commitment or the Surveys. Any item contained in the Title Commitment or any
matter shown on the Surveys to which Purchaser does not object during the
Inspection Period shall be deemed a Permitted Exception. In the event Purchaser
shall notify Seller of objections to title or to matters shown on the Surveys
prior to the expiration of the Inspection Period, Seller shall have the right,
but not the obligation, to cure such objections. Within ten (10) days after
receipt of Purchaser's notice of objections, Seller shall notify Purchaser in
writing whether Seller elects to attempt to cure such objections. If Seller
elects to attempt to cure, and provided that Purchaser shall not have terminated
this Agreement in accordance with Section 3.2 hereof, Seller shall have until
the date of Closing to attempt to remove, satisfy or cure the same and for this
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<PAGE> 5
purpose Seller shall be entitled to a reasonable adjournment of the Closing if
additional time is required, but in no event shall the adjournment exceed sixty
(60) days after the date for Closing set forth in Section 4.1 hereof. If Seller
elects not to cure any objections specified in Purchaser's notice, or if Seller
is unable to effect a cure prior to the Closing (or any date to which the
Closing has been adjourned), Purchaser shall have the following options: (i) to
accept a conveyance of the Properties subject to the Permitted Exceptions,
specifically including any matter objected to by Purchaser which Seller is
unwilling or unable to cure, and without reduction of the Purchase Price; or
(ii) to terminate this Agreement by sending written notice thereof to Seller,
and upon delivery of such notice of termination, this Agreement shall terminate,
and thereafter neither party hereto shall have any further rights, obligations
or liabilities hereunder except to the extent that any right, obligation or
liability set forth herein expressly survives termination of this Agreement. If
Seller notifies Purchaser that Seller does not intend to attempt to cure any
title objection (or if, having commenced attempts to cure any objection, Seller
later notifies Purchaser that Seller will be unable to effect a cure thereof)
Purchaser shall, within five (5) days after such notice has been given, notify
Seller in writing whether Purchaser shall elect to accept the conveyance under
clause (i) or to terminate this Agreement under clause (ii).
2.4 Conveyance of Title. At Closing, Seller shall convey and
transfer to Purchaser by special warranty deeds such title to the Properties as
will enable the Title Company to issue to Purchaser, at Purchaser's expense, an
ALTA Form B (rev. 10/17/70) Owner's Policy of Title Insurance (collectively the
"Title Policy") covering the Properties, in the full amount of the Purchase
Price. Notwithstanding anything contained herein to the contrary, the Properties
shall be conveyed subject to the following matters, which shall be deemed to be
Permitted Exceptions:
(a) the rights of named tenants, as tenants only, under the
Leases and any new Leases entered into between the Effective Date and
Closing and, where required, approved by Purchaser in accordance with
the terms of this Agreement;
(b) the lien of all ad valorem real estate taxes and
assessments not yet due and payable as of the date of Closing;
(c) local, state and federal laws, ordinances or governmental
regulations, including but not limited to, building and zoning laws,
ordinances and regulations, now or hereafter in effect relating to the
Properties, or any of them; and
(d) items appearing of record or shown on any of the Surveys
and, in either case, not objected to by Purchaser or waived or deemed
waived by Purchaser in accordance with Sections 2.3 or 2.5 hereof.
2.5 Pre-Closing "Gap" Title Defects. Whether or not Purchaser
shall have furnished to Seller any notice of title objections pursuant to the
foregoing provisions of this Agreement, Purchaser may, at or prior to Closing,
notify Seller in writing of any objections to title first raised by the Title
Company or the Surveyor between (a) the date which is the earlier of (i) the
effective date of Purchaser's Title Commitment referred to above or (ii) the
expiration of the Inspection Period, and (b) the date on which the transaction
contemplated herein is scheduled to close. With respect to any objections to
title set forth in such notice, Seller shall have the same option to cure and
Purchaser shall have the same option to accept title subject to such matters or
to terminate this Agreement as those which apply to any notice of objections
made by Purchaser before the expiration of the Inspection Period. If Seller
elects to attempt to cure any such matters,
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<PAGE> 6
the date for Closing shall be automatically extended by a reasonable additional
time to effect such a cure, but in no event shall the extension exceed sixty
(60) days after the date for Closing set forth in Section 4.1 hereof.
ARTICLE III
INSPECTION PERIOD
3.1 Right of Inspection. During the period beginning upon the
date of this Agreement (the "Effective Date") and ending on the Closing
(hereinafter referred to as the "Inspection Period"), Purchaser shall have the
right to make a physical inspection of the Properties and to examine at such
place or places at the Properties, in the offices of the property manager or
elsewhere as the same may be located, any operating files maintained by Seller
or its property manager in connection with the leasing, maintenance and/or
management of the Properties, including, without limitation, the Leases, lease
files, Operating Agreements, insurance policies, bills, invoices, receipts and
other general records relating to the income and expenses of the Properties,
operating budget, correspondence, surveys, plans and specifications, warranties
for services and materials provided to the Properties, engineering reports,
environmental audits and similar materials, but excluding materials not
directly related to the leasing, maintenance and/or management of the
Properties such as Seller's internal memoranda, financial projections,
appraisals, accounting and tax records and similar proprietary or confidential
information. Purchaser shall make all inspection requests in writing to Seller.
Each request shall include a list of information to be made available during
such inspection. Purchaser understands and agrees that any on-site inspections
of the Properties shall be conducted upon at least twenty-four (24) hours'
prior notice to Seller and in the presence of Seller or its representative. To
the extent reasonably possible, Seller agrees to cooperate with all of
Purchaser's requests for Property information within two (2) business days from
the receipt thereof, provided that Seller shall not be required to furnish any
information excluded specifically by the terms of this Agreement. Purchaser
agrees to repair and restore any damage to the Properties caused by any testing
conducted on the Properties by Purchaser. Purchaser shall return each of the
Properties to substantially the same condition as existed prior to its entry.
Purchaser agrees to indemnify against and hold Seller harmless from any claim
for liabilities, costs, expenses (including reasonable attorneys' fees actually
incurred) damages or injuries to the extent arising out of or resulting from
the inspection of the Properties by Purchaser or its agents, and
notwithstanding anything to the contrary in this Agreement, such obligation to
indemnify and hold harmless Seller shall survive Closing or any termination of
this Agreement. All inspections shall occur at reasonable times agreed upon by
Seller and Purchaser and shall be conducted so as not to interfere unreasonably
with use of any of the Properties by Seller or its tenants. Purchaser shall
advise Seller during the Inspection Period which of the Operating Agreements
Purchaser will assume at Closing (the "Assumed Operating Agreements") and
Seller shall terminate as of the Closing Date all such agreements which
Purchaser elects not to assume.
3.2 Right of Termination. Seller agrees that in the event
Purchaser determines (such determination to be made in Purchaser's sole
discretion) to proceed with this transaction and purchase the Properties,
Purchaser shall make such election by delivering to Seller, prior to the
expiration of the Inspection Period written notice of its election, in which
event Purchaser shall no longer have any right to terminate this Agreement under
this Section 3.2. If Purchaser gives a notice of termination within the
Inspection Period or fails to deliver any notice within the Inspection Period,
this Agreement shall terminate. Time is of the essence with respect to the
provisions of this Section 3.2.
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<PAGE> 7
ARTICLE IV
CLOSING
4.1 Time and Place. The consummation of the transaction
contemplated hereby ("Closing") shall occur at 1:00 p.m. (CST) on December 30,
1997, through the use of an escrow account to be established by Seller with the
Title Company at its downtown Chicago office. At Closing, Seller and Purchaser
shall perform the obligations set forth in respectively, Section 4.2 and Section
4.3., the performance of which obligations shall be concurrent conditions.
4.2 Seller's Obligations at Closing. At Closing, Seller shall:
(a) deliver to Purchaser one or more duly executed special
warranty deeds (collectively the "Deed") in recordable form, conveying
the Willowbrook Land, the Itasca Land, the Bensenville #1 Land and
Bensenville #2 Land, and the Improvements thereon, subject only to the
Permitted Exceptions; the warranty of title in the Deed will be only as
to claims made by, through or under Seller and not otherwise;
(b) deliver to Purchaser one or more duly executed bills of
sale conveying the Personal Property without warranty of title or use
and without warranty, expressed or implied, as to merchantability and
fitness for any purpose;
(c) assign to Purchaser, and Purchaser shall assume, the
landlord/lessor interest in and to the Leases by one or more duly
executed assignment and assumption agreement pursuant to which (i)
Seller shall indemnify Purchaser and hold Purchaser harmless from and
against any and all claims pertaining to the Leases arising prior to
Closing and (ii) Purchaser shall indemnify Seller and hold Seller
harmless from and against any and all claims pertaining to the Leases
arising from and after the Closing, including without limitation,
claims made by tenants with respect to tenants' security deposits to
the extent paid, credited or assigned to Purchaser;
(d) to the extent assignable, assign to Purchaser, and
Purchaser shall assume, Seller's interest in the Assumed Operating
Agreements and the other Intangibles by duly executed assignment and
assumption agreement pursuant to which (i) Seller shall indemnify
Purchaser and hold Purchaser harmless from and against any and all
claims pertaining to the Assumed Operating Agreements or the other
Intangibles arising prior to Closing and (ii) Purchaser shall indemnify
Seller and hold Seller harmless from and against any and all claims
pertaining to the Assumed Operating Agreements or the other Intangibles
arising from and after the Closing;
(e) deliver to Purchaser such Tenant Estoppels (as defined in
Section 5.1(b) hereof) as are in Seller's possession or Seller's
Estoppels to the extent permitted and required under Section 5.1(b)
hereof;
(f) join with Purchaser to execute a notice in form and
content reasonably satisfactory to Purchaser and Seller which Purchaser
shall send to each tenant under each of the Leases informing such
tenant of the sale of the Property in question and of the assignment to
Purchaser of Seller's interest in, and obligations under, the Leases
(including, if applicable any security deposits)
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<PAGE> 8
and directing that all rent and other sums payable after the Closing
under each such Lease shall be paid as set forth in the notice;
(g) deliver to Purchaser such evidence as the Title Company
may reasonably require as to the authority of the person or persons
executing documents on behalf of Seller;
(h) deliver to Purchaser an affidavit duly executed by Seller
stating that Seller is not a "foreign person" as defined in the Federal
Foreign Investment in Real Property Tax Act of 1980 and the 1984 Tax
Reform Act;
(i) deliver to Purchaser the Leases, Operating Agreements and
licenses and permits, if any, in the possession of Seller or Seller's
agents, together with such leasing and property files and records which
are material in connection with the continued operation, leasing and
maintenance of the Properties. Purchaser shall cooperate with Seller
for a period of seven (7) years after Closing in case of Seller's need
in response to any legal requirement, a tax audit tax return
preparation or litigation threatened or brought against Seller, by
allowing Seller and its agents or representatives access, upon
reasonable advance notice (which notice shall identify the nature of
the information sought by Seller), at all reasonable times to examine
and make copies of any and all instruments files and records which
right shall survive the Closing;
(j) deliver to Purchaser possession and occupancy of the
Properties, subject to the Permitted Exceptions;
(k) deliver to Purchaser a Closing Statement executed by
Seller in form and substance approved by the parties hereto;
(l) A Bulk Sales Stop Order from the Illinois Department of
Revenue ("Department") under the provisions of the Illinois Income Tax
Act, 35 ILCS 5/902, and the Retailers Occupation Tax Act, 35 ILCS 120/5
(collectively "Acts") and, if available, a full release (the "Release")
of claims from the Department with respect to all debts owed by Seller
under the Acts effective for all periods prior to the Closing Date. If
the Release is not available, the amount to be withheld pursuant to the
Bulk Sales Stop Order shall be held in the escrow by the Title Company
until it receives the Release whereupon the Title Company shall pay to
Seller the entire amount withheld; provided, however, if the delivery
of the Release is subject to a demand for payment of all or a portion
of the amount withheld to the Department, Escrow Agent shall be
authorized and directed to pay such sums in accordance with the demand
and to pay the balance, if any, to Seller; and
(m) deliver such additional documents as shall be reasonably
required to consummate the transaction contemplated by this Agreement.
4.3 Purchaser's Obligations at Closing. At Closing, Purchaser
shall:
(a) pay to Seller the full amount of the Purchase Price as
increased or decreased by prorations and adjustments as herein
provided, in immediately available wire transferred funds pursuant to
Section 1.5 above;
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<PAGE> 9
(b) join Seller in execution of the instruments described in
Sections 4.2(c), 4.2(d), and 4.2(f) above;
(c) deliver to Seller such evidence as the Title Company may
reasonably require as to the authority of the person or persons
executing documents on behalf of Purchaser;
(d) deliver to Seller counterparts of the Closing Statement
described in Section 4.2(k) above, executed by Purchaser; and
(e) deliver such additional documents as shall be reasonably
required to consummate the transaction contemplated by this Agreement.
4.4 Credits and Prorations.
(a) The following shall be apportioned with respect to the
Properties as of 12:01 a.m., on January 1, 1998 (notwithstanding the
December 30 closing date) as if Purchaser were vested with title to the
Properties for the entire day on such date, and Seller were vested with
title the Properties during each of the days immediately preceding such
date:
(i) rents, if any, as and when collected (the term
"rents" as used in this Agreement includes all payments due
and payable by tenants under the Leases);
(ii) payments under the Assumed Operating Agreements;
(iii) gas, electricity and other utility charges for
which Seller is liable, if any, such charges to be apportioned
at Closing on the basis of the most recent meter reading
occurring prior to Closing; and
(iv) any other operating expenses or other items
(other than real estate taxes) pertaining to the Properties
which are customarily prorated between a purchaser and a
seller in the area in which the Properties are located.
(b) Notwithstanding anything contained in the foregoing
provisions:
(i) At Closing, Seller shall, at Seller's option, either
deliver to Purchaser any security deposits actually held by
Seller pursuant to the Leases or credit to the account of
Purchaser the amount of such security deposits (to the extent
such security deposits are not applied against delinquent
rents or otherwise as provided in the Leases). Purchaser shall
be responsible for establishing all accounts with utility
companies serving the Properties and to provide any deposits
required by such companies in connection therewith. Any
refundable cash or other deposit currently held by such
utility companies that were deposited by Seller, its
predecessors or agents ("Seller's Deposits"), are with the
utility companies serving the Properties shall be the property
of Seller and Seller shall have the right to seek a refund
thereof. To the extent any utility company pays to Purchaser
any of Seller's Deposit, Purchaser shall immediately remit
such amount to Seller. This obligation of Purchaser shall
survive Closing.
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<PAGE> 10
(ii) Real estate taxes and similar ad valorem taxes
shall not be prorated.
(iii) Charges referred to in Section 4.4(a) above, if
any, which are payable by any tenant to a third party shall
not be apportioned hereunder, and Purchaser shall accept title
subject to any of such charges unpaid and Purchaser shall look
solely to the tenant responsible therefor for the payment of
the same. If Seller shall have paid any of such charges on
behalf of any tenant, and shall not have been reimbursed
therefor by the time of Closing, Purchaser shall pay to Seller
such amounts as they are collected subsequent to Closing.
(iv) Seller shall receive the entire advantage of any
discounts for the prepayment by it of any water rates or sewer
rents.
(v) As to gas, electricity and other utility charges
referred to Section 4.4(a)(iv) above, Seller may on notice to
Purchaser elect to pay one or more of all of said items
accrued to the date hereinabove fixed for apportionment
directly to the person or entity entitled thereto, and to the
extent Seller so elects, such item shall not be apportioned
hereunder, and Seller's obligation to pay such item directly
in such case shall survive the Closing.
(vi) The Personal Property, if any, is included in this
sale, without further charge.
(vii) Purchaser shall be responsible for the payment
of (A) all Tenant Inducement Costs (as hereinafter defined)
expressly contained in the applicable lease and leasing
commissions pursuant to agreements disclosed in writing to
Purchaser on or before the Closing Date which become due and
payable (whether before or after Closing) (1) as a result of
any renewals or expansions of existing Leases, approved or
deemed approved in accordance with Section 5.1 hereof, between
the Effective Date and the date of Closing, and (2) under any
new Leases, approved or deemed approved in accordance with
Section 5.1 hereof, entered into between the Effective Date
and the date of Closing, and (B) all Tenant Inducement Costs
and leasing commissions which become due and payable from and
after the date of Closing as a result of any agreements
entered into by Purchaser to pay such costs or commissions.
If, as of the date of Closing, Seller shall have paid any
Tenant Inducement Costs or leasing commissions for which
Purchaser is responsible pursuant to the foregoing provisions,
Purchaser shall reimburse Seller therefor at Closing. For
purposes hereof, the term "Tenant Inducement Costs" shall mean
any out-of-pocket payments required under a Lease to be paid
by the landlord thereunder to or for the benefit of the tenant
thereunder which is in the nature of a tenant inducement,
including specifically, without limitation, tenant improvement
costs, lease buyout costs, and moving, design, refurbishment
and club membership allowances. The term "Tenant Inducement
Costs" shall not include loss of income resulting from any
free rental period, it being agreed that Seller shall bear the
loss resulting from any free rental period until the date of
Closing and that Purchaser shall bear such loss from and after
the date of Closing. Notwithstanding anything to the contrary
contained in this Agreement, all Tenant Inducement costs with
respect to which Purchaser agrees to pay or reimburse Seller
are listed on Exhibit F attached hereto.
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(viii) Unpaid and delinquent rent collected by Seller
and Purchaser after the date of Closing shall be delivered as
follows: (a) if Seller collects any unpaid or delinquent rent
for any of the Properties, Seller shall, within fifteen (15)
days after the receipt thereof, deliver to Purchaser any such
rent which Purchaser is entitled to hereunder relating to the
date of Closing and any period thereafter, and (b) if
Purchaser collects any unpaid or delinquent rent from any of
the Properties, Purchaser shall, within fifteen (15) days
after the receipt thereof, deliver to Seller any such rent
which Seller is entitled to hereunder relating to the period
prior to the date of Closing. Seller and Purchaser agree that
all rent received by Seller or Purchaser after the date of
Closing shall be applied first to current rentals, and then to
delinquent rentals, if any, in the order of their maturity.
Purchaser will make a good faith effort after Closing to
collect all rents in the usual course of Purchaser's operation
of the Properties, but Purchaser will not be obligated to
institute any lawsuit or other collection procedures to
collect delinquent rents. Where the Leases contain tenant
obligations for taxes, common area expenses, operating
expenses or additional charges of any other nature, and where
Seller shall have collected any portion thereof in excess of
amounts owed by Seller for such items for the period prior to
the Closing Date, then, to the extent such amounts can be
ascertained as of the Closing Date, there shall be an
adjustment and credit given to Purchaser on the Closing Date
for such excess amounts collected. Purchaser shall apply all
such excess amounts to the charges owed by Purchaser for such
items for the period after the Closing Date and, if required
by the Leases, shall rebate or credit the Tenants with any
remainder. If expenses actually paid by Seller for such items
during such period exceed the amounts actually collected by
Seller which are attributable to such items, Purchaser shall
pay to Seller an amount equal to such deficiency as and when
such amounts are collected by Purchaser from the applicable
tenants. If it is determined that the amount collected during
Seller's ownership period exceeded expenses incurred during
the same period by more than the amount previously credited to
Purchaser at Closing, then Seller shall promptly pay to
Purchaser the deficiency. If it is determined that the amount
collected during Seller's ownership period exceeded expenses
incurred during the same period by less than the amount
previously credited to Purchaser at Closing, then Purchaser
shall promptly pay to Seller the difference.
(ix) Seller and Purchaser shall jointly prepare a
preliminary Closing adjustment on the basis of the Leases and
other sources of income and expenses, and shall deliver such
computation to the Title Company prior to Closing.
(x) If any of the aforesaid prorations cannot be
calculated accurately on the Closing Date, then they shall be
calculated as soon after the Closing Date as feasible. Either
party owing the other party a sum of money based on such
subsequent proration(s) shall promptly pay said sum to the
other party, together with interest thereon at the rate of two
percent (2%) over the average "prime rate" (as announced from
time to time in the Wall Street Journal) per annum from the
Closing Date to the date of payment if payment is not made
within ten (10) days after delivery of a bill therefor.
(c) The provisions of this Section 4.4 shall survive Closing.
4.5 Closing Costs. Seller shall pay (a) the fees of any counsel
representing it in connection with this transaction; (b) the fee for the Title
Commitment; and (c) the cost of the Surveys. Purchaser shall pay
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(v) the fees of any counsel representing Purchaser in connection with this
transaction; (w) any local, county or state deed or transfer tax or similar tax
which becomes payable by reason of the transfer of the Properties; (x) the
premium for the Owner's Policy of Title Insurance to be issued to Purchaser by
the Title Company at Closing; (y) the fees for recording the deed(s) conveying
the Properties to Purchaser; and (z) all other costs and expenses incident to
this transaction and the closing thereof.
4.6 Conditions Precedent to Obligation of Purchaser. The
obligation of Purchaser to consummate the transaction hereunder shall be subject
to the fulfillment on or before the date of Closing of all of the following
conditions any or all of which may be waived by Purchaser in writing in its sole
discretion:
(a) Seller shall have delivered to Purchaser all of the items
required to be delivered to Purchaser pursuant to the terms of this
Agreement, including but not limited to, those provided for in Section
4.2.
(b) All of the representations and warranties of Seller
contained in this Agreement shall be true and correct in all material
respects as of the date of Closing (with appropriate modifications
permitted under this Agreement or not adverse to Purchaser).
(c) Seller shall have performed and observed, in all material
respects, all covenants and agreements of this Agreement to be
performed and observed by Seller as of the date of Closing.
(d) Seller shall have obtained and delivered to Purchaser a
tenant estoppel certificate in form and substance satisfactory to
Purchaser from each of the tenants under the Leases (the "Tenants");
provided, that this condition may be satisfied by Seller's delivery of
a Seller's estoppel certificate in the form prescribed hereby for any
Tenant (and provided that in the event that any Tenant Estoppel
delivered to and accepted by Purchaser with respect to any Lease shall
contain any statement of fact, information or other matter which is
inconsistent with the matters stated in Seller's representations in
this Agreement, the Tenant Estoppel shall control and Seller shall have
no liability for any claim based upon a breach of representation
regarding such statement of fact, information or other matter contained
in the Tenant Estoppel). Said certificates shall be substantially in
the form attached hereto as Exhibit D or D-1, as applicable (as
modified to address specific concerns arising as a result of
Purchaser's review of the Leases) and shall be dated no earlier than
thirty (30) days prior to the Closing Date.
(e) The physical condition of each of the Properties shall be
substantially the same on the day of Closing as of the last day of the
Inspection Period, reasonable wear and tear and loss by casualty
excepted (subject to the provisions of Article VII below), and, as of
the day of Closing, there shall be no litigation or administrative
agency or other governmental proceeding of any kind whatsoever, pending
or threatened, which after Closing would, in Purchaser's reasonable
discretion, materially adversely affect the value of the Properties or
the ability of Purchaser to operate the Properties in the manner in
which it is currently being operated, and no proceedings shall be
pending or threatened which could or would cause the redesignation or
other modification of the zoning classification of, or of any building
or environmental code requirements applicable to, any of the
Properties.
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4.7 Conditions Precedent to Obligation of Seller. The obligation
of Seller to consummate the transaction hereunder shall be subject to the
fulfillment on or before the date of Closing of all of the following conditions,
any or all of which may be waived by Seller in its sole discretion:
(a) Seller shall have received the Purchase Price as adjusted
pursuant to and payable in the manner provided for in this Agreement.
(b) Purchaser shall have delivered to Seller all of the items
required to be delivered to Seller pursuant to the terms of this
Agreement, including but not limited to, those provided for in Section
4.3.
(c) All of the representations and warranties of Purchaser
contained in this Agreement shall be true and correct in all material
respects as of the date of Closing.
(d) Purchaser shall have performed and observed, in all
material respects, all covenants and agreements of this Agreement to be
performed and observed by Purchaser as of the date of Closing.
ARTICLE V
SELLER AND PURCHASER COVENANTS
5.1 Covenants of Seller. Seller hereby covenants with Purchaser
as follows:
(a) From the Effective Date hereof until the Closing or
earlier termination of this Agreement, Seller shall use reasonable
efforts to operate and maintain the Properties in a manner generally
consistent with the manner in which Seller has operated and maintained
the Properties prior to the date hereof.
(b) Seller shall use reasonable efforts (but without
obligation to incur any cost or expense) to obtain and deliver to
Purchaser prior to Closing, a written estoppel certificate in the form
of Exhibit D attached hereto and made a part hereof signed by each
tenant occupying space in any of the Properties. The signed
certificates are referred to herein as the "Tenant Estoppels".
(c) A copy of any renewal or expansion of an existing Lease or
of any new Lease which Seller wishes to execute between the Effective
Date and the date of Closing will be submitted to Purchaser prior to
execution by Seller. Purchaser agrees to notify Seller in writing
within five (5) business days after its receipt thereof of either its
approval or disapproval, including all Tenant Inducement Costs and
leasing commissions to be incurred in connection therewith. In the
event Purchaser informs Seller that Purchaser does not approve the
renewal or expansion of the existing Lease or the new Lease, which
approval shall not be unreasonably withheld, Seller shall have the
option to cancel this Agreement by written notice thereof to Purchaser
within five (5) business days after Seller's receipt of written notice
of Purchaser's disapproval thereof, and neither party shall have any
further liability or obligation hereunder. In the event Purchaser fails
to notify Seller in writing of its approval or disapproval within the
five (5) day time period for such purpose set forth above, such failure
shall be deemed the disapproval by Purchaser. At Closing, Purchaser
shall reimburse
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Seller for any Tenant Inducement Costs and leasing commissions incurred
by Seller pursuant to a renewal, an expansion or any new Lease approved
by Purchaser.
5.2 Covenants of Purchaser. Purchaser hereby covenants with
Seller that Purchaser shall, in connection with its investigation of the
Properties during the Inspection Period, inspect the Properties for the
presence of Hazardous Substances, and shall furnish to Seller copies of any
reports received by Purchaser in connection with any such inspection. Purchaser
shall also furnish to Seller copies of any other reports received by Purchaser
relating to any other inspections of the Properties conducted on Purchaser's
behalf, if any (including, specifically, without limitation, any reports
analyzing compliance of the Properties with the provisions of the Americans
with Disabilities Act ("ADA"), 42 U.S.C. ss.12101, et seq., if applicable). Any
reports furnished by Purchaser to Seller shall be furnished without warranty of
any kind whatsoever and shall exclude any attorney-client privileged materials.
ARTICLE VI
DEFAULT
6.1 Default by Purchaser. If Purchaser defaults under this
Agreement, Seller's sole and exclusive remedy shall be to terminate this
Agreement by giving written notice thereof to Purchaser, whereupon the Earnest
Money shall be paid to Seller as liquidated damages, as Seller's sole and
exclusive remedy on account of such default hereunder by Purchaser. The parties
acknowledge and agree that actual damages in such event are uncertain in amount
and difficult to ascertain and that said amount of liquidated damages was
reasonably determined.
6.2 Default by Seller. In the event that Seller fails to
consummate this Agreement for any reason other than Purchaser's default or the
permitted termination of this Agreement by Seller or Purchaser as herein
expressly provided, Purchaser shall be entitled, as its sole remedy, either (a)
to terminate this Agreement, or (b) to enforce specific performance of Seller's
obligation to execute the documents required to convey the Properties to
Purchaser, it being understood and agreed that the remedy of specific
performance shall not be available to enforce any other obligation of Seller
hereunder. Purchaser expressly waives its rights to seek damages in the event of
Seller's default hereunder. Purchaser shall be deemed to have elected to
terminate this Agreement if Purchaser fails to file suit for specific
performance against Seller in a court having jurisdiction in the county and
state in which the Properties are located, on or before sixty (60) days
following the date upon which Closing was to have occurred.
ARTICLE VII
RISK OF LOSS
7.1 Minor Damage. In the event of loss or damage to the
Properties or any portion thereof which is not "major" (as hereinafter
defined), this Agreement shall remain in full force and effect provided Seller
performs any necessary repairs or, at Seller's option, assigns to Purchaser all
of Seller's right, title and interest to any claims and proceeds Seller may
have with respect to any casualty insurance policies or condemnation awards
relating to the premises in question. In the event that Seller elects to
perform repairs upon the Property, Seller shall use reasonable efforts to
complete such repairs promptly and the date of
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Closing shall be extended a reasonable time in order to allow for the completion
of such repairs. If Seller elects to assign a casualty claim to Purchaser, the
Purchase Price shall be reduced by an amount equal to the deductible amount
under Seller's insurance policy. Upon Closing, full risk of loss with respect to
the Properties shall pass to Purchaser.
7.2 Major Damage. In the event of a "major" loss or damage, either
Seller or Purchaser may terminate this Agreement by written notice to the other
party. If neither Seller nor Purchaser elects to terminate this Agreement within
ten (10) days after Seller sends Purchaser written notice of the occurrence of
major loss or damage, then Seller and Purchaser shall be deemed to have elected
to proceed with Closing, in which event Seller shall, at Seller's option, either
(a) perform any necessary repairs, or (b) assign to Purchaser all of Seller's
right, title and interest to any claims and proceeds Seller may have with
respect to any casualty insurance policies or condemnation awards relating to
the premises in question. In the event that Seller elects to perform repairs
upon the Property, Seller shall use reasonable efforts to complete such repairs
promptly and the date of Closing shall be extended a reasonable time in order to
allow for the completion of such repairs. If Seller elects to assign a casualty
claim to Purchaser, the Purchase Price shall be reduced by an amount equal to
the deductible amount under Seller's insurance policy. Upon Closing, full risk
of loss with respect to the Properties shall pass to Purchaser.
7.3 Definition of "Major" Loss or Damage. For purposes of
Sections 7.1 and 7.2, "major" loss or damage refers to the following: (i) loss
or damage to the Property or any portion thereof such that the cost of
repairing or restoring the premises in question to a condition substantially
identical to that of the premises in question prior to the event of damage
would be, in the opinion of an architect selected by Seller and reasonably
approved by Purchaser, equal to or greater than One Hundred Thousand Dollars
($100,000), and (ii) any loss due to a condemnation. If Purchaser does not give
notice to Seller of Purchaser's reasons for disapproving an architect within
five (5) business days after receipt of notice of the proposed architect,
Purchaser shall be deemed to have approved the architect selected by Seller.
ARTICLE VIII
COMMISSIONS
8.1 Brokerage Commissions. In the event the transaction
contemplated by this Agreement is consummated, but not otherwise, Seller agrees
to pay to Bennett & Kahnweiler (the "Broker") at Closing a brokerage commission
pursuant to a separate written agreement between Seller and Broker. Each party
agrees that should any claim be made for brokerage commissions or finder's fees
by any broker or finder other than the Broker by, through or on account of any
acts of said party or its representatives, said party will indemnify and hold
the other party free and harmless from and against any and all loss, liability,
cost, damage and expense in connection therewith. The provisions of this
paragraph shall survive Closing.
ARTICLE IX
DISCLAIMERS AND WAIVERS
9.1 No Reliance on Documents. Except as expressly stated in this
Agreement, Seller makes no representation or warranty as to the truth, accuracy
or completeness of any materials, data or information
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delivered by Seller to Purchaser in connection with the transaction contemplated
hereby. Purchaser acknowledges and agrees that all materials, data and
information delivered by Seller to Purchaser in connection with the transaction
contemplated hereby are provided to Purchaser as a convenience only and that any
reliance on or use of such materials, data or information by Purchaser shall be
at the sole risk of Purchaser, except as otherwise expressly stated herein.
Without limiting the generality of the foregoing provisions, Purchaser
acknowledges and agrees that (a) any environmental or other report with respect
to the Properties which is delivered by Seller to Purchaser shall be for general
informational purposes only, (b) Purchaser shall not have any right to rely on
any such report delivered by Seller to Purchaser, but rather will rely on its
own inspections and investigations of the Properties and any reports
commissioned by Purchaser with respect thereto, and (c) neither Seller, any
affiliate of Seller nor the person or entity which prepared any such report
delivered by Seller to Purchaser shall have any liability to Purchaser for any
inaccuracy in or omission from any such report.
9.2 DISCLAIMERS. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT,
IT IS UNDERSTOOD AND AGREED THAT SELLER IS NOT MAKING AND HAS NOT AT ANY TIME
MADE ANY WARRANTIES OR REPRESENTATIONS OF ANY KIND OR CHARACTER, EXPRESSED OR
IMPLIED, WITH RESPECT TO THE PROPERTIES, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTIES OR REPRESENTATIONS AS TO HABITABILITY, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, TITLE (OTHER THAN SELLER'S LIMITED WARRANTY OF TITLE TO BE
SET FORTH IN THE DEED), ZONING, TAX CONSEQUENCES, LATENT OR PATENT PHYSICAL OR
ENVIRONMENTAL CONDITION, UTILITIES, OPERATING HISTORY OR PROJECTIONS, VALUATION,
GOVERNMENTAL APPROVALS, THE COMPLIANCE OF THE PROPERTIES WITH GOVERNMENTAL LAWS,
THE TRUTH, ACCURACY OR COMPLETENESS OF THE PROPERTIES DOCUMENTS OR ANY OTHER
INFORMATION PROVIDED BY OR ON BEHALF OF SELLER TO PURCHASER, OR ANY OTHER MATTER
OR THING REGARDING THE PROPERTIES. PURCHASER ACKNOWLEDGES AND AGREES THAT UPON
CLOSING SELLER SHALL SELL AND CONVEY TO PURCHASER AND PURCHASER SHALL ACCEPT THE
PROPERTIES "AS IS, WHERE IS, WITH ALL FAULTS". EXCEPT TO THE EXTENT EXPRESSLY
PROVIDED OTHERWISE IN THIS AGREEMENT, PURCHASER HAS NOT RELIED AND WILL NOT RELY
ON, AND SELLER IS NOT LIABLE FOR OR BOUND BY, ANY EXPRESSED OR IMPLIED
WARRANTIES, GUARANTIES, STATEMENTS, REPRESENTATIONS OR INFORMATION PERTAINING TO
THE PROPERTIES OR RELATING THERETO (INCLUDING SPECIFICALLY, WITHOUT LIMITATION,
PROPERTY INFORMATION PACKAGES DISTRIBUTED WITH RESPECT TO THE PROPERTIES) MADE
OR FURNISHED BY SELLER, THE MANAGER OF THE PROPERTIES, OR ANY REAL ESTATE BROKER
OR AGENT REPRESENTING OR PURPORTING TO REPRESENT SELLER, TO WHOMEVER MADE OR
GIVEN, DIRECTLY OR INDIRECTLY, ORALLY OR IN WRITING, UNLESS SPECIFICALLY SET
FORTH IN THIS AGREEMENT. PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS
CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE
PROPERTIES, INCLUDING BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL
CONDITIONS THEREOF, AS PURCHASER DEEMS NECESSARY TO SATISFY ITSELF AS TO THE
CONDITION OF THE PROPERTIES AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION
TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED
FROM THE PROPERTIES, AND WILL RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION
PROVIDED BY OR ON BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT
THERETO, OTHER THAN SUCH REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AS
ARE EXPRESSLY SET FORTH IN THIS AGREEMENT. UPON CLOSING, EXCEPT TO THE EXTENT OF
ANY BREACH BY SELLER OF THE REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION
11.01 BELOW, AND EXCEPT WITH RESPECT TO ANY CLAIMS FOR DAMAGES, REMEDIATION,
CONTRIBUTION OR INDEMNITY BY THIRD PARTIES, INCLUDING WITHOUT LIMITATION
GOVERNMENTAL AUTHORITIES, RELATING TO THE PROPERTIES AND SELLER'S PERIOD OF
OWNERSHIP THEREOF, PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS,
INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND
ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER'S
INVESTIGATIONS, AND PURCHASER, UPON CLOSING, SHALL BE DEEMED TO HAVE WAIVED,
RELINQUISHED AND RELEASED SELLER (AND SELLER'S OFFICERS, DIRECTORS,
SHAREHOLDERS, EMPLOYEES AND AGENTS) FROM AND AGAINST ANY AND ALL CLAIMS,
DEMANDS, CAUSES OF ACTION (INCLUDING CAUSES OF ACTION IN TORT), LOSSES, DAMAGES,
LIABILITIES, COSTS AND EXPENSES (INCLUDING ATTORNEYS' FEES AND COURT COSTS) OF
ANY AND EVERY KIND OR CHARACTER, KNOWN OR UNKNOWN, WHICH PURCHASER MIGHT HAVE
ASSERTED OR ALLEGED AGAINST SELLER (AND SELLER'S OFFICERS, DIRECTORS,
SHAREHOLDERS, EMPLOYEES AND AGENTS) AT ANY TIME BY REASON OF OR ARISING OUT OF
ANY LATENT OR PATENT CONSTRUCTION DEFECTS OR PHYSICAL CONDITIONS, VIOLATIONS OF
ANY APPLICABLE LAWS (INCLUDING, WITHOUT LIMITATION, ANY ENVIRONMENTAL LAWS) AND
ANY AND ALL OTHER ACTS, OMISSIONS, EVENTS, CIRCUMSTANCES OR MATTERS REGARDING
THE PROPERTIES. EXCEPT TO THE EXTENT OF ANY BREACH
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BY SELLER OF THE REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 11.01
BELOW, AND EXCEPT WITH RESPECT TO ANY CLAIMS FOR DAMAGES, REMEDIATION,
CONTRIBUTION OR INDEMNITY BY THIRD PARTIES, INCLUDING WITHOUT LIMITATION
GOVERNMENTAL AUTHORITIES, RELATING TO THE PROPERTIES AND SELLER'S PERIOD OF
OWNERSHIP THEREOF, PURCHASER AGREES THAT SHOULD ANY CLEANUP, REMEDIATION OR
REMOVAL OF HAZARDOUS SUBSTANCES OR OTHER ENVIRONMENTAL CONDITIONS ON THE
PROPERTIES BE REQUIRED AFTER THE DATE OF CLOSING, SUCH CLEAN-UP, REMOVAL OR
REMEDIATION SHALL BE THE RESPONSIBILITY OF AND SHALL BE PERFORMED AT THE SOLE
COST AND EXPENSE OF PURCHASER.
9.3 Effect and Survival of Disclaimers. Seller and Purchaser
acknowledge that the compensation to be paid to Seller for the Properties has
been calculated and determined taking into account the existing condition of the
Properties, including without limitation any condition disclosed in that Roofing
Investigation Report prepared by Reiner Pligge and the Phase I environmental
assessment prepared by RERC Environmental, and that the Properties are being
sold subject to the provisions of this Article IX. Seller and Purchaser agree
that the provisions of this Article IX shall survive Closing.
ARTICLE X
MISCELLANEOUS
10.1 Confidentiality. Purchaser and its representatives shall hold
in strictest confidence all data and information obtained with respect to Seller
or its business, whether obtained before or after the execution and delivery of
this Agreement, and shall not disclose the same to others; provided, however,
that it is understood and agreed that Purchaser may disclose such data and
information to (i) the employees, consultants, accountants and attorneys of
Purchaser provided that such persons agree to treat such data and information
confidentially or (ii) as required by law or any court having jurisdiction. In
the event this
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Agreement is terminated or Purchaser fails to perform hereunder, Purchaser shall
promptly return to Seller any statements, documents, schedules, exhibits or
other written information obtained from Seller in connection with this Agreement
or the transaction contemplated herein. It is understood and agreed that, with
respect to any provision of this Agreement which refers to the termination of
this Agreement, Purchaser shall fulfill its obligation to return to Seller the
materials described in the preceding sentence which were delivered to Purchaser
by Seller. In the event of a breach or threatened breach by Purchaser or its
agents or representatives of this Section 10.1, Seller shall be entitled to an
injunction restraining Purchaser or its agents or representatives from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Seller from pursuing any other available
remedy at law or in equity for such breach or threatened breach.
10.2 Public Disclosure. Prior to Closing, any release to the
public of information with respect to the sale contemplated herein or any
matters set forth in this Agreement will be made only in the form approved by
Purchaser and Seller and their respective counsel.
10.3 Discharge of Obligations. The acceptance of the Deed by
Purchaser shall be deemed to be a full performance and discharge of every
representation and warranty made by Seller herein and every agreement and
obligation on the part of Seller to be performed pursuant to the provisions of
this Agreement, except those which are herein specifically stated to survive
Closing.
10.4 Assignment. Purchaser may not assign its rights under this
Agreement without first obtaining Seller's written approval, which approval may
be given or withheld in Seller's reasonable discretion. Under no circumstances
shall Purchaser have the right to assign this Agreement to any person or entity
owned or controlled by an employee benefit plan if Seller's sale of the
Properties to such person or entity would, in the reasonable opinion of Seller's
ERISA advisor, create or otherwise cause a "prohibited transaction" under ERISA.
In the event Purchaser assigns this Agreement or transfers any ownership
interest in Purchaser without the consent of Seller, and such assignment or
transfer would make the consummation of the transaction hereunder a "prohibited
transaction" under ERISA and necessitate the termination of this Agreement then,
notwithstanding any contrary provision which may be contained herein, Seller
shall have the right to pursue any remedy available at law or in equity as a
result of such assignment or transfer. Any transfer, directly or indirectly, of
any stock, partnership interest or other ownership interest in Purchaser without
Seller's written approval, which approval may be given or withheld in Seller's
reasonable discretion, shall constitute a default by Purchaser under this
Agreement.
10.5 Notices. Any notice pursuant to this Agreement shall be given
in writing by (a) personal delivery, or (b) reputable overnight delivery service
with proof of delivery, or (c) United States Mail, postage prepaid, registered
or certified mail, return receipt requested, or (d) legible facsimile
transmission sent to the intended addressee at the address set forth below, or
to such other address or to the attention of such other person as the addressee
shall have designated by written notice sent in accordance herewith, and shall
be deemed to have been given either at the time of personal delivery, or, in the
case of expedited delivery service or mail, as of the date of first attempted
delivery at the address and in the manner provided herein, or, in the case of
facsimile transmission, as of the date of the facsimile transmission provided
that an original of such facsimile is also sent to the intended addressee by
means described in clauses (a), (b) or (c) above. Unless changed in accordance
with the preceding sentence, the addresses for notices given pursuant to this
Agreement shall be as follows:
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If to Seller: EML Associates
c/o ERE Yarmouth
455 North Cityfront Plaza Drive
Suite 3200
Chicago, Illinois 60611
Attn: Mr. Michael A. Lunder
TELECOPY: (312) 527-5172
with a copy to: Mayer, Brown & Platt
Attn: Messrs. Alvin Charles Katz and
Lane W. Vanderslice
190 South LaSalle Street
Chicago, Illinois 60661-2511
TELECOPY: (312) 701-7711
If to Purchaser: AMB Institutional Realty
Advisors, Inc.
Attn: Mohammed Barzegar
505 Montgomery Street
San Francisco, California 94111
TELECOPY: (415) 394-9001
with a copy to: Morrison & Foerster
Attn: Philip J. Levine, Esq.
755 Page Mill Road
Palo Alto, California 94304-1018
TELECOPY: (650) 494-0792
10.6 Binding Effect. This Agreement shall not be binding in any
way upon Seller or Purchaser unless and until Seller and Purchaser shall each
execute and deliver the same to the other.
10.7 Modifications. This Agreement cannot be changed orally, and no
executory agreement shall be effective to waive, change, modify or discharge it
in whole or in part unless such executory agreement is in writing and is signed
by the parties against whom enforcement of any waiver, change, modification or
discharge is sought.
10.8 Tenant Notification Letters. Purchaser and Seller shall
deliver to each and every tenant of the Properties under a Lease thereof a
signed statement acknowledging Purchaser's receipt and responsibility for each
tenant's security deposit (to the extent delivered by Seller to Purchaser at
Closing), if any, all in compliance with and pursuant to the applicable
provisions of applicable law. The provisions of this paragraph shall survive
Closing.
10.9 Calculation of Time Periods. Unless otherwise specified, in
computing any period of time described in this Agreement, the day of the act or
event after which the designated period of time begins to run is not to be
included and the last day of the period so computed is to be included, unless
such last day is a Saturday, Sunday or legal holiday under the laws of the State
in which the Properties are located, in
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which event the period shall run until the end of the next day which is neither
a Saturday, Sunday or legal holiday. The final day of any such period shall be
deemed to end at 5 p.m., local time.
10.10 Successors and Assigns. The terms and provisions of this
Agreement are to apply to and bind the permitted successors and assigns of the
parties hereto.
10.11 Entire Agreement. This Agreement, including the Exhibits,
contains the entire agreement between the parties pertaining to the subject
matter hereof and fully supersedes all prior written or oral agreements and
understandings between the parties pertaining to such subject matter.
10.12 Further Assurances. Each party agrees that it will without
further consideration execute and deliver such other documents and take such
other action, whether prior or subsequent to Closing, as may be reasonably
requested by the other party to consummate more effectively the purposes or
subject matter of this Agreement. Without limiting the generality of the
foregoing, Purchaser shall, if requested by Seller, execute acknowledgments of
receipt with respect to any materials delivered by Seller to Purchaser with
respect to the Properties. The provisions of this Section 10.12 shall survive
Closing.
10.13 Counterparts. This Agreement may be executed in counterparts,
and all such executed counterparts shall constitute the same agreement. It shall
be necessary to account for only one such counterpart in proving this Agreement.
10.14 Severability. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
the remainder of this Agreement shall nonetheless remain in full force and
effect.
10.15 Applicable Law. This Agreement is performable in the state in
which the Properties are located and shall in all respects be governed by, and
construed in accordance with, the substantive federal laws of the United States
and the laws of such state. Seller and Purchaser hereby irrevocably submit to
the jurisdiction of any state or federal court sitting in the state in which the
Properties are located in any action or proceeding arising out of or relating to
this Agreement and hereby irrevocably agree that all claims in respect of such
action or proceeding shall be heard and determined in a state or federal court
sitting in the state in which the Properties are located. Purchaser and Seller
agree that the provisions of this section 10.15 shall survive the Closing of the
transaction contemplated by this Agreement.
10.16 No Third Party Beneficiaries. The provisions of this Agreement
and of the documents to be executed and delivered at Closing are and will be for
the benefit of Seller and Purchaser only and are not for the benefit of any
third party, and accordingly, no third party shall have the right to enforce the
provisions of this Agreement or of the documents to be executed and delivered at
Closing.
10.17 Exhibits and Schedules. The following schedules or exhibits
attached hereto shall be deemed to be an integral part of this Agreement:
(a) Exhibit A-1 through A-4 - Legal Descriptions of the Land
(b) Exhibit B-1 through B-4 - Lease Schedules
(c) Exhibit C-1 through C4 - Operating Agreements Schedules
-19-
<PAGE> 21
(d) Exhibits D and D-1 - Tenant Estoppel Form/Seller
Estoppel Form
(e) Exhibit E - Seller Environmental Assessment Reports
(f) Exhibit F - Tenant Inducement Costs Schedule
10.18 Captions. The section headings appearing in this Agreement are
for convenience of reference only and are not intended, to any extent and for
any purpose, to limit or define the text of any section or any subsection
hereof.
10.19 Construction. The parties acknowledge that the parties and
their counsel have reviewed and revised this Agreement and that the normal rule
of construction to the effect that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of this Agreement
or any exhibits or amendments hereto.
10.20 Termination of Agreement. It is understood and agreed that if
either Purchaser or Seller terminates this Agreement pursuant to a right of
termination granted hereunder, such termination shall operate to relieve Seller
and Purchaser from all obligations under this Agreement, except for such
obligations as are officially stated herein to survive the termination of this
Agreement.
10.21 Survival. The provisions of the following Sections of this
Agreement shall survive Closing and shall not be merged into the execution and
delivery of the Deed: 3.1; 4.2(i); 4.4; 8.1; 9.3; 10.8; 10.12; 10.15; 10.22;
Sections 11.1 and 11.2 (except that all provisions thereof other than
subparagraph 11.1(m) shall only survive for a period not to exceed twelve months
following the Closing, and subparagraph 11.01(m) shall not be subject to such
12-month limitation); and Article XII.
10.22 Enforcement. If either party hereto fails to perform any of
its obligations under this Agreement or if a dispute arises between the parties
hereto concerning the meaning or interpretation of any provision of this
Agreement, then the defaulting party or the party not prevailing in such dispute
shall pay any and all costs and expenses incurred by the other party on account
of such default and/or in enforcing or establishing its rights hereunder,
including, without limitation, court costs and reasonable attorneys' fees and
disbursements. Any such attorneys' fees and other expenses incurred by either
party in enforcing a judgment in its favor under this Agreement shall be
recoverable separately from and in addition to any other amount included in such
judgment, and such attorneys' fees obligation is intended to be severable from
the other provisions of this Agreement and to survive and not be merged into any
such judgment.
10.23 Marketing. Seller agrees not to market or show the Properties
to any other prospective purchasers during the term of this Agreement.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
11.1 Representations and Warranties of Seller. Seller hereby
represents and warrants to and covenants with Purchaser as follows:
-20-
<PAGE> 22
(a) To Seller's knowledge, Seller has received no written notices
that either the Properties or the use thereof violates any laws, rules and
regulations of any federal, state, city or county government or any agency,
body, or subdivision thereof having any jurisdiction over the Properties that
have not been resolved to the satisfaction to the issuer of the notice.
(b) To Seller's knowledge, Seller has made available to Purchaser
all documents, books, records and any other materials relating to or concerning
the Properties which Seller has in its possession or are in the possession of
Seller's property manager or leasing agent. To Seller's knowledge, there are no
material agreements concerning the Properties which are not in the possession of
Seller, its property manager or its leasing agent. The copies of the Assumed
Operating Agreements delivered to Purchaser by Seller are true, correct and
complete copies of such documents, and to Seller's knowledge the Assumed
Operating Agreements are without default by (or notice of default to) any party.
To Seller's knowledge, Seller has delivered or caused to be delivered no written
notices of default to any tenant of the Properties which are outstanding and
remain uncured as of the date of execution hereof (and as of the Closing Date),
and Seller has received no written notices from any tenant of any default by
Seller under any lease affecting the Properties which Seller has not heretofore
cured or will not have cured prior to Closing.
(c) To Seller's knowledge, there are no condemnation,
environmental, zoning or other land-use regulation proceedings, either
instituted or, to Seller's knowledge, planned to be instituted, which would
detrimentally affect the use, operation or value of the Properties, nor has
Seller received notice of any special assessment proceedings affecting the
Properties. Seller shall notify Purchaser promptly of any such proceedings of
which Seller becomes aware.
(d) To Seller's knowledge, there is no litigation pending or
threatened that might detrimentally affect the value or the use or operation of
the Properties for its intended purpose or the ability of Seller to perform its
obligations under this Agreement. Seller shall notify Purchaser promptly of any
such litigation of which Seller becomes aware.
(e) Seller is a general partnership duly organized, validly
existing under the laws of the State of New York; this Agreement and all
documents executed by Seller which are to be delivered to Purchaser at the
Closing are and at the time of Closing will be duly authorized, executed and
delivered by Seller, are and at the time of Closing will be legal, valid and
binding obligations of Seller enforceable against Seller in accordance with
their respective terms, and do not and at the time of Closing will not violate
any provision of any agreement or judicial order to which Seller or the
Properties are subject.
(f) At the time of Closing there will be no outstanding contracts
made by Seller for any improvements to the Properties, which have not been fully
paid for and Seller shall cause to be discharged all mechanics' and
materialmen's liens arising from any labor or materials furnished to the
Properties prior to the time of Closing. To Seller's knowledge, Seller has
completed all tenant improvements, including punch-list items, with respect to
any tenant improvements constructed by Seller as landlord under the Leases on
the Properties.
(g) Seller is not a "foreign person" within the meaning of
Section 1445(f)(3) of the Code.
(h) Except as set forth in any environmental assessment reports in
Seller's possession and disclosed to Purchaser or as otherwise disclosed to
Purchaser (all of which are listed on Exhibit "E" attached hereto), to Seller's
knowledge Seller has received no written notification that any governmental or
-21-
<PAGE> 23
quasi-governmental authority has determined that there are any violations of
environmental statutes, ordinances or regulations affecting the Properties. For
the purposes hereof, "Hazardous Material" shall mean any substance, chemicals,
waste or other material which is listed, defined or otherwise identified as
"hazardous" or "toxic" under any federal, state, local or administrative agency
ordinance or law, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss.ss.6901 et seq. and the
Resource Conservation and Recovery Act, 52 U.S.C. ss.ss.6901 et seq., or any
regulation, order, rule or requirement adopted thereunder, as well as any
formaldehyde, urea, polychlorinated biphenyls, petroleum, petroleum product or
by-product, crude oil, natural gas, natural gas liquids, liquefied natural gas,
or synthetic gas usable for fuel or mixture thereof, radon, asbestos, and
"source," "special nuclear" and "by-product" material as defined in the Atomic
Energy Act of 1985, 42 U.S.C. ss.ss.3011 et seq.
(i) Except for any options, if any, granted to tenants to lease
additional space in the Properties as set forth in their respective leases,
Seller has not granted any option or right of first refusal or first opportunity
to any party to acquire any interest in any of the Properties.
(j) Neither Seller nor, to Seller's knowledge, any Tenant has
either filed or been the subject of any filing of a petition under the Federal
Bankruptcy Law or any federal or state insolvency laws or laws for composition
of indebtedness or for the reorganization of debtors.
(k) The Lease Schedules attached hereto as Exhibits B-1, B-2, B-3
and B-4 are true, correct and complete.
(l) To Seller's knowledge, no Tenant has indicated to Seller in
writing its intent to terminate its Leases prior to expiration of the term of
the Leases.
(m) No brokerage or similar fee is due or unpaid by Seller with
respect to the Leases. Except as disclosed on Exhibit E attached hereto, no
brokerage or similar fee shall be due or payable after the Closing in connection
with the Leases, including, without limitation, as a result of the exercise of,
without limitation, any renewal, extension or expansion options arising under
the Leases.
(n) There are no "facilities" at, on or under the Property which
are subject to reporting under Section 312 of the Federal Emergency Planning
Community Right-to-Know Act of 1986 and federal regulations promulgated
thereunder, and there are no underground storage tanks at, on or under the
Property which require notification under Section 9002 of the Solid Waste Solid
Disposal Act as now or hereafter amended (42 U.S.C. 6991). The Responsible
Property Transfer Act of 1988 (765 ILCS 90/1 et seq.) is not applicable to the
transfer of the Property from Seller or the Trustee to Purchaser."
(o) As used herein, "to Seller's knowledge" shall refer only to
the actual knowledge of the Designated Employees (as hereinafter defined) of (i)
ERE Yarmouth ("ERE"), Seller's investment advisor, and (ii) Jay Cimo
("Manager"), the property manager, respectively, and shall not be construed, by
imputation or otherwise, to refer to the knowledge of Seller, or either of the
partners of Seller or any affiliate of either of them, or to any other officer,
agent, manager, representative or employee of Seller or ERE or Manager or any
affiliate thereof or to impose upon such Designated Employees any duty to
investigate the matter to which such actual knowledge, or the absence thereof,
pertains. As used herein, the term "Designated Employees" shall refer to the
following persons: (a) Michael Lunder, who is the asset manager for the
Properties at ERE, and (b) Jay Cimo, who is the individual at Manager
responsible for the management of the Properties.
-22-
<PAGE> 24
11.2 Representations and Warranties of Purchaser.
Purchaser hereby represents and warrants to and covenants with Seller
that Purchaser is duly organized and validly existing as a Delaware corporation;
this Agreement and all documents executed by Purchaser which are to be delivered
to Seller at the Closing are and at the time of Closing will be duly authorized,
executed and delivered by Purchaser, are and at the time of Closing will be
legal, valid and binding obligations of Purchaser enforceable against Purchaser
in accordance with their respective terms, and do not and at the time of Closing
will not violate any provision of any agreement or judicial order to which
Purchaser or the Properties are subject.
ARTICLE XII
INDEMNIFICATION
12. Indemnification.
(a) Each party hereby agrees to indemnify the other party and
defend and hold it harmless from and against any and all claims, demands,
liabilities, costs, expenses, penalties, damages and losses, including, without
limitation, reasonable attorneys' fees, resulting from any misrepresentation or
breach of warranty or breach of covenant made by such party in this Agreement or
in any document, certificate, or exhibit given or delivered to the other
pursuant to or in connection with this Agreement.
(b) Seller agrees to indemnify Purchaser and defend and hold
Purchaser harmless from and against any and all claims, demands, liabilities,
costs, expenses, penalties, damages and losses, including, without limitation,
reasonable attorneys' fees, asserted against, incurred or suffered by Purchaser
resulting from any personal injury or property damage occurring in, on or about
the Property or relating thereto before the Closing Date, from any cause
whatsoever other than as a consequence of the acts or omissions of Purchaser,
its agents, employees or contractors.
(c) Purchaser agrees to indemnify Seller and defend and hold
Seller harmless from any claims, losses, demands, liabilities, costs, expenses,
penalties, damages and losses, including, without limitation, reasonable
attorneys' fees, asserted against, incurred or suffered by Seller resulting from
any personal injury or property damage occurring in, on or about the Properties
or relating thereto after the Closing Date, from any cause whatsoever other than
as a consequence of the acts or omissions of Seller, its agents, employees or
contractors.
(d) The indemnification provisions of this Section 12 shall
survive beyond the Closing, or, if the Closing does not occur pursuant to this
Agreement, beyond any termination of this Agreement.
-23-
<PAGE> 25
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the Effective Date.
SELLER:
EML ASSOCIATES, a joint venture in the form of
a New York general partnership
By: ML/EQ Real Estate Portfolio, L.P., a
Delaware limited partnership, its Managing
Venturer
By: EREIM Managers Corp., its Managing
General Partner
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
PURCHASER:
SPP REAL ESTATE (O'HARE), INC., a Delaware
corporation
By: AMB Institutional Realty Advisors, L.P., its
Authorized Agent
By: AMB Institution Realty Advisors,
Inc., its general partner
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
-24-
<PAGE> 26
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A-1 Willowbrook Land
Exhibit A-2 Itasca Land
Exhibit A-3 Bensenville #1 Land
Exhibit A-4 Bensenville #2 Land
Exhibit B-1 Willowbrook Leases
Exhibit B-2 Itasca Leases
Exhibit B-3 Bensenville #1 Leases
Exhibit B-4 Bensenville #2 Leases
Exhibit C-1 Willowbrook Operating Agreements
Exhibit C-2 Itasca Operating Agreements
Exhibit C-3 Bensenville #1 Operating Agreements
Exhibit C-4 Bensenville #2 Operating Agreements
Exhibit D Tenant Estoppel
Exhibit D-1 Seller's Estoppel
Exhibit E Seller's Environmental Reports
Exhibit F Tenant Inducement Costs
</TABLE>
<PAGE> 27
Exhibit A-1
Description of Willowbrook Land
<PAGE> 28
Exhibit A-2
Description of Itasca Land
<PAGE> 29
Exhibit A-3
Description of Bensenville #1 Land
<PAGE> 30
Exhibit A-4
Description of Bensenville #2 Land
<PAGE> 31
Exhibit B-1
Schedule of Willowbrook Leases
<TABLE>
<CAPTION>
DOCUMENT
TENANT DOCUMENT DATE
<S> <C> <C>
ACME Window Coverings, Ltd. Lease 02/01/96
ACME Window Coverings, Ltd. Amendment 06/05/96
</TABLE>
<PAGE> 32
Exhibit B-2
Schedule of Itasca Leases
<TABLE>
<CAPTION>
DOCUMENT
TENANT DOCUMENT DATE
<S> <C> <C>
Concentric, Inc. Lease 02/01/96
</TABLE>
<PAGE> 33
Exhibit B-3
Schedule of Bensenville #1 Leases
<TABLE>
<CAPTION>
TENANT DOCUMENT DATE
<S> <C> <C>
Triangle Engineered Products Co. Lease 05/12/89
Triangle Engineered Products Co. First Amendment 07/01/93
Triangle Engineered Products Co. Second Amendment 02/01/95
Triangle Engineered Products Co. Third Amendment 08/01/97
</TABLE>
<PAGE> 34
Exhibit B-4
Schedule of Bensenville #2 Leases
DOCUMENT
TENANT DOCUMENT DATE
[S] [C] [C]
Hi-Performance Fasteners Systems, Inc. Lease 09/01/94
Hi-Performance Fasteners Systems, Inc. First Amendment 11/01/94
<PAGE> 35
Exhibit C-1
Schedule of Willowbrook Operating Agreements
-NONE-
<PAGE> 36
Exhibit C-2
Schedule of Itasca Operating Agreements
1. Performance Building Products, Inc. (TEN YEAR Roofing Guaranty), No.
92.082.601, date 08/26/92.
<PAGE> 37
Exhibit C-3
Schedule of Bensenville #1 Operating Agreements
-NONE-
<PAGE> 38
Exhibit C-4
Schedule of Bensenville #2 Operating Agreements
1. Performance Building Products, Inc. (Insured Roofing Guaranty) No.
89.071.803, dated 11-6-89.
<PAGE> 39
Exhibit D
Form of Tenant Estoppel
<PAGE> 40
Exhibit D-1
Form of Seller's Estoppel
The undersigned landlord ("Landlord"), as Landlord under the Lease of
the above-referenced premises ("Premises") executed by ___________, as Tenant,
and Landlord on the above-referenced Lease Date, hereby states, declares,
represents and warrants to ___________ ("Purchaser") and its assignees as
follows:
1. Lease. That the copy of the Lease attached hereto as Exhibit
A is a true and complete correct copy of the Lease which is in full
force and effect and which has not been amended, supplemented or
changed by Letter agreement or otherwise, except as follows:______ .
2. Completion of Premises/No Disputes. Tenant has accepted
possession of the Premises, and all conditions to be satisfied by
Landlord under the Lease have been completed pursuant to the terms of
the Lease, including but not limited to, completion of construction of
the Premises (and all other improvements required under the Lease) in
accordance with applicable plans and specifications and payment of any
improvement allowances; there are no unreimbursed expenses (except for
any annual reconciliation of operating expenses and tax expense
adjustments).
3. Base Rental Notes. Except for increases listed on the
previous page, Base Rental is subject to the following adjustments:___.
4. No Default/Claims. Neither Landlord nor, to Landlord's
actual knowledge, Tenant under the Lease is in default under any of
the terms of the Lease nor has any event occurred which with the
passage of time (after notice if any required by the Lease) would
become an event of default under the Lease. To the actual knowledge of
Landlord, Tenant has no claims, counterclaims, defenses or setoffs
against Landlord arising from the Lease, nor is Tenant entitled to any
concession, rebate allowance or free rent for any period after the
certification, except as follows: _____________.
5. No Advance Payments. Except for current month's rent and, if
any, the Security Deposit, the following rent has been paid in advance
by Tenant: ___________________________________.
6. No Sublease/Assignment. To Landlord's actual knowledge,
Tenant has not entered into any sublease, assignment or any other
agreement transferring any of its interests in the Lease or the
Premises, except as follows: ___________________________.
This Landlord Estoppel Certificate shall expire and be of no further
force and effect upon the earlier of (a) twelve (12) months following the date
hereof, or (b) delivery by Landlord to Purchaser of a Tenant Estoppel
Certificate executed by Tenant in the form required pursuant to the Purchase and
Sale Agreement dated as of December ___, 1997 between Purchaser and Landlord, or
in a form otherwise satisfactory to and accepted by Purchaser.
<PAGE> 41
EML ASSOCIATES, a joint venture in the form of
a New York general partnership
By: ML/EQ Real Estate Portfolio, L.P., a
Delaware limited partnership, its Managing
Venturer
By: EREIM Managers Corp., its
Managing General Partner
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 42
Exhibit E
Schedule of Seller's Environmental Reports
1. Phase I Environmental Site Assessment of 701 Maple Lane, Bensenville,
Illinois Job #4405, prepared RERC Environmental, Inc. dated November
20, 1997.
2. Phase I Environmental Site Assessment of 733 Maple Lane, Bensenville,
Illinois Job #4406, prepared RERC Environmental, Inc. dated November
20, 1997.
3. Phase I Environmental Site Assessment of 800 Hollywood Avenue, Itasca,
Illinois Job #4407 prepared RERC Environmental, Inc. dated November 20,
1997.
4. Phase I Environmental Site Assessment of 750 Plaza Court, Willowbrook,
Illinois Job #4408, prepared RERC Environmental, Inc. dated November
20, 1997.
<PAGE> 43
Exhibit F
Schedule of Tenant Inducement Costs
NONE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANTS FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,000
<SECURITIES> 0
<RECEIVABLES> 180,367
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 190,367
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,699,217
<CURRENT-LIABILITIES> 28,809
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 30,422,836
<TOTAL-LIABILITY-AND-EQUITY> 31,699,217
<SALES> 0
<TOTAL-REVENUES> 3,043,112
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,015,062
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,015,062
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,015,062
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
