-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MgnXRXP/oje+o4FApPpuVAnLVQvT0qT9//J/RbY4CtjlmQeOW93UYgpl/zVvs3tD XaqQr1cYWz+1KKVxDcsyqw== 0000927016-96-000075.txt : 19960329 0000927016-96-000075.hdr.sgml : 19960329 ACCESSION NUMBER: 0000927016-96-000075 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND LIFE PENSION PROPERTIES CENTRAL INDEX KEY: 0000711417 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 042774875 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-11884 FILM NUMBER: 96539694 BUSINESS ADDRESS: STREET 1: 399 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6175781200 MAIL ADDRESS: STREET 2: 399 BOYLSTON ST CITY: BOSTON STATE: MA ZIP: 02116 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________ FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NO. 0-11884 ________________________ NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2774875 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 399 Boylston Street, 13th Floor Boston, Massachusetts 02116 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 578-1200 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interest (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] No voting stock is held by non-affiliates of the Registrant. DOCUMENTS INCORPORATED BY REFERENCE None PART I ------ Item 1. Business. -------- New England Life Pension Properties; A Real Estate Limited Partnership (the "Partnership") was organized under the Uniform Limited Partnership Act of the Commonwealth of Massachusetts on December 17, 1982, to invest primarily in newly-constructed and existing income-producing real properties. The Partnership was initially capitalized with contributions of $2,000 from Copley Properties Company, Inc. (the "General Partner") and $10,000 from NELRECO Troy, Inc. (the "Initial Limited Partner"). On December 23, 1982 the Partnership filed a Registration Statement on Form S-11 (the "Registration Statement") with the Securities and Exchange Commission with respect to the public offering of 20,000 units of limited partnership interest at a purchase price of $1,000 per unit (the "Units") with an option to sell up to an additional 10,000 Units (an aggregate of $30,000,000). The Registration Statement was declared effective on March 22, 1983. On June 29, 1983 the Partnership sold all 30,000 Units, and the Partnership admitted 3,193 investors as limited partners (the "Limited Partners"), with $29,652,760 being contributed to the capital of the Partnership. At the same time, the Initial Limited Partner withdrew its contribution from the Partnership. The Partnership does not have any employees. Services are performed for the Partnership by the General Partner and by affiliates of the General Partner. At December 31, 1995 the Partnership had the three real estate investments described below. In 1985 a joint venture in which the Partnership was a partner sold its interest in a fourth real estate investment. In May, 1991, the Partnership sold a fifth real estate investment that resulted in a capital distribution of $50.00 per Unit. In June 1994, a sixth investment, an industrial building in Ontario, California, was sold, resulting in a capital distribution of $193.34 per unit. The Partnership and its affiliate, New England Life Pension Properties II have provided the ground lessee of one of the Partnership's properties, the Willows Shopping Center in Concord, California, with a $2.5 million leasehold mortgage loan for the purpose of completing the renovation of the Center. New England Life Pension Properties I will fund $625,000, with the balance funded by New England Life Pension Properties II. The Partnership has no other current plan to renovate, improve or further develop any of its real property. In the opinion of the General Partner of the Partnership, the properties are adequately covered by insurance. A. Research and Development Facility in Columbia, Maryland. --------------------------------------------------------- In 1984 the Partnership consummated a land purchase-leaseback and leasehold mortgage loan investment totaling $5,100,000 in a 75,500 square foot research and development facility located in Rivers Corporate Park, Columbia, Maryland. The ground lease provides that the Partnership will receive an annual rental of $126,500 plus 50% of the ground lessee's gross revenues from the building in excess of a base amount. The mortgage loan bears interest at the rate of 11.5% per annum and is paid currently. The Partnership is negotiating an extension to the loan which matured on March 31, 1994. The tenant occupying the building has a right of first offer during the period which began in September, 1992 and continues through November, 2004. B. Office Building in Decatur, Georgia. ------------------------------------- In 1985 the Partnership acquired a 3.28 acre parcel of land in Decatur, Georgia, for $1,675,000 and leased it back to the seller. Situated on the land is a four-story, 79,855 square foot office building. The ground lease provides that the Partnership will receive an annual rental of $201,000 plus 60% of the ground lessee's gross revenues from the building in excess of a base amount. The Partnership has fully funded its $5,825,000 non-recourse mortgage loan commitment to the ground lessee. The loan is secured by a first mortgage of the building and the leasehold interest in the land. Through February 1993, interest only was payable monthly at the rate of 12% per annum. Interest was paid at a 7% rate from October, 1991 through April, 1992, with the remainder being deferred. The Partnership agreed effective March 1993, that (1) the interest rate be reduced to 8.5%, (2) monthly payments be made in a sum necessary to amortize, using a 25-year amortization schedule, the outstanding principal balance of the loan through maturity in February 1995; and (3) an additional monthly payment of $7,005.38 be made for twenty-four months to retire the outstanding accrued interest. The Partnership has also made an additional loan of $633,076 to fund tenant improvements. Interest accrues monthly at the rate of 12% per annum. This loan is secured by a second mortgage of the building and the leasehold interest in the land. Effective February 19, 1995, the ground lease and the first mortgage loan were amended to provide that ground rent and interest will be payable only to the extent that net cash flow from the property is available therefor. To the extent net cash flow is not sufficient to pay the ground rent and interest payments, such amounts will accrue. The Partnership also obtained the sole right to cause a sale of the property beginning on or after January 1, 1996, and the maturity date was extended to December 31, 1996. C. Shopping Center in Concord, California. ---------------------------------------- On July 30, 1984, the Partnership and an affiliate of the Partnership (the "Affiliate") jointly made land purchase-leaseback and leasehold mortgage loan investments aggregating $15,719,317 in a 24.8 acre shopping center located in Concord, California, known as the Willows Shopping Center. The Partnership's share of the investments aggregated $3,929,829, giving the Partnership a 25% interest in each component of the investment held in common with the Affiliate. The investments entitled the Partnership and the Affiliate jointly to receive an annual interest return of 13% on the $10,719,317 ten-year mortgage, together with an annual fixed rental under the ground lease equal to a 12.2% return on the $5,000,000 land purchase price plus an annual percentage rental equal to 50% of the ground tenant's annual gross revenues in excess of specified base amounts. On August 15, 1985, the Partnership and the Affiliate consented to a sale by the ground tenant, Willows Concord Venture ("Willows Concord"), of the ground tenant's ownership interest in the buildings and leasehold interest in the land to an affiliate of VMS Realty, Inc., an Illinois corporation. In conjunction with the sale, the ground lease was amended to provide that the Partnership and the Affiliate would no longer participate in excess rental revenues from the Shopping Center or in net appreciation from the sale of the property. The mortgage loan was also amended to increase the principal amount by $3,880,683 to $14,600,000, to extend the maturity date one year to August, 1995, and to lower the interest rate from 13% per annum to a stepped rate beginning at 9% per annum and increasing to 12% over six years. Under the terms of the original ground lease, the joint ground lessors were entitled to 50% of the net proceeds from a sale. The Partnership received cash of $1,071,875 and an interest in the incremental mortgage loan amount equal to $970,171, 50% of which was payable to the former ground lessee upon full payment of the loan principal by the new mortgagor. The joint mortgagees also entered into a Collection and Disbursement Agreement pursuant to which Concord Willows was entitled to share in 50% of interest paid under the new note in excess of the interest that would have been payable under the original note. The Partnership and the Affiliate had not received interest payments currently on the mortgage loan since the payment due in March, 1990, and as a result, the Partnership and the Affiliate began foreclosure proceedings to take possession of the property. On October 4, 1990, Pacific First Bank, the second leasehold mortgagee, filed an involuntary bankruptcy petition in the United States Bankruptcy Court for the Northern District of California against the ground lessee/debtor, to which filing the ground lessee/debtor subsequently consented. The ground lessee/debtor later consented to relief from stay of foreclosure proceedings. The Partnership and its Affiliate sold their interest in the leasehold mortgage loan to Willows Concord on June 14, 1991. In return, the Partnership and the Affiliate took back a note in the amount of $14,863,206. On June 18, 1991, Willows Concord foreclosed on the leasehold mortgage. The Partnership, the Affiliate and Willows Concord entered into a replacement promissory note in the principal amount of $14,863,206, effective June 18, 1991. The new loan is secured by the leasehold interest, bears interest at the rate of 9.323% per annum and provides for a reduction in principal if the note is paid prior to maturity. The Partnership, the Affiliate and Willows Concord also entered into a new ground lease which provides for annual rent in the amount of $550,000 plus an annual percentage rent equal to 70% of the ground lessee's annual gross revenues in excess of a specified amount. The Partnership has a 25% share of such rent. To the extent that operating cash flow from the shopping center is not sufficient to pay the ground rent, such rent may accrue until June 1996, at which time Willows Concord is obligated to pay all unpaid accrued rent and to pay all future ground rent on a current basis. On January 1, 1995 the Partnership and the Affiliate provided a $2.5 million construction loan to the ground lessee in order to fund the completion of the renovation of the Center, the Partnership has committed to fund $625,000 of this amount. The loan bears interest at 11% per annum, provides for amortization on a 15-year schedule, and matures on December 31, 1997. In addition, the ground lease was amended to provide the Partnership and the Affiliate with the sole right to cause a sale on or after January 1, 1996. Item 2. Properties. ----------- The following table sets forth the annual realty taxes for the Partnership's properties and information regarding tenants who occupy 10% or more of gross leasable area (GLA) in the Partnership's properties:
ESTIMATED 1996 ANNUAL NUMBER OF REALTY TENANTS WITH 10% NAME(S) OF SQUARE FEET OF PROPERTY TAXES OR MORE OF GLA TENANT(S) EACH TENANT - ----------------------------------------------------------------------------------------------------- Shopping Center in $327,958 2 Whole Earth 40,374 Concord, CA Access REI 29,486 Office Building in $148,200 1 Sullivan Health 9,939 Decatur, GA R&D Building in $86,362 1 Biosys 75,500 Columbia, MD ---------------------------------------------------------------------------------------------------- ANNUAL CONTRACT RENT PER LEASE RENEWAL LINE OF BUSINESS SQ. FT. EXPIRATION OPTIONS OF PRINCIPAL TENANTS - ----------------------------------------------------------------------------------------------------- Shopping Center in $7.80 4/1996 None Specialty Retail Concord, CA $5.50 5/2003 Two 5 year Specialty Retail options Office Building in $14.04 2/1998 None Medical Decatur, GA R&D Building in $8.64 11/2004 Two 5 year Biotechnology Columbia, MD options - -----------------------------------------------------------------------------------------------------
The following table sets forth for each of the last five years the gross leasable area, occupancy rates, rental revenue and net effective rent for the Partnership's properties:
- ------------------------------------------------------------------------------------------------------------- Gross Leasable Year-End Rental Net Effective Property Area Occupancy Revenue Rent ($/sf/yr)* Recognized ------------------------------------------------------------------------------------------------------------ Shopping Center in Concord, CA - ---------------------------------- 1991 274,488 68% $3,131,840 $16.07 1992 274,488 70% $2,346,938 $12.39 1993 274,488 78% $2,612,770 $12.52 1994 251,531 91% $2,595,391 $12.39 1995 251,531 91% $3,099,701 $13.54 Office Building in Decatur, GA - ---------------------------------- 1991 79,855 97% $1,424,331 $18.25 1992 79,855 82% $1,263,302 $18.50 1993 79,855 88% $1,080,745 $16.11 1994 79,855 90% $1,200,783 $16.90 1995 79,855 90% $1,143,642 $15.52 R&D Building in Columbia, MD - ---------------------------------- 1991 75,500 100% $1,050,205 $13.91 1992 75,500 100% $1,050,205 $13.91 1993 75,500 100% $ 623,614 $ 8.26 1994 75,500 100% $ 529,627 $ 7.01 1995 75,500 100% $ 593,913 $ 7.87 - -------------------------------------------------------------------------------------------------------------
* Net effective rent calculation is based on average occupancy during the respective years. Following is a schedule of lease expirations for each of the next ten years for the Partnership's properties based on the annual contract rent in effect at December 31, 1995:
TENANT AGING REPORT PROPERTY # OF LEASE TOTAL TOTAL PERCENTAGE OF EXPIRATIONS SQUARE FEET ANNUAL GROSS ANNUAL RENTAL RENTAL* - -------------------------------------------------------------------------------------------------------- Shopping Center in Concord, CA (1) - ------------------------------ 1996 2 41,790 $314,917 12% 1997 3 11,130 $ 63,362 2% 1998 1 600 $ 18,948 1% 1999 3 23,650 $260,984 10% 2000 2 10,520 $128,746 5% 2001 1 7,088 $ 77,117 3% 2002 2 22,411 $222,615 9% 2003 4 44,779 $401,192 15% 2004 0 0 $ 0 0% 2005 6 49,457 $586,913 23% Office Building in Decatur, GA - ------------------------------ 1996 4 4,680 $ 72,383 6% 1997 5 9,800 $158,300 14% 1998 7 22,919 $355,748 31% 1999 7 16,846 $275,122 24% 2000 2 11,611 $177,554 16% 2001 0 0 $ 0 0% 2002 0 0 $ 0 0% 2003 0 0 $ 0 0% 2004 1 7,580 $ 95,963 9% 2005 0 0 $ 0 0% R&D Building in Columbia, MD - ---------------------------- 1996 0 0 $ 0 0% 1997 0 0 $ 0 0% 1998 0 0 $ 0 0% 1999 0 0 $ 0 0% 2000 0 0 $ 0 0% 2001 0 0 $ 0 0% 2002 0 0 $ 0 0% 2003 0 0 $ 0 0% 2004 1 75,500 $653,075 100% 2005 0 0 $ 0 0% - -------------------------------------------------------------------------------------------------------
(1) Remaining leases do not expire within 10 years. * Does not include expenses paid by tenants. Following is information regarding the competitive market conditions for each of the Partnership's properties. This information has been gathered from sources deemed reliable. However, the Partnership has not independently verified the information and, as such, cannot guarantee its accuracy or completeness. A. R&D in Columbia, MD. ------------------- The Howard County R&D market contains approximately 3.2 million square feet and exhibited a vacancy rate of 10% as of December 31, 1995. The 10% vacancy rate is a strong improvement from the 1990 to 1993 period when the vacancy rate hovered in the 22%-to-24% range. B. Office building in Decatur, GA. ------------------------------ The metropolitan Atlanta class "A" office market comprises eight sub-markets that total 47 million square feet, of which approximately 16 million square feet is located in the Central Business District area. The overall office vacancy rate stands at 9.5%, which is a significant decline from 14.7% in 1993. The Decatur office building is located in the Northlake sub-market, one of the smallest markets with just 1.3 million square feet of space. This sub-market has a reported vacancy of 5% which is down significantly from 10.9% in 1993. C. Shopping Center in Concord, CA. ------------------------------ This neighborhood shopping center lies within the Central Contra Costa County market in which there is approximately 8.1 million square feet of retail inventory. This market incorporates the cities along the I-680 corridor and includes Walnut Creek, Concord, Pleasant Hill and Martinez. An average vacancy rate of 5% was reported within the neighborhood centers, with retail strip properties posting a slightly higher average vacancy of 7%. Since 1992, no new retail projects have come on-line within the property's immediate neighborhood. New construction is expected to be limited due to the lack of available land and the still cautious attitude among the lending community. Item 3. Legal Proceedings. ----------------- The Partnership is not a party to, nor are any of its properties subject to, any material pending legal proceedings. Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K. PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder ------------------------------------------------------------- Matters. --------- There is no active market for the Units. Trading in the Units is sporadic and occurs solely through private transactions. As of December 31, 1995, there were 3,387 holders of Units. The Partnership's Amended and Restated Agreement of Limited Partnership dated June 29, 1983, as amended (the "Partnership Agreement"), requires that any Distributable Cash (as defined therein) be distributed quarterly to the Partners in specified proportions and priorities. There are no restrictions on the Partnership's present or future ability to make distributions of Distributable Cash. For the year ended December 31, 1995 cash distributions paid in 1995 or distributed after year end with respect to 1995 to the Limited Partners as a group totaled $984,000. For the year ended December 31, 1994, cash distributions paid in 1994 or distributed after year end with respect to 1994 to the Limited Partners as a group totaled $7,096,200 which included $5,800,200 of capital distributions. Cash distributions were less than net income and less than cash provided by operating activities in 1995; therefore, partners' capital increased. Reference is made to the Partnership's Statement of Changes in Partners' Capital and Statement of Cash Flows in Item 8 hereof. Item 6. Selected Financial Data. -----------------------
For Year For Year For Year For Year For Year Ended or Ended or Ended or Ended or Ended or As of As of: As of As of: As of: 12/31/95(4) 12/31/94(3) 12/31/93(2) 12/31/92 12/31/91/(1) ----------- ----------- ----------- -------- ------------- Revenues $ 2,104,802 $ 3,691,109 $ 2,675,255 $ 3,246,472 $ 2,714,467 Net Income [Loss] $ 1,569,268 $ 3,129,077 $ (899,024) $ 2,191,885 $ 1,900,018 Net Income [Loss] per Unit of Limited Partnership Interest Outstanding $ 51.79 $ 103.26 $ (29.67) $ 72.33 $ 62.70 Total Assets $ 19,239,985 $ 18,681,253 $ 22,682,389 $24,935,668 $ 24,733,681 ----------- ----------- ----------- ----------- -------------- Total Cash Distributions per Limited Partnership Unit, including amounts distributed after year end with respect to the previous year $ 32.80 $ 236.54 $ 51.80 $ 59.20 $ 119.24
(1) The Partnership consummated a sale in 1991 which increased Net Income by $32,402 ($1.07 per Unit) and cash distributions by $1,500,000 ($50 per Unit). (2) The Partnership recorded a provision of $2,800,000 ($92.40 per Unit) for impaired mortgage loans during 1993. (3) The Partnership consummated a sale in 1994 which increased Net Income by $1,385,562 ($45.72 per Unit) and capital distributions by $5,800,200 ($193.34 per Unit). The Partnership also recorded a credit of $200,000 ($6.60 per Unit) related to impaired mortgage loans during 1994. (4) The Partnership recorded a credit of $260,000 ($8.58 per Unit) related to impaired mortgage loans during 1995. ITEM NO. 7 - ---------- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF - -------------------------------------------------------------------------- OPERATIONS - ---------- LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership completed its offering of units of limited partnership interest in June 1983. A total of 30,000 units were sold. The Partnership received proceeds of $27,253,251, net of selling commissions and other offering costs, which were invested in real estate, used to pay related acquisition costs, or retained as working capital reserves. The Partnership made the real estate investments described in Item 1 hereof. One investment was sold in each of 1985 and 1991; a third investment was sold in 1994. As a result of these sales and similar transactions, capital of $13,600,200 has been returned to the limited partners through December 31, 1995. One of the Partnership's mortgage loan investments had a maturity date in 1994. Renewal discussions are ongoing; however, the Partnership intends to extend the maturity until the underlying property can be sold, at terms which are in the best interest of the limited partners. Two other mortgage loans matured in February 1995 but were subsequently extended to December 31, 1996. On June 17, 1994, the Partnership sold its Ontario Distribution Center investment and received net proceeds of $6,414,737. The resulting capital distribution to limited partners of $5,800,200 on July 28, 1994 ($193.34 per limited partnership) reduced the adjusted capital contribution to $546.66 per unit. At December 31, 1995, the Partnership had $1,204,043 in cash and cash equivalents which was partially used for cash distributions of $248,485 to partners on January 25, 1996; the remainder is expected to be used to fund the renovation of the Willows Shopping Center or retained as working capital reserves. The source of future liquidity and cash distributions to partners is expected to be cash generated by the Partnership's real estate investments and proceeds from the sale of such investments. Distributions of cash from operations for the four quarters of 1995 were made at the annualized rate of 6% on the adjusted capital contribution. Distributions of cash from operations for 1994 were made at the annualized rate of 7% for the first and second quarters and 6% for the third and fourth quarters. The reduction in the cash distribution rate is due to the absence of cash flow from the Ontario Distribution Center. The carrying value of the real estate investments in the financial statements at December 31, 1995, other than impaired mortgage loans (Decatur TownCenter), is at depreciated cost or if the investment's carrying value is determined not to be recoverable through expected undiscounted future cash flows, the carrying value is reduced to estimated fair market value. The fair market value of such investments is further reduced by the estimated cost of sale for properties held for sale. Carrying value may be greater or less than current appraised value. At December 31, 1995, the carrying value of Willows Shopping Center exceeded its appraised value by approximately $390,000. The appraised value of the remaining investments at December 31, 1995 exceeded their related carrying values by an aggregate of $46,000. The current appraised value of real estate investments has been estimated by the general partner and is generally based on a combination of traditional appraisal approaches performed by the Partnership's advisor and independent appraisers. Because of the subjectivity inherent in the valuation process, the estimated current appraised value may differ significantly from that which could be realized if the real estate were actually offered for sale in the marketplace. RESULTS OF OPERATIONS - --------------------- FORM OF REAL ESTATE INVESTMENTS The Willows Shopping Center is structured as a ground lease/mortgage loan investment. However, for financial reporting purposes it is accounted for as a jointly-owned property. The remainder of the Partnership's investments are structured and accounted for as ground lease/ mortgage loan investments. OPERATING FACTORS At December 31, 1995, the Willows Shopping Center was 91% leased, compared to approximately 91% and 78% at the end of 1994 and 1993, respectively. The ground lessee/borrower has commenced the full rehabilitation of this property including the complete renovation and reconfiguration of the center to a mini power center. The general partner determined that it is in the best interest of the Partnership to provide funding for the rehabilitation costs in the form of a construction loan, together with its affiliate which owns a share of the center. The Partnership's share of the remaining estimated cost is approximately $525,000 at December 31, 1995. Decatur TownCenter's occupancy rate remained stable at 90% throughout 1995. Occupancy was 90% and 82% at the end of 1994 and 1993, respectively. INVESTMENT RESULTS The Partnership determined that the mortgage loans to the Decatur TownCenter were impaired and had recognized a provision for impaired mortgage loans of $2,800,000 which was charged to operations in 1993. During 1994 and 1995, the estimated market value of the loan collateral increased and, accordingly, the valuation allowance was reduced by $200,000 and $260,000, respectively, through a credit to operating results. The sale of the Ontario Distribution Center in June 1994 resulted in the recognition of a gain of $1,385,562. 1995 COMPARED TO 1994 Exclusive of the credit related to the allowance for impaired mortgage loans and revenue from the Ontario Distribution Center, real estate operating results for 1995 were $1,391,034, a slight increase compared to $1,359,953 in 1994. The increase primarily stemmed from results at Willows Shopping Center which increased by $40,000, partially offset by a decrease in operating income generated by Decatur TownCenter. Interest income on short-term investments and cash equivalents increased during 1995 due to an increase in interest rates. Operating cash flow, exclusive of Ontario Distribution Center, decreased approximately $57,000 between 1994 and 1995. This change differs from the change in operating results primarily due to an increase in non-cash working capital items. 1994 COMPARED TO 1993 Exclusive of the credit related to the allowance for impaired mortgage loans and revenue from the Ontario Distribution Center, real estate operating results for 1994 were $1,359,953, a slight decrease compared to $1,365,612 in 1993. Real estate operating results in 1993 included two significant transactions; a lease termination fee of $80,000 from Rivers Corporate Parks and $90,000 from the settlement of past due rents at Willows Shopping Center in connection with an anchor tenant's lease revision. Excluding that settlement, operating income at Willows Shopping Center increased by $60,000. In addition, operating income generated by Decatur TownCenter increased by approximately $100,000 due to a higher average occupancy rate in 1994. Interest income on short-term investments and cash equivalents increased during 1994 due to an increase in interest rates and to an increase in the average investment balance resulting from the temporary investment of sales proceeds from the Ontario Distribution Center. Operating cash flow, exclusive of Ontario Distribution Center, decreased approximately $277,000 between 1993 and 1994. This decline is primarily due to the realization in 1993 of previously accrued revenue from Decatur TownCenter and Willows Shopping Center. PORTFOLIO EXPENSES The Partnership management fee is 9% of distributable cash flow from operations after any increase or decrease in working capital reserves as determined by the general partner. General and administrative expenses primarily consist of real estate appraisal, printing, legal, accounting and investor servicing fees. 1995 COMPARED TO 1994 The Partnership management fee decreased approximately $31,000 due to the decrease in distributable cash flow. General and administrative expenses increased 2% due to an increase in legal fees, partially offset by a decrease in printing and accounting fees. 1994 COMPARED TO 1993 The Partnership management fee decreased due to a decrease in distributable cash flow. General and administrative expenses decreased 3% primarily due to a decrease in printing and appraisal costs. INFLATION - --------- By their nature, real estate investments tend not to be adversely affected by inflation. Inflation may result in appreciation in the value of the Partnership's real estate investments over time, if rental rates and replacement costs increase. Declines in real property values, during the period of Partnership operations, due to market and economic conditions, have overshadowed the positive effect inflation may have on the value of the Partnership's investments. Item 8. Financial Statements and Supplementary Data. ------------------------------------------- See the Financial Statements of the Partnership included as a part of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure. -------------------- The Partnership has had no disagreements with its accountants on any matters of accounting principles or practices or financial statement disclosure. PART III -------- Item 10. Directors and Executive Officers of the Registrant. -------------------------------------------------- (a) and (b) Identification of Directors and Executive Officers. -------------------------------------------------- The following table sets forth the names of the directors and executive officers of the General Partner and the age and position held by each of them as of December 31, 1995.
Name Position(s) with the General Partner Age - ---- ------------------------------------ --- Joseph W. O'Connor President, Chief Executive Officer and Director 49 Daniel J. Coughlin Managing Director and Director 43 Peter P. Twining Managing Director, General Counsel and Director 49 Wesley M. Gardiner, Jr. Vice President 37 Daniel C. Mackowiak Principal Financial and Accounting Officer 44
Mr. O'Connor and Mr. Coughlin have served in an executive capacity since the organization of the General Partner on December 16, 1982. Mr. Gardiner and Mr. Twining have served in their capacities since June 1994, and Mr. Mackowiak has served in his capacity as of January 1, 1996. All of these individuals will continue to serve in such capacities until their successors are elected and qualify. (c) Identification of Certain Significant Employees. ----------------------------------------------- None. (d) Family Relationships. -------------------- None. (e) Business Experience. ------------------- The General Partner was incorporated in Massachusetts on December 16, 1982. The background and experience of the executive officers and directors of the General Partner are as follows: Joseph W. O'Connor has been President, Chief Executive Officer and a Director of Copley Real Estate Advisors, Inc. ("Copley") since January, 1982. He was a Principal of Copley from 1985 to 1987 and has been a Managing Director of Copley since January 1, 1988. He has been active in real estate for 27 years. From June, 1967, until December, 1981, he was employed by New England Mutual Life Insurance Company ("The New England"), most recently as a Vice President in which position he was responsible for The New England's real estate portfolio. He received a B.A. from Holy Cross College and an M.B.A. from Harvard Business School. Daniel J. Coughlin was a Principal of Copley from 1985 to 1987 and has been a Managing Director of Copley since January 1, 1988 and a Director of Copley since July 1994. Mr. Coughlin has been active in financial management and control for 21 years. From June, 1974 to December, 1981, he was Real Estate Administration Officer in the Investment Real Estate Department at The New England. Since January, 1982, he has been in charge of the asset management division of Copley. Mr. Coughlin is a Certified Property Manager and a licensed real estate broker. He received a B.A. from Stonehill College and an M.B.A. from Boston University. Peter P. Twining is a Managing Director and General Counsel of Copley. As such, he is responsible for general legal oversight and policy with respect to Copley and its investment portfolios. Before being promoted to this position in January 1994, he was a Vice President/Principal and senior lawyer responsible for assisting in the oversight and management of Copley's legal operations. Before joining Copley in 1987, he was a senior member of the Law Department at The New England and was associated with the Boston law firm, Ropes and Gray. Mr. Twining is a graduate of Harvard College and received his J.D. in 1979 from Northeastern University. Wesley M. Gardiner, Jr. joined Copley in 1990 and has been a Vice President at Copley since January, 1994. From 1982 to 1990, he was employed by Metric Realty, a nationally-known real estate investment advisor and syndication firm, as a portfolio manager responsible for several public and private limited partnerships. His career at Copley has included asset management responsibility for the company's Georgia and Texas holdings. Presently, as a Vice President and Team Leader, Mr. Gardiner has overall responsibility for all the partnerships advised by Copley whose securities are registered under the Securities and Exchange Act of 1934. He received a B.A. in Economics from the University of California at San Diego. Daniel C. Mackowiak has been a Vice President of Copley since January 1989 and has been a Vice President and the Principal Financial and Accounting Officer of the Managing General Partner since January 1996. Mr. Mackowiak previously held the offices of Chief Accounting Officer of Copley from January 1989 through April 1994 and Vice President and Principal Financial and Accounting Officer of the Managing General Partner between January 1989 and May 1994. From 1975 until joining Copley, he was employed by the public accounting firm of Price Waterhouse, most recently as a Senior Audit Manager. He is a certified public accountant and has been active in the field of accounting his entire business career. He received a B.S. from Nichols College and an M.B.A. from Cornell University. Mr. O'Connor is a director of Copley Properties, Inc., a Delaware corporation organized as a real estate investment trust which is listed for trading on the American Stock Exchange. None of the other directors of the General Partner is a director of a company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934. All of the directors and officers of the General Partner also serve as directors and officers of one or more corporations which serve as general partners of publicly-traded real estate limited partnerships which are affiliated with the General Partner. (f) Involvement in Certain Legal Proceedings. ---------------------------------------- None. Item 11. Executive Compensation. ---------------------- Under the Partnership Agreement, the General Partner and its affiliates are entitled to receive various fees, commissions, cash distributions, allocations of taxable income or loss and expense reimbursements from the Partnership. See Notes 1, 2 and 6 of Notes to Financial Statements. The following table sets forth the amounts of the fees and cash distributions and reimbursements for out-of-pocket expenses which the Partnership paid to or accrued for the account of the General Partner and its affiliates for the year ended December 31, 1995. Cash distributions to the General Partner include amounts distributed after year end with respect to 1995.
Amount of Compensation Receiving Entity Type of Compensation and Reimbursement - ---------------- -------------------- ---------------------- Copley Properties Company, Share of Distributable Cash $ 9,940 Inc. Copley Real Estate Advisors, Management Fees 98,302 Inc. New England Securities Servicing Fees and Out of Corporation Pocket Reimbursements 4,719 ---------------- TOTAL $ 112,961 ----------------
For the year ended December 31, 1995, the Partnership allocated $19,973 of taxable income to the General Partner. Item 12. Security Ownership of Certain Beneficial Owners and Management. -------------------------------------------------------------- (a) Security Ownership of Certain Beneficial Owners. ----------------------------------------------- No person or group is known by the Partnership to be the beneficial owner of more than 5% of the outstanding Units at December 31, 1995. Under the Partnership Agreement, the voting rights of the Limited Partners are limited and, in some circumstances, are subject to the prior receipt of certain opinions of counsel or judicial decisions. Except as expressly provided in the Partnership Agreement, the right to manage the business of the Partnership is vested exclusively in the General Partner. (b) Security Ownership of Management. -------------------------------- An affiliate of the General Partner of the Partnership owned 1,094 Units at December 31, 1995. (c) Changes in Control. ------------------ There exists no arrangement known to the Partnership the operation of which may at a subsequent date result in a change in control of the Partnership. Item 13. Certain Relationships and Related Transactions. ---------------------------------------------- The Partnership has no relationships or transactions to report other than as reported in Item 11, above. PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. --------------------------------------------------------------- (a) The following documents are filed as part of this report: (1) Financial Statements--The Financial Statements listed on the accompanying Index to Financial Statements and Schedules, Financial Statements Index No. 2 and Financial Statements Index No. 3 are filed as part of this Annual Report. The opinion of independent accountants on the 1995 financial statements of the Decatur ground lessee/ mortgagor refers to the uncertainty as to the ability of that entity to continue to operate as a going concern. This condition has no effect on the Partnership's carrying value of, or revenue recognition from, the Decatur investment, since both are based on the economic attributes of the underlying property to which the Partnership has priority entitlements. (2) Financial Statement Schedules--The Financial Statement Schedules listed on the accompanying Index to Financial Statements and Schedules are filed as part of this Annual Report. (3) Exhibits--The Exhibits listed in the accompanying Exhibit Index are filed as a part of this Annual Report and incorporated in this Annual Report as set forth in said Index. (b) Reports on Form 8-K. No Current Reports on Form 8-K were filed during the fourth quarter of 1995. NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP Financial Statements * * * * * * * December 31, 1995 NEW ENGLAND LIFE PENSION PROPERTIES; ------------------------------------ A REAL ESTATE LIMITED PARTNERSHIP --------------------------------- INDEX TO FINANCIAL STATEMENTS AND SCHEDULES -------------------------------------------
PAGE Report of Independent Accountants.................................................................... Financial Statements: Balance Sheet - December 31, 1995 and 1994.................................................. Statement of Operations - Years ended December 31, 1995, 1994 and 1993................................................................................. Statement of Changes in Partners' Capital - Years ended December 31, 1995, 1994 and 1993......................................................... Statement of Cash Flows - Years ended December 31, 1995, 1994 and 1993................................................................................. Notes to Financial Statements............................................................... Financial Statement Schedules: Schedule III - Real Estate and Accumulated Depreciation at December 31, 1995........................................................................ Schedule IV - Mortgage Loans on Real Estate at December 31, 1995........................................................................
All other schedules have been omitted because they are either not applicable or the required information is shown in the financial statements or notes thereto. REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- To the Partners NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of New England Life Pension Properties; A Real Estate Limited Partnership (the "Partnership") at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of Copley Properties Company, Inc., the General Partner of the Partnership; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the General Partner, and evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP - ------------------------ Price Waterhouse LLP Boston, Massachusetts March 15, 1996 NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP BALANCE SHEET
December 31, -------------------------------- 1995 1994 ------------ ------------ ASSETS Real estate investments: Ground leases and mortgage loans, net $11,508,875 $11,115,609 Property, net 5,117,318 4,886,581 Deferred leasing costs and other assets, net 176,007 197,320 ----------- ----------- 16,802,200 16,199,510 Cash and cash equivalents 1,204,043 2,431,089 Short-term investments 1,109,814 - Interest, rent and other receivables 123,928 50,654 ----------- ----------- $19,239,985 $18,681,253 =========== =========== LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 239,062 $ 255,658 Accrued management fee 24,575 24,575 Deferred disposition fees 457,768 457,768 ----------- ----------- Total liabilities 721,405 738,001 ----------- ----------- Partners' capital: Limited partners ($546.66 per unit; 30,000 units authorized, issued and outstanding) 18,467,706 17,898,131 General partner 50,874 45,121 ----------- ----------- Total partners' capital 18,518,580 17,943,252 ----------- ----------- $19,239,985 $18,681,253 =========== ===========
(See accompanying notes to financial statements) NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP STATEMENT OF OPERATIONS
Year ended December 31, --------------------------------------- 1995 1994 1993 ---------- ---------- ------------ INVESTMENT ACTIVITY Property rentals $ 780,127 $ 658,875 $ 663,036 Property operating expenses (354,550) (300,700) (322,373) Depreciation and amortization (223,618) (198,296) (150,173) ---------- ---------- ----------- 201,959 159,879 190,490 Ground rentals and interest on mortgage loans 1,196,169 1,534,014 1,956,752 Amortization (7,094) (24,222) (33,882) Credit from (provision for) impaired mortgage loans 260,000 200,000 (2,800,000) ---------- ---------- ----------- Total real estate operations 1,651,034 1,869,671 (686,640) Gain on sale of investment - 1,385,562 - ---------- ---------- ----------- Total real estate activity 1,651,034 3,255,233 (686,640) Interest on cash equivalents and short-term investments 128,506 112,658 55,467 ---------- ---------- ----------- Total investment activity 1,779,540 3,367,891 (631,173) ---------- ---------- ----------- PORTFOLIO EXPENSES Management fee 98,302 129,471 155,245 General and administrative 111,970 109,343 112,606 ---------- ---------- ----------- 210,272 238,814 267,851 ---------- ---------- ----------- NET INCOME (LOSS) $1,569,268 $3,129,077 $ (899,024) ========== ========== =========== Net income (loss) per limited partnership unit $51.79 $103.26 $(29.67) ========== ========== =========== Cash distributions per limited partnership unit $32.80 $241.29 $51.80 ========== ========== =========== Number of limited partnership units outstanding during the year 30,000 30,000 30,000 ========== ========== ===========
(See accompanying notes to financial statements) NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL
Year ended December 31, ------------------------------------------------------------------------ 1995 1994 1993 ------------------ -------------------- ------------------ General Limited General Limited General Limited Partner Partners Partner Partners Partner Partners ------- -------- ------- --------- ------- -------- Balance at beginning of year $45,121 $17,898,131 $ 28,359 $22,039,045 $ 53,046 $24,483,079 Cash distributions (9,940) (984,000) (14,529) (7,238,700) (15,697) (1,554,000) Net income (loss) 15,693 1,553,575 31,291 3,097,786 (8,990) (890,034) ------- ----------- -------- ----------- -------- ----------- Balance at end of year $50,874 $18,467,706 $ 45,121 $17,898,131 $ 28,359 $22,039,045 ======= =========== ======== =========== ======== ===========
(See accompanying notes to financial statements) NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP STATEMENT OF CASH FLOWS
Year ended December 31, ---------------------------------------- 1995 1994 1993 ----------- ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 1,569,268 $ 3,129,077 $ (899,024) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 230,712 222,518 184,055 Credit from (provision for) impaired mortgage loans (260,000) (200,000) 2,800,000 Gain on sale of investment - (1,385,562) - Increase in deferred leasing costs and other assets (22,623) (122,075) (72,175) Decrease in accrued ground lease/ mortgage loan receivables - - 414,623 Decrease (increase) in operating receivables (88,234) 71,383 52,276 Decrease in unearned revenue - (1,232) (5,100) Increase (decrease) in operating liabilities (16,596) 65,679 20,542 ----------- ----------- ----------- Net cash provided by operating activities 1,412,527 1,779,788 2,495,197 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from sale of investment - 3,052,295 - Repayment of mortgage loan investment - 3,170,000 - Capital expenditures on owned property and property collateralizing ground lease/ mortgage loan investments (550,779) (594,054) (542,193) Decrease (increase) in short-term investments, net (1,094,854) 1,045,544 (646,287) Increase in deferred disposition fees - 192,442 - ----------- ----------- ----------- Net cash provided by (used in) investing activities (1,645,633) 6,866,227 (1,188,480) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITY: Distributions to partners (993,940) (7,253,229) (1,569,697) ----------- ----------- ----------- Net cash used in financing activity (993,940) (7,253,229) (1,569,697) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents (1,227,046) 1,392,786 (262,980) Cash and cash equivalents: Beginning of year 2,431,089 1,038,303 1,301,283 ----------- ----------- ----------- End of year $ 1,204,043 $ 2,431,089 $ 1,038,303 =========== =========== ===========
(See accompanying notes to financial statements) NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION AND BUSINESS - ---------------------------------- General New England Life Pension Properties; A Real Estate Limited Partnership (the "Partnership") is a Massachusetts limited partnership organized for the purpose of investing primarily in newly constructed and existing income producing real properties. It primarily serves as an investment for qualified pension and profit sharing plans and other entities intended to be exempt from federal income tax. The Partnership commenced operations in June 1983, and acquired several real estate investments through 1985. It intends to dispose of its investments within twelve years of their acquisition, and then liquidate; however, the general partner could extend the investment period if it is in the best interest of the limited partners. The general partner of the Partnership is Copley Properties Company, Inc., a wholly-owned subsidiary of Copley Real Estate Advisors, Inc. ("Copley"). The associate general partner is CCOP Associates Limited Partnership, a Massachusetts limited partnership, the general partners of which, are managing directors of Copley and/or officers of the managing general partner. Subject to the general partner's overall authority, the business of the Partnership is managed by Copley pursuant to an advisory contract. Copley is an indirect wholly-owned subsidiary of New England Investment Companies, L.P. ("NEIC"), a publicly traded limited partnership. New England Mutual Life Insurance Company ("The New England") the parent of NEIC's predecessor, is NEIC's principal unitholder. In August 1995, The New England announced an agreement to merge (the "Merger") with Metropolitan Life Insurance Company ("Metropolitan Life"), with Metropolitan Life to be the surviving entity. This merger, which is subject to various policyholder and regulatory approvals, is expected to take place in the first half of 1996. Metropolitan Life is the second largest life insurance company in the United States in terms of total assets, having assets of over $130 billion (and adjusted capital of over $8 billion) as of June 30, 1995. At December 31, 1995 an affiliate of the general partner owned 1,094 units of limited partnership interest and at December 31, 1994 the general partner owned 1,069 units of limited partnership interest, which were repurchased from certain qualified plans, within specified annual limitations provided for in the Partnership Agreement. Management Copley, as advisor, is entitled to receive stipulated fees from the Partnership in consideration of services performed in connection with the management of the Partnership and the acquisition and disposition of Partnership investments in real property. Partnership management fees are 9% of distributable cash flow from operations, as defined, before deducting such fees. Acquisition fees were paid in an amount equal to 2% of the gross proceeds from the offering available for investment. Disposition fees are generally 3% of the selling price of the property, but are subject to the prior receipt by the limited partners of their capital contributions plus a stipulated return thereon. New England Securities Corporation, an indirect subsidiary of The New England, is engaged by the Partnership to act as its unit holder servicing agent. Fees and out-of-pocket expenses for such services totaled $4,719, $6,985 and $7,066 in 1995, 1994 and 1993, respectively. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires the general partner to make estimates affecting the reported amounts of assets and liabilities, and of revenues and expenses. In the Partnership's business, certain estimates require an assessment of factors not within management's control, such as the ability of tenants to perform under long-term leases and the ability of the properties to sustain their occupancies in changing markets. Actual results, therefore, could differ from those estimates. Ground Leases and Mortgage Loans While the related land and loan investments are legally separable, the terms thereof have been negotiated jointly and the general partner evaluates investment performance on a combined basis. They are, therefore, presented together in the accompanying balance sheet and statement of operations. Investments in land subject to ground leases are stated at cost, plus accrued revenue. Investments in mortgage loans to the related ground lessees are originally stated at cost, plus accrued interest. If the investment is subject to ownership accounting (see below), cost is adjusted for the accumulated cost recovery allowance. If the mortgage loan is impaired (see "Impaired Mortgage Loans" below), the carrying amount is adjusted to the estimated market value of the underlying collateral less anticipated costs of sale. Accrual of contractual ground rent and loan interest is discontinued if the total of the Partnership's invested cash and such accrual approximates the appraised value of the investment. Under this condition, the Partnership applies ownership accounting whereby revenue is recognized only to the extent of net operating income generated by the underlying property, before depreciation, to which the Partnership is entitled. In addition, the cost of the investment related to depreciable property is subject to a recovery allowance similar to depreciation, which is computed using the straight-line method based on estimated useful lives. The Partnership, however, retains a priority claim to all unrecognized contractual revenue. If a mortgage loan is determined to be impaired, the Partnership recognizes revenue only to the extent of operating cash flow generated by the collateral underlying the loan and no longer recognizes a cost recovery allowance. Impaired Mortgage Loans The Partnership considers a loan to be impaired when it is probable that it will be unable to collect all amounts due under the contractual terms of the loan agreement. Factors that the Partnership considers in determining whether a loan is impaired include its past due status, fair value of the underlying collateral and economic prospects of the borrower. When a loan is impaired, its carrying value is periodically adjusted, through a valuation allowance, to its estimated market value which is based on the appraised value of the underlying collateral less anticipated costs of sale. Changes in the valuation allowance are reported in the Statement of Operations. Property The Partnership and an affiliate share common ownership of an investment. The form of the investment is a combination ground lease and mortgage loan, as described above; however, in this case (Willows Shopping Center), substantial economic risks of property ownership rest with the Partnership and its affiliate. Accordingly, the investment is accounted for as owned property, although the Partnership and its affiliate have a priority claim to all unrecognized contractual revenue. The Partnership's financial statements include its proportionate ownership share (25%) of the individual assets, liabilities, revenue and expenses related to the property. Land and buildings and improvements (net of accumulated depreciation) are classified as property in the balance sheet. Leases provide for rental increases over the respective lease terms. Rental revenue is being recognized on a straight-line basis over the lease terms. Capitalized Costs Maintenance and repair costs are expensed as incurred. Significant improvements and renewals are capitalized. Depreciation is computed using the straight-line method based on estimated useful lives of the buildings and improvements. Leasing costs are also capitalized and amortized over the related lease terms. Acquisition fees have been capitalized as part of the cost of real estate investments. Amounts not related to land are being amortized using the straight-line method over the terms of the mortgage loans or the estimated useful lives of the property. Realizability of Real Estate Investments The Partnership considers a real estate investment, other than a mortgage loan, to be impaired when it determines the carrying value of the investment is not recoverable through undiscounted cash flows generated from the operations and disposition of the property. Effective January 1, 1995, with its adoption of Statement of Financial Accounting Standards No.121 (SFAS 121) entitled, " Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Partnership measures the impairment loss based on the excess of the investment's carrying value over its estimated fair market value. For investments being held for sale, impairment loss is measured based on the excess of the investment's carrying value over its estimated fair market less estimated costs of sale. Property held for sale is not depreciated during the holding period. The carrying value of an investment may be more or less than its current appraised value. At December 31, 1995, the carrying value of Willows Shopping Center exceeded its appraised value by approximately $390,000, while at December 31, 1994 the carrying value exceeded its appraised value by approximately $270,000. The appraised value of the remaining investments at December 31, 1995 and 1994 exceeded their related carrying values by an aggregate of $46,000 for both years. The current appraised value of real estate investments has been estimated by the general partner and is generally based on a correlation of traditional appraisal approaches performed by Copley and independent appraisers. Because of the subjectivity inherent in the valuation process, the estimated current appraised value may differ significantly from that which could be realized if the real estate were actually offered for sale in the marketplace. Cash Equivalents and Short-Term Investments Cash equivalents are stated at cost, plus accrued interest. The Partnership considers all highly liquid debt instruments purchased with a maturity of ninety days or less to be cash equivalents; otherwise, they are classified as short-term investments. The Partnership has the positive intent and ability to hold all short-term investments to maturity; therefore, short-term investments are carried at cost plus accrued interest, which approximates market value. At December 31, 1995 all investments are in commercial paper with less than six months remaining to maturity. At December 31, 1994, the Partnership did not hold any short-term investments. Deferred Disposition Fees Disposition fees due to Copley related to sales or restructuring of investments are included in the determination of gains or losses resulting from such transactions. According to the terms of the advisory contract, payment of such fees has been deferred until the limited partners first receive their capital contributions, plus stipulated returns thereon. Income Taxes A partnership is not liable for income taxes and, therefore, no provision for income taxes is made in the financial statements of the Partnership. A proportionate share of the Partnership's income is reportable on each partner's tax return. Per Unit Computations Per unit computations are based on the number of units of limited partnership interest outstanding during the year. The actual per unit amount will vary by partner depending on the date of admission to, or withdrawal from, the Partnership. NOTE 3 - INVESTMENTS IN GROUND LEASES AND MORTGAGE LOANS - -------------------------------------------------------- The following is a summary of the Partnership's investments in ground leases and mortgage loans:
Fixed Rental/ Investment/ Acquisition Interest December 31, Location Date Rate 1995 1994 - ------------ ------------ -------- ----------- ----------- Rivers Corporate Park 1984 (L) $ 1,100,000 $ 1,100,000 Columbia, MD 11.50% (M) 4,000,000 4,000,000 Decatur TownCenter 1985 12.00% (L) 1,675,000 1,675,000 Decatur, GA 8.5% (M) 5,825,000 5,825,000 1986-1989 12.00% (M) 633,076 633,076 ------------ ------------ $ 13,233,076 $ 13,233,076 ============ ============
(L) Ground lease (M) Mortgage loan
December 31, ----------------------- 1995 1994 -------------- -------------- Cash invested $ 13,233,076 $ 13,233,076 Unamortized closing costs and acquisition fees, net 57,447 59,181 Accrued ground lease and mortgage loan receivables 717,767 717,767 Capital expenditures 235,000 100,000 Cost recovery allowance (394,415) (394,415) Valuation allowance for impaired mortgage loans (2,340,000) (2,600,000) -------------- ------------- $ 11,508,875 $ 11,115,609 ============== =============
Ground leases have terms of fifty to sixty years and provide for additional rent equal to a percentage, ranging from 50% to 60%, of gross revenues in excess of a base amount from the rental of the buildings situated on the land. Percentage rent totaled $7,413, $22,643 and $187,269 in 1995, 1994 and 1993, respectively. The Partnership is also entitled to that same percentage of the net proceeds from the sale of the entire property after it has recovered its cash investment in the land and mortgage loan and, for Decatur TownCenter, after payment to the ground lessee of an amount equal to its cost of any capital improvements made during the lease term. The lease agreements require the lessee to pay all operating expenses related to the subject land. The tenant occupying Rivers Corporate Park has the right of first refusal to purchase the building and a right to request the purchase of the land through November 2004 at fair market value. Generally, interest on the mortgage loans is payable monthly, except for interest on the second mortgage loan on Decatur TownCenter which is payable upon maturity. The loans are secured by first mortgages on the buildings, as well as a second mortgage on Decatur TownCenter, and by the ground leasehold interests. The mortgage loan on Rivers Corporate Park matured on March 31, 1994. Renewal discussions are ongoing. The first and second mortgage loans on Decatur TownCenter matured on February 19, 1995. On August 15, 1995, the ground lease/mortgage loan agreements were amended to extend the maturity dates until December 31, 1996 and to provide the Partnership the sole right to cause a sale of the property on or after January 1, 1996. Sale of Ontario Distribution Center The Ontario Distribution Center in Ontario, California was sold on June 17, 1994. The net sale proceeds received by the Partnership fully repaid its ground lease and mortgage loan investment and resulted in a gain of $1,385,562 ($45.72 per limited partnership unit), net of the disposition fee of $192,442 payable to the advisor. On July 28, 1994, the Partnership made a capital distribution to the limited partners in the aggregate amount of $5,800,200 ($193.34 per limited partnership unit) with the proceeds from this sale. Decatur TownCenter The payment terms for the ground lease and mortgage loans on Decatur TownCenter have been modified. Effective March 1, 1993, the rate on the first mortgage loan was reduced to 8.5%, principal amortization commenced on a 25-year schedule; and previously accrued interest was to be paid over a twenty-four month period. The 1995 amendment to the first mortgage loan and ground lease provides for interest and ground rent payments only to the extent of cash flow from operations of the property. The Partnership, however, retains its claim to all unpaid amounts. With the determination that the loan was impaired as of January 1, 1993, the Partnership has recognized income to the extent of operating cash flow generated by the collateral underlying the loans ($602,256, $638,472 and $535,192 in 1995, 1994 and 1993, respectively). In addition, a valuation allowance has been established to adjust the carrying value of the loans to estimated fair market value less anticipated costs of sale. The activity in the valuation allowance during 1994 and 1995, together with the related recorded and carrying value of the impaired mortgage loans at the beginning and end of each year, are summarized as follows:
Recorded Valuation Carrying Value Allowance Value ---------- ------------ ---------- Balance at January 1, 1994 $ 6,561,846 $ (2,800,000) $ 3,761,846 ============= ============== ============= Increase in fair market value of collateral $ 200,000 -------------- Balance at December 31, 1994 $ 6,646,927 $ (2,600,000) $ 4,046,927 ============= ============== ============= Increase in fair market value of collateral $ 260,000 -------------- Balance at December 31, 1995 $ 6,781,928 $ (2,340,000) $ 4,441,928 ============= ============== =============
The average recorded value of the impaired mortgage loans did not differ materially from the balances at the end of the period. NOTE 4 - INVESTMENTS IN PROPERTY - -------------------------------- The Willows Shopping Center investment (the "Willows"), acquired in 1984, is owned jointly with an affiliate of the Partnership (the "Affiliate"); the Partnership has a 25% ownership share. The ground lessee/mortgagor stopped paying interest on the mortgage loan as of March 1990. As a result, the Partnership and its Affiliate began foreclosure proceedings to take possession of the property. A protracted series of legal interactions ensued, including the filing of an involuntary bankruptcy petition by the second leasehold mortgagee. In June 1991, the Partnership and its Affiliate sold the mortgage note to the original owner of the Willows, who in turn undertook and completed the foreclosure action. The Partnership and its Affiliate received a new mortgage note; the principal related to the Partnership's share is $3,715,802. The note bears interest at 9.323% per annum, payable monthly; however, it may accrue with interest compounded at 11%. The loan matures on June 18, 2001. The original owner also assumed the ground lease. The ground lease provides for annual rental payments to the Partnership of $137,500. Rental payments may accrue through June 1996, with interest compounding at 11%. The ground lease also provides for participation rentals at 70% of gross revenues in excess of a base amount to the Partnership and its Affiliate. Under this investment arrangement, however, the Partnership and its Affiliate are bearing substantial economic risks of ownership; accordingly, the investment is being accounted for as a jointly owned property. In connection with a major renovation of the property, on January 1, 1995, the Partnership and its Affiliate committed to make a construction loan to the ground lessee in the amount of $2,500,000. The Partnership's share is $625,000 of which $100,621 has been funded as of December 31, 1995. Interest accrues at 11% compounded monthly; debt service payments begin on January 1, 1996, including principal payments based upon a 15-year amortization schedule. The note matures on December 31, 1997. In addition, the ground lease was amended, whereby after January 1, 1996, the Partnership and the Affiliate may, at their sole discretion, offer the entire property for sale. At December 31, 1995 and 1994, the Partnership's proportionate share of the carrying value of the property was comprised of land of $1,250,000 and building and improvements of $3,867,318 and $3,636,582, respectively (net of accumulated depreciation of $766,954 and $581,911, respectively). The buildings are being depreciated on a straight-line basis with an estimated useful life ranging from 21 to 25 years. The Partnership's proportionate share of future minimum rentals under non-cancelable operating leases are: $583,750 in 1996; $591,250 in 1997; $581,750 in 1998; $537,250 in 1999; $413,000 in 2000; and $1,446,500 thereafter. NOTE 5 - INCOME TAXES - --------------------- The Partnership's income for federal income tax purposes differs from that reported in the accompanying statement of operations as follows:
Year ended December 31, --------------------------------- 1995 1994 1993 ---- ---- ---- Net income (loss) per financial statements $ 1,569,268 $ 3,129,077 $ (899,024) Timing differences: Ground rent and mortgage loan interest (1) 688,074 602,941 678,782 Gain on sale - 223,483 - Expenses - - 9,280 Valuation allowance (260,000) (200,000) 2,800,000 ----------- ----------- ----------- Taxable income $1,997,342 $3,755,501 $2,589,038 =========== =========== ===========
(1) Represents additional contractual revenue recognized for tax purposes related to the Willows Shopping Center in 1993. NOTE 6 - PARTNERS' CAPITAL - -------------------------- Allocations of net income (losses) from operations and distributions of distributable cash from operations, as defined, are in the ratio of 99% to the limited partners and 1% to the general partner. Cash distributions are made quarterly. Net sales proceeds and financing proceeds are allocated first to limited partners to the extent of their contributed capital plus a stipulated return thereon, as defined, second to pay disposition fees, and then 85% to the limited partners and 15% to the general partner. The adjusted capital contribution per limited partnership unit was reduced from $1,000 to $790 during 1985, from $790 to $740 during 1991, and from $740 to $546.66 during 1994 as a result of such transactions. Income from a sale is allocated in proportion to the distribution of related proceeds, provided that the general partner is allocated at least 1%. Income or losses from a sale, if there are no residual proceeds after the repayment of the related debt, will be allocated 99% to the limited partners and 1% to the general partner. NOTE 7 - SUBSEQUENT EVENT - ------------------------- Distributions of cash from operations relating to the quarter ended December 31, 1995 were made on January 25, 1996 in the aggregate amount of $248,485 ($8.20 per limited partnership unit). NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION AT DECEMBER 31, 1995
Costs Subsequent Gross Amount at Which Initial Costs to Partnership to Acquisitions Carried at Close of Period ----------------------------------------------- ----------------------------------------------- Encum - Buildings & Improve - Buildings & Description brances Land Improvements ments Land Improvements - -------------------------- ----------- -------------- ---------------- ------------ -------------- --------------- Research and Development Facility Columbia, Maryland Note A 1,122,880 -- -- 1,122,880 -- 25% interest in Shopping Center Concord, California Note A 1,250,000 3,298,795 1,335,476 1,250,000 4,634,271 Office Building Decatur, Georgia Note A 1,709,567 -- -- 1,709,567 -- ------------------------------------------------------------------------------------------------- Total $4,082,447 $3,298,795 $1,335,476 $4,082,447 $4,634,271 ================================================================================================= Accrued Accumulated Date of Date Depreciable Description Ground Rent Total Depreciation Construction Acquired Life - -------------------------- ----------- -------------- ---------------- ------------ -------------- --------------- Research and Development Facility Columbia, Maryland -- 1,122,880 -- -- 03/28/84 -- 25% interest in Shopping Center Concord, California -- 5,884,271 (766,954) -- (L) 07/30/84 (B) 06/18/91 25 years Office Building Decatur, Georgia 234,500 1,944,067 -- -- (L) 02/20/85 30 years (B) 1992 ------------------------------------------------------------------------------------------------- Total $234,500 $8,951,218 ($766,954) =================================================================================================
Notes: (L) Land (A) All senior mortgages on the properties are (B) Buildings & Improvements held by New England Life Pension Properties. (B) Reconciliation of real estate owned: Balance at beginning of year $8,535,439 Acquisitions 415,779 -------------- Balance at end of year $8,951,218 ============== Accumulated depreciation at beginning of year $581,911 Depreciation expense 1995 185,043 -------------- Accumulated depreciation at end of year $766,954 ==============
NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP SCHEDULE IV MORTGAGE LOANS ON REAL ESTATE AT DECEMBER 31, 1995
Final Periodic Cost Interest Maturity Payment Face Amount Recovery Description Rate Date Terms of Mortgage Allowance - ----------- ------------ ------------ ------------ --------------- ------------- Research and Development Facility Interest Columbia, Maryland 11.50% 03/28/94 Monthly 4,000,000 -- (See Note 3) Principal at Maturity Office Building Decatur, Georgia 8.50% 12/31/96 25-yr monthly (See Note 3) amortization 5,825,000 (394,415) Principal at Maturity 2nd Mortgage 12.00% 12/31/96 Interest 633,076 -- Monthly Principal at Maturity ------------------------------------------------------------------------------------------- Total $10,458,076 ($394,415) =========================================================================================== Valuation allowance Amount of Deferred Carrying for impaired Interest Aquisition Amount of Description Mortgage loans Receivable Fees Mortgage - ----------- ------------------ -------------- -------------- ------------- Research and Development Facility Columbia, Maryland -- -- -- $4,000,000 Office Building Decatur, Georgia (2,340,000) 718,267 0 $3,808,852 2nd Mortgage -- -- -- $ 633,076 ------------------------------------------------------------------------------- Total ($2,340,000) $718,267 $0 $8,441,928 ===============================================================================
Balance at beginning of year $8,048,662 Valuation allowance for impaired loans 260,000 Increase in acccrued ground lease/mortgage loan receivables 135,000 Amortization of deferred acquisition fees (1,734) -------------- 8,441,928 ==============
DECATUR TOWNCENTER ASSOCIATES, LTD. FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994, AND 1993 FINANCIAL STATEMENTS INDEX NO. 2 AUDITOR'S REPORT AND FINANCIAL STATEMENTS OF DECATUR TOWNCENTER ASSOCIATES, LTD.
PAGE # Independent Auditor's Report of Duggan & Massey, P.C........................... Balance Sheet - December 31, 1995 and 1994..................................... Statement of Income - For the Years Ended December 31, 1995, 1994 and 1993............................................. Statement of Changes in Partner's Capital - For the Years Ended December 31, 1995, 1994 and 1993............................................. Statement of Cash Flows - For the Years Ended December 31, 1995, 1994 and 1993............................................. Notes to Financial Statements..................................................
[LETTERHEAD OF DUGGAN & MASSEY, P.C.] INDEPENDENT AUDITOR'S REPORT ---------------------------- To The Partners Decatur TownCenter Associates, Ltd. We have audited the accompanying balance sheets of Decatur TownCenter Associates, Ltd. as of December 31, 1995 and 1994 and the related statements of income, partners' capital and cash flows for each of the three years in the period ended December 31, 1995. 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 audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Decatur TownCenter Associates, Ltd. as of December 31, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. The Partnership's significant cash deficits and operating losses raise substantial doubt about its ability to continue as a going concern. The Partnership's ability to continue as a going concern is dependent on attaining future positive cash flow and/or additional financing. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Duggan & Massey, PC January 15, 1996 DECATUR TOWNCENTER ASSOCIATES, LTD. BALANCE SHEETS ASSETS ------
December 31 ---------------------------- 1995 1994 ------------ ------------ Current Assets Cash $ 101,091 $ 15,024 Accounts receivable - tenants (Net of allowance for doubtful accounts of $340 and $1,072) 8,422 20,376 Accounts receivable - others 9,810 3,955 Prepaid expenses 2,826 1,860 ------------ ------------ Total Current Assets 122,149 41,215 ------------ ------------ Building and Improvements (Net of accumulated depreciation of $3,059,894 and $2,818,534) 2,978,833 3,161,332 ------------ ------------ Other Assets Loan costs (Net of accumulated amortization of $100,000 and $98,349) -0- 1,650 Commissions and procurement fees (Net of accumulated amortization of $141,934 and $89,770) 123,638 156,906 Investment in Decatur TownCenter II Associates 1 1 ------------ ----------- Total Other Assets 123,639 158,557 ------------ ----------- Total Assets $3,224,621 $3,361,104 ============ ===========
LIABILITIES AND PARTNERS' CAPITAL ---------------------------------
December 31 ------------------------------ 1995 1994 -------------- -------------- Current Liabilities First mortgage payable $5,825,000 $5,825,000 Second mortgage payable 1,055,116 1,055,116 Accrued interest expense 1,190,277 994,535 Accrued ground rent expense 1,189,250 988,250 Accounts payable 42,200 40,356 Rents received in advance 1,088 1,536 Security deposit 1,964 1,964 -------------- -------------- Total Current Liabilities 9,304,895 8,906,757 -------------- -------------- Partners' Capital (6,080,274) (5,545,653) -------------- -------------- Total Liabilities and Partners' Capital $3,224,621 $3,361,104 ============== ==============
See accompanying notes and accountant's report. DECATUR TOWNCENTER ASSOCIATES LTD. STATEMENTS OF INCOME
Years Ended December 31 ------------------------------------- 1995 1994 1993 ---------- ----------- ---------- Rental Income $1,143,642 $1,200,783 $1,080,745 ---------- ---------- ---------- Expenses Advertising and promotion 3,433 4,480 857 Amortization 65,084 69,133 58,240 Bad debts 9,524 (530) 620 Depreciation 230,092 224,828 213,102 Donations 100 248 120 General building maintenance 112,535 104,466 100,522 Ground rent 201,000 201,000 201,000 Insurance 10,336 6,611 10,635 Interest 621,739 621,734 655,714 Legal and accounting 11,717 9,762 8,735 Management fees and commissions 75,201 65,888 62,854 Miscellaneous rental expense -0- 1,337 971 Office 5,355 5,324 3,864 Parking deck 11,465 12,783 10,417 Salary reimbursement 36,263 37,716 27,622 Security 21,208 18,599 17,501 Taxes and licenses 142,618 123,490 131,827 Utilities 119,980 122,336 122,318 ---------- ----------- ---------- Total Expenses 1,677,650 1,629,205 1,626,919 ---------- ----------- ---------- Operating Loss (534,008) (428,422) (546,174) ---------- ----------- ---------- Other Income and Expenses Interest income 307 845 3,956 Penalty (920) -0- -0- ---------- ----------- ---------- Total Other Income and Expenses (613) 845 3,956 ---------- ----------- ---------- Net Loss $ (534,621) $ (427,577) $ (542,218) ========== =========== ==========
See accompanying notes and accountant's report. DECATUR TOWNCENTER ASSOCIATES LTD. STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31 ------------------------------------------ 1995 1994 1993 ------------- ------------ ------------- Balance, beginning of period $ (5,545,653) $ (5,118,076) $ (4,575,858) Net loss for the period (534,621) (427,577) (542,218) ------------- ------------ ------------ Balance, end of period $ (6,080,274) $ (5,545,653) $ (5,118,076) ============= ============ ============
See accompanying notes and accountant's report. DECATUR TOWNCENTER ASSOCIATES LTD. STATEMENTS OF CASH FLOWS
Years Ended December 31 ----------------------------------------------------- 1995 1994 1993 -------------- ---------------- --------------- Cash Flows From Operating Activities: Net loss $ (534,621) $ (427,577) $ (542,218) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 295,176 293,961 271,342 (Increase) Decrease in assets: Accounts receivable - tenants 11,954 10,072 (11,785) Accounts receivable - others (5,855) (3,955) 6,965 Prepaid expenses (966) 722 11,578 Increase (Decrease) in Liabilities: Accounts payable and accrued liabilities 398,586 238,464 265,679 Rents received in advance (448) (4,964) 6,500 -------------- --------------- -------------- Net cash provided by operating activities 163,826 106,723 8,061 Cash Flows From Investing Activities: Capital expenditures (77,759) (155,176) (294,623) -------------- --------------- -------------- Net increase (decrease) in cash and cash equivalents 86,067 (48,453) (286,562) Cash and cash equivalents at beginning of year 15,024 63,477 350,039 -------------- --------------- -------------- Cash and cash equivalents at end of year $ 101,091 $ 15,024 $ 63,477 ============== =============== ============== Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 425,996 $ 577,822 $ 599,154 ============== =============== ==============
See accompanying notes and accountant's report. DECATUR TOWNCENTER ASSOCIATES, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Operations ------------------------- Decatur TownCenter Associates, Ltd. was formed on March 8, 1984 as a partnership between A.J. Land, Jr., Daniel B. Pattillo and Lawrence P. Kelly. A.J. Land, Jr. is the general partner of the project. The partnership was established to construct, manage, and lease an office building in Decatur, Georgia. Building and Improvements ------------------------- Building and improvements are carried at cost. Depreciation on the building is computed using the straight-line method over a thirty year period. Tenant improvements are being depreciated using the straight-line method over the lives of the related tenant leases. Expenditures for maintenance, repairs, renewals and improvements which do not materially extend the useful lives of the assets are charged to current earnings. Intangible Assets ----------------- Loan costs are being amortized using the straight-line method over a ten year period. Commissions and procurement fees are being amortized using the straight- line method over the lives of the related leases. Income Taxes ------------ These financial statements do not reflect a provision or expense for income taxes. Each partner's pro rata share of income or loss is reported on their individual income tax return. Reclassifications ----------------- Certain amounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year financial statements. Cash and Cash Equivalents ------------------------- For purposes of the statements of cash flows, the Partnership considers all highly liquid debt instruments purchased with a maturity of twelve months or less together with accrued interest to be cash equivalents. DECATUR TOWNCENTER ASSOCIATES, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 2. BUILDING AND IMPROVEMENTS The investment in building and improvements consists of the following:
December 31 -------------------------- 1995 1994 ------------ ------------ Construction period interest and taxes $ 338,060 $ 338,060 Building 3,863,063 3,863,063 Landscape and lobby 116,102 116,102 Furniture and equipment 9,067 9,067 Tenant and capital improvements 1,712,435 1,653,574 Less: accumulated depreciation (3,059,894) (2,818,534) ------------ ------------ Total Building and Improvements $ 2,978,833 $ 3,161,332 ============ ============
3. FIRST MORTGAGE PAYABLE New England Life Pension Properties holds a first mortgage secured by all of the real property and improvements of the partnership. The total proceeds were $5,825,000. Monthly payments of interest only began April 1, 1985 and continue until maturity. On February 19, 1995, the maturity date of the note was changed from February 19, 1995 to December 31, 1996. On the maturity date, the loan shall be due and payable in full, including any unpaid interest. Annual interest expense amounted to $495,125 for the year ended December 31, 1995, $495,125 for the year ended December 31, 1994, and $529,100 for the year ended December 31, 1993. Interest in the amount of $84,498, $15,369 and $98,072 was accrued but unpaid at December 31, 1995, 1994 and 1993, respectively. There are no binding agreements to refinance on or after the maturity date. The promissory note was amended March 1, 1993 to reduce the interest rate from 12% to 8.5% per annum. 4. SECOND MORTGAGE PAYABLE New England Life Pension Properties ($633,076) and Decatur TownCenter Associates, Ltd. partners ($422,040) hold a second leasehold mortgage secured by all of the real property and improvements of the Partnership. The total proceeds were $1,055,116. The loan bears interest at twelve percent per year, beginning March 10, 1986 until maturity. On February 19, 1995, the maturity date of the note was changed from February 19, 1995 to December 31, 1996. On the maturity date, the loan shall be due and payable including accrued interest. There are no binding agreements to refinance on or after the maturity date. Annual interest expense amounted to $126,614 for each of the years ended December 31, 1995, 1994, and 1993. Interest in the amount of $1,105,779, $979,165 and $852,551 was accrued but unpaid at December 31, 1995, 1994 and 1993, respectively. DECATUR TOWNCENTER ASSOCIATES, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 5. RELATED PARTY TRANSACTIONS The Partnership has contracted with related parties for the performance of various management, leasing and construction services. The Decatur TownCenter Associates, Ltd. partners have common ownership and management control with Land Realty Services, Land & Property In-Town, Pope and Land Enterprises, and Decatur TownCenter II Associates. Amounts involving related parties are summarized as follows:
1995 1994 1993 -------- -------- -------- Accounts receivable $ 10,149 $ 3,955 $ -0- Accounts payable 25,355 1,416 34,149 Capital improvements -0- 4,996 21,789 Construction-tenant finishes 46,076 89,273 119,978 Entertainment -0- -0- 14 General maintenance 34,923 10,556 4,919 Interest expense 50,646 50,646 50,646 Lease buy-outs -0- 26,637 122,024 Commissions 34,912 26,022 22,609 Management fees 33,361 35,743 38,453 Salaries 36,392 37,716 27,622
Other related party items include a portion of the second mortgage funded by partners in the amount of $422,040 (See Note 4) and the accrued interest due to the partners on the second mortgage for the years ended December 31, 1995, 1994 and 1993 of $442,311, $391,665 and $341,020, respectively. 6. LEASE COMMITMENTS Land - Building Site -------------------- The Partnership sold to and leased back from New England Life Pension Properties the land on which the building is located. The Partnership is committed to a sixty-year lease beginning February 20, 1985. The lease covers property of approximately one acre under the building. Annual ground lease expense amounted to $201,000 for each of the years ended December 31, 1995, 1994 and 1993. At December 31, 1995, 1994 and 1993, a total of $1,189,250, $988,250 and $787,250 was accrued but unpaid. DECATUR TOWNCENTER ASSOCIATES, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 The lease amount is comprised of a fixed annual rental and a participation rental. The fixed annual rental is $16,750 per month. The participation rental is a sum equal to sixty percent (60%) of gross receipts (as defined in the lease agreement) in excess of the base amount attributable to the current lease year. Gross receipts did not exceed the stated base amounts for the years ended December 31, 1995, 1994 and 1993; therefore, no participation rental was owed. Minimum future rental payments are as follows: 1996 $ 201,000 1997 201,000 1998 201,000 1999 201,000 2000 201,000 Thereafter 8,877,500 ---------- Total Minimum Future Rental Payments $9,882,500 ==========
The Partnership has an option to repurchase the land on the date the first mortgage is repaid. Land - Parking Lot ------------------ The Partnership owns approximately one and one-half acres on which the parking lot is located; however, in conjunction with the sale-leaseback described above, this land was leased to and subleased back from New England Life Pension Properties. The primary lease is for a term of ninety-nine years, beginning February 20, 1985. The annual rent income amount is $1. The terms of the sublease are identical to those of the primary lease, with the annual rent expense amount being $1. 7. INVESTMENT IN DECATUR TOWNCENTER II ASSOCIATES Decatur Town Center Associates, Ltd. entered into a joint venture on December 31, 1987 with New England Life Pension Properties IV to build an office building on the Leasehold Tract - Clairmont Road Property. The joint venture will lease and manage the property until December 31, 2047 unless sooner dissolved or terminated. No losses from the joint venture have been allocated to Decatur TownCenter Associates, Ltd. since operating deficiencies are funded by New England Life Pension Properties IV. DECATUR TOWNCENTER ASSOCIATES, LTD. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 8. RENTALS UNDER OPERATING LEASES Minimum future rental income on noncancellable operating leases as of December 31, 1995 is:
Year Ending Minimum Future December 31 Rentals ----------- -------------- 1996 $ 844,474 1997 720,270 1998 514,765 1999 357,896 2000 170,415 Thereafter 12,254 ---------- Total $2,620,074 ==========
9. CONTINGENCY The Partnership is negotiating with New England Life Pension Properties to purchase the land and retire the debt in Decatur TownCenter Associates, Ltd. If these negotiations are unsuccessful, New England Life Pension Properties has the option to offer the property for sale at its sole discretion as granted in the amended ground lease dated February 19, 1995. M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP FINANCIAL REPORT DECEMBER 31, 1995 FINANCIAL STATEMENTS INDEX NO. 3 AUDITOR'S REPORT AND FINANCIAL STATEMENTS OF M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP
PAGE # Independent Auditor's Report of Wolpoff & Company............................. Balance Sheet - December 31, 1995 and 1994.................................... Statement of Income - For the Years Ended December 31, 1995, 1994 and 1993............................................ Statement of Partners' Capital - For the Years Ended December 31, 1995, 1994 and 1993............................................ Statement of Cash Flows - For the Years Ended December 31, 1995, 1994 and 1993............................................ Notes to Financial Statements.................................................
[LETTERHEAD OF WOLPOFF & COMPANY, LLP] To the Partners M.O.R. XVIII Associates Limited Partnership Columbia, Maryland We have reviewed the balance sheet of M.O.R. XVIII Associates Limited Partnership as of December 31, 1995 and 1994, and the related statements of income, partners' capital and cash flows for the three years ended December 31, 1995, 1994 and 1993, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of M.O.R. XVIII Associates Limited Partnership. A review consists principally of inquiries of Partnership personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. The Partnership has a mortgage which was due in March 1994. The Partnership's plans regarding this matter are described in Note 7. The financial statements do not include any adjustments that might result from this uncertainty. /s/ Wolpoff & Company, LLP WOLPOFF & COMPANY, LLP Baltimore, Maryland February 15, 1996 M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------- BALANCE SHEET ------------- ASSETS ------
December 31, ---------------------------- 1995 1994 ------------- ------------- PROPERTY, AT COST - Notes 1 and 2 Building $ 2,449,170 $ 2,449,170 Tenant Improvements 1,138,724 1,138,724 Land, 5.3 Acres, Unimproved (11 Acres are Leased - See Note 5) 762,452 762,452 Preliminary Development Costs 227,713 227,713 Deferred Costs 403,059 403,059 ------------- ------------- 4,981,118 4,981,118 Less Accumulated Depreciation and Amortization 1,250,349 1,175,683 ------------- ------------- PROPERTY, NET 3,730,769 3,805,435 ------------- ------------- OTHER ASSETS Cash and Cash Equivalents - Note 1 1,494 1,564 Restricted Funds - Note 2 152,556 145,573 Receivables from Tenant Rent and Expense Reimbursements -0- 1,780 Deferred Rent Receivable - Notes 1 and 4 644,037 619,738 Receivable, Affiliates - Note 3 40,512 40,512 Receivable, Partner - Note 3 150,000 150,000 Prepaid Ground Rent -0- 20,625 ------------- ------------- TOTAL OTHER ASSETS 988,599 979,792 ------------- ------------- $ 4,719,368 $ 4,785,227 ============= =============
__________ See Accountant's Review Report. The notes to financial statements are an integral part of this statement. M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------- BALANCE SHEET ------------- LIABILITIES AND PARTNERS' CAPITAL ---------------------------------
December 31, ---------------------------- 1995 1994 ------------- ------------- LIABILITIES Mortgage Payable - Note 2 $ 4,000,000 $ 4,000,000 Accrued Interest Payable 38,333 38,333 Tenant Security Deposits 43,161 43,161 Payable, Affiliates - Note 3 360,261 379,608 Accounts Payable and Accrued Expenses 1,271 -0- ------------- ------------- TOTAL LIABILITIES 4,443,026 4,461,102 COMMITMENTS AND CONTINGENCY - Notes 2, 5 and 7 PARTNERS' CAPITAL - Note 1 276,342 324,125 ------------- ------------- $ 4,719,368 $ 4,785,227 ============= =============
__________ See Accountant's Review Report. The notes to financial statements are an integral part of this statement. M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------- STATEMENT OF INCOME -------------------
Year Ended December 31, -------------------------------------- 1995 1994 1993 ------------ ------------ ------------ REVENUE - Notes 1 and 4 Rental Income $ 677,374 $ 677,374 $ 677,374 Interest and Other Income 4,072 22,808 23,218 ------------ ------------ ------------ TOTAL REVENUE 681,446 700,182 700,592 ------------ ------------ ------------ EXPENSES - Note 4 General and Administrative 7,342 4,449 11,224 Property Taxes, Undeveloped Land 9,751 10,194 10,194 Legal and Accounting 3,700 3,818 8,768 Management Fees - Note 3 19,232 5,266 4,316 Maintenance Expenses -0- -0- 19,567 ------------ ------------ ------------ TOTAL EXPENSES 40,025 23,727 54,069 ------------ ------------ ------------ OPERATING INCOME 641,421 676,455 646,523 ------------ ------------ ------------ DEBT SERVICE AND GROUND RENT Interest on Permanent Mortgage - Note 2 460,000 460,000 460,000 Ground Rent - Note 5 154,538 126,500 126,500 Land Mortgage (Excluding Special 1993 Principal Payment) - Note 2 -0- 87,024 103,099 ------------ ------------ ------------ 614,538 673,524 689,599 ------------ ------------ ------------ FUNDS (DEFICIT) GENERATED BY OPERATIONS 26,883 2,931 (43,076) ------------ ------------ ------------ ADDITIONAL ITEMS TO ARRIVE AT NET LOSS Depreciation and Amortization (74,666) (81,324) (94,785) Principal Payments on Land Mortgage -0- 18,080 6,780 ------------ ------------ ------------ (74,666) (63,244) (88,005) ------------ ------------ ------------ NET LOSS - Notes 1 and 6 $ (47,783) $ (60,313) $ (131,081) ============ ============ ============
__________ See Accountant's Review Report. The notes to financial statements are an integral part of this statement. M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------- STATEMENT OF PARTNERS' CAPITAL ------------------------------
Year Ended December 31, ------------------------------------------- 1995 1994 1993 ------------- ------------- ------------- CAPITAL CONTRIBUTIONS Prior Years $ 1,489,546 $ 414,406 $ 50,674 Current Year -0- 1,075,140 363,732 ------------- ------------- ------------- 1,489,546 1,489,546 414,406 ------------- ------------- ------------- DISTRIBUTIONS Prior Years (788,241) (788,241) (788,241) ------------- ------------- ------------- ACCUMULATED LOSSES Prior Years (377,180) (316,867) (185,786) Current Year (47,783) (60,313) (131,081) ------------- ------------- ------------- (424,963) (377,180) (316,867) ------------- ------------- ------------- TOTAL PARTNERS' CAPITAL (DEFICIT) $ 276,342 $ 324,125 $ (690,702) ============= ============= =============
__________ See Accountant's Review Report. The notes to financial statements are an integral part of this statement. M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------- STATEMENT OF CASH FLOWS -----------------------
Year Ended December 31, ------------------------------------------------- 1995 1994 1993 --------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ (47,783) $ (60,313) $ (131,081) --------------- --------------- --------------- Adjustments to Reconcile Net Loss to Net Cash Provided (Used) by Operating Activities Depreciation and Amortization 74,666 81,324 94,785 Change in Accounts Payable and Accrued Expenses 1,271 (192,363) (96,948) Change in Prepaid Expenses 20,625 -0- (20,625) Increase in Receivables from Tenant (22,519) (149,901) (245,826) Change in Loan Payable, Affiliates (19,347) 379,608 (63,731) Increase in Receivables, Affiliates -0- (25,286) -0- Increase in Restricted Funds (6,983) (842) (46,731) --------------- --------------- --------------- Total Adjustments 47,713 92,540 (379,076) --------------- --------------- --------------- Net Cash Provided (Used) by Operating Activites (70) 32,227 (510,157) --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Reimbursement for Tenant Improvements -0- -0- 10,879 Change in Receivable, Affiliates -0- (15,226) 602,815 Deferred Costs -0- -0- (9,604) Change in Receivable, Partner -0- -0- (150,000) --------------- --------------- --------------- Net Cash Provided (Used) by Investing Activities -0- (15,226) 454,090 --------------- --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital Contributions -0- -0- 363,732 Principal Payments, Land Loan -0- (18,080) (306,780) --------------- --------------- --------------- Net Cash Provided (Used) by Financing Activities -0- (18,080) 56,952 --------------- --------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (70) (1,079) 885 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,564 2,643 1,758 --------------- --------------- --------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,494 $ 1,564 $ 2,643 =============== =============== ===============
(Continued) __________ See Accountant's Review Report. The notes to financial statements are an integral part of this statement. M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------- STATEMENT OF CASH FLOWS -----------------------
Year Ended December 31, ----------------------------------------------- 1995 1994 1993 ------------- ------------- ------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid During the Year for Interest $ 539,244 $ 539,244 $ 556,319 ============= ============= ============= SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES: Assumption of Land Mortgage by Partners $ -0- $ 1,075,140 $ -0- ============= ============= =============
__________ See Accountant's Review Report. The notes to financial statements are an integral part of this statement. M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- DECEMBER 31, 1995 ----------------- Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization ------------ M.O.R. XVIII Associates Limited Partnership was formed in 1982 pursuant to an agreement under the Maryland Uniform Limited Partnership Act. Property -------- The Partnership owns a leasehold interest in a 75,000-square-foot office/warehouse building in Columbia (Howard County), Maryland. See Note 5 regarding the related land lease. The development of the property, which is 100% leased to Crop Genetics International Corporation (see Note 4), was completed and operations commenced in February 1984. The Partnership also owns 5.3 acres of unimproved land adjacent to the property. Expenses Pertaining to Unimproved Land -------------------------------------- Carrying costs and expenses incurred when land is being prepared for construction are capitalized and included in land costs. This was the case in 1989 and 1990. In all other years, no substantial activity occurred and carrying costs were expensed as incurred. Depreciation ------------ Building and improvement costs are being depreciated using the straight-line method over the estimated useful life of 50 years. Amortization ------------ Various deferred costs are being amortized as follows:
Amortization Amount Period ------------ ------------ Leasing Costs $ 170,656 10 Years Construction Mortgage Costs 80,850 * 1 - 3 Years Permanent Mortgage Costs 134,814 * 10 Years Organization Costs 16,739 * 5 Years ------------ $ 403,059 ============
*Fully amortized. Rental Income ------------- Rental income is recognized on a straight-line basis over the term of the lease. The excess of resulting rental income over the rent stipulated in the lease is reflected as deferred rent receivable. Cash and Cash Equivalents ------------------------- The Partnership considers all highly liquid debt instruments purchased with a maturity of 3 months or less to be cash equivalents. Income Taxes ------------ Partnerships, as such, are not subject to income taxes. The partners are required to report their respective shares of partnership income or loss on their respective income tax returns (see Note 6). M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------- NOTES TO FINANCIAL STATEMENTS - CONTINUED ----------------------------------------- DECEMBER 31, 1995 ----------------- Note 2 - DEBT SERVICE Permanent Financing ------------------- On March 28, 1984, the Partnership obtained permanent financing on the leasehold interest from New England Life Pension Properties in the amount of $4,000,000. Pertinent terms of the mortgage are as follows: Mortgage Amount $4,000,000 Date Settled 3/28/84 Interest Rate 11.5% Total Annual Payments (Interest Only) $460,000 Term 10 Years* Collateral Building and Improvements
*The mortgage principal of $4,000,000 was due on March 28, 1994 (see Note 7). Land Mortgage and Related Debt Reserve Fund ------------------------------------------- The Partnership obtained a land loan of $1,400,000 from the First National Bank of Maryland in December 1983. The Partnership established a debt service reserve account as collateral. The balance of this account at December 31, 1995, was $106,553. On August 1, 1994, the loan, which had an outstanding balance of $1,075,140, was assumed by MRU Limited Partnership, a limited partner, and MRU's capital account was increased accordingly. The undeveloped land remains as collateral for the loan. Note 3 - RELATED PARTY TRANSACTIONS Management Fees --------------- The Partnership has entered into an agreement with Manekin Corporation, an affiliated entity, to act as management agent for the property. The management agreement provides for management fees equal to 1% of rent and tenant expense billings collected. The management fee increased to 3% in 1995. Management fees totaled $19,232, $5,266 and $4,316 in 1995, 1994 and 1993, respectively. Payable, Affiliates ------------------- The Partnership participates in a central disbursing cash account with various entities affiliated with the Partnership. As of December 31, 1995 and 1994, funds used by the Partnership in excess of the Partnership's cash balance amounted to $360,261 and $379,608, respectively, and is reflected as payable, affiliates. The funds bear interest at the applicable federal rate. Receivable, Partner ------------------- As of December 31, 1995 and 1994, the Partnership had a $150,000 loan receivable from MRU Limited Partnership, a limited partner. The loan is noninterest bearing and is due upon demand. M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------- NOTES TO FINANCIAL STATEMENTS - CONTINUED ----------------------------------------- DECEMBER 31, 1995 ----------------- Note 3 - Receivable, Affiliates ---------------------- (Cont.) As of December 31, 1995 and 1994, the Partnership had amounts due from various affiliated entities totaling $40,512. Note 4 - LEASE Crop Genetics International Corporation entered into a lease agreement with the Partnership in September 1992 and moved into the space on December 1, 1992. Real property taxes, insurance and most operating expenses are paid directly by the tenant. The lease is for a twelve- year, three-month term and provided for six months of free rent. The average annual rent is $653,076. The following is a schedule of future minimum lease payments to be received: 1996 $ 653,076 1997 653,076 1998 653,076 1999 653,076 2000 671,006 Thereafter 3,400,646
Note 5 - LAND SALE AND LEASEBACK On March 28, 1984, the Partnership entered into a sale-leaseback agreement with New England Life Pension Properties (a real estate limited partnership). Pursuant to this agreement, the Partnership sold 11 acres of land for $1,100,000 in exchange for a 60-year net leasehold interest in the land. The annual rent is $126,500 plus 50% of all increases in gross revenues in excess of $597,000. For this purpose, gross revenues do not include expense reimbursements paid by the tenant. Additional ground rent of $28,038 was incurred for 1995. No additional ground rent was incurred in 1994 and 1993. Note 6 - TAX ACCOUNTING The taxable loss of the Partnership differs from financial reporting as follows:
Current Prior Year Years Total ------------- --------------- --------------- Net Loss as Reported $ (47,783) $ (377,180) $ (424,963) Depreciation Adjustments (150,514) (1,629,081) (1,779,595) Amortization of Construction Period Interest and Taxes -0- (269,005) (269,005) Capitalized Interest and Taxes on Undeveloped Land -0- 98,316 98,316 Deferred Rent (24,299) (619,738) (644,037) ------------- --------------- --------------- Taxable Loss $ (222,596) $ (2,796,688) $ (3,019,284) ============= =============== ===============
M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------- NOTES TO FINANCIAL STATEMENTS - CONTINUED ----------------------------------------- DECEMBER 31, 1995 ----------------- Note 7 - CONTINGENCY The Partnership has not secured new financing or an extension of the mortgage that matured on March 28, 1994. They have continued making monthly interest payments on the mortgage and are pursuing new financing. The Partnership's continuation as a going concern is dependent upon their ability to obtain debt or equity financing. To the Partners M.O.R. XVIII Associates Limited Partnership Columbia, Maryland ACCOUNTANT'S REPORT ON SUPPLEMENTARY INFORMATION ------------------------------------------------ The accompanying supplementary information contained on page 13 is presented for purposes of additional analysis. Such information has not been subjected to the same inquiries and analytical procedures applied in the review of the basic financial statements, but has been compiled from information that is the representation of the management of M.O.R. XVIII Associates Limited Partnership, without audit or review. Accordingly, we do not express an opinion or any other form of assurance on such supplementary information. /s/ Wolpoff & Company, LLP WOLPOFF & COMPANY, LLP Baltimore, Maryland February 15, 1996 M.O.R. XVIII ASSOCIATES LIMITED PARTNERSHIP ------------------------------------------- SCHEDULE OF CHANGES IN PARTNERS' CAPITAL - INCOME TAX BASIS ----------------------------------------------------------- YEAR ENDED DECEMBER 31, 1995 ----------------------------
Partners' Partners' Partners' Capital Current Capital Ownership (Deficit) Capital Year (Deficit) Percentage 12/31/94 Contribution Loss 12/31/95 ------------- ------------- ------------ ----------- ------------- GENERAL PARTNER RA & DM, Inc. 1.00% $ (35,928) $ -0- $ (2,226) $ (38,154) LIMITED PARTNER MRU Limited Partnership 99.00% (2,049,207) -0- (220,370) (2,269,577) ------------- ------------- -------- ----------- ------------- 100.00% $(2,085,135) $ -0- $(222,596) $(2,307,731) ============= ============= ======== =========== =============
_________ See Accountant's Report on Supplementary Information. SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP Date: March 15 , 1996 By: /s/ Joseph W. O'Connor ------ ---------------------- Joseph W. O'Connor President of the General Partner Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- President, Principal Executive Officer and Director of the /s/ Joseph W. O'Connor General Partner March 15 , 1996 ------------------------- ------ Joseph W. O'Connor Principal Financial and Accounting Officer of the /s/ Daniel C. Mackowiak General Partner March 15 , 1996 ------------------------- ------ Daniel C. Mackowiak Director of the /s/ Daniel J. Coughlin General Partner March 15 , 1996 ------------------------- ------ Daniel J. Coughlin Director of the /s/ Peter P. Twining General Partner March 15 , 1996 ------------------------- ------ Peter P. Twining
EXHIBIT INDEX -------------
EXHIBIT NO. EXHIBIT PAGE NO. - ----------- ------- -------- 4. Amended and Restated Agreement of Limited * Partnership of the Registrant, dated June 29, 1983 (filed as Exhibit 4 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1983 [the "1983 Annual Report"]). 10A. Form of Escrow Deposit Agreement among the * Registrant, NEL Equity Services Corporation and The First National Bank of Boston (filed as Exhibit 10A to the Registrant's Registration Statement on Form S-11, dated December 22, 1982, file no. 2-81059 [the "Registration Statement"]). 10B. Advisory Contract dated March 22, 1983, between * the Registrant and Copley Real Estate Advisors, Inc. (filed as Exhibit 10 to the 1983 Annual Report). 10C. Form of Agreement between the Registrant and * Copley Properties Company, Inc. relating to organizational expenses (filed as Exhibit 10C to the Registration Statement). 10D. Purchase Agreement and Deposit Receipt dated * April 14, 1983 between Doyle Development Company and NBS Investment Corporation, which assigned its rights and obligations thereunder to the Registrant (filed as Exhibit 10 to Current Report on Form 8-K dated June 29, 1983, as filed on July 14, 1983). 10E. Purchase and Sale Agreement dated December 1984, * as amended by First Addendum to Purchase and Sale Agreement dated as of January 10, 1985 (filed as Exhibit 28 to Current Report on Form 8-K dated January 23, 1985). 10F. Amended and Restated Secured Promissory Note * dated August 20, 1985, by VMS 1984-133, Ltd., for the benefit of the Registrant and New England Life Pension Properties II; A Real Estate Limited Partnership.
_________________________________________________ * Previously filed and incorporated herein by reference. EXHIBIT INDEX -------------
EXHIBIT NUMBER PAGE NUMBER - -------------- ----------- 10G. Amended and Restated Ground Lease dated * August 20, 1985 between the Registrant, New England Life Pension Properties II; A Real Estate Limited Partnership and VMS 1984-133, Ltd. 10H. Amended and Restated Memorandum of Ground * Lease dated August 20, 1985 by and among the Registrant, New England Life Pension Properties II; A Real Estate Limited Partnership and VMS 1984-133, Ltd. 10I. Contract of Sale dated as of March 30, 1984 by * and between Decatur TownCenter Associates, Ltd., and the Registrant. 10J. Three Party Agreement dated as of March 30, 1984 * by and among Decatur Town Center Associates, the Registrant and the Citizens and Southern National Bank. 10K. Promissory Note dated February 20, 1985, in the * principal amount of $5,825,000 from the Registrant to Decatur Town Center Associates, Ltd. 10L. Ground Lease dated February 20, 1985 between * the Registrant and Decatur Town Center Associates, Ltd. 10M. First Consolidated Amendatory Agreement dated * December 29, 1988 by and between Decatur TownCenter Associates, Ltd. and the Registrant.
____________________________________________________ * Previously filed and incorporated herein by reference. EXHIBIT INDEX -------------
EXHIBIT NUMBER PAGE NUMBER - -------------- ----------- 10N. Purchase and Sale Agreement dated September 27, * 1990 by and between New England Mutual Life Insurance Company, a Massachusetts corporation, and Tom Hennig Co., Inc., a California corporation, as amended by Letter dated December 12, 1990. 10O. Letter Agreement between New England Life * Pension Properties II; A Real Estate Limited Partnership, the Registrant and Willows Concord Venture dated June 14, 1991. 10P. Promissory Note dated June 14, 1991, in the * principal amount of $14,863,206.38 from Willows Concord Venture to New England Life Pension Properties II; A Real Estate Limited Partnership and the Registrant. 10Q. Assignment of Note and Liens Including Deed of * Trust dated as of June 13, 1991 by New England Life Pension Properties II; A Real Estate Limited Partnership and the Registrant to Willows Concord Venture. 10R. Assignment of VMS Loan Documents dated June 14, * 1991 by Willows Concord Venture to New England Life Pension Properties II; A Real Estate Limited Partnership and the Registrant. 10S. Deed of Trust and Security Agreement dated June 13, * 1991 between Willows Concord Venture, as Trustor, Chicago Title Company, as Trustee, and New England Life Pension Properties II; A Real Estate Limited Partnership and the Registrant, as Beneficiary. 10T. Assignment of Leases and Rents dated June 13, 1991 * by Willows Concord Venture to New England Life Pension Properties II; A Real Estate Limited Partnership and the Registrant. 10U. Amended and Completely Restated Ground Lease * dated effective as of June 18, 1991 between Registrant, New England Life Pension Properties II; A Real Estate Limited Partnership and Willows Concord Venture.
________________________________________________ * Previously filed and incorporated herein by reference. EXHIBIT INDEX -------------
EXHIBIT NUMBER PAGE NUMBER - -------------- ----------- 10V. Amended and Restated Secured Promissory Note * effective as of June 14, 1991, in the principal amount of $14,863,206.38 from Willows Concord Venture to the Registrant and New England Life Pension Properties II; A Real Estate Limited Partnership. 10W. Modification Agreement and First Amendment to * Loan Documents dated August 13, 1991, by and between Willows Concord Venture, the Registrant and New England Life Pension Properties II; A Real Estate Limited Partnership. 10X. Modification Agreement and Second Amendment to * Loan Documents dated September 12, 1991, by and between Willows Concord Venture, the Registrant and New England Life Pension Properties II; A Real Estate Limited Partnership. 10Y. Modification Agreement and Third Amendment to * Loan Documents dated October 15, 1991, by and between Willows Concord Venture, the Registrant and New England Life Pension Properties II; A Real Estate Limited Partnership. 10Z. Fourth Amendment to Loan Documents dated * December 17, 1992 by and between Willows Concord Venture, Registrant and New England Life Pension Properties II; A Real Estate Limited Partnership. 10AA. Amendment to Promissory Note executed as of * March 1, 1993 made by Decatur TownCenter Associates, Ltd. in favor of Registrant. 10BB. First Amendment to First Consolidated * Amendatory Agreement executed as of March 1, 1993 made by and between the Registrant and Decatur TownCenter Associates, Ltd. 10CC. Fee Transfer and Lien Release Agreement dated * June 1, 1994 by and between New England Life Pension Properties, A Real Estate Limited Partnership. A Massachusetts limited partnership and 5141 E. Santa Ana Property Company, a California Limited Partnership.
EXHIBIT INDEX -------------
EXHIBIT NUMBER PAGE NUMBER - -------------- ----------- 10DD. Construction Loan Agreement dated January 1, 1995 by and between Willows Concord Venture, A California Limited Partnership as Borrower, and New England Life Pension Properties; A Real Estate Limited Partnership as Lender. 10EE. Second Amendment to Promissory Note dated as of February 19, 1995 between the Registrant and Decatur TownCenter Associates, Ltd. ("Decatur"). 10FF. Second Amendment to Ground Lease dated as of February 19, 1995 between the Registrant and Decatur. 10GG. Second Amendment to First Consolidated Amendatory Agreement dated as of February 19, 1995 between the Registrant and Decatur. 10HH. Third Amendment to Participation Agreement dated as of February 19, 1995 among the Registrant, A.J. Land, Jr., David B. Pattillo and Lawrence P. Kelly.
__________________________________________________ * Previously filed and incorporated herein by reference. EX-10.DD 2 CONSTRUCTION LOAN AGREEMENT Construction Loan Agreement dated January 1, 1995 by and between Willows Concord Venture, A California Limited Partnership as Borrower, and New England Life Pension Properties; A Real Estate Limited Partnership as Lender. CLOSING AGENDA -------------- CONSTRUCTION LOAN FROM NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP, AND NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE LIMITED PARTNERSHIP, AS LENDER, TO WILLOWS CONCORD VENTURE, AS BORROWER
DOCUMENT TAB NO. - -------- ------- Construction Loan Agreement...............................................1 Promissory Note...........................................................2 Security Agreement........................................................3 Fifth Amendment to Loan Documents.........................................4 First Amendment to Amended and Completely Restated Ground Lease........................................5
___________________________________ CONSTRUCTION LOAN AGREEMENT between WILLOWS CONCORD VENTURE, A CALIFORNIA LIMITED PARTNERSHIP as Borrower, and NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP, AND NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE LIMITED PARTNERSHIP as Lender, Dated: January 1, 1995 Property Located In: Concord, Contra Costa County, California TABLE OF CONTENTS -----------------
Page ---- ARTICLE I. DEFINITIONS........................................................... 1 1.01 Defined Terms................................................. 1 ARTICLE II. LOAN................................................................. 6 2.01 Loan.......................................................... 6 2.02 Loan Documents................................................ 6 2.03 Effective Date................................................ 6 ARTICLE III. DISBURSEMENT........................................................ 6 3.01 Conditions Precedent.......................................... 6 3.02 Account....................................................... 7 3.03 Disbursement Authorization.................................... 7 3.04 Borrower's Funds Account...................................... 7 3.05 Pledge and Assignment......................................... 7 3.06 Disbursement.................................................. 7 3.07 Disbursed Funds............................................... 9 ARTICLE IV. CONSTRUCTION......................................................... 10 4.01 Commencement and Completion................................... 10 4.02 Force Majeure................................................. 10 4.03 Construction.................................................. 10 4.04 Americans With Disabilities Act Compliance................................................... 10 4.05 Plans and Specifications...................................... 11 4.06 Construction Information; Inspections.................................................. 12 4.07 Prohibited Contracts.......................................... 12 4.08 Contractors................................................... 12 4.09 Liens and Stop Notices........................................ 12 4.10 Construction Responsibilities................................. 13 4.11 Improvement District.......................................... 13 4.12 Delay......................................................... 13 4.13 Bonds......................................................... 13 4.14 Capital Expenditures and Reserves............................. 13 ARTICLE V. INSURANCE............................................................. 14 5.01 Title Insurance............................................... 14 5.02 Hazard Insurance.............................................. 14 5.03 Flood Zone Notification....................................... 14 5.04 Liability Insurance........................................... 14 5.05 Blanket Coverage.............................................. 14 5.06 General....................................................... 14 ARTICLE VI. REPRESENTATIONS AND WARRANTIES....................................... 15 6.01 Authority..................................................... 15
-i- 6.02 Formation and Organization Documents.................................................... 15 6.03 Enforceability................................................ 15 6.04 No Violation.................................................. 15 6.05 Financial Information......................................... 16 6.06 Accuracy...................................................... 16 6.07 Adequacy of Loan.............................................. 16 6.08 Taxes......................................................... 16 6.09 Compliance.................................................... 16 ARTICLE VII. DEFAULT............................................................. 16 7.01 Default....................................................... 16 7.02 Acceleration.................................................. 18 7.03 Disbursement by Lender........................................ 18 7.04 Lender's Completion of Construction........................... 19 7.05 Cessation of Construction..................................... 19 7.06 Repayment of Funds Advanced................................... 19 7.07 Right of Contest.............................................. 19 ARTICLE VIII. HAZARDOUS MATERIALS................................................ 20 8.01 Covenants..................................................... 20 8.02 Right of Contest.............................................. 20 8.03 Indemnity..................................................... 21 8.04 Inspection by Lender.......................................... 21 ARTICLE IX. MISCELLANEOUS PROVISIONS............................................. 21 9.01 Expenses...................................................... 21 9.02 Indemnity..................................................... 22 9.03 Books and Records............................................. 22 9.04 ERISA Compliance.............................................. 22 9.05 Further Assurances............................................ 22 9.06 Form of Documents............................................. 23 9.07 No Third Parties Benefited.................................... 23 9.08 Notices....................................................... 23 9.09 Authority to File Notices..................................... 24 9.10 Actions....................................................... 24 9.11 Relationship of Parties....................................... 24 9.12 Lender's Delay................................................ 24 9.13 Attorneys' Fees; Enforcement.................................. 24 9.14 Assignment.................................................... 25 9.15 Lender's Agents............................................... 25 9.16 Severability.................................................. 25 9.17 Heirs, Successors and Assigns................................. 25 9.18 Rights Cumulative, No Waiver.................................. 25 9.19 Time.......................................................... 25 9.20 Headings...................................................... 26 9.21 Governing Law................................................. 26 9.22 Integration; Interpretation................................... 26
-ii- 9.23 Joint and Several Liability................................... 26 9.24 Execution in Counterparts..................................... 26 9.25 Incorporation................................................. 26 9.26 Credit for Principal Payments................................. 26 9.27 WAIVER OF RIGHT TO TRIAL BY JURY.............................. 27 9.28 Obligations under Ground Lease................................ 27 9.29 Non-Recourse.................................................. 27
EXHIBIT A - DESCRIPTION OF PROPERTY EXHIBIT B - DISBURSEMENT BUDGET -iii- CONSTRUCTION LOAN AGREEMENT --------------------------- THIS CONSTRUCTION LOAN AGREEMENT ("Agreement") is made as of January 1, 1995, between WILLOWS CONCORD VENTURE, a California limited partnership, ("Borrower") and NEW ENGLAND LIFE PENSION PROPERTIES; A Real Estate Limited Partnership, and NEW ENGLAND LIFE PENSION PROPERTIES II; A Real Estate Limited Partnership, each a Massachusetts limited partnership (jointly referral to herein as "Lender"). A. Borrower is the ground tenant and Lender is the ground landlord of certain real property described in Exhibit A hereto ("Property") under the --------- Ground Lease (as hereinafter defined). B. Borrower proposes to repair, renovate and rehabilitate the Improvements (as hereinafter defined) located on the Property in accordance with the Plans and Specifications (as hereinafter defined) and has requested a loan from Lender for said purpose. THEREFORE, Borrower and Lender agree as follows: ARTICLE I. DEFINITIONS 1.01 DEFINED TERMS. As used herein, the following terms shall have the ------------- meanings set forth below: "Account" means a demand deposit account in the name of Borrower and Lender which shall be opened with a bank approved by Lender and which shall be administered in accordance with the terms of this Agreement. "ADA" means the Americans with Disabilities Act of July 26, 1990, Public Law Number 101-336, 104 Stat. 327, 42 U.S.C. Section 12101, et seq., as amended from time to time. "Agreement" means this Construction Loan Agreement as originally executed or as it may from time to time be amended pursuant to Section 9.22 hereof. ------------ "Application for Payment" means a written itemized statement, signed by Borrower, setting forth the matters described in Section 3.06 hereof. ------------ "Assignment of Leases and Rents" means that certain Assignment of Leases and Rents dated as of June 13, 1991, executed by Borrower in favor of Lender, recorded on June 18, 1991 as Instrument No. 91-110715 in the Official Records of Contra Costa County, California, as amended by that certain Modification Agreement and First Amendment to Loan Documents dated as of August 15, 1991, as further amended by that certain Modification Agreement and Second Amendment to Loan Documents dated as of September 12, 1991, as further amended by that certain Modification Agreement and Third Amendment to Loan Documents dated as of October 15, 1991, as further amended by that certain Fourth Amendment to Loan Documents dated as of December 17, 1992, and as further amended by that Fifth Amendment to Loan Documents (as defined herein). "Authorized Borrower Representatives" means the persons designated by Borrower to Lender in writing who are authorized to request disbursements of the Loan until written notice of Borrower's revocation of such authority is received by Lender at its office address shown herein. "Bankruptcy Act" means the Bankruptcy Reform Act of 1978, as amended or recodified. "Borrower" means Willows Concord Venture, a California limited partnership. "Borrower's Funds" means all funds which are now or hereafter deposited and held in the Borrower's Funds Account pursuant to Section 3.01(b) of this --------------- Agreement. "Borrower's Funds Account" means a demand deposit account in the name of Borrower and Lender which shall be opened with a bank approved by Lender and which shall be administered in accordance with the terms of this Agreement. "CCP" means the California Code of Civil Procedure, as the same may be amended or recodified. "Debtor Relief Law" means any present or future state or federal law regulating bankruptcy, reorganization or other relief of debtors, other than the Bankruptcy Act. "Deed of Trust" means that certain Deed of Trust and Security Agreement dated as of June 13, 1991, by Borrower, as Trustor, to Chicago Title Company, as Trustee, for the benefit of Lender, recorded in June 18, 1991 as Instrument No. 91-116714 in the Official Records of Contra Costa County, California, as amended by that certain Modification Agreement and First Amendment to Loan Documents dated as of August 15, 1991, as further amended by that certain Modification Agreement and Second Amendment to Loan Documents dated as of September 12, 1991, as further amended by that certain Modification Agreement and Third Amendment to Loan Documents dated as of October 15, 1991, as further amended by that -2- certain Fourth Amendment to Loan Documents dated as of December 17, 1992, and as further amended by the Fifth Amendment to Loan Documents (as defined herein). "Default" means the occurrence of any of the events listed in Section 7.01 ------------ of this Agreement. "Disbursement Budget" means the budget and schedule for disbursement of the loan proceeds attached as Exhibit B to this Agreement. --------- "Effective Date" means the date on which the Fifth Amendment to Loan Documents is recorded in the office of the County Recorder of the County where the Property is located. "ERISA" means the Employee Retirement Income Security Act of 1974, as the same may be amended or recodified. "Financing Statement" means that certain State of California Uniform Commercial Code, Financing Statement, Form UCC-1, dated of even date herewith, executed by Borrower, as Debtor, in favor of Lender, as Secured Party. "Fifth Amendment to Loan Documents" means that certain Fifth Amendment to Loan Documents of even date herewith by and between Borrower and Lender. "Governmental Agency" means (a) any government or municipality or political subdivision of any government or municipality, (b) any assessment, improvement, community facilities or other special taxing district, (c) any governmental or quasi-governmental agency, authority, board, bureau, commission, corporation, department, instrumentality or public body, or (d) any court, administrative tribunal, arbitrator, public utility or regulatory body. "Ground Lease" means that certain Amended and Completely Restated Ground Lease by and between Lender, as Landlord, and Borrower, as Tenant, effective as of June 18, 1991. "Hazardous Materials" means oil, flammable explosives, asbestos, urea formaldehyde insulation, radioactive materials, hazardous wastes, toxic or contaminated substances or similar materials, including, without limitation, any substances which are "hazardous substances," "hazardous wastes," "hazardous materials" or "toxic substances" under applicable environmental laws, ordinances or regulations. -3- "Hazardous Materials Claim," means any claim or action pending or threatened against Borrower, the Property or Improvements by any Governmental Agency or any other person or entity relating to Hazardous Materials or pursuant to the Hazardous Materials Laws. "Hazardous Materials Laws" means all laws, ordinances and regulations relating to Hazardous Materials, including, without limitation, those relating to soil and ground water conditions. "Improvements" means the shopping center and any and all other improvements located on the Property. "Initial Cure Period" means the period of time beginning with the date on which written notice from Lender of Borrower's failure to perform any of its non-monetary obligations under any of the Loan Documents is deemed served pursuant to Section 9.08 of this Agreement) upon Borrower and ending 30 days ------------ after such service. "Lender" means New England Life Pension Properties; A Real Estate Limited Partnership, and New England Life Pension Properties II; a Real Estate Limited Partnership, each a Massachusetts limited partnership (jointly referred to herein as "Lender"). "Leasehold Interest" means Borrower's leasehold interest under the Ground lease (as defined herein) which demises the Property, together with all estate, title, interests, title reversion rights, rents, increases, issues, profits, rights of way or uses, additions, accretions, servitudes, gaps, gores, liberties, privileges, water rights, water courses, alleys, streets, passages, ways, vaults, adjoining strips of ground, licenses, tenements, franchises, hereditaments, rights, appurtenances and easements, now or hereafter owned by Borrower and existing, belonging or appertaining to the Leasehold Interest, all claims or demands whatsoever of Borrower therein or thereto, either at law or in equity, in possession or in expectancy and all estate, right, title and interest of Borrower in and to all streets, roads and public places, opened or proposed, now or hereafter used in connection with, existing, belonging or appertaining to, the Property and/or the Leasehold Interest. "Loan" means the loan described in this Agreement in the principal sum of $2,500,000.00. "Loan Documents" means this Agreement, the Note, the Deed of Trust, the Assignment of Leases and Rents, the Security Agreement, and the Financing Statement. -4- "Maturity Date" shall have the meaning given to such term in the Note. "Note" means that certain Promissory Note of even date herewith in the original principal amount of the Loan made by Borrower to the order of Lender. "Onsite Materials" means materials for the repair, renovation and rehabilitation of the Improvements which are stored on the Property. "Original Note" means that certain Amended and Restated Promissory Note dated effective as of June 14, 1991 made by Borrower in favor of Lender in the principal amount of Fourteen Million Eight Hundred Sixty Three Thousand Two Hundred Six and 38/100 Dollars ($14,863,206.38), which Original Note replaced and superseded in its entirety that certain Promissory Note dated June 14, 1991 made by Borrower in favor of Lender in the principal amount of Fourteen Million Eight Hundred Sixty Three Thousand Two Hundred Six and 38/100 Dollars ($14,863,206.38). "Plans and Specifications" shall mean the plans and specifications for the Work (as defined herein) submitted or to be submitted and approved by Lender, as such plans and specifications may be amended or modified with the approval of Lender in accordance with the provisions of Section 4.05 of this Agreement. ------------ "Property" means the real property located in the County of Contra Costa, State of California and more particularly described in Exhibit A hereto. --------- "Remedial Action" means all handling, treatment, removal, storage, decontamination, cleanup, transport, disposal or other remedial action, if any, required by any Hazardous Materials Laws, any order or request of any governmental entity or agency or any judgment, consent decree, settlement or compromise in respect to any Hazardous Materials Claims. "Requirements" means all applicable laws, ordinances, rules, regulations, building restrictions, recorded covenants and restrictions, and requirements of all Governmental Agencies having jurisdiction over the Improvements or the Property. "Security Agreement" means that certain Security Agreement of even date herewith executed by Borrower in favor of Lender. "Title Company" means a title insurer satisfactory to Lender. "Title Policy" means an LP-3 ALTA Lender's Policy of Title Insurance, with any endorsements which Lender may reasonably -5- require, insuring Lender, in the principal amount of the Loan, of the validity and priority of the lien of the Deed of Trust upon the Leasehold Interest and the Improvements, subject only to matters approved by Lender in writing. "Work" means the repair, renovation and rehabilitation of the Improvements in accordance with the Plans and Specifications. ARTICLE II. LOAN 2.01 LOAN. By and subject to the terms of this Agreement, Lender ---- agrees to lend and Borrower agrees to borrow the principal sum of TWO MILLION FIVE HUNDRED THOUSAND AND NO/100THS DOLLARS ($2,500,000.00), to finance the Work and for the other purposes provided in the Loan Documents. 2.02 LOAN DOCUMENTS. Borrower shall deliver to Lender concurrently -------------- with this Agreement the Loan Documents, properly executed and in recordable form if necessary. 2.03 EFFECTIVE DATE. The date of the Loan Documents is for reference -------------- purposes only. The date of delivery and transfer to Lender of the security under the Loan Documents and of Borrower's and Lender's obligations under the Loan Documents is the Effective Date. ARTICLE III. DISBURSEMENT 3.01 CONDITIONS PRECEDENT. Lender shall not be obligated to make any -------------------- disbursements or take any other action under the Loan Documents unless all of the following conditions precedent are satisfied at the time of such action: (a) There exists no Default, or event, omission or failure of condition which would constitute a Default after notice or lapse of time, or both; (b) The undisbursed Loan proceeds together with all sums (if any) to be provided by Borrower as shown in the Disbursement Budget shall at all times be not less than the amount which Lender from time to time determines necessary to: (i) pay, through completion, all costs of the Work and the marketing and sale or leasing of the Property and Improvements in accordance with the Loan Documents; (ii) pay all sums which may accrue under the Loan Documents prior to repayment of the Loan; and (iii) enable Borrower to perform and satisfy all of the covenants of Borrower contained in the Loan Documents. If Lender determines -6- at any time that said funds are not sufficient for said purposes, Borrower may satisfy this condition by depositing the amount of such deficiency in the Borrower's Funds Account within seven (7) days of Lender's written demand; (c) Borrower has delivered to Lender all Loan Documents, other documents, instruments, policies, and forms of evidence or other materials requested by Lender under the terms of this Agreement or any of the other Loan Documents; and (d) The Title Company shall be unconditionally committed to issuing, at Borrower's sole cost and expense, an endorsement to the Title Policy increasing the liability amount thereof to cover the amount of the loan, with coverage and in a form satisfactory to Lender, insuring Lender's interest under the Deed of Trust as a good and sufficient first lien on the Leasehold Interest and the Improvements, subject only to such exceptions from its coverage as Lender shall approve in writing. (e) Subject to the Ground Lease, Borrower shall have paid all property taxes other than those which are a lien on the Property, but not yet due and payable; and (f) At Borrower's sole cost and expense, the Fifth Amendment to Loan Documents shall have been duly recorded in the Official Records of Contra Costa County, California, and the Financing Statement shall have been duly filed with the California Secretary of State. 3.02 ACCOUNT. The proceeds of the Loan and Borrower's Funds, when ------- qualified for disbursement, shall be deposited into the Account or otherwise disbursed to or for the benefit or account of Borrower under the terms of this Agreement. 3.03 DISBURSEMENT AUTHORIZATION. Disbursements hereunder may be made -------------------------- by Lender to the Account upon the written request of the Authorized Borrower Representatives. 3.04 BORROWER'S FUNDS ACCOUNT. Except as otherwise provided in this ------------------------ Agreement, Borrower's Funds shall be held in the Borrower's Funds Account and disbursed in accordance with the terms hereof. 3.05 PLEDGE AND ASSIGNMENT. As security for Borrower's performance --------------------- under the Loan Documents, Borrower irrevocably pledges and assigns to Lender all monies at any time deposited in the Account and the Borrower's Funds Account. 3.06 DISBURSEMENT. Subject to the conditions set forth in Section 3.01, ------------ the proceeds of the Loan and Borrower's Funds shall -7- be disbursed, not more frequently than once per month, in accordance with the following terms and conditions: (a) Unless another provision of this Agreement specifies otherwise, from time to time throughout the term of the Loan, Borrower shall submit to Lender an Application for Payment setting forth: (i) a description of the work performed, material supplied and/or costs incurred or due for which disbursement is requested with respect to any line item ("Item") shown in the Disbursement Budget; and (ii) the total amount incurred, expended and/or due for each requested Item less prior disbursements. (b) Lender shall have the right to condition any disbursement upon Lender's receipt and approval of the following: (i) the Application for Payment; (ii) bills, invoices, documents of title, vouchers, statements, payroll records, receipts and any other documents evidencing the total amount expended, incurred or due for any requested Items; (iii) evidence of Borrower's use of a lien release, joint check and voucher system reasonably acceptable to Lender for payments or disbursements to any contractor, subcontractor, materialman, supplier or lien claimant; (iv) physical inspections of the Work by Lender's inspectors and/or engineers; (v) waivers and releases of mechanics' lien, stop notice claim, equitable lien claim or other lien claim rights; (vi) evidence of Borrower's compliance with the provisions of Sections 4.03 and 6.01 of this Agreement; ------------- ---- (vii) valid, recorded Notice(s) of Completion for the Work or any portions of the Work for which -8- Notice(s) of Completion may be recorded under applicable law; (viii) the Architect's and Engineer's, if any, Certificate of Substantial Completion, prior to the final retention disbursement or the final stage disbursement; (ix) any other document, requirement, evidence or information that Lender may reasonably request under any provision of the Loan Documents; and (x) in the event that any Application for Payment includes the cost of Onsite Materials, such Application for Payment shall include each of the following: (a) evidence that the Onsite Materials have been paid for by Borrower; (b) evidence that the Onsite Materials are insured as required hereunder; and (c) evidence that the Onsite Materials are stored in an area on the Property for which adequate security is provided against theft and vandalism. Borrower acknowledges that this approval process may result in disbursement delays and Borrower consents to all such delays. (c) Disbursements made after the deposit of Borrower's Funds shall be made from Borrower's Funds until depleted. (d) Lender shall have the option to make disbursement hereunder directly to any contractor or supplier delivering goods or services in connection with the Work. (e) Each Application for Payment by Borrower shall constitute a representation and warranty by Borrower that Borrower is in compliance with all the conditions precedent specified in Section 3.01 of this Agreement. ------------ 3.07 DISBURSED FUNDS. All disbursements shall be held by Borrower in --------------- trust and applied by Borrower solely for the purposes for which the funds have been disbursed. Lender is not obligated to monitor or determine Borrower's use or application of the disbursements. -9- ARTICLE IV. CONSTRUCTION 4.01 COMMENCEMENT AND COMPLETION. Unless otherwise provided by this --------------------------- Agreement, Borrower shall promptly commence the Work and shall diligently continue and complete the Work in accordance with the Plans and Specifications on or before December 31, 1995. 4.02 FORCE MAJEURE. The time within which the Work must be completed ------------- shall be extended for a period of time equal to the period of any delay directly affecting the work which is caused by fire, earthquake or other Acts of God, strike, lockout, acts of public enemy, riot, insurrection, or governmental regulation of the sale or transportation of materials, supplies or labor provided Borrower furnishes Lender with written notice (as specified in Section ------- 4.12), of any such delay within ten (10) days from the occurrence of any such - ---- delay. In no event, however, shall the time for completion of the Work be extended beyond the Maturity Date. 4.03 CONSTRUCTION. Borrower shall perform and complete the Work in a good ------------ and workmanlike manner in accordance with the Plans and Specifications and the recommendations of any soils or engineering report approved by Lender. In performing and completing the Work, Borrower shall comply with the Requirements. If necessary, the Plans and Specifications shall be modified to comply with the Requirements, subject to the provisions of Section 4.05 below. ------------ 4.04 AMERICANS WITH DISABILITIES ACT COMPLIANCE. Borrower represents and ------------------------------------------ warrants to Lender that the Work has been designed and shall be performed and completed, and that the Improvements shall be operated and hereafter maintained, in strict accordance and full compliance with all of the requirements of the ADA. Borrower is responsible for all ADA compliance costs, including, without limitation, attorney's fees and litigation costs. 4.05 PLANS AND SPECIFICATIONS. Except as otherwise provided below, there ------------------------ shall be no change in the Plans and Specifications without Lender's prior written approval, which approval shall not be unreasonably withheld or delayed. Requests for approval shall be submitted on a change order form acceptable to Lender signed by Borrower and, if required by Lender, the project architect and the general contractor (if any), accompanied by working drawings and a written narrative of the proposed change. As conditions to its approval, (a) Lender may require reasonably satisfactory evidence of the cost of the proposed change and the time necessary to complete the proposed change, and (b) to the extent Lender reasonably determines that the proposed change shall result in -10- increased cost, Lender may require Borrower to deposit the reasonable amount of the increased cost into the Borrower's Funds Account in accordance with Section ------- 3.01(b). Borrower acknowledges that this approval process may result in delays - ------- and consents to all such delays. Provided that Borrower submits any proposed change order to Lender together with a cover letter specifying that Lender is to reply within fifteen (15) days of its receipt thereof pursuant to this Section ------- 4.05, Lender shall be deemed to have approved such change order if it fails to - ---- object in writing within fifteen (15) days of Lender's receipt of any such change order and notice. Upon Lender's request, Borrower, the project architect, and the general contractor (if any), shall initial the copy of the Plans and Specifications delivered to, and approved by, Lender as a true copy of the Plans and Specifications for the Work. Borrower shall maintain at all times a full set of working drawings for the Work available for inspection by Lender. Notwithstanding the above, Borrower may make minor changes in the Plans and Specifications without Lender's prior written consent unless such change: (i) constitutes a material change in the building material or equipment specifications, the architectural or structural design, value, architecture, or quality of any of the Improvements; or (ii) would result in an increase in any item of construction cost in excess of TEN THOUSAND AND NO/100THS DOLLARS ($10,000.00) for any single change or in excess of FIFTY THOUSAND AND NO/100THS DOLLARS ($50,000.00) for all such changes in such items of construction cost; or (iii) would affect the structural integrity, quality of building material or equipment or overall efficiency of operating systems or utility systems of the Improvements; or (iv) requires the approval (which has not been given as of the date of any such change) of any Governmental Agency or any other person or entity. Notwithstanding the foregoing, Borrower shall submit all proposed changes to the Plans and Specifications to Lender at least fifteen (15) days prior to the commencement of construction relating to such proposed change whether or not any such change is subject to Lender's approval. 4.06 CONSTRUCTION INFORMATION; INSPECTIONS. From time to time, and within ------------------------------------- ten (10) business days of receipt from Lender of a request therefor, Borrower shall deliver to Lender: (a) a complete list stating (i) the name, address and phone number of each contractor, subcontractor and material supplier to be employed or used for the Work, and (ii) the dollar amount, including changes if any, of each contract and subcontract, and the portion thereof, if any, paid through the date of such list; (b) copies of each contract and subcontract identified in such list, including any changes thereto; -11- (c) a cost breakdown, in a form reasonably acceptable to Lender, stating the projected total cost of the Work, and the portion, if any, of each cost item (i) which has been incurred, and (ii) which has been paid, all as of the date of such cost breakdown; (d) a construction progress schedule, in a form reasonably acceptable to Lender, showing the progress of the Work and the projected sequencing and completion time for uncompleted work, all as of the date of such schedule; and (e) with respect to any item designated above which has been previously delivered, such update thereof as Lender may request. Lender is expressly authorized to contact any contractor, subcontractor or material supplier and, at all reasonable times, to enter the Property and inspect the Improvements and the Work in order to verify information disclosed pursuant to this Section, or for any other reasonable purpose. 4.07 PROHIBITED CONTRACTS. Without Lender's prior written consent, which -------------------- consent shall not be unreasonably withheld or delayed, Borrower shall not contract for any materials, furnishings, equipment, fixtures or other parts or components of the Work, or other property for the use or occupancy of the Property or Improvements, if any third party retains or purports to retain any interest (other than lien rights, if any, created by operation of law) in such items after their delivery to the Property. Borrower shall have five (5) days to effect the removal of any such retained interest 4.08 CONTRACTORS. Lender may, but shall not be obligated to, disapprove ----------- any contractor, subcontractor or material supplier whom Lender deems financially or otherwise unqualified; provided, however, that the absence of any such -------- ------- disapproval shall not constitute a representation of qualifications. 4.09 LIENS AND STOP NOTICES. If a claim of lien is recorded affecting the ---------------------- Leasehold Interest or Improvements or a bonded stop notice is served upon Lender which affects the Loan or Borrower's Funds, Borrower shall, within twenty (20) days of such recording or service or within five (5) days of Lender's demand (whichever occurs first), (a) pay and discharge the same, or (b) effect the release thereof by recording or delivering to Lender a surety bond in sufficient form and amount, or (c) otherwise provide Lender with other assurance which Lender deems, in its sole discretion, -12- to be satisfactory for the payment of such lien or bonded stop notice and for the full and continuous protection of Lender from the effect of such lien or bonded stop notice. 4.10 CONSTRUCTION RESPONSIBILITIES. Borrower shall be solely responsible ----------------------------- for all aspects of Borrower's business and conduct in connection with the Leasehold Interest and Improvements, including, without limitation, the quality and suitability of the Plans and Specifications and their compliance with the Requirements, the supervision of the Work, the qualifications, financial condition and performance of all architects, engineers, contractors, material suppliers, consultants and property managers, and the accuracy of all applications for payment and the proper application of all disbursements. Lender is not obligated to supervise, inspect or inform Borrower or any third party of any aspect of the Work or any other matter referred to above. Any inspection or review by Lender is to determine whether Borrower is properly discharging its obligations to Lender and may not be relied upon by Borrower or any third party. Lender owes no duty of care to Borrower or any third party to protect against, or to inform Borrower or any third party of, any negligent, faulty, inadequate or defective design or construction of the Work. 4.11 IMPROVEMENT DISTRICT. Without Lender's prior written consent, -------------------- Borrower shall not, directly or indirectly, advocate or assist in the incorporation of any of the Property or Improvements into any improvement or other assessment district. 4.12 DELAY. Borrower shall promptly notify Lender in writing of any event ----- causing delay or interruption of the Work, or the timely completion of the Work. The notice shall specify the particular work delayed, and the cause and period of each delay. 4.13 BONDS. Within five (5) days of Lender's request, Borrower shall ----- procure from a surety acceptable to Lender, and deliver to Lender, dual obligee performance and labor and material payment bonds in a form, substance and amount reasonably acceptable to Lender and, if requested by Lender, cause any such bond to be recorded and the Plans and Specifications and construction agreement, if any, to be filed in the office of the County Recorder of the County where the Property is located. 4.14 CAPITAL EXPENDITURES AND RESERVES. Borrower shall not make any --------------------------------- capital improvement to the property other than those described in the Plans and Specifications (as the same may be changed pursuant to Section 4.05 hereof) or expend or reserve any income or revenue derived from the Property for any such capital improvement without Lender's prior approval for each such capital improvement, expenditure or reserve. -13- ARTICLE V. INSURANCE 5.01 TITLE INSURANCE. Borrower shall procure the endorsement to the Title --------------- Policy described in Section 3.01(d). During the term of the Loan, Borrower shall procure and deliver to Lender, within five (5) business days of Lender's written request to Borrower, such other endorsements to the Title Policy as Lender may reasonably require. 5.02 HAZARD INSURANCE. Borrower shall procure and maintain from an ---------------- insurer reasonably satisfactory to Lender a policy of Builders Risk Completed Value hazard insurance, with a vandalism and malicious mischief endorsement and such other endorsements as Lender may reasonably require, insuring Lender against damage to the Property in a amount reasonably acceptable to Lender. Lender shall be named under a Lender's Loss Payable Endorsement (form #438BFU or equivalent) attached to the policy. At Lender's request, the policy shall contain an agreed value clause sufficient (as reasonably determined by Lender) to eliminate any risk of co-insurance. 5.03 FLOOD ZONE NOTIFICATION. If required by applicable law, Borrower, as ----------------------- ground tenant of the Property and the Improvements under any existing or future lease or sale agreement, shall promptly give written notice to all lessees or purchasers of the Leasehold Interest of the fact that the Property and the Improvements are or will be located in a flood hazard area. Borrower acknowledges that, to the extent required, such written notices have been given by it or will be promptly given. 5.04 LIABILITY INSURANCE. Borrower shall procure and maintain from an ------------------- insurer reasonably satisfactory to Lender a policy of comprehensive public liability insurance and property damage insurance with limits as reasonably required by Lender, insuring against liability for injury or death to any person and property damage occurring on the Property or in the Improvements from any cause whatsoever. Such policy shall name Lender as an additional insured. 5.05 BLANKET COVERAGE. Lender may accept blanket insurance policies in ---------------- satisfaction of Borrower's obligations to provide insurance. 5.06 GENERAL. Borrower shall procure and maintain all other insurance ------- required by the Requirements, this Agreement, the Deed of Trust or applicable law. Lender shall receive the originals of all required insurance policies, or other evidence of insurance reasonably acceptable to Lender. Borrower shall maintain all required insurance until the Loan is repaid. All insurance -14- policies shall provide that the insurance shall not be cancellable without twenty (30) days prior written notice to Lender. All insurancce policies shall be issued by licensed insurance companies acceptable to Lender. ARTICLE VI. REPRESENTATIONS AND WARRANTIES Borrower makes the following representations and warranties as of the Effective Date and continuing thereafter: 6.01 AUTHORITY. Borrower has complied with all laws and regulations --------- concerning its organization, existence and transaction of business. Borrower has the right and power to lease the Property and Improvements as ground tenant as contemplated in the Loan Documents and the Ground Lease. Borrower has, or at all appropriate times shall have, properly obtained all permits, licenses and approvals necessary to perform the Work and to use, occupy and market the Improvements, and has complied with the Requirements and all other applicable statutes, laws, regulations and ordinances. 6.02 FORMATION AND ORGANIZATIONAL DOCUMENTS. Borrower has delivered to -------------------------------------- Lender all of the relevant information and organizational documents of Borrower, of the partners or joint venturers of Borrower (if any), and of all guarantors of the Loan (if any), and all such formation and organizational documents remain in full force and effect and have not been amended or modified since they were delivered to Lender. If any such formation or organizational document is hereafter amended or modified, Borrower shall immediately provide Lender with notice in writing of such change. 6.03 ENFORCEABILITY. Borrower is authorized to execute deliver, to -------------- perform its obligations under, the Loan Documents, which obligations are the valid and binding obligations of Borrower. 6.04 NO VIOLATION. Borrower's undertakings in the Loan Documents do not ------------ violate any of the Requirements or any other applicable statute, law, regulation or ordinance or any order or ruling of any court or governmental entity, or conflict with, or constitute a breach or default under, any agreement by which Borrower is, or the Leasehold Interest and Improvements are, bound or regulated. Borrower is not in violation of any statute, law, regulation or ordinance, or of any order of any court or governmental entity. There are no claims, actions or proceedings pending or, to Borrower's knowledge, threatened against Borrower or affecting the Leasehold Interest or Improvements other than those disclosed to Lender in writing. -15- 6.05 FINANCIAL INFORMATION. All financial information delivered to --------------------- Lender, including, without limitation, information relating to the financial condition of Borrower, the Leasehold Interest, the Improvements, partners or joint venturers of Borrower, or guarantors, fairly and accurately represents such financial condition and has been prepared in accordance with generally accepted accounting principles consistently applied, unless otherwise noted in such information. No material adverse change in such financial condition has occurred. 6.06 ACCURACY. All reports, documents, instruments, information and forms -------- of evidence delivered to Lender concerning the Loan or security for the Loan or required by the Loan Documents are accurate, correct and sufficiently complete to give Lender true and accurate knowledge of their subject matter, and do not contain any misrepresentation or omission. 6.07 ADEQUACY OF LOAN. The undisbursed Loan proceeds, together with ---------------- Borrower's Funds and all other sums (if any) to be provided by Borrower as shown in Exhibit B, are sufficient to do all of the things specified in Section --------- ------- 3.01(b). - ------- 6.08 TAXES. Borrower has filed all required federal, state, county and ----- municipal tax returns and has paid all taxes owed and payable by Borrower, and Borrower knows of no basis for any additional assessment with respect to any such taxes. 6.09 COMPLIANCE. Borrower is familiar with all Requirements. The ---------- development of the Property and the construction of the Improvements will conform to and comply with the Requirements and the Plans and Specifications. ARTICLE VII. DEFAULT 7.01 DEFAULT. The following shall constitute an event of default under ------- the Loan Documents: (a) MONETARY. At Lender's option, (i) Borrower's failure to pay -------- within fifteen (15) days of the date due any sums payable under the Note, the Original Note or any of the other Loan Documents; or (ii) Borrower's failure to deposit any Borrower's Funds as and when required under Section 3.01(b); or --------------- (b) PERFORMANCE OF OBLIGATIONS. Borrower's failure to perform any of -------------------------- its other obligations (in addition to those in Section 7.01(a) above) under any --------------- of the Loan Documents within the Initial Cure Period, or, within ninety (90) days after written notice so long as Borrower begins within the Initial Cure Period and diligently continues to cure the failure, and Lender, -16- exercising reasonable judgment, determines that the cure cannot reasonably be completed at or before expiration of the Initial Cure Period; or (c) CONSTRUCTION; USE. (i) Any material deviation in the Work from ----------------- the Plans and Specifications or Requirements or the appearance or use of defective workmanship or materials in performing the Work, and Borrower's failure to remedy the same to Lender's reasonable satisfaction within thirty (30) days of Lender's written demand to do so; or (ii) the cessation of the Work prior to completion for a continuous period of more than thirty (30) days, unless such cessation is (A) a result of a casualty or taking and Borrower diligently continues to restore the Property in accordance with the provisions of Section 5 of the Deed of Trust, or (B) caused by events for which delay may --------- be permitted under Section 4.02 hereof; or (iii) the curtailment in availability ------------ to the Property or Improvements of utilities or other public services necessary for the full occupancy and utilization of the Improvements for a continuous period of more than thirty (30) days; or (d) LIENS; ATTACHMENT; CONDEMNATION. (i) The filing of any claim of ------------------------------- lien against the Leasehold Interest or Improvements or the service on Lender of any bonded stop notice relating to the Loan and the continuance of the claim of lien or bonded stop notice for twenty (20) days without discharge, satisfaction or provision for payment being made in accordance with Section 4.09; or (ii) the ------------ condemnation, seizure or appropriation of, or occurrence of an uninsured casualty with respect to any material, as determined by Lender in its sole and absolute discretion, portion of the Property or Improvements, unless (A) within sixty (60) days after any such condemnation, seizure or appropriation, or occurrence of an uninsured casualty, Borrower submits to Lender a written proposal reasonably satisfactory to Lender for the repair or restoration of the Property or Improvements, as the case may be, using funds provided by Borrower, such that the value of the Leasehold Interest or Improvements, as the case may be, is not materially impaired as a result thereof, and (B) Borrower diligently pursues such repair or restoration to completion in a good and workmanlike manner; or (e) REPRESENTATIONS AND WARRANTIES. The failure of any of Borrower's ------------------------------ representations or warranties in any of the Loan Documents to be true within thirty (30) days after notice by Lender; or (f) CHANGE IN MANAGEMENT OR CONTROL. The occurrence of any ------------------------------- management, organizational or other material change in the Borrower or the partners or venturers thereof, including, without limitation, partnership or joint venture disputes, which Lender -17- determines, in its reasonable discretion, will have a material adverse effect on the Loan, the Leasehold Interest, the security for the Loan or upon Borrower's or its partners' and venturers' ability to perform their obligations under the Loan Documents, without Lender's prior written consent; provided, however, that Lender shall not unreasonably withhold or delay its consent to any (i) distribution to any general or limited partner of Borrower of such partner's respective interest therein or (ii) assignment or transfer by any general or limited partner of Borrower of its respective interest so distributed to any person or entity controlling, controlled by, or under common control with such general or limited partner (each an "Affiliate"), provided that (A) such distribution, assignment or transfer is made for the purpose of accomplishing a tax free exchange under Section 1031 of the Internal Revenue Code of 1986, as amended, and (B) any and all such Affiliates agree to assume all of the liabilities and obligations of Borrower and such general or limited partner to Lender pursuant to a written instrument satisfactory to Lender. (g) ACCELERATION UPON LOSS OF SECURITY. If at any time the Deed of ---------------------------------- Trust ceases to be a valid first lien upon the Leasehold Interest and Improvements subject only to such other liens and encumbrances approved by Lender and shown in the Title Policy. (h) CROSS-DEFAULT. The occurrence of any Event of Default under the ------------- Deed of Trust. 7.02 ACCELERATION. Upon the occurrence of a Default specified in Sections ------------ -------- 7.01, Lender may, at its option, declare all sums owing to Lender under the - ---- Note, the Original Note and the other Loan Documents immediately due and payable. Upon the occurrence of any Default specified in any of the Loan Documents which provides that acceleration shall be automatic, all sums owing to Lender under the Note, the Original Note and the other Loan Documents shall automatically become immediately due and payable. Upon acceleration, Lender may, in addition to other uses permitted under the Loan Documents, apply undisbursed Loan proceeds and any sums in the Account and the Borrower's Funds Account to the sums owing to Lender under the Loan Documents in such order as Lender may elect. Without limitation of the provisions of Section 7.04 hereof, ------------ Borrower hereby irrevocably appoints Lender as its true and lawful attorney-in- fact, which agency is coupled with an interest, to accomplish the foregoing actions and rights of Lender or transfer of such funds to Lender. 7.03 DISBURSEMENT BY LENDER. Upon the occurrence of a Default which is ---------------------- occasioned by Borrower's failure to pay money, Lender may but shall not be obligated to make such payment from Loan proceeds, Borrower's Funds, or other funds of Lender. If -18- such payment is made from proceeds of the Loan or from Borrower's Funds, Borrower shall deposit in the Borrower's Funds Account, upon written demand issued pursuant to Section 3.01(b), an amount equal to such payment. If such --------------- payment is made from funds of Lender, Borrower shall repay such funds upon demand issued pursuant to Section 7.06. In either case, the Default with respect ------------ to which any such payment has been made by Lender shall not be deemed cured until such deposit or repayment (as the case may be) has been made by Borrower. 7.04 LENDER'S COMPLETION OF CONSTRUCTION. If a Default occurs, Lender ----------------------------------- may, upon five (5) days written notice to Borrower, and with or without legal process, take possession of the Property and Improvements, remove Borrower and all agents, employees and contractors of Borrower from the Property and Improvements, complete the Work and market and sell or lease the Leasehold Interest and the Improvements. Borrower irrevocably appoints Lender as its attorney-in-fact, which agency is coupled with an interest for the purposes of effecting the provisions of this Section 7.04. As attorney-in-fact, Lender may, ------------ in Borrower's name, take or omit to take any action Lender may deem appropriate, including, without limitation, exercising Borrower's rights under the Loan Documents and all contracts concerning the Property and/or Improvements. 7.05 CESSATION OF CONSTRUCTION. If Lender reasonably determines that the ------------------------- Work is not being performed in accordance with the Plans and Specifications, the Requirements, or the Loan Documents, Lender may order all Work affected by the condition of nonconformance immediately stopped. After that order, Borrower shall not allow any Work, other than corrective work, to be performed on any of the Property or Improvements affected by the condition of nonconformance until Lender notifies Borrower in writing that the nonconforming condition has been corrected, which notice shall be provided by Lender promptly after completion of the corrective work and receipt of notice from Borrower that such work has been completed. 7.06 REPAYMENT OF FUNDS ADVANCED. If Lender spends its funds in --------------------------- exercising any of its rights or remedies under the Loan Documents, the amount of funds spent shall be payable to Lender upon demand, together with interest at the rate applicable to the principal balance of the Note as specified therein plus 2% per annum, from the date the funds were spent. Until repaid, such amounts shall have the security afforded disbursements under the Note. 7.07 RIGHT OF CONTEST. Borrower may contest in good faith any claim, ---------------- demand, levy or assessment (other than liens and stop notices, provision for which is made in Section 4.09) by any ------------ -19- person other than Lender which would constitute a Default if (a) Borrower pursues the contest diligently and in a manner which Lender determines is not prejudicial to Lender and does not impair the rights of Lender under any of the Loan Documents; and (b) Borrower deposits with Lender any funds or other forms of assurance which Lender in good faith from time to time reasonably determines appropriate to protect Lender from the consequences of the contest being unsuccessful. Borrower's compliance with this Section shall operate to prevent such claim, demand, levy or assessment from becoming a Default. ARTICLE VIII. HAZARDOUS MATERIALS 8.01 COVENANTS. Without limitation of the provisions of the Ground Lease --------- or any other agreement, covenant or restriction by which Borrower may be bound, Borrower hereby agrees as follows: (a) NO HAZARDOUS ACTIVITIES. Borrower shall not cause or knowingly ----------------------- permit any Hazardous Materials to be brought onto the Property in violation of applicable law. (b) HAZARDOUS MATERIALS LAWS. Borrower shall comply and cause the ------------------------ Property to comply with all Hazardous Materials Laws in connection with the Work. (c) NOTICES. Borrower shall immediately notify Lender in writing of: ------- (i) the discovery by Borrower of any breach or violation of the foregoing clauses (a) and (b) of this Section, or (ii) the receipt by Borrower of written notice of any Hazardous Materials Claims. (d) REMEDIAL ACTION. Subject to applicable law, in response to --------------- Borrower's actual knowledge of the presence of any Hazardous Materials on or under the Property resulting from any breach or violation of the foregoing clauses (a) and (b) of this Section, Borrower shall promptly commence and thereafter diligently pursue, at no cost or expense to Lender, all Remedial Action in connection with such Hazardous Materials. The foregoing, however, shall be subject to Borrower's right of contest under Section 8.02, below. ------------ 8.02 RIGHT OF CONTEST. Borrower may contest in good faith any claim, ---------------- demand, levy or assessment under the Hazardous Materials Laws or any Hazardous Materials Claims made by any person or entity if: (a) the contest is based on a material question of law or fact raised by Borrower in good faith; (b) Borrower promptly commences and thereafter diligently pursues the contest; (c) the contest will not materially impair the taking of any Remedial Action with respect to such claim, demand, levy or -20- assessment under Hazardous Materials Laws or Hazardous Materials Claims; and (d) Borrower demonstrates to Lender's reasonable satisfaction that Borrower has the financial capability to undertake and pay for such contest and any Remedial Action when reasonably necessary. No Default shall be deemed to exist with respect to any claim, demand, levy or attachment being contested by Borrower in accordance with the foregoing terms of this Section 8.02. ------------ 8.03 INDEMNITY. Notwithstanding anything to the contrary set forth in --------- Section 9.29, the duty of Borrower to indemnify Lender and the liability of - ------------ Borrower to Lender under Section 9.02 shall not be secured by the Deed of Trust ------------ or subject to any "non-recourse" or "limitation of liability" provisions of this Agreement or any other Loan Document if such duty to indemnify arises out of a breach of Section 8.01 hereof. Borrower acknowledges that Lender's appraisal of ------------ the Leasehold Interest and Improvements is such that Lender is not willing to accept the consequences under California's "One Form of Action Rule" (i.e. Section 726 of the CCP) and "Anti-Deficiency Rules" (i.e. Sections 580(a), 580(b) and 580(d) of the CCP) of the inclusion of Borrower's duty to indemnify Lender with respect to the matters described above in this Section 8.03 among ------------ the obligations secured by the Deed of Trust and that Lender would not make the Loan but for the unsecured personal liability undertaken by Borrower in connection with such matters. Borrower further acknowledges that Lender's right to indemnification with respect to such matters is in addition to, and not in limitation of, all of the rights and remedies which Lender may possess at law or in equity at any time under any Hazardous Materials Laws. 8.04 INSPECTION BY LENDER. Upon reasonable prior notice to Borrower, -------------------- Lender, its employees and agents, may from time to time (whether before or after the commencement of a nonjudicial or judicial foreclosure proceeding) enter and inspect the Property for the purpose of determining the existence, location, nature and magnitude of any past or present release or threatened release of any Hazardous Materials into, onto, beneath or from the Property. ARTICLE IX. MISCELLANEOUS PROVISIONS 9.01 EXPENSES. Borrower shall pay Lender immediately upon demand all -------- costs and expenses incurred by Lender in connection with the enforcement or satisfaction by Lender of any of Borrower's obligations under this Agreement or under the Loan Documents. For all purposes of this Agreement, Lender's costs and expenses shall include, without limitation, all appraisal fees, cost engineering and inspection fees, legal fees, accounting fees, -21- environmental consultant fees (if any), auditor fees, and the cost to Lender of any title insurance premiums and title surveys. If any of the services described in this Section are provided by an employee of Lender, Borrower shall reimburse Lender its standard charge for such services. 9.02 INDEMNITY. Borrower indemnifies Lender against, and holds Lender --------- harmless from, any losses, damages, liabilities, claims, actions, judgments, court costs and legal or other expenses (including reasonable attorneys' fees) which Lender may incur as a direct or indirect consequence of: (i) the making of the Loan, except for violations of lending laws or regulations by Lender; or (ii) Borrower's failure to perform any obligations as and when required by this Agreement or any of the Loan Documents; or (iii) any failure at any time of any of Borrower's representations or warranties to be true and correct, or (iv) any act or omission by Borrower, any contractor, subcontractor or material supplier, engineer, architect or other person or entity with respect to any of the Work. Borrower shall pay immediately upon Lender's demand any amounts owing under this indemnity together with interest from the date the indebtedness arises until paid at the rate of interest applicable to the principal balance of the Note as specified therein plus 2% per annum. Borrower's duty to indemnify Lender shall survive the release and cancellation of the Note and the reconveyance or partial reconveyance of the Deed of Trust. 9.03 RECORDS. Borrower shall maintain complete books of accounts and ------- other records for the Work, the Leasehold Interest and Improvements and for disbursement and use of the Loan proceeds and Borrower's Funds, and during normal business hours upon not less than two (2) business days' notice the same shall be available for inspection and copying by Lender. 9.04 ERISA COMPLIANCE. Borrower shall at all times comply with the ---------------- provisions of ERISA with respect to any retirement or other employee benefit plan to which it is a party as employer, and as soon as possible after Borrower knows, or has reason to know, that any Reportable Event (as defined in ERISA) with respect to any such plan of Borrower has occurred, it shall furnish to Lender a statement in writing setting forth details as to such Reportable Event and the action, if any, which Borrower proposes to take with respect thereto, together with a copy of the notice of such Reportable Event furnished to the Pension Benefit Guaranty Corporation. 9.05 FURTHER ASSURANCES. At Lender's request and at Borrower's expense, ------------------ Borrower shall execute, acknowledge and deliver any other instruments and perform any other acts -22- necessary, desirable or proper (as reasonably determined by Lender) to carry out the purposes of the Loan Documents or to perfect and preserve any liens created by the Loan Documents. 9.06 FORM OF DOCUMENTS. The form and substance of all documents, ----------------- instruments, and forms of evidence to be delivered to Lender under the terms of any of the Loan Documents shall be subject to Lender's approval (which approval shall not be unreasonably withheld or delayed) and shall not be modified, superseded or terminated in any respect without Lender's prior written approval. 9.07 NO THIRD PARTIES BENEFITTED. No person other than Lender and --------------------------- Borrower and their permitted successors and assigns shall have any right of action under any of the Loan Documents. 9.08 NOTICES. Any notice, request, demand or other communication required ------- or permitted under the Loan Documents (unless otherwise expressly provided therein) shall be given in writing by delivering the same in person to the intended addressee by overnight courier service with guaranteed next day delivery or by certified United States mail, postage prepaid or telegram sent to the intended addressee at the applicable address set forth below or to such different address as either Lender or Borrower shall have designated by written notice to the other sent in accordance herewith. Such notices shall be deemed given when received or, if earlier, in the case of delivery by courier service with guaranteed next day delivery, the next day or the day designated for delivery, or in the case of delivery by certified United States mail, two days after deposit therein. No notice to or demand on Borrower in any case shall of itself entitle Borrower to any other or further notice or demand in similar or other circumstances. Notice addresses: If to Borrower: c/o Mr. William Thormahlen Sares-Regis Group 18802 Bardeen Avenue Irvine, California 92715-1521 If to Lender: c/o Copley Real Estate Advisors, Inc. 399 Boylston Street Boston, Massachusetts 02116 Attention: General Counsel -23- with a copy to: Hale and Dorr 60 State Street Boston, MA 02109 Attention: Kenneth A. Hoxsie, Esq. 9.09 AUTHORITY TO FILE NOTICES. Borrower irrevocably appoints and ------------------------- authorizes Lender, as Borrower's attorney-in-fact, which agency is coupled with an interest, to execute and/or record in Lender's or Borrower's name any notices, instruments or documents that Lender deems appropriate to protect Lender's interest under any of the Loan Documents. 9.10 ACTIONS. Lender may commence, appear in or defend any action or ------- proceeding purporting to affect the Leasehold Interest, Improvements, Loan Documents or the rights, duties or liabilities of Borrower or Lender under the Loan Documents. In exercising this right, Lender may incur and pay costs and expenses including, without limitation, reasonable attorneys' fees and court costs and Borrower agrees to pay all such expenses so incurred or paid. 9.11 RELATIONSHIP OF PARTIES. The relationship of Borrower and Lender ----------------------- under the Loan Documents is, and shall at all times remain, solely that of borrower and lender. Lender neither undertakes nor assumes any responsibility or duty to Borrower or to any third party with respect to the Leasehold Interest, Improvements or Loan, except as expressly provided in the Loan Documents and the Ground Lease. 9.12 LENDER'S DELAY. Lender shall not be liable in any way for Lender's -------------- failure to perform or delay in performing under the Loan Documents, and Lender may suspend or terminate all or any portion of Lender's obligations under the Loan Documents if Lender's delay or failure results directly or indirectly from, or is based upon, the action, inaction, or purported action, of any Governmental Agency, or any other cause or event identified in Section 4.02 hereof. ------------ 9.13 ATTORNEY'S FEES; ENFORCEMENT. If any attorney is engaged by Lender ---------------------------- to enforce, or defend any provision of any of the Loan documents, or as a consequence of any Default under the Loan Documents, with or without the filing of any legal action or proceeding, Borrower shall pay to Lender, immediately upon demand, the amount of all attorneys' fees and costs incurred by Lender in connection therewith, together with interest thereon from the date of such demand until paid at the rate of interest applicable to the principal balance of the Note as specified therein plus 2% per annum. -24- 9.14 ASSIGNMENT. Borrower shall not assign Borrower's interest under any ---------- of the Loan Documents, or in any monies due or to become due thereunder, without Lender's prior written consent. Any assignment made without Lender's consent shall be void. Borrower recognizes that this is not an ordinary loan and that Lender would not make this Loan except in reliance on Borrower's expertise and reputation, Lender's knowledge of Borrower, and Lender's understanding that this Agreement is more in the nature of an agreement involving personal services than a standard loan where Lender would rely on security upon which no additional work is planned. In this instance, Lender is relying on Borrower's expertise and prior experience to perform and complete the Work in accordance with the terms of the Loan Documents. 9.15 LENDER'S AGENTS. Lender may designate an agent or independent --------------- contractor to exercise any of Lender's rights under the Loan Documents. Any reference to Lender in any of the Loan Documents shall include Lender's agents, employees or independent contractors. 9.16 SEVERABILITY. If any provision of the Loan Documents shall be ------------ determined by a court of competent jurisdiction to be invalid, illegal or unenforceable, that portion shall be deemed severed from the Loan Documents and the remaining parts shall remain in full force as though the invalid, illegal, or unenforceable portion had never been part of the Loan Documents. 9.17 HEIRS, SUCCESSORS AND ASSIGNS. The terms of the Loan Documents shall ----------------------------- be binding upon and inure to the benefit of the heirs, successors and assigns of the parties; provided however, that this Section does not waive the provisions of Section 9.14. ------------ 9.18 RIGHTS CUMULATIVE, NO WAIVER. All Lender's rights and remedies ---------------------------- provided in the Loan Documents, granted by law or otherwise, are cumulative and may be exercised by Lender at any time. Lender's exercise of any right or remedy shall not constitute a cure of any Default unless all sums then due and payable to Lender under the Loan Documents are repaid and Borrower has cured all other Defaults. No waiver shall be implied from any failure of Lender to take, or any delay by Lender in taking, action concerning any Default or failure of condition under the Loan Documents, or from any previous waiver of any similar or unrelated Default or failure of condition. Any waiver or approval under any of the Loan Documents must be in writing and shall be limited to its specific terms. 9.19 TIME. Time is of the essence of each term of the Loan Documents. ---- -25- 9.20 HEADINGS. All headings appearing in any of the Loan Documents are -------- for convenience only and shall be disregarded in construing the Loan Documents. 9.21 GOVERNING LAW. The Loan Documents shall be governed by, and ------------- construed in accordance with, the laws of the State of California, except to the extent preempted by Federal laws. Borrower and all persons and entities in any manner obligated to Lender under the Loan Documents consent to the jurisdiction of any Federal or State Court within the State of California having proper venue and also consent to service of process by any means authorized by California or Federal Law. 9.22 INTEGRATION; INTERPRETATION. The Loan Documents contain or expressly --------------------------- incorporate by reference the entire agreement of the parties with respect to the matters contemplated herein and supersede all prior negotiations. The Loan Documents shall not be modified except by written instrument executed by all parties. Any reference in any of the Loan Documents to the Property, the Leasehold Interest or Improvements shall include all or any part of the Property, the Leasehold Interest or Improvements. Any reference to the Loan Documents in any of the Loan Documents includes any amendments, renewals or extensions approved by Lender. Any reference in this Agreement to the Loan Documents shall include all or any of the provisions of this Agreement and the Loan Documents unless otherwise specified. 9.23 JOINT AND SEVERAL LIABILITY. The liability of all persons and --------------------------- entities who are in any manner obligated under any of the Loan Documents shall be joint and several. 9.24 EXECUTION IN COUNTERPARTS. This Agreement, and other Loan Documents ------------------------- which expressly so provide, may be executed in any number of counterparts, each of which when executed and delivered will be deemed to be an original and all of which, taken together, will be deemed to be one and the same instrument. 9.25 INCORPORATION. Exhibits A and B attached hereto are incorporated ------------- - - into this Agreement. 9.26 CREDIT FOR PRINCIPAL PAYMENTS. Any payment made upon the outstanding ----------------------------- principal balance of the Loan shall be credited as of the business day upon which the applicable following condition has occurred by no later than 11:00 a.m. (Pacific Standard Time or Pacific Daylight Time, as appropriate): (a) In the case of a principal payment made by a federal funds wire transfer, upon receipt by Lender of written advice from the Federal Reserve System confirming that the transferred amount has been credited for the account of Lender; or -26- (b) In the case of a principal payment made by either a cashier's check, or in the case of a check drawn upon a deposit account in which there are then sufficient funds on deposit for the payment of said check, upon receipt by Lender of such check or cashier's check at the address designated elsewhere herein for the delivery to Lender of notices. 9.27 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY TO THIS AGREEMENT -------------------------------- HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THE LOAN DOCUMENTS OR THE ORIGINAL NOTE, INCLUDING, WITHOUT LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS OR THE ORIGINAL NOTE (AS NOW OR HEREAFTER MODIFIED) OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 9.28 OBLIGATIONS UNDER GROUND LEASE. Nothing contained in this Agreement ------------------------------ shall be construed to relieve or excuse Borrower of any of its obligations in its capacity as ground tenant under the Ground lease. 9.29 NONRECOURSE. ----------- (a) Borrower shall be liable upon the indebtedness evidenced by the Note, for all sums to accrue or to become payable thereunder, and for performance of any covenants contained in any of the Loan Documents to the extent, but only the extent, of Lender's security for the same, including, without limitation, all properties, rights, estates, and interests covered by this Agreement and the Loan Documents. No attachment, execution or other writ of process shall be sought, issued or levied upon any assets, properties or funds of Borrower other than the properties, rights, estates and interest described in this Agreement and the other Loan Documents. In the event of foreclosure of such title, liens, mortgages or security interests, by private power of sale or otherwise, no judgment for any deficiency upon such indebtedness, sums and amounts shall be sought or obtained by Lender against Borrower. -27- (b) Subject to the limitations set forth in Subparagraph (a) above, nothing herein contained shall be construed to prevent Lender from exercising and enforcing any other remedy allowed at law or in equity or by any statute or by the terms of any of the Loan Documents. (c) Notwithstanding the foregoing provisions of Subparagraphs (a) and (b) above, or any provision of the Deed of Trust or any other Loan Document to the contrary, no limitation of liability set forth herein, in the Deed of Trust or in any other Loan Documents shall be deemed to limit any right Lender might otherwise have to obtain injunctive relief against Borrower or any partner of Borrower related to the Leasehold Interest or the Improvements or any personal property security or to take any action to preserve, enforce or foreclose the liens, mortgages, assignments and security interests now or at any time hereafter securing the payment and performance of all sums and obligations hereunder or any of the Loan Documents, or to collect rents or to collect amounts which may become owing or payable under or on account of insurance, condemnation awards or damages for other public actions or surety bonds maintained or provided by Borrower. (d) In addition to the foregoing provisions of this Section 9.29, neither the limitation of liability set forth herein, or in the Deed of Trust or any other Loan Document: (i) shall apply to any damages sustained by Lender by reason of: (A) any misrepresentation by Borrower or any partner of Borrower proving to have been an intentional or fraudulent misrepresentation when made, (B) waste or intentional damage to the Property or Improvements thereon by Borrower or any partner of Borrower, (C) any breach of Borrower's obligations under Section 8.03 ------------ hereof, (D) the failure of Borrower or any partner of Borrower to pay any income or other taxes, assessments or charges attributable to the Borrower or such partner (as the case may be) which can create liens on any portion of the Leasehold Interest or Improvements (to the full extent of any such taxes, assessments or other charges) as to Borrower or the partner who fails to pay such taxes, assessments or charges, or -28- (E) the making of any payment or any distribution (cash, profits, fees or otherwise) of any assets of Borrower to any partner of Borrower or to any affiliate of a partner of Borrower without the prior written consent of Lender; and (ii) shall apply should Borrower, or any partner of Borrower, claim or contend at any time that the Deed of Trust securing the Loan is, for any reason, invalid or unenforceable to an extent that would: (A) preclude Lender from foreclosing the Deed of Trust or causing a trustee's sale in connection with the Deed of Trust upon the occurrence of a Default hereunder, or (B) preclude Lender from foreclosing or otherwise enforcing its security interest in the personal property covered by the Deed of Trust or the Security Agreement upon the occurrence of a Default hereunder. (e) Nothing herein contained shall limit or be construed to limit the personal liability and obligations of Borrower in the event that and to the extent that after a Default or an event or circumstance that with the passage of time, the giving of notice, or both, could constitute a Default, Borrower collects any rents, issues or profits of the Leasehold Interest or the Improvements or derived from the Leasehold Interest or the Improvements and does not apply the same to the normal operating expenses of the Leasehold Interest or the Improvements or any payments due under any of the Loan Documents, it being intended hereby that Borrower shall be personally liable and obligated hereunder to the full extent of such rentals and other items so collected and not so applied, and that Lender or other holder hereof or of the Note, the Original Note or any of the Loan Documents shall not be limited in any way in enforcing such personal liability and obligations of Borrower. -29- IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement as of the date appearing on the first page of this Agreement. "Lender" "Borrower" NEW ENGLAND LIFE WILLOWS CONCORD VENTURE, PENSION PROPERTIES' A Real a California limited partnership, Estate Limited Partnership, a Massachusetts limited partnership By: /s/ William I. Thormahlen ---------------------------- Name: William I. Thormahlen -------------------------- Title: General Partner ------------------------- By: Copley Properties Company, Inc. By: /s/ Wesley M. Gardiner ------------------------- Name: Wesley M. Gardiner -------------------- Title: Vice President ------------------- NEW ENGLAND LIFE PENSION PROPERTIES, II; A Real Estate Limited Partnership, a Massachusetts limited partnership By: Copley Properties Company II, Inc. By: /s/ Wesley M. Gardiner ------------------------- Name: Wesley M. Gardiner -------------------- Title: Vice President ------------------- -30- EXHIBIT A --------- LEGAL DESCRIPTION ----------------- That certain real property located in the City of Concord, County of Contra Costa, State of California, described as follows: Parcel "B" as shown on the Parcel Map filed April 22, 1969, in Book 8 of Parcel Maps at Page 16, Contra Costa County Records (hereinafter, the "Site"). Excepting therefrom the interest to Contra Costa County Flood Control and Water Conservation District, in the Deed recorded May 16, 1969, in Book 5876, Page 838, of Official Records. ALSO EXCEPTING THEREFROM the buildings, structures and improvements now or hereafter erected on the Site, and any replacements thereof, which are and shall remain real property (collectively, the "Improvements"), and the furnishings, equipment, machinery and other items of personal property now or hereafter necessary for the property operation and maintenance of the Improvements and situated on, over or beneath the Site. EXHIBIT B The Willows Section VII - 1994 & 1995 Summary 1995 Prepared By: Ginger Bryant
Actual Actual Actual Actual Jan Feb Mar Apr May Jun Jul Aug - ------------------------------------------------------------------------------------------------------------------ Rental Income 215,188 198,598 176,675 224,225 190,544 170,610 189,076 212,876 CAM, Taxes and Insurance 47,369 44,817 54,995 27,523 42,032 46,920 43,715 47,050 Other Income 113 585 263 638 250 250 250 250 TOTAL REVENUES 262,670 244,000 231,933 252,386 232,827 217,780 233,041 260,176 Repairs and Maintenance 652 3,938 11,165 9,454 3,006 3,025 2,506 2,654 Parking Lot 1,911 0 1,040 520 740 740 3,740 740 Landscaping (100) 11,350 12,849 5,675 11,175 10,726 7,225 8,375 Utilities 60 4,358 5,931 4,521 12,000 4,000 12,000 4,000 HVAC 0 0 0 0 0 0 0 0 Janitorial & Trash 0 19,428 16,972 5,792 21,100 13,600 13,600 13,600 Security & Other 2,336 12,226 16,657 5,894 12,510 8,585 8,960 8,510 TOTAL CAM 4,859 51,300 64,614 31,856 60,531 40,676 48,031 37,879 Property Taxes 0 27,000 54,000 (27,289) 27,018 27,018 27,018 27,018 Insurance 1,647 1,647 1,647 1,647 1,647 1,647 1,647 1,647 Management Fees 8,878 7,546 6,930 8,160 6,994 6,543 7,000 7,814 Management Salaries 6,191 7,149 9,385 4,156 7,264 7,264 7,264 7,264 TOTAL OPERATING EXPENSES 21,575 94,642 136,576 18,530 103,454 83,148 90,961 81,622 Marketing 850 1,093 368 1,026 6,914 8,296 1,149 3,617 Professional Services 10,071 1,983 2,141 5,686 2,000 2,000 2,000 2,000 Administrative 5,358 1,349 9,460 3,930 3,525 4,639 3,525 3,501 Bad Debt 0 (609) (305) (305) (305) (305) (305) (305) TOTAL EXPENSES 37,854 98,458 148,240 28,867 115,588 97,778 97,330 90,436 NET OPERATING INCOME 224,816 145,542 83,693 223,519 117,238 120,003 135,710 169,740 Interest Paid 0 0 0 0 0 0 0 0 Other Expenses Paid 0 0 0 800 0 0 0 0 Tenant Improvements/Vanilla (105,503) (22,618) (10,443) (2,775) (46,000) (124,000) (165,000) (300,000) Leasing Commissions 7,172 (4,292) (2,880) (13,947) (34,435) (12,000) (13,150) (46,000) Renovation and Replacements (80,902) (54,309) 2,139 (5,464) 0 (60,000) (20,000) 0 TOTAL CAPITAL (179,233) (81,219) (11,184) (22,186) (80,435) (196,000) (198,150) (346,000) Loan/Other Funding 308,185 0 0 49,380 (250,000) (17,000) 57,000 53,000 Cash Accrual Adjustments (185,520) (338,603) 73,913 (153,808) 27,018 142,583 29,168 174,868 NET CASH FLOW 168,248 (274,280) 146,422 96,105 (186,179) 49,586 23,728 51,608 Beginning Cash 170,606 338,854 64,575 210,997 307,103 120,924 170,509 194,238 Ending Cash 338,854 64,575 210,997 307,103 120,924 170,509 194,238 245,846 Target Working Capital 50,000 50,000 50,000 50,000 50,000 50,000 Property Tax Reserve 135,000 0 27,000 54,000 81,000 108,000 Excess/Funding Need 25,997 257,103 43,924 66,509 63,238 87,846 Cumulative Funding 308,185 308,185 308,185 357,565 357,565 357,565 357,565 357,565 Balance in Coploy Cash account 0 0 0 0 250,000 267,000 210,000 157,000 Potential Pad B REG pymt 250,000 Potential Pad B costs above Current Yr Sep Oct Nov Dec Total Forecast Change - ---------------------------------------------------------------------------------------------------------------- Rental Income 194,200 216,400 205,150 217,875 2,411,421 2,565,726 (154,304) CAM, Taxes and Insurance 49,212 49,931 54,053 64,291 571,908 624,826 (52,917) Other Income 250 250 250 250 3,599 3,000 599 TOTAL REVENUES 243,663 266,582 259,453 282,416 2,986,929 3,193,551 (206,623) Repairs and Maintenance 2,878 6,665 4,518 5,037 55,497 45,180 10,318 Parking Lot 740 920 920 920 12,931 12,960 (29) Landscaping 9,766 5,725 8,225 9,616 100,607 99,624 983 Utilities 12,000 4,300 10,500 5,500 79,170 90,400 (11,230) HVAC 0 0 0 0 0 0 0 Janitorial & Trash 13,600 14,100 14,100 14,100 159,992 164,700 (1,232) Security & Other 8,585 8,510 8,960 9,485 111,218 109,120 2,098 TOTAL CAM 47,569 40,220 47,223 44,658 519,415 521,984 908 Property Taxes 27,018 27,018 27,018 27,018 269,855 401,395 (131,540) Insurance 1,729 1,729 1,729 1,729 20,093 20,094 (1) Management Fees 7,319 8,007 7,793 8,482 91,465 95,657 (4,191) Management Salaries 7,264 7,264 7,264 13,832 91,559 95,098 (3,539) TOTAL OPERATING EXPENSES 90,898 84,238 91,026 95,718 992,388 1,134,227 (138,363) Marketing 2,671 2,639 9,921 11,171 49,714 51,257 (1,543) Professional Services 2,000 2,000 5,000 2,000 38,378 37,500 878 Administrative 4,463 3,501 3,975 4,439 51,668 50,829 839 Bad Debt (305) (305) (305) (305) (3,659) 5,000 (8,659) TOTAL EXPENSES 99,727 92,073 109,617 113,023 1,128,489 1,278,813 (146,848) NET OPERATING EXPENSES 143,935 174,509 149,836 169,393 1,858,440 1,914,738 (59,774) Interest Paid 0 0 0 0 0 (0) 0 Other Expenses Paid 0 0 0 0 800 0 800 Tenant Improvements/Vanilla (559,150) (356,250) (198,400) (32,000) (1,922,139) (1,928,150) 6,011 Leasing Commissions (26,348) (55,250) (45,435) (54,500) (301,065) (394,900) 93,835 Renovation and Replacements 0 0 0 0 (218,536) (200,000) (18,536) TOTAL CAPITAL (585,498) (411,500) (243,835) (86,500) (2,441,740) 2,523,050 81,310 Loan/Other Funding 157,000 426,000 222,000 94,000 1,099,565 0 1,099,565 Cash Accrual Adjustments 266,516 (146,980) (140,647) (292,425) (543,917) 0 (543,917) NET CASH FLOW (18,047) 42,029 (12,646) (115,632) (28,452) (608,312) 576,384 Beginning Cash 245,846 227,800 269,829 257,183 170,606 Ending Cash 227,800 269,629 257,183 141,651 142,154 Target Working Capital 50,000 50,000 50,000 50,000 Property Tax Reserve 135,000 135,000 27,000 54,000 Excess/Funding Need 42,800 84,829 180,183 37,651 Cumulative Funding 357,565 783,565 1,005,565 1,099,565 Balance in Coploy Cash account 0 0 0 0 before Potential Pad B REG pymt contingency Potential Pad B costs above ******* (in TI #) (1,350,000) 2,199,565
PROMISSORY NOTE --------------- 1. Defined Terms. As used in this Promissory Note (this "Note"), the ------------- following terms shall have the following meanings: Accrual Balance shall have the meaning assigned to it in Paragraph --------------- 3(a)(ii). Accrued Amount shall have the meaning assigned to it in Paragraph -------------- 3(a)(ii). Assignment of Leases shall mean that certain Assignment of Leases and -------------------- Rents dated as of June 13, 1991, executed by Maker in favor of Lender, recorded on June 18, 1991 as Instrument No. 91-110715 in the Official Records of Contra Costa County, California, as amended by that certain Modification Agreement and First Amendment to Loan Documents dated as of August 15, 1991, as further amended by that certain Modification Agreement and Second Amendment to Loan Documents dated as of September 12, 1991, as further amended by that certain Modification Agreement and Third Amendment to Loan Documents dated as of October 15, 1991, as further amended by that certain Fourth Amendment to Loan Documents dated as of December 17, 1992, and as further amended by that Fifth Amendment to Loan Documents (as defined herein). Date of Disbursement shall mean the date of this Note. -------------------- Deed of Trust shall mean that certain Deed of Trust and Security ------------- Agreement dated as of June 13, 1991, by Maker, as Trustor, to Chicago Title Company, as Trustee, for the benefit of Lender, recorded in June 18, 1991 as Instrument No. 91-116714 in the Official Records of Contra Costa County, California, as amended by that certain Modification Agreement and First Amendment to Loan Documents dated as of August 15, 1991, as further amended by that certain Modification Agreement and Second Amendment to Loan Documents dated as of September 12, 1991, as further amended by that certain Modification Agreement and Third Amendment to Loan Documents dated as of October 15, 1991, as further amended by that certain Fourth Amendment to Loan Documents dated as of December 17, 1992, and as further amended by the Fifth Amendment to Loan Documents (as defined herein). Fifth Amendment to Loan Documents shall mean that certain Fifth --------------------------------- Amendment to Loan Documents of even date herewith by and between Maker and Lender. Fiscal Year shall mean the calendar year. As used in this Note, a ----------- Fiscal Year shall include any partial Fiscal Year at the beginning and end of the term of this Note. Ground Lease shall mean that certain Amended and Completely Restated ------------ Ground Lease effective as of June 18, 1991 by and between Maker, as ground tenant, and Lender, as ground landlord. Improvements shall mean the shopping center and any and all other ------------ improvements located on the Property. Interest Rate shall mean eleven percent (11%) per annum compounded ------------- monthly. Leasehold Interest shall mean Maker's leasehold interest under the ------------------ Ground Lease. Lender shall mean New England Life Pension Properties; A Real Estate ------ Limited Partnership, and New England Life Pension Properties II; A Real Estate Limited Partnership, each a Massachusetts limited partnership, together with their respective successors and assigns (collectively referred to herein as "Lender"). Loan shall mean the loan in the amount of the Principal Sum made by ---- Lender to Maker pursuant to the Loan Agreement. Loan Agreement shall mean that certain Construction Loan Agreement by -------------- and between Maker and Lender of even date herewith. Maker shall mean Willows Concord Venture, a California limited ----- partnership, having an address at 18802 Bardeen Avenue, Irvine, California 92715. Maturity Date shall mean December 31, 1997. ------------- Net Operating Cash Flow shall have the meaning assigned to it in ----------------------- Paragraph 3(a)(iii). Operating Expenses shall have the meaning assigned to it in Paragraph ------------------ 3(a)(iv). Original Note shall mean that certain Amended and Restated Promissory ------------- Note effective as of June 14, 1991 made by Maker in favor of Lender in the principal amount of Fourteen -2- Million Eight Hundred Sixty Three Thousand Two Hundred Six and 38/100 Dollars ($14,863,206.38), which Original Note replaced and superseded in its entirety that certain Promissory Note dated June 14, 1991 made by Maker in favor of Lender in the principal amount of Fourteen Million Eight Hundred Sixty Three Thousand Two Hundred Six and 38/100 Dollars ($14,863,206.38). Principal Sum shall mean $2,500,000.00. ------------- Property shall mean the real property located in the County of Contra -------- Costa, State of California and more particularly described in Exhibit A to the --------- Deed of Trust. Security Agreement shall mean that certain Security Agreement of even ------------------ date herewith executed by Maker in favor of Lender. Any initially-capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Deed of Trust. 2. Debt. FOR VALUE RECEIVED, Maker promises to pay upon the Maturity ---- Date to the order of Lender the unpaid portion of the Principal Sum, together with interest on the unpaid principal from the Date of Disbursement to the Maturity Date at the Interest Rate, in accordance with the terms hereof. Interest payable hereunder shall be calculated on the basis of a 365-day year. 3. Payments of Interest and Principal. ---------------------------------- (a) Time and Method of Payment. -------------------------- (i) If the Disbursement Date does not occur on the first day of a month, there shall be paid on the first day of the first month following the Disbursement Date, for the period commencing on the Disbursement Date and ending on and including the last day of the month in which the Disbursement Date occurs, interest only on the portion of the Principal Sum disbursed on the Disbursement Date at the Interest Rate. Thereafter, subject to Paragraph 3(a)(ii) below, Maker shall pay the Principal Sum to Lender, together with interest thereon calculated in arrears, in monthly installments commencing on the first day of the second month following the Disbursement Date and continuing on the first day of each month thereafter until the Maturity Date. Each installment shall be in an amount sufficient to amortize the Principal Sum in equal payments based upon a fifteen (15) year -3- amortization schedule at the Interest Rate, which schedule shall be deemed to have commenced on the first day of the first month following the Disbursement Date regardless of the date of any subsequent disbursement of the Principal Sum by Lender under the Loan Agreement. Lender shall recalculate the amount of such monthly installments after each disbursement of the Principal Sum under the Loan Agreement. (ii) Notwithstanding the provisions of Paragraph 3(a)(i) above, until January 1, 1996 Maker shall be required to make monthly installments of interest and principal due to Lender only from and to the extent of Net Operating Cash Flow realized by Maker for any month ending prior to January 1, 1996. Each such monthly installment (or portion thereof) of interest and principal which is not paid by Maker when due in accordance with the foregoing sentence shall accrue interest at the Interest Rate from the date the same was due. The total of all such unpaid monthly installments (or portions thereof), together with all interest accruals thereon, shall be referred to herein as the "Accrued Amount." The Accrued Amount, or any portion thereof remaining unpaid at any time and from time to time during the term of this Note (the "Accrual Balance") shall bear interest at the Interest Rate until fully repaid by Maker to Lender. At any time and from time to time up to the Maturity Date, Maker may pay the then outstanding Accrual Balance to Lender, in whole or in part. Notwithstanding the foregoing, Maker hereby agrees to apply all Net Operating Cash Flow realized by Maker for any month during the term of this Note (in excess of the amount required to be paid pursuant to the first sentence of this Paragraph 3(a)(ii)) (A) to reduce the outstanding Accrual Balance until paid in full, and (B) after the outstanding Accrual Balance has been paid in full, to reduce the outstanding Principal Sum. In all events, the Principal Sum, including any Accrual Balance, remaining unpaid on the Maturity Date shall be paid to Lender in full on the Maturity Date. (iii) Net Operating Cash Flow. For purposes of this Note, the ----------------------- term "Net Operating Cash Flow" shall mean, as to any particular Fiscal Year or portion thereof, the difference between (i) the aggregate of all fixed, minimum and guaranteed rents, fees, overage rents, percentage or participation rents and all rents and receipts from licenses and concessions received from the Property, including all amounts received for parking and all fees, income and revenue of a non-rental nature received by Maker during such Fiscal -4- Year, less (ii) Operating Expenses, capital expenditures and reserves therefor (to the extent permitted by Lender under the Loan Agreement), cost of tenant improvements, payments of principal, interest, loan fees or other charges or amounts on the Original Note which are paid by Maker during such Fiscal Year, all payments by Maker to Lender under the Ground Lease, and a reasonable reserve as determined by Maker to cover such expenses in the following Fiscal Year, all as determined on a cash accounting basis. Net Operating Cash Flow shall be computed by Maker on a monthly basis. (iv) Definition of Operating Expenses. "Operating Expenses" -------------------------------- shall mean all reasonable and necessary charges and expenses actually incurred by Maker for the maintenance, protection, management and operation of the Property in the manner required by the Ground Lease and consistent with the management and operation of like properties in the Greater San Francisco area, and shall include, but not be limited to: (A) normal, prevailing wages, salaries, and fringe benefits and payroll taxes for on-site personnel engaged in the operation of the Property (excluding home office personnel); (B) a management fee not in excess of the "Maximum Management Fee", if, in fact, such fee is incurred, plus the actual cost of on-site management. The "Maximum Management Fee" shall be three percent (3%) of gross collected revenue; (C) payment of utilities, maintenance supplies, real estate taxes, betterments and assessments (but not income taxes or interest paid on taxes), cleaning, repairs, insurance, ordinary accounting, auditing and legal fees, interest paid to others on funds held in escrow, ordinary advertising; (D) normal, prevailing brokerage commissions payable to third parties; and (E) expenses incurred for replacement of capital improvements and reserves therefor (to the extent permitted by Lender under the Loan Agreement). "Operating Expenses" shall not include depreciation or any other non- cash costs. -5- (b) Maturity Date. On the Maturity Date, Maker shall pay to Lender ------------- the entire then unpaid and outstanding Principal Sum, together with any accrued, unpaid interest hereunder (including, without limitation any outstanding Accrual Balance). 4. Books and Records, Reports and Audits. During the term of this Note, ------------------------------------- Maker shall maintain books and records and cause reports and audits to be prepared in accordance with the provisions of the Deed of Trust. 5. Additional Interest. All expenditures by Lender pursuant to this Note ------------------- or the other Loan Documents which are not reimbursed by Maker immediately upon demand, all amounts remaining due and unpaid after the Maturity Date and any amounts due and unpaid after an Event of Default shall bear interest at the rate of five percent (5%) per annum more than the Interest Rate, until such amounts are paid to Lender. 6. Manner and Place of Payment. All payments hereunder shall be made in --------------------------- lawful money of the United States of America, in immediately available funds, at 399 Boylston Street, Boston, Massachusetts 02116, c/o Copley Real Estate Advisors, Inc., or at such other place as Lender may from time to time designate in writing. 7. Application of Payments. Unless an Event of Default has occurred and ----------------------- is continuing, all payments hereunder shall be applied first to costs of collection or enforcement and other similar amounts due, if any, under this Note and the other Loan Documents, then to any accrued, unpaid interest due under the Note (including, without limitation, any outstanding interest included in the Accrual Balance), and then to the outstanding Principal Sum (including any portion of the Principal Sum included in the Accrual Balance). If an Event of Default has occurred and is continuing, such payments may be applied to sums due hereunder or under the Loan Documents in any order and combination that Lender may, in its sole discretion, determine. 8. Waivers. Other than as expressly provided herein with respect to ------- notice and cure rights, Maker waives presentment for payment, demand, notice of nonpayment, notice of intention to accelerate the maturity of this Note, diligence in collection, commencement of suit against any obligor, notice of protest, and protest of this Note and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Note, before or after maturity of this Note, with or without notice to Maker, and agrees that its liability shall -6- not be in any manner affected by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Lender. Maker consents to any and all extensions of time, renewals, waivers or modifications that may be granted by Lender with respect to the payment or other provisions of this Note, and to any substitution, exchange or release of the collateral for this Note, or any part thereof, with or without substitution of said collateral. 9. No Usury. Lender and Maker intend to comply at all times with -------- applicable usury laws. If at any time such laws would ever render usurious any amounts called for under this Note or the other Loan Documents, then it is Maker's and Lender's express intention that Maker shall not be required to pay interest on this Note at a rate in excess of the maximum lawful rate, that the provisions of this Paragraph shall control over all other provisions or this Note and the Loan Documents which may be in apparent conflict hereunder, that such excess amount shall be immediately credited on the principal balance of this Note (or, if this Note has been fully paid, refunded by Lender to Maker), and the provisions hereof shall be immediately reformed and the amounts thereafter collectible under this Note reduced, without the necessity of the execution of any further documents, so as to comply with applicable usury laws, but so as to permit the recovery of the fullest amount otherwise called for under this Note. Any such crediting or refund shall not cure or waive any default by Maker under this Note or the other Loan Documents. If at any time following any reduction in the interest rate payable by Maker there remains unpaid any principal amount under this Note and the maximum interest rate not prohibited by applicable law is increased or eliminated, then the interest rate payable under this Note shall be readjusted, to the extent not prohibited by applicable law, so that the total dollar amount of interest payable hereunder shall be equal to the dollar amount of interest which would have been paid by Maker without giving effect to the reduction in interest resulting from compliance with applicable usury laws. Maker agrees that in determining whether or not any interest payable under this Note or the other Loan Documents exceeds the highest rate not prohibited by law, any non-principal payment (except payments specifically stated in this Note or in the other Loan Documents to be "interest"), shall, to the maximum extent not prohibited by law, be an expense, fee, or premium rather than interest. The term "applicable law" as used in this Note shall mean the laws of the State of California, or the laws of the United States, whichever laws allow the greater rate of interest, as such laws now exist or may be changed or amended or come into effect in the future. -7- 10. Remedies. The rights and remedies of Lender are set forth in the Loan -------- Documents and include, without limitation, in case of an Event of Default, the right to declare the outstanding Principal Sum and any accrued and unpaid interest due under this Note (including, without limitation, any outstanding Accrual Balance) immediately due and payable. 11. Amendments. This Note may not be changed or amended orally but only ---------- by an agreement in writing, signed by the party against whom enforcement is sought. 12. Governing Law. This Note shall be governed and construed by the laws ------------- of the State of California. 13. Permitted Prepayment. Maker may prepay the entire unpaid Principal -------------------- Sum, with accrued and unpaid interest (including, without limitation, any outstanding Accrual Balance), in whole or in part, at any time, without prepayment penalty. Unless Lender otherwise agrees, the amount of the monthly installments of principal and interest payable hereunder shall not be reduced in the event of any partial prepayment. 14. Non-Recourse Debt. ----------------- (a) Maker shall be liable upon the indebtedness evidenced by this Note, for all sums to accrue or to become payable thereunder, and for performance of any covenants contained in any of the Loan Documents to the extent, but only the extent, of Lender's security for the same, including, without limitation, all properties, rights, estates, and interests covered by the Loan Agreement and the Loan Documents. No attachment, execution or other writ of process shall be sought, issued or levied upon any assets, properties or funds of Maker other than the properties, rights, estates and interest described in Loan Agreement and the other Loan Documents. In the event of foreclosure of such title, liens, mortgages or security interests, by private power of sale or otherwise, no judgment for any deficiency upon such indebtedness, sums and amounts shall be sought or obtained by Lender against Maker. (b) Subject to the limitations set forth in Subparagraph (a) above, nothing herein contained shall be construed to prevent Lender from exercising and enforcing any other remedy allowed at law or in equity or by any statute or by the terms of any of the Loan Documents. -8- (c) Notwithstanding the foregoing provisions of Subparagraphs (a) and (b) above, or of any provision of the Deed of Trust or any other Loan Document to the contrary, no limitation of liability set forth herein, in the Deed of Trust or in any other Loan Document shall be deemed to limit any right Lender might otherwise have to obtain injunctive relief against Maker or any partner of Maker related to the Leasehold Interest or the Improvements or any personal property security or to take any action to preserve, enforce or foreclose the liens, mortgages, assignments and security interests now or at any time hereafter securing the payment and performance of all sums and obligations hereunder or any of the Loan Documents, or to collect rents or to collect amounts which may become owing or payable under or on account of insurance, condemnation awards or damages for other public actions or surety bonds maintained or provided by Maker. (d) In addition to the foregoing provisions of this Paragraph 14, neither the limitation of liability set forth herein, or in the Deed of Trust or any other Loan Document: (i) shall apply to any damages sustained by Lender by reason of: (A) any misrepresentation by Maker or any partner of Maker proving to have been an intentional or fraudulent misrepresentation when made, (B) waste or intentional damage to the Property or Improvements thereon by Maker or any partner of Maker, (C) any breach of Maker's obligations under Section 8.03 of ------------ the Loan Agreement, (D) the failure of Maker or any partner of Maker to pay any income or other taxes, assessments or charges attributable to the Maker or such partner (as the case may be) which can create liens on any portion of the Leasehold Interest or Improvements (to the full extent of any such taxes, assessments or other charges) as to Maker or the partner who fails to pay such taxes, assessments or charges, or (E) the making of any payment or any distribution (cash, profits, fees or otherwise) of any assets of Maker to any partner of Maker or to any -9- affiliate of a partner of Maker without the prior written consent of Lender; and (ii) shall apply should Maker, or any partner of Maker, claim or contend at any time that the Deed of Trust securing the Loan is, for any reason, invalid or unenforceable to an extent that would: (A) preclude Lender from foreclosing the Deed of Trust or causing a trustee's sale in connection with the Deed of Trust upon the occurrence of a Default under the Loan Agreement, or (B) preclude Lender from foreclosing or otherwise enforcing its security interest in the personal property covered by the Deed of Trust or the Security Agreement upon the occurrence of a Default under the Loan Agreement. (e) Nothing herein contained shall limit or be construed to limit the personal liability and obligations of Maker in the event that and to the extent that after a Default or an event or circumstance that with the passage of time, the giving of notice, or both, could constitute a Default, Maker collects any rents, issues or profits of the Leasehold Interest or the Improvements or derived from the Leasehold Interest or the Improvements and does not apply the same to the normal operating expenses of the Leasehold Interest or the Improvements or any payments due under any of the Loan Documents, it being intended hereby that Maker shall be personally liable and obligated hereunder to the full extent of such rentals and other items so collected and not so applied, and that Lender or other holder hereof or of this Note, the Original Note or any of the Loan Documents shall not be limited in any way in enforcing such personal liability and obligations of Maker. 15. Security. This Note is secured, in part, by the Deed of Trust, the -------- Assignment of Leases, the Security Agreement and all amendments, modifications, supplements, substitutions, additions, renewals, replacements and extensions thereof. 16. Collection. Any check, draft, money order or other instrument given ---------- in payment of all or any portion hereof may be accepted by Lender and handled by collection in the customary manner, but the same shall not constitute payment hereunder or diminish any rights of Lender except to the extent that actual -10- cash proceeds of such instrument are unconditionally received by Lender and applied to this indebtedness in the manner elsewhere herein provided. 17. Attorneys' Fees. Upon any Event of Default, Maker shall pay all costs --------------- of collection, including without limitation, reasonable attorneys' fees and expenses, whether or not suit is filed hereon. IN WITNESS WHEREOF, this Note has been executed and delivered of the 1st day of January, 1995. "Maker" WILLOWS CONCORD VENTURE, a California limited partnership By: /s/ John S. Hagestad ----------------------------------- John S. Hagestad Its: General Partner By: /s/ Carl F. Willgeroth ----------------------------------- Carl F. Willgeroth Its: General Partner By: /s/ William Thormahlen ----------------------------------- William J. Thormahlen Its: General Partner -11- SECURITY AGREEMENT ------------------ THIS SECURITY AGREEMENT ("Agreement") is entered into as of January 1, 1995, by WILLOWS CONCORD VENTURE, a California limited partnership ("Borrower"), whose principal place of business is located at 18802 Bardeen Avenue, Irvine, California 92715, in favor of NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP, and NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE LIMITED PARTNERSHIP, each a Massachusetts limited partnership (collectively "Lender"). RECITALS -------- A. Borrower proposes to borrow from Lender, pursuant to the terms of that certain Construction Loan Agreement (the "Loan Agreement") between Borrower and Lender, dated as of the date of this Agreement, the principal sum of TWO MILLION FIVE HUNDRED THOUSAND and 00/100THS DOLLARS ($2,500,000.00) (the "Loan") for the purposes specified in the Loan Agreement and relating to the real property and improvements described in the Loan Agreement (which property and improvements are collectively referred to herein as the "Subject Property"). The Loan is evidenced by a Promissory Note (the "Note") of Borrower payable to Lender in the principal amount of the Loan and is secured by the Deed of Trust (as defined on the Loan Agreement) on the Subject Property, the security interests granted under this Agreement and any other security instruments specified in the Loan Agreement. B. The Loan Documents (as defined and described in the Loan Agreement) include this Agreement, the Loan Agreement, the Deed of Trust, the Note, and the Lease Assignment (as defined in the Loan Agreement). Initially-capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Loan Agreement. NOW, THEREFORE, in consideration of Lender's agreement to make the Loan, Borrower agrees as follows: 1. Security interest. Borrower grants and assigns to Lender as of the ----------------- Effective Date (as defined in the Loan Agreement) a security interest in all of the following described personal property in which Borrower now or at any time hereafter has any interest (collectively, the "Collateral"): All goods, building and other materials, supplies, work in progress, equipment, machinery, fixtures, furniture, furnishings, signs and other personal property, wherever situated, which are or are to be incorporated into, used in connection with, or appropriated for use on (i) the real property described on Exhibit A to the Deed of Trust or (ii) the improvements described in the Loan Agreement (which real property and improvements are collectively referred to herein as the Subject Property); together with all rents, issues, deposits and profits of the Subject Property; all inventory, accounts, cash receipts, deposit accounts (including, without limitation, demand deposit account no. 180206050 in the name of Willows Concord General Checking of the First Interstate Bank, 1018 North Main Street, Santa Ana, California 982701 established pursuant to the Loan Agreement and demand deposit account no. 9364452404 of Fleet Bank, Boston, Massachusetts; accounts receivable, contract rights, general intangibles, chattel paper, instruments, documents, notes, drafts, letters of credit, insurance policies, insurance and condemnation awards and proceeds, any other rights to the payment of money, trade names, trademarks and service marks arising from or related to the Subject Property or any business now or hereafter conducted thereon by Borrower; all permits, consents, approvals, licenses, authorizations and other rights granted by, given by or obtained from, any governmental entity with respect to the Subject Property; all deposits or other security now or hereafter made with or given to utility companies by Borrower with respect to the Subject Property; all advance payments of insurance premiums made by Borrower with respect to the Subject Property; all plans, drawings and specifications relating to the Subject Property; all loan funds held by Lender, whether or not disbursed; all funds deposited with Lender pursuant to any loan agreement; all reserves, deferred payments, deposits, accounts, refunds, cost savings and payments of any kind related to the Subject Property or any portion thereof; together with all replacements and proceeds of, and additions and accessions to, any of the foregoing; together with all books, records and files relating to any of the foregoing. 2. Obligations Secured. This Agreement secures the payment and ------------------- performance of all present and future obligations of Borrower to Lender under the Loan, that certain Amended and Restated Promissory Note dated effective as of June 14, 1991 made by Borrower in favor of Lender in the principal amount of $14,863,206.38, the other Loan Documents and under any other agreement which recites that it is secured hereby. 3. Representations and Warranties. Borrower represents and warrants ------------------------------ that: (a) Borrower has, or will have, good title to the Collateral; (b) Borrower has not previously assigned or encumbered -2- the Collateral to any person or entity other than Lender, and no financing statement covering any of the Collateral has been delivered to any other person or entity other than Lender; and (c) Borrower's principal place of business is located at the address specified above. 4. Rights of Lender. In addition to Lender's rights as a "Secured ---------------- Party" under the California Uniform Commercial Code, as amended or recodified from time to time ("UCC"), Lender may, but shall not be obligated to, at any time without notice and at the expense of Borrower: (a) give notice to any person of Lender's rights hereunder and, upon the occurrence of a Default, enforce such rights; (b) insure, protect, defend and preserve the Collateral or any rights or interests of Lender therein; (c) inspect the Collateral; and (c) endorse, collect and receive any right to payment of money owing to Borrower under or from the Collateral. Lender shall have no duty or obligation to make or give any presentments, demands for performance, notice of nonperformance, notice of protest or notices of dishonor in connection with any of the Collateral. 5. Collateral Designation Statement. Borrower shall, from time to time -------------------------------- within ten (10) days of Lender's request, deliver to Lender a written statement showing the description and location of all Collateral then subject to this Agreement. 6. Miscellaneous Undertakings. In addition to Borrower's undertakings -------------------------- under the other Loan Documents, Borrower, at its sole cost and expense, agrees to pay within fifteen (15) days of Lender's demand, all expenses, including without limitation, reasonable attorneys' fees and court costs, incurred by Lender in connection with the creation, perfection, preservation or enforcement of any of the security interests granted under this Agreement. 7. Default. "Default" shall mean (i) the failure to perform any ------- obligation hereunder or the failure to be true of any representation or warranty of Borrower herein, and the continuance of such failure for fifteen (15) days after notice or within any longer grace period, if any, allowed in the Loan Agreement for such failure, or (ii) the existence of any Default as defined in the Loan Agreement. 8. Lender's Rights on Default. Upon the occurrence of a Default under -------------------------- this Agreement, then in addition to all of Lender's rights as a "Secured Party" under the UCC or otherwise by law: 8.1. Lender may (i) upon written notice, require Borrower to assemble any or all of the Collateral and make it -3- available to Lender at a place designated by Lender; (ii) without prior notice, enter upon the Subject Property or other place where any of the Collateral may be located and take possession of, collect, sell, and dispose of any or all of the Collateral, and store the same at locations acceptable to Lender at Borrower's expense; (iii) sell, assign and deliver at any place or in any lawful manner all or any part of the Collateral and bid and become purchaser at any such sale; and 8.2. Lender may, for the account of Borrower and at Borrower's expense: (i) operate, use, consume, sell or dispose of the Collateral as Lender deems appropriate for the purpose of performing any or all of the obligations secured by this Agreement; (ii) enter into any agreement, compromise, or settlement, including insurance claims, which Lender may deem desirable or proper with respect to any of the Collateral; (iii) endorse and deliver evidences of title for, and receive, enforce and collect by legal action or otherwise, all indebtedness and obligations now or hereafter owing to Borrower in connection with or on account of any or all of the Collateral; and (iv) perform any of the obligations secured by this Agreement. Notwithstanding any other provisions of this Agreement, Lender shall not be deemed to have accepted any property other than cash in satisfaction of any obligation of Borrower to Lender unless Lender shall make an express written election of said remedy under UCC Section 9505, or other applicable law. 9. Power of Attorney. Borrower hereby irrevocably appoints Lender ----------------- as Borrower's attorney-in-fact (such agency being coupled with an interest), and as such attorney-in-fact lender may, without the obligation to do so, in Lender's name or in the name of Borrower, prepare, execute and file or record financing statements, continuation statements, applications for registration and like papers necessary to create, perfect or preserve any of Lender's security interests and rights in or to any of the Collateral, and, upon a Default hereunder take any other action specified in Section 8 hereof; provided that Lender as such attorney-in-fact shall be accountable only for such funds as are actually received by Lender. 10. Possession and Use of Collateral. Except as otherwise provided -------------------------------- in this Agreement or the other Loan Documents, so long as no Default exists under this Agreement or any of the Loan Documents, Borrower may possess, use, move, transfer or dispose of any of the Collateral in the ordinary course of Borrower's business and in accordance with the Loan Agreement. -4- 11. Integration. This Agreement and the other Loan documents contain ----------- the entire agreement of the parties and supersede any and all prior negotiations. This Agreement is supplemented by those provisions of the Loan Agreement which apply to the Loan Documents and said provisions are incorporated herein by this reference. IN WITNESS WHEREOF, Borrower has executed this Security Agreement as of the date appearing on the first page of this Agreement. "Borrower" WILLOWS CONCORD VENTURE a California limited partnership By: /s/ William J. Thormahlen ----------------------------------- Name: WILLIAM J. THORMAHLEN ------------------------------ Title: GENERAL PARTNER ------------------------------ -5- RECORDING REQUESTED BY AND WHEN RECORDED MAIL TO: NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE LIMITED PARTNERSHIP c/o Hale and Dorr 60 State Street Boston, Massachusetts 02109 Attention: Kenneth A. Hoxsie, Esq. _______________________________________________________________________________ (Space Above For Recorder's Use) FIFTH AMENDMENT TO LOAN DOCUMENTS --------------------------------- THIS FIFTH AMENDMENT TO LOAN DOCUMENTS (this "Amendment") is entered into as of the 1st day of January, 1995, by and between WILLOWS CONCORD VENTURE, a California limited partnership ("Trustor"), and NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP, a Massachusetts limited partnership, and NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE LIMITED PARTNERSHIP, a Massachusetts limited partnership (collectively, "Beneficiary"). R E C I T A L S: - - - - - - - - A. Beneficiary has made a loan to Trustor in the principal amount of Fourteen Million Eight Hundred Sixty-Three Thousand Two Hundred Six and 38/100 Dollars ($14,863,206.38) (the "Original Loan"). The Original Loan is evidenced by that certain Amended and Restated Secured Promissory Note ("Original Note") dated effective as of June 14, 1991 in the original principal amount of Fourteen Million Eight Hundred Sixty-Three Thousand Two Hundred Six and 38/100 Dollars ($14,863,206.38). The Original Note is secured by (i) that certain Deed of Trust and Security Agreement dated as of June 13, 1991 by and among Trustor, as trustor, Chicago Title Company, as trustee, and Beneficiary, as beneficiary, and recorded on June 18, 1991 as Instrument No. 91-116714 in the Official Records of Contra Costa County, California (the "Registry"), as amended by that certain Modification Agreement and First Amendment to Loan Documents dated as of August 13, 1991 (the "First Amendment"), as further amended by that certain Modification Agreement and Second Amendment to Loan Documents dated as of September 12, 1991 (the "Second Amendment"), as further amended by that certain Modification and Third Amendment to Loan Documents dated as of October 15, 1991 (the "Third Amendment"), and as further amended that certain Fourth Amendment to Loan Documents (the "Fourth Amendment") dated as of December 17, 1992 recorded in the Official Records of Contra Costa County, California as Instrument Nos. 93- 121110, 93-121111, 93-121112, 93-121113, respectively (as so amended, the "Indenture") and (ii) that certain Assignment of Leases and Rents dated as of June 13, 1991 executed by Trustor in favor of Beneficiary and recorded on June 18, 1991 as Instrument No. 91-116715 in the Official Records of Contra Costa County, California, as amended by the First Amendment, the Second Amendment, the Third Amendment and the Fourth Amendment (as so amended, the "Lease Assignment"). The Indenture and the Lease Assignment encumber, among other things, Trustor's leasehold interest under that certain Amended and Completely Restated Ground Lease dated effective as of June 18, 1991 ("Ground Lease") pursuant to which Beneficiary has leased to Trustor certain real property in Contra Costa County, California, more particularly described on Exhibit "A" ----------- attached to the Indenture (the "Property"). Except as otherwise provided in this Amendment, all capitalized terms used herein without definition shall have meanings given in the Indenture. B. Beneficiary has made an additional loan to Trustor in the principal amount of Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) (the "Construction Loan") pursuant to that certain Construction Loan Agreement by and between Trustor and Beneficiary of even date herewith (the "Construction Loan Agreement"). The Construction Loan is evidenced by a Promissory Note of even date herewith in the principal amount of Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) (the "Construction Note"). C. Trustor and Beneficiary desire to amend the Indenture and the Lease Assignment to, among other things, secure all of Trustor's obligations under the Construction Note and the Construction Loan Agreement. NOW, THEREFORE, in consideration of the foregoing Recitals (which are incorporated herein by this reference) and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Trustor and Beneficiary hereby agree as follows: A G R E E M E N T: ----------------- 1. Amendments to Indenture. The Indenture is hereby amended as follows: ----------------------- -2- (a) Cover Sheet. ----------- (i) The definition of the term "Trustor's Notice Address" is deleted in its entirety from the Cover Sheet to the Indenture and the following definition is hereby inserted in place thereof: "c/o Mr. William J. Thormahlen Sares-Regis Group 18802 Bardeen Avenue Irvine, California 92715-1521" (ii) The definition of the term "Note Amount" is deleted in its entirety from the Cover Sheet to the Indenture and the following definitions are hereby inserted in place thereof: "Original Note Amount: $14,863,206.38 "Construction Note Amount: $2,500,000.00" Any and all references in the Indenture to the term "Note Amount" shall mean and refer jointly to the Original Note Amount and the Construction Note Amount. (iii) The definition of the term "Maturity Date" is hereby deleted in its entirety from the Cover Sheet to the Indenture and the following definitions are hereby inserted in place thereof: "Maturity Date of Original Note: June 18, 2001" "Maturity Date of Construction Note: December 31, 1997." Any and all references in the Indenture to the "Maturity Date" shall mean and refer jointly to the Maturity Date of the Original Note and the Maturity Date of the Construction Note. (b) Section 1.15 of the Indenture is hereby amended by deleting the definition of the term "Loan Documents" in its entirety and inserting the following definition in place thereof: -3- "Loan Documents: this Indenture, the Original Note, the Construction Note, the Lease Assignment, the Construction Loan Agreement, the Security Agreement and any and all other documents or instruments related thereto or to the Secured Debt now or hereafter given by or on behalf of Trustor to Beneficiary." (c) Section 1.16 of the Indenture is hereby amended by deleting the definition of the term "Note" in its entirety and inserting the following definitions in place thereof: "Original Note: that certain Amended and Restated ------------- Promissory Note dated effected as of June 14, 1991 made by Trustor in favor of Beneficiary in the Original Note Amount and all replacements, substitutions, modifications, renewals and extensions thereof, which Original Note is payable on the Maturity Date of the Original Note. The Original Note replaces and supersedes in its entirety that certain Promissory Note dated June 14, 1991 made by Trustor in favor of Beneficiary in the principal amount of $14,863,206.83." "Construction Note: that certain Promissory Note dated as ----------------- of January 1, 1995 made by Trustor in favor of Beneficiary in the Construction Note Amount, and all replacements, substitutions, modifications, renewals and extensions thereof, which Construction Note is payable on the Maturity Date of the Construction Note." "Notes: the Original Note and the Construction Note." ----- Any and all references in the Indenture to the term "Note" shall mean and refer jointly to the Notes. (d) The following definition is hereby added as Section 1.32 of the Indenture: "Loan Agreement: that certain Construction Loan Agreement -------------- by and between Trustor and Beneficiary dated as of January 1, 1995." -4- (e) The following definition is hereby added as Section 1.33 of the Indenture: "Security Agreement: that certain Security Agreement by and ------------------ between Trustor and Beneficiary dated as of January 1, 1995." (f) Section 4.5(b) of the Indenture is hereby amended by inserting the following at the end thereof: "Notwithstanding the foregoing, Beneficiary shall not unreasonably withhold or delay its consent to any (i) distribution to any general or limited partner of Trustor of its respective interest therein or (ii) assignment or transfer by any general or limited partner of Trustor of its respective interest so distributed to any person or entity controlling, controlled by, or under common control with such general or limited partner (each an "Affiliate"), provided that (A) such distribution, assignment or transfer is made for the purpose of accomplishing a tax free exchange under Section 1031 of the Internal Reveue Code of 1986, as amended, and (B) any and all such Affiliates agree to assume all of the liabilities and obligations of Trustor and such general or limited partner to Beneficiary pursuant to a written instrument satisfactory to Beneficiary." (g) Section 4.16 of the Indenture is hereby deleted in its entirety. (h) Section 8.2 of the Indenture is hereby amended by deleting the grammatical paragraph next following subparagraph (l) in its entirety and inserting the following in place thereof: "Any sums advanced by Beneficiary under this Paragraph 8.2 shall bear interest at the higher of the interest rates specified in the Notes plus 2% per annum, shall be payable by Trustor on demand, and together with such interest, shall constitute part of the Secured Debt." -5- (i) Section 10.13 of the Indenture is hereby deleted in its entirety and the following new Section 10.13 is hereby inserted in place thereof: "Non-Recourse Debt. ----------------- (a) Trustor shall be liable upon the indebtedness evidenced by the Notes, for all sums to accrue or to become payable thereunder, and for performance of any covenants contained in any of the Loan Documents to the extent, but only the extent, of Beneficiary's security for the same, including, without limitation, all properties, rights, estates, and interests covered by the this Indenture and the Loan Documents. No attachment, execution or other writ of process shall be sought, issued or levied upon any assets, properties or funds of Trustor other than the properties, rights, estates and interest described in this Indenture and the other Loan Documents. In the event of foreclosure of such title, liens, mortgages or security interests, by private power of sale or otherwise, no judgment for any deficiency upon such indebtedness, sums and amounts shall be sought or obtained by Beneficiary or Trustee against Trustor. (b) Subject to the limitations set forth in Subparagraph (a) above, nothing herein contained shall be construed to prevent Beneficiary from exercising and enforcing any other remedy allowed at law or in equity or by any statute or by the terms of any of the Loan Documents. (c) Notwithstanding the foregoing provisions of Subparagraphs (a) and (b) above, or of any provision of any other Loan Document to the contrary, no limitation of liability set forth herein or in any other Loan Document shall be deemed to limit any right Beneficiary might otherwise have to obtain injunctive relief against Trustor or any partner of Trustor related to the Leasehold Interest or the Improvements or any personal property security or to take any action to preserve, enforce or foreclose the liens, mortgages, assignments and security interests now or at -6- any time hereafter securing the payment and performance of all sums and obligations hereunder or any of the Loan Documents, or to collect rents or to collect amounts which may become owing or payable under or on account of insurance, condemnation awards or damages for other public actions or surety bonds maintained or provided by Trustor. (d) In addition to the foregoing provisions of this Section 10.13, neither the limitation of liability set forth herein or any other Loan Document: (i) shall apply to any damages sustained by Beneficiary by reason of: (A) any misrepresentation by Trustor or any partner of Trustor proving to have been an intentional or fraudulent misrepresentation when made, (B) waste or intentional damage to the Property or Improvements thereon by Trustor or any partner of Trustor, (C) any breach of Trustor's obligations under Section 8.03 of the Loan Agreement, ------------ (D) the failure of Trustor or any partner of Trustor to pay any income or other taxes, assessments or charges attributable to the Trustor or such partner (as the case may be) which can create liens on any portion of the Leasehold Interest or Improvements (to the full extent of any such taxes, assessments or other charges) as to Trustor or the partner who fails to pay such taxes, assessments or charges, or (E) the making of any payment or any distribution (cash, profits, fees or otherwise) of any assets of Trustor to any partner of Trustor or to any affiliate of a partner of Trustor without the prior written consent of Beneficiary; and -7- (ii) shall apply should Trustor, or any partner of Trustor, claim or contend at any time that this Indenture is, for any reason, invalid or unenforceable to an extent that would: (A) preclude Beneficiary from foreclosing this Indenture causing a trustee's sale in connection with this Indenture upon the occurrence of an Event of Default, or (B) preclude Beneficiary from foreclosing or otherwise enforcing its security interest in the personal property covered by this Indenture or the Security Agreement upon the occurrence of an Event of Default. (e) Nothing herein contained shall limit or be construed to limit the personal liability and obligations of Trustor in the event that and to the extent that after an Event of Default or an event or circumstance that with the passage of time, the giving of notice, or both, could constitute an Event of Default, Trustor collects any rents, issues or profits of the Leasehold Interest or the Improvements or derived from the Leasehold Interest or the Improvements and does not apply the same to the normal operating expenses of the Leasehold Interest or the Improvements or any payments due under any of the Loan Documents, it being intended hereby that Trustor shall be personally liable and obligated hereunder to the full extent of such rentals and other items so collected and not so applied, and that Beneficiary or other holder hereof or of either of the Notes or any of the Loan Documents shall not be limited in any way in enforcing such personal liability and obligations of Trustor." 2. Amendments to Lease Assignment. The Lease Assignment is hereby ------------------------------ amended as follows: (a) Cover Sheet. ----------- (i) The definition of the term "Assignor's Notice of Address" is deleted in its entirety from the Cover Sheet to the Lease Assignment and the following definition is hereby inserted in place thereof: -8- "c/o Mr. William J. Thormahlen Sares-Regis Group 18802 Bardeen Avenue Irvine, California 92715-1521" (ii) The definition of the term "Note Amount" is hereby deleted in its entirety from the Cover Sheet to the Lease Assignment and the following definitions are hereby inserted in place thereof: "Original Note Amount: $14,863,206.38" "Construction Note Amount: $2,500,000.00" Any and all references in the Lease Assignment to the term "Note Amount" shall mean and refer jointly to the Original Note Amount and the Construction Note Amount. (iii) The definition of the term "Maturity Date" is hereby deleted in its entirety from the Cover Sheet to the Lease Assignment and the following definitions are hereby inserted in place thereof: "Maturity Date of Original Note: June 18, 2001" "Maturity Date of Construction Note: December 31, 1997." Any and all references in the Lease Assignment to the term "Maturity Date" shall mean and refer jointly to the Maturity Date of Original Note and the Maturity Date of Construction Note. (iii) The definition of the term "Note" is hereby deleted in its entirety from the Cover Sheet to the Lease Assignment and the following definitions are hereby inserted in place thereof: "Original Note: that certain Amendment and Restated Promissory Note dated effective as of June 14, 1991 made by Assignor in favor of Assignee in the Original Note Amount and all -9- replacements, substitutions, modifications, renewals and extensions thereof, which Original Note is payable on the Maturity Date of the Original Note. The Original Note replaces and supersedes in its entirety that certain Promissory Note dated June 14, 1991 made by Assignor in favor of Assignee in the principal amount of $14,863,206.83." "Construction Note: that certain Promissory Note dated as of January 1, 1995 made by Assignor in favor of Assignee in the Construction Note Amount and all replacements, substitutions, modifications, renewals and extensions thereof, which Construction Note is payable on the Maturity Date of the Construction Note." "Notes: the Original Note and the Construction Note." Any and all references in the Lease Assignment to the term "Note" shall mean and refer jointly to Notes." (b) Paragraph 1.10 of the Lease Assignment is hereby amended by deleting the definition of the term "Loan Documents" in its entirety and inserting the following definition in place thereof: "Loan Documents: the Indenture, the Original Note, the -------------- Construction Note, this Lease Assignment, the Construction Loan Agreement, the Security Agreement and any and all other documents or instruments related thereto or to the Secured Debt now or hereafter given by or on behalf of Assignor to Assignee." (c) The following definition is hereby added as Paragraph 1.17 of the Lease Assignment: "Loan Agreement: that certain Construction Loan Agreement -------------- by and between Assignor and Assignee dated as of January 1, 1995." (d) The following definition is hereby added as Paragraph 1.18 of the Lease Assignment: -10- "Security Agreement: that certain Security Agreement by and ------------------ between Assignor and Assignee dated as of January 1, 1995." (e) Paragraph 6.2 of the Lease Assignment is hereby amended by deleting the last grammatical paragraph thereof in its entirety and inserting the following in place thereof: "Any sums advanced by Assignee under this Paragraph 6.2 shall bear interest at the higher of the interest rates specified in the Notes plus 2% per annum, shall be payable by Assignor on demand, and shall constitute a part of the Secured Debt." (f) Paragraph 7.14 of the Lease Agreement is hereby deleted in its entirety and the following new Paragraph 7.14 is hereby inserted in place thereof: "Non-Recourse Debt. ----------------- (a) Assignor shall be liable upon the indebtedness evidenced by the Notes, for all sums to accrue or to become payable thereunder, and for performance of any covenants contained in any of the Loan Documents to the extent, but only the extent, of Assignee's security for the same, including, without limitation, all properties, rights, estates, and interests covered by this Lease Assignment and the Loan Documents. No attachment, execution or other writ of process shall be sought, issued or levied upon any assets, properties or funds of other than the properties, rights, estates and interest described in this Lease Assignment and the other Loan Documents. In the event of foreclosure of such title, liens, mortgages or security interests, by private power of sale or otherwise, no judgment for any deficiency upon such indebtedness, sums and amounts shall be sought or obtained by Assignee against Assignor. (b) Subject to the limitations set forth in Subparagraph (a) above, nothing herein contained shall be construed to prevent Assignee from exercising and enforcing any other remedy allowed at law or in equity or by -11- any statute or by the terms of any of the Loan Documents. (c) Notwithstanding the foregoing provisions of Subparagraphs (a) and (b) above, or of any provision of this Lease Assignment or any other Loan Document to the contrary, no limitation of liability set forth herein, in the Indenture or in any other Loan Document shall be deemed to limit any right Assignee might otherwise have to obtain injunctive relief against Assignor or any partner of Assignor related to the Leasehold Interest or the Improvements or any personal property security or to take any action to preserve, enforce or foreclose the liens, mortgages, assignments and security interests now or at any time hereafter securing the payment and performance of all sums and obligations hereunder or any of the Loan Documents, or to collect rents or to collect amounts which may become owing or payable under or on account of insurance, condemnation awards or damages for other public actions or surety bonds maintained or provided by Assignor. (d) In addition to the foregoing provisions of this Section 7.14, neither the limitation of liability set forth herein, or in the Indenture or any other Loan Document: (i) shall apply to any damages sustained by Assignee by reason of: (A) any misrepresentation by Assignor or any partner of Assignor proving to have been an intentional or fraudulent misrepresentation when made, (B) waste or intentional damage to the Property or Improvements thereon by Assignor or any partner of Assignor, (C) any breach of Assignor's obligations under Section 8.03 of the Loan Agreement, ------------ (D) the failure of Assignor or any partner of Assignor to pay any income or other taxes, assessments or charges attributable to -12- the Assignor or such partner (as the case may be) which can create liens on any portion of the Leasehold Interest or Improvements (to the full extent of any such taxes, assessments or other charges) as to Assignor or the partner who fails to pay such taxes, assessments or charges, or (E) the making of any payment or any distribution (cash, profits, fees or otherwise) of any assets of Assignor to any partner of Assignor or to any affiliate of a partner of Assignor without the prior written consent of Assignee; and (ii) shall apply should Assignor, or any partner of Assignor, claim or contend at any time that the Indenture securing the Loan is, for any reason, invalid or unenforceable to an extent that would: (A) preclude Assignee from foreclosing the Indenture or causing a trustee's sale in connection with the Indenture upon the occurrence of an Event of Default under the Indenture, or (B) preclude Assignee from foreclosing or otherwise enforcing its security interest in the personal property covered by the Indenture or the Security Agreement upon the occurrence of an Event of Default under the Indenture. (e) Nothing herein contained shall limit or be construed to limit the personal liability and obligations of Assignor in the event that and to the extent that after an Event of Default or an event or circumstance that with the passage of time, the giving of notice, or both, could constitute an Event of Default, Assignor collects any rents, issues or profits of the Leasehold Interest or the Improvements or derived from the Leasehold Interest or the Improvements and does not apply the same to the normal operating expenses of the Leasehold Interest or the Improvements or any payments due under any of the Loan Documents, it being intended hereby that Assignor shall be personally liable and -13- obligated hereunder to the full extent of such rentals and other items so collected and not so applied, and that Assignee or other holder hereof or of either of the Notes or any of the Loan Documents shall not be limited in any way in enforcing such personal liability and obligations of Assignor." 3. Affirmation of Lien; Full Force and Effect. Except as amended by this ------------------------------------------ Amendment, the Indenture and the Lease Assignment shall remain unmodified and in full force and effect. The parties hereto hereby ratify and confirm the Indenture and the Lease Assignment, as amended herein. Without limitation of the foregoing, Trustor hereby certifies that (i) the representations and warranties of Trustor set forth in Section 3 of the Indenture and Paragraph 3 of --------- ----------- the Lease Assignment are true, correct and complete in all material respects on and as of the date hereof as though made on and as of the date hereof; and (ii) Trustor has performed and complied with, in all material respects, all agreements, covenants and obligations required to be performed by Trustor under the Indenture and the Lease Assignment prior to the date hereof. 4. References to Indenture and Lease Assignment. All references to the -------------------------------------------- Indenture and the Lease Assignment in the Loan Documents shall be deemed to refer to the Indenture and the Lease Assignment, respectively, as amended by this Amendment. 5. Counterparts. This Amendment may be executed in any number of ------------ counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. 6. Governing Law. This Amendment shall be governed by and construed in ------------- accordance with the laws of the State of California. 7. Conflict. In the event of any inconsistencies between the provisions -------- of this Amendment and the provisions of the Indenture and/or the Lease Assignment, as applicable, the provisions of this Amendment shall govern and prevail. -14- IN WITNESS WHEREOF, Trustor and Beneficiary have executed this Amendment as of the date first above written. "Trustor" WILLOWS CONCORD VENTURE, a California limited partnership By:/s/ John S. Hagestad --------------------------------- John S. Hagestad Its: General Partner By:/s/ Carl F. Willgeroth --------------------------------- Carl F. Willgeroth Its: General Partner By:/s/ William J. Thormahlen --------------------------------- William J. Thormahlen Its: General Partner -15- "Beneficiary" NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP, a Massachusetts limited partnership By: Copley Properties Company, Inc., a Massachusetts corporation, General Partner By: /s/ Wesley M. Gardiner ------------------------------------- Name: Wesley M. Gardiner ----------------------------------- Title: Vice President ---------------------------------- By: /s/ Marie Welch Stewart ------------------------------------- Name: Marie Welch Stewart ----------------------------------- Title: Investment Officer ---------------------------------- NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE LIMITED PARTNERSHIP, a Massachusetts limited partnership By: Copley Properties Company II, Inc., a Massachusetts corporation, General Partner By: /s/ Wesley M. Gardiner ------------------------------------- Name: Wesley M. Gardiner ----------------------------------- Title: Vice President ---------------------------------- By: /s/ Marie Welch Stewart ------------------------------------- Name: Marie Welch Stewart ----------------------------------- Title: Investment Officer ---------------------------------- -16- ACKNOWLEDGMENT FOR WILLOWS CONCORD VENTURE - ------------------------------------------ STATE OF CALIFORNIA ) ) ss. COUNTY OF Orange ) ------ On 10-18-95, before me, Cheryl A. Hyatt, a Notary Public in and for -------- --------------- said state, personally appeared John S. Hagestad, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. [SEAL APPEARS HERE] Cheryl A. Hyatt ----------------------------------- Notary Public in and for said State ACKNOWLEDGMENT FOR WILLOWS CONCORD VENTURE - ------------------------------------------ STATE OF CALIFORNIA ) ) ss. COUNTY OF Orange ) ------ On 10-18-95, before me, Cheryl A. Hyatt, a Notary Public in and for -------- --------------- said state, personally appeared Carl F. Willgeroth, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. [SEAL APPEARS HERE] Cheryl A. Hyatt ----------------------------------- Notary Public in and for said State -17- ACKNOWLEDGMENT FOR WILLOWS CONCORD VENTURE - ------------------------------------------ STATE OF CALIFORNIA ) ) ss. COUNTY OF Orange ) ------ On 10-18-95, before me, Cheryl A. Hyatt, a Notary Public in and for -------- --------------- said state, personally appeared William J. Thormahlen, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his authorized capacity, and that by his signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. [SEAL APPEARS HERE] Cheryl A. Hyatt ----------------------------------- Notary Public in and for said State -18- COMMONWEALTH OF MASSACHUSETTS ) ) ss. COUNTY OF SUFFOLK ) On this 1 day of November, 1995, before me, the undersigned, a Notary - -------- Public in and for said State, personally appeared Wes Gardiner and ------------ Marie Stewart, personally known to me (or proved to me on the basis of - ------------- satisfactory evidence) to be the Vice President AND Inv. Officer OF COPLEY -------------- ------------ PROPERTIES COMPANY, INC., a Massachusetts corporation, the corporation that executed the within instrument on behalf of NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP, a Massachusetts limited partnership, the partnership therein named, pursuant to its bylaws or resolution of its board of directors, and acknowledged to me that Copley Properties Company, Inc., executed the within instrument on behalf of New England Life Pension Properties; A Real Estate Limited Partnership as its free act and deed. [SEAL APPEARS HERE] /s/ KARYN E. BATES --------------------------------- Notary Public in and for the Commonwealth of Massachusetts COMMONWEALTH OF MASSACHUSETTS ) ) ss. COUNTY OF SUFFOLK ) On this 1 day of November, 1995, before me, the undersigned, a Notary - -------- Public in and for said State, personally appeared Wes Gardiner and ------------ Marie Stewart, personally known to me (or proved to me on the basis of - ------------- satisfactory evidence) to be the Vice President AND Inv. Officer OF COPLEY -------------- ------------ PROPERTIES COMPANY II, INC., a Massachusetts corporation, the corporation that executed the within instrument on behalf of NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE LIMITED PARTNERSHIP, a Massachusetts limited partnership, the partnership therein named, pursuant to its bylaws or resolution of its board of directors, and acknowledged to me that Copley Properties Company II, Inc., executed the within instrument on behalf of New England Life Pension Properties II; A Real Estate Limited Partnership as its free act and deed. [SEAL APPEARS HERE] /s/ KARYN E. BATES --------------------------------- Notary Public in and for the Commonwealth of Massachusetts -19- EXHIBIT A --------- LEGAL DESCRIPTION ----------------- That certain real property located in the City of Concord, County of Contra Costa, State of California, described as follows: Parcel "B" as shown on the Parcel Map filed April 22, 1969, in Book 8 of Parcel Maps at Page 16, Contra Costa County Records (hereinafter, the "Site"). Excepting therefrom the interest to Contra Costa County Flood Control and Water Conservation District, in the Deed recorded May 16, 1969, in Book 5876, Page 838, of Official Records. ALSO EXCEPTING THEREFROM the buildings, structures and improvements now or hereafter erected on the Site, and any replacements thereof, which are and shall remain real property (collectively, the "Improvements"), and the furnishings, equipment, machinery and other items of personal property now or hereafter necessary for the property operation and maintenance of the Improvements and situated on, over or beneath the Site. FIRST AMENDMENT TO AMENDED AND COMPLETELY ----------------------------------------- RESTATED GROUND LEASE --------------------- This First Amendment to Amended and Completely Restated Ground Lease (this "Amendment") is made and entered into as of the 1st day of January, 1995, by and between NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP, NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE LIMITED PARTNERSHIP (jointly, the "Landlord"), whose address is c/o Copley Real Estate Advisors, Inc., 399 Boylston Street, Boston, MA 02116, and WILLOWS CONCORD VENTURE, a California limited partnership (the "Tenant"), whose address is 18802 Bardeen Avenue, Irvine California 92715-1521, who, for and in consideration of the sum of Ten Dollars ($10.00) each to the other paid, and the mutual covenants flowing between the parties hereto, the receipt and sufficiency of which are hereby acknowledged, do hereby covenant, warrant and agree as follows: 1. Recitals. This Amendment is made with reference to the following -------- facts and objectives: a. Landlord and Tenant entered into a certain written Amended and Completely Restated Ground Lease dated as of June 18, 1991 (the "Lease"), pursuant to which Landlord leased to Tenant and Tenant leased from Landlord, certain premises more particularly described therein (the "Premises"). b. The parties hereto desire to amend the Lease on the effective date hereof on the terms and conditions set forth herein. 2. Representations. As an inducement to Landlord to enter into this --------------- Amendment, Tenant represents that (a) Tenant has not made any assignment, sublease, transfer, conveyance or other disposition of said lease or any interest thereof; and that there exists no claim, demand, obligation, liability, action or cause of action arising from said Lease; and (b) there are no liens for past due taxes of any nature (except any lien for unpaid city, state and county 1995 ad valorem taxes on said Premises), paving, sidewalk, curbing, sewer, or any other street improvements of any kind against or affecting said Premises. 3. Amendment of Lease. ------------------ a. Sections 16.08(b), 16.08(c) and 16.09 are hereby deleted in their entirety from the Amended Lease, and the following new section 16.08(b) is hereby substituted in their place: "16.08(b) On or after January 1, 1996, Landlord may at its sole discretion offer the entire Property (Landlord's Estate together with Tenant's Estate) for sale for such price and on such other terms and conditions as the Landlord may determine in its sole discretion. In connection with any such sale or proposed sale, the Landlord shall have the right to cause the Property to be marketed to such prospective purchasers and upon such terms as the Landlord shall determine in its sole discretion and to take such other actions as it deems necessary or appropriate in connection with such sale or proposed sale. The Tenant agrees, at the direction of the Landlord, to execute and deliver such documents, including without limitation purchase and sale agreements, deeds or assignments of lease, as may be reasonably required in connection with any such sale or proposed sale; provided, however, that Landlord shall use commercially reasonable efforts to cause such documents to provide that the partners of Tenant will have no recourse liability pursuant to such documents." b. Section 16.10 of the Amended Lease is hereby amended by adding the following language at the end thereof: "Notwithstanding the foregoing, Landlord shall not unreasonably withhold or delay its consent to any (i) distribution to any general or limited partner of Tenant of such partner's respective interest therein or (ii) assignment or transfer by any general or limited partner of Tenant of its respective interest so distributed to any person or entity controlling, controlled by, or under common control with such general or limited partner (each an "Affiliate"), provided that (A) such distribution, assignment or transfer is made for the purpose of accomplishing a tax free exchange under Section 1031 of the Internal Revenue Code of 1986, as amended, and (B) any and all such Affiliates agree to assume all of the liabilities and obligations of Tenant and such general or limited partner to Landlord pursuant to a written instrument satisfactory to Landlord." 4. Effective Date. The effective date of this Amendment shall be the -------------- date first above written. 5. Successors. This Amendment shall be binding on and inure to the ---------- benefit of the parties hereto and their heirs, successors and assigns. -2- 6. No Other Modification. Except as specifically amended by this --------------------- Amendment, no other provision of the Lease is hereby modified, and the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amended as a sealed instrument on the date first above written. LANDLORD: NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP By: Copley Properties Company, Inc., General Partner By: /s/ Wesley M. Gardiner -------------------------------- Name: Wesley M. Gardiner Title: Vice President NEW ENGLAND LIFE PENSION PROPERTIES II; A REAL ESTATE LIMITED PARTNERSHIP By: Copley Properties Company II, Inc., General Partner By: /s/ Wesley M. Gardiner -------------------------------- Name: Wesley M. Gardiner Title: Vice President TENANT: WILLOWS CONCORD VENTURE By: /s/ William J. Thormahlen ------------------------------------- Name: WILLIAM J. THORMAHLEN Title: GENERAL PARTNER -3- EX-10.EE 3 SECOND AMENDMENT TO PROMISORY NOTE Second Amendment to Promissory Note dated as of February 19, 1995 between the Registrant and Decatur TownCenterAssociates, Ltd. ("Decatur"). SECOND AMENDMENT TO PROMISSORY NOTE ----------------------------------- This Second Amendment to Promissory Note (the "Amendment") made and entered into as of the 19th day of February 1995, by and between Decatur TownCenter Associates, Ltd., a Georgia limited partnership ("Borrower") and New England Life Pension Properties; A Real Estate Limited Partnership, a Massachusetts limited partnership ("Lender"). WHEREAS, Lender is the holder of that certain Promissory Note dated February 20, 1985, made by Borrower to the order of Lender in the original principal amount of $5,825,000, as amended by that Amendment to Promissory Note dated as of March 1, 1993 (as so amended, the "Note"), which Note is secured by (i) that certain Deed to Secure Debt and Security Agreement dated February 20, 1985, made by Borrower in favor of Lender, recorded in Deed Book 5156, Page 67, Records of DeKalb County, Georgia (the "Security Deed") and (ii) that certain Collateral Assignment of Rents and Leases dated February 20, 1985, made by Borrower in favor of Lender, recorded in Deed Book 5156, Page 108, Records of DeKalb County, Georgia (the "Lease Assignment"); WHEREAS, the Note, the Security Deed and the Lease Assignment are collectively referred to as the "Loan Documents"; and WHEREAS, the Borrower and Lender desire to extend the maturity date of the Note. NOW, THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby covenant and agree as follows: 1. The Maturity Date set forth in Section 1.6 of the Note shall be changed from February 19, 1995 to December 31, 1996. 2. The paragraph numbered "2" of the Amendment to Promissory Note dated as of March 1, 1993 between Borrower and Lender is hereby deleted in its entirety and shall be of no further force and effect. 3. The last paragraph of Section 3 of the Note is deleted in its entirety and the following is substituted in place thereof: All payments shall be made in lawful money of the United States of America, in immediately available funds, at 399 Boylston Street, Boston, Massachusetts or at such other place as Lender may from time to time designate in writing. Notwithstanding the provisions of this Section 3 above, Borrower shall be required to pay Monthly Installments due to Lender only from and to the extent of Net Operating Cash Flow realized by the Borrower for any month. Each such Monthly Installment (or portion thereof) which is not paid by the Borrower when due in accordance with the foregoing sentence shall accrue interest at the Interest Rate from the date the same was due. The total of all such unpaid Monthly Installments (or portions thereof), together with all interest accruals thereon, shall be referred to herein as the "Accrued Amount." The Accrued Amount or any portion thereof remaining unpaid at any time and from time to time during the term of this Note (the "Accrual Balance") shall bear interest at the Interest Rate until fully repaid by Borrower to Lender. At any time and from time to time up to the Maturity Date, the Borrower may pay the then outstanding Accrual Balance to Lender in whole or in part. Notwithstanding the foregoing, Borrower hereby agrees to apply all Net Operating Cash Flow realized by Borrower for any month during the term of this Note (in excess of the amount required to be paid pursuant to the first sentence of this paragraph) to reduce the outstanding Accrual Balance until paid in full. In all events, the Principal Sum, including any Accrual Balance, remaining unpaid on the Maturity Date shall be paid to Lender in full on the Maturity Date. For purposes of this Note, the term "Net Operating Cash Flow" shall mean, as to any particular month or portion thereof, the difference between (i) the aggregate of all fixed, minimum and guaranteed rents, fees, overage rents, percentage or participation rents and all rents and receipts from licenses and concessions received from the Property, including all amounts received for parking and all fees, income and revenue of a non-rental nature received by Borrower during such month, less (ii) Operating Expenses, the cost of tenant improvements and all payments by Borrower to Lender under that certain Ground Lease between Borrower and Lender dated February 28, 1985, as amended from time to time (the "Ground Lease"). Net Operating Cash Flow shall be computed by Borrower on a monthly basis. "Operating Expenses" shall have the meaning ascribed to it in the Ground Lease. 4. Borrower and Lender agree that, as of December 31, 1994, the Accrual Balance equals $15,369. -2- 5. All provisions of the Loan Documents shall be deemed modified to the extent they are inconsistent with the above amendments. Except as modified herein, the Loan Documents shall remain unmodified and in full force and effect. IN WITNESS WHEREOF, this Amendment has been executed and delivered under seal as of this 19th day of February, 1995. DECATUR TOWNCENTER ASSOCIATES, LTD. ____________________________________ By: A.J. Land, Jr., General Partner NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP By: COPLEY PROPERTIES COMPANY, INC. By: ________________________________ -3- EX-10.FF 4 SECOND AMENDMENT TO GROUND LEASE Second Amendment to Ground Lease dated as of February 19, 1995 between the Registrant and Decatur. SECOND AMENDMENT TO GROUND LEASE -------------------------------- This Second Amendment to Ground Lease (this "Amendment") is made and entered into as of the 19th day of February, 1995, by and between NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP (the "Landlord"), whose address is c/o Copley Real Estate Advisors, Inc., 399 Boylston Street, Boston, MA 02116, and DECATUR TOWNCENTER ASSOCIATES, LTD., a Georgia limited partnership (the "Tenant"), whose address is c/o Pope & Land Enterprises, 3065 Hargrove Road, Suite 350, Atlanta, Georgia 30339, who, for and in consideration of the sum of Ten Dollars ($10.00) each to the other paid, and the mutual covenants flowing between the parties hereto, the receipt and sufficiency of which are hereby acknowledged, do hereby covenant, warrant and agree as follows: 1. Recitals. This Amendment is made with reference to the following -------- facts and objectives: a. Landlord and Tenant entered into a certain written Ground Lease dated February 20, 1985 (the "Lease") and a certain written Short-Form Ground Lease dated February 20, 1985 recorded in Deed Book 5156, Page 52, Records of DeKalb County, Georgia, pursuant to which Landlord leased to Tenant and Tenant leased from Landlord, certain premises more particularly described therein (the "Premises"). b. Landlord and Tenant entered into a certain written First Amendment to Short-Form Ground Lease and Ground Lease dated February 1, 1988, recorded in Deed Book 6092, Page 455, Records of DeKalb County, Georgia, amending the Lease (as so amended, the Lease is hereinafter referred to as the "Amended Lease"). c. The parties hereto desire to amend the Amended Lease on the effective date hereof on the terms and conditions set forth herein. 2. Representations. As an inducement to Landlord to enter into this --------------- Amendment, Tenant represents that (a) Tenant has not made any assignment, sublease, transfer, conveyance or other disposition of said lease or any interest thereof; and that there exists no claim, demand, obligation, liability, action or cause of action arising from said Amended Lease; and (b) there are no liens for past due taxes of any nature (except any lien for unpaid city, state and county 1995 ad valorem taxes on said Premises), paving, sidewalk, curbing, sewer, or any other street improvements of any kind against or affecting said Premises. 3. Amendment of Section 3.1 of the Lease. The following is added as ------------------------------------- a new Section 3.1.D. of the Amended Lease, immediately following Section 3.1.C. of the Amended Lease: "D. Notwithstanding anything else to the contrary contained herein, Tenant shall be required to pay Fixed Monthly Rental due to Landlord only from and to the extent of Net Operating Cash Flow for the month in which such payment is due. Each such Fixed Monthly Rental (or portion thereof) which is not paid by Tenant when due in accordance with the foregoing sentence shall accrue interest from the date the same was due. The total of all such unpaid Fixed Monthly Rental (or portions thereof) together with all interest accruals thereon, shall be referred to herein as the "Accrued Amount." The Accrued Amount or any portion thereof remaining unpaid at any time and from time to time during the Term of this Lease (the "Accrual Balance") shall bear interest at the rate of 8.5% per annum, compounded monthly, until fully paid by Tenant to Landlord. Notwithstanding the foregoing, Tenant hereby agrees to apply all Net Operating Cash Flow for any month during the Term of this Lease (in excess of the amount required to be paid pursuant to the first sentence of this paragraph) to reduce the outstanding Accrual Balance until paid in full. In all events, the entire Accrual Balance remaining unpaid on the date of termination of this Lease shall be paid to Landlord in full on such date of termination. For purposes of this Lease, the term "Net Operating Cash Flow" shall mean, as to any particular month or portion thereof, the difference between (i) Gross Receipts, less (ii) Operating Expenses." 4. Amendment of Section 12.5 of the Lease. Section 12.5 is hereby -------------------------------------- deleted from the Amended Lease in its entirety, and the following is hereby substituted in its place: "12.5 Landlord's and Tenant's Share of Net Condemnation Proceeds. ---------------------------------------------------------- Net Condemnation Proceeds which are not applied to Restoration after Taking and are to be distributed under the provisions of this Article shall be distributed as follows: A. First, to Landlord to the extent of the Accrual Balance; B. Second, to Landlord to the extent of Landlord's Interest in the Land; -2- C. Third, to the First Mortgagee to the extent necessary to satisfy all amounts secured by the First Mortgage; D. Fourth, to the holders of any junior Mortgages, in the order of priority of such Mortgages, to the extent necessary to satisfy all amounts secured by such junior Mortgages; E. Fifth, to Tenant an amount equal to the aggregate cost of (a) capital improvements made after the Lease Commencement Date with respect to the Property with the approval of Landlord, less the ---- aggregate amount of costs of capital improvements included in Operating Expenses under paragraph B(2) of Section 3.1 and costs incurred in connection with a Restoration or Restoration after Taking and (b) actual increases in Operating Expenses for the Property incurred after the Lease Commencement Date which are not included in Escalation Receipts, with interest thereon at a rate of 8.5% per annum if paid from Tenant's own funds or, if paid from borrowed funds, the rate of interest paid by Tenant on such borrowings, in either case calculated on each such expense from the date such item of expense is paid, provided that amounts payable under this clause (b) with respect to increases in Operating Expenses and interest thereon shall only be paid if and to the extent that the Property has appreciated in value after each such element of increased expense is paid and each increment of interest thereon has accrued; F. The balance, if any, 60% to Landlord and 40% to Tenant. 5. Amendment of Section 16.8 of the Lease. Sections 16.8.A., 16.8.B. -------------------------------------- and 16.8.C. are hereby deleted from the Amended Lease in their entirety, and the following is hereby substituted in their place: "16.8. Sale of Property, Application of Net Sale Proceeds. -------------------------------------------------- A. The proceeds of any sale of the entire Property (Landlord's Estate together with Tenant's Estate) pursuant to and in accordance with the provisions of this Section 16.8, less the ---- reasonable costs and expenses of such sale (including, without limitation, transfer taxes, attorneys' fees, brokerage commissions, title premiums, filing fees and any fees required to secure the consent of any mortgagee) -3- ("Net Sale Proceeds") shall be paid, applied and distributed as follows: (i) First, to Landlord to the extent of the Accrual Balance; (ii) Second, to Landlord to the extent of Landlord's Interest in the Land; (iii) Third, to the First Mortgagee to the extent necessary to satisfy all amounts secured by the First Mortgage; (iv) Fourth, to the holders of any junior Mortgages, in the order of priority of such Mortgages, to the extent necessary to satisfy all amounts secured by such junior Mortgages; (v) Fifth, to Tenant an amount equal to the aggregate cost of (a) capital improvements made after the Lease Commencement Date with respect to the Property with the approval of Landlord, less the aggregate ---- amount of costs of capital improvements included in Operating Expenses under paragraph B2 of Section 3.1 and costs incurred in connection with a Restoration or Restoration after Taking and (b) actual increases in Operating Expenses for the Property incurred after the Lease Commencement Date which are not included in Escalation Receipts, with interest thereon at a rate of 8.5% per annum if paid from Tenant's own funds or, if paid from borrowed funds, the rate of interest paid by Tenant on such borrowings, in either case calculated on each such expense from the date such item of expense is paid, provided that amounts payable under this clause (b) with respect to increases in Operating Expenses and interest thereon shall only be paid if and to the extent that the Property is appreciated in value after each such element of increased expense is paid and each increment of interest thereon has accrued; (vi) The balance, if any, 60% to Landlord and 40% to Tenant. "B. If Tenant has not delivered to Landlord on or before October 2, 1995, a binding commitment to purchase Landlord's Estate and that certain promissory note from Tenant to Landlord dated February 20, 1985 in the original principal amount of $5,285,000 (the "Note") in form and substance -4- satisfactory to Landlord in its sole discretion, the Developer shall cooperate with Landlord in (i) selecting a real estate broker to market the entire Property (Landlord's Estate together with Tenant's Estate) for sale, (ii) identifying prospective purchasers of the entire Property and (iii) no later than November 4, 1995, mailing to such prospective purchasers a sales brochure and related marketing materials. If Tenant and Landlord have not executed a purchase and sale agreement for the sale of Landlord's Estate and the Note on or before January 1, 1996, the Landlord may at its sole discretion offer the entire Property (Landlord's Estate together with Tenant's Estate) for sale for such price and on such other terms and conditions as the Landlord may determine in its sole discretion. In connection with any such sale or proposed sale, the Landlord shall have the right to cause the Property to be marketed to such prospective purchasers and upon such terms as the Landlord shall determine in its sole discretion and to take such other actions as it deems necessary or appropriate in connection with such sale or proposed sale. The Tenant agrees, at the direction of the Landlord, to execute and deliver such documents, including without limitation purchase and sale agreements, deeds or assignments of lease, as may be reasonably required in connection with any such sale or proposed sale." 6. Accrual Balance. Tenant and Landlord agree that, as of December --------------- 31, 1994, the Accrual Balance equals $988,250. 7. Effective Date. The effective date of this Amendment shall be the -------------- date first above written. 8. Successors. This Amendment shall be binding on and inure to the ---------- benefit of the parties hereto and their heirs, successors and assigns. 9. No Other Modification. Except as specifically amended by this --------------------- Amendment, no other provision of the Amended Lease is hereby modified, and the Amended Lease shall remain in full force and effect. -5- IN WITNESS WHEREOF, the parties hereto have executed this Amended as a sealed instrument on the date first above written. LANDLORD: NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP By: Copley Properties Company, Inc., General Partner By:_______________________________ TENANT: DECATUR TOWNCENTER ASSOCIATES, LTD., By:____________________________________ A.J. Land, Jr., General Partner The undersigned leasehold mortgagee hereby consents to this Amendment and the terms set forth herein. NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP By: Copley Properties Company, Inc. By:____________________________ -6- EX-10.GG 5 SECOND AMENDMENT TO FIRST CONSOLIDATED Second Amendment to First Consolidated Amendatory Agreement dated as of February 19, 1995 between the Registrant and Decatur. SECOND AMENDMENT TO FIRST CONSOLIDATED AMENDATORY AGREEMENT ----------------------------------------------------------- This Second Amendment to First Consolidated Amendatory Agreement (this "Amendment") is made and entered into as of the 19th day of February 1995, by and between Decatur TownCenter Associates, Ltd., a Georgia limited partnership ("Borrower") and New England Life Pension Properties; A Real Estate Limited Partnership, a Massachusetts limited partnership ("Lender"). WHEREAS, Lender is the holder of that certain Promissory Note dated March 10, 1986, made by Borrower to the order of Lender (the "Note"), which Note is secured by (i) that certain Deed to Secure Debt and Security Agreement dated March 10, 1986, made by Borrower in favor of Lender, recorded in Deed Book 5534, Page 9, Records of DeKalb County, Georgia (the "Security Deed") and (ii) that certain Assignment of Leases and Rents dated March 10, 1986 made by Borrower in favor of Lender, recorded in Deed Book 5534, Page 43, Records of DeKalb County, Georgia (the "Lease Assignment"); WHEREAS, disbursement of the principal amount of the Note is governed by that certain Loan Agreement, dated March 10, 1986, by and between Borrower and Lender (the "Loan Agreement"); WHEREAS, the Note, the Security Deed, the Lease Assignment and the Loan Agreement are hereinafter collectively referred to as the "Loan Documents"; WHEREAS, Borrower and Lender entered into that certain First Consolidated Amendatory Agreement, dated as of December 29, 1988, amending the Loan Documents and providing, inter alia, for an increase in the principal amount of the Note ---------- to $1,104,000 (the "Amendatory Agreement"); WHEREAS, the Amendatory Agreement was amended by the First Amendment to First Consolidated Amendatory Agreement between Borrower and Lender, dated as of March 1, 1993 (the "First Amendment"); and WHEREAS, Borrower and Lender desire to extend the maturity of the Note and to effect other changes to the Loan Documents. NOW, THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby covenant and agree as follows: 1. The Maturity Date set forth in Section 1.5 of the Note is hereby changed from February 19, 1995 to December 31, 1996. Each of the remaining Loan Documents is hereby modified, as appropriate, to conform to the foregoing extension of the Maturity Date. 2. The First Amendment is hereby declared null and void and shall not be binding upon or enforceable against Borrower or Lender. 3. Notwithstanding anything in the Loan Documents to the contrary, all interest due pursuant to the terms of the Note shall be permitted to accrue until the earlier of (i) the Maturity Date or (ii) the acceleration of the Note pursuant to the Loan Documents. Such unpaid accrued interest shall bear interest at the Interest Rate set forth in the Note. The entire outstanding balance of the Note, together with all unpaid accrued interest, shall be due and payable in full on the Maturity Date. Borrower and Lender agree that, as of December 31, 1994, the amount of unpaid accrued interest on the Note equals $979,165. 4. Upon the sale of the entire Property (as defined in that certain ground lease dated as of February 20, 1985 between Borrower and Lender (as amended, the "Ground Lease")), all sums owed Lender under the Loan Documents shall be payable to Lender as provided in Section 16.8.A of the Ground Lease. If such payments are not sufficient to pay all such amounts in full, Lender shall nevertheless cause the liens created by the Security Deed and the Lease Assignment to be discharged in connection with such sale. 5. Except as expressly amended, supplemented or otherwise modified herein, all of the terms, covenants and conditions of the Loan Documents, as amended by the Amendatory Agreement, are hereby ratified, confirmed and approved by the parties hereto and shall continue to be in full force and effect. IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment on the date first above written. LENDER: NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP By: COPLEY PROPERTIES COMPANY, INC. By: ________________________________ BORROWER: DECATUR TOWNCENTER ASSOCIATES, LTD. By: ________________________________ A.J. Land, Jr., General Partner -2- EX-10.HH 6 THIRD AMENDMENT TO PARTICIPATION AGREEMENT Third Amendment to Participation Agreement dated as of February 19, 1995 among the Registrant, A.J. Land, Jr., David B. Pattillo and Lawrence P. Kelly. THIRD AMENDMENT TO PARTICIPATION AGREEMENT This Third Amendment to Participation Agreement (the "Third Amendment") is made and entered into as of the 19th day of February, 1995, by and among A.J. Land, Jr., Daniel B. Pattillo and Lawrence P. Kelly (collectively, the "Participants") and New England Life Pension Properties; A Real Estate Limited Partnership (the "Lender"). WHEREAS, Participants and Lender entered into that certain Participation Agreement, dated as of March 10, 1986, with respect to a loan in the original principal amount of $600,000, made by Lender to Decatur TownCenter Associates, Ltd. (the "Borrower"); WHEREAS, Participants and Lender entered into that certain First Restated Amendment to Participation Agreement which, inter alia, increased the ---------- principal amount of the loan made by Lender to Borrower from $600,000 to $1,104,000; WHEREAS, Participants and Lender entered into that Second Amendment to Participation Agreement, dated as of March 1, 1993; and WHEREAS, Participants wish to consent to the execution of certain documents. NOW, THEREFORE, for and in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Participants and Lender hereby covenant and agree as follows: 1. The Participants hereby consent to the execution and delivery by the Lender and the Borrower of that certain Second Amendment to First Consolidated Amendatory Agreement, dated as of the date hereof, in the form attached hereto as Exhibit A. --------- 2. The Participants hereby consent to the execution and delivery by the Lender and the Borrower of that Second Amendment to Promissory Note, dated as of the date hereof, in the form attached hereto as Exhibit B. --------- 3. The Participants hereby consent to the execution and delivery by the Lender and the Borrower of that Second Amendment to Ground Lease, dated as of the date hereof, in the form attached hereto as Exhibit C. --------- Executed as of the 19th day of February, 1995. LENDER: ------ NEW ENGLAND LIFE PENSION PROPERTIES; A REAL ESTATE LIMITED PARTNERSHIP By: Copley Properties Company, Inc., General Partner By: _________________________________ -2- PARTICIPANTS: ------------ By: ________________________________ A.J. Land, Jr. ________________________________ Daniel B. Pattillo ________________________________ Lawrence P. Kelly -3- EX-27 7 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1995 DEC-31-1995 1,204,043 1,109,814 123,928 0 0 2,437,785 16,626,193 0 19,239,985 263,637 457,768 0 0 0 18,518,580 19,239,985 1,976,296 2,104,802 354,550 354,550 440,984 (260,000) 0 1,569,268 0 1,569,268 0 0 0 1,569,268 51.79 51.79
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