10-K405 1 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, 1994 Commission file no. 0-15966 JMB INCOME PROPERTIES, LTD. - XI (Exact name of registrant as specified in its charter) Illinois 36-3254043 (State of organization) (I.R.S. Employer Identification No.) 900 N. Michigan Ave., Chicago, Illinois 60611 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code 312-915-1987 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------------ None None Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS (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 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 State the aggregate market value of the voting stock held by non-affiliates of the registrant. Not applicable. Certain pages of the prospectus of the registrant dated July 11, 1984, as supplemented July 24, 1984 and November 26, 1984 and filed pursuant to Rules 424(b) and 424(c) under the Securities Act of 1933 are incorporated by reference in Parts I and III of this Annual Report on Form 10-K. TABLE OF CONTENTS Page ---- PART I Item 1. Business. . . . . . . . . . . . . . . . . . 1 Item 2. Properties. . . . . . . . . . . . . . . . . 4 Item 3. Legal Proceedings . . . . . . . . . . . . . 6 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . 6 PART II Item 5. Market for the Partnership's Limited Partnership Interests and Related Security Holder Matters6 Item 6. Selected Financial Data . . . . . . . . . . 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations13 Item 8. Financial Statements and Supplementary Data 20 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . 63 PART III Item 10. Directors and Executive Officers of the Partnership. . . . . . . . . . . . . 63 Item 11. Executive Compensation. . . . . . . . . . . 66 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . . . 67 Item 13. Certain Relationships and Related Transactions. . . . . . . . . . . . 68 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . 68 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 70 i PART I ITEM 1. BUSINESS All references to "Notes" are to Notes to Financial Statements contained in this report. The registrant, JMB Income Properties, Ltd. - XI (the "Partnership"), is a limited partnership formed in 1983 and currently governed under the Revised Uniform Limited Partnership Act of the State of Illinois to invest in improved income-producing commercial and residential real property. The Partnership sold $173,406,000 in limited partnership interests (the "Interests") commencing on July 11, 1984, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933 (Registration No. 2-90503). A total of 173,406 Interests were sold to the public at $1,000 per Interest and the holders of 173,406 Interests were admitted to the Partnership in fiscal 1985. The offering closed on November 30, 1984. No Investor has made any additional capital contribution after such date. The Investors in the Partnership share in the benefits of ownership of the Partnership's real property investments according to the number of Interests held. The Partnership is engaged solely in the business of the acquisition, operation and sale and disposition of equity real estate investments. Such equity investments are held by fee title and/or through joint venture partnership interests. The Partnership's real estate investments are located throughout the nation and it has no real estate investments located outside the United States. A presentation of information about industry segments, geographic regions, raw materials or seasonality is not applicable and would not be material to an understanding of the Partnership's business taken as a whole. Pursuant to the Partnership agreement, the Partnership is required to terminate on or before October 31, 2034. Accordingly, the Partnership intends to hold its remaining properties for investment purposes until such time as sale or other disposition appears to be advantageous. Unless otherwise described, the Partnership expects to hold its properties for long-term investment where, due to current market conditions, it is impossible to forecast the expected holding period. At sale of a particular property, the proceeds, if any, are generally distributed or reinvested in existing properties rather than invested in acquiring additional properties. The Partnership has made the real property investments set forth in the following table:
SALE OR DISPOSITION DATE OR IF OWNED AT DECEMBER 31, 1994, NAME, TYPE OF PROPERTY DATE OF ORIGINAL INVESTED AND LOCATION (d) SIZE PURCHASE CAPITAL PERCENTAGE (a) TYPE OF OWNERSHIP ---------------------- ---------- -------- ---------------------- --------------------- 1. Riverside Square Mall Hackensack, New Jersey . . . . 341,000 sq.ft. 10-19-83 15% fee ownership of land g.l.a. and improvements (b)(e) 2. Bank of Delaware Office Building Wilmington, Delaware . . . . . 314,000 sq.ft. 12-14-84 11-15-94 fee ownership of land n.r.a. and improvements (f) 3. Genesee Valley Center Flint, Michigan. . 358,000 sq.ft. 12-21-84 6-29-90 fee ownership of land g.l.a. and improvements (d) 4. Park Center Financial Plaza San Jose, California . . . . 422,000 sq.ft. 06-20-85 26% fee ownership of land n.r.a. and improvements (through a joint venture partnership) (c) 5. Royal Executive Park-II Rye Brook, New York . . . . . 270,000 sq.ft. 02-12-87 20% fee ownership of land n.r.a. and improvements (through a joint venture partnership) (c) ----------------------- (a) The computation of this percentage for properties held at December 31, 1994 does not include amounts invested from sources other than the original net proceeds of the public offering as described above and in Item 7. (b) Reference is made to Note 4 and Schedule III for the current outstanding principal balance and a description of the long-term mortgage indebtedness secured by the Partnership's real property investments. (c) Reference is made to Note 3 for a description of the joint venture partnership through which the Partnership has made this real property investment. (d) Reference is made to Item 8 - Schedule III filed with this annual report for further information concerning real estate taxes and depreciation. (e) Reference is made to Item 6 - Selected Financial Data for additional operating and lease expiration data concerning this investment property. (f) Reference is made to Note 2(c) for a description of the disposition of this investment property.
The Partnership's real property investments are subject to competition from similar types of properties (including, in certain areas, properties owned or advised by affiliates of the General Partners) in the respective vicinities in which they are located. Such competition is generally for the retention of existing tenants. Additionally, the Partnership is in competition for new tenants in markets where significant vacancies are present. Reference is made to Item 7 below for a discussion of competitive conditions and future renovation and capital improvement plans of the Partnership and certain of its significant investment properties. Approximate occupancy levels for the properties are set forth in the table in Item 2 below to which reference is hereby made. The Partnership maintains the suitability and competitiveness of its properties in its markets primarily on the basis of effective rents, tenant allowances and service provided to tenants. In the opinion of the Managing General Partner of the Partnership, all of the investment properties held at December 31, 1994 are adequately insured. Although there is earthquake insurance coverage for a portion of the value of the Partnership's investment properties, the Managing General Partner does not believe that such coverage for the entire replacement cost of the investment properties is available on economic terms. On November 15, 1994, the lender realized upon its security interest in the Bank of Delaware property via a deed in lieu of foreclosure as described in the Partnership's Report on Form 8-K (File No. 0-15966) date November 15, 1994, which description is hereby incorporated herein by reference. Reference is also made to Note 2(c) for a further description of such transaction. In August 1994, an affiliate of the General Partner assumed management of the Royal Executive Park II investment property. Reference is made to Note 3(c) for further discussion. Reference is made to Note 7 for a schedule of minimum lease payments to be received in each of the next five years, and in the aggregate thereafter, under leases in effect at the Partnership's properties as of December 31, 1994. The Partnership has approximately 10 full-time personnel and 3 part- time individuals performing on-site duties at certain of the Partnership's properties, none of whom are officers or directors of the Managing General Partner of the Partnership. The terms of transactions between the Partnership and the General Partners and their affiliates of the Partnership are set forth in Item 11 below to which reference is hereby made for a description of such terms and transactions. ITEM 2. PROPERTIES The Partnership owns directly or through joint venture partnerships the properties or interests in the properties referred to under Item 1 above to which reference is hereby made for a description of said properties. The following is a listing of principal businesses or occupations carried on in and approximate occupancy levels by quarter during fiscal years 1994 and 1993 for the Partnership's investment properties owned during 1994:
1993 1994 -------------------------------------------------- At At At At At At At At Principal Business 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31 ------------------ ---- ---- ---- ----- ---- ---- ----- ----- 1. Park Center Financial Plaza San Jose, California . . . . . . . Accounting/ Legal 89% 88% 84% 84% 83% 83% 83% 84% 2. Riverside Square Mall Hackensack, New Jersey . . . . . . . Retail 83% 83% 80% 81% 86%(1)76%(1) 73%(1)81%(1) 3. Bank of Delaware Office Building Wilmington, Delaware . . Banking 92% 90% 90% 61% 61% 61% 61% N/A 4. Royal Executive Park II Rye Brook, New York . . . . . . . . Communications 92% 92% 93% 92% 92% 93% 89% 97% -------------- An "N/A" indicates that the property was not owned by the Partnership at the end of the quarter. Reference is made to Note 2(c) for a description of the disposition of this investment property. Reference is made to Item 6, Item 7 and Note 7 for further information regarding property occupancy, competitive conditions and tenant leases at the Partnership's investment properties. (1) The 1994 occupancies at Riverside Square Mall include the Saks Fifth Avenue space (107,000 square feet) which was acquired in 1994 and therefore not included in the 1993 occupancies.
ITEM 3. LEGAL PROCEEDINGS The Partnership is not subject to any material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during 1994 or 1993. PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS As of December 31, 1994, there were 14,754 record holders of Interests of the Partnership. There is no public market for Interests and it is not anticipated that a public market for Interests will develop. Upon request, the Managing General Partner may provide information relating to a prospective transfer of Interests to an investor desiring to transfer his Interests. The price to be paid for the Interests, as well as any other economic aspects of the transaction, will be subject to negotiation by the investor. Reference is made to Item 6 below for a discussion of cash distribu- tions made to the Investors. ITEM 6. SELECTED FINANCIAL DATA JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) YEARS ENDED DECEMBER 31, 1994, 1993, 1992, 1991 AND 1990 (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
1994 1993 1992 1991 1990 ------------- ------------- ----------- ------------ ------------ Total income . . . . . .$ 14,048,836 14,618,038 15,185,097 15,309,347 21,752,033 ============= ============= ============= ============ ============== Operating earnings (loss)$ 35,393 1,677,866 (9,097,353) 2,122,059 215,576 Partnership's share of operations of uncon- solidated ventures . . 2,617,210 (4,262,005) (1,779,563) (9,667,835) (132,611) ------------- -------------- ------------ ------------- ------------- Net operating earnings (loss) . . . . . . . . 2,652,603 (2,584,139) (10,876,916) (7,545,776) 82,965 Gain on disposition of investment properties. 447,650 -- -- -- 43,328,288 ------------- -------------- ------------ ------------- ------------- Earnings (loss) before extraordinary item . . 3,100,253 (2,584,139) (10,876,916) (7,545,776) 43,411,253 Extraordinary item . . . (2,206,791) -- -- -- -- ------------- -------------- ------------ ------------- ------------- Net earnings (loss). . .$ 893,462 (2,584,139) (10,876,916) (7,545,776) 43,411,253 ============= ============== ============ ============= ============= Net earnings (loss) per Interest (b): Operating earnings (loss) . . . . . .$ 14.60 (15.65) (62.90) (43.60) .46 Gain on disposition of investment properties . . . . 2.56 -- -- -- 222.47 Extraordinary item . (12.22) -- -- -- -- ------------- -------------- ------------ ------------- ------------- Net earnings (loss). . .$ 4.94 (15.65) (62.90) (43.60) 222.93 ============= ============== ============ ============= ============= Total assets . . . . . .$106,201,665 88,391,802 93,648,467 107,443,394 122,617,419 Long-term debt . . . . .$ 35,436,797 11,297,315 21,104,127 21,403,495 21,699,712 Cash distributions per Interest (c) . . .$ 12.00 12.00 12.00 33.75 243.45 ============= ============== ============ ============= ============= ------------- (a) The above selected financial data should be read in conjunction with the financial statements and the related notes appearing elsewhere in this annual report. (b) The net earnings (loss) per Interest is based upon the number of Interests outstanding at the end of the period (173,411). (c) Cash distributions to the Limited Partners since the inception of the Partnership have not resulted in taxable income to such Limited Partners and have therefore represented a return of capital. Each Partner's taxable income (or loss) from the Partnership in each year is equal to his allocable share of the taxable income (loss) of the Partnership, without regard to the cash generated or distributed by the Partnership.
SIGNIFICANT PROPERTY - SELECTED RENTAL AND OPERATING DATA AS OF DECEMBER 31, 1994
Property -------- Riverside Square Mall a) The GLA occupancy rate and average base rent per square foot as of December 31 for each of the last five years were as follows: GLA Avg. Base Rent Per December 31, Occupancy Rate Square Foot (1) ------------ -------------- ------------------ 1990 . . . . . 89% 24.66 1991 . . . . . 89% 24.48 1992 . . . . . 84% 26.90 1993 . . . . . 81% 31.26 1994 . . . . . 81% 18.10 (2) (1) Average base rent per square foot is based on GLA occupied as of December 31 of each year. (2) Average base rent per square foot decreased in 1994 due to the Saks Fifth Avenue space (acquired in 1994) being included in the gross leasable area beginning in 1994.
Base Rent Scheduled LeaseLease b) Significant Tenants Square Feet Per Annum Expiration DateRenewal Option ------------------- ----------- --------- ----------------------------- Saks Fifth Avenue 107,000 $90,000 6/2012 N/A /TABLE
c) The following table sets forth certain information with respect to the expiration of leases for the next ten years at the Riverside Square Mall: Annualized Percent of Number of Approx. Total Base Rent Total 1994 Year Ending Expiring GLA of Expiring of Expiring Base Rent December 31, Leases Leases (1) Leases Expiring ------------ --------- --------------- ----------- ---------- 1995 2 4,500 120,000 2.4% 1996 1 3,700 75,000 1.5% 1997 3 6,800 181,600 3.6% 1998 4 5,800 279,000 5.6% 1999 6 14,800 536,600 10.7% 2000 4 11,800 397,200 7.9% 2001 4 14,600 399,700 8.0% 2002 2 5,400 212,900 4.3% 2003 6 25,700 832,300 16.6% 2004 11 22,300 931,800 18.6% (1) Excludes leases that expire in 1995 for which renewal leases or leases with replacement tenants have been executed as of March 27, 1995.
SIGNIFICANT PROPERTY - SELECTED RENTAL AND OPERATING DATA AS OF DECEMBER 31, 1994
Property -------- Royal Executive Park II Office Complex a) The GLA rate and average base rent per square foot as of December 31 for each of the last five years were as follows: GLA Avg. Base Rent Per December 31, Occupancy Rate Square Foot (1) ------------ -------------- ------------------ 1990 . . . . . 52% $23.45 1991 . . . . . 57% 23.07 1992 . . . . . 92% 17.35 1993 . . . . . 92% 20.73 1994 . . . . . 97% 19.92 (1) Average base rent per square foot is based on GLA occupied as of December 31 of each year.
Base Rent Scheduled LeaseLease b) Significant Tenants Square Feet Per Annum Expiration DateRenewal Option ------------------- ----------- --------- ----------------------------- MCI 90,000 $2,416,500 1/2001 N/A
c) The following table sets forth certain information with respect to the expiration of leases for the next ten years at the Royal Executive Park II Office Complex: Annualized Percent of Number of Approx. Total Base Rent Total 1994 Year Ending Expiring GLA of Expiring of Expiring Base Rent December 31, Leases Leases (1) Leases Expiring ------------ --------- --------------- ----------- ---------- 1995 -- -- -- -- 1996 -- -- -- -- 1997 1 2,500 56,300 1.1% 1998 2 12,400 262,000 5.0% 1999 4 39,000 875,200 16.5% 2000 2 18,400 440,100 8.3% 2001 1 90,000 2,416,500 45.7% 2002 3 77,100 1,262,300 23.9% 2003 -- -- -- -- 2004 1 8,700 212,600 4.0% (1) Excludes leases that expire in 1995 for which renewal leases or leases with replacement tenants have been executed as of March 27, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES On July 11, 1984, the Partnership commenced an offering to the public of $60,000,000, subject to increase up to $200,000,000, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. On November 30, 1984, the initial and final closing of the offering was consummated with the dealer manager of the public offering (an affiliate of which is a limited partner of the Associate General Partner of the Partner- ship), and 173,406 Interests were issued by the Partnership. After deducting selling expenses and other offering costs, the Partnership had approximately $156,493,000 with which to make investments in commercial real property, to pay legal fees and other costs (including acquisition fees) related to such investments and for working capital. A portion of such proceeds was utilized to acquire the properties described in Item 1 above. At December 31, 1994, the Partnership had cash and cash equivalents of approximately $7,200,000. Such funds and short-term investments of approximately $7,531,000 may be utilized for distributions to partners and for working capital requirements including operating deficits, re-leasing costs of vacant space, and certain capital improvements currently being incurred at Riverside Square Mall. Bank overdrafts of approximately $415,000 as of December 31, 1994 have been subsequently repaid as of January 1995. Additionally, funds may be utilized to fund the Partnership's share of releasing costs and capital improvements at certain portions of the Park Center Financial Plaza. As discussed in Note 2(c), a major tenant at the Bank of Delaware investment property, brought a lawsuit against the Partnership which was decided in the tenant's favor pursuant to an arbitration ruling. The Partnership reimbursed the tenant approximately $802,000, all of which was paid as of December 1992. The Partnership was released from any further obligations pursuant to the assignment of title to the property in November 1994 as described below. The Partnership and its consolidated venture have currently budgeted in 1995 approximately $2,110,000 for tenant improvements and other capital expenditures excluding amounts budgeted for the renovation at Riverside Square Mall as discussed below. The Partnership's share of such items and its share of such similar items for its unconsolidated ventures for 1995 is currently budgeted to be $2,716,000. Actual amounts expended in 1995 may vary depending on a number of factors including actual leasing activity, results of property operations, liquidity considerations and other market conditions over the course of the year. The General Partners have been deferring receipt of distributions in accordance with the subordination requirement of the Partnership Agreement as discussed in Notes 5 and 8. The source of capital for such items and for both short-term and long-term future liquidity and distributions is expected to be through net cash generated by the Partnership's investment properties and through the sale and/or refinancing of such investments. In such regard, reference is made to the Partnership's property specific discussions below and also to the Partnership's disclosure of certain property lease expirations in Item 6. The Partnership's and its ventures' mortgage obligations are all non- recourse. Therefore, the Partnership and its ventures are not obligated to pay mortgage indebtedness unless the related property produces sufficient net cash flow from operations or sale. During August 1994, San Jose received notification from the Redevelopment Agency of the City of San Jose of its offer to purchase one of the parking garage structures in the office building complex, for an approved Agency project for $4,090,000. The price offered is deemed by the Agency to be just compensation in compliance with applicable State and Federal laws relating to the government's power of eminent domain. San Jose is currently investigating its options with regard to the Agency's offer, including the impact of any purchase on garage spaces leased to tenants of other Partnership properties in the complex. Should the Agency proceed to purchase the property, San Jose would recognize a gain for financial reporting and Federal income tax purposes. However, it is uncertain at this time whether a transfer of the garage to the Agency will occur, or upon what terms. San Jose, during the fourth quarter of 1994, finalized a loan extension and modification with the mortgage lender on the 150 Almaden and 185 Park Avenue buildings and certain parking areas as the mortgage loan secured by this portion of the complex matured on October 1, 1993 and was extended to December 1, 1993. The modified and extended loan has an interest rate of 8.4% per annum, requires monthly interest payments only beginning December 1, 1994 through December 1, 1997 when the loan begins to amortize until it matures November 30, 2001, when the unpaid principal and interest balance is due. The refinancing resulted in a partial paydown of the outstanding principal balance in the amount of $2.5 million of which the Partnership's share was $1.25 million. (Reference is made to Note 3 (b)). San Jose notified the tenants in and invitees to the complex that some of the buildings, particularly the 100-130 Park Center Plaza Buildings and the garage below them, could pose a life safety hazard under certain unusually intense earthquake conditions. While the buildings and the garage were designed to comply with the applicable codes for the period in which they were constructed, and there is no legal requirement to upgrade the buildings for seismic purposes, San Jose is working with consultants to analyze ways in which such a potential life safety hazard could be eliminated. Tenants occupying approximately 55,000 square feet (approximately 13% of the buildings) of the Park Center Plaza investment property have leases that expire in 1995, for which there can be no assurance of renewals. In addition, new leases will likely require expenditures for lease commissions and tenant improvements prior to tenant occupancy. These anticipated costs upon re-leasing will result in a decrease in cash flow from operations over the near term. However, since the costs of both re-leasing space and any seismic program could be substantial, San Jose has commenced discussions with the appropriate lender for additional loan proceeds to pay for all or a portion of these costs. Furthermore, should lender assistance be required to fund significant costs at the 100-130 Park Center Plaza buildings but not be obtained, the Partnership may decide not to commit any additional amounts to this portion of the complex since such amounts are likely to be large in comparison to the Partnership's current equity in this portion of the complex and the likelihood of recovering such funds through increased capital appreciation is remote. The result would be that the Partnership would no longer have an ownership interest in this portion of the complex. As a result, there is uncertainty about the ability to recover the net carrying value of the property through future operations and sale and accordingly, San Jose has made provisions for value impairment on the 100- 130 Park Center Plaza buildings and certain parking areas and the 170 Almaden building of $944,335 in the aggregate. Such provisions at September 30, 1994 were recorded to reduce the net carrying values of these buildings to the then outstanding balances of the related non-recourse financing. Furthermore, at September 30, 1993, San Jose recorded a provision for value impairment on the 150 Almaden and 185 Park Avenue buildings and certain parking areas of $15,549,935 to reduce the net carrying value of these buildings to the then outstanding balance of related non-recourse financing. Additionally, at December 31, 1992, San Jose recorded a provision for value impairment of $8,142,152 on certain other portions of the complex to amounts equal to the then outstanding balances of the related non-recourse financing. In the event the lender on the 100-130 Park Center Plaza portion of the complex exercised its remedies as discussed above, the result would likely be that San Jose would no longer have an ownership interest in such portion. See Note 3(b) for further discussion of this investment property. Riverside Square Mall has been experiencing decreasing sales levels as well as increasing competition for new tenants since a competing regional retail center expanded its operations in 1990. Occupancy at the mall, not including Saks Fifth Avenue, has decreased from 81% at December 31, 1993 to 72% at December 31, 1994 primarily due to a certain tenant vacating its space as described below more fully. In an effort to improve the property's competitive position, the Partnership has substantially completed its renovation and is continuing to remerchandise the center. In connection with the renovation, the Partnership, in early 1994, signed 15- year operating covenant extensions with both Saks and Bloomingdales, the latter of which owns their own store. In return for the additional 15-year commitment to the center, the Partnership reimbursed Saks for their recent store renovation in the amount of $6,100,000 and is obligated to pay Bloomingdales $5,000,000 toward their upcoming store renovation (which payment is expected to occur in 1995). In connection with the payment to Saks, the Partnership also acquired title to the Saks building which had previously been owned by Saks. The Partnership is also required to complete the renovation of the mall, with an additional estimated cost of approximately $12,000,000 which has been substantially completed as of December 31, 1994. The Partnership continues to consider expanding the mall at some point in the future as well. Furthermore, the Partnership has commenced a $7,500,000 restoration of the parking deck. This restoration should be completed by the end of 1995. During the third quarter of 1994, the Partnership finalized a refinancing of the existing mortgage loan with a new loan in the amount of $36,000,000. The new loan has an initial interest rate of 8.35% per annum, requires monthly principal and interest 2payments of $286,252 beginning September 1, 1994, and matures December 1, 2006, when the unpaid principal and interest balance is due. The refinancing resulted in net proceeds of approximately $22,300,000 (after retirement of the previous mortgage loan with an outstanding balance of approximately $13,000,000, and payment of a prepayment penalty of approximately $650,000 which has been reflected as an extraordinary item in 1994 in the accompanying financial statements and as discussed in note 2(b)). Of such proceeds, approximately $11,200,000 was escrowed by the lender pursuant to the loan agreement and will be released (none released as of December 31, 1994), including interest earned, to fund certain costs of the renovation and restoration as discussed above. The remaining $11,100,000 represents the replenishment of the Partnership's working capital for amounts paid or to be paid to Saks and Bloomingdales for tenant allowances as discussed above. In connection with the negotiations relating to the refinancing, the Partnership had escrowed approximately $801,000 to serve as collateral to secure a letter of credit. Such letter of credit was released and the funds were refunded to the Partnership in September 1994 in connection with the loan funding. The Partnership is continuing to attempt to lease the vacant space in the mall, but the competitive nature of the surrounding retail area and the fact that the mall was in need of a renovation has extended the time period required to re-lease space as tenant leases expire and are not renewed. On January 7, 1994, Conran's, a tenant occupying approximately 28,000 square feet or 12% of the building, filed for protection pursuant to a Chapter 11 bankruptcy petition. During 1994, the Partnership bought the rights to the Conran's lease for $475,000 through the bankruptcy auction and is in control of the space. The Partnership is reviewing its possible alternatives with respect to replacement tenants for the Conran's lease which was originally scheduled to expire in January 2000. In November 1994, due to the Partnership's default in payment of debt service, the mortgage lender concluded proceedings to realize upon its mortgage security interest represented by the land, building, and related improvements of the Bank of Delaware investment property via a deed in lieu of foreclosure. As a result of the disposition of the property, the Partnership recognized a gain in 1994 for financial reporting purposes of $447,650 and a loss for Federal income tax purposes of $4,756,937 with no corresponding distributable proceeds. In December 1993, a major tenant, E.I. duPont de Nemours ("duPont"), which comprised approximately 27% of the building, vacated their space upon expiration of their lease. The property had been operating at a cash deficit due to the significant costs incurred in connection with the re-leasing of vacant space and certain capital improvements. Due to the competitive nature of this marketplace, the Partnership estimated the costs associated with re-leasing any vacant space during the next few years, including those costs to remove the remaining asbestos in tenant space, would have been substantial. As a result of these leasing concerns, the Partnership recorded a provision for value impairment on the Bank of Delaware Building at June 30, 1992 of $11,476,030 to reduce the net carrying value of the Bank of Delaware Building to the then outstanding balance of the related non-recourse debt. Further, the Partnership had commenced discussions with the building's first mortgage lender in order to seek a loan modification. In connection with these discussions, effective January 1994, the Partnership had suspended payment of debt service to the lender. Under the terms of a mortgage and security agreement, the Partnership, in its capacity as mortgagor of the building, agreed to indemnify the mortgage lender, under certain circumstances, against damages, claims, liabilities and expenses incurred by or asserted against the mortgage lender in relation to asbestos in the building. Asbestos had been abated or encapsulated in approximately 62% of the building's space. The Partnership did not believe that any remaining asbestos in the building presented a hazard and did not believe that such asbestos was required to be removed. The Partnership estimated that the cost of asbestos abatement in a portion of the building that could be incurred under certain circumstances in the future would have been approximately $800,000. However, the Partnership did not believe that it would have likely been required to incur (or to indemnify the mortgage lender against) any such cost, although there is no assurance that the Partnership would not have been required to pay such cost or indemnification. In conjunction with the transfer of title, the Partnership paid the mortgage lender a sum of approximately $681,000 which included the net cash flow of the property since the suspension of debt service and an indemnification release fee for which the mortgage lender released the Partnership from all liabilities respecting the property, including those related to asbestos. JWP, Inc. leased approximately 78,000 square feet of space (approximately 29% of the property) at Royal Executive Park II in August 1992. As a result of the JWP, Inc. lease, the property has produced sufficient cash flow to fund the Partnership's preferred level of return for 1994 and in addition, recovered a portion of the cumulative shortfall in this return since 1989. The Partnership expects to receive its preferred level of return for 1995 in addition to a partial recovery of its cumulative shortfall in this return since 1989. In early 1994, JWP filed for protection pursuant to a Chapter 11 bankruptcy petition. JWP subsequently subleased approximately 62,000 square feet of its space and these subtenants have assumed the terms of JWP's lease and have become direct tenants. Additionally, JWP formally rejected its lease and vacated the remainder of its space in January 1995. However, this remaining space (of approximately 16,000 square feet) has been leased for a term of one year to a tenant who previously had assumed space sublet by JWP. Thus, through 1995, all of the former JWP space has been re-leased. The previous manager of the property, an affiliate of the venture partner, continued an aggressive marketing program to lease the remaining vacant space but the competitive nature of the market continued to extend the time period required to lease space to initial tenants which will result in a decrease in cash flow from operations over the near term. Effective July 1, 1994, management and leasing activities at the complex were transferred to an affiliate of the General Partners of the Partnership, who managed the property until December 1994. In December 1994, one of the affiliated property managers sold substantially all of its assets and assigned its interest in its management contracts to an unaffiliated third party. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates. Due to uncertainty about the ability to recover the net carrying value of the property through future operations and sale, Royal Executive has made a provision for value impairment of $25,378,894. Such provision at September 30, 1994 was recorded to reduce the net carrying value of the property to the then estimated valuation. The provision for value impairment has been allocated fully to the venture partner to reflect their subordination to the Partnership in distributions with regard to future operation and sale or financing proceeds as discussed in Note 3(c). There are certain risks associated with the Partnership's investments made through joint ventures including the possibility that the Partnership's joint venture partners in an investment might become unable or unwilling to fulfill their financial or other obligations, or that such joint venture partners may have economic or business interests or goals that are inconsistent with those of the Partnership. Though the economy has recently shown signs of improvement and financing is generally becoming more available for certain types of higher- quality properties in healthy markets, real estate lenders are typically requiring a lower loan-to-value ratio for mortgage financing than in the 2past. This has generally made it difficult for owners to refinance real estate assets at their current debt levels unless the value of the underlying property has appreciated significantly. As a consequence, and due to the weakness of some of the local real estate markets in which the Partnership's properties operate, the Partnership is taking steps to preserve its working capital. RESULTS OF OPERATIONS The aggregate decrease in cash and cash equivalents and short-term investments as of December 31, 1994 as compared to December 31, 1993 is primarily due to funds utilized in 1994 for the acquisition of the Saks Fifth Avenue building, and renovation work as described above at Riverside Square Mall partially offset by the receipt of $11,100,000 in loan proceeds from the refinancing of long-term debt at the Riverside Square Mall property. The increase in rents and other receivables at December 31, 1994 as compared to December 31, 1993 is primarily due to the timing of rents collected from certain tenants at the Riverside Square Mall property. The increase in escrow deposits as of December 31, 1994 as compared to December 31, 1993 is primarily due to escrow payments made pursuant to the loan refinancing at Riverside Square Mall of approximately $11,500,000 including interest earned on escrowed fund. Reference is made to Note 2(b). The decrease in land, accumulated depreciation, prepaid expenses, and current portion of long-term debt as of December 31, 1994 as compared to December 31, 1993 is primarily due to the lender obtaining title to the Bank of Delaware building via a deed in lieu of foreclosure in November 1994 as discussed above. See Note 2(c). The increase in building and improvements as of December 31, 1994 as compared to December 31, 1993 is primarily due to tenant improvements renovation work, and the purchase of the Saks store of approximately $22,260,000 incurred in 1994 at Riverside Square Mall, as discussed above, partially offset by the lender obtaining title to the Bank of Delaware building via a deed in lieu of foreclosure as discussed above. The increase in deferred expenses at December 31, 1994 as compared to December 31, 1993 is primarily due to $371,000 of certain costs associated with the August 31, 1994 refinancing of the mortgage loan at the Riverside Square Mall property and $558,000 of deferred expenses due to increased leasing activity during the fourth quarter of 1994. The increase in accrued interest payable and long-term debt, less current portion, as of December 31, 1994 as compared to the year ended December 31, 1993 and the increase in mortgage interest expense for the year ended December 31, 1994 as compared to the year ended December 31, 1993 is due to the refinancing of the debt at the Riverside Square Mall property. Reference is made to Note 2(b). The increase in construction costs payable as of December 31, 1994 as compared to December 31, 1993, is due to the renovation at the Riverside Square Mall property. See Note 2(b). The decrease in rental income for the year ended December 31, 1994 as compared to the year ended December 31, 1993 is primarily due to receiving two months less of rent at the Bank of Delaware building due to the lender taking title to the property via a deed in lieu of foreclosure and also due to lower average occupancy at the Bank of Delaware building and the Riverside Square Mall property. The decrease in rental income for the year ended December 31, 1993 as compared to the year ended December 31, 1992 is due to lower occupancy at the Bank of Delaware and tenant billing adjustments in 1993 of approximately $223,000 at Riverside Square Mall. The increase in interest income for the year ended December 31, 1994 as compared to the year ended December 31, 1993 is primarily due to approximately $203,000 of interest earned on escrowed funds and net loan proceeds related to the refinancing at Riverside Square Mall. The decrease in interest income for the year ended December 31, 1993 as compared to December 31, 1992 is primarily due to lower effective yields being earned on U.S. Government obligations held during 1993. The increase in depreciation expense for the year ended December 31, 1994 as compared to the year ended December 31, 1993 is primarily due to the depreciation taken in 1994 on the Saks Fifth Avenue building acquired in 1994 at the Riverside Square Mall property. The decrease in depreciation expense for the year ended December 31, 1993 as compared to the year ended December 31, 1992 is primarily due to a reduction of approximately $223,000 in depreciation expense at the Bank of Delaware building due to the $11,476,000 provision for value impairment recorded at September 30, 1992. See Note 2(c). The increase in property operating expenses for the year ended December 31, 1994 as compared to the year ended December 31, 1993 is primarily due to an increase in real estate taxes (partially recoverable from tenants) of approximately $140,000 and an increase in the provision for doubtful accounts of approximately $276,000 at the Riverside Square Mall property. The increase in property operating expenses for the year ended December 31, 1993 as compared to the year ended December 31, 1992 is partially due to an increase of approximately $272,000 of snow removal costs primarily due to a blizzard in early 1993 at the Riverside Square Mall property. The decrease in professional services for the year ended December 31, 1993 as compared to the year ended December 31, 1992 is primarily due to legal fees incurred in 1992 by the Partnership in its defense of a lawsuit and its subsequent appeal brought against the Riverside Square Mall property concerning public access issues. The provision for value impairment for the year ended December 31, 1992 is due to the Partnership recording a provision for value impairment of $11,476,030 at the Bank of Delaware building at June 30, 1992 to reduce the net carrying value of the investment property to the then outstanding balance of the related non-recourse debt. See Note 1. The Partnership's share of operations of unconsolidated ventures increased for the year ended December 31, 1994 as compared to the year ended December 31, 1993 primarily due to a provision for value impairment of approximately $15,550,000 recorded at the San Jose investment property at September 30, 1993 (of which the Partnership's share was approximately $7,775,000), partially offset by the provision for value impairment recorded at the San Jose investment property at September 30, 1994 of approximately $944,000, of which the Partnership's share is approximately $472,000. See Note 3(b). The gain on disposition of investment property for the year ended December 31, 1994 is due to the lender taking title to the Bank of Delaware building via a deed in lieu of foreclosure in November 1994. See Note 2(c). The $2,206,781 extraordinary item for the year ended December 31, 1994 is due to the refinancing of long-term debt at Riverside Square Mall. See Note 2(b). INFLATION Due to the decrease in the level of inflation in recent years, inflation generally has not had a material effect on rental income or property operating expenses. To the extent that inflation in future periods does have an adverse impact on property operating expenses, the effect will generally be offset by amounts recovered from tenants as many of the long-term leases at the Partnership's commercial properties have escalation clauses covering increases in the cost of operating and maintaining the properties as well as real estate taxes. Therefore, there should be little effect on operating earnings if the properties remain substantially occupied. In addition, substantially all of the leases at the Partnership's shopping center investments contain provisions which entitle the Partnership to participate in gross receipts of tenants above fixed minimum amounts. Future inflation may also cause capital appreciation of the Partnership's investment properties over a period of time to the extent that rental rates and replacement costs of properties increase. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) INDEX Independent Auditors' Report Consolidated Balance Sheets, December 31, 1994 and 1993 Consolidated Statements of Operations, years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Partners' Capital Accounts (Deficit), years ended December 31, 1994, 1993 and 1992 Consolidated Statements of Cash Flows, years ended December 31, 1994, 1993 and 1992 Notes to Consolidated Financial Statements SCHEDULE -------- Real Estate and Accumulated Depreciation III SCHEDULES NOT FILED: All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) INDEX Independent Auditors' Report Balance Sheets, December 31, 1994 and 1993 Statements of Operations, years ended December 31, 1994, 1993 and 1992 Statements of Partners' Capital Accounts, years ended December 31, 1994, 1993 and 1992 Statements of Cash Flows, years ended December 31, 1994, 1993 and 1992 Notes to Financial Statements SCHEDULE -------- Real Estate and Accumulated Depreciation III SCHEDULES NOT FILED: All schedules other than the one indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. INDEPENDENT AUDITORS' REPORT The Partners JMB INCOME PROPERTIES, LTD. - XI: We have audited the financial statements of JMB Income Properties, Ltd. - XI (a limited partnership) as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners of the Partnership, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of JMB Income Properties, Ltd. - XI at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Chicago, Illinois March 27, 1995 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1994 AND 1993 ASSETS ------
1994 1993 ------------ ----------- Current assets: Cash and cash equivalents (note 1) . . . . . . . . . . . . . . . $ 7,200,333 267,127 Short-term investments (note 1). . . . . . . . . . . . . . . . . 7,530,660 23,681,340 Rents and other receivables, net of allowance for doubtful accounts of $364,343 in 1994 and $87,858 in 1993. . . . . . . . . . . . . . . . . . . . . . . . 1,984,395 1,690,050 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 79,621 317,552 Escrow deposits (note 2(b)). . . . . . . . . . . . . . . . . . . 11,508,793 -- ------------ ----------- Total current assets . . . . . . . . . . . . . . . . . . . 28,303,802 25,956,069 ------------ ----------- Investment properties, at cost (note 2, 4 and 7) - Schedule III: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,796,561 4,563,638 Buildings and improvements . . . . . . . . . . . . . . . . . . . 61,610,179 53,218,947 ------------ ----------- 65,406,740 57,782,585 Less accumulated depreciation. . . . . . . . . . . . . . . . . . 12,951,168 17,673,020 ------------ ----------- Investment properties, net of accumulated depreciation . . 52,455,572 40,109,565 Investment in unconsolidated ventures, at equity (notes 1, 3 and 9) . . . . . . . . . . . . . . . . . . . . . . . 24,512,608 22,127,541 Deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . . 929,683 198,627 ------------ ----------- $106,201,665 88,391,802 ============ =========== JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1994 AND 1993 LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICIT) ---------------------------------------------------- 1994 1993 ------------ ----------- Current liabilities: Bank overdrafts. . . . . . . . . . . . . . . . . . . . . . . . . $ 415,003 -- Current portion of long-term debt (note 4) . . . . . . . . . . . 455,199 9,837,354 Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 485,464 255,474 Construction costs payable . . . . . . . . . . . . . . . . . . . 3,431,926 -- Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . 249,748 105,239 ------------ ----------- Total current liabilities. . . . . . . . . . . . . . . . . 5,037,340 10,198,067 Tenant security deposits . . . . . . . . . . . . . . . . . . . . . 79,882 61,304 Long-term debt, less current portion (note 4). . . . . . . . . . . 35,436,797 11,297,315 ------------ ----------- Commitments and contingencies (notes 2, 3 and 7) Total liabilities. . . . . . . . . . . . . . . . . . . . . 40,554,019 21,556,686 Partners' capital accounts (deficit) (notes 1 and 5): General partners: Capital contributions. . . . . . . . . . . . . . . . . . . . 1,000 1,000 Cumulative net earnings. . . . . . . . . . . . . . . . . . . 5,270,362 5,233,888 Cumulative cash distributions. . . . . . . . . . . . . . . . (6,631,429) (6,631,429) ------------ ----------- (1,360,067) (1,396,541) ------------ ----------- Limited partners (173,411 interests): Capital contributions, net of offering costs . . . . . . . . 156,493,238 156,493,238 Cumulative net earnings. . . . . . . . . . . . . . . . . . . 25,640,796 24,783,808 Cumulative cash distributions. . . . . . . . . . . . . . . . (115,126,321) (113,045,389) ------------ ----------- 67,007,713 68,231,657 ------------ ----------- Total partners' capital accounts . . . . . . . . . . . . . 65,647,646 66,835,116 ------------ ----------- $106,201,665 88,391,802 ============ =========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 ------------ ------------ ------------ Income: Rental income. . . . . . . . . . . . . . . . . $13,022,234 13,836,131 14,197,911 Interest income. . . . . . . . . . . . . . . . 1,026,602 781,907 987,186 ----------- ----------- ----------- 14,048,836 14,618,038 15,185,097 ----------- ----------- ----------- Expenses: Mortgage and other interest. . . . . . . . . . 2,803,351 2,428,737 2,431,951 Depreciation . . . . . . . . . . . . . . . . . 1,726,612 1,574,625 1,816,616 Property operating expenses. . . . . . . . . . 8,778,556 8,300,029 7,667,064 Professional services. . . . . . . . . . . . . 343,023 285,158 485,943 Amortization of deferred expenses. . . . . . . 86,376 105,130 122,594 General and administrative . . . . . . . . . . 275,525 246,493 282,252 Provision for value impairment (notes 1 and 2) -- -- 11,476,030 ----------- ----------- ----------- 14,013,443 12,940,172 24,282,450 ----------- ----------- ----------- Operating earnings (loss). . . . . . . . 35,393 1,677,866 (9,097,353) Partnership's share of operations of unconsolidated ventures (notes 1 and 3). . . . 2,617,210 (4,262,005) (1,779,563) ----------- ----------- ----------- Net operating earnings (loss). . . . . . 2,652,603 (2,584,139) (10,876,916) Non-cash gain on disposition of investment property (note 2(c)) . . . . . . . . . . . . . 447,650 -- -- ----------- ----------- ----------- Net operating earnings (loss) before extraordinary item . . . . . . . . . . 3,100,253 (2,584,139) (10,876,916) Extraordinary item (note 2(b)) . . . . . . . . . (2,206,791) -- -- ----------- ----------- ----------- Net earnings (loss). . . . . . . . . . . $ 893,462 (2,584,139) (10,876,916) =========== =========== =========== JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS - CONTINUED 1994 1993 1992 ------------ ------------ ------------ Net earnings (loss) per limited partnership interest (note 1): Net operating earnings (loss). . . . . $ 14.60 (15.65) (62.90) Gain on disposition of investment property . . . . . . . . . . . . . . 2.56 -- -- Extraordinary item . . . . . . . . . . (12.22) -- -- ----------- ----------- ----------- Net earnings (loss). . . . . . . . . $ 4.94 (15.65) (62.90) =========== =========== =========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICIT) YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
GENERAL PARTNERS LIMITED PARTNERS (NOTE 1) --------------------------------------------------- -------------------------------------------------- CONTRI- BUTIONS NET OF NET CONTRI- NET CASH OFFERING EARNINGS CASH BUTIONS EARNINGS DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL ------- ----------------------- ----------- ----------- ---------- ------------- ----------- Balance (deficit) at Decem- ber 31, 1991. . . . . $1,000 5,072,668 (6,631,429) (1,557,761) 156,493,238 38,406,084 (108,883,525) 86,015,797 Cash distri- butions ($12.00 per limited partnership interest) . . -- -- -- -- -- -- (2,080,932) (2,080,932) Net earnings (loss) (note 5). . . -- 31,336 -- 31,336 -- (10,908,253) -- (10,908,253) ------ ---------- ---------- ---------- ----------- ----------- ------------- ---------- Balance (deficit) at Decem- ber 31, 1992. . . . . 1,000 5,104,004 (6,631,429) (1,526,425) 156,493,238 27,497,831 (110,964,457) 73,026,612 Cash distri- butions ($12 per limited partnership interest) . . -- -- -- -- -- -- (2,080,932) (2,080,932) Net earnings (loss) (note 5). . . -- 129,884 -- 129,884 -- (2,714,023) -- (2,714,023) ------ ---------- ---------- ---------- ----------- ----------- ------------ ----------- JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICIT) - CONTINUED GENERAL PARTNERS LIMITED PARTNERS (NOTE 1) --------------------------------------------------- -------------------------------------------------- CONTRI- BUTIONS NET OF NET CONTRI- NET CASH OFFERING EARNINGS CASH BUTIONS EARNINGS DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL ------- ----------------------- ----------- ----------- ---------- -------------- ---------- Balance (deficit) at Decem- ber 31, 1993. . . . . $1,000 5,233,888 (6,631,429) (1,396,541) 156,493,238 24,783,808 (113,045,389) 68,231,657 Cash distri- butions ($12 per limited partnership interest) . . -- -- -- -- -- -- (2,080,932) (2,080,932) Net earnings (note 5). . . -- 36,474 -- 36,474 -- 856,988 -- 856,988 ------ ---------- ---------- ---------- ----------- ----------- ------------- ---------- Balance (deficit) at Decem- ber 31, 1994. . . . . $1,000 5,270,362 (6,631,429) (1,360,067) 156,493,238 25,640,796 (115,126,321) 67,007,713 ====== ========== ========== ========== =========== =========== ============= ========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 ----------- ----------- ----------- Cash flows from operating activities: Net earnings (loss). . . . . . . . . . . . . . . $ 893,462 (2,584,139) (10,876,916) Items not requiring (providing) cash or cash equivalents: Depreciation . . . . . . . . . . . . . . . . . 1,726,612 1,574,625 1,816,616 Amortization of deferred expenses. . . . . . . 86,376 105,130 122,594 Amortization of discounts on long-term debt. . 101,110 161,195 125,521 Partnership's share of operations of uncon- solidated ventures, net of distributions . . (827,598) 7,609,901 4,442,528 Provision for value impairment (notes 1 and 2). . . . . . . . . . . . . . . -- -- 11,476,030 Non-cash gain on disposition of investment property (note 2(c)) . . . . . . . . . . . . (1,128,591) -- -- Extraordinary item (note 2(b)) . . . . . . . . 2,206,791 -- -- Changes in: Rents and other receivables. . . . . . . . . . (511,436) (60,907) (323,953) Prepaid expenses . . . . . . . . . . . . . . . 205,931 (28,888) (14,203) Escrow deposits. . . . . . . . . . . . . . . . (330,151) -- -- Accounts payable . . . . . . . . . . . . . . . 3,661,916 (226,193) (280,948) Accrued interest payable . . . . . . . . . . . 1,006,931 (85,540) (3,342) Tenant security deposits . . . . . . . . . . . 18,578 (11,035) (16,634) ----------- ----------- ----------- Net cash provided by operating activities . . . . . . . . . 7,109,931 6,454,149 6,467,293 ----------- ----------- ----------- Cash flows from investing activities: Net sales and maturities (purchases) of short-term investments . . . . . . . . . . . . . 16,150,680 (6,254,572) 669,636 Additions to investment properties . . . . . . . (23,028,260) (1,568,908) (1,780,027) 2 Partnership's distributions from unconsolidated ventures. . . . . . . . . . . . -- 1,350,425 798,697 Partnership's contributions to unconsolidated ventures. . . . . . . . . . . . (1,557,469) -- (575,000) Payment of deferred expenses . . . . . . . . . . (760,391) (17,094) (37,749) ----------- ----------- ----------- Net cash used in investing activities . . . . . . . . . . . . . . (9,195,440) (6,490,149) (924,443) ----------- ----------- ----------- JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED 1994 1993 1992 ----------- ----------- ----------- Cash flows from financing activities: Cash proceeds from refinancing of long-term debt (note 2(b)) . . . . . . . . . . 11,102,785 -- -- Bank overdrafts. . . . . . . . . . . . . . . . . 415,003 -- (270,480) Principal payments on long-term debt . . . . . . (418,141) (430,021) (391,195) Distributions to limited partners. . . . . . . . (2,080,932) (2,080,932) (2,080,932) ----------- ----------- ----------- Net cash provided by (used in) financing activities . . . . . . . . . 9,018,715 (2,510,953) (2,742,607) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . 6,933,206 (2,546,953) 2,800,243 Cash and cash equivalents, beginning of year. . . . . . . . . . . 267,127 2,814,080 13,837 ----------- ----------- ----------- Cash and cash equivalents, end of year. . . . . . . . . . . . . . $ 7,200,333 267,127 2,814,080 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest . . . $ 1,695,310 2,353,082 2,309,772 =========== =========== =========== Non-cash investing and financing activities: Disposition of investment property note 2(b): Balance due on long-term debt cancelled . . . $ 9,500,000 -- -- Accrued interest expense on accelerated long-term debt. . . . . . . . . . . . . . . 862,422 -- -- Reduction of investment property. . . . . . . (8,955,641) -- -- Reduction of deferred expenses. . . . . . . . (29,099) -- -- Reduction of other assets . . . . . . . . . . (249,091) -- -- ----------- ----------- ---------- Non-cash gain recognized due to lender realizing upon security . . . . $ 1,128,591 -- -- =========== =========== ========== JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED 1994 1993 1992 ----------- ----------- ----------- Refinancing of long-term debt, note 2(c): Proceeds of refinancing, net of refinancing costs. . . . . . . . . . . . . . $35,913,859 -- -- Retirement of debt, net of discount. . . . . . (12,983,269) -- -- Proceeds escrowed. . . . . . . . . . . . . . . (11,178,642) -- -- Prepayment penalty . . . . . . . . . . . . . . (649,163) -- -- ----------- ----------- ----------- Cash proceeds from refinancing of long-term debt . . . . . . . . . . . . $11,102,785 -- -- =========== =========== =========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (1) BASIS OF ACCOUNTING The equity method of accounting has been applied in the accompanying financial statements with respect to the Partnership's interest in Royal Executive Park II ("Royal Executive") and JMB/San Jose Associates ("San Jose") (note 3). Accordingly, the accompanying financial statements do not include the accounts of Royal Executive and San Jose. The Partnership's records are maintained on the accrual basis of accounting as adjusted for Federal income tax reporting purposes. The accompanying financial statements have been prepared from such records after making appropriate adjustments to present the Partnership's accounts in accordance with generally accepted accounting principles ("GAAP"). Such adjustments are not recorded on the records of the Partnership. The net effect of these items for the years ended December 31, 1994 and 1993 is summarized as follows: JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED
1994 1993 ------------------------------ ------------------------------ GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS ------------ ----------- ------------ ----------- Total assets . . . . . . . . . . . $106,201,665 128,698,902 88,391,802 109,230,160 Partners' capital accounts (deficit) (note 5): General partners . . . . . . . (1,360,067) (1,524,886) (1,396,541) (1,479,706) Limited partners . . . . . . . 67,007,713 90,408,334 68,231,657 97,141,280 Net earnings (loss) (note 5): General partners . . . . . . . 36,474 (45,180) 129,844 56,695 Limited partners . . . . . . . 856,988 (4,652,014) (2,714,023) 1,360,682 Net earnings (loss) per limited partnership interest . . . . . . . . . . . . 4.94 (26.83) (15.65) 7.85 =========== ============ =========== ===========
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED The net earnings (loss) per limited partnership interest is based upon the number of limited partnership interests outstanding at the end of the period (173,411). Deficit capital accounts will result, through the duration of the Partnership, in net gain for financial reporting and income tax purposes. Statement of Financial Accounting Standards No. 95 requires the Partnership to present a statement which classifies receipts and payments according to whether they stem from operating, investing or financing activities. The required information has been segregated and accumulated according to the classifications specified in the pronouncement. Partnership distributions from unconsolidated ventures are considered cash flow from operating activities only to the extent of the Partnership's cumulative share of net earnings. The Partnership records amounts held in U.S. Government obligations at cost, which approximates market. For the purposes of these statements, the Partnership's policy is to consider all such amounts held with original maturities of three months or less ($7,200,333 and $0 at December 31, 1994 and 1993, respectively) as cash equivalents with any remaining amounts (generally with original maturities of one year or less) reflected as short-term investments being held to maturity. Deferred expenses consist primarily of loan fees and lease commissions which are amortized over the terms stipulated in the related loan agreements or over the terms of the related leases using the straight-line method. Although certain leases of the Partnership provide for tenant occupancy during periods for which no rent is due and/or increases in the minimum lease payments over the term of the lease, rental income is accrued for the full period of occupancy on a straight-line basis. In response to the uncertainties relating to the future recovery of the carrying value of the Bank of Delaware investment property through future operations or sale, the Partnership recorded a provision for value impairment on the Bank of Delaware investment property of $11,476,030. Such provision, made as of June 30, 1992, was recorded to reduce the net carrying value of the investment property to the then outstanding balance of the related non-recourse debt. Reference is made to note 2(c) for further discussion of the current status of this investment property. In response to the uncertainties relating to the San Jose joint venture's ability to recover the net carrying value of certain buildings within the Park Center Plaza investment property through future operations or sale, the San Jose joint venture, at December 31, 1992, recorded a provision for value impairment on certain portions of the complex of $8,142,152. Such provision was recorded to reduce the net basis of these portions to the then outstanding balance of the related non-recourse debt. Additionally, a provision for value impairment on the 150 Almaden and 185 Park Avenue buildings and certain parking areas of $15,549,935 was recorded at September 30, 1993 to reduce the net basis to the then outstanding balance of the related non-recourse debt. Furthermore, the San Jose joint venture, recorded a provision for value impairment at September 30, 1994 on the 100-130 Park Center Plaza buildings and certain parking areas, and the 170 Almaden building of $944,335, in aggregate, to reduce the net carrying values to the then outstanding balances of related non-recourse debt. Reference is made to note 3(b) for further discussion of the current status of this investment property. JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED Due to uncertainty about the ability to recover the net carrying value of the property through future operations and sale, Royal Executive has made a provision for value impairment of $25,378,894. Such provision at September 30, 1994 was recorded to reduce the net carrying value of the property to the then estimated valuation. The provision for value impairment has been allocated fully to the venture partner to reflect their subordination to the Partnership in distributions with regard to future operation and sale or financing proceeds as discussed in note 3(c). No provision for State or Federal income taxes has been made as the liability for such taxes is that of the Partners rather than the Partnership. However, in certain instances, the Partnership has been required under applicable law to remit directly to the tax authorities amounts representing withholding from distributions paid to partners. Certain amounts in the 1993 and 1992 financial statements have been reclassified to conform to the 1994 presentation. (2) INVESTMENT PROPERTIES (a) General The Partnership has acquired, either directly or through joint ventures, two shopping centers and three office complexes. In June 1990, the Partnership sold its interest in the Genesee Valley Shopping Center. In November 1994, the lender realized upon its security interest and took title to the Bank of Delaware building via a deed in lieu of foreclosure (note 2(c)). All of the remaining properties were in operation at December 31, 1994. The cost of the investment properties represents the total cost to the Partnership plus miscellaneous acquisition costs. Depreciation on the properties has been provided over the estimated useful lives of the various components as follows: YEARS ----- Building and Improvements -- straight-line. . . 30 Personal property -- straight-line. . . . . . . 5 == The investment properties are pledged as security for the long-term debt, for which there is no recourse to the Partnership. Maintenance and repair expenses are charged to operations as incurred. Significant betterments and improvements are capitalized and depreciated over their estimated useful lives. Provisions for value impairment are recorded with respect to the investment properties whenever the estimated future cash flows from a property's operations and projected sales are less than the property's carrying value. (b) Riverside Square Mall During October 1983, the Partnership acquired an existing enclosed regional shopping center in Hackensack, New Jersey. The Partnership's purchase price for the mall was $36,236,282. The Partnership made a cash down payment at closing of $20,000,000. The balance of the purchase price was represented by a first mortgage loan which had a balance at closing of $16,236,282 prior to unamortized discount, based upon an imputed interest rate of 12%. During the third quarter of 1994, the Partnership finalized JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED a refinancing of the first mortgage loan with a new loan in the amount of $36,000,000 which matures December 1, 2006 and bear's interest at 8.35%. See Note 4. The refinancing resulted in net proceeds of approximately $22,300,000 (after retirement of the previous mortgage loan with an outstanding balance of approximately $13,000,000 and payment of a prepayment penalty of $649,163). Of such proceeds, approximately $11,200,000 has been escrowed by the lender pursuant to the loan agreement and will be released, including interest, to fund certain costs of the renovation and restoration as discussed below. The remaining $11,100,000 represents the replenishment of the Partnership's working capital for amounts paid or to be paid to Saks and Bloomingdales for tenant allowances as discussed below. In connection with the negotiations relating to the refinancing, the Partnership had escrowed approximately $801,000 to serve as collateral to secure a letter of credit. Such letter of credit was released and the funds were refunded to the Partnership in September 1994 in connection with the loan funding. Additionally, the Partnership has recorded an extraordinary loss on refinancing of $2,206,791 representing the write-off of unamortized discount on the original mortgage loan of $1,557,628 and the $649,163 prepayment penalty as discussed above. The Partnership has substantially completed its renovation of Riverside Square Mall and is continuing to remerchandise the center. In connection with the renovation, the Partnership, in early 1994, signed 15- year operating covenant extensions with both Saks and Bloomingdales, the latter of which owns their own store. In return for the additional 15-year commitment to the center, the Partnership reimbursed Saks for their recent store renovation in the amount of $6,100,000 and is obligated to pay Bloomingdales $5,000,000 toward their upcoming store renovation. In connection with the payment to Saks, the Partnership also acquired title to the Saks building which had previously been owned by Saks. The Partnership is also required to complete the renovation of the mall, with an additional estimated cost of approximately $12,000,000 which has substantially been completed as of December 31, 1994. The Partnership continues to consider expanding the mall at some point in the future as well. Furthermore, the Partnership has commenced a $7,500,000 restoration of the parking deck. This restoration should be completed by the end of 1995. (c) Bank of Delaware - office building In December 1984, the Partnership acquired an interest in an existing office building in Wilmington, Delaware. The Partnership's purchase price for the building was $20,900,000, of which approximately $5,945,000, was represented by an existing first mortgage loan. In February 1989, the Partnership refinanced the existing first mortgage loan and received net refinancing proceeds of approximately $4,696,000 which were utilized primarily to pay for the substantially completed renovation program and other capital improvements. A major tenant in the building brought a lawsuit against the Partnership which sought reimbursement from the Partnership for certain improvements made by the tenant to its space in the building. Pursuant to an arbitration ruling, the Partnership reimbursed the tenant approximately $802,000, all of which was paid as of December 1992. The Partnership was released from any further obligations pursuant to the assignment of title to the property in November 1994 as described below. JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED In December 1993, a major tenant, E.I. duPont de Nemours ("duPont"), which comprised approximately 27% of the building, vacated their space upon expiration of their lease. The property had been operating at a cash deficit due to the significant costs incurred in connection with the re- leasing of vacant space and certain capital improvements. Due to the competitive nature of this marketplace, the Partnership estimated the costs associated with re-leasing any vacant space during the next few years, including those costs to remove the remaining asbestos in tenant space, would have been substantial. As a result, the Partnership had commenced discussions with the building's first mortgage lender in order to seek a loan modification. In connection with these discussions, effective January 1994, the Partnership had suspended payment of debt service to the lender. Under the terms of a mortgage and security agreement, the Partnership, in its capacity as mortgagor of the building, agreed to indemnify the mortgage lender, under certain circumstances, against damages, claims, liabilities and expenses incurred by or asserted against the mortgage lender in relation to asbestos in the building. Asbestos had been abated or encapsulated in approximately 62% of the building's space. The Partnership did not believe that any remaining asbestos in the building presented a hazard and did not believe that such asbestos would have been required to be removed. The Partnership estimated that the cost of asbestos abatement in a portion of the building that could be incurred under certain circumstances in the future would have been approximately $800,000. However, the Partnership did not believe that it would have likely been required to incur (or to indemnify the mortgage lender against) any such cost, although there was no assurance that the Partnership would not have been required to pay such cost or indemnification. In November 1994, due to the Partnership's default in payment of debt service, the mortgage lender concluded proceedings to realize upon its mortgage security interest represented by the land, building, and related improvements of the property via a deed in lieu of foreclosure. As a result of the disposition of the property, the Partnership recognized a gain in 1994 for financial reporting purposes of $447,650 and a loss for federal income tax purposes of $4,756,937 with no corresponding distributable proceeds. In conjunction with the transfer of title, the Partnership paid the mortgage lender a sum of approximately $681,000 which included the net cash flow of the property since the suspension of debt service and an indemnification release fee for which the mortgage lender released the Partnership from all liabilities respecting the property, including those related to asbestos. An affiliate of the General Partner of the Partnership managed the office building through the November 1994 date of property title assignment for a fee equal to 3% of the gross revenues of the building plus leasing commissions, subject to an aggregate annual maximum amount of 6% of the gross receipts of the property. (3) VENTURE AGREEMENTS (a) General The Partnership at December 31, 1994 is a party to two operating venture agreements (San Jose and Royal Executive) and has made capital contributions to the respective ventures as discussed below. Under certain circumstances, either pursuant to the venture agreements or due to the Partnership's obligations as a General Partner, the Partnership may be required to make additional cash contributions to the ventures. JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED There are certain risks associated with the Partnership's investments made through joint ventures including the possibility that the Partnership's joint venture partners in an investment might become unable or unwilling to fulfill their financial or other obligations, or that such joint venture partners may have economic or business interests or goals that are inconsistent with those of the Partnership. (b) San Jose The Partnership has acquired, through San Jose, an interest in an existing office building complex in San Jose, California (Park Center Financial Plaza). San Jose acquired nine office buildings and two parking garage structures in June 1985 for a purchase price of approximately $32,472,000 subject to long-term indebtedness of approximately $6,347,000. All of the properties were in operation when acquired. In addition, in May 1986, San Jose purchased an additional office building (150 Almaden) and a parking and retail building (185 Park Avenue) in the Park Center Financial Plaza complex for a total purchase price of approximately $47,476,000. In conjunction with the acquisitions, San Jose reserved approximately $31,590,000 to fund debt service, leasing commissions, and capital and tenant improvements. In 1991, all remaining amounts originally set aside by the Partnership to fund debt service, leasing commissions and capital and tenant improvement costs at Park Center Financial Plaza were utilized. In September 1986, San Jose obtained a mortgage loan in the amount of $25,000,000 secured by the 150 Almaden and 185 Park Avenue buildings and certain parking areas. The outstanding principal balance, which was non- amortizable, bore interest at the rate of 9.5% per annum and had a scheduled maturity in October 1993 and was extended to December 1, 1993. San Jose, during the fourth quarter of 1994, finalized a loan extension and modification with the mortgage lender. The modified and extended loan has an interest rate of 8.4% per annum, requires monthly interest payments only beginning December 1, 1994 through December 1, 1997 when the loan begins to amortize until it matures November 30, 2001, when the unpaid principal and interest balance is due. The refinancing resulted in the 1994 partial paydown of the outstanding principal balance in the amount of $2.5 million. The property was managed by an affiliate of the General Partners of the Partnership for a fee calculated as 3% of gross receipts until December 1994 when the affiliated property manager sold substantially all of its assets and assigned its interests in its management contracts to an unaffiliated third party. The partners of San Jose are the Partnership and JMB Income Properties, Ltd.-XII, another partnership sponsored by the Managing General Partner of the Partnership ("JMB-XII"). The terms of San Jose's partnership agreement generally provide that contributions, distributions, cash flow, sale or refinancing proceeds and profits and losses will be distributed or allocated to the Partnership in their respective 50% ownership percentages. During August 1994, San Jose received notification from the Redevelopment Agency of the City of San Jose of its offer to purchase one of the parking garage structures in the office building complex, for an approved Agency project for $4,090,000. The price offered is deemed by the Agency to be just compensation in compliance with applicable State and Federal laws relating to the government's power of eminent domain. San Jose is currently investigating its options with regard to the Agency's JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED offer, including the impact of any purchase on garage spaces leased to tenants of other Partnership properties in the complex. Should the Agency proceed to purchase the property, San Jose would recognize a gain for financial reporting and Federal income tax purposes. Therefore, it is uncertain at this time whether a transfer of the garage to the Agency will occur or upon what terms. San Jose notified the tenants in and invitees to the Park Center Plaza complex that some of the buildings, particularly the 100-130 Park Center Plaza Buildings and the garage below them, could pose a life safety hazard under certain unusually intense earthquake conditions. While the buildings and the garage were designed to comply with the applicable codes for the period in which they were constructed, and there is no legal requirement to upgrade the buildings for seismic purposes, San Jose is working with consultants to analyze ways in which such a potential life safety hazard could be eliminated. In addition, tenants occupying approximately 55,000 square feet (approximately 13% of the building) of the Park Center Plaza investment property have leases that expire in 1995, for which there can be no assurance of renewals. However, since the costs of both re-leasing space and any seismic program at the 100-130 Park Center Plaza buildings could be substantial, San Jose has commenced discussions with the appropriate lender for additional loan proceeds to pay for all or a portion of these costs. Should lender assistance be required to fund significant costs at the 100-130 Park Center Plaza buildings but not be obtained, San Jose may decide not to commit any additional amounts to this portion of the complex, since such amounts are likely to be large in comparison to the Partnership's current equity in this portion of the complex and the likelihood of recovering such funds through increased capital appreciation is remote. The result would be that San Jose would no longer have an ownership interest in this portion of the complex. As a result, there is uncertainty about the ability to recover the net carrying value of the property through future operations and sale and accordingly, San Jose has made provisions for value impairment on the 100- 130 Park Center Plaza buildings and certain parking areas and the 170 Almaden building of $944,335 in the aggregate. Such provisions at September 30, 1994 were recorded to reduce the net carrying values of these buildings to the then outstanding balances of the related non-recourse financing. Additionally, at September 30, 1993, San Jose recorded a provision for value impairment on the 150 Almaden and 185 Park Avenue buildings and certain parking areas of $15,549,935 to reduce the net carrying value of these buildings to the then outstanding balance of related non-recourse financing. Additionally, at December 31, 1992, San Jose recorded a provision for value impairment of $8,142,152 on certain other portions of the complex to amounts equal to the then outstanding balances of the related non-recourse financing. In the event the lender on the 100-130 Park Center Plaza portion of the complex exercised its remedies as discussed above, the result would likely be that San Jose would no longer have an ownership interest in such portion. JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED (c) Royal Executive In December 1985, the Partnership entered into a commitment to fund a $27,000,000 convertible first mortgage note on a three building office park then under construction in Rye Brook, New York (Royal Executive Park II). The first mortgage note called for monthly installments of interest only at a rate of 10% through the period of equity conversion. During February 1987, the Partnership exercised its option of converting the $27,000,000 mortgage into an ownership position. Upon the conversion of the mortgage note, the Partnership entered into a joint venture (Royal Executive) with the borrower (joint venture partners). Pursuant to the terms of the venture agreement, until certain rental achievement levels are attained, the Partnership is entitled to a cumulative preferred annual return equal to $2,430,000 per year. The next $2,439,732 of annual cash flow is distributable to the joint venture partners, on a non-cumulative basis, with any remaining cash flow distributable 49.9% to the Partnership and 50.1% to the joint venture partners. Therefore, the Partnership's receipt of cash distributions is subject to the actual operations of the property. The Partnership is entitled to any deficiency in its preferred annual return on a cumulative basis as an annual priority distribution from future available operating cash flow. The cumulative deficiency in the preferred annual return is approximately $4,700,000 at December 31, 1994. The Partnership is entitled to priority level of distribution of sale and refinancing proceeds of $27,000,000 plus the cumulative deficiency in its preferred annual return. Operating profits of the joint venture, in general, will be allocated in proportion to, and to the extent of, distributions and then based on relative ownership percentages. Operating losses, in general, will be first allocated to the joint venture partners to the extent of any additional contributions made to fund operations or the Partnership's guaranteed return. Remaining losses, if any, will be allocated based upon relative ownership interests. Depreciation and amortization will be allocated based upon the relative ownership interests. Due to uncertainty about the ability to recover the net carrying value of the property through future operations and sale, Royal Executive has made a provision for value impairment of $25,378,894. Such provision at September 30, 1994 was recorded to reduce the net carrying value of the property to the then estimated valuation. The provision for value impairment has been allocated fully to the venture partner to reflect their subordination to the Partnership in distributions with regard to future operation and sale or financing proceeds as discussed above. Effective July 1, 1994, management and leasing activities at the complex were transferred to an affiliate of the General Partners of the Partnership, who managed the property until December 1994. In December 1994, this affiliated property manager sold substantially all of its assets and assigned its interest in its Management contracts to an unaffiliated third party. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates. (4) LONG-TERM DEBT Long-term debt consists of the following at December 31, 1994 and 1993: 1994 1993 ---------- ---------- 8.35% mortgage note, secured by Riverside Square Mall in Hackensack, New Jersey; payable in monthly installments of principal and interest of $286,252 through December 1, 2006, the scheduled maturity date at which time the unpaid principal and interest is due (note 2(b)) $35,891,996 -- 9-1/2% first mortgage note, secured by Riverside Square Mall in Hackensack, New Jersey which was retired by the loan described above. Balance is net of unamortized discount of $1,658,738 at December 31, 1993 based on an imputed interest rate of 12%. . . . -- 11,634,669 10-3/8% mortgage note, secured by Bank of Delaware Office Building in Wilmington, Delaware; retired at disposition in November 1994; was payable in monthly installments of interest only of $82,135 through March 1, 1999 the scheduled maturity date (see note 2(c)) . -- 9,500,000 ----------- ---------- Total debt . . . . . . . . . . . 35,891,996 21,134,669 Less current portion of long-term debt . . 455,199 9,837,354 ----------- ---------- Total long-term debt . . . . . . $35,436,797 11,297,315 =========== ========== Five year maturities of long-term debt are summarized as follows for the years ending: 1995 . . . . . . . . . . $455,199 1996 . . . . . . . . . . 494,697 1997 . . . . . . . . . . 537,623 1998 . . . . . . . . . . 584,273 1999 . . . . . . . . . . 634,971 ======== JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED (5) PARTNERSHIP AGREEMENT Pursuant to the terms of the Partnership Agreement, net profits or losses of the Partnership from operations are allocated 96% to the Limited Partners and 4% to the General Partners. Profits from the sale or refinancing of investment properties will be allocated to the General Partners: (i) to the greater of 1% of such profits or the amount of cash distributable to the General Partner from any such sale or refinancing (as described below); and (ii) in order to reduce deficits, if any, in the General Partners' capital accounts to a level consistent with the gain anticipated to be realized from the sale of properties. Losses from the sale or refinancing of investment properties will be allocated 1% to the General Partners. The remaining sale or refinancing profits and losses will be allocated to the Limited Partners. The General Partners are not required to make any additional capital contributions except under certain limited circumstances upon termination of the Partnership. In general, distributions of cash from operations will be made 90% to the Limited Partners and 10% to the General Partners. However, a portion of such distributions to the General Partners is subordinated to the Limited Partners' receipt of a stipulated return on capital. The Partnership Agreement provides that the General Partners shall receive as a distribution from the sale of a real property by the Partnership amounts equal to the cumulative deferrals of any portion of their 10% cash distribution and 3% of the selling price, and that the remaining proceeds (net after expenses and retained working capital) be distributed 85% to the Limited Partners and 15% to the General Partners. However, the Limited Partners shall receive 100% of such net sale proceeds until the Limited Partners (i) have received cash distributions of sale or refinancing proceeds in an amount equal to the Limited Partners' aggregate initial capital investment in the Partnership, (ii) have received cumulative cash distributions from the Partnership's operations which, when combined with sale or refinancing proceeds previously distributed, equal a 7% annual return on the Limited Partners' average capital investment for each year (their initial capital investment as reduced by sale or refinancing proceeds previously distributed) commencing with the first fiscal quarter of 1985 and (iii) have received cash distributions of sale and refinancing proceeds and of the Partnership operations, in an amount equal to the Limited Partners' initial capital investment in the Partnership plus a 10% annual return on the Limited Partners' average capital investment. (6) MANAGEMENT AGREEMENT An affiliate of the General Partners of the Partnership manages Riverside Square Mall for a fee equal to 4% of the fixed and percentage rents of the shopping center plus leasing and operating covenant commissions, subject to deferral if in excess of an aggregate annual maximum amount of 6% of the gross receipts of the property. JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED (7) LEASES At December 31, 1994, the Partnership's principal asset is one shopping center. The Partnership has determined that all leases relating to this property are properly classified as operating leases; therefore, rental income is reported when earned and the cost of the properties, excluding the cost of the land, is depreciated over the estimated useful lives. Leases with tenants range in term from one to thirty-five years and provide for fixed minimum rent and partial reimbursement of operating costs. In addition, leases with shopping center tenants provide for additional rent based upon percentages of tenants' sales volumes. A substantial portion of the ability of retail tenants to honor their leases is dependant upon the retail economic sector. Cost and accumulated depreciation of the leased assets are summarized as follows at December 31, 1994: Shopping Center: Cost. . . . . . . . . . . . . . . $65,406,740 Accumulated depreciation. . . . . (12,951,168) ----------- $52,455,572 =========== Minimum lease payments, including amounts representing executory costs (e.g. taxes, maintenance, insurance) and any related profit, to be received in the future under the operating leases are as follows: 1995. . . . . . . . . . $ 4,924,779 1996. . . . . . . . . . 5,173,086 1997. . . . . . . . . . 5,226,960 1998. . . . . . . . . . 4,911,355 1999. . . . . . . . . . 4,470,724 Thereafter. . . . . . . 17,529,690 ----------- Total . . . . . . . $42,236,594 =========== Contingent rent (based on sales by property tenants) included in rental income was as follows: 1992 . . . . . . . $296,014 1993 . . . . . . . 302,809 1994 . . . . . . . 274,431 ========= (8) TRANSACTIONS WITH AFFILIATES Fees, commissions and other expenses required to be paid by the Partnership to the General Partners and their affiliates as of December 31, 1994 and for the years ended December 31, 1994, 1993 and 1992 were as follows: JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED
UNPAID AT DECEMBER 31, 1994 1993 1992 1994 -------- -------- -------- -------------- Property management and leasing fees . . . . . . . . . . . $608,703 325,429 354,525 300,000 Insurance commissions. . . . . . . . 45,765 54,473 38,720 -- Reimbursement (at cost) for out-of-pocket expenses and salaries. . . . . . . 144,232 110,665 114,341 41,116 -------- ------- ------- ------- $798,700 490,567 507,586 341,116 ======== ======= ======= =======
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONCLUDED The General Partners have deferred receipt of certain of their distributions (see note 5) of net cash flow of the Partnership. The amount of such deferred distributions aggregated $1,323,705 as of December 31, 1994. The amount is being deferred in accordance with the subordination requirements of the Partnership Agreement. In addition, an affiliate of the General Partner has deferred $300,000 in leasing fees at Riverside Square Mall pursuant to the management agreement (note 6). This amount or amounts currently payable do not bear interest and may be paid in future periods. (9) INVESTMENT IN UNCONSOLIDATED VENTURES Summary of combined financial information for San Jose and Royal Executive (note 3) as of and for the years ended December 31, 1994 and 1993 are as follows: 1994 1993 ------------ ----------- Current assets . . . . . . . . $ 8,388,581 2,535,033 Current liabilities. . . . . . (1,409,508) (26,399,404) ------------ ----------- Working capital. . . . . . 6,979,073 (23,864,371) ------------ ----------- Investment property, net . . . 54,189,046 80,714,163 Other assets, net. . . . . . . 1,585,304 4,293,567 Long-term debt . . . . . . . . (25,880,881) (3,784,508) Other liabilities. . . . . . . (239,741) (190,834) Venture partners' equity . . . (12,120,193) (35,040,476) ------------ ----------- Partnership's capital. . . $ 24,512,608 22,127,541 ============ =========== Represented by: Invested capital . . . . . . $ 76,505,181 74,947,712 Cumulative distributions . . (36,233,524) (34,443,911) Cumulative losses. . . . . . (15,759,050) (18,376,260) ------------ ----------- $ 24,512,607 22,127,541 ============ =========== Total income . . . . . . . . . $ 15,799,775 16,499,948 ============ =========== Expenses applicable to operating loss . . . . . . . $ 38,119,456 28,375,860 ============ =========== Net loss . . . . . . . . . . . $ 22,319,680 11,875,912 ============ =========== Reference is made to note 3(b) regarding the provisions for value impairments of $944,335 and $15,549,935 which were recorded in 1994 and 1993, respectively, by San Jose and to 3(c) regarding the provision for value impairment of $25,378,894 which was recorded in 1994 by Royal Executive. The total income, expenses related to operating loss and net loss for the above-mentioned ventures for the year ended December 31, 1992 were $15,934,326, $21,658,285 and $5,723,959, respectively. (10) SUBSEQUENT EVENT - DISTRIBUTION TO PARTNERS In February 1995, the Partnership paid a distribution of $520,233 ($3.00 per Interest) to the Limited Partners. SCHEDULE III JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1994
COSTS CAPITALIZED INITIAL COST TO SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED PARTNERSHIP (A) ACQUISITION(B) AT CLOSE OF PERIOD (C) ------------------------------------- ------------------------------------- BUILDINGS BUILDINGS BUILDINGS AND AND AND ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL (D) ----------- ------------------------------------- ---------------------- ---------- SHOPPING CENTER: Hackensack, New Jersey . . $35,891,996 3,796,561 30,880,649 30,729,530 3,796,561 61,610,179 65,406,740 =========== ========= ========== ========== ========= ========== ==========
SCHEDULE III - CONTINUED JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1994
LIFE ON WHICH DEPRECIATION IN LATEST STATEMENT OF 1994 ACCUMULATED DATE OF DATE OPERATION REAL ESTATE DEPRECIATION(E) CONSTRUCTION ACQUIRED IS COMPUTED TAXES ---------------- ---------------------- --------------- ----------- SHOPPING CENTER: Hackensack, New Jersey . . . . . . . . . . . $12,951,168 1977 10-19-83 5-30 years 1,546,088 =========== ========= ------------- Notes: (A) The initial cost to the Partnership represents the original purchase price of the properties (net of unamortized discount based upon an imputed interest rate), including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired. (B) The aggregate cost of real estate owned at December 31, 1994 for Federal income tax purposes was $67,613,723.
SCHEDULE III - CONTINUED JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1994 (D) Reconciliation of real estate owned:
1994 1993 1992 ------------ ------------ ------------ Balance at beginning of period . . . . . . . . $57,782,585 56,213,677 65,909,680 Additions during period. . . . . . . . . . . . 23,028,260 1,568,908 1,780,027 Dispositions during period . . . . . . . . . . (15,404,105) -- -- Provision for value impairment . . . . . . . . -- -- (11,476,030) ----------- ----------- ---------- Balance at end of period . . . . . . . . . . . $65,406,740 57,782,585 56,213,677 =========== =========== ========== (E) Reconciliation of accumulated depreciation: Balance at beginning of period . . . . . . . . $17,673,020 16,098,395 14,281,779 Depreciation expense . . . . . . . . . . . . . 1,726,612 1,574,625 1,816,616 Accumulated depreciation written-off at Bank of Delaware . . . . . . . . . . . . . . (6,448,464) -- -- ----------- ----------- ---------- Balance at end of period . . . . . . . . . . . $12,951,168 17,673,020 16,098,395 =========== =========== ==========
INDEPENDENT AUDITORS' REPORT The Partners Royal Executive Park II: We have audited the financial statements of Royal Executive Park II (a general partnership) as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These financial statements are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the General Partners of the Partnership, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Royal Executive Park II at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Chicago, Illinois March 27, 1995 ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1994 AND 1993 ASSETS ------
1994 1993 ------------ ------------ Current assets: Cash and cash equivalents (note 1) . . . . . . . . . . . . . . $ 728,964 448,443 Short-term investments (note 1). . . . . . . . . . . . . . . . 98,281 -- Rents and other receivables, net of allowance for doubtful accounts of $193,379 in 1994 and $140,000 in 1993 . . . . . . . . . . . . . . . . . . . . . . 1,579,627 971,728 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . 15,686 14,576 ----------- ----------- Total current assets . . . . . . . . . . . . . . . . . 2,422,558 1,434,747 ----------- ----------- Investment property, at cost (notes 1 and 2) - Schedule III: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,569,125 5,568,277 Buildings and improvements . . . . . . . . . . . . . . . . . . 32,751,062 54,074,565 ----------- ----------- 35,320,187 59,642,842 Less accumulated depreciation. . . . . . . . . . . . . . . . . 13,044,923 12,147,495 ----------- ----------- Total investment property, net of accumulated depreciation. . . . . . . . . . . 22,275,264 47,495,347 ----------- ----------- Deferred expenses. . . . . . . . . . . . . . . . . . . . . . . . 719,047 1,118,418 ----------- ----------- $25,416,869 50,048,512 =========== =========== ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) BALANCE SHEETS - CONTINUED LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS ------------------------------------------ 1994 1993 ------------ ------------ Current liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 412,831 558,030 ----------- ----------- Total current liabilities. . . . . . . . . . . . . . . 412,831 558,030 Tenant security deposits . . . . . . . . . . . . . . . . . . . . 167,648 120,537 ----------- ----------- Commitments and contingencies (note 2) Total liabilities. . . . . . . . . . . . . . . . . . . 580,479 678,567 Partners' capital accounts (notes 1 and 2) . . . . . . . . . . . 24,836,390 49,369,945 ----------- ----------- $25,416,869 50,048,512 =========== =========== See accompanying notes to financial statements.
ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 ----------- ----------- ----------- Income: Rental income. . . . . . . . . . . . . . . . . $ 6,517,638 6,129,400 5,081,175 Interest income. . . . . . . . . . . . . . . . 11,318 1,213 2,252 ------------ ----------- ----------- 6,528,956 6,130,613 5,083,427 ------------ ----------- ----------- Expenses: Depreciation . . . . . . . . . . . . . . . . . 897,428 1,825,448 1,813,286 Property operating expenses. . . . . . . . . . 3,355,481 2,782,717 2,568,457 Amortization of deferred expenses. . . . . . . 100,234 177,822 140,586 Provision for value impairment (note 1). . . . 25,378,894 -- -- ------------ ----------- ----------- 29,732,037 4,785,987 4,522,329 ------------ ----------- ----------- Net earnings (loss). . . . . . . . . . $(23,203,081) 1,344,626 561,098 ============ =========== =========== See accompanying notes to financial statements.
ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
UNAFFILIATED VENTURE JMB-XI TOTAL ------------- ----------- ----------- Balance at December 31, 1991 . . . . . . . . . . . . . $31,891,676 20,198,518 52,090,194 Capital contributions. . . . . . . . . . . . . . . . . 1,024,074 -- 1,024,074 Cash distributions . . . . . . . . . . . . . . . . . . -- (2,161,693) (2,161,693) Net earnings (loss) (note 2) . . . . . . . . . . . . . (801,898) 1,362,996 561,098 ----------- ----------- ----------- Balance at December 31, 1992 . . . . . . . . . . . . . 32,113,852 19,399,821 51,513,673 Capital contributions. . . . . . . . . . . . . . . . . 209,967 -- 209,967 Cash distributions . . . . . . . . . . . . . . . . . . -- (3,698,321) (3,698,321) Net earnings (loss) (note 2) . . . . . . . . . . . . . (1,003,638) 2,348,264 1,344,626 ----------- ----------- ----------- Balance at December 31, 1993 . . . . . . . . . . . . . 31,320,181 18,049,764 49,369,945 Capital contributions. . . . . . . . . . . . . . . . . 459,138 -- 459,138 Cash distributions . . . . . . . . . . . . . . . . . . -- (1,789,612) (1,789,612) Net earnings (loss) (note 2) . . . . . . . . . . . . . (25,378,591) 2,175,510 (23,203,081) ----------- ----------- ----------- Balance at December 31, 1994 . . . . . . . . . . . . . $ 6,400,728 18,435,662 24,836,390 ============ =========== =========== See accompanying notes to financial statements.
ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992 ----------- ----------- ----------- Cash flows from operating activities: Net earnings (loss). . . . . . . . . . . . . . $(23,203,081) 1,344,626 561,098 Items not requiring (providing) cash: Depreciation . . . . . . . . . . . . . . . . 897,428 1,825,448 1,813,286 Amortization of deferred expenses. . . . . . 100,234 177,822 140,586 Provision for value impairment . . . . . . . 25,378,894 -- -- Changes in: Rents and other receivables. . . . . . . . . (607,899) 72 (347,605) Prepaid expenses . . . . . . . . . . . . . . (1,110) (946) 2,732 Accounts payable . . . . . . . . . . . . . . (145,199) 430,787 10,914 Tenant security deposits . . . . . . . . . . 47,111 1,817 118,720 ----------- ----------- ----------- Net cash provided by operating activities . . . . . . . . . 2,466,378 3,779,626 2,299,731 Cash flows from investing activities: Net purchases of short-term investments. . . . . . . . . . . . . . . . . (98,281) -- -- Additions to investment property . . . . . . . (525,677) (124,624) (578,633) Payment of deferred expenses . . . . . . . . . (231,425) (31,960) (427,461) ----------- ----------- ----------- Net cash used in investing activities . . . . . . . . . (855,383) (156,584) (1,006,094) ----------- ----------- ----------- ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED 1994 1993 1992 ----------- ----------- ----------- Cash flows from financing activities: Capital contributed to venture . . . . . . . . 459,138 209,966 1,024,074 Distributions to partners. . . . . . . . . . . (1,789,612) (3,698,321) (2,161,693) ----------- ----------- ----------- Net cash used in financing activities. . (1,330,474) (3,488,355) (1,137,619) ----------- ----------- ----------- Net increase (decrease) increase in cash and cash equivalents . . . . . 280,521 134,687 156,018 Cash and cash equivalents, at beginning of year . . . . . . . . . 448,443 313,756 157,738 ----------- ----------- ----------- Cash and cash equivalents, at end of year . . . . . . . . . . . . $ 728,964 448,443 313,756 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest. . . $ -- -- -- =========== =========== =========== Non-cash investing and financing activity. . . $ -- -- -- =========== =========== =========== See accompanying notes to financial statements.
ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (1) BASIS OF ACCOUNTING The accompanying financial statements have been prepared for the purpose of complying with Rule 3.09 of Regulation S-X of the Securities and Exchange Commission. They include the accounts of the unconsolidated joint venture, Royal Executive Park II venture ("Venture"), in which JMB Income Properties, Ltd.-XI ("JMB Income-XI") and an unaffiliated venture are the partners. The Venture's records are maintained on the accrual basis of accounting as adjusted for Federal income tax reporting purposes. The accompanying financial statements have been prepared from such records after making appropriate adjustments to present the Venture's accounts in accordance with generally accepted accounting principles ("GAAP"). Such adjustments are not recorded on the records of the Venture. The net effect of these items for the years ended December 31, 1994 and 1993 is summarized as follows: ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) Notes to Financial Statements - Continued
1994 1993 ----------------------------- ----------------------------- GAAP BASIS TAX BASIS GAAP BASIS TAX BASIS ------------ ----------- ------------ ----------- Total assets . . . . . . . . . . . $25,416,869 23,202,375 50,048,512 23,276,762 Partners' capital accounts . . . . 24,836,390 22,632,417 49,369,945 22,612,771 Net earnings (loss). . . . . . . . (23,203,081) 1,350,121 1,344,626 1,454,733 =========== =========== ========== ==========
ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) Notes to Financial Statements - Continued Statement of Financial Accounting Standards No. 95 requires the Venture to present a statement which classifies receipts and payments according to whether they stem from operating, investing or financing activities. The required information has been segregated and accumulated according to the classifications specified in the pronouncement. In addition, the Venture records amounts held in U.S. Government obligations at cost, which approximates market. For purposes of these statements, the Venture's policy is to consider all such amounts held with original maturities of three months or less ($692,065 at December 31, 1994) as cash equivalents with any remaining amounts (generally with original maturities of one year or less) reflected as short-term investments being held to maturity. Depreciation on buildings and improvements has been provided over the estimated useful lives of the assets (5 to 30 years) using the straight- line method. Deferred expenses consist primarily of lease commissions which are amortized over the terms stipulated in the related leases using the straight-line method. Although certain leases of the Venture provide for tenant occupancy during periods for which no rent is due and/or increases in the minimum lease payments over the term of the lease, rental income is accrued for the full period of occupancy on a straight-line basis. Maintenance and repair expenses are charged to operations as incurred. Significant betterments and improvements are capitalized and depreciated over their estimated useful lives. In 1994, the Venture recorded a provision for value impairment of $25,378,894. No provision for State or Federal income taxes has been made as the liability for such taxes is that of the venture partners rather than the Venture. (2) VENTURE AGREEMENT A description of the acquisition of the property is contained in Note 3(c) of the consolidated financial statements of JMB Income - XI. Such note is incorporated herein by reference. (3) MANAGEMENT AGREEMENT - OTHER THAN VENTURES Effective July 1, 1994, management and leasing activities at the complex were transferred to an affiliate of the General Partners of the Partnership, who managed the property until December 1994. In December 1994, this affiliated property manager sold substantially all of its assets and assigned its interest in its Management contracts to an unaffiliated third party. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates. ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONTINUED (4) LEASES As Property Lessor At December 31, 1994, the Venture's principal asset is an office building complex. The Venture has determined that all leases relating to this property are properly classified as operating leases; therefore, rental income is reported when earned and the cost of the property, excluding the cost of the land, is depreciated over the estimated useful life. Leases with tenants range in term from one to twenty-five years and provide for fixed minimum rent and partial reimbursement of operating costs. Minimum lease payments, including amounts representing executory costs (e.g. taxes, maintenance, insurance) and any related profit, to be received in the future under the operating leases are as follows: 1995. . . . . . . . . . . . . $ 5,654,415 1996. . . . . . . . . . . . . 5,460,232 1997. . . . . . . . . . . . . 5,455,040 1998. . . . . . . . . . . . . 5,330,098 1999. . . . . . . . . . . . . 4,804,742 Thereafter. . . . . . . . . . 6,858,801 ----------- $33,563,328 =========== (5) TRANSACTIONS WITH AFFILIATES Fees, commissions and other expenses required to be paid by the Venture to the General Partners and their affiliates as of December 31, 1994 and for the years ended December 31, 1994, 1993 and 1992 were as follows: ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS - CONCLUDED
UNPAID AT DECEMBER 31, 1994 1993 1992 1994 -------- -------- -------- -------------- Property management and leasing fees . . . . . . . . . . . $14,268 -- -- -- ------- ------- ------- ----- $14,268 -- -- -- ======= ======= ======= ===== All amounts currently payable to the General Partners and their affiliates do not bear interest and are expected to be paid in future periods.
SCHEDULE III ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1994
INITIAL COST TO GROSS AMOUNT AT WHICH CARRIED PARTNERSHIP (A) AT CLOSE OF PERIOD (B) ----------------------- COSTS ------------------------------------- BUILDINGS CAPITALIZED BUILDINGS AND SUBSEQUENT TO AND ENCUMBRANCE LAND IMPROVEMENTSACQUISITION(C) LAND IMPROVEMENTS TOTAL (D) ----------- ------------------------------------- ---------------------- ---------- OFFICE BUILDINGS: Rye Brook, New York . . . $ -- 5,568,277 50,554,899 (20,802,989) 2,569,125 32,751,062 35,320,187 =========== ========== ========== =========== ========== ========== ==========
SCHEDULE III - CONTINUED ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1994
LIFE ON WHICH DEPRECIATION IN LATEST STATEMENT OF 1994 ACCUMULATED DATE OF DATE OPERATIONS REAL ESTATE DEPRECIATION(E) CONSTRUCTION ACQUIRED IS COMPUTED TAXES ---------------- ---------------------- --------------- ----------- OFFICE BUILDINGS: Rye Brook, New York. . . . . . . . . $13,044,923 1986 2/12/87 5-30 years 878,225 =========== ======= -------------- Notes: (A) The initial cost to the Venture represents the original purchase price of the property, including amounts incurred subsequent to acquisition which were contemplated at the time the property was acquired. (B) The aggregate cost of real estate owned at December 31, 1994 for Federal income tax purposes was approximately $33,501,523. (C) In 1994, the venture recorded a provision for value impairment totalling $25,378,894, see Note 1.
SCHEDULE III - CONTINUED ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1994 (D) Reconciliation of real estate owned:
1994 1993 1992 ------------ ------------ ------------ Balance at beginning of period . . . . . . . $59,642,842 59,518,218 58,939,584 Additions during period. . . . . . . . . . . 525,677 124,624 578,634 Provision for value impairment (C) . . . . . (24,848,332) -- -- ----------- ----------- ----------- Balance at end of period . . . . . . . . . . $35,320,187 59,642,842 59,518,218 =========== =========== =========== (E) Reconciliation of accumulated depreciation: Balance at beginning of period . . . . . . . $12,147,495 10,322,047 8,508,761 Depreciation expense . . . . . . . . . . . . 897,428 1,825,448 1,813,286 ----------- ----------- ----------- Balance at end of period . . . . . . . . . . $13,044,923 12,147,495 10,322,047 =========== =========== ===========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes of or disagreements with accountants during 1993 and 1994. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Managing General Partner of the Partnership is JMB Realty Corporation ("JMB"), a Delaware corporation. JMB has responsibility for all aspects of the Partnership's operations, subject to the requirement that sales of real property must be approved by the Associate General Partner of the Partnership, Income Associates-XI, L.P., an Illinois limited partnership with JMB as the sole general partner. The Associate General Partner shall be directed by a majority in interest of its limited partners (who are generally officers, directors and affiliates of JMB or its affiliates) as to whether to provide its approval of any sale of real property (or any interest therein) of the Partnership. Various relationships of the Partnership to the Managing General Partner and its affiliates are described under the caption "Conflicts of Interest" at pages 12-16 of the Prospectus, of which description is hereby incorporated herein by reference to Exhibit 3-A to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993. The names, positions held and length of service therein of each director and executive officer and certain officers of the Managing General Partner of the Partnership are as follows: SERVED IN NAME OFFICE OFFICE SINCE ---- ------ ------------ Judd D. Malkin Chairman 5/03/71 Director 5/03/71 Neil G. Bluhm President 5/03/71 Director 5/03/71 Burton E. Glazov Director 7/01/71 Stuart C. Nathan Executive Vice President 5/08/79 Director 3/14/73 A. Lee Sacks Director 5/09/88 John G. Schreiber Director 3/14/73 H. Rigel Barber Executive Vice President 1/02/87 Chief Executive Officer 8/01/93 Glenn E. Emig Executive Vice President 1/01/93 Chief Operating Officer 1/01/95 Jeffrey R. Rosenthal Managing Director-Corporate 4/22/91 Chief Financial Officer 8/01/93 Douglas H. Cameron Executive Vice President 1/01/95 Gary Nickele Executive Vice President 1/01/92 General Counsel 2/27/84 Ira J. Schulman Executive Vice President 6/01/88 Gailen J. Hull Senior Vice President 6/01/88 Howard Kogen Senior Vice President 1/02/86 Treasurer 1/01/91 There is no family relationship among any of the foregoing directors or officers. The foregoing directors have been elected to serve a one-year term until the annual meeting of the Managing General Partner to be held on June 7, 1995. All of the foregoing officers have been elected to serve one-year terms until the first meeting of the Board of Directors held after the annual meeting of the Managing General Partner to be held on June 7, 1995. There are no arrangements or understandings between or among any of said directors or officers and any other person pursuant to which any director or officer was elected as such. JMB is the corporate general partner of Carlyle Real Estate Limited Partnership-VII ("Carlyle-VII"), Carlyle Real Estate Limited Partnership-IX ("Carlyle-IX"), Carlyle Real Estate Limited Partnership-X ("Carlyle-X"), Carlyle Real Estate Limited Partnership-XI ("Carlyle-XI"), Carlyle Real Estate Limited Partnership-XII ("Carlyle-XII"), Carlyle Real Estate Limited Partnership-XIII ("Carlyle-XIII"), Carlyle Real Estate Limited Partnership-XIV ("Carlyle-XIV"), Carlyle Real Estate Limited Partnership-XV ("Carlyle-XV"), Carlyle Real Estate Limited Partnership-XVI ("Carlyle- XVI"), Carlyle Real Estate Limited Partnership-XVII ("Carlyle-XVII"), JMB Mortgage Partners, Ltd. ("Mortgage Partners"), JMB Mortgage Partners, Ltd.-II ("Mortgage Partners-II"), JMB Mortgage Partners, Ltd.-III ("Mortgage Partners-III"), JMB Mortgage Partners, Ltd.-IV ("Mortgage Partners-IV"), Carlyle Income Plus, Ltd. ("Carlyle Income Plus") and Carlyle Income Plus, Ltd.-II ("Carlyle Income Plus-II") and the managing general partner of JMB Income Properties, Ltd.-IV ("JMB Income-IV"), JMB Income Properties, Ltd.-V ("JMB Income-V"), JMB Income Properties, Ltd.-VI ("JMB Income-VI"), JMB Income Properties, Ltd.-VII ("JMB Income-VII"), JMB Income Properties, Ltd.-VIII ("JMB Income-VIII"), JMB Income Properties, Ltd.-IX ("JMB Income-IX"), JMB Income Properties, Ltd.-X ("JMB Income-X"), JMB Income Properties, Ltd.-XI ("JMB Income-XI"), JMB Income Properties, Ltd.-XII ("JMB Income-XII") and JMB Income Properties, Ltd.-XIII ("JMB Income-XIII"). Most of the foregoing directors and officers are also officer and/or directors of various affiliated companies of JMB including Arvida/JMB Managers, Inc. (the general partner of Arvida/JMB Partners, L.P. ("Arvida")), Arvida/JMB Managers-II, Inc. (the general partner of Arvida/JMB Partners, L.P.-II ("Arvida-II")) and Income Growth Managers, Inc. (the corporate general partner of IDS/JMB Balanced Income Growth, Ltd. ("IDS/BIG")). Most of such directors and officers are also partners of certain partnerships which are associate general partners in the following real estate limited partnerships: Carlyle-VII, Carlyle-IX, Carlyle-X, Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV, Carlyle-XV, Carlyle-XVI, Carlyle-XVII, JMB Income-VI, JMB Income-VII, JMB Income-VIII, JMB Income-IX, JMB Income-X, JMB Income-XII, JMB Income-XIII, Mortgage Partners, Mortgage Partners-II, Mortgage Partners-III, Mortgage Partners-IV, Carlyle Income Plus, Carlyle Income Plus-II and IDS/BIG. The business experience during the past five years of each such director and officer of the Managing General Partner of the Partnership in addition to that described above is as follows: Judd D. Malkin (age 57) is an individual general partner of JMB Income-IV and JMB Income-V. Mr. Malkin has been associated with JMB since October, 1969. Mr. Malkin is a director of Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers, and a director of Catellus Development Corporation, a major diversified real estate development company. He is a Certified Public Accountant. Neil G. Bluhm (age 57) is an individual general partner of JMB Income-IV and JMB Income-V. Mr. Bluhm has been associated with JMB since August, 1970. Mr. Bluhm is a director of Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is a member of the Bar of the State of Illinois and a Certified Public Accountant. Burton E. Glazov (age 56) has been associated with JMB since June, 1971 and served as an Executive Vice President of JMB until December 1990. He is a member of the Bar of the State of Illinois and a Certified Public Accountant. Stuart C. Nathan (age 53) has been associated with JMB since July, 1972. Mr. Nathan is also a director of Sportmart Inc., a retailer of sporting goods. He is a member of the Bar of the State of Illinois. A. Lee Sacks (age 61) (President and Director of JMB Insurance Agency, Inc.) has been associated with JMB since December, 1972. John G. Schreiber (age 48) has been associated with JMB since December, 1970 and served as an Executive Vice President of JMB until December 1990. Mr. Schreiber is President of Schreiber Investments, Inc., a company which is engaged in the real estate investing business. He is also a senior advisor and partner of Blackstone Real Estate Partners, an affiliate of the Blackstone Group, L.P. Since 1994, Mr. Schreiber has also served as a trustee of Amli Residential Property Trust, a publicly-traded real estate investment trust that invests in multi-family properties. Mr. Schreiber is also a director of Urban Shopping Centers, Inc., an affiliate of JMB that is a real estate investment trust in the business of owning, managing and developing shopping centers. He is also a director of a number of investment companies advised or managed by T. Rowe Price Associates and its affiliates. He holds a Masters degree in Business Administration from Harvard University Graduate School of Business. H. Rigel Barber (age 45) has been associated with JMB since March, 1982. He holds a J.D. degree from Northwestern Law School and is a member of the Bar of the State of Illinois. Glenn E. Emig (age 47) has been associated with JMB since December, 1979. Prior to becoming Vice President of JMB in 1993, Mr. Emig was Executive Vice President and Treasurer of JMB Institutional Realty Corporation. He holds a Masters Degree in Business Administration from the Harvard University Graduate School of Business and is a Certified Public Accountant. Jeffrey R. Rosenthal (age 43) has been associated with JMB since December, 1987. He is a Certified Public Accountant. Douglas H. Cameron (age 45) is Executive Vice President of JMB. Mr. Cameron has been associated with JMB since April, 1977. Prior to becoming Executive Vice President of JMB in 1995, Mr. Cameron was Managing Director of Capital Markets -- Property Sales from June 1990. He holds a Masters Degree in Business Administration from the University of Southern California. Gary Nickele (age 42) has been associated with JMB since February, 1984. He holds a J.D. degree from the University of Michigan Law School and is a member of the Bar of the State of Illinois. Ira J. Schulman (age 43) has been associated with JMB since February, 1983. He holds a Masters degree in Business Administration from the University of Pittsburgh. Gailen J. Hull (age 46) has been associated with JMB since March 1982. He holds a Masters degree in Business Administration from Northern Illinois University and is a Certified Public Accountant. Howard Kogen (age 59) has been associated with JMB since March, 1973. He is a Certified Public Accountant. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no officers or directors. The General Partners of the Partnership are entitled to receive a share of cash distributions, when and as cash distributions are made to the Investors, and a share of profits or losses as described under the caption "Compensation and Fees" at pages 8-12, "Cash Distributions" at pages 56-58, "Allocation of Profits or Losses for Tax Purposes" at page 58 and "Cash Distributions; Allocations of Profits and Losses" at pages A-8 to A-12 of the Partnership Agreement included as an exhibit to the Prospectus, which descriptions are hereby incorporated herein by reference to Exhibit 3-A to Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993. Reference is also made to Notes 5 and 7 for a description of such transactions, distributions and allocations. In 1994, 1993 and 1992, no cash distributions were paid to the General Partners. Affiliates of the Managing General Partner provided property management services to the Partnership for 1994 for the Riverside Square Mall in Hackensack, New Jersey at a fee not to exceed 4% of the fixed and percentage rent of property, plus leasing commissions and the Bank of Delaware Office Building in Wilmington, Delaware at fees calculated at 3% of the gross revenues of the property plus leasing commissions. In 1994, such affiliates earned property management and leasing fees amounting to $608,703, of which $300,000 was unpaid as of December 31, 1994. As set forth in the Prospectus of the Partnership, the Managing General Partner must negotiate such agreements on terms no less favorable to the Partnership than those customarily charged for similar services in the relevant geographical area (but in no event at rates greater than 6% of the gross receipts from a property), and such agreements must be terminable by either party thereto, without penalty, upon 60 days' notice. JMB Insurance Agency, Inc., an affiliate of the Managing General Partner, earned and received insurance brokerage commissions in 1994 aggre- gating $45,765 in connection with the provision of insurance coverage for certain of the real property investments of the Partnership and its venture. Such commissions are at rates set by insurance companies for the classes of coverage provided. The General Partners of the Partnership may be reimbursed for their direct salaries and expenses relating to the administration of the Partnership and the operation of the Partnership's real property investments. In 1994, an affiliate of the General Partners earned reimbursement for such expenses in the amount of $144,232, of which $41,116 was unpaid at December 31, 1994. The Partnership is permitted to engage in various transactions involving affiliates of the Managing General Partner of the Partnership, as described under the captions "Compensation and Fees" at pages 8-12, "Conflicts of Interest" at pages 12-16 and "Rights, Powers and Duties of General Partners" at pages A-12 to A-22 of the Partnership Agreement, included as an exhibit to the Prospectus, which descriptions are hereby incorporated herein by reference to Exhibit 3-A to Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993. The relationship of the Managing General Partner (and its directors and officers) to its affiliates is set forth above in Item 10 above and Exhibit 21 hereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding Interests of the Partnership. (b) The Managing General Partner and its officers and directors own the following Interests of the Partnership: NAME OF AMOUNT AND NATURE BENEFICIAL OF BENEFICIAL PERCENT TITLE OF CLASS OWNER OWNERSHIP OF CLASS -------------- ---------- ----------------- -------- Limited Partnership JMB Realty Corporation 5 Interests (1) Less than 1% Interests indirectly Limited Partnership Managing General 5 Interests (1) Less than 1% Interests Partner and its indirectly officers and directors as a group -------------- (1) Includes 5 Interests owned by the initial limited partner of the Partnership for which JMB Realty Corporation, the indirect majority shareholder of the initial limited partner, is deemed to have the voting and investment power. No officer or director of the Managing General Partner of the Partnership possesses a right to acquire beneficial ownership of Interests of the Partnership. (c) 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. Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the General Partners, the executive officers and directors of the Managing General Partner and persons who own more than ten percent of the Interests to file an initial report of ownership or changes in ownership of Interests on Form 3, 4 or 5 with the Securities and Exchange Commission (the "SEC"). Such persons are also required by SEC rules to furnish the Partnership with copies of all Section 16(a) forms they file. Timely filing of an initial report of ownership on Form 3 or Form 5 was not made on behalf of Glenn Emig.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS There were no significant transactions or business relationships with the Managing General Partner, affiliates or their management other than those described in Items 10 and 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 (See Index to Financial Statements filed with this annual report). 2. Exhibits. 3-A. The Prospectus of the Partnership dated July 11, 1984 as supplemented July 24, 1984 and November 26, 1984, as filed with the Commission pursuant to Rules 424(b) and 424(c), is hereby incorporated herein by reference. Copies of pages 8-12, 56-58 and A-8 to A-12 are hereby incorporated herein by reference to Exhibit 3-A to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993. 3-B. Amended and Restated Agreement of Limited Partnership set forth as Exhibit A to the Prospectus, which agreement is hereby incorporated herein by reference to Exhibit 3-B to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993. 4-A. Mortgage loan agreement, Mortgage and Security Agreement, Secured Promissory Note B, Secured Promissory Note A and Assignment of Leases and Rents between the Partnership and Principal Mutual Life Insurance Company dated August 30, 1994 are hereby incorporated herein by reference to the Partnership's Report on Form 10-K for December 31, 1994 (File No. 0-15966) dated March 27, 1995. 4-B. Mortgage loan agreement between the Partnership and Equitable Real Estate Investment Management, Inc. dated February 28, 1989 relating to the Bank of Delaware is hereby incorporated herein by reference to Exhibit 4-B to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-15966) dated March 19, 1993. 4-C. Mortgage loan agreement between San Jose and Connecticut General Life Insurance Co. dated June 20, 1985 relating to Park Center Plaza are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated June 20, 1985. 4-D. Mortgage loan agreement, Amended and Restated Deed of Trust, Security Agreement with assignment of Rents and Fixture Filing and Real Estate tax escrow and Security Agreement between San Jose and Connecticut General Life Insurance Co. dated November 30, 1994 is filed herewith. 10-A.Acquisition documents relating to the purchase by the Partnership of Riverside Square in Hackensack, New Jersey are hereby incorporated by reference to the Partnership's prospectus on Form S-11 (File No. 2-90503) dated July 11, 1984. 10-B.Acquisition documents relating to the purchase by the Partnership of the Bank of Delaware Office Building in Wilmington, Delaware are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated December 27, 1984. 10-C.Acquisition documents including the venture agreement relating to the purchase by the Partnership of Park Center Plaza in San Jose, California are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated June 20, 1985. 10-D.Sale documents and exhibits thereto relating to the Partnership's sale of the Genesee Valley Shopping Center in Flint, Michigan are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated June 29, 1990. 10-E.Deed in Lieu of Foreclosure Agreement and Memorandum of Mutual Releases dated November 15, 1994 between Three Hundred Delaware Avenue Associates, L.P. and EML Associates are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-15966) dated November 15, 1994. 21. List of Subsidiaries 24. Powers of Attorney 27. Financial Data Schedule -------------- Although certain additional long-term debt instruments of the Registrant have been excluded from Exhibit 4 above, pursuant to Rule 601(b)(4)(iii), the Registrant commits to provide copies of such agreements to the Securities and Exchange Commissions upon request. (b) The following report on Form 8-K has been filed for the quarter covered by this report. (i) The Partnership report on Form 8-K (File No.0-15966) describing the deed in lieu of foreclosure agreement for the Bank of Delaware. No annual report or proxy material for the year 1994 has been sent to the Partners of the Partnership. An annual report will be sent to the Partners subsequent to this filing. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JMB INCOME PROPERTIES, LTD. - XI By: JMB Realty Corporation Managing General Partner GAILEN J. HULL By: Gailen J. Hull Senior Vice President Date: March 27, 1995 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. By: JMB Realty Corporation Managing General Partner JUDD D. MALKIN* By: Judd D. Malkin, Chairman and Director Date: March 27, 1995 NEIL G. BLUHM* By: Neil G. Bluhm, President and Director Date: March 27, 1995 H. RIGEL BARBER* By: H. Rigel Barber, Chief Executive Officer Date: March 27, 1995 GLENN E. EMIG* By: Glenn E. Emig, Chief Operating Officer Date: March 27, 1995 JEFFREY R. ROSENTHAL* By: Jeffrey R. Rosenthal, Chief Financial Officer Principal Financial Officer Date: March 27, 1995 GAILEN J. HULL By: Gailen J. Hull, Senior Vice President Principal Accounting Officer Date: March 27, 1995 A. LEE SACKS* By: A. Lee Sacks, Director Date: March 27, 1995 By: STUART C. NATHAN* Stuart C. Nathan, Executive Vice President and Director Date: March 27, 1995 *By: GAILEN J. HULL, Pursuant to a Power of Attorney GAILEN J. HULL By: Gailen J. Hull, Attorney-in-Fact Date: March 27, 1995 JMB INCOME PROPERTIES, LTD. - XI EXHIBIT INDEX DOCUMENT INCORPORATED BY REFERENCE Page ------------ ---- 3-A. Pages 8-12, 56-58 and A-8 to A-12 of the Prospectus dated July 11, 1984 Yes 3-B. Amended and Restated Agreement of Limited Partnership Yes 4-A. Mortgage loan agreement related to Riverside Square Yes 4-B. Mortgage loan agreement related to Bank of Delaware Yes 4-C. Mortgage loan agreement related to Park Center Financial Center Yes 4-D. Mortgage loan agreement related to Park Center Plaza No 10-A. Acquisition documents related to Riverside Square Yes 10-B. Acquisition documents related to Bank of Delaware Yes 10-C. Acquisition documents related to Park Center Plaza Yes 10-D. Sale documents related to Genesee Valley Yes 10-E. Disposition documents related to Bank of Delaware Yes 21. List of Subsidiaries No 24. Powers of Attorney No 27. Financial Data Schedule No EX-4 2 AMENDED AND RESTATED PROMISSORY NOTE (150 Almaden/185 Park) $22,500,000 November __, 1994 FOR VALUE RECEIVED, JMB/SAN JOSE ASSOCIATES, an Illinois general partnership (hereinafter referred to as "Maker"), promises to pay to the order of Connecticut General Life Insurance Company, a Connecticut corporation having its principal address at 900 Cottage Grove Road, Hartford, Connecticut 06152-2215 (the "Payee"), at such principal address or at such other place as the Holder hereof may designate in writing (the legal holder from time to time of this Note, including Payee as the initial holder, hereinafter referred to as "Holder"), the principal sum of Twenty- Two Million Five Hundred Thousand and No/100 Dollars ($22,500,000), or so much thereof as may be advanced to Maker by Holder (hereinafter referred to as "Principal Indebtedness"), together with interest thereon at an annual rate of eight and four-tenths percent (8.4%) (the "Interest Rate"), in accordance with the provisions hereinafter set forth. 1. Terms of Payment. During the first three (3) Loan Years (as hereinafter defined) Maker shall pay to Holder on the first day of each calendar month commencing on the first calendar day of the second month following the date hereof (such payment dates being hereinafter referred to as "monthly payment dates" or singularly as a "monthly payment date") interest on the Principal Indebtedness from time to time outstanding, at the Interest Rate, for the immediately preceding calendar month. Interest shall be calculated and applied on the basis of a 360-day year consisting of twelve 30-day months, except that interest for any partial month shall be calculated and applied on the basis of a 365-day year and the actual number of days in such partial month during which the Principal Indebtedness is outstanding. Thereafter, on each monthly payment date, commencing on the first calendar day of the fourth Loan Year, through and including the Maturity Date (hereinafter defined), Maker shall pay to Holder the sum of $179,662.36, to be applied first to interest on the Principal Indebtedness from time to time outstanding at the Interest Rate and the balance to be applied in reduction of the Principal Indebtedness. The interest component of the monthly payments shall be calculated and applied on the basis of a 360-day year consisting of twelve 30-day months. On November , 2001 (the "Maturity Date") Maker shall pay to Holder the entire Principal Indebtedness then remaining unpaid, together with accrued and unpaid interest thereon at the Interest Rate and any other charges due under this Note, the Deed of Trust (hereinafter defined), and any other documents evidencing or securing or pertaining to the advancement or disbursement of the Principal Indebtedness, including, without limitation, the Environmental Indemnification Agreement of even date herewith (the "Environmental Indemnity") from Maker, among others, to Payee (collectively, the "Loan Documents"). The period from and including the date hereof to the Maturity Date will be referred to hereinafter as the "Term". MAKER HEREBY ACKNOWLEDGES AND UNDERSTANDS THAT THE FOREGOING INSTALLMENTS WILL NOT BE SUFFICIENT TO REPAY THE PRINCIPAL AMOUNT OF THIS NOTE AS OF THE MATURITY DATE BECAUSE THE COMBINED PRINCIPAL AND INTEREST PAYMENTS HEREUNDER REFLECT FULL AMORTIZATION OVER A PERIOD OF TWENTY FIVE (25) YEARS AND THE TERM OVER WHICH SUCH COMBINED PRINCIPAL AND INTEREST PAYMENTS ARE DUE UNDER THIS NOTE IS APPROXIMATELY FOUR (4) YEARS AND, THEREFORE, A SIGNIFICANT PORTION OF THE PRINCIPAL BALANCE OF THIS NOTE SHALL BE UNPAID AND DUE AND PAYABLE ON THE MATURITY DATE. 2. Prepayment. Except as specifically provided herein or in the Deed of Trust, no prepayment of the Principal Indebtedness shall be allowed during the first two (2) Loan Years (the "Closed Period"). "Loan Year" (or collectively, "Loan Years") shall mean each consecutive 12-month period measured from the first day of the first calendar month after the date hereof. Maker, whether or not a debtor in a proceeding under Title 11, United States Code, may prepay the Principal Indebtedness in full, but not in part, on any monthly payment date after the Closed Period, provided Maker gives Holder sixty (60) days prior written notice and pays, along with all accrued, unpaid interest and all other sums due under any of the Loan Documents, a prepayment fee as described below. After the Closed Period the prepayment fee shall be the greater of: (a) one percent (1%) of the then-existing Principal Indebtedness, or (b) Yield Maintenance as defined below. The foregoing prepayment fee will be due when the loan is prepaid after the Closed Period and prior to the date which is ninety (90) days prior to the Maturity Date, whether such prepayment is voluntary or results from default, acceleration or any other cause. Accordingly, the Principal Indebtedness may be prepaid at par during the last ninety (90) days of the Term. Except as otherwise expressly provided herein or in any other Loan Document, in the event of a prepayment during the Closed Period resulting from a default, acceleration or any other reason, Maker shall pay to Holder a default prepayment fee calculated as follows: (c) three percent (3%) of the then existing Principal Indebtedness, plus (d) Yield Maintenance as defined below: Yield Maintenance: Yield Maintenance is defined as the sum of the present values on the date of prepayment of each Monthly Interest Shortfall for the remaining Term of the loan, discounted at the monthly Treasury Yield. The "Monthly Interest Shortfall" for any monthly payment date is the product of (i) the positive difference, if any, of the Semi-Annual Equivalent Rate less the Treasury Yield, divided by 12, times (ii) the outstanding Principal Indebtedness, on the monthly payment date for which the calculation is made for each full and partial month remaining in the Term. The present value is then determined by discounting each Monthly Interest Shortfall at the Treasury Yield divided by twelve. The "Semi-Annual Equivalent Rate" for this loan is 8.548%. The "Treasury Yield" will be determined by reference to the Federal Reserve Statistical Release H.15 (519) of Selected Interest Rates (or any similar successor publication of the Federal Reserve) for the first week ending not less than two full weeks prior to the prepayment date. If the remaining Term is less than one year, the Treasury Yield will equal the yield for 1-Year Treasury Constant Maturities. If the remaining Term is equal to one of the maturities of the Treasury Constant Maturities (e.g., 1-year, 2-year, etc.), then the Treasury Yield will equal the yield for the Treasury Constant Maturity with a maturity equalling the remaining Term. If the remaining Term is longer than one year, but does not equal one of the maturities of the Treasury Constant Maturities, then the Treasury Yield will equal the yield for the Treasury Constant Maturity closest to, but not exceeding, the remaining Term. MAKER HEREBY EXPRESSLY (A) WAIVES ANY RIGHTS IT MAY HAVE UNDER CALIFORNIA CIVIL CODE SECTION 2954.10 TO PREPAY THIS NOTE, IN WHOLE OR IN PART, WITHOUT PENALTY, UPON ACCELERATION OF THE MATURITY DATE OF THIS NOTE AND (B) AGREES THAT IF A PREPAYMENT OF ANY OR ALL OF THIS NOTE IS MADE, UPON OR FOLLOWING ANY ACCELERATION OF THE MATURITY DATE OF THIS NOTE BY HOLDER ON ACCOUNT OF ANY DEFAULT BY MAKER, THEN MAKER SHALL BE OBLIGATED TO PAY CONCURRENTLY THEREWITH, AS A PREPAYMENT FEE, THE APPLICABLE SUM SPECIFIED IN THIS SECTION. BY INITIALLING THIS PROVISION IN THE SPACE PROVIDED BELOW, MAKER HEREBY DECLARES THAT PAYEE'S AGREEMENT TO MAKE THE LOAN EVIDENCED BY THIS NOTE AT THE INTEREST RATE AND FOR THE TERM SET FORTH IN THIS NOTE CONSTITUTES ADEQUATE CONSIDERATION, GIVEN INDIVIDUAL WEIGHT BY MAKER, FOR THIS WAIVER AND AGREEMENT. Initials: Maker __________. The aforesaid prepayment fees do not constitute a penalty, but rather represent the reasonable estimate, agreed to between Maker and Holder, of a fair compensation for the loss that may be sustained by Holder due to prepayment of the Loan prior to the Maturity Date. Any prepayment fee required pursuant to the preceding paragraphs shall be paid without prejudice to the right of Holder to collect any of the amounts owing under this Note or the Deed of Trust or otherwise to enforce any of its rights or remedies arising out of an Event of Default hereunder. 3. Security. This Note is secured by, among other things, a Deed of Trust, Security Agreement with Assignment of Rents and Fixture Filing (hereinafter referred to as the "Deed of Trust") given by Maker to Payee, of even date herewith, constituting a first lien on Maker's fee interest in certain real estate located in the City of San Jose, County of Santa Clara, State of California, and a first priority security interest in Maker's personal property and an assignment of rents and leases, each with respect to said real estate, and such other security described in the Loan Documents (hereinafter referred to as the "Security"). 4. Location and Medium of Payments. The sums payable under this Note or under the Deed of Trust shall be paid to Holder at its principal address hereinabove set forth, or at such other place as Holder may from time to time hereafter designate to Maker in writing, in legal tender of the United States of America. 5. Acceleration of Maturity. At the option of Holder, which may be exercised at any time after one or more of the following events (each being an "Event of Default") shall have occurred, the whole of the Principal Indebtedness, together with all accrued, unpaid interest, applicable prepayment fees, if any, and other charges due under any of the Loan Documents, shall immediately become due and payable ("Acceleration of Maturity"): (a) if any payment of any installment of the Principal Indebtedness, interest and/or any other sum due hereunder is not received by Holder within five (5) business days following the date when such payment was due; or (b) if an Event of Default shall occur under the Deed of Trust or any other of the Loan Documents which is not cured within any applicable grace period afforded therein, if any. 6. Late Charges; Interest Following Event of Default. If any principal, interest or escrow payment due under this Note, the Deed of Trust, or any other Loan Document, is not paid within five (5) business days after the date when such payment is due, without regard to any cure or grace period, Maker shall pay and Holder shall be entitled to collect a late payment charge for each month or fraction thereof during which such payment is not made within five (5) business days after the date when such payment is due and for each month thereafter that such sum remains unpaid, equal to the lesser of four percent (4%) of such late payment or the maximum amount that the parties may contract for under applicable law, as the reasonable estimate by Holder and Maker of a fair average compensation for the loss that may be sustained by Holder due to the failure of Maker to make timely payments, and such amount shall be secured by the Deed of Trust and the other Loan Documents. Such late charge shall be paid without prejudice to the right of Holder to collect any other amounts provided to be paid or to declare an Event of Default under this Note or the Deed of Trust. In addition to any late payment charge which may be due under this Note, Maker shall pay interest on all sums due hereunder at a rate (the "Default Rate") equal to the lesser of (i) the Interest Rate plus four percent (4%) per annum, or (ii) the maximum rate that the parties may contract for under applicable law, from and after the first to occur of the following events: if Holder elects to cause the Acceleration of Maturity; if an Event of Default occurs under Section 22(d) or 22(e) of the Deed of Trust (which is not cured within any applicable grace period afforded therein); or if all sums due hereunder are not paid on the Maturity Date. 7. Collection and Enforcement Costs. Maker, within five (5) business days of demand, shall pay Holder for all reasonable out of pocket costs and expenses, including without limitation attorneys' fees, paid or incurred by Holder in connection with the collection of any sum due hereunder, or in connection with enforcement of any of Holder's rights or Maker's obligations under this Note, the Deed of Trust, or any of the other Loan Documents. 8. Continuing Liability. The obligation of Maker to pay the Principal Indebtedness, interest and all other sums due hereunder shall continue in full force and effect and in no way be impaired, until the actual payment thereof to Holder, and in case of a sale or transfer of all or any part of the Security, or in case of any further agreement given to secure the payment of this Note, or in case of any agreement or stipulation extending the time or modifying the terms of payment above recited, Maker shall nevertheless continue to be liable on this Note, as extended or modified by any such agreement or stipulation, unless released and discharged in writing by Holder. 9. Joint and Several Liability. If more than one person, corporation, partnership or other entity shall have liability under this Note, then each person and entity shall be fully liable for all obligations of Maker hereunder, and such obligations shall be joint and several, all subject to the provisions of Paragraph 15 below. 10. No Oral Changes; Waivers. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of a change is sought. The provisions of this Note shall extend and be applicable to all renewals, amendments, extensions, consolidations, and modifications of the other Loan Documents, and any and all references herein to the Loan Documents shall be deemed to include any such renewals, amendments, extensions, consolidations, or modifications thereof. Maker and any future indorsers, sureties, and guarantors hereof, jointly and severally, waive presentment for payment, demand, notice of nonpayment, notice of dishonor, protest of any dishonor, notice of protest, and protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default (except notice of default required hereby, if any), or enforcement of the payment of this Note, and they agree that the liability of each of them shall be unconditional without regard to the liability of any other party and shall not be in any manner affected by an indulgence, extension of time, renewal, waiver, or modification granted or consented to by the Holder; and Maker and all future indorsers, sureties and guarantors hereof consent to any and all extensions of time, renewals, waivers, or modifications that may be granted by the Holder hereof with respect to the payment or other provisions of this Note, and to the release of the collateral, or any part thereof, with or without substitution, and agree that additional makers, indorsers, guarantors, or sureties may become parties hereto without notice to them or affecting their liability hereunder. Holder shall not by any act of omission or commission be deemed to waive any of its rights or remedies hereunder unless such waiver be in writing and signed by Holder, and then only to the extent specifically set forth therein; a waiver on one event shall not be construed as continuing or as a bar to or waiver of such right or remedy on a subsequent event. The acceptance by Holder of payment hereunder that is less than payment in full of all amounts due at the time of such payment shall not without the express written consent of Holder: (i) constitute a waiver of the right to exercise any of Holder's remedies at that time or at any subsequent time, (ii) constitute an accord and satisfaction, or (iii) nullify any prior exercise of any remedy. No failure to cause an acceleration of the Maturity Date hereof by reason of an Event of Default hereunder, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted hereunder or by the laws of the State of California; and, to the maximum extent permitted by law, Maker hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. To the maximum extent permitted by law, Maker hereby waives and renounces for itself, its heirs, successors and assigns, all rights to the benefits of any statute of limitations and any moratorium, reinstatement, marshalling, forbearance, valuation, stay, extension, redemption and appraisement now provided, or which may hereafter be provided, by the Constitution and laws of the United States of America and of any state thereof, both as to itself and in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note. 11. Bind and Inure. This Note shall bind and inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns. 12. Applicable Law. The provisions of this Note shall be construed and enforceable in accordance with the laws of the State of California. If any provision of this Note or the application hereof to any person or circumstance shall, for any reason and to any extent, be invalid or unenforceable, neither the remainder of this Note nor the application of such provision to any other person or circumstance shall be affected thereby, but rather the same shall be enforced to the greatest extent permitted by law. 13. Usury. It is hereby expressly agreed that if from any circumstances whatsoever fulfillment of any provision of this Note, at the time performance of such provision shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other law, with regard to obligations of like character and amount, then ipso facto the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Note that is in excess of the limit of such validity. In no event shall Maker be bound to pay for the use, forbearance or detention of the money loaned pursuant hereto, interest of more than the current legal limit; the right to demand any such excess being hereby expressly waived by Holder. 14. Notice. Any notice, request, demand, statement or consent made hereunder shall be in writing signed by the party giving such notice, request, demand, statement or consent, and shall be delivered personally, or delivered to a reputable overnight delivery service providing a receipt, or deposited in the United States Mail, postage prepaid and registered or certified mail, return receipt requested, addressed as set forth below or to such other address within the continental United States of America as may have theretofore been designated in writing. The effective date of any notice given as aforesaid shall be the date of personal service, one (1) business day after delivery to such overnight delivery service, or three (3) business days after being deposited in the United States Mail, whichever is applicable. For purposes hereof, the addresses are as follows: If to Holder: Connecticut General Life Insurance Company c/o CIGNA Investments, Inc. 900 Cottage Grove Road Hartford, Connecticut 06152-2215 Attn: Investment Services, S-319 With a copy to: CIGNA Corporation Investment Law Department 900 Cottage Grove Road Hartford, Connecticut 06152-2215 Attn: Real Estate Division, S-215A If to Maker: JMB/San Jose Associates c/o JMB Realty Corporation 900 N. Michigan Avenue Chicago, Illinois 60611 Attn: Director of Finance With a copy to: Pircher, Nichols & Meeks 1999 Avenue of the Stars Los Angeles, CA 90067 Attn: Real Estate Notices (DSB) 15. Nonrecourse. Notwithstanding any provision herein or in any other Loan Document to the contrary, Maker's liability for repayment of the Principal Indebtedness, interest and all other sums due under this Note or any of the other Loan Documents or the performance of any obligation hereunder or under any other Loan Document shall be limited to the Security, except as provided in this Section 15. Accordingly, no judgment for the repayment of the Principal Indebtedness or the performance of any other obligation, or to collect any amount payable under any of the Loan Documents shall be enforced against Maker or any other party personally in any action to foreclose the Deed of Trust or to otherwise realize upon the Security or to collect any amount payable under any Loan Document. Nothing herein contained shall be construed as prohibiting Holder from exercising any and all remedies which the Loan Documents permit, including the right to bring actions or proceedings (including an action or suit for judicial foreclosure) against Maker and to enter a judgment against Maker, so long as the exercise of any remedy does not extend to obtaining a judgment in the nature of a deficiency judgment or to the execution against or recovery out of any property of Maker or any direct or indirect partner in Maker other than the Security and other security furnished under the Loan Documents on account of a judgment in the nature of a deficiency judgment. Notwithstanding the foregoing limitations, Maker and its general partners (but not any other sub-tier entities) shall be liable for the following acts or omissions, to the extent described: (a) (i) misapplying (i.e. using in a manner other than as permitted under the Loan Documents) any condemnation awards or insurance proceeds attributable to the Security, to the full extent of such awards or proceeds so misapplied; (ii) at the time of foreclosure or conveyance in lieu thereof, failing to turn over any unapplied security deposits attributable to the Security and required to be held by Maker under the terms of any and all leases, to the full extent of such failure; (iii) collecting any rents in advance in violation of any covenant contained in the Loan Documents, to the full extent of such rents so collected in advance; (iv) committing fraud, intentional misrepresentation or waste in connection with the operation of the Security or the making of the loan evidenced hereby, to the full extent of any remedies available at law or in equity; (v) failing to pay when due any debt service on any indebtedness related to the Security, operating and maintenance charges, insurance premiums, deposits into a reserve for replacements or any other sums due under the Loan Documents (the existence of which are known to Maker), but only to the extent that gross revenues from the Security during the six (6) months prior to a notice of acceleration to Maker through the date of foreclosure or conveyance in lieu thereof were otherwise sufficient to pay such expenses but were not so used; and (b) Under any separate guaranty, master lease or indemnity agreement from Maker or its general partners including, but not limited to, the Environmental Indemnity, provided that such agreement expressly states that recourse thereunder is an exception to the limitation on liability provided herein. Notwithstanding any provision hereof to the contrary, Holder shall be permitted to bring an action against Maker and its general partners personally but not against any sub-tier entities and to execute against and recover out of any property of Maker or its general partners (but not against or out of any property of any other sub-tier entities), for all sums due pursuant to the Loan Documents to the extent permitted by the terms of Section 726.5 of the California Code of Civil Procedure as it may be amended from time to time ("Section 726.5"), and to have the rights and remedies of an unsecured lender to the extent permitted thereunder. If Holder exercises the rights and remedies of an unsecured creditor in accordance with this grammatical paragraph, Maker and its general partners (but not any other sub-tier entities) promise to pay Holder, on demand by Holder, following such exercise, all amounts owed to Holder under the Loan Documents, and Maker and its general partners (but not any other sub-tier entity) agree that Maker and its general partners (but not any other sub-tier entities) will be personally liable for the payment of all such sums. Notwithstanding anything herein or in any other Loan Document to the contrary, no present or future constituent partner in or agent of the general partners of Maker or their respective successors or assigns, nor any shareholder, officer, director, employee, trustee, beneficiary or agent of any corporation or trust of agent of Maker or of any constituent partner in Maker shall be personally liable, directly or indirectly under or in connection with this Note or any other Loan Document, or any instrument or certificate securing or otherwise executed in connection with this Note, the Deed of Trust, or any other Loan Document or any amendments or modifications thereto made at any times heretofore or hereafter and Holder and Holder's successors and assigns hereby waive such personal liability. Accordingly, with respect to the foregoing exceptions to the non-recourse provisions contained in Section 15(a) and (b) of this Note, and the Environmental Indemnity, Holder's recourse shall be limited solely to the assets of Maker and its general partners (but of no other sub-tier entity). For the purposes of this Note, the Deed of Trust, each of the other Loan Documents and any such instruments and certificates and any amendments or modifications thereto, neither a negative capital account of any constituent partner in Maker nor any obligation to restore a negative capital account of Maker or of any constituent partner in Maker shall at any time be deemed to be the property or asset of Maker or any such other constituent partner and neither Holder nor its successors and assigns shall have the right to collect, enforce or proceed against or with respect to any such negative capital account or a partner's obligation to restore or contribute. As used in this paragraph, "constituent partner" means a partner in Maker or in a partnership that has a direct or indirect interest (through one or more partnerships) in Maker. 16. Amendment and Restatement. This Amended and Restated Promissory Note amends, modifies and restates, in its entirety, that certain Promissory Note dated September 29, 1986 from Maker to Holder in the original principal amount of $25,000,000, as well as any and all amendments, restatements, modifications and allonges thereto (the "Original Note"). All references to this Note contained herein or in any of the other Loan Documents shall be deemed to mean the Original Note as restated hereby. Maker covenants and agrees that there are no defenses or off-sets with respect to this Note, the indebtedness evidenced in connection with same, or with respect to the enforcement or collection thereof. Maker further covenants and agrees that each and every provision of this Note is in full force and effect and is the lawful and binding obligation of Maker, enforceable in accordance with its terms. Maker and Payee do not intend that this Note be construed as a novation of the Original Note or any other Loan Document. 17. Time of the Essence. Time is of the essence in this Note and the other Loan Documents. 18. Attorneys' Fees. Any reference to "attorney fees", "attorney's fees", or "attorneys' fees" in this document means both the reasonable out of pocket fees, charges and costs incurred by Holder through its retention of outside legal counsel, paralegals and legal assistants and the reasonable allocable fees, costs and charges for services rendered by Holder's in-house counsel, paralegals and legal assistants. Any reference to "attorney fees", "attorney's fees", or "attorneys' fees" shall also include but not be limited to those reasonable out of pocket attorneys or legal fees, costs and charges incurred by Holder in the collection of any Principal Indebtedness, the enforcement of any obligations hereunder or under any other Loan Document, the protection of the Security, the foreclosure of the Deed of Trust, the sale of the Security by power of sale under the Loan Documents, the defense of actions arising hereunder or under any other Loan Document and the collection, protection or setoff of any claim the Holder may have in a proceeding under Title 11, United States Code. Attorneys' fees provided for hereunder shall accrue whether or not Holder has provided notice of an Event of Default or of an intention to exercise its remedies for such Event of Default. Furthermore, any reference contained in this Note or in any other Loan Document to "out of pocket" costs, fees, charges or expenses shall include attorney's fees as described herein, including, without limitation, any reasonable allocable fees, costs, charges and expenses for services rendered by Holder's in- house counsel, paralegals and legal assistants. 19. Waiver of Trial by Jury. Maker hereby waives its rights to a trial by jury as to any matter arising out of or concerning the subject matter of this Note. IN WITNESS WHEREOF, Maker has duly executed this Note as of the day and year first above written. MAKER: JMB/SAN JOSE ASSOCIATES, an Illinois general partnership MAKER TO By: JMB Income Properties, Ltd.-XI, INITIAL PAGE 3 an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: By: JMB Income Properties, Ltd.-XII, an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: EX-4 3 REAL ESTATE TAX ESCROW AND SECURITY AGREEMENT (150 Almaden/185 Park) This Real Estate Tax Escrow and Security Agreement (this "Agreement") is entered into as of the _____ day of November, 1994 by and among JMB/SAN JOSE ASSOCIATES, an Illinois general partnership ("Borrower"), CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation ("Lender"), and BANK OF AMERICA NT&SA, GLOBAL ESCROW DEPOSITORY SERVICES 8010 ("Escrow Holder"). RECITALS A. Lender has loaned to Borrower a sum of money evidenced by an Amended and Restated Promissory Note (the "Note") in the face principal sum of Twenty-Two Million Five Hundred Thousand Dollars ($22,500,000) of even date herewith, given by Borrower to Lender, which Note is secured by, inter alia, an Amended and Restated Deed of Trust, Security Agreement With Assignment of Rents and Fixture Filing (the "Deed of Trust") of even date herewith on a fee simple interest in certain real property located in the City of San Jose, County of Santa Clara, State of California, together with the improvements and collateral as described in the Deed of Trust, and as more particularly described in the Deed of Trust (collectively, the "Property") (collectively, the Note, the Deed of Trust, and any other documents evidencing, securing or otherwise relating to the loan evidenced by the Note are referred to herein as the "Loan Documents"). B. Under the provisions of the Deed of Trust, Borrower must make monthly deposits to an escrow account with a bank selected by Lender, such deposits to be of sufficient funds (as reasonably estimated by Lender from time to time) to permit the payment in full of the next maturing real property taxes and assessments before any penalty or interest for the nonpayment thereof attaches or accrues (collectively, "taxes") on the Property. C. Lender and Borrower desire to enter into an escrow agreement with Escrow Holder to provide for said deposits for taxes, and Escrow Holder is willing to act as holder of the deposits so made by Borrower on the terms and conditions hereinafter set forth. AGREEMENT 1. Recitals: The foregoing recitals are true and correct and are incorporated herein by this reference. 2. Escrow Holder: Lender and Borrower hereby appoint and designate the above-named Escrow Holder for the purposes set forth herein. Lender hereby appoints Escrow Holder as its agent for the purpose of possessing, segregating and holding the Escrow Account (as hereinafter defined) and all contents, money, rights and proceeds therein and thereof. Escrow Holder hereby accepts such appointments subject to the terms of this Agreement, and acknowledges that it shall hold the Escrow Account subject to the terms of this Agreement. 3. Deposits into Escrow: On the date hereof, Borrower has deposited with Escrow Holder the sum of $29,658.70. Said deposit shall be deposited by Escrow Holder in a separate interest-bearing escrow account in the name of "Connecticut General Life Insurance Company, as secured party of JMB/San Jose Associates Real Estate Tax Escrow Account" (the "Escrow Account"). The Escrow Account number is ___________. Thereafter, on the first day of each succeeding month, commencing December 1, 1994, Borrower shall make monthly deposits to Escrow Holder, in an amount to be determined by Lender, in its reasonable discretion, to be equal to one-twelfth (1/12) of the annual estimated taxes, to be deposited by Escrow Holder in the Escrow Account. Lender hereby informs Borrower and Escrow Holder that the initial monthly deposit shall be $29,658.70. All funds so deposited by Escrow Holder in the Escrow Account shall be disbursed in accordance with the terms of this Agreement. If Lender determines that the amount of the monthly deposit must increase or decrease, Lender shall notify Borrower and Escrow Holder in writing of the new amount of such monthly deposit and provide Borrower with information substantiating the redetermination of the calculation. Commencing on the later of the first day of the month next succeeding said written notification or ten (10) days after written notice to Borrower, Borrower shall deposit with Escrow Holder an amount equal to the new amount for such monthly deposit set forth in such written notification. If Borrower receives notification from the tax collector of a change in the amount of the taxes, Borrower shall promptly notify Lender and Escrow Holder in writing. 4. Withdrawal Terms: (a) Payment of Taxes: Not more than thirty (30) days before the date when any penalty or interest for the nonpayment of an installment of taxes would attach or accrue, Escrow Holder shall immediately issue a check against the funds in the Escrow Account for the amount of said installment, to the extent there exist such funds in the Escrow Account, and made payable to the appropriate governmental authority, and notify Borrower if the funds available are not sufficient to pay said installment of taxes. Immediately upon said notification and prior to the time said payment of taxes becomes delinquent, Borrower shall deliver to Escrow Holder a check drawn on the Borrower's account which is payable to the appropriate governmental authority and in an amount equal to the difference between the amount of the check delivered to Escrow Holder and the amount of the installment of taxes then due. Upon receipt of sufficient funds, Escrow Holder shall promptly pay said taxes, and certify to Lender, in the form attached hereto as Schedule 1, that such taxes have been paid. (b) No Other Disbursements: Except for the payment of interest as provided in the paragraph entitled "Interest Payments" below, and except upon termination of this Agreement as contemplated by the paragraph entitled "Termination of Escrow" also below, Escrow Holder shall not disburse or otherwise pay any funds from the Escrow Account other than in accordance with this paragraph entitled "Withdrawal Terms". Payments from said deposits for such purposes may be made even though subsequent owners of the Property or holders of Borrower's fee simple interest therein may thereby benefit. 5. Interest Payments: So long as (i) Borrower holds title to and controls the Property, (ii) tax payments are paid in full prior to the date when any penalty or interest attaches or accrues, (iii) there then exists no default, by Borrower, or any state of facts which, with the passage of time or giving of notice, or both, would constitute a default hereunder or under any of the Loan Documents, and (iv) Escrow Holder has not received written notice from Lender of default by Borrower, or any state of facts which, with the passage of time or giving of notice, or both, would constitute a default hereunder or under any of the Loan Documents, Escrow Holder shall pay directly to Borrower all interest earned on the funds in the Escrow Account, less reasonable escrow costs charged by the Escrow Holder, on each date when tax payment withdrawals are made from the Escrow Account, and upon termination of this Agreement pursuant to the paragraph entitled "Termination of Escrow" below. Other than for gross negligence or willful misconduct on the part of Lender, it is specifically agreed that under no circumstances shall Lender be liable or accountable to Borrower for interest or any other return on or benefit accruing to funds delivered on deposit pursuant to this Agreement. 6. Default Provisions: Upon receipt by Escrow Holder of notice from Lender of a default by Borrower, or any state of facts which, with the passage of time or giving of notice, or both, would constitute a default hereunder or under any of the Loan Documents, Escrow Holder shall provide Borrower with a copy of such notice and immediately stop paying to Borrower the interest earned on the funds in the Escrow Account. At the written request of Lender, Escrow Holder shall forthwith pay over to Lender all funds, including principal and interest, then in the Escrow Account. Lender and Borrower agree that Lender shall be entitled to apply such funds in accordance with the terms of the paragraph entitled "Tax Deposits" in the Deed of Trust, and upon such payment by Escrow Holder to Lender, this Agreement shall terminate. 7. Security Interest: (a) This Agreement is intended to provide additional security for the payment of all amounts now and in the future payable under any of the Loan Documents. To that end, Borrower hereby grants, pledges, transfers and assigns to Lender a continuing security interest in and right of set-off against the following, whether now existing or hereafter acquired or arising: all of Borrower's right, title and interest, in, to and under (i) the Escrow Account, and all instruments, securities, documents, accounts, general intangibles, money, and other property and contents therein and thereof, and all rights relating thereto and proceeds therefrom and thereof, including, without limitation, the deposits made into the Escrow Account from time to time and all earnings thereon at any time or from time to time in the possession or control of Escrow Holder, (ii) all books and records relating to the types and items of property described in the foregoing clause (i), and (iii) all proceeds (whether cash or non- cash, and including, without limitation, insurance proceeds) and products of the property described in the foregoing clause (i), and all replacements and substitutions therefor and all additions and accessions thereto (hereinafter collectively called the "Collateral"). (b) In addition to all rights and remedies given to Lender by this Agreement, Lender shall have the rights and remedies of a secured party under the California Commercial Code and any other applicable law. Upon notice from Lender, Borrower will promptly execute such financing statements, continuation statements and other documents as may be necessary or convenient to perfect, continue or otherwise evidence said security interest and pay all reasonable out of pocket expenses and fees for the preparation and filing thereof. (c) Escrow Holder acknowledges receipt of notice of Lender's security interest in the Collateral. 8. Warranties: Borrower does hereby warrant and represent to Lender that, as of the date hereof, Borrower is the owner of all of the Collateral, and (i) Borrower has not heretofore made any assignment or pledge of, granted a security interest in, or otherwise transferred or encumbered all or any part of its interest in all or any part of the Collateral, and (ii) the Collateral is free and clear of any security interest, pledge, assignment or other encumbrance other than the security interest created hereby. Escrow Holder does hereby warrant and represent to Lender that Escrow Holder has not received notice from any individual or entity, except Lender, claiming an interest in the Collateral. 9. Termination of Escrow: Provided this Agreement has not been terminated pursuant to the paragraph entitled "Default Provisions" hereof, this Agreement, and the escrow provided for herein, shall automatically terminate when Escrow Holder receives written notification from Lender that all amounts due from Borrower to Lender have been paid in full, the Note has been cancelled, and the Deed of Trust discharged. Upon termination of this Agreement as provided in this paragraph, Escrow Holder shall deliver the remaining funds, including interest, then in the Escrow Account to Borrower. 10. Investment of Funds in Escrow Account: Any monies held as a part of the Escrow Account shall be invested or reinvested by Escrow Holder in Permitted Investments, as hereinafter defined, in the name of Escrow Holder. (a) Borrower's Right to Direct Investments: Until Escrow Holder shall have received written notice from Lender of a default by Borrower continuing beyond expiration of any applicable cure periods, if any, Lender grants to Borrower the privilege of selecting among the Permitted Investments, by written direction from Borrower to Escrow Holder. Lender and Borrower acknowledge and agree that Escrow Holder shall have no obligation to honor any such written direction until the expiration of one business day after the Escrow Holder's receipt of the same, or such later period as is consistent with both the nature of the Permitted Investment utilized or committed to be utilized prior to receipt of such notice and the nature of the Permitted Investment specified by such written notice. Such investments shall have maturities consonant with the need for funds as provided hereinabove in the paragraph entitled "Withdrawal Terms." Consistent with the need for funds as aforesaid, Escrow Holder may sell any such investments at any time, and the proceeds of such sale, and of all payments at maturity and upon redemption of such investments, shall be credited to the Escrow Account. Escrow Holder shall not be responsible for any loss of interest or penalties incurred as a result of the redemption of investments prior to their stated maturities if such redemption is required to comply with this Agreement. All payments of money and of other property received in respect of the Escrow Account, including, without limitation, all interest, dividends, profits and other income or proceeds received on monies or securities or other investments in the Escrow Account, shall be credited to the Escrow Account and shall be deemed to become, and shall be treated as part of, the escrowed funds for purposes of this Agreement, and shall be disbursed by Escrow Holder as provided in this Agreement. (b) Permitted Investments: The term "Permitted Investments" as used herein shall mean: (i) short term obligations of the United States Treasury; (ii) short term obligations of an agency of the United States Government; (iii) any certificate of deposit up to $100,000 issued by or savings account with any of the fifty federally- chartered banks with the greatest total assets ("Qualifying Banks"); (iv) any commercial paper issued by an issuer rated Prime-1 by Moody's or A-1 by S&P; (v) any repurchase agreement with a Qualifying Bank (provided it is issued by an agency of the United States Government, is 102% collateralized, and possession is given to the Escrow Holder); (vi) any banker's acceptance of which a Qualifying Bank is the accepting bank; (vii) any certificate of deposit up to $5,000,000 with any bank on Lender's approved list; (viii) Variable Rate Master Notes (Trust Demand Notes) rated A-1 and P-1 by Standard & Poor's or Moody's, respectively; (ix) any AAA or AA rated corporate securities on Lender's approved list; and (x) FNMA or FHLMC mortgage pool securities. Notwithstanding the foregoing, Lender's approval of any investment of funds held in the Escrow Account in any of the foregoing shall be conditioned on Lender's receiving such assurances as it requires that its security interest in any such instrument, account, or investment is perfected and shall remain perfected. Lender may limit or change the aforementioned list of Permitted Investments in order to assure its ability to perfect its security interest therein; provided that any change in the type of investment shall be subject also to Borrower's approval. In addition, at any time as any Permitted Investment is with a depository that does not satisfy Lender's financial and solvency requirements, Lender may require that such investment be terminated with such depository and re-invested with another depository reasonably approved by Lender. 11. Responsibilities of Escrow Holder: (a) Books, Records, and Statements: Escrow Holder shall at all times during the term of this Agreement keep and maintain accurate, complete, and up to date books and records with respect to the Escrow Account, and all investments thereof, earnings thereon, and disbursements therefrom. Escrow Holder shall provide monthly statements to Lender and Borrower showing the balance of the Escrow Account, the earnings thereof and the disposition of said earnings. (b) Notice of Default: In the event that Borrower shall fail to make any such required monthly deposit, Escrow Holder shall notify both Lender and Borrower, in accordance with the paragraph entitled "Notices" herein (or such other party as Lender or Borrower may designate in writing from time to time), no later than the 5th day of the month for which such payment was required. (c) Escrow Holder's Right to Resign: Escrow Holder reserves the right to resign hereunder by sixty (60) days written notice to Lender and Borrower. At or before ten (10) days prior to the effective date of such resignation, Escrow Holder shall pay over to Lender all funds and deliver all evidence of investment in the Escrow Account to be held pursuant to the terms of the Deed of Trust, in the same manner as though Lender were a substitute escrow holder hereunder. However, if prior to the time such funds are paid over or such evidence of investment delivered to Lender, Lender requests in writing that such funds be paid over to another party, (i) Escrow Holder shall forthwith pay over to such party all such funds, (ii) this Agreement shall terminate, and (iii) Escrow Holder shall not have any further liability under this Agreement, except rights of Lender, Borrower or both against Escrow Holder for its willful misconduct or gross negligence. 12. Expenses: Borrower shall pay all charges of Escrow Holder in accordance with Schedule 2 attached hereto, and such reasonable out-of-pocket attorneys' fees, expenses and other costs as may be incurred by Escrow Holder in connection with the administration of this Agreement. Said charges, attorneys' fees, expenses and other costs are collectively referred to hereinafter as the "Expenses." Any Expenses may be offset against interest earned, and only against such interest, on the Escrow Account. 13. Liability of Parties: Borrower shall have sole liability for the taxes and shall be responsible for seeing that sufficient funds are made available to Escrow Holder or Lender in adequate time for payment of the taxes before same become delinquent. Lender or Escrow Holder shall be liable severally and not jointly, and only for accounting for funds received by it, and for its gross negligence or willful misconduct in performing any act required of it hereunder. 14. Hold Harmless: Borrower hereby agrees to indemnify, protect, save and hold harmless Escrow Holder, and its successors and assigns and agents pursuant to this Agreement, from any and all liabilities, obligations, losses, damages, claims, actions, suits, and out of pocket costs or expenses (including, without limitation, reasonable attorneys' fees) of whatsoever kind or nature imposed on, incurred by or asserted against Escrow Holder which in any way relate to or arise out of the execution and delivery of this Agreement and any action taken hereunder; provided, however, that Borrower shall have no such obligation to indemnify, save and hold harmless Escrow Holder for any liability incurred by, imposed upon or established against Escrow Holder, as the case may be, for its willful misconduct or gross negligence. 15. Waiver of Offset: Except for fees due Escrow Holder as provided in the paragraph entitled "Expenses" above, Escrow Holder specifically and irrevocably waives any and all rights Escrow Holder now has or may in the future have to offset any amounts due from Lender or Borrower to Escrow Holder against the funds in the Escrow Account. Except to the extent expressly provided for in the paragraph entitled "Expenses" hereof, Escrow Holder further agrees not to pay or attempt to pay to itself any funds in the Escrow Account to satisfy any claims Escrow Holder may have against Borrower or Lender. 16. Notices: Any notice, demand, request, statement or consent made hereunder shall be in writing, signed by the party giving such notice, request, demand, statement, or consent, and shall be deemed to have been properly given when either delivered personally, delivered to a reputable overnight delivery service providing a receipt or deposited in the United States mail, postage prepaid and registered or certified return receipt requested, at the address set forth below, or at such other address within the continental United States of America as may have theretofore have been designated in writing. The effective date of any notice given as aforesaid shall be the date of personal service, one (1) business day after delivery to such overnight delivery service, or three (3) business days after being deposited in the United States mail, whichever is applicable. For purposes hereof, the addresses are as follows: If to Borrower: JMB/San Jose Associates c/o JMB Realty Corporation 900 North Michigan Avenue Chicago, IL 60611 With a copy to: Pircher, Nichols & Meeks 1999 Avenue of the Stars Los Angeles, CA 90067 Attn: Real Estate Notices (DSB) and if to Lender: Connecticut General Life Insurance Company c/o CIGNA Investments, Inc. 900 Cottage Grove Road Hartford, CT 06152 Attn: Investment Services, S-319 with a copy to: CIGNA Corporation Investment Law Department 900 Cottage Grove Road Hartford, CT 06152 Attn: Real Estate Division, S-215A and if to Escrow Holder: Bank of America Global Escrow Depository Services 8010 333 South Beaudry Avenue, 25th Floor Los Angeles, California 90017 Attention: Katherine L. Veith Telephone: (213) 345-0670 17. Applicable Law: This Agreement shall be governed by and interpreted in accordance with the laws of the State of California. 18. Headings: The paragraph headings used herein are for convenience only and are not to be used in interpreting this Agreement. 19. Amendments: This Agreement may only be amended or revoked by a written amendment executed by all the parties hereto. 20. Attorneys' Fees and Expenses: Borrower shall pay all reasonable out of pocket charges of Lender, and such reasonable attorneys' fees (whether charged by staff counsel or outside counsel), expenses and other costs as may be incurred by Lender in connection with the enforcement of this Agreement. Notwithstanding the foregoing, if any action is instituted to enforce the terms hereof, only the prevailing party shall be entitled to reasonable attorneys' fees, costs and expenses (in the case of Lender, whether charged by staff counsel or outside counsel); provided, however, the provisions of the paragraph entitled "Hold Harmless" hereof shall control as to any claim against Escrow Holder. Any reference in this Agreement to "out of pocket" costs, fees, charges and expenses of Lender shall include, without limitation, any reasonable allocable fees, costs, charges and expenses for services rendered by Lender's in-house counsel, paralegals and legal assistants. 21. Assignment: This Agreement may not be assigned by Borrower or Escrow Holder without the written consent of Lender. Should an assignment be permitted hereunder, this Agreement shall inure to the benefit of and bind the successors and assigns of the parties hereto. 22. Execution in Counterparts: This Agreement may be executed in any number of counterparts, each of which may be executed by any one or more of the parties hereto, but all of which shall constitute one instrument, and shall be binding and effective when all parties hereto have executed at least one counterpart. 23. No Personal Liability: The provisions set forth in Section 15 of the Note and Section 36 of the Deed of Trust are incorporated herein by this reference. IN WITNESS WHEREOF, the parties have executed this Agreement under seal effective as of the day and year first above written. BORROWER: JMB/SAN JOSE ASSOCIATES, an Illinois general partnership By: JMB Income Properties, Ltd.- XI, an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: By: JMB Income Properties, Ltd.-XII, an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: LENDER: CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation By: CIGNA Investments, Inc., a Delaware corporation, its authorized signatory By: Name: Its: ESCROW HOLDER: BANK OF AMERICA, NT&SA GLOBAL ESCROW DEPOSITORY SERVICES 8010 By: Name: Its: REAL ESTATE TAX ESCROW AND SECURITY AGREEMENT (150 Almaden/185 Park) TABLE OF CONTENTS TO REAL ESTATE TAX ESCROW AND SECURITY AGREEMENT Page 1. Recitals . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Escrow Holder. . . . . . . . . . . . . . . . . . . . . . 1 3. Deposits into Escrow . . . . . . . . . . . . . . . . . . 1 4. Withdrawal Terms . . . . . . . . . . . . . . . . . . . . 2 5. Interest Payments. . . . . . . . . . . . . . . . . . . . 2 6. Default Provisions . . . . . . . . . . . . . . . . . . . 3 7. Security Interest. . . . . . . . . . . . . . . . . . . . 3 8. Warranties . . . . . . . . . . . . . . . . . . . . . . . 3 9. Termination of Escrow. . . . . . . . . . . . . . . . . . 4 10. Investment of Funds in Escrow Account. . . . . . . . . . 4 11. Responsibilities of Escrow Holder. . . . . . . . . . . . 5 12. Expenses . . . . . . . . . . . . . . . . . . . . . . . . 6 13. Liability of Parties . . . . . . . . . . . . . . . . . . 6 14. Hold Harmless. . . . . . . . . . . . . . . . . . . . . . 6 15. Waiver of Offset . . . . . . . . . . . . . . . . . . . . 6 16. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 6 17. Applicable Law . . . . . . . . . . . . . . . . . . . . . 7 18. Headings . . . . . . . . . . . . . . . . . . . . . . . . 7 19. Amendments . . . . . . . . . . . . . . . . . . . . . . . 7 20. Attorneys' Fees and Expenses . . . . . . . . . . . . . . 7 21. Assignment . . . . . . . . . . . . . . . . . . . . . . . 7 22. Execution in Counterparts. . . . . . . . . . . . . . . . 7 23. No Personal Liability. . . . . . . . . . . . . . . . . . 8 EX-4 4 Recording Requested By and When Recorded Mail To: Morrison & Foerster 345 California Street San Francisco, CA 94104-1250 Attn: Caryl B. Welborn, Esq. AMENDED AND RESTATED DEED OF TRUST, SECURITY AGREEMENT WITH ASSIGNMENT OF RENTS AND FIXTURE FILING (150 Almaden/185 Park) THIS AMENDED AND RESTATED DEED OF TRUST is made as of the ______ day of November, 1994, by JMB/SAN JOSE ASSOCIATES, an Illinois general partnership, whose sole general partners are JMB Income Properties, Ltd.-XI, an Illinois limited partnership and JMB Income Properties, Ltd.-XII, an Illinois limited partnership, having its principal place of business at 900 N. Michigan Avenue, Chicago, Illinois 60611 (herein referred to as "Trustor") to COMMONWEALTH LAND TITLE COMPANY, subject to substitution as provided in Section 44 (herein referred to as "Trustee") in favor of CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation having its principal place of business at 900 Cottage Grove Road, Hartford, Connecticut 06152-2215 (hereinafter referred to as "Beneficiary"). W I T N E S S E T H: THAT, to secure (i) payment to Beneficiary of the principal indebtedness of Twenty-Two Million Five Hundred Thousand and No/100 Dollars ($22,500,000.00), together with interest thereon, as evidenced by that certain Amended and Restated Promissory Note (hereinafter referred to as the "Note") of even date herewith, and any renewals, extensions or modifications thereof, given by Trustor to Beneficiary and made payable to the order of Beneficiary in and by which Note the Trustor promises to pay the said principal indebtedness and interest at the rate and in installments as provided in the Note, (ii) the performance of the covenants herein contained and the payment of any monies expended by the Beneficiary in connection therewith, (iii) the payment of all obligations and the performance of all covenants of Trustor under any other loan documents, agreements or instruments between Trustor and Beneficiary given in connection with or related to this Deed of Trust or the Note, including, without limitation, the Environmental Indemnification Agreement (the "Environmental Indemnity") of even date from Trustor, among others, in favor of Beneficiary, and (iv) any and all additional advances made by Beneficiary to protect or preserve the Security or the security interest created hereby on the Security, or for taxes, assessments, or insurance premiums as hereinafter provided or for performance of any of Trustor's obligations hereunder or for any other purpose provided herein (whether or not the original Trustor remains the owner of the Security at the time of such advances) (all of the aforesaid indebtedness and obligations of Trustor being herein called the "Indebtedness", and all of the documents, agreements and instruments between Trustor and Beneficiary now or hereafter evidencing or securing the repayment of, or otherwise pertaining to, the Indebtedness, being herein collectively called the "Loan Documents"); the Trustor does hereby mortgage, grant, bargain, sell, assign, pledge, transfer, and convey unto Trustee and to Trustee's successors and assigns, in trust, with power of sale and right of entry and possession, all of the following described land, improvements, real and personal property and rents and leases and all of Trustor's estate, right, title and interest therein (hereinafter collectively called the "Security"): The land described in Exhibit A attached hereto and made a part hereof situate, lying and being in the City of San Jose, County of Santa Clara, and State of California (the "Land"); TOGETHER with all buildings and other improvements now or hereafter located on said Land or any part thereof, including but not limited to, all extensions, betterments, renewals, renovations, substitutes and replacements of, and all additions and appurtenances to the Security (the "Improvements"); TOGETHER with all of the right, title and interest of Trustor in and to the land lying in the bed of any street, road, highway or avenue in front of or adjoining the Land to the center lines thereof; TOGETHER with the right to use, in perpetuity, in connection with the operation of the Security any trademarks owned by Trustor, service marks or tradenames, and good will of Trustor associated therewith, used in connection with the Security; TOGETHER with all easements now or hereafter located on or appurtenant to the Land and/or the Improvements or under or above the same or any part thereof, rights-of-way, licenses, permits, approvals, and privileges, belonging or in any way appertaining to the Land and/or Improvements including without limitation (i) any drainage ponds or other like drainage areas not located on the Land which may be required for water run-off, (ii) any easements necessary to obtain access from the Land to such drainage areas, or to any other location to which Trustor has a right to drain water or sewage,(iii) any land required to be maintained as undeveloped land by the zoning rules and regulations applicable to the Land, and (iv) any easements and agreements which are or may be established to allow satisfactory ingress to, egress from and operation of the Land and/or the Improvements, including utility easements; TOGETHER with any and all awards heretofore made and hereafter to be made by any governmental, municipal or state authorities to the present and all subsequent owners of the Security for the taking of all or any portion of the Security by power of eminent domain, including, without limitation, awards for damage to the remainder of the Security and any awards for any change or changes of grade of streets affecting the Security, which said awards are hereby assigned to Beneficiary, and Beneficiary, at its option, is hereby authorized, directed and empowered to collect and receive the proceeds of any such awards from the authorities making the same and to give proper receipts and acquittances therefor, and to apply the same, subject to the provisions of this Deed of Trust, toward the payment of the Indebtedness, notwithstanding the fact that such amount may not then be due and payable; and Trustor hereby covenants and agrees to and with Beneficiary, upon request by Beneficiary, to make, execute and deliver, at Trustor's expense, any and all assignments and other instruments reasonably sufficient for the purpose of assigning the aforesaid awards to Beneficiary, free, clear and discharged of any and all encumbrances of any kind or nature whatsoever, subject to the provisions of this Deed of Trust; (all of the foregoing Land, Improvements, rights, easements, rights-of- way, licenses, privileges, and awards, collectively, the "Real Property"). TOGETHER with all proceeds, insurance or otherwise, paid for the damage done to any of the Security and all proceeds of the conversion, voluntarily or involuntarily, of any of the Security into cash or liquidated claims; TOGETHER with all fixtures, machinery, equipment, goods, and every other article of personal property, tangible or intangible, now or hereafter attached to or used in connection with the Real Property, or placed on any part thereof and whether or not attached thereto, appertaining or adapted to the use, management, operation or improvement of the Real Property, insofar as the same and any reversionary right thereto may now or hereafter be owned or acquired by Trustor, including, but without limitation: all partitions; screens; awnings; shades; blinds; floor coverings; hall and lobby equipment; heating, lighting, plumbing, ventilating, refrigerating, incinerating, elevator, escalator, air conditioning and communication plants or systems with appurtenant fixtures; vacuum cleaning systems; call systems; sprinkler systems and other fire prevention and extinguishing apparatus and materials; all equipment, manual, mechanical and motorized, for the construction, maintenance, repair and cleaning of, and removal of snow from, parking areas, walks, underground ways, truck ways, driveways, common areas, roadways, highways and streets; all equipment, manual, mechanical and motorized, for the transportation of customers or employees to and from the store facilities on the Real Property; all telephone, computer and other electronic equipment and appurtenances thereto, including software; and all other machinery, pipes, poles, appliances, equipment, wiring, fittings, panels and fixtures; and any proceeds therefrom, any replacements thereof or additions or accessions thereto; and all building materials, supplies and other property delivered to the Real Property for incorporation into the Improvements thereon, all of which are declared to be a part of the realty and covered by the lien hereof, but said lien shall not cover any fixture, machinery, equipment or article of personal property which is owned by any party other than Trustor, provided said fixture, machinery, equipment or article of personal property is not permanently affixed to the realty and may be removed without material damage thereto and is not a replacement of any item which shall have been subject to the lien hereof, but said lien shall include any other fixture, machinery, equipment or article of personal property so incorporated into the Improvements so as to constitute realty under applicable law, whether or not owned by the Trustor; TOGETHER with all of Trustor's books of account and records relating to the Security; TOGETHER with all proceeds and revenue arising from or out of the Real Property or any part thereof; all bank accounts of Trustor used in connection with operation of the Security or for holding security deposits under leases thereof; any sums of Trustor on deposit with Beneficiary hereunder; any refunds and rebates of taxes and assessments of every kind and nature imposed upon the Security, including all sums held in escrow pursuant to a certain Real Estate Tax Escrow and Security Agreement of even date herewith among Trustor, Beneficiary, and Bank of America, NT & SA Global Escrow Depository Services 8010, all licenses, permits, franchises, governmental approvals and all sanitary sewer, drainage, water, utility service and other service agreements benefiting the Real Property or any part thereof, together with all accounts, accounts receivable, credit card receipts, contract rights, reserve accounts required to be established hereunder, general intangibles, documents, instruments and chattel paper and proceeds of any of the foregoing owned by Trustor arising from or in connection with the Real Property, including all books and records in connection therewith; all rights of Trustor under any leases, covenants, agreements, easements, restrictions or declarations recorded with respect to, or as an appurtenance to, the Real Property or any part thereof; and, Trustor's interest, as lessee, under any lease of property included within the description of Personal Property above (all of the tangible and intangible personal property described in this and the previous two paragraphs, collectively, the "Personal Property"); TOGETHER with all of Trustor's right, title and interest, as the owner of the Real Property, in, to and under the following instruments: (i) that certain Parking Agreement dated as of June 18, 1985, between Trustor and New Almaden Associates, a California general partnership, (ii) that certain Supplemental Parking Agreement dated as of June 18, 1985, between Trustor and New Almaden Associates, (iii) that certain Parcel 2 Public Parking Covenant and Easement from New Almaden to the Redevelopment Agency of the City of San Jose (the "Agency") and recorded in the Official Records of Santa Clara County, California, as Instrument No. 8566697; and (iv) that certain Parcels 1, 3, and 4 Public Parking Covenant and Easement from Borrower to the Agency and recorded in the Official Records of Santa Clara County, California as Instrument No. 8566696 (such documents are sometimes collectively referred to herein as the "Parking Agreements"); TOGETHER with all of the right, title and interest of Trustor in and to all and singular the tenements, hereditaments and appurtenances thereunto belonging to or in any way pertaining to the Security; all the estate, right, title and claim whatsoever of Trustor, either at law or in equity, in and to the Security; and any and all other, further or additional title, estate, interest or right which may at any time be acquired by Trustor in or to the Security, and if Trustor shall at any time acquire any further estate or interest in or to Security, the lien of this Deed of Trust shall attach, extend to, cover and be a lien upon such further estate or interest automatically without further instrument or instruments, and Trustor, upon request of Beneficiary, shall execute such instrument or instruments as shall reasonably be requested by Beneficiary to confirm such lien, and Trustor hereby irrevocably appoints Beneficiary as Trustor's attorney-in-fact (which appointment is coupled with an interest) to execute all such instruments if Trustor shall fail to do so within ten (10) days after demand, provided, however, that Trustor shall not incur any additional recourse liability as a result of such appointment; TO HAVE AND TO HOLD the Security, and each and every part thereof, unto the Trustee and its successors and assigns in trust, for the purposes and uses herein set forth. AND, Trustor hereby further covenants, agrees and warrants as follows: 1. Payment of Indebtedness. Trustor will pay the Indebtedness and interest thereon in accordance with the provisions of the Note and all prepayment charges, late charges and fees required thereunder, and all extensions, renewals, modifications, amendments and replacements thereof, and will keep and perform all the covenants, promises and agreements and pay all sums provided in (i) each of the Note or any other promissory note or notes at any time hereafter issued to evidence the Indebtedness, (ii) this Deed of Trust and (iii) any and all other Loan Documents, all in the manner herein or therein set forth. Subject to the provisions of Section 36 below, each of the persons and/or entities constituting Trustor hereunder shall be fully liable for such payment and performance, and such liability shall be joint and several. 2. Covenants of Title. Trustor has good and indefeasible title to the entire Real Property in fee simple, has absolute unencumbered title to the Personal Property, and has good right and full power to sell, mortgage and convey the same; the Security is free and clear of easements, restrictions, liens, leases and encumbrances, except those easements, restrictions, liens, leases and encumbrances stated in Schedule B, Part 1, of the policy or policies of title insurance delivered to Beneficiary as of the recordation of this Deed of Trust (the "Permitted Encumbrances"), to which this Deed of Trust is expressly subject, or which may hereafter be created in accordance with the terms hereof and to which this Deed of Trust may be subordinated; and Trustor will warrant and defend title to the Security against all claims and demands whatsoever except the Permitted Encumbrances. Beneficiary shall have the right, at its option and at such time or times as it, in its sole discretion, shall deem necessary, to take whatever action it may deem necessary to defend or uphold the lien of this Deed of Trust or otherwise enforce any of the rights of Beneficiary hereunder or any obligation secured hereby, including without limitation, the right to institute appropriate legal proceedings for such purposes. 3. Usury. It is hereby expressly agreed that if from any circumstances whatsoever fulfillment of any provision of the Note, this Deed of Trust, or any other Loan Documents at the time performance of such provision shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other law, with regard to obligations of like character and amount, then ipso facto the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under the Loan Documents that is in excess of the limit of such validity. In no event shall Trustor be bound to pay for the use, forbearance or detention of the money loaned pursuant to the Loan Documents, interest of more than the current legal limit, the right to demand any such excess being hereby expressly waived by Beneficiary. 4. Impositions. Trustor will pay, not later than thirty (30) days before the last day on which the same may be paid without penalty or interest, all real estate taxes, sewer rents, water charges and all other municipal and governmental assessments, rates, charges, impositions and liens (hereinafter referred to as "Impositions") which now or hereafter are imposed by law upon the Security. If any Imposition is not paid within the time hereinabove specified, Beneficiary shall have the right to pay the same, together with any penalty and interest thereon, and the amount or amounts so paid or advanced shall forthwith be payable by Trustor to Beneficiary and shall be secured by the lien of this Deed of Trust; but Trustor may in good faith contest, at Trustor's own cost and expense, by proper legal proceedings, the validity or amount of any Imposition, on the condition that Trustor first shall deposit with Beneficiary, as security for the payment of such contested item, an amount equal to the contested item plus all penalties and interest which would be payable if Trustor is ultimately required to pay such contested item, or if Trustor shall first post an appropriate bond reasonably satisfactory to Beneficiary from a surety company reasonably acceptable to Beneficiary for the full contested amount, and on the further condition that no amount so contested may remain unpaid for such length of time as shall permit the Security, or the lien thereon created by the item being contested, to be sold for the nonpayment thereof, or as shall permit an action, either of foreclosure or otherwise, to be commenced by the holder of any such lien. Trustor will not claim any credit on, or make any deduction from the Indebtedness by reason of the payment of any Imposition. Trustor hereby assigns to Beneficiary all rights of Trustor now or hereafter arising in and to the refund of any Imposition and any interest thereon; provided that so long as there exists no default hereunder or under of the other Loan Documents, without regard to any applicable notice and cure periods, Trustor shall be entitled to collect any such refund. If following receipt of any such refund by Beneficiary, there exists an Event of Default (as hereafter defined) or any default under this Deed of Trust or any of the other Loan Documents, or any condition which with the passage of time or the giving of notice or both, shall constitute a default hereunder or thereunder, then Beneficiary may apply said refund in reduction of the Indebtedness in whatever order Beneficiary may elect. Notwithstanding the foregoing to the contrary, Beneficiary shall not be entitled to apply in reduction of the Principal Indebtedness the portion of any such refund which Trustor is required to refund to a tenant under a tenant lease. If following receipt of any such refund by Beneficiary no such default or Event of Default then exists, then Beneficiary shall pay over the same to Trustor promptly after demand. 5. Tax Deposits. Trustor shall deposit with Beneficiary or with an escrow agent selected by Trustor and reasonably approved by Beneficiary, on the first day of the second calendar month immediately following the date of this Deed of Trust and on the first day of each calendar month thereafter (each of which dates is hereinafter called the "monthly tax deposit date") until the payment in full of the Indebtedness, a sum equal to one- twelfth of the Impositions to be levied, charged, assessed or imposed upon or for the Security within one year after said monthly tax deposit date. If on any monthly tax deposit date the amount of Impositions to be levied, charged, assessed or imposed within the ensuing one year period shall not be fixed, such amount for the purpose of computing the deposit to be made by Trustor hereunder, shall be reasonably estimated by Beneficiary, with appropriate adjustment when the amount of such Impositions is fixed. If the sums deposited by Trustor under this Section shall be held in an interest-bearing account, such interest shall be retained by Beneficiary and free of trust except to the extent, if any, that applicable law shall otherwise require, and all such sums and interest shall be applied in payment of such Impositions when due. Trustor shall give thirty (30) days prior written notice to Beneficiary in each instance when an Imposition is due, specifying the Imposition to be paid and the amount thereof, the place of payment and the last day on which the same may be paid in order to be within the time limit specified in Section 4 hereof entitled "Impositions". Notwithstanding the foregoing provision and so long as Trustor holds title to and controls the Security, Impositions are paid in full when due and there has been no default, or any state of facts which, with the passage of time or giving of notice, or both, would constitute a default under the Loan Documents, the interest (if any) earned by such escrows, less reasonable escrow costs, will be paid to Trustor on each real estate tax payment date. If for any reason the sums on deposit with Beneficiary or escrow agent under this Section shall not be sufficient to pay an Imposition within the time specified in Section 4 hereof, then Trustor shall, within fifteen (15) days after written demand by Beneficiary, deposit sufficient sums so that Beneficiary may pay such Imposition in full, together with any penalty and interest thereon. Beneficiary may change its estimate of Impositions for any period, on the basis of a change in an assessment or tax rate or equalization factor or on the basis of a prior miscalculation or for any other reason, in which event Trustor shall deposit with Beneficiary or escrow agent within fifteen (15) days after demand the amount of any excess of the deposits which would theretofore have been payable under the revised estimate over the sums actually deposited. If any Imposition shall be levied, charged, assessed or imposed upon or for the Security, or any portion thereof, and if such Imposition shall also be a levy, charge, assessment or imposition upon or for any other premises not covered by the lien of this Deed of Trust, then the computation of the amounts to be deposited under this Section shall be based upon the entire amount of such Imposition and Trustor shall not have the right to apportion any deposit with respect to such Imposition. Upon an assignment of this Deed of Trust by Beneficiary, Beneficiary shall transfer all amounts deposited and still in its possession to the assignee and Beneficiary shall thereupon be completely released from all liability with respect to such deposit arising after such assignment and Trustor or owner of the Security shall look solely to the assignee or transferee in reference thereto. Upon the payment in full by Trustor of the entire Indebtedness, any sums then held by Beneficiary under this Section shall be refunded promptly to Trustor. All amounts deposited shall be held by Beneficiary as additional security for the sums secured by this Deed of Trust, and Trustor hereby grants to Beneficiary a security interest in such sums, and upon the occurrence and continued existence of an Event of Default hereunder Beneficiary may, in its sole and absolute discretion, apply said amounts to the payment of the Indebtedness in whatever order Beneficiary may elect. Immediately upon receipt of such by Trustor, Trustor shall deliver to Beneficiary copies of all notices, demands, claims, bills, and receipts in relation to the Impositions. Notwithstanding the foregoing provisions, Beneficiary will waive the requirement for deposits as to that portion of Impositions payable directly to the governmental or other authority by tenants under the terms of leases approved by Beneficiary, provided satisfactory proof of payment is promptly furnished to Beneficiary. 6. Change in Taxes. In the event any tax shall be due or become due and payable to the United States of America, any state or any political subdivision thereof with respect to the execution and delivery or recordation of this Deed of Trust or any other Loan Document or the interest of Beneficiary in the Security, Trustor shall pay such tax at the time and in the manner required by applicable law and Trustor shall hold Beneficiary harmless and shall indemnify Beneficiary against any liability of any nature whatsoever as a result of the imposition of any such tax. In the event of the enactment, after the date of this instrument, of any law changing in any way the present law as to the taxation of notes or debts secured by mortgages, for Federal, State, or local purposes, or the manner of collection of any Impositions, so as to affect this Deed of Trust or the Note secured hereby, then Trustor shall upon demand make such payments to Beneficiary and take such other steps, as may be necessary in Beneficiary's reasonable judgment, to place Beneficiary in the same financial position as it was prior to any such enactment, failing which, or if Trustor is not permitted by law to make such payments, the Indebtedness shall, at the option of Beneficiary, become due and payable one hundred twenty (120) days after Beneficiary's demand. 7. Insurance. (a) Trustor will at all times, unless otherwise indicated, provide, maintain and keep in force: (i) policies of insurance insuring the Security against loss or damage by fire and lightning; against loss or damage by other risks embraced by coverage of the type now known as All Risk Replacement Cost Insurance with agreed amount endorsement, including but not limited to riot and civil commotion, vandalism, and malicious mischief; and against such other risks or hazards as Beneficiary from time to time reasonably may designate in an amount sufficient to prevent Beneficiary or Trustor from becoming a co-insurer under the terms of the applicable policies, but in any event in an amount not less than 100% of the then full replacement cost of the Improvements (exclusive of the cost of excavations, foundations and footings below the lowest basement floor) without deduction for physical depreciation; (ii) comprehensive general liability insurance in a minimum amount of $1,000,000, and excess or umbrella liability of at least $10,000,000. Any proceeds of such liability insurance shall not be included in the term "Insurance Proceeds" as defined in Section 8; (iii) policies of insurance insuring the Security against the loss of "rental value" of the buildings which constitute a part of the Improvements on a "rented or vacant basis" arising out of the perils insured against pursuant to subparagraph (i) above in an amount equal to not less than one year's gross "rental value" of the improvements. "Rental value" as used herein is defined as the sum of (A) the total anticipated gross rental income from tenant occupancy of such buildings as furnished and equipped by Trustor and (B) the amount of all charges which are the legal obligation of tenants and which would otherwise be the obligation of Trustor and (C) the fair rental value of any portion of such buildings which is occupied by Trustor. Trustor hereby assigns the proceeds of such insurance to Beneficiary, to be applied in payment of the interest and principal on the Note secured by this Deed of Trust, insurance premiums, taxes, assessments and private impositions until such time as such buildings shall have been restored and placed in full operation, at which time, provided there then exists no default under this Deed of Trust, the balance of such insurance proceeds, if any, held by Beneficiary shall be returned to Trustor. Such insurance proceeds shall not be included in the term "Insurance Proceeds" as defined in Section 8; (iv) flood insurance upon the Security in the event that such insurance is commercially available pursuant to the provisions of the Flood Disaster Protection Act of 1973 or other applicable legislation (Beneficiary reserves the right to require that Trustor secure flood insurance in excess of the amount provided by the Flood Disaster Protection Act of 1973 if such insurance is commercially available up to the amount provided in subparagraph (i) above); (v) boiler and pressure vessel insurance, including air tanks, pressure piping and major air conditioning equipment, provided any building which constitutes a part of the Security contains equipment of the nature ordinarily covered by such insurance, in such an amount as Beneficiary may require; (vi) war risk insurance upon the Security as and when such insurance is obtainable from the United States of America or any agency or instrumentality thereof at a reasonable premium, in any amount not less than 100% of the then full replacement cost of the Improvements (exclusive of the cost of excavations, foundations, and footings below the lowest basement floor) without deduction for physical depreciation, to the extent obtainable, and if not so obtainable, in the maximum amount obtainable; (vii) during any period of restoration under this Section 7 or Sections 8 or 9, a policy or policies of builder's "all risk" insurance in an amount not less than the full insurable value of the Improvements against such risks (including, without limitation, fire and extended coverage, collapse of the Improvements and earthquake coverage to agreed limits) as Beneficiary may request, in form and substance acceptable to Beneficiary; and (viii) such other insurance (including, but not limited to, earthquake insurance), and in such amounts, if any, as may from time to time be reasonably required by Beneficiary against the same or other insurable hazards which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the height and type of buildings thereon and their construction, use and occupancy. (b) All policies of insurance required under this Section 7 shall be issued by companies approved by Beneficiary which shall have Best's ratings of not less than A:XII, shall be subject to the reasonable approval of Beneficiary as to amount, content, form and expiration date, shall contain a Non- Contributory Standard Mortgagee Clause and the Lender's Loss Payable Endorsement (Form 438 BFU NS), or their equivalents, in favor of Beneficiary, shall name Beneficiary as an additional insured, and shall provide that the proceeds thereof shall be payable to Beneficiary (to the extent of its interest). Beneficiary shall be furnished with the original insurance certificates evidencing each policy required to be provided by Trustor hereunder, which certificates shall provide that such policies shall not be modified or cancelled without thirty (30) days written notice to Beneficiary. At least thirty (30) days prior to expiration of any policy required to be provided by Trustor hereunder, Trustor shall furnish Beneficiary appropriate proof of issuance of a policy continuing in force the insurance covered by the policy so expiring. Trustor shall furnish Beneficiary receipts for the payment of premiums on such insurance policies or other evidence of such payment reasonably satisfactory to Beneficiary. In the event that Trustor does not deposit with Beneficiary a new policy of insurance with evidence of payment of premiums thereon at least thirty (30) days prior to the expiration of any expiring policy, then Beneficiary may, but shall not be obligated to, procure such insurance and pay the premiums therefor and Trustor agrees to repay to Beneficiary the premiums thereon promptly on demand, together with interest thereon at the Default Rate. (c) Trustor hereby assigns to Beneficiary all proceeds of any insurance which Trustor may be entitled to receive for loss or damage to the Security. In the event of any loss or damage to the Security, all insurance proceeds shall be payable to Beneficiary, and Trustor hereby authorizes and directs any affected insurance company to make payment of the insurance proceeds directly to Beneficiary. In the event that any such insurance proceeds or condemnation awards are paid directly to Trustor, Trustor shall make such proceeds or awards available to Beneficiary within ten (10) days of Trustor's receipt thereof. Trustor hereby authorizes and empowers Beneficiary to settle, adjust or compromise any claims for loss, damage or destruction to the Security in excess of $500,000, regardless of whether or not there are insurance proceeds available or whether any such insurance proceeds are sufficient in amount to fully compensate for such loss or damage, and Trustor hereby authorizes the application or release by Beneficiary of any such insurance proceeds under any policy or policies of insurance. The application or release by Beneficiary of any such insurance proceeds shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice. In the case of loss or damage to the Security in an amount not more than Five Hundred Thousand Dollars ($500,000), Trustor shall have the right, without Beneficiary's consent but subject to the requirements on application or use thereof set forth herein, provided that there then exists no default, or condition which with the passage of time or giving of notice, would constitute a default hereunder or under any of the Loan Documents, to (i) receive all such insurance proceeds, and (ii) settle, adjust or compromise such claim. (d) In the event of the foreclosure of this Deed of Trust or other transfer of the title to the Security in extinguishment, in whole or in part, of the Indebtedness, all right, title and interest of Trustor in and to any insurance policy, or premiums or payments in satisfaction of claims or any other rights thereunder then in force, shall pass to the purchaser or grantee notwithstanding the amount of any bid at such foreclosure sale. Nothing contained herein shall prevent the accrual of interest as provided in the Note on any portion of the principal balance due under the Note until such time as the Insurance Proceeds are actually received and applied to reduce the principal balance outstanding. 8. Casualty. (a) Occurrence of Casualty. After the happening of any casualty to the Security, whether or not required to be insured against under the policies to be provided by Trustor hereunder, Trustor shall give prompt written notice thereof to Beneficiary generally describing the nature and cause of such casualty and the extent of the damage or destruction to the Security. (b) Application of Insurance Proceeds. As used herein, "Insurance Proceeds" means all proceeds of any insurance which Trustor may be entitled to receive for loss or damage to the Security, other than insurance proceeds under Section 7(a)(ii) and Section 7(a)(iii). In the case of loss or damage to the Security in an amount not more than Five Hundred Thousand Dollars ($500,000), Trustor shall have the right, without Beneficiary's consent but subject to the requirements on application or use thereof set forth herein, provided that there then exists no default, or condition which with the passage of time or giving of notice, would constitute a default hereunder or under the Loan Documents, to (i) receive all Insurance Proceeds, and (ii) settle, adjust or compromise such claim. If within one hundred twenty (120) days after the casualty Beneficiary receives Trustor's request to release the Insurance Proceeds to pay for restoration of the Deed or Trust Property, Beneficiary shall release the Insurance Proceeds (less Beneficiary's reasonable out of pocket expenses for collecting and disbursing the Insurance Proceeds, or otherwise incurred in connection with said casualty) provided: (i) there is no existing default under the Loan Documents; (ii) not more than 30% of the Improvements are damaged; (iii) Trustor can demonstrate to Beneficiary's reasonable satisfaction that Trustor has the financial ability to pay the scheduled debt service and other amounts which may become due, if any, under the Loan Documents, during reconstruction from the proceeds of rent insurance or otherwise; (iv) such damage or destruction occurs prior to the last Loan Year (as defined in the Note) (v) Insurance Proceeds are released held in escrow and released under funding arrangements reasonably satisfactory to Beneficiary, including, without limitation, those set forth in Section 8(e) hereof; (vi) the excess of annual income from leases then in effect and approved by Beneficiary that will survive the Restoration, or otherwise satisfying the requirements of the Loan Documents such that Beneficiary's approval is not required, over all operating expenses and real estate taxes incurred with respect to the Security during the year prior to the damage, is at least 1.20 times the annual debt service payments required under the Note. The Insurance Proceeds, and any other amounts which are contributed to the Restoration, if any, are called the "Restoration Funds". In the event that the Insurance Proceeds are released by Beneficiary as provided under this grammatical paragraph, and provided that Trustor meets and is otherwise in compliance with the requirements of this Deed of Trust, Trustor shall not be required to contribute any additional amounts to the Insurance Proceeds for the purposes of increasing Restoration Funds or effectuating the Restoration. However, in the event that Beneficiary is not obligated to release funds under this Deed of Trust, but may elect to release such funds, Beneficiary may require that additional funds be contributed by Trustor as a condition to such release. Upon release of the Restoration Funds, Trustor shall commence and diligently pursue to completion in accordance with this Section 8 repairs to the portion of the Security that has been partially damaged or destroyed, in compliance with all legal requirements and to the same condition, character and at least equal value and general utility as nearly as possible to that existing prior to such damage or destruction (the "Restoration"). In the event that Beneficiary is not obligated to release the Insurance Proceeds for Restoration under the preceding grammatical paragraph, Beneficiary may, at its option, elect to apply the Insurance Proceeds to the reduction of the indebtedness secured by this Deed of Trust in such order as Beneficiary may determine, or to the cost of Restoration, and at Beneficiary's option and in its sole discretion, Beneficiary may, within one hundred twenty (120) days of such damage or destruction, declare the entire Indebtedness secured hereby immediately due and payable without any prepayment premium. (c) Requirements for Restoration. In the event the Restoration Funds are to be used for the Restoration, Trustor shall, prior to the commencement of any construction work on the Security in connection with the Restoration (the "Work"), deliver to Beneficiary (i) complete plans and specifications for the Work which (A) have been approved by all governmental authorities whose approval is then required, (B) bear the signed approval of an architect satisfactory to Beneficiary ("Architect") and (C) are accompanied by Architect's signed estimate of the total estimated cost of the Restoration which shall provide that upon completion of the Work, the Improvements shall be at least equal in value and general utility to their value and general utility immediately prior to the damage or destruction or condemnation (such plans and specifications shall be subject to Beneficiary's approval, which approval shall not be unreasonably withheld (the "Approved Plans")); (ii) copies of all permits and approvals (temporary or permanent) required by law in connection with the commencement and conduct of the Restoration; (iii) a contract for construction executed by Trustor and a contractor reasonably satisfactory to Beneficiary ("Contractor") in form, scope and substance satisfactory to Beneficiary (including the customary retention) for performance of the Work; and (iv) if the estimated cost of the Restoration exceeds Five Hundred Thousand Dollars ($500,000), a surety bond for and/or guarantee satisfactory to Beneficiary of payment for and completion of, the Restoration, which bond or guarantee shall be (A) in form, scope and substance satisfactory to Beneficiary, (B) signed by a surety or sureties, or guarantor or guarantors, as the case may be, who are acceptable to Beneficiary, and (C) in an amount not less than Architect's total estimated cost of completing the Restoration less the amount of the net Insurance Proceeds, if any, then held by Beneficiary. (d) Performance of Restoration. Trustor shall not commence any portion of the Work, other than temporary work to protect the Improvements or prevent interference with business, until Trustor shall have complied with the requirements of Section 8(c). After commencing the Work, Trustor shall perform or cause Contractor to perform the Work diligently and in good faith in accordance with the Approved Plans. (e) Disbursement of Restoration Funds. Beneficiary shall disburse the Restoration Funds in increments to Trustor or to parties to whom payments for work are then due, as Beneficiary shall elect from time to time as the Work progresses, to pay (or reimburse Trustor for) the costs of the Restoration, but subject to the following conditions, any of which Beneficiary may waive in its sole discretion: (i) The Work shall be in the charge of an experienced construction manager reasonably satisfactory to Beneficiary (which may be an employee of Trustor or its affiliates) with the consultation of Architect; (ii) Beneficiary shall make such payments not more often than at thirty (30) day intervals and only upon not less than ten (10) days' prior written notice from Trustor to Beneficiary and Trustor's delivery to Beneficiary of (A) Trustor's written request for payment (a "Request for Payment") accompanied by a certificate by Architect in form, scope and substance reasonably satisfactory to Beneficiary which states that all of the Work completed to that date has been done in compliance with the Approved Plans and in accordance with applicable law, that the amount requested has been paid or is then due and payable and is properly a part of the cost of the Restoration and that when added to all sums, if any, previously paid out by Beneficiary, the requested amount does not exceed the value of the Work done to the date of such certificate; (B) evidence reasonably satisfactory to Beneficiary that there are no mechanic's or similar liens for labor or material supplied in connection with the Work to date or that any such liens have been adequately provided for to Beneficiary's reasonable satisfaction; and (C) evidence reasonably satisfactory to Beneficiary that the balance of the Restoration Funds remaining after making the payments will be sufficient to pay for the Restoration not then completed (giving in such reasonable detail as Beneficiary may require an estimate of the cost of such completion). Each Request for Payment shall be accompanied by waivers of liens reasonably satisfactory to Beneficiary covering that part of the Work previously paid for, if any, and by a search prepared by a title company or by other evidence reasonably satisfactory to Beneficiary that no mechanic's liens or other liens or instruments for the retention of title in respect of any part of the Work have been filed against the Security and not discharged of record or otherwise bonded over or insured over to Beneficiary's reasonable satisfaction and that, except as otherwise expressly permitted herein, no encumbrance exists on or affecting the Security other than encumbrances, if any, which are set forth in the title policy issued to Beneficiary insuring the lien of this Deed of Trust; (iii) There shall then exist no Event of Default by Trustor under the Note or under any other Loan Documents, or any state of facts existing which, with the giving of notice or the passage of time or both, would constitute an Event of Default; and (iv) Any final Request for Payment after the Restoration has been completed shall be accompanied by a copy of any permanent or temporary certificate or certificates required by law (the "Certificate of Occupancy"), if any, to render occupancy of the Improvements legal. Upon Beneficiary's receipt of the Certificate of Occupancy for the Improvements and final lien waivers evidencing that the Restoration has been completed and the costs thereof paid in full, and satisfactory evidence that no mechanic's or similar liens for labor or material supplied in connection with the Restoration are outstanding against the Security and provided that Trustor is not then in default under any of the Loan Documents, Beneficiary shall pay any remaining Restoration Funds then held by Beneficiary to Trustor; provided, however, nothing contained herein shall prevent Beneficiary from applying at any time the whole or any part of the Restoration Funds to the curing of any Event of Default under the Loan Documents. (f) Application of Restoration Funds to Indebtedness. If, within sixty (60) days after the occurrence of any damage or destruction to the Security requiring Restoration, Trustor fails to request that the Insurance Proceeds be disbursed as above permitted; or if, within one hundred twenty (120) days after the occurrence of such damage or destruction to the Security (unless, in the event that Beneficiary is not obligated to permit Trustor to restore the Security under subparagraph (b) above, but nevertheless elects to do so, then one hundred twenty (120) days from such election), Trustor (i) fails to submit to Beneficiary and receive Beneficiary's approval of plans and specifications or (ii) fails to deposit with Beneficiary any additional amounts which may be required by Beneficiary in accordance with this Deed of Trust to accomplish the Restoration, or (iii) Trustor fails to commence promptly or diligently continue to completion the Restoration after such plans and specifications are approved by all such governmental authorities and Beneficiary, or (iv) Trustor becomes delinquent in payment to mechanics, materialmen or others for the costs incurred in connection with the Restoration; then, in addition to all of the rights herein set forth and after thirty (30) days' written notice of the nonfulfillment of one or more of the foregoing conditions, Beneficiary, or any lawfully appointed receiver of the Security, may at their respective options, (A) perform or cause the Work to be performed, and may take such other steps as they deem advisable to perform the Work, and may enter upon the Security for the foregoing purposes and/or (B) apply the Restoration Funds then or thereafter held by Beneficiary to reduce the unpaid Indebtedness in such order as Beneficiary may elect without prepayment premium. Any application of such proceeds to the Indebtedness shall be at par and shall cause a pro rata reduction in payments of interest and, if applicable, principal, under the Note (based on a reamortization, as applicable), provided, however, that if there exists an Event of Default, the prepayment fee (prorated based upon the amount being prepaid) as provided in the Note shall also be due. (g) Payment of Restoration Funds to Trustor. In the event that Beneficiary applies all or any portion of the Restoration Funds to reduce the unpaid Indebtedness as provided in this Section 8, after payment in full of all sums secured by the Loan Documents, any remaining Restoration Funds shall be paid to Trustor. 9. Condemnation. Should the Security or any part thereof be taken or damaged by reason of any public improvement or condemnation proceeding, or in any other manner, Beneficiary shall be entitled to all compensation, awards and other payments or relief therefor, and may, at its option, commence, appear in and prosecute in its own name any action or proceeding or make any compromise or settlement in connection with such taking or damage. In no event shall Trustor commence, appear in and prosecute any action or proceeding or make any compromise or settlement in connection with such taking or damage without the prior written consent of Beneficiary. All such compensation, awards, damages, rights of action and proceeds (the "Condemnation Proceeds") are hereby assigned to Beneficiary, who shall, after deducting therefrom all its reasonable expenses, including attorneys' fees, and so long as there is no default hereunder or under the Loan Documents or any condition which, with the passage of time or the giving of notice or both, would constitute a default hereunder or thereunder, apply or release the Condemnation Proceeds to repair any damage to the Improvements remaining on the portion of the Security not subject to the taking, as provided in Section 8 above with respect to disposition of Insurance Proceeds; provided, however, that if the taking results in a loss of the Security to an extent which, in Beneficiary's sole and absolute opinion, renders or will render the Security not economically viable, or otherwise impairs or will impair Beneficiary's security under the Loan Documents, Beneficiary may apply all or any part of the Condemnation Proceeds to reduce the unpaid Indebtedness in such order as Beneficiary may elect. Any application of such proceeds to the principal indebtedness shall be at par and shall cause a pro rata reduction in payments of interest and, if applicable, principal, under the Note (based on a reamortization, if applicable); provided, however, that if there exists an Event of Default, the prepayment fee (prorated on the basis of the amount being prepaid) as provided in the Note shall also be due. Beneficiary may require a contribution of additional funds for the repair or restoration of the Security as a condition to releasing Condemnation Proceeds for such purpose. Nothing contained herein shall prevent the accrual of interest as provided in the Note on any portion of the principal balance due under the Note until such time as the Condemnation Proceeds are actually received and applied to reduce the principal balance outstanding. 10. Repair; Alterations; Waste. Trustor shall keep all of the Security in good repair, and expressly agrees that it will neither permit nor commit any waste upon the Security nor do any other act or suffer or permit any act to be done, whereby the Security or the lien hereof may be impaired, and shall comply with all zoning laws, building codes, subdivision laws, and other laws, ordinances, rules and regulations made or promulgated by any government or municipality, or by any agency thereof or by any other lawful authority, which are now or may hereafter become applicable to the Security, provided that compliance with environmental laws shall be governed by Section 11 hereof. Subject to the provisions of Sections 8 and 9 hereof, Trustor shall repair or restore any building now or hereafter under construction on the Security and complete the same within a reasonable period of time. Trustor agrees not to initiate or acquiesce in any material zoning variance or reclassification which materially affects the Security, without Beneficiary's prior written consent, which consent shall not be unreasonably withheld. Trustor shall not construct any additional building or buildings or make any other improvements on the Land nor alter, remove or demolish any building or other Improvements on the Land, without the prior written consent of Beneficiary. In furtherance but not in limitation of Trustor's obligations hereunder, Trustor shall implement the ADA compliance requirements described as items to be addressed in the "ADA Worksheets" (8 pages) for the Security prepared in 1991 and transmitted to Beneficiary by letter dated September 7, 1994. If Trustor fails to observe any of the provisions of this Section or suffers or permits any Event of Default to exist under this Section, Beneficiary or a lawfully appointed receiver of the Security at their respective options, from time to time, may perform, or cause to be performed, any and all repairs and such other work as they deem necessary to bring the Security into compliance with the provisions of this Section and may enter upon the Security for any of the foregoing purposes, and, except for Beneficiary's gross negligence and willful misconduct, Trustor hereby waives any claim against Beneficiary and/or such receiver, arising out of such entry or out of any other act carried out pursuant to this Section. Trustor shall within ten (10) days of written demand repay to Beneficiary and such receiver, with interest at the Default Rate, all amounts expended or incurred by them, respectively, in connection with any action taken pursuant to this Section, and such repayment shall be secured by the lien of this Deed of Trust. Trustor represents and warrants that there are and at all times will be at least 689 parking spaces on and as part of the Security. 11. Environmental. (a) Except as disclosed in that certain environmental audit dated August, 1994 and prepared by Blasland, Bouck & Lee, Inc., a copy of which has been furnished to Beneficiary (the "Environmental Audit"), or in that certain Borrower's Certificate by Trustor of even date herewith (the "Borrower's Certificate"), Trustor represents and warrants that, Trustor has not used and will not use, in violation of any of the Environmental Laws (hereinafter defined) and, to the best of Trustor's knowledge, no prior owner or current or prior tenant, subtenant, or other occupant of all or any part of the Security has used or is using Hazardous Materials (hereinafter defined) on, from or affecting the Security in any manner that violates federal, state or local laws, ordinances, rules, regulations or policies governing the use, storage, treatment, transportation, manufacture, refinement, handling, production, or disposal of Hazardous Materials, and that, to the best of Trustor's knowledge, no Hazardous Materials have been disposed of on or within the Security in violation of any of the Environmental Laws, intentionally or unintentionally, directly or indirectly, by any person whether related or unrelated to Trustor nor have any Hazardous Materials migrated onto or from the Security in violation of any Environmental Laws (hereinafter defined). Trustor covenants that it will use reasonable efforts to not permit or suffer any violation of any Environmental Laws (hereinafter defined). (b) For purposes of this Deed of Trust, "Hazardous Materials" shall mean and include all products or substances which are or contain petroleum, natural gas, natural gas liquids, asbestos or polychlorinated biphenyls or any chemicals known to cause cancer or reproductive toxicity and published pursuant to California Health and Safety Code Subsection 25249.5 et. seq and those elements, compounds, materials, mixtures and substances which are now or hereafter are contained in any list of hazardous substances adopted by the United States Environmental Protection Agency (the "EPA") or any list of toxic pollutants designated by Congress or the EPA or which are defined as hazardous, toxic, pollutant, infectious, flammable or radioactive by any other Federal, State, or local statute, law, ordinance, code, rule, regulation, order, or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic, or dangerous waste, substance, element, compound, mixture or material, as now or at any time hereafter in effect, including, without limitation, the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Subsection 9601 et seq., the Federal Hazardous Materials Transportation Act, the Federal Resource Conservation and Recovery Act, as amended, 42 U.S.C. Subsection 6901 et seq., the Federal Toxic Substance Control Act, 15 U.S.C. Subsection 2601 et seq., the Federal Clean Air Act, the Federal Water Pollution Control Act, the California Health & Safety Code (including without limitation those chemicals known to cause cancer or reproductive toxicity, Subsection 25249.5, et seq.,) or rules and regulations of the EPA, the California Department of Health Services or any other agency or governmental board or entity having jurisdiction over the Security (collectively, the "Environmental Laws"). (c) Except as may be disclosed in the Environmental Audit or in the Borrower's Certificate, Trustor represents and warrants that, to its actual knowledge, as of the date hereof, no use, generation, manufacture, production, treatment, storage or disposal of any Hazardous Materials has occurred or is occurring on or within the Security in violation of any of the Environmental Laws and that Trustor will use reasonable efforts to not permit or suffer any such use, generation, manufacture, production, treatment, storage or disposal of Hazardous Materials on, under, about or within the Security in violation of any of the Environmental Laws or permit any lien or designation regarding environmental matters under any California or Federal law, rule, or regulation to attach to the Security or any portion thereof or any interest therein. Trustor represents and warrants that, to its actual knowledge, as of the date hereof, it has not received any notice from any governmental agency or any tenant of the Security with regard to such Hazardous Materials, and has received no notice that the environmental condition of the Security is in violation of any Environmental Law. (d) Except as may be disclosed in the Environmental Audit or in the Borrower's Certificate, Trustor represents and warrants that Trustor has not installed on or in the Security any asbestos containing material and, to Trustor's actual knowledge as of the date hereof, the Security does not contain, and has not in the past contained, any asbestos containing material in friable form, and there is no current or potential airborne contamination of the Security by asbestos fiber, including any potential contamination that would be caused by maintenance or tenant finish activities in the building(s). (e) Trustor represents and warrants that, to its actual knowledge, as of the date hereof, it has not received any notice that the soil, surface water, and ground water of or on the Security are not free from any spills of oil or other solid or liquid waste, toxic or hazardous substance or contaminate, and Trustor has no actual knowledge of any such spill. (f) In the event that any investigation, site monitoring, containment, clean-up, removal, restoration or other remedial work of any kind or nature (the "Remedial Work") is required under any applicable local, state or federal law or regulation, any judicial order, or by any governmental entity or person because of, or in connection with, the current or future presence, suspected presence, release or suspected release of a Hazardous Material in or about the air, soil, ground water, surface water or soil vapor at, on, about, under or within the Security (or any portion thereof), Trustor shall within forty-five (45) days after written demand for performance thereof by Beneficiary (or such shorter period of time as may be required under any applicable law, regulation, order or agreement), commence and thereafter diligently prosecute to completion, all such Remedial Work. All Remedial Work shall be performed by contractors reasonably approved in advance by Beneficiary, and under the supervision of a consulting engineer reasonably approved by Beneficiary. All costs and expenses of such Remedial Work shall be paid by Trustor including, without limitation, Beneficiary's reasonable attorneys' fees and out of pocket costs incurred in connection with monitoring or review of such Remedial Work. In the event Trustor shall fail to timely prosecute to completion such Remedial Work, after the expiration of any applicable notice and cure periods, Beneficiary may, but shall not be required to, cause such Remedial Work to be performed and all reasonable costs and expenses thereof, or incurred in connection therewith, shall be payable by Trustor within ten (10 days after written demand. Trustor shall have the right to contest, at Trustor's sole cost and expense, Trustor's requirement of any Remedial Work provided that: (i) as a condition to any such contest, Trustor shall deliver to Beneficiary, at Trustor's sole cost and expense, such test results, consultants' reports and other information regarding the then current environmental condition of the Security and the effect that any additional delay that may result from any such contest would have on such environmental condition, as Beneficiary may reasonably require; (ii) Trustor shall have no right to contest if the delay that might result from any such contest would result in any deterioration in the environmental condition of the Security or any portion thereof or in any deterioration in the environmental condition of any other property; (iii) Trustor shall have no such right to contest if, as a result of such contest, any governmental agency would have the right to claim a lien on all or any portion of the Security; and (iv) Trustor shall give prior written notice to Beneficiary of Trustor's intention to exercise such right of contest and, upon written request of Beneficiary, shall deliver to Beneficiary a good and sufficient bond or other security reasonably satisfactory to Beneficiary for the costs which would be incurred in complying with such requirement of Remedial Work. (g) Trustor shall provide Beneficiary with prompt written notice (a) upon Trustor's becoming aware of any release or threat of release of any Hazardous Materials upon, under or from the Security in violation of any of the Environmental Laws; (b) upon Trustor's receipt of any notice from any federal, state, municipal or other governmental agency or authority in connection with any Hazardous Materials located upon or under or emanating from the Security; and (c) upon Trustor's obtaining knowledge of any incurrence of expense by any governmental agency or authority in connection with the assessment, containment or removal of any Hazardous Materials located upon or under or emanating from the Security. (h) In the event that (1) there exists an Event of Default hereunder or under any of the Loan Documents or (2) Beneficiary reasonably believes that there may be a violation or threatened violation by Trustor of any requirements of Environmental Law or a violation or threatened violation by Trustor of any covenant under this Section 11, Beneficiary is authorized by itself, its agents, employees or workmen to enter at any reasonable time upon any part of the Real Property for the purposes of inspecting the same for Hazardous Materials and Trustor's compliance with this Section 11 and such inspections may include, without limitation, soil borings. Beneficiary's rights hereunder include its rights under California Civil Code Section 2929.5, as such Section may be amended from time to time. Trustor acknowledges that, pursuant to California Code of Civil Procedure Section 564(c), as such Section may be amended from time to time, Beneficiary may be entitled to the appointment of a receiver to enforce its rights under California Civil Code Section 2929.5. Trustor agrees to pay to Beneficiary, upon Beneficiary's demand, all out of pocket expenses, costs or other amounts incurred by Beneficiary in performing any inspection and/or testing for the purposes set forth in this clause (i), including, without limitation, all out of pocket expenses, costs or other amounts incurred by Beneficiary in obtaining the appointment of a receiver as aforesaid. Beneficiary is under no duty, however, to visit or observe the Real Property or to conduct tests, and any such acts by Beneficiary shall be for the sole purpose of protecting Beneficiary's security and preserving Beneficiary's and Trustee's rights under the Loan Documents. In no event shall any site visit, observation or testing by Beneficiary be a representation that Hazardous Materials are or are not present in, on, or under the Real Property, or that the construction is free from defective materials or workmanship, or that there has been or shall be compliance with any Loan Document or any applicable governmental law. Neither Trustor nor any other party is entitled to rely on any site visit, observation or testing by Beneficiary. Beneficiary owes no duty of care to protect Trustor or any other party against any Hazardous Materials, any negligent or defective design or construction of the Improvements, or any other adverse condition affecting the Real Property. (i) The foregoing provisions of this Section 11 do not apply to any ordinary use and incidental storage of small and insignificant amounts of substances reasonably necessary for the regular and ordinary maintenance of the Real Property, or consumed in the regular and ordinary use of common office business machines, nor to gasoline, oil, and other ordinary automotive fluids to the extent that they are contained in the common and ordinary manner in motor vehicles visiting the Real Property, in each case provided that the same does not constitute a violation of any of the Environmental Laws. 12. Independence of Security. Trustor shall not hereafter by act or omission permit any building or other improvement on premises not subject to the lien of this Deed of Trust to rely on the Security or any part thereof or any interest therein to fulfill any municipal or governmental requirement, and Trustor hereby assigns to Beneficiary any and all rights to give consent for all or any portion of the Security or any interest therein to be so used. Similarly, except as provided in the Parking Agreements, no part of the Security shall rely on any premises not subject to the lien of this Deed of Trust or any interest therein to fulfill any governmental or municipal requirement. Trustor shall not hereafter by act or omission impair the integrity of the Security as a single zoning lot, and as one or more complete tax parcels, separate and apart from all other premises. Any act or omission by Trustor which would result in a violation of any of the provisions of this Section shall be void. 13. No Other Liens. Trustor shall not consent, agree to, or permit any mortgage, lien, or security interest upon or affecting the Security or any part thereof except for the Permitted Encumbrances (as defined in Section 2 hereof), and as granted or permitted in this Deed of Trust and any other lien or security interest granted to Beneficiary. Trustor will promptly pay and discharge any and all amounts which are now or hereafter become liens against the Security whether or not superior to the lien hereof or to any assignment of rents and leases given to Beneficiary, subject to Trustor's right to contest taxes and mechanic's liens in accordance with this Deed of Trust. 14. Management. Trustor shall at all times retain an entity which is owned by, controlled by or under common control with JMB Realty Corporation or JMB Properties Co. to operate and manage the Security, and no change in such management shall be made without the prior written approval of Beneficiary, except to Heitman Properties, Ltd., and any such attempted change in management without such consent shall be void. The management agreement with JMB Properties Company dated January 1, 1987 may not be modified or amended and any successor agreement may not be entered into or any other management company appointed without Beneficiary's prior written approval. The management agreement, including payment of any fees thereunder or lien to which the manager shall be entitled, must be subordinate to the lien of this Deed of Trust. 15. Ground Lease. Trustor hereby represents and warrants to Beneficiary that there exist no ground leases relating to or executed in connection with the Security. 16. Sidewalks, Municipal Charges. Trustor will promptly pay and discharge any and all license fees and similar charges, with penalties and interest thereon, which may be imposed by the municipality in which the Security is situated, for the use of vaults, chutes, areas and other space beyond the lot line and under or abutting the public sidewalks in front of or adjoining the Security, and Trustor will promptly cure any violation of law and comply with any order of such municipality respecting the repair, replacement or condition of the sidewalk or curb in front of or adjoining the Security, and if Trustor fails to do same within any applicable time periods permitted by such law or order, Beneficiary may, upon ten (10) days written notice to Trustor, pay any and all such license fees or similar charges, with penalties and interest thereon, and the charges of the municipality for such repair or replacement, and any amount so paid or advanced by Beneficiary and all reasonable out of pocket costs and expenses incurred in connection therewith (including, without limitation, reasonable attorneys' fees), with interest thereon at the default rate specified in the Note, shall be a demand obligation of Trustor to Beneficiary, and, to the extent permitted by law, shall be added to the Indebtedness and shall be secured by the lien of this Deed of Trust. 17. Assignment of Rents and Leases. Trustor hereby presently, irrevocably, absolutely, and unconditionally grants, transfers, assigns and sets over unto Beneficiary all of its right, title and interest in and to all present and future leases, license agreements, concession agreements, lease termination agreements and other occupancy agreements of any nature, oral or written, of the Land and of space in the Improvements together with all modifications, supplements, extensions, renewals and replacements thereof now existing or hereafter made, and also together with the rights to sue for, collect and receive all rents, prepaid rents, additional rents, royalties, security deposits, damages payable upon default by tenant, or other sums in any of said leases provided to the lessor thereunder, profits, income, license fees, concession fees, lease termination fees and issues of the Security (collectively, the "Rents"), to be applied by Beneficiary in payment of the Indebtedness, and also together with any and all guaranties of the obligations of the tenants thereunder and the rights of Trustor to receive, hold and apply all bonds and security in all of said leases provided to be furnished to the lessor thereunder, and also together with the rights of Trustor to enforce any and all of the agreements, terms, covenants and conditions in all of said leases provided and to give notices thereunder. Beneficiary grants to Trustor a revocable license to collect the Rents as they become due and to enforce such leases, so long as no Event of Default exists hereunder. Beneficiary may receive and collect the Rents personally or through a receiver upon the occurrence of an Event of Default so long as any such Event of Default shall exist and during the pendency of any foreclosure proceeding and during any redemption period. Trustor agrees to consent to a receiver if this is believed necessary or desirable by Beneficiary to enforce its rights under this Section. Trustor shall not otherwise assign or pledge, or contract, expressly or by implication, to assign or pledge, any lease of the Land or space in the Improvements or the rights to sue for, collect and receive any Rents, or the rights to receive, hold and apply any bonds and security in any of said leases provided to be furnished to the lessor thereunder, or the rights to enforce any of the agreements, terms, covenants or conditions of said leases or to give notices thereunder, unless in each instance the written consent thereto of Beneficiary be first obtained. Nothing in this Deed of Trust shall be construed to obligate Beneficiary, expressly or by implication, to perform any of the covenants of Trustor as lessor under any of the leases hereinabove assigned or to pay any sum of money or damages therein provided to be paid by the lessor. If Beneficiary shall from time to time suffer or permit Trustor to sue for, collect or receive any Rents, or to receive, hold or apply any bonds or security under said leases, or to enforce any of the agreements, terms, covenants or conditions thereunder or to give notices thereunder, neither such sufferance nor permission shall constitute a waiver or relinquishment by Beneficiary of the rights hereunder and hereby assigned to Beneficiary with respect to any subsequent Rents, or with respect to any subsequent receipt, holding or application of bonds or security or any subsequent enforcement of such agreements, terms, covenants or conditions or any subsequent notices. 18. Future Leases. Trustor will not hereafter make any lease to any tenant, or amend, modify, terminate, renew or extend any lease (other than a renewal to which a tenant is entitled under the terms of an existing lease or contained in a lease that is subsequently approved by Beneficiary), affecting the Security unless Beneficiary shall first consent in writing to the form and substance of said lease or amendment, modification, renewal or extension, which consent shall not be unreasonably withheld. Leases (or amendments, modifications, renewals or extensions of then existing Leases) submitted for Beneficiary's review and approval shall be deemed approved if Beneficiary fails to respond (e.g. approve, reject, comment about, request more information or other reasonable response) within thirty (30) days from Beneficiary's receipt of the submitted request for approval. Trustor may, however, if the particular circumstances require, request an expedited review, in which case the lease shall be deemed approved if Beneficiary fails to respond within ten (10) business days of receipt. Notwithstanding the foregoing, a lease shall only be deemed approved if (i) the cover letter accompanying the lease submission clearly and conspicuously states that such lease will be automatically deemed approved under the Loan Documents if no response is forthcoming from Beneficiary, along with the date that such automatic approval would be effective, (ii) such lease will not be used to qualify for the reduction, release or earnout on any letter of credit, escrow, guarantee, indemnification or other form of additional collateral for the loan, nor will such lease be used to qualify for any right or privilege of Trustor under the Loan Documents which is triggered by, among other things, a debt service coverage test (however, leases expressly approved by Beneficiary may be used for such purposes), (iii) the lease submission date commences when Beneficiary actually receives a complete and final draft of the lease at the address for its Investment Services department set forth in the notice provision of this Deed of Trust, (iv) there is not Event of Default under the Loan Documents which remains uncured at the time such lease would be deemed approved, and (v) in the case of "expedited review" requests, the circumstances which require such expedited review are not caused solely by the Trustor, and such circumstances are clearly and fully explained in the cover letter accompanying the lease submission. All leases must be subordinate to the lien of this Deed of Trust unless Beneficiary otherwise specifies. Each lease must contain a provision that, upon notice to tenant by Beneficiary, the lease shall become superior, in whole or in part, to the lien of this Deed of Trust. Without limiting the foregoing, Beneficiary hereby reserves the right to subordinate this Deed of Trust to any lease subsequently made by recording in the Official Records of Santa Clara County in which this Deed of Trust is recorded a declaration to that effect, executed by Beneficiary, which declaration once so recorded shall be binding upon the tenant under such lease and such tenant's successors and assigns. To the extent any tenant estoppel certificate or agreement from a tenant relating to subordination and attornment for any Lease is required under this Deed of Trust or any other Loan Document, the forms attached hereto as Exhibit B and Exhibit C, respectively, shall be acceptable to Beneficiary for such purposes. Trustor will furnish to Beneficiary a true and complete copy of each lease, amendment, modification, extension, or renewal of lease, hereafter made by Trustor with respect to space in the Security within ten (10) days after execution and delivery of each such lease, amendment, modification, extension, or renewal by the parties thereto. Trustor shall also furnish to Beneficiary an original mortgagee subordination and attornment agreement executed by each tenant and an original estoppel, addressed to Beneficiary, from each tenant in form and substance satisfactory to Beneficiary. Trustor will from time to time upon demand of Beneficiary, confirm in writing the assignment to Beneficiary of any or all leases of the Land and space in the Improvements, and such written confirmation shall be in such form as Beneficiary shall require and as shall be necessary to make the same recordable. 19. Trustor's Obligations as Lessor. (a) Trustor shall, at Trustor's cost and expense, promptly and fully perform each and every covenant, condition, promise and obligation on the part of the lessor to be performed pursuant to the terms of each and every lease or letting, written or oral, now or hereafter made with respect to the Security or any part or parts thereof, and shall not suffer or permit there to exist any default in such performance on the part of such lessor or permit any event to occur which would give the tenant under any such lease the right to terminate the same or to offset rent. (b) Trustor shall give Beneficiary prompt written notice of any default under any lease or of the receipt by Trustor of any written notice of default from the lessee or its successors or assigns under a lease, and Trustor shall furnish to Beneficiary promptly any and all information which Beneficiary may reasonably request concerning the performance and observance of all covenants, agreements and conditions contained in the leases by the lessor thereunder to be kept, observed and performed and concerning the compliance with all terms and conditions of the leases. (c) In the event of any failure by Trustor to keep, observe or perform any covenant, agreement or condition contained in the leases or to comply with the terms and conditions of the leases, any performance, observance or compliance by Beneficiary pursuant to this Deed of Trust on behalf of Trustor shall not remove or waive, as between Trustor and Beneficiary, the corresponding Event of Default under the terms of this Deed of Trust. 20. Leases; Foreclosure. Any proceedings or other steps taken by Beneficiary to foreclose this Deed of Trust, or otherwise to protect the interests of Beneficiary hereunder, shall not operate to terminate the rights of any present or future tenant of space in the Improvements, notwithstanding that said rights may be subject and subordinate to the lien of this Deed of Trust, unless Beneficiary specifically elects otherwise in the case of any particular tenant. The failure to make any such tenant a defendant in any such foreclosure proceeding and to foreclose such tenant's rights will not be asserted by Trustor or any other defendant in such foreclosure proceeding instituted by Beneficiary to foreclose this Deed of Trust or otherwise protect the interests of Beneficiary hereunder. 21. Operating Agreements. Trustor will perform its obligations under all agreements relating to or executed in connection with the Security that require or provide for the operation of the Security in any manner and will not enter into any such agreements which would bind Beneficiary if Beneficiary becomes the owner of the Security, except for the Permitted Exceptions and Parking Agreements. 22. Events of Default. Each of the following shall constitute an "Event of Default" hereunder and shall entitle the Beneficiary to exercise its remedies hereunder and under any of the other Loan Documents or as otherwise provided by law: (a) Any payment of any installment of principal or interest due under the Note, or any escrow payment due under any of the Loan Documents, is not received by Beneficiary within five (5) business days following the date when such payment was due, or any other payment of money or indebtedness as required by this Deed of Trust or by any other Loan Document is not made within ten (10) days of when due and payable; (b) Failure of Trustor in the observance or performance of any covenant, promise or agreement provided in this Deed of Trust or in any other Loan Document other than relating to the payment of indebtedness or money ("failure to perform") for thirty (30) days after written notice to Trustor specifying the nature of the failure to perform; provided, however, that if the nature of such failure to perform is such that the same cannot be cured within such thirty (30) day period, such failure to perform shall not be deemed an Event of Default if Trustor shall within such period commence to cure that failure to perform and thereafter diligently prosecute the cure to completion, but in no event more than one hundred twenty (120) days in the aggregate. Notwithstanding anything contained herein to the contrary, the notice and cure period provided under this clause (b) shall not be applicable to and shall not be in addition to any specific notice and cure or performance period provided under any other provision of this Deed of Trust, and the specific notice and cure or performance period provided for in such provision shall control, except and to the extent that such provision expressly states that such notice or cure period is in addition to notice and cure periods provided elsewhere, and a failure by Trustor to cure a default under such provision within the applicable cure period shall be an Event of Default under this Deed of Trust; (c) Any representation, warranty, or statement of Trustor or the managing general partner of Trustor contained herein or in any of the Loan Documents proves to be untrue in any material respect as of the date when made; (d) Trustor or the managing general partner of Trustor shall (i) have an order for relief entered in a proceeding under Title 11, United States Code, whether such order shall result from a voluntary or involuntary petition, provided that, in the case of an involuntary filing, Trustor shall have also failed to obtain a dismissal within ninety (90) days of the petition date, (ii) seek or consent to the appointment of a receiver or trustee for itself or for any of the Security, (iii) file a petition or initiate a proceeding under the bankruptcy, insolvency, receivership, or similar laws of the United States, any state or any jurisdiction, or (iv) make a general assignment for the benefit of creditors; (e) A court shall enter an order, judgment or decree appointing, without the consent of Trustor or the managing general partner of Trustor, a receiver or trustee for it or for any of the Security or approving a petition filed against Trustor which seeks relief under the bankruptcy or other similar laws of the United States, any state or any jurisdiction, and such order, judgment or decree shall remain in force, undischarged or unstayed, ninety days after it is entered; (f) Without the prior written consent of the Beneficiary, which may be given or withheld in Beneficiary's sole and absolute discretion, whether voluntary or involuntary, by operation of law or otherwise, (i) the Security or any portion thereof, or interest therein, shall be mortgaged, encumbered, sold, assigned or otherwise transferred by the Trustor or by operation of law, including without limitation, the sale or execution of a contract to sell or option to purchase, assignment, pledge, grant of a security interest in, conditional sale, execution of a title retention agreement, lease for space within the Security containing an option to purchase, or other alienation of a property interest in the Security, or (ii) JMB Income Properties, Ltd.-XI or JMB Income Properties, Ltd.-XII, both Illinois general partnerships, transfer all or any portion of their respective interests in Trustor or cease to be the co- managing general partners of Trustor, responsible for and in control of the management and affairs of Trustor, or (iii) JMB Realty Corporation, a Delaware corporations, transfers all or any portion of its interest in or ceases to be the managing general partners of JMB Income Properties, Ltd.-XI or JMB Income Properties, Ltd.-XII, or (iv) the partnership agreement of Trustor or of such general partners is cancelled or materially amended or modified. Notwithstanding the foregoing to the contrary: (i) Provided that Beneficiary is notified at least thirty (30) days prior to such transfer, transfers of the partnership interests in Trustor or the partners of Trustor shall be permitted, provided that, immediately following such transfer, JMB Realty Corporation, an Illinois corporation ("JMB") or one or more majority-owned direct or indirect subsidiaries of JMB, or the shareholders of JMB, shall beneficially own and control, directly or indirectly, and in the aggregate, more than fifty percent (50%) of the interests in Trustor and the Security. Without limiting the foregoing, no transfer by a limited partner of its interest in JMB Income Properties, Ltd.-XI or in JMB Income Properties, Ltd.- XII shall constitute an Event of Default under the Loan Documents. (ii) Trustor shall have the right to a one-time sale, transfer or assignment in whole or in part of its interest in the Security to any party of equal qualification and creditworthiness, provided: (A) there then is no default under the Loan Documents; (B) a property inspection by Beneficiary or Beneficiary's designee shows that all reasonably necessary maintenance on or damage or destruction to the Security has been completed or repaired; (C) the proposed transferee shall be a Qualified Real Estate Investor (hereinafter defined); (D) the aggregate annual debt service coverage (based on Annual Net Income, as hereinafter defined) on the Indebtedness and any applicable secondary financing exceeds 1.3 times; (E) the proposed transferee has specific related real estate experience in the Metropolitan Statistical Area where the Security is located; (F) the proposed transferee must own or manage a minimum of 5,000,000 square feet of office space; (G) At least 90 days prior to such a transfer, Trustor must provide Beneficiary with all of the material provisions of such transfer including without limitation the proposed date of transfer, and the name, net worth, background and address of the proposed transferee and the purchase price; (H) Trustor shall provide Beneficiary with such evidence as Beneficiary may require that the proposed transferee shall fulfill each and every obligation of Trustor under the Loan Documents and that such transfer shall not affect or impair Beneficiary's security and rights under the Loan Documents; (I) such transfer may only occur during the first five Loan Years (as defined in the Note); (J) such notice received under (vii) above shall be accompanied by the payment to Beneficiary of a non- refundable fee in the amount of $168,750 in cash or certified check to be retained by Beneficiary in order to induce Beneficiary to allow the proposed transferee to assume the obligations of Trustor under the Loan Documents, and such fee shall be returned to Trustor if Beneficiary disapproves of such transfer; (K) the loan-to-value ratio based on a then current appraisal obtained at Trustor's expense and acceptable to Beneficiary must not exceed 75%; and (L) Trustor shall pay for all of Beneficiary's costs and expenses associated with the transfer, including without limitation, attorneys' fees charged by Beneficiary's staff counsel or special counsel. As used herein, the term "Qualified Real Estate Investor" as any reputable corporation, partnership, joint venture, joint-stock company, trust or individual with a minimum net worth of $50,000,000, real estate assets of $250,000,000, a minimum current cash position of $5,000,000, based in the United States and free from any bankruptcy, reorganization or insolvency proceedings or any criminal charges or proceedings and shall not have been, at the time of transfer or in the past, a litigant, plaintiff or defendant in any suit brought against or by Beneficiary. Beneficiary agrees to be reasonable in the review of such qualifications and agrees that if the prospective purchaser is a partnership, the net worth of the general partners thereof shall be included for the purposes of the foregoing net worth calculation. As used herein, the term "Annual Net Income" is defined as actual rental income (adjusted as set forth below), parking income and regular recurring charges paid by current tenants in occupancy of the Security for the preceding six (6) months, multiplied by two (2), less actual operating expenses (adjusted as set forth below) and real estate taxes and assessments relating to the preceding six (6) month period, multiplied by two (2). Rental income shall be reduced by the amount of any outstanding monetary obligations to any tenants (such as free rent, above standard improvements, moving allowances or other monetary tenant inducement for which the landlord has an outstanding responsibility) and shall exclude any extraordinary payment from a tenant which exceeds the regular amounts due throughout its lease term. Operating expenses, if not already included, shall be increased to include any customary annual costs at market rates (such as market rate management fees, repair and maintenance costs, janitorial costs and insurance costs) which an institutional owner would incur as an expense of owning the Security. Operating expenses shall exclude any extraordinary non- recurring expenses. With respect to any direct or indirect transfer of interests in the Security or in Trustor permitted under the Loan Documents, Beneficiary may require, as applicable, (i) that the transferee enter into an assumption agreement or other reasonably necessary amendments to any of the Loan Documents, (ii) new UCC financing statements, (iii) copies of organizational documents of any entities directly or indirectly assuming any obligations under the Loan Documents, (iv) an appropriate endorsement to Beneficiary's title insurance policy, (v) an attorney's opinion (as to due organization and authorization of assignee, as well as enforceability of assumption and related transfer documents, but not enforceability of existing Loan Documents) and (v) payment by Trustor of all reasonable costs of Beneficiary (including without limitation, staff and local attorneys' fees) incurred in connection with such transfer; or (g) A default occurs under the Environmental Indemnity. 23. Remedies Upon Default. Immediately upon the occurrence of any Event of Default, the Trustee and Beneficiary shall have the option, in addition to and not in lieu of or substitution for all other rights and remedies provided in this Deed of Trust or any other Loan Document or provided by law or in equity, and is hereby authorized and empowered by Trustor, to do any or all of the following: (a) Declare without notice the entire unpaid amount of the Indebtedness immediately due and payable, by commencing an action to foreclose this Deed of Trust as a mortgage, and/or by delivery to Trustee of a written declaration of default and demand for sale and of written notice of default and of election to cause to be sold the Security, which notice Trustee shall cause to be duly filed for record in case of foreclosure by exercise of the power of sale herein. (i) Beneficiary may elect to cause the Security or any part thereof to be sold under power of sale herein granted in any manner permitted by applicable law. In connection with any sale or sales hereunder, Beneficiary may elect to treat any of the Security which consists of a right in action or which is property that can be severed from the real property covered hereby or any improvements thereon without causing structural damage thereto as if the same were personal property, and dispose of same in accordance with applicable law, separate and apart from the sale of the real property. Any sale of any personal property hereunder shall be conducted in a manner permitted by Section 9501 or any other applicable section of the California Commercial Code. Where the Security consists of real and personal property or fixtures, whether or not such personal property is located on or within the real property, Beneficiary may elect in its discretion to exercise its rights and remedies against any or all of the real property, personal property, and fixtures in such order and manner as is now or hereafter permitted by applicable law. (ii) Without limiting the generality of the foregoing, Beneficiary may, in its sole and absolute discretion and without regard to the adequacy of its security, elect to proceed against any or all of the real property, personal property and fixtures in any manner permitted under Section 9501(4)(a) of the California Commercial Code; and if the Beneficiary elects to proceed in a manner permitted under Section 9501(4)(a) 9 (ii) of the California Commercial Code, the power of sale granted herein shall be exercisable with respect to all or any of the real property, personal property and fixtures covered hereby, as designated by Beneficiary, and the Trustee is hereby authorized and empowered to conduct any such sale of any real property, personal property and fixtures in accordance with the procedures applicable to real property. (iii) Where the Security consists of real property and personal property, any reinstatement of the obligation secured hereby, following an Event of Default and an election by Beneficiary to accelerate the maturity of said obligation, which is made by Trustor or any other person or entity permitted to exercise the right of reinstatement under Section 2924c of the California Civil Code or any successor statute, shall, in accordance with the terms of California Commercial Code Section 9501(4)(c)(iii), not prohibit the Beneficiary from conducting a sale or other disposition of any personal property or fixtures or from otherwise proceeding against or continuing to proceed against any personal property or fixtures in any manner permitted by the California Commercial Code; nor shall any such reinstatement invalidate, rescind or otherwise affect any sale, disposition or other proceeding held, conducted or instituted with respect to any personal property or fixtures prior to such reinstatement or pending at the time of such reinstatement. Any sums paid to Beneficiary in effecting any reinstatement pursuant to Section 2924c of the California Civil Code shall be applied to the secured obligation and to Beneficiary's and Trustee's reasonable out of pocket costs and expenses in the manner required by said Section 2924c. (iv) Should Beneficiary elect to sell any portion of the Security which is real property or which is personal property or fixtures that Beneficiary has elected under Section 9501(4)(a)(ii) of the California Commercial Code to sell together with real property in accordance with the laws governing a sale of real property, Beneficiary and Trustee shall give such notice of sale as may then be required by law. Thereafter, upon the expiration of such time and the giving of such notice as may then be required by law, and without the necessity of any demand on Trustor, Trustee, at the time and place specified in such notice of sale, shall sell such real property or part thereof at public auction to the highest bidder for cash in lawful money of the United States. Trustee may, and upon request of Beneficiary shall, from time to time, postpone any sale hereunder by public announcement thereof at the time and place noticed therefor. (v) If the Security consists of several lots, parcels or items of property, Beneficiary may: (i) designate the order in which such lots, parcels or items of property shall be offered for sale or sold, or (ii) elect to offer such lots, parcels or items through a single sale, or through two or more successive sales, or in any other manner Beneficiary deems in its best interest. Any person, including Trustor, Trustee or Beneficiary, may purchase at any sale hereunder, and Beneficiary shall have the right to purchase at any sale hereunder by crediting upon the bid price the amount of all,or any part of the indebtedness hereby secured. Should Beneficiary decide that more than one sale or other disposition of the Security be conducted, Beneficiary may, at its option, cause the same to be conducted simultaneously, or successively, on the same day, or at such different days or times and in such order as Beneficiary may deem to be in its best interests, and no such sale shall terminate or otherwise affect the lien of this Deed of Trust or any other Loan Document on any part of the Security not sold until all indebtedness secured hereby has been fully paid. In the event that the Beneficiary elects to dispose of the Security through more than one sale, Trustor agrees to pay the costs of each such sale and of any judicial proceedings wherein the same may be made, including reasonable compensation to Trustee, its agents and counsel, and to pay all out of pocket expenses, liabilities and advances made or incurred by Trustee and Beneficiary in connection with such sale or sales, together with interest on all such advances made by Trustee at the Default Rate. (vi) Should Beneficiary elect to foreclose by exercise of the power of sale herein, Beneficiary shall also deposit with Trustee this Deed of Trust and the Note and such receipts and evidence of expenditures made and secured hereby as Trustee may require, and notice of sale having been given as then required by law and after lapse of such time as may then be required by law after recordation of such notice of default, Trustee, without demand on Trustor, shall sell the Security at the time and place of sale fixed by it in such notice of sale as Beneficiary may direct, either as a whole or in separate parcels, as Beneficiary may determine, at public auction to the highest bidder for cash in lawful money of the United States, payable at time of sale. Beneficiary shall have the right to direct the order in which separate parcels shall be sold and Trustor shall have no right to direct the order in which separate parcels are sold. Trustee may postpone sale of all or any portion of the Security by public announcement at such time and place of sale, and from time to time thereafter may postpone such sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to such purchaser its deed conveying the Security, or any portion thereof, so sold, but without any covenant or warranty, express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustor, Trustee or Beneficiary, may purchase at such sale. (b) Proceed against the Personal Property in accordance with Beneficiary's rights and remedies with respect to the Personal Property, including the right to sell the Personal Property together with the Real Property, separately, and without regard to the remainder of the Security in accordance with Beneficiary's rights and remedies provided by the California Uniform Commercial Code as well as other rights and remedies available at law or in equity. (c) Beneficiary may, at Trustor's expense, cause to be brought down to date a title examination and tax histories of the Security, procure title insurance or title reports or, if necessary, procure new abstracts and tax histories. (d) Procure an updated or entirely new environmental audit of the Security including building, soil, ground water and subsurface investigations; have the Improvements inspected by an engineer or other qualified inspector and procure a building inspection report; procure an MAI or other appraisal of the Security or any portion thereof; enter upon the Security at any time and from time to time to accomplish the foregoing and to show the Security to potential purchasers and potential bidders at foreclosure sale; make available to potential purchasers and potential bidders all information obtained pursuant to the foregoing and any other information in the possession of Beneficiary regarding the Security. Either by itself or by its agent to be appointed by it for that purpose or by a receiver appointed by a court of competent jurisdiction, as a matter of strict right, without notice and without regard to the adequacy or value of any security for the Indebtedness or the solvency of any party bound for its payment, to take possession of the Security and, whether or not Beneficiary has taken possession of the Security, to operate the Security, Trustor hereby waiving any right Trustor might have to object to or oppose any such possession, and to collect and apply the Rents, including those past due and unpaid, in such order and manner as Beneficiary or such receiver in its sole discretion shall consider advisable, to or upon the following, in such order and amounts as Beneficiary shall elect: the expenses of receivership, if any; the proper costs of upkeep, maintenance, repair and/or operation of the Security; the repayment of any sums theretofore or thereafter advanced pursuant to the terms of this Deed of Trust; the interest then due or next to become due upon the Indebtedness; the taxes and assessments upon the Security then due or next to become due; and/or the unpaid principal of such Indebtedness. The collection and/or receipt of Rents from the Security by Beneficiary, its agent or receiver, after declaration of default and election to cause the Security to be sold under and pursuant to the terms of this Deed of Trust, shall not affect or impair such default or declaration of default or election to cause the Security to be sold or any sale proceedings predicated thereon, but such proceedings may be conducted and sale effected notwithstanding the receipt and/or collection of any such Rents. Any such Rents in the possession of Beneficiary, its agent or receiver, at the time of sale and not theretofore applied as herein provided, shall be applied in the same manner and for the same purposes as the proceeds of the sale. Beneficiary's rights hereunder include its rights under California Code of Civil Procedure Section 564, as such Section may be amended from time to time. Except for damage caused by Beneficiary's or Beneficiary's agents', employees', contractors', successors' and assigns' willful misconduct or gross negligence, Trustor hereby waives any claim Trustor may have against Beneficiary for mismanagement of the Security during Beneficiary's operation of the Security under this subparagraph or as mortgagee in actual possession under applicable statutes. (f) Beneficiary may, at its option, pay, perform or observe any defaulted term, covenant or condition contained herein or in any lease, the Management Agreement, the Parking Agreements or any other Loan Document, and all payments made or out of pocket costs or expenses incurred by Beneficiary in connection therewith shall be secured hereby and shall be, within ten (10) days after written demand, repaid by Trustor to Beneficiary with interest thereon at the default rate provided in the Note. Beneficiary shall be the sole judge of the necessity for any such actions and of the amounts to be paid. Beneficiary is hereby empowered to enter and to authorize others to enter upon the Security or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without hereby becoming liable to Trustor or any person in possession holding under Trustor. (g) Apply against the Indebtedness in such order as Beneficiary shall determine any funds held for the benefit of Trustor in escrow by Beneficiary or by any third-party escrow agent under any of the Loan Documents, including without limitation any funds held under the escrow established by Section 5 of this Deed of Trust. (h) In the event of any sale of the Security pursuant to Section 23(a), the proceeds of any such sale which are applied in accordance with this Deed of Trust shall be applied in the order following to: (i) all out of pocket expenses incurred for the collection of the Indebtedness and the foreclosure of this Deed of Trust, including reasonable compensation to Trustee and Beneficiary, Trustee's and Beneficiary's agents and attorneys; (ii) all out of pocket sums expended or incurred by Beneficiary and Trustee directly or indirectly in carrying out the terms, covenants and agreements of the Note or notes evidencing the Indebtedness, of this Deed of Trust and any other Loan Documents, together with interest thereon as therein provided; (iii) all late payment charges, prepayment fees, advances and other amounts due under any of the Loan Documents; (iv) all accrued and unpaid interest upon the Indebtedness; (v) the unpaid principal amount of the Indebtedness; and (vi) the surplus, if any, to the person or persons legally entitled thereto. In the event of any acceleration of the Indebtedness pursuant to paragraph (a) of this Section, Trustor shall pay to Beneficiary together with the principal indebtedness and interest thereon an amount equal to the prepayment fee provided for in the Note, and such fee shall be included as part of the Indebtedness, provided, however, that in the event that Trustor reinstates the loan evidenced by the Note, Trustor shall not be obligated to pay any prepayment fee or premium on account of such acceleration. (i) As described in Section 36 of this Deed of Trust, Beneficiary may, to the extent permitted under California Code of Civil Procedure Section 726.5, as such Section may be amended from time to time ("Section 726.5"), exercise the rights and remedies of an unsecured creditor to the extent permitted by law thereunder. In the event Beneficiary so elects, pursuant to Section 726.5 and this Deed of Trust, the valuation of the real property, the determination of the environmentally impaired status of such security and any cause of action for a money judgement shall, at the request of Beneficiary, be referred to a referee in accordance with California Code of Civil Procedure Sections 638 et seq. Such referee shall be an M.A.I. appraiser selected by Beneficiary and approved by Trustor, which approval shall not be unreasonably withheld or delayed. The decision of such referee shall be binding upon both Trustor and Beneficiary, and judgment upon the award rendered by such referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (j) Subject to the provisions of Section 36 of this Deed of Trust, Beneficiary may, in accordance with Section 736, as such section may be amended from time to time, bring an action against Trustor for breach of any "environmental provision" (as such term in defined in Civil Code Section 736) made by Trustor herein or in any other Loan Document, for the recovery of damages and/or the enforcement of any such "environmental provision". Neither Trustee nor Beneficiary shall be under any obligation to make any of the payments or do any of the acts referred to in this Section and any of the actions referred to in this Section may be taken by Beneficiary irrespective of whether any notice of default or election to sell has been given hereunder and without regard to the adequacy of the security for the indebtedness evidenced by the Note. Failure to exercise any right, power or remedy hereunder shall not constitute a waiver of the Event of Default or of the right to exercise such option at a later time, or a waiver of the right to exercise such option, right, power or remedy in the event of any other Event of Default or circumstance specified above. 24. Acceleration Interest. In addition to any late payment charge which may be due under the Note, Trustor shall pay interest on all sums due hereunder at a rate (the "Default Rate") equal to the lesser of (i) the interest rate set forth in the Note plus four percent (4%) per annum, or (ii) the maximum rate that the parties may contract for under applicable law, from and after the first to occur of the following events: if Beneficiary elects to cause the acceleration of the Indebtedness; if an Event of Default occurs under Section 22(d) or 22(e) of this Deed of Trust (which is not cured within any applicable grace period afforded therein); or if all sums due hereunder are not paid on the Maturity Date as set forth in the Note. 25. Late Charge. In the event any sums principal, interest or escrow payments due under the Note, this Deed of Trust or any other Loan Document are not paid by Trustor within five (5) business days of when due, without regard to any cure or grace period, Trustor shall pay to Beneficiary a late charge for the month during which such payment is not made when due and for each month or fraction thereof that such sum remains unpaid, equal to the lesser of four percent (4%) of such installment or the maximum rate that the parties may contract for under applicable law, as the reasonable estimate by Beneficiary and Trustor of a fair average compensation for the loss that may be sustained by Beneficiary due to the failure of Trustor to make timely payments, and such amount shall be secured hereby. Such late charge shall be paid without prejudice to the right of Beneficiary to collect any other amounts provided to be paid or to declare an Event of Default under this Deed of Trust or any other Loan Document. 26. Waiver of Statutory Rights. Trustor agrees, to the full extent permitted by law, that in an Event of Default on the part of Trustor hereunder, neither Trustor nor anyone claiming through or under Trustor will set up, claim, or seek to take advantage of any moratorium, reinstatement, forbearance, appraisement, valuation, stay, homestead, extension, exemption or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed of Trust, or the sale of the Security, or the delivery of possession thereof immediately after such sale to the purchaser at such sale, and Trustor, for itself and all who may at any time claim through or under it, hereby waives to the full extent that it may lawfully do so, the benefit of all such laws, and any and all rights to have the assets subject to the security interest of this Deed of Trust marshalled upon any foreclosure or sale under the power granted herein. 27. Security Interest. This Deed of Trust shall, as to any equipment and other Personal Property covered hereby and all additions thereto, substitutions therefore and proceeds thereof, be deemed to constitute a security agreement, and Trustor, as debtor, hereby grants to Beneficiary, as secured party, a security interest therein pursuant to the California Uniform Commercial Code. Trustor agrees, upon request of Beneficiary, to furnish an inventory of Personal Property owned by Trustor and subject to this Deed of Trust and, upon request by Beneficiary, to execute and file and/or record all at Trustor's expense any supplements to this Deed of Trust, any separate security agreement and any financing statements and continuation statements in order to include specifically said inventory of Personal Property or otherwise to perfect the security interest granted hereby. Without the prior written consent of Beneficiary, Trustor shall not create or suffer to be created any other security interest in said property, including replacements and additions thereto. Except as previously disclosed to and approved by Beneficiary in writing, Trustor warrants and agrees that there is no existing financing statement covering such property, or any part thereof, on file in any public office (other than those in favor of Beneficiary, as secured party) and agrees that all or such portion of any such property now or hereafter subject to this Deed of Trust is, and shall be, kept (except with the written consent of Beneficiary) free and clear from any other lien, security interest or encumbrance. Upon any Event of Default, Beneficiary shall have all of the rights and remedies provided in said Code or otherwise provided by law or by this Deed of Trust, including but not limited to the right to require Trustor to assemble such Personal Property and make it available to Beneficiary at a place to be designated by Beneficiary which is reasonably convenient to both parties, the right to take possession of such Personal Property with or without demand and with or without process of law and the right to sell and dispose of the same and distribute the proceeds according to law. The parties hereto agree that any requirement of reasonable notice shall be met if Beneficiary sends such notice to Trustor at least ten (10) days prior to the date of sale, disposition or other event giving rise to the required notice, and that the proceeds of any disposition of any such Personal Property may be applied by Beneficiary first to the reasonable expenses in connection therewith, including reasonable attorneys' fees and legal expenses incurred, and then to payment of the Indebtedness in such order and amounts as Beneficiary shall elect. With respect to the Personal Property that has become so attached to the Real Property that an interest therein arises under the real property law of the State, this Deed of Trust shall also constitute a financing statement and a fixture filing under the California Uniform Commercial Code. 28. Right of Entry. Subject to the rights of tenants under the tenant leases, Beneficiary and Beneficiary's representatives may at all times upon five (5) days prior notice to Trustor (except in the case of an emergency, in which case no notice shall be required) enter upon the Security and inspect the same, or cause it to be inspected by agents, employees, or independent contractors of Beneficiary, and show the same to others, but Beneficiary shall not be obligated to make any such entry or inspection. Beneficiary's rights hereunder shall include its rights under California Civil Code Section 2929.5 as such Section may be amended from time to time. 29. Estoppel Certificate. Both Trustor and Beneficiary, within fifteen (15) days after written request from the other party, will furnish a signed statement in writing, duly acknowledged, of the amount then due or outstanding hereunder and whether or not any offsets or defenses exist against the Indebtedness, and if so, specifying such offsets and defenses. Upon request by Beneficiary, Trustor shall exercise any right it may have to request an estoppel certificate from any or all of the tenants on the Security within fifteen (15) days following Beneficiary's request. 30. Annual Statements. Trustor shall, within ninety (90) days after the end of each fiscal year of Trustor, deliver to Beneficiary a balance sheet, statement of sources and uses, rent roll acceptable to Beneficiary, and a statement of operating cash flow and accounts receivable in reasonable detail. These annual reports are to be certified by a managing general partner of Trustor, confirming that they have been prepared in accordance with generally accepted accounting principles together with any "Notes to Financial Statements". In addition, Trustor agrees to upon request provide Beneficiary with unaudited quarterly cash flow reports and current rent roll and Trustor agrees to provide a proforma income statement and current expense statement for the current and prior year by January 15 of the current year. Beneficiary may, at any time, require that the annual reports be accompanied by an unqualified opinion of independent certified public accountants who are satisfactory to Beneficiary, the cost of which shall be paid by Trustor, provided however, that in no event shall Trustor be required to deliver the same prior to the date which is the later of (i) 90 days after Beneficiary's request or (ii) 90 days after the end of Trustor's fiscal year. If Trustor omits to prepare and deliver promptly any report required by this Section, Beneficiary shall have the right, but not the obligation, in addition to exercising any remedy for an Event of Default as provided for in this Deed of Trust, to make an audit of all books and records of Trustor and its beneficiaries, including without limitation their bank accounts, which in any way pertain to the Security, and to prepare the statement or statements which Trustor failed to procure and deliver. Such audit shall be made and such statements shall be prepared by an independent Certified Public Accountant to be selected by Beneficiary. Trustor shall pay all expenses of the audit and other services, which expenses shall be secured hereby as part of the Indebtedness and shall be immediately due and payable with interest thereon at the Default Rate set forth herein. Beneficiary shall use reasonable care to maintain the confidentiality of any information received pursuant to this Section and all other non-public information about Trustor or any indemnitor or guarantor or the physical condition of the Security; provided, however, that Beneficiary may disclose such information to its officers, employees, directors, agents, loan correspondents, independent auditors, engineering consultants, counsel or similar professionals, and to any prospective transferee (or agent or broker of such transferee) of all or any portion of Beneficiary's investment in connection with a contemplated sale of the loan evidenced by the Note, or as Beneficiary may deem necessary to allow for a fair sale of the Security in any foreclosure sale, and may disclose to such other persons or entities such information (i) as may become generally available to the public, (ii) as shall be required or appropriate in any report, statement or testimony submitted to, or made available in any audit conducted by, any municipal, state or federal regulatory body, the National Association of Insurance Commissioners or similar organizations or their successors, or any other regulatory or rating agency or company, (iii) as shall be required or appropriate in response to any summons or subpoena or in connection with any litigation, or (iv) to the extent Beneficiary shall believe it appropriate to protect Beneficiary's investment, or in order to comply with any law, order, regulation or ruling applicable to Beneficiary. 31. Rights Cumulative. Each right and remedy of Beneficiary under this Deed of Trust, the Note and any other Loan Documents, shall be in addition to every other right and remedy of Beneficiary and such rights and remedies may be enforced separately or in any combination. 32. Subrogation. To the extent that proceeds of the Indebtedness are used to pay any outstanding lien, charge or encumbrance affecting the Security, such proceeds have been advanced by Beneficiary at Trustor's request, and Beneficiary shall be subrogated to all rights, interest and liens owned or held by any owner or holder of such outstanding liens, charges and encumbrances, irrespective of whether such liens, charges or encumbrances are released of record; provided, however, that the terms and provisions hereof shall govern the rights and remedies of Beneficiary and shall supersede the terms, provisions, rights, and remedies under the lien or liens to which Beneficiary is subrogated hereunder. 33. No Waiver. Any failure by Beneficiary or Trustee to insist upon the strict performance by Trustor of any of the terms and provisions hereof shall not be deemed to be a waiver of any of the terms and provisions hereof, and Beneficiary, notwithstanding any such failure, shall have the right thereafter to insist upon the strict performance by Trustor of any and all of the terms and provisions hereof to be performed by Trustor. 34. Deed of Trust Extension. The lien hereof shall remain in full force and effect during any postponement or extension of the time of payment of the Indebtedness, or of any part thereof, and any number of extensions or modifications hereof, or any additional notes taken by Beneficiary, shall not affect the lien hereof or the liability of Trustor or of any subsequent obligor to pay the Indebtedness unless and until such lien or liability be expressly released in writing by Beneficiary. 35. Indemnification. Trustor shall indemnify and hold Beneficiary harmless from and against all obligations, liabilities, losses, costs, expenses, fines, penalties or damages (including reasonable attorneys' fees) which Beneficiary may incur by reason of this Deed of Trust or with regard to the Security prior to the exercise of any remedies under this Deed of Trust. Trustor shall defend Beneficiary against any claim or litigation involving Beneficiary for the same, and shall have the right to select counsel reasonably acceptable to Beneficiary. In the event that Beneficiary incurs such obligation, liability, loss, cost, expense, fine, penalty or damage, then Trustor shall reimburse Beneficiary within ten (10) days of demand. Any amount owed Beneficiary under this provision shall bear interest at the Default Rate set forth herein and shall be secured hereby. 36. Nonrecourse. Notwithstanding any provision herein or in any other Loan Document to the contrary, Trustor's liability for repayment of the Indebtedness or the performance of any obligation hereunder or under any Loan Document shall be limited to the Security, except as provided in this Section 36. Accordingly, no judgment for the repayment of the Indebtedness or the performance of any obligation, or to collect any amount payable under any of the Loan Documents shall be enforced against Trustor or any other party personally in any action to foreclose this Deed of Trust or to otherwise realize upon the Security or to collect any amount payable under any Loan Document. Nothing herein contained shall be construed as prohibiting Beneficiary from exercising any and all remedies which the Loan Documents permit, including the right to bring actions or proceedings (including an action or suit for judicial foreclosure) against Trustor and to enter a judgment against Trustor, so long as the exercise of any remedy does not extend to obtaining a judgment in the nature of a deficiency judgment or to the or the execution against or recovery out of any property of Trustor or any direct or indirect partner in Trustor other than the Security or other security furnished under the Loan Documents on account of a judgment in the nature of a deficiency judgment. Notwithstanding the foregoing limitations, Trustor and its general partners (but not any other sub-tier entities) shall be liable for the following acts or omissions, to the extent described: (a) (i) misapplying (i.e. using in a manner other than as permitted under the Loan Documents) any condemnation awards or insurance proceeds attributable to the Security, to the full extent of such awards or proceeds so misapplied; (ii) at the time of foreclosure or conveyance in lieu thereof, failing to turn over any unapplied security deposits attributable to the Security and required to be held by Trustor under the terms of any and all leases, to the full extent of such failure; (iii) collecting any rents in advance in violation of any covenant contained in the Loan Documents, to the full extent of such rents so collected in advance; (iv) committing fraud, intentional misrepresentation or waste in connection with the operation of the Security or the making of the loan secured hereby, to the full extent of any remedies available at law or in equity; (v) failing to pay when due any debt service on any indebtedness related to the Security, operating and maintenance charges, insurance premiums, deposits into a reserve for replacements or any other sums due under the Loan Documents (the existence of which are known to Trustor), but only to the extent that gross revenues from the Security during the six (6) months prior to a notice of acceleration to Trustor through the date of foreclosure or conveyance in lieu thereof were otherwise sufficient to pay such expenses but were not so used; and (b) Under any separate guaranty, master lease or indemnity agreement from Trustor or its general partners including, but not limited to, the Environmental Indemnity, provided that such agreement expressly states that recourse thereunder is an exception to the limitation on liability provided herein. Notwithstanding any provision hereof to the contrary, Beneficiary shall be permitted to bring an action against Trustor and its general partners personally (but not against any sub-tier entities) and to execute against and recover out of any property of Trustor or its general partners (but not against or out of property of any other sub-tier entity), for all sums due pursuant to the Loan Documents to the extent permitted by the terms of Section 726.5, and to have the rights and remedies of an unsecured lender to the extent permitted thereunder. If Beneficiary exercises the rights and remedies of an unsecured creditor in accordance with this grammatical paragraph, Trustor and its general partners (but not any other sub-tier entities) promise to pay Beneficiary, on demand by Beneficiary, following the exercise, all amounts owed to Beneficiary under the Loan Documents, and Trustor and its general partners (but not any other sub-tier entity) agree that Trustor and its general partners (but not any other sub-tier entity) will be personally liable for the payment of all such sums. Notwithstanding anything herein or in any other Loan Document to the contrary, no present or future constituent partner in or agent of the general partners of Trustor or their respective successors or assigns, nor any shareholder, officer, director, employee, trustee, beneficiary or agent of any corporation or trust of agent of Trustor or of any constituent partner in Trustor shall be personally liable, directly or indirectly under or in connection with the Note, this Deed of Trust or any other Loan Document, or any instrument or certificate securing or otherwise executed in connection with the Note, this Deed of Trust, or any other Loan Document or any amendments or modifications thereto made at any times heretofore or hereafter and Beneficiary and Beneficiary's successors and assigns hereby waive such personal liability. Accordingly, with respect to the foregoing exceptions to the non-recourse provisions contained in Sections 36(a) and 36(b) of this Deed of Trust, and the Environmental Indemnity, Beneficiary's recourse shall be limited solely to the assets of Trustor and its general partners (but of no other sub-tier entity). For the purposes of the Note, this Deed of Trust, each of the other Loan Documents and any such instruments or certificates and any amendments and modifications thereto, neither a negative capital account of any constituent partner in Trustor nor any obligation to restore any negative capital account of Trustor or of any constituent partner in Trustor shall at all times be deemed to be the property or asset of Trustor or any other constituent partner and neither Beneficiary nor its successors and assigns shall have the right to collect, enforce or proceed against or with respect to any such negative capital account or a partner's obligation to restore or contribute. As used in this paragraph, "constituent partner" means a partner in Trustor or in a partnership that has a direct or indirect interest (through one or more partnerships) in Trustor. 37. Attorneys' Fees. Any reference to "attorney fees", "attorneys' fees" or attorney's fees" in this document means both the reasonable out of pocket fees, charges and costs incurred by Beneficiary or Trustee through Beneficiary's or Trustee's retention of outside legal counsel, paralegals or legal assistants, and the reasonable allocable fees, costs and charges for services rendered by Beneficiary's in-house counsel, paralegals and legal assistants. Any reference to "attorney fees", "attorneys' fees" or attorney's fees" in this document shall also include but not be limited to those reasonable out of pocket attorneys or legal fees, costs and charges incurred by Beneficiary or Trustee in the collection of any Indebtedness, the enforcement of obligations hereunder, the protection of the Security, the appointment of a receiver as permitted hereunder, the foreclosure of this Deed of Trust, the sale of the Security by power of sale under the Loan Documents , any action by Beneficiary pursuant to Section 726.5, the defense of actions arising hereunder and the collection, protection or setoff of any claim Beneficiary may have in a proceeding under Title 11, United States Code, or any state bankruptcy or insolvency statute. Attorneys' fees provided for hereunder shall accrue whether or not Beneficiary has provided notice of default or of an intention to exercise its remedies for such default. Furthermore, any reference in this Deed of Trust or any other Loan Document to "out of pocket" fees, costs, charges or expenses shall include attorneys' fees as described herein, including, without limitation, any reasonable allocable fees, costs, charges and expenses for services rendered by Beneficiary's in-house counsel, paralegals or legal assistants. 38. Trustee's Costs and Expenses; Governmental Charges. Trustor shall pay all costs, fees and expenses of Trustee, its agents and counsel in connection with the performance of its duties hereunder, including without limitation the cost of any trustee's sale guaranty or other title insurance coverage ordered in connection with any foreclosure proceedings hereunder, and shall pay all taxes (except federal and state income taxes) or other governmental charges or impositions imposed by any governmental authority on Trustee or Beneficiary by reason of their interest in the Loan Documents. 39. Protection of Security; Costs and Expenses. Trustor shall appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee, and shall pay all costs and expenses, including without limitation cost of evidence of title and reasonable attorneys' fees, in any such action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Deed of Trust or to enforce or establish any other rights or remedies of Beneficiary hereunder (including, without limitation, any action pursuant to Section 726.5). If Trustor fails to perform any of the covenants or agreements contained in this Deed of Trust within applicable notice or cure periods, if any, or if any action or proceeding is commenced which affects Beneficiary's or Trustee's interest in the Security or any part thereof, including, but not limited to, eminent domain, code enforcement, or proceedings of any nature whatsoever under any federal or state law, whether now existing or hereafter enacted or amended, relating to bankruptcy, insolvency, arrangement, reorganization or other form of debtor relief, or to a decedent, then Beneficiary or Trustee may, but without obligation to do so and without notice to or demand upon Trustor and without releasing Trustor from any obligation hereunder, make such appearances, disburse such sums and take such action as Beneficiary or Trustee deems necessary or appropriate to protect Beneficiary's or Trustee's interest, including, but not limited to, disbursement of reasonable attorneys' fees, entry upon the Security to make repairs or take other action to protect the security hereof, and pay, purchase, contest or compromise any encumbrance, charge or lien which in the judgment of either Beneficiary or Trustee appears to be prior or superior hereto. Trustor further agrees to pay all reasonable expenses of Beneficiary or Trustee (including without limitation fees and disbursements of counsel) incident to the protection of the rights of Beneficiary hereunder, or to enforcement or collection of payment of the Indebtedness, whether by judicial or non-judicial proceedings, or in connection with any bankruptcy, insolvency, arrangement, reorganization or other debtor relief proceeding of Trustor, or otherwise. Any amounts disbursed by Beneficiary or Trustee pursuant to this Section shall be additional indebtedness of Trustor secured by the Loan Documents as of the date of disbursement and shall bear interest at the Default Rate. All such amounts shall be payable by Trustor within ten (10) days of demand. Nothing contained in this Section shall be construed to require Beneficiary or Trustee to incur any expense, make any appearance, or take any other action. 40. Notices. Any notice, demand, request, statement or consent made hereunder shall be in writing, signed by the party giving such notice, request, demand, statement, or consent, and shall be delivered personally, or delivered to a reputable overnight delivery service providing a receipt, or deposited in the United States mail, postage prepaid and registered or certified mail, return receipt requested, addressed as set forth below or to such other address within the continental United States of America as may have theretofore have been designed in writing. The effective date of any notice given as aforesaid shall be the date of personal service, one (1) business day after delivery to such overnight delivery service, or three (3) business days after being deposited in the United States mail, whichever is applicable. For purposes hereof, the addresses are as follows: If to Beneficiary: Connecticut General Life Insurance Company c/o CIGNA Investments, Inc. 900 Cottage Grove Road Hartford, Connecticut 06152-2215 Attn: Investment Services, S-319 with a copy to: CIGNA Corporation Investment Law Department 900 Cottage Grove Road Hartford, Connecticut 06152-2215 Attn: Real Estate Division, S-215A If to Trustor: JMB/San Jose Associates c/o JMB Realty Corporation 900 N. Michigan Avenue Chicago, Illinois 60611 Attn: Director of Finance With a copy to: Pircher, Nichols & Meeks 1999 Avenue of the Stars Los Angeles, CA 90067 Attn: Real Estate Notices (DSB) 41. Reconveyance. Upon the payment in full of all sums secured by this Deed of Trust, Beneficiary shall request Trustee to reconvey the Security and shall surrender this Deed of Trust and all notes evidencing indebtedness secured by this Deed of Trust to Trustee. Upon payment of its fees and any other sums owing to it under this Deed of Trust, Trustee shall reconvey the Security without warranty to the person or persons legally entitled thereto. Such person or persons shall pay all costs or recordation, if any. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto." Five (5) years after issuance of such full reconveyance, Trustee may destroy said notes and this Deed of Trust unless otherwise directed by Beneficiary. 42. Applicable Law. The provisions hereof shall be construed in accordance with the laws of the State of California. 43. Substitution of Trustee. Beneficiary may remove Trustee at any time or from time to time for any reason (with or without cause) and appoint a successor trustee, and upon such appointment, all powers, rights, duties and authority of Trustee, as aforesaid, shall thereupon become vested in such successor. Such substitute trustee shall be appointed by written instrument duly recorded in the county or counties where the Security covered hereby is located, which appointment may be executed by any authorized agent of Beneficiary or in any other manner permitted by applicable law. 44. Invalidity. If any provision of this Deed of Trust shall be held invalid or unenforceable, the same shall not affect in any respect whatsoever the validity of the remainder of this Deed of Trust. 45. Captions. The captions in this instrument are inserted only as a matter of convenience and for reference, and are not and shall not be deemed to be any part hereof. 46. Modifications. This Deed of Trust may not be changed or terminated except in writing by both Trustor and Beneficiary. The provisions of this Deed of Trust shall extend and be applicable to all renewals, amendments, extensions, consolidations, and modifications of the other Loan Documents, and any and all references herein to the Loan Documents shall be deemed to include any such renewals, extensions, amendments, consolidations, or modifications thereof. 47. Bind and Inure. The provisions of this Deed of Trust shall be binding on Trustor and its heirs, successors and assigns, and any subsequent owners of the Security. The covenants of Trustor herein shall run with the land, and this Deed of Trust and all of the covenants herein contained shall inure to the benefit of Beneficiary, its successors and assigns. 48. Replacement of Note. Upon receipt of evidence reasonably satisfactory to Trustor of the loss, theft, destruction or mutilation of the Note, Trustor will execute and deliver, in lieu thereof, a replacement Note,identical in form and substance to the Note and dated as of the date of the Note, and upon such execution and delivery all references in this Deed of Trust to the Note shall be deemed to refer to such replacement Note. 49. Time of the Essence. Time is of the essence with respect to each and every covenant, agreement and obligation of Trustor under this Deed of Trust, the Note and any of the other Loan Documents. Amendment and Restatement. This Deed of Trust amends, modifies and restates in its entirety that certain Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated September 29, 1986 from Trustor in favor of Beneficiary and recorded in the Official Records of Santa Clara County as Instrument No. 8963704, together with any and all extensions, modifications and amendments thereto (the "Original Deed of Trust"). All references to the "Deed of Trust" contained herein or in any of the other Loan Documents shall mean the Original Deed of Trust as restated hereby. Trustor covenants and agrees that there are no defenses or set-offs with respect to this Deed of Trust, the indebtedness secured by same, or with respect to the collection or enforcement thereof. Trustor further covenants that each and every provision of this Deed of Trust are in full force and effect and are lawful and binding obligations of the Trustor and are enforceable in accordance with their terms. Nothing herein contained shall be construed to impair the lien created by the Original Deed of Trust or the priority thereof. The parties do not intend this agreement to be construed as a novation of the Note or any other Loan Document. REQUEST FOR NOTICE Trustor hereby requests that a copy of any Notice of Default and Notice of Sale as may be required by law be mailed to Trustor at its address above stated. IN WITNESS WHEREOF, Trustor has duly executed this Deed of Trust as of the day and year first above written. TRUSTOR: JMB/SAN JOSE ASSOCIATES, an Illinois general partnership By: JMB Income Properties, Ltd.-XI, an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: By: JMB Income Properties, Ltd.-XII, an Illinois limited partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Name: Its: AMENDED AND RESTATED DEED OF TRUST, SECURITY AGREEMENT WITH ASSIGNMENT OF RENTS AND FIXTURE FILING DEED OF TRUST, SECURITY AGREEMENT WITH ASSIGNMENT OF RENTS AND FIXTURE FILING TABLE OF CONTENTS Page 1. Payment of Indebtedness. . . . . . . . . . . . . . . . . 4 2. Covenants of Title . . . . . . . . . . . . . . . . . . . 4 3. Usury. . . . . . . . . . . . . . . . . . . . . . . . . . 5 4. Impositions. . . . . . . . . . . . . . . . . . . . . . . 5 5. Tax Deposits . . . . . . . . . . . . . . . . . . . . . . 6 6. Change in Taxes. . . . . . . . . . . . . . . . . . . . . 7 7. Insurance. . . . . . . . . . . . . . . . . . . . . . . . 7 8. Casualty . . . . . . . . . . . . . . . . . . . . . . . . 10 9. Condemnation . . . . . . . . . . . . . . . . . . . . . . 13 10. Repair; Alterations; Waste . . . . . . . . . . . . . . . 14 11. Environmental. . . . . . . . . . . . . . . . . . . . . . 15 12. Independence of Security . . . . . . . . . . . . . . . . 18 13. No Other Liens . . . . . . . . . . . . . . . . . . . . . 18 14. Management . . . . . . . . . . . . . . . . . . . . . . . 18 15. Ground Lease . . . . . . . . . . . . . . . . . . . . . . 19 16. Sidewalks, Municipal Charges . . . . . . . . . . . . . . 19 17. Assignment of Rents and Leases . . . . . . . . . . . . . 19 18. Future Leases. . . . . . . . . . . . . . . . . . . . . . 20 19. Trustor's Obligations as Lessor. . . . . . . . . . . . . 21 20. Leases; Foreclosure. . . . . . . . . . . . . . . . . . . 21 21. Operating Agreements . . . . . . . . . . . . . . . . . . 22 22. Events of Default. . . . . . . . . . . . . . . . . . . . 22 23. Remedies Upon Default. . . . . . . . . . . . . . . . . . 25 24. Acceleration Interest. . . . . . . . . . . . . . . . . . 29 25. Late Charge. . . . . . . . . . . . . . . . . . . . . . . 30 26. Waiver of Statutory Rights . . . . . . . . . . . . . . . 30 27. Security Interest. . . . . . . . . . . . . . . . . . . . 30 28. Right of Entry . . . . . . . . . . . . . . . . . . . . . 31 29. Estoppel Certificate . . . . . . . . . . . . . . . . . . 31 30. Annual Statements. . . . . . . . . . . . . . . . . . . . 31 31. Rights Cumulative. . . . . . . . . . . . . . . . . . . . 32 32. Subrogation. . . . . . . . . . . . . . . . . . . . . . . 32 33. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . 32 34. Deed of Trust Extension. . . . . . . . . . . . . . . . . 33 35. Indemnification. . . . . . . . . . . . . . . . . . . . . 33 36. Nonrecourse. . . . . . . . . . . . . . . . . . . . . . . 33 37. Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . 35 38. Trustee's Costs and Expenses; Governmental Charges . . . 35 39. Protection of Security; Costs and Expenses . . . . . . . 35 40. Notices. . . . . . . . . . . . . . . . . . . . . . . . . 36 41. Reconveyance . . . . . . . . . . . . . . . . . . . . . . 36 42. Applicable Law . . . . . . . . . . . . . . . . . . . . . 37 43. Substitution of Trustee. . . . . . . . . . . . . . . . . 37 44. Invalidity . . . . . . . . . . . . . . . . . . . . . . . 37 45. Captions . . . . . . . . . . . . . . . . . . . . . . . . 37 46. Modifications. . . . . . . . . . . . . . . . . . . . . . 37 47. Bind and Inure . . . . . . . . . . . . . . . . . . . . . 37 48. Replacement of Note. . . . . . . . . . . . . . . . . . . 37 49. Time of the Essence. . . . . . . . . . . . . . . . . . . 37 50. Amendment and Restatement. . . . . . . . . . . . . . . . 37 Exhibit A - Legal Description Exhibit B - Estoppel Certificate Form Exhibit C - Subordination, Non-Disturbance and Attornment Agreemente Form EXHIBIT A Legal Description EXHIBIT B Estoppel Certificate Form This form has been separately furnished by Beneficiary to Trustor. EXHIBIT C Subordination, Non-Disturbance and Attornment Agreement Form This form has been separately furnished by Beneficiary to Trustor. EX-21 5 EXHIBIT 21 LIST OF SUBSIDIARIES The Partnership is a general partner in JMB/San Jose Associates, an Illinois general partnership which holds title to Park Center Financial Plaza. The Partnership is a general partner in Royal Executive Park-II, a New York general partnership which holds title to Royal Executive Park II. Reference is made to Note 3 of the Notes to Financial Statements filed with this annual report for a summary description of the terms of such partnership agreements. The Partnership's interest in the foregoing joint venture partnerships, and the results of their operations are included in the financial statements of the Partnership filed with this annual report. EX-24 6 Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors of JMB Realty Corporation, the corporate general partner of JMB Income Properties, Ltd. - XI, do hereby nominate, constitute and appoint GARY NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and agents of the undersigned with full power of authority to sign in the name and on behalf of the undersigned officer or directors a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, hereby ratifying and confirming all that said attorneys and agents and any of them may do by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney the 31st day of January, 1995. JUDD D. MALKIN Judd D. Malkin Chairman and Director NEIL G. BLUHM Neil G. Bluhm President and Director H. RIGEL BARBER H. Rigel Barber Chief Executive Officer JEFFREY R. ROSENTHAL Jeffrey R. Rosenthal Chief Financial Officer The undersigned hereby acknowledge and accept such power of authority to sign, in the name and on behalf of the above named officer and directors, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, the 31st day of January, 1995. GARY NICKELE Gary Nickele GAILEN J. HULL Gailen J. Hull DENNIS M. QUINN Dennis M. Quinn Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officers and directors of JMB Realty Corporation, the corporate general partner of JMB Income Properties, Ltd. - XI, do hereby nominate, constitute and appoint GARY NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and agents of the undersigned with full power of authority to sign in the name and on behalf of the undersigned officer or directors a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, hereby ratifying and confirming all that said attorneys and agents and any of them may do by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney the 31st day of January, 1995. STUART C. NATHAN Stuart C. Nathan Executive Vice President, Director of General Partner A. LEE SACKS A. Lee Sacks Director of General Partner The undersigned hereby acknowledge and accept such power of authority to sign, in the name and on behalf of the above named officer and directors, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, the 31st day of January, 1995. GARY NICKELE Gary Nickele GAILEN J. HULL Gailen J. Hull DENNIS M. QUINN Dennis M. Quinn Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned officer of JMB Realty Corporation, the corporate general partner of JMB Income Properties, Ltd. - XI, does hereby nominate, constitute and appoint GARY NICKELE, GAILEN J. HULL, DENNIS M. QUINN or any of them, attorneys and agents of the undersigned with full power of authority to sign in the name and on behalf of the undersigned officer, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, hereby ratifying and confirming all that said attorneys and agents and any of them may do by virtue hereof. IN WITNESS WHEREOF, the undersigned have executed this Power of Attorney the 20th day of February, 1995. GLENN E. EMIG Glenn E. Emig Chief Operating Officer The undersigned hereby acknowledge and accept such power of authority to sign, in the name and on behalf of the above named officer, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1994, and any and all amendments thereto, the 20th day of February, 1995. GARY NICKELE Gary Nickele GAILEN J. HULL Gailen J. Hull DENNIS M. QUINN Dennis M. Quinn EX-27 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT. 0000744437 JMB INCOME PROPERTIES, LTD. - XI 12-MOS DEC-31-1994 DEC-31-1994 7,200,333 7,530,660 13,572,809 0 0 28,303,802 65,406,740 12,951,168 106,201,665 5,037,340 35,436,797 0 0 0 65,647,646 106,201,665 13,022,234 14,048,836 0 10,591,544 618,548 0 2,803,351 35,393 0 2,652,603 447,650 (2,206,791) 0 893,462 4.94 0