-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PvXiZ5TR38edOS7g+gUGXa93ogYXMbySsDoDA7pHeZkSrvtiyTCbzNfs8jk03PXJ LgKaVXVIVrJphTTiDh54yA== 0000892626-98-000155.txt : 19980331 0000892626-98-000155.hdr.sgml : 19980331 ACCESSION NUMBER: 0000892626-98-000155 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JMB INCOME PROPERTIES LTD XI CENTRAL INDEX KEY: 0000744437 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 363254043 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-15966 FILM NUMBER: 98578084 BUSINESS ADDRESS: STREET 1: C/O JMB REALTY CORP STREET 2: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3129151700 MAIL ADDRESS: STREET 1: C/O JMB REALTY CORP STREET 2: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 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, 1997 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 AND ASSIGNEE INTERESTS THEREIN (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 [ X ] State the aggregate market value of the voting stock held by non-affiliates of the registrant. Not applicable. Documents incorporated by reference: None 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 Matters. . . . . . . 6 Item 6. Selected Financial Data. . . . . . . . . . . 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . 11 Item 7A. Quantitative and Qualitative Disclosures about Market Risk. . . . . . . . 15 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . 16 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . 62 PART III Item 10. Directors and Executive Officers of the Partnership . . . . . . . . . . . . . 62 Item 11. Executive Compensation . . . . . . . . . . . 65 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . 66 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . 67 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . 67 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 70 i PART I ITEM 1. BUSINESS All references to "Notes" are to Notes to Financial Statements contained in this report. Capitalized terms used herein, but not defined, have the same meanings as used in the Notes. 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. 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 or have been 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 no later than October 31, 2034. The Partnership is self-liquidating in nature. At sale of a particular property, the net proceeds, if any, are generally distributed or reinvested in existing properties rather than invested in acquiring additional properties. As discussed further in Item 7, the Partnership currently expects to conduct an orderly liquidation of its remaining investment portfolio as quickly as practicable and to wind up its affairs not later than December 31, 1999, barring any unforeseen economic developments. The Partnership has made the real property investments set forth in the following table:
SALE OR DISPOSITION DATE OR IF OWNED AT DECEMBER 31, 1997, 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 10-19-83 15% fee ownership of land sq.ft. and improvements (b)(d)(e) g.l.a. 2. Bank of Delaware Office Building Wilmington, Delaware. . . . . . 314,000 12-14-84 11-15-94 fee ownership of land sq.ft. and improvements n.r.a. 3. Genesee Valley Center Flint, Michigan . . 358,000 12-21-84 6-29-90 fee ownership of land sq.ft. and improvements g.l.a. 4. Park Center Financial Plaza San Jose, California. . . . . 408,000 06-20-85 26% fee ownership of land sq.ft. and improvements n.r.a. (through a joint venture partnership) (c)(g)(h) 5. Royal Executive Park-II Rye Brook, New York. . . . . . 270,000 02-12-87 12-19-97 fee ownership of land sq.ft. and improvements n.r.a. (through a joint venture partnership) (c)(f) - ----------------------- (a) The computation of this percentage for properties held at December 31, 1997 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 the Notes 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 the Notes 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 the Notes for a description of the sale of this investment property. (g) In March 1996, the joint venture sold the 190 San Fernando building, one of the buildings in the Park Center Financial Plaza office complex comprising approximately 5% of the total occupied space, to an independent third party, and transferred title to one of the parking garages to the City of San Jose. The original invested capital percentage reflected for this property in the table has not been adjusted for such transactions. Reference is made to the Notes for a description of such transactions. (h) The joint venture sold the remaining buildings in the Park Center Financial Plaza office complex on February 24, 1998. Reference is made to the Notes for a description of the sale.
The Partnership's remaining real property investment is subject to competition from similar types of properties (including, in certain areas, properties owned by affiliates of the General Partners) in the respective vicinities in which it is located. Such competition is generally for the retention of existing tenants. Additionally, the Partnership is in competition for new tenants in its market 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 its investment property. Approximate occupancy levels for the properties owned in 1997 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 property in its market primarily on the basis of tenant mix, property aesthetics, effective rents, tenant allowances and service provided to tenants. In the opinion of the Managing General Partner of the Partnership, the remaining investment property held at December 31, 1997 is adequately insured. Although there is earthquake insurance coverage for a portion of the value of the Partnership's investment property, the Managing General Partner does not believe that such coverage for the entire replacement cost of the investment property is available on economic terms. Reference is made to the Notes 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, 1997. On December 19, 1997, the Partnership, through its joint venture, sold the Royal Executive Park II office complex located in Rye Brook, New York. Reference is made to the Notes for a further description of such transaction. On February 24, 1998, the Partnership, through its joint venture, sold the remaining buildings in the Park Center Financial Plaza office complex located in San Jose, California. Reference is made to the Notes for a further description of such transaction. The Partnership has no employees other than personnel 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, 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 or owned 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 1997 and 1996 for the Partnership's investment properties owned during 1997:
1996 1997 ------------------------- ------------------------- Principal At At At At At At At At 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 (1). . . . . . Accounting/ Telecommunications 85% 85% 87% 85% 86% 87% 87% 90% 2. Riverside Square Mall Hackensack, New Jersey. . . . . . . . Retail 77% 88% 88% 91% 92% 92% 93% 93% 3. Royal Executive Park II Rye Brook, New York. . . . . . . . . Communications 97% 97% 98% 98% 98% 99% 99% N/A - -------------- Reference is made to Item 6, Item 7 and to the Notes for further information regarding property occupancy, competitive conditions and tenant leases at the Partnership's investment properties. An "N/A" indicates that the property was sold and was not owned by the Partnership at the end of the quarter. (1) Reference is made to the Notes for a description of the February 24, 1998 sale of this investment property.
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 1997 or 1996. PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS As of December 31, 1997, there were 13,428 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. There are certain conditions and restrictions on the transfer of Interests, including, among other things, the requirement that the substitution of a transferee of Interests as a Limited Partner of the Partnership be subject to the written consent of the Managing General Partner, which, may be granted or withheld in its sole and absolute discretion. The rights of a transferee of Interests who does not become a substituted Limited Partner will be limited to the rights to receive his share of profits or losses and cash distributions from the Partnership, and such transferee will not be entitled to vote such Interests or have other rights of a Limited Partner. No transfer will be effective until the first day of the next succeeding calendar quarter after the requisite transfer form, satisfactory to the Managing General Partner, has been received by the Managing General Partner. The transferee, consequently, will not be entitled to receive any cash distributions or any allocable share of profits or losses for tax purposes until such succeeding calendar quarter. Profits or losses from operations of the Partnership for a calendar year in which a transfer occurs will be allocated between the transferor and the transferee based upon the number of quarterly periods in which each was recognized as the holder of Interests, without regard to the results of Partnership's operations during particular quarterly periods and without regard to whether cash distributions were made to the transferor or transferee. Profits or losses arising from the sale or other disposition of Partnership properties will be allocated to the recognized holder of the Interests as of the last day of the quarter in which the Partnership recognized such profits or losses. Cash distributions to a holder of Interests arising from the sale or other disposition of Partnership properties will be distributed to the recognized holder of the Interests as of the last day of the quarterly period with respect to which distribution is made. Reference is made to Item 6 below for a discussion of cash distribu- tions made to the Investors. Reference is made to Item 7 for a discussion of unsolicited tender offers received from unaffiliated third parties. ITEM 6. SELECTED FINANCIAL DATA JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) YEARS ENDED DECEMBER 31, 1997, 1996, 1995, 1994 AND 1993 (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
1997 1996 1995 1994 1993 ------------ ----------- ----------- ----------- ----------- Total income. . . . . . . $ 14,218,708 13,403,472 12,915,285 14,048,836 14,618,038 ============ =========== =========== =========== =========== Earnings (loss) before gain on sale or disposition of invest- ment property . . . . . $ 5,750,839 1,810,139 1,856,294 2,652,603 (2,584,139) Partnership's share of gain on sale of invest- ment properties of unconsolidated venture. 13,349,139 1,412,610 -- -- -- Gain on disposition of investment property . . -- -- -- 447,650 -- ------------ ----------- ----------- ----------- ----------- Earnings (loss) before extraordinary item. . . 19,099,978 3,222,749 1,856,294 3,100,253 (2,584,139) Extraordinary item. . . . -- -- -- (2,206,791) -- ------------ ------------ ----------- ----------- ----------- Net earnings (loss) . . . $ 19,099,978 3,222,749 1,856,294 893,462 (2,584,139) ============ ============ =========== =========== =========== Net earnings (loss) per Interest (b): Earnings (loss) before gain on sale or disposition of investment property. . . . . . $ 31.84 10.02 10.28 14.60 (15.65) Partnership's share of gain on sale of investment properties of unconsolidated venture . . . . . . 76.21 8.06 -- -- -- Gain on disposition of investment property. . . . . . -- -- -- 2.56 -- Extraordinary item. . -- -- -- (12.22) -- ------------ ------------ ----------- ----------- ----------- Net earnings (loss) . . . $ 108.05 18.08 10.28 4.94 (15.65) ============ ============ =========== =========== =========== 1997 1996 1995 1994 1993 ------------ ----------- ----------- ----------- ----------- Total assets. . . . . . . $118,582,025 102,106,160 106,800,004 106,201,665 88,391,802 Long-term debt. . . . . . $ 33,820,205 34,404,477 34,942,100 35,436,797 11,297,315 Cash distributions per Interest (c). . . . $ 12.00 15.00 12.00 12.00 12.00 ============ ============ =========== =========== =========== - ------------- (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 from the Partnership are generally not equal to Partnership income (loss) for financial reporting or Federal income tax purposes. 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. Accordingly, 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.
SIGNIFICANT PROPERTY - SELECTED RENTAL AND OPERATING DATA AS OF DECEMBER 31, 1997
Property - -------- Riverside Square Mall a) The gross leasable area ("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) ------------ -------------- ------------------ 1993 . . . . . 81% $31.26 1994 . . . . . 81% 18.10 (2) 1995 . . . . . 80% 18.69 1996 . . . . . 91% 17.15 1997 . . . . . 93% 19.35 (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 Lease Lease b) Significant Tenants Square Feet Per Annum Expiration Date Renewal Option ------------------- ----------- --------- --------------- -------------- Saks Fifth Avenue 107,000 $90,000 6/2012 N/A
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 1997 Year Ending Expiring GLA of Expiring of Expiring Base Rent December 31, Leases Leases (1) Leases Expiring ------------ --------- --------------- ----------- ---------- 1998 5 16,400 $526,600 8.5% 1999 4 12,000 403,500 6.6% 2000 5 12,200 412,700 6.7% 2001 4 15,200 405,600 6.6% 2002 1 2,300 87,100 1.4% 2003 7 25,700 823,400 13.4% 2004 16 22,700 1,017,100 16.5% 2005 8 22,700 766,200 12.4% 2006 9 24,400 645,700 10.5% 2007 1 1,200 6,600 0.1% (1) Excludes leases that expire in 1998 for which renewal leases or leases with replacement tenants have been executed as of January 9, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES As a result of the public offering of interests as described in Item 1, the Partnership had approximately $156,493,000 after deducting selling expenses and other offering costs, 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. During 1996, 1997 and early 1998, some of the Limited Partners in the Partnership received from unaffiliated third parties unsolicited tender offers to purchase up to 4.9% of the Interests in the Partnership at between $130 and $400 per Interest. The Partnership recommended against acceptance of these offers on the basis that, among other things, the offer prices were inadequate. All of such offers expired. As of the date of this report, the Partnership is aware that 5.46% of the Interests have been purchased by such unaffiliated third parties either pursuant to such tender offers or through negotiated purchases. In addition, it is possible that other offers for Interests may be made by unaffiliated third parties in the future, although there is no assurance that any other third party will commence an offer for Interests, the terms of any such offer or whether any such offer, if made, will be consummated, amended or withdrawn. The board of directors of JMB Realty Corporation ("JMB") the managing general partner of the Partnership, has established a special committee (the "Special Committee") consisting of certain directors of JMB to deal with all matters relating to tender offers for Interests in the Partnership, including any and all responses to such tender offers. The Special Committee has retained independent counsel to advise it in connection with any potential tender offers for Interests and has retained Lehman Brothers Inc. as financial advisor to assist the Special Committee in evaluating and responding to these and any additional potential tender offers for Interests. At December 31, 1997, the Partnership had cash and cash equivalents of approximately $42,298,000. These funds include retained cash proceeds of approximately $1,800,000 from the sale in 1996 of the 190 San Fernando Building and one of the parking structures at San Jose, and temporarily retained cash proceeds of approximately $28,448,000 from the sale in 1997 of the Royal Executive Park II office complex. Such remaining funds may be utilized for distributions to partners, potential obligations related to representations and warranties given pursuant to the sale of the Royal Executive Park II office complex, and for working capital requirements including operating deficits, costs of re-leasing vacant space, and certain capital improvements. Additionally, funds may be utilized to fund a potential theatre expansion at the Riverside Square Mall investment property, which is in the preliminary stages of investigation. The Partnership's wholly-owned property has currently budgeted in 1998 approximately $2,155,000 for tenant improvements and other capital expenditures. Actual amounts expended in 1998 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 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 Riverside Square Mall and through its sale and/or refinancing. 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. Commencing in 1996, the Partnership changed from a quarterly distribution of cash flow from operations to a semi-annual distribution in May and November of each year. In May 1997, the Partnership paid an operating distribution of $1,040,466 ($6 per Interest) for the first and second quarters of 1997 to the Limited Partners. In November 1997, the Partnership paid an operating distribution of $1,040,466 ($6 per Interest) for the third and fourth quarters of 1997 to the Limited Partners. In February 1998, the Partnership made a distribution of sale proceeds related to the sale of the Royal Executive Park II office complex of $28,439,404 ($164 per Interest) and paid an operating distribution of $2,774,576 ($16 per Interest), to the Limited Partners. The General Partners have been deferring receipt of distributions in accordance with the subordination requirements of the Partnership Agreement as discussed in the Notes. The Partnership's and its ventures' mortgage obligations are separate non- recourse loans secured individually by the investment properties and are not obligations of other investments. The Partnership and its ventures are not personally liable for the payment of the mortgage indebtedness. SAN JOSE During August 1994, JMB/San Jose Associates ("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 was deemed by the Agency to be just compensation in compliance with applicable laws governing eminent domain. During 1995, the Agency filed a condemnation action in court to proceed to obtain the garage pursuant to such laws. In late 1995, San Jose and the Agency reached a mutually acceptable agreement on the transfer of the garage. In March 1996, the sale was consummated. Reference is made to the Notes for a description of such sale. During March 1996, San Jose sold the 190 San Fernando Building and a parking garage structure to an independent third party. The sale price of the building was $1,753,000 (before selling costs), paid in cash at closing. Reference is made to the Notes for a description of such sale. The aggregate net sale proceeds to San Jose from both sales was approximately $5,800,000 after selling costs and prorations, of which the Partnership's share was approximately $2,900,000. Due to the proposed sales, the San Jose venture had classified the parking garage structures and the 190 San Fernando Building as held for sale or disposition as of January 1, 1996. The remaining assets were classified as held for sale as of December 31, 1996, and have, therefore, not been subject to continued depreciation beyond such date. As previously reported, in 1996 San Jose completed a voluntary seismic upgrade to the 130 Park Center Financial Plaza building and the parking garage below the 100-130 buildings. The cost of the structural upgrade was approximately $860,000 (of which the Partnership's share was approximately $430,000). On February 24, 1998, San Jose sold the remaining assets of the Park Center Financial Plaza office complex to an independent third party for $76,195,000 (before selling costs). San Jose received approximately $49,400,000 of net sale proceeds at closing (after the repayment by San Jose of the mortgage loans secured by the 170 Almaden, 150 Almaden and 185 Park Avenue buildings with a balance of approximately $23,300,000, loan prepayment premiums of approximately $2,422,000 and closing costs), of which the Partnership's share was approximately $24,700,000. Reference is made to the Notes for a further description of such sale. RIVERSIDE SQUARE MALL As previously disclosed, the Partnership completed a renovation of the Riverside Square Mall and a restoration of the parking deck at a total cost of approximately $23,000,000 which was incurred in 1995 and 1996. In addition, the Partnership is continuing to add new tenants in order to remerchandise the center. In connection with the renovation, the Partnership, in early 1994, signed 15-year operating covenant extensions with both Saks and Bloomingdale's, the latter of which owns its own store. In return for the additional 15-year commitment to the center, the Partnership reimbursed Saks in 1994 for its store renovation in the amount of $6,100,000; and in August 1995, the Partnership escrowed $5,000,000 (all of which had been released as of December 31, 1996) for Bloomingdale's store renovation, which was fully completed in September 1997. Interest earned on the escrowed funds was remitted to the Partnership in 1996 upon termination of the escrow account. In connection with the payment to Saks, the Partnership also acquired title to the Saks building which had previously been owned by Saks. 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 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 as discussed in the Notes). Of such proceeds, approximately $11,200,000 was escrowed by the lender pursuant to the loan agreement to fund certain costs of the renovation, restoration and remerchandising as discussed above. The full amount, including interest earned, was released as of December 31, 1996. The remaining $11,100,000 of loan proceeds were used to replenish the Partnership's working capital reserve for amounts paid to or escrowed on behalf of Saks and Bloomingdale's for their store renovations as discussed above. During the first quarter of 1996, the Partnership executed a new lease agreement with Pottery Barn for the space previously occupied by Conran's, a tenant occupying approximately 28,000 square feet or 12% of the building that had filed for bankruptcy in 1994. The Pottery Barn lease, with a term of 15 years, required expenditures in 1996 for tenant allowances of approximately $2,250,000, which was funded through the tenant improvement escrow described above. ROYAL EXECUTIVE PARK II On December 19, 1997, the Partnership, through its Royal Executive joint venture, sold the land and related improvements of the Royal Executive Park II office complex located in Rye Brook, New York for $36,000,000. The joint venture received approximately $35,446,000 of net sale proceeds at closing, of which the Partnership's share was approximately $28,448,000. Reference is made to the Notes for a further description of such transaction. GENERAL The Partnership continues to conserve its working capital. All expenditures are carefully analyzed and certain capital projects are deferred when appropriate. In an effort to reduce partnership operating expenses, the Partnership elected to make semi-annual rather than quarterly distributions of available operating cash flow commencing with the 1996 distributions. By conserving working capital, the Partnership will be in a better position to meet the future needs of its remaining property since the availability of satisfactory outside sources of capital may be limited given current debt levels. The Partnership has held its remaining investment property longer than originally anticipated in an effort to maximize the return to the Limited Partners. However, after reviewing the remaining property and the marketplace in which it operates, the General Partners of the Partnership expect to be able to conduct an orderly liquidation of its remaining investment property as quickly as practicable. Therefore, the affairs of the Partnership are expected to be wound up no later than December 31, 1999 (sooner if the property is sold in the near- term), barring unforeseen economic developments. RESULTS OF OPERATIONS The increase in cash and cash equivalents and the related decrease in the Partnership's investment in unconsolidated ventures at December 31, 1997 as compared to December 31, 1996 is primarily due to the sale in 1997 of the Royal Executive Park II office complex as more fully discussed in the Notes. The increase in rents and other receivables as of December 31, 1997 as compared to December 31, 1996 is primarily due to the timing of payment of rentals at the Riverside Square Mall investment property. The increase in escrow deposits as of December 31, 1997 as compared to December 31, 1996 is primarily due to an overfunding of the real estate tax escrow based on the lender's funding requirements, at the Riverside Square Mall investment property. It is anticipated that such overfunded balance on the escrow will be reduced by future reduced monthly escrow contributions. The increase in rental income for the year ended December 31, 1997 as compared to the year ended December 31, 1996 and December 31, 1996 as compared to December 31, 1995 is primarily due to an increase in base rentals as a result of an increase in tenant occupancies in 1997 and 1996 at the Riverside Square Mall investment property. The decrease in interest income for the years ended December 31, 1997 and 1996 as compared to the year ended December 31, 1995 is primarily due to the utilization of escrowed cash, previously invested in interest bearing instruments, for the renovation and remerchandising at the Riverside Square Mall as discussed above. The decrease in depreciation expense for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to the Riverside Square Mall investment property being identified as held for sale or disposition as of September 30, 1997, and therefore, no longer subject to depreciation beyond such date. The increase in depreciation expense for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to the increases in fixed assets due to the renovation at the Riverside Square Mall as discussed above and in the Notes. The decrease in property operating expenses for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to the decrease in snow removal and other administrative expenses and certain maintenance and repair projects (partially recoverable from tenants) at the Riverside Square Mall. However, the decrease is partially offset by an increase in certain other property operating expenses as a result of higher tenant occupancies in 1997 at the Riverside Square Mall. The increase in property operating expenses for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to an increase in real estate taxes (partially recoverable from tenants) of approximately $470,000 due to an increase in the assessed value of the Riverside Square Mall property as a result of the renovation as discussed above. The increase is also due to the increase in snow removal expenses (partially recoverable from tenants) of approximately $280,000 at the Riverside Square Mall. The decrease in professional services for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to expenses incurred in 1996 in connection with tender offer matters as discussed above. The increase in amortization of deferred expenses for the years ended December 31, 1997 and 1996 as compared to the year ended December 31, 1995 is primarily due to the commencement in the fourth quarter of 1995 of amortization of $5,000,000 of deferred leasing costs paid to Bloomingdales for its renovation at the Riverside Square Mall. The increase in general and administrative expenses for the year ended December 31, 1997 as compared to the year ended December 31, 1996 and the decrease for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to the timing of the incurrence of reimbursable costs to affiliates of the General Partners. The increase in the Partnership's share of operations of unconsolidated ventures for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to such unconsolidated ventures being identified as held for sale or disposition as of December 31, 1996, and therefore, no longer subject to depreciation beyond such date. The increase in the Partnership's share of operations of unconsolidated ventures for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to the receipt of a lease termination fee of approximately $210,000 in May 1996 at the Royal Executive Park II investment property, as well as a cessation of mortgage interest expense at the 100-130 Park Center Financial Plaza investment property, due to repayment of the mortgage loans in 1995. The Partnership's share of gain on sale of investment properties of unconsolidated ventures of $13,349,139 in 1997 is due to the gain recognized on the sale of the Royal Executive Park II office complex. The Partnership's share of gain on sale of investment properties of unconsolidated ventures of $1,412,610 in 1996 is due to the gain recognized on the sale of the 190 San Fernando Building and one of the parking structures at the Park Center Financial Plaza investment property. 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. Inflation is not expected to significantly impact future operations due to the expected liquidation of the Partnership by 1999. However, to the extent that inflation in future periods would have an adverse impact on property operating expenses, the effect would generally be offset by amounts recovered from tenants as many of the long-term leases at the Partnership's remaining commercial property have escalation clauses covering increases in the cost of operating and maintaining the property as well as real estate taxes. Therefore, there should be little effect from inflation on operating earnings if the property remains substantially occupied. In addition, substantially all of the leases at the Partner- ship's shopping center investment contain provisions which entitle the Partnership to participate in gross receipts of tenants above fixed minimum amounts. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) INDEX Independent Auditors' Report Balance Sheets, December 31, 1997 and 1996 Statements of Operations, years ended December 31, 1997, 1996 and 1995 Statements of Partners' Capital Accounts (Deficit), years ended December 31, 1997, 1996 and 1995 Statements of Cash Flows, years ended December 31, 1997, 1996 and 1995 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. ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) INDEX Independent Auditors' Report Balance Sheets, December 31, 1997 and 1996 Statements of Operations, years ended December 31, 1997, 1996 and 1995 Statements of Partners' Capital Accounts, years ended December 31, 1997, 1996 and 1995 Statements of Cash Flows, years ended December 31, 1997, 1996 and 1995 Notes to Financial Statements SCHEDULES NOT FILED: All schedules have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) INDEX Independent Auditors' Report Balance Sheets, December 31, 1997 and 1996 Statements of Operations, years ended December 31, 1997, 1996 and 1995 Statements of Partners' Capital Accounts, years ended December 31, 1997, 1996 and 1995 Statements of Cash Flows, years ended December 31, 1997, 1996 and 1995 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, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, 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. As discussed in the Notes to the financial statements, in 1996, the Partnership changed its method of accounting for long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121. KPMG PEAT MARWICK LLP Chicago, Illinois March 25, 1998 JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSETS ------
1997 1996 ------------ ----------- Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 42,298,264 11,548,195 Rents and other receivables, net of allowance for doubtful accounts of $210,024 in 1997 and $642,633 in 1996. . . . . . . . . . . . . . . . . . . . . . . . . 2,552,231 2,010,246 Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 88,948 91,506 Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 1,171,271 786,706 ------------ ----------- Total current assets. . . . . . . . . . . . . . . . . . . . . 46,110,714 14,436,653 ------------ ----------- Investment property - Schedule III: Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 3,796,561 Building and improvements . . . . . . . . . . . . . . . . . . . . . -- 75,476,781 ------------ ----------- -- 79,273,342 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . -- 17,321,842 ------------ ----------- Property held for investment, net of accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . -- 61,951,500 Property held for sale or disposition . . . . . . . . . . . . . . . . 60,929,336 -- ------------ ----------- Total investment properties . . . . . . . . . . . . . . . . . 60,929,336 61,951,500 Investment in unconsolidated ventures, at equity. . . . . . . . . . . 6,711,162 20,367,302 Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 4,830,813 5,350,705 ------------ ----------- $118,582,025 102,106,160 ============ =========== JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) BALANCE SHEETS - CONTINUED LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS (DEFICIT) ---------------------------------------------------- 1997 1996 ------------ ----------- Current liabilities: Current portion of long-term debt . . . . . . . . . . . . . . . . . $ 584,273 537,623 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 782,274 774,790 Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . 243,502 243,139 ------------ ----------- Total current liabilities . . . . . . . . . . . . . . . . . . 1,610,049 1,555,552 Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . 88,133 101,539 Long-term debt, less current portion. . . . . . . . . . . . . . . . . 33,820,205 34,404,477 ------------ ----------- Commitments and contingencies Total liabilities . . . . . . . . . . . . . . . . . . . . . . 35,518,387 36,061,568 Partners' capital accounts (deficit): General partners: Capital contributions . . . . . . . . . . . . . . . . . . . . . 1,000 1,000 Cumulative net earnings . . . . . . . . . . . . . . . . . . . . 5,794,671 5,431,146 Cumulative cash distributions . . . . . . . . . . . . . . . . . (6,631,429) (6,631,429) ------------ ----------- (835,758) (1,199,283) ------------ ----------- Limited partners (173,411 interests): Capital contributions, net of offering costs. . . . . . . . . . 156,493,238 156,493,238 Cumulative net earnings . . . . . . . . . . . . . . . . . . . . 49,295,508 30,559,055 Cumulative cash distributions . . . . . . . . . . . . . . . . . (121,889,350) (119,808,418) ------------ ----------- 83,899,396 67,243,875 ------------ ----------- Total partners' capital accounts. . . . . . . . . . . . . . . 83,063,638 66,044,592 ------------ ----------- $118,582,025 102,106,160 ============ =========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ------------ ------------ ------------ Income: Rental income . . . . . . . . . . . . . . . . . . $13,500,646 12,711,885 11,822,997 Interest income . . . . . . . . . . . . . . . . . 718,062 691,587 1,092,288 ----------- ----------- ----------- 14,218,708 13,403,472 12,915,285 ----------- ----------- ----------- Expenses: Mortgage and other interest . . . . . . . . . . . 2,897,399 2,936,882 2,976,655 Depreciation. . . . . . . . . . . . . . . . . . . 1,892,003 2,394,772 1,975,902 Property operating expenses . . . . . . . . . . . 7,851,075 8,835,327 8,110,731 Professional services . . . . . . . . . . . . . . 190,646 262,322 277,837 Amortization of deferred expenses . . . . . . . . 519,892 458,744 191,592 General and administrative. . . . . . . . . . . . 440,946 308,471 399,979 ----------- ----------- ----------- 13,791,961 15,196,518 13,932,696 ----------- ----------- ----------- 426,747 (1,793,046) (1,017,411) Partnership's share of operations of unconsolidated ventures . . . . . . . . . . . . . 5,324,092 3,603,185 2,873,705 ----------- ----------- ----------- Earnings (loss) before gain on sale or disposition of investment property. . . . 5,750,839 1,810,139 1,856,294 Partnership's share of gains on sale of investment properties of unconsolidated ventures . . . . . . 13,349,139 1,412,610 -- ----------- ----------- ----------- Net earnings (loss) . . . . . . . . . . . . $19,099,978 3,222,749 1,856,294 =========== =========== =========== JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF OPERATIONS - CONTINUED 1997 1996 1995 ------------ ------------ ------------ Net earnings (loss) per limited partnership interest: Earnings (loss) before gain on sale or disposition of investment property. . . $ 31.84 10.02 10.28 Partnership's share of gains on sale of investment properties of unconsolidated ventures . . . . . . . . 76.21 8.06 -- ----------- ----------- ----------- Net earnings (loss) . . . . . . . . . . $ 108.05 18.08 10.28 =========== =========== =========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICIT) YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
GENERAL PARTNERS LIMITED PARTNERS --------------------------------------------------- -------------------------------------------------- CONTRI- BUTIONS NET NET OF NET CONTRI- EARNINGS CASH OFFERING EARNINGS CASH BUTIONS (LOSS) DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL ------- ---------- ------------- ----------- ----------- ---------- ------------- ----------- 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 Cash distri- butions ($12 per limited partnership interest). . -- -- -- -- -- -- (2,080,932) (2,080,932) Net earnings (loss) . . . -- 74,252 -- 74,252 -- 1,782,042 -- 1,782,042 ------ ---------- ---------- ---------- ----------- ----------- ------------ ----------- Balance (deficit) at Decem- ber 31, 1995 . . . . 1,000 5,344,614 (6,631,429) (1,285,815) 156,493,238 27,422,838 (117,207,253) 66,708,823 Cash distri- butions ($15 per limited partnership interest). . -- -- -- -- -- -- (2,601,165) (2,601,165) Net earnings (loss) . . . -- 86,532 -- 86,532 -- 3,136,217 -- 3,136,217 ------ ---------- ---------- ---------- ----------- ----------- ------------ ----------- JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS (DEFICIT) - CONTINUED GENERAL PARTNERS LIMITED PARTNERS --------------------------------------------------- -------------------------------------------------- CONTRI- BUTIONS NET NET OF NET CONTRI- EARNINGS CASH OFFERING EARNINGS CASH BUTIONS (LOSS) DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL ------- ---------- ------------- ----------- ----------- ---------- ------------- ----------- Balance (deficit) at Decem- ber 31, 1996 . . . . 1,000 5,431,146 (6,631,429) (1,199,283) 156,493,238 30,559,055 (119,808,418) 67,243,875 Cash distri- butions ($12 per limited partnership interest). . -- -- -- -- -- -- (2,080,932) (2,080,932) Net earnings (loss) . . . -- 363,525 -- 363,525 -- 18,736,453 -- 18,736,453 ------ ---------- ---------- ---------- ----------- ----------- ------------ ----------- Balance (deficit) at Decem- ber 31, 1997 . . . . $1,000 5,794,671 (6,631,429) (835,758) 156,493,238 49,295,508 (121,889,350) 83,899,396 ====== ========== ========== ========== =========== =========== ============ =========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ----------- ----------- Cash flows from operating activities: Net earnings (loss) . . . . . . . . . . . . . . . $19,099,978 3,222,749 1,856,294 Items not requiring (providing) cash or cash equivalents: Depreciation. . . . . . . . . . . . . . . . . . 1,892,003 2,394,772 1,975,902 Amortization of deferred expenses . . . . . . . 519,892 458,744 191,592 Partnership's share of operations of uncon- solidated ventures, net of distributions. . . (5,324,092) 944,935 1,008,416 Partnership's share of gain on sale of invest- ment properties of unconsolidated ventures. . (13,349,139) (1,412,610) -- Changes in: Rents and other receivables . . . . . . . . . . (541,985) 308,757 (334,608) Prepaid expenses. . . . . . . . . . . . . . . . 2,558 (11,885) -- Escrow deposits . . . . . . . . . . . . . . . . (384,565) (64,859) (820,114) Accounts payable. . . . . . . . . . . . . . . . 7,484 272,820 16,506 Accrued interest payable. . . . . . . . . . . . 363 (3,442) (3,167) Tenant security deposits. . . . . . . . . . . . (13,406) 17,408 4,249 ----------- ----------- ----------- Net cash provided by (used in) operating activities. . . . . . . . . . 1,909,091 6,127,389 3,895,070 ----------- ----------- ----------- Cash flows from investing activities: Net sales and maturities (purchases) of short-term investments. . . . . . . . . . . . . -- -- 7,530,660 Net escrow draws for construction related costs . . . . . . . . . . . . . . . . . -- 4,949,435 2,223,117 Additions to investment properties. . . . . . . . (869,839) (5,484,550) (11,813,978) Partnership's distributions from unconsolidated ventures . . . . . . . . . . . . 32,329,371 3,588,000 1,250,000 Partnership's contributions to unconsolidated ventures . . . . . . . . . . . . -- -- (1,233,436) Payment of deferred expenses. . . . . . . . . . . -- (59,731) (577,118) ----------- ----------- ----------- Net cash provided by (used in) investing activities. . . . . . . . . . 31,459,532 2,993,154 (2,620,755) ----------- ----------- ----------- JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED 1997 1996 1995 ----------- ----------- ----------- Cash flows from financing activities: Bank overdraft. . . . . . . . . . . . . . . . . . -- -- (415,003) Principal payments on long-term debt. . . . . . . (537,622) (494,697) (455,199) Distributions to limited partners . . . . . . . . (2,080,932) (2,601,165) (2,080,932) ----------- ----------- ----------- Net cash provided by (used in) financing activities. . . . . . . . . . (2,618,554) (3,095,862) (2,951,134) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . 30,750,069 6,024,681 (1,676,819) Cash and cash equivalents, beginning of year . . . . . . . . . . . 11,548,195 5,523,514 7,200,333 ----------- ----------- ----------- Cash and cash equivalents, end of year . . . . . . . . . . . . . . $42,298,264 11,548,195 5,523,514 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest. . . . $ 2,897,036 2,940,324 2,979,823 =========== =========== =========== Non-cash investing and financing activities: Increase in deferred costs due to escrow of funds for payment of inducement . . . . . . $ -- -- 5,000,000 Net increase in other liabilities. . . . . . . . -- -- (4,434,509) ----------- ----------- ---------- Payments of inducement from escrowed funds. . . . . . . . . . . . . $ -- -- 565,491 =========== =========== ========== See accompanying notes to financial statements.
JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 OPERATIONS AND BASIS OF ACCOUNTING GENERAL The Partnership holds (either directly or through joint ventures) investments in United States real estate. Business activities consist of rentals to a variety of commercial and retail companies, and the ultimate sale or disposition of such real estate. The Partnership currently expects to conduct an orderly liquidation of its remaining investment portfolio and wind up its affairs not later than December 31, 1999, barring unforeseen economic developments. 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") (which investment was sold in December 1997) and JMB/San Jose Associates ("San Jose"). 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 GAAP adjustments are not recorded on the records of the Partnership. The net effect of these items for the years ended December 31, 1997 and 1996 is summarized as follows:
1997 1996 ------------------------------ ------------------------------ TAX BASIS TAX BASIS GAAP BASIS (UNAUDITED) GAAP BASIS (UNAUDITED) ------------ ----------- ------------ ---------- Total assets. . . . . . . . . . . . $118,582,025 130,569,209 102,106,160 122,747,292 Partners' capital accounts (deficit): General partners. . . . . . . . (835,758) (1,339,241) (1,199,283) (1,451,001) Limited partners. . . . . . . . 83,899,396 96,831,579 67,243,875 88,203,901 Net earnings (loss): General partners. . . . . . . . 363,525 111,760 86,532 27,590 Limited partners. . . . . . . . 18,736,453 10,708,610 3,136,217 1,366,601 Net earnings (loss) per limited partnership interest. . . . . . . . . . . . . 108.05 61.75 18.08 7.88 =========== ============ =========== ===========
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. The preparation of financial statements in accordance with GAAP requires the Partnership to make estimates and assumptions that affect the reported or disclosed amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 ($42,703,440 and $8,217,261 at December 31, 1997 and 1996, respectively) as cash equivalents, which includes investments in an institutional mutual fund which holds U.S. Government obligations, 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 and an inducement which are amortized over the terms stipulated in the related agreements 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. Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial Instruments" (as amended), requires certain large public entities to disclose the SFAS 107 value of all financial assets and liabilities for which it is practicable to estimate. Value is defined in the Statement as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes the carrying amount of its financial instruments classified as current assets and liabilities (excluding current portion of long-term debt) approximates SFAS 107 value due to the relatively short maturity of these instruments. There is no quoted market value available for any of the Partnership's other instruments. The debt, with a carrying balance of $34,404,478, has been calculated to have an SFAS 107 value of $36,424,417 by discounting the scheduled loan payments to maturity. Due to restrictions on transferability and prepayment and the inability to obtain comparable financing due to current levels of debt, previously modified debt terms or other property specific competitive conditions, the Partnership would likely be unable to refinance these properties to obtain such calculated debt amounts reported. The Partnership has no other significant financial instruments. 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 or may in the future be required under applicable law to remit directly to the tax authorities amounts representing withholding from distributions paid to partners. 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. In March 1996, the San Jose venture sold its interest in the 190 San Fernando Building and one of the parking structures at the Park Center Financial Plaza investment property. In December 1997, the Royal Executive venture sold the Royal Executive Park II office complex. All of the remaining properties were in operation at December 31, 1997. 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 repairs are generally charged to operations as incurred. Significant betterments and improvements are capitalized and depreciated over their estimated useful lives. Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" was issued in March 1995. The Partnership adopted SFAS 121 as required in the first quarter of 1996. SFAS 121 requires that the Partnership record an impairment loss on its properties to be held for investment whenever their carrying value cannot be fully recovered through estimated undiscounted future cash flows from their operations and sale. The amount of the impairment loss to be recognized would be the difference between the property's carrying value and the property's estimated fair value. The Partnership's policy is to consider a property to be held for sale or disposition when the Partnership has committed to a plan to sell or dispose of such property and active marketing activity has commenced or is expected to commence in the near term. In accordance with SFAS 121, any properties identified as "held for sale or disposition" are no longer depreciated. Adjustments for impairment loss for such properties (subsequent to the date of adoption of SFAS 121) are made in each period as necessary to report these properties at the lower of carrying value or fair value less costs to sell. The results of operations for properties held for sale or disposition as of December 31, 1997 or sold or disposed of during the past three years were $443,271, ($1,551,773) and ($975,671), respectively, for the years ended December 31, 1997, 1996 and 1995. In addition, the accompanying financial statements include $5,324,092, $3,603,185 and $2,873,705, respectively, of the Partnership's share of total property operations of $6,901,490, $4,209,143 and $3,435,566 of unconsolidated properties held for sale or disposition as of December 31, 1997 or sold or disposed of in the past three years. During the second quarter of 1997, Statements of Financial Accounting Standards No. 128 ("Earnings per Share") and No. 129 ("Disclosure of Information about Capital Structure") were issued. These standards became effective for reporting periods after December 15, 1997. As the Partnership's capital structure only has general and limited partnership interests, the Partnership will not experience any significant impact on its financial statements. Certain 1996 and 1995 amounts have been reclassed to conform to 1997 presentation. INVESTMENT PROPERTIES 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 with the balance of the purchase price represented by a first mortgage loan. During the third quarter of 1994, the Partnership finalized a refinancing of the first mortgage loan with a new loan in the amount of $36,000,000 which resulted in net proceeds of approximately $22,300,000. Of such proceeds, approximately $11,200,000 was escrowed by the lender pursuant to the loan agreement and released as required, including interest, to fund certain costs of the renovation and restoration as discussed below. The full amount of the escrow had been released as of December 31, 1996. The remaining $11,100,000 of loan proceeds were used to replenish the Partnership's working capital for amounts paid to or escrowed on behalf of Saks and Bloomingdale's for their store renovations as discussed below. The Partnership completed its renovation of the Riverside Square Mall as well as its restoration of the parking deck (at final costs of approximately $13,500,000 and $7,000,000, respectively) and is continuing to remerchandise the center. In such regard, the Partnership has budgeted in 1998 approximately $2,155,000 for tenant improvements and capital expenditures. In connection with the renovation, the Partnership, in early 1994, signed 15-year operating covenant extensions with both Saks and Bloomingdale's, the latter of which owns its own store. In return for the additional 15-year commitment to the center, the Partnership reimbursed Saks for its store renovation in the amount of $6,100,000; and in August 1995, the Partnership escrowed $5,000,000, reflected as a deferred expense in the accompanying balance sheet, (the full amount of which was released as of December 31, 1996) for Bloomingdale's store renovation, which was fully completed in September 1997. Interest earned on the escrowed funds was remitted to the Partnership upon termination of the escrow account. In connection with the payment to Saks, the Partnership also acquired title to the Saks building which had previously been owned by Saks. As the Partnership had committed to a plan to sell the property, the property was classified as held for sale or disposition as of September 30, 1997, and therefore, has not been subject to continued depreciation beyond such date. An affiliate of the General Partners of the Partnership manages the shopping center 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. VENTURE AGREEMENTS - GENERAL The Partnership at December 31, 1997 is a party to one operating venture agreement (San Jose) and 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. 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. SAN JOSE The Partnership acquired, through San Jose, an interest in an existing office building complex in San Jose, California (Park Center Financial Plaza) consisting of ten office buildings, a parking and retail building (185 Park Avenue) and two parking garage structures. 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. Due to the scheduled maturity of the loan, San Jose, during the fourth quarter of 1994, finalized a loan extension and modification with the mortgage lender. The refinancing resulted in the 1994 partial paydown of the outstanding principal balance in the amount of $2,500,000. After reviewing and analyzing San Jose's potential options with regard to its investment in the 100-130 Park Center Plaza portion of the complex, San Jose determined that it was in the best interest of the venture to repay the mortgage obligations secured by this portion of the complex and did so in October 1995. The outstanding principal balances, at the time of repayment, were $2,418,722 of which the Partnership's share was $1,209,361. The property is managed by an unaffiliated third party for a fee calculated as 3% of gross receipts. 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 and JMB-XII 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 was deemed by the Agency to be just compensation in compliance with applicable laws concerning eminent domain. During 1995, the Agency filed a condemnation action in court to proceed to obtain the garage pursuant to such laws. In late 1995, San Jose and the Agency reached a mutually acceptable agreement on the transfer of the garage. In March 1996, the sale was consummated. Under the transfer agreement, San Jose received replacement parking spaces for its tenants in a nearby city-owned parking structure for a term of fifty-five years in addition to the aforementioned purchase price of $4,090,000. San Jose recognized a gain of approximately $2,036,000 and $1,857,000, respectively, for financial reporting and Federal income tax purposes in 1996, of which approximately $1,018,000 and $928,500, respectively, was allocated to the Partnership. In March 1996, San Jose sold the 190 San Fernando Building to an independent third party. The sale price of the building was $1,753,000 (before selling costs), and was paid in cash at closing. San Jose recognized a gain of approximately $789,000 and $21,000, respectively, for financial reporting and Federal income tax purposes in 1996, of which approximately $394,500 and $10,500, respectively, was allocated to the Partnership. At September 30, 1994, San Jose 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 were recorded to reduce the net carrying values of these buildings to the then outstanding balances of the related non-recourse financing. As San Jose had committed to a plan to sell the properties, the 190 San Fernando Building and the parking structure were classified as held for sale or disposition as of January 1, 1996 and therefore were not subject to continued depreciation. The San Jose venture subsequently committed to a plan to sell the balance of the complex, and classified the remaining assets as held for sale as of December 31, 1996 and these assets have therefore no longer been subject to continued depreciation beyond such date. On February 24, 1998, San Jose sold the land, building, related improvements and personal property of the remaining assets of the Park Center Financial Plaza office complex to an unaffiliated third party for a sale price of $76,195,000 (before selling expenses and prorations). The sale will result in a gain in 1998 of approximately $41,000,000 (due to provisions for value impairment totaling $45,811,547 recorded between 1991 and 1994) and $23,000,000 for financial reporting and Federal income tax purposes, respectively, of which approximately $20,500,000 and $11,500,000 of gain will be allocated to the Partnership, respectively. In addition, in connection with the sale of the property, as is customary in such transactions, San Jose agreed to certain representations, warranties, and covenants with a stipulated survival period that expires November 15, 1998. Although it is not expected, San Jose and the Partnership may ultimately have some liability under such representations, warranties and covenants. ROYAL EXECUTIVE PARK II 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 were attained, the Partnership was entitled to a cumulative preferred annual return equal to $2,430,000 per year. The next $2,439,732 of annual cash flow was 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 was subject to the actual operations of the property. The Partnership was entitled to any deficiency in its preferred annual return plus interest at 9% on a cumulative basis as an annual priority distribution from future available operating cash flow before any cash flow distributions were made to the venture partner. The cumulative deficiency in the preferred annual return was approximately $1,498,000 at the December 19, 1997 sale date. In accordance with the Royal Executive venture agreement, the Partnership received its priority level of distribution of sale and refinancing proceeds of $27,000,000 plus the cumulative deficiency in its preferred annual return upon sale of the property, as discussed below. Net operating income (as defined) of the joint venture, in general, was allocated in proportion to, and to the extent of, distributions and then based on relative ownership percentages. Operating losses, in general, were 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, were allocated based upon relative ownership interests. Depreciation and amortization was 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 made a provision for value impairment of $25,378,894 at September 30, 1994 to reduce the net carrying value of the property to the then estimated fair value. 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. As there had been a commitment to sell this property, the Royal Executive Venture classified this property as held for sale or disposition at December 31, 1996, and therefore, the property was not subject to continued depreciation beyond such date. On December 19, 1997, the Royal Executive venture sold the land, buildings, related improvements and personal property of the Royal Executive Park office complex to an unaffiliated third party for a sale price of $36,000,000 (before selling expenses and prorations). The sale resulted in a gain in 1997 of $13,905,818 (due to the provision for value impairment recorded in 1994, as discussed above) and $18,927,388 for financial reporting and Federal income tax purposes, respectively, of which $13,349,139 and $10,701,810 of gain was allocated to the Partnership, respectively. In addition, in connection with the sale of the property, as is customary in such transactions, the joint venture agreed to certain representations, warranties and covenants with a stipulated survival period that expires November 15, 1998. Although it is not expected, the joint venture and the Partnership may ultimately have some liability under such representations, warranties and covenants, but such liability has been limited in the sale agreement to actual damages in an amount not to exceed $2,000,000 in the aggregate. Concurrently with the sale of Royal Executive Park-II, two other office parks, Royal Executive Park I ("Royal I") and Royal Executive Park III ("Royal III") were sold. Royal I was owned by a joint venture between JMB Income Properties-X (a partnership sponsored by the Partnership's General Partner) and the Partnership's unaffiliated venture partner in Royal Executive Park-II. Royal III was owned entirely by the unaffiliated venture partner in Royal Executive Park-II and Royal I. The purchase price for each office park was separately negotiated with the buyer. The joint venture had determined that one of the property's underground storage tanks had discharged an amount of fuel oil into the ground. The joint venture believed that such discharge had been the result of normal operations of the property and not the result of actions of tenants or other third parties. The joint venture had received a cost estimate of approximately $200,000 for remediation of the contaminated soil, of which approximately $121,000 was incurred through the date of sale. As part of the sale agreement discussed above, the purchaser is required to hold the joint venture harmless for any future clean-up costs or claims resulting from the contaminated soil. 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 for a fee computed as a percentage of certain revenues. 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. The successor to the affiliated property manager was acting as the manager of the property on the same terms that existed prior to the assignment. In February 1998, the Partnership made a distribution of sale proceeds related to the sale of the Royal Executive Park II office complex of $28,439,404 ($164 per Interest) and paid an operating distribution of $2,774,576 ($16 per Interest), to the Limited Partners. LONG-TERM DEBT Long-term debt consists of the following at December 31, 1997 and 1996: 1997 1996 ---------- ---------- 8.35% mortgage note, secured by the 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. . . . . . . $34,404,478 34,942,100 Less current portion of long-term debt. . . 584,273 537,623 ----------- ---------- Total long-term debt. . . . . . . $33,820,205 34,404,477 =========== ========== Five year maturities of long-term debt are summarized as follows for the years ending: 1998. . . . . . . . . . . $584,273 1999. . . . . . . . . . . 634,971 2000. . . . . . . . . . . 690,068 2001. . . . . . . . . . . 749,945 2002. . . . . . . . . . . 815,019 ======== 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, notwithstanding such allocations, 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. As the above levels of return are not expected to be achieved, the General Partners have waived their right to receive any portion of the proceeds from the sales of property by the Partnership. LEASES At December 31, 1997, 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 property, excluding the cost of the land, is depreciated over the estimated useful life. 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, substantially all of the 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. 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: 1998 . . . . . . . . . . . $ 5,695,086 1999 . . . . . . . . . . . 5,391,421 2000 . . . . . . . . . . . 4,952,935 2001 . . . . . . . . . . . 4,725,812 2002 . . . . . . . . . . . 4,542,212 Thereafter . . . . . . . . 14,663,482 ----------- Total. . . . . . . . . $39,970,948 =========== Contingent rent (based on sales by property tenants) included in rental income was as follows: 1995. . . . . . . . $210,903 1996. . . . . . . . 312,727 1997. . . . . . . . 203,448 ======== TRANSACTIONS WITH AFFILIATES The Partnership, pursuant to the Partnership Agreement, is permitted to engage in various transactions involving the Managing General Partner and its affiliates including the reimbursement for salaries and salary- related expenses of its employees, certain of its officers, and other direct expenses relating to the administration of the Partnership and the operation of the Partnership's investments. Fees, commissions and other expenses required to be paid by the Partnership to the General Partners and their affiliates as of December 31, 1997 and for the years ended December 31, 1997, 1996 and 1995 are as follows: UNPAID AT DECEMBER 31, 1997 1996 1995 1997 -------- ------- ------- ------------ Property management and leasing fees . . . . $244,256 229,333 236,845 -- Insurance commissions . . 44,126 42,093 44,370 -- Reimbursement (at cost) for accounting services. 22,452 9,825 99,195 11,659 Reimbursement (at cost) for portfolio manage- ment services. . . . . . 35,743 23,498 19,685 10,138 UNPAID AT DECEMBER 31, 1997 1996 1995 1997 -------- ------- ------- ------------ Reimbursement (at cost) for legal services . . . 7,442 4,691 4,942 1,882 Reimbursement (at cost) for administrative charges and other out-of-pocket expenses . 208 -- 124,906 -- -------- ------- ------- ------- $354,227 309,440 529,943 23,679 ======== ======= ======= ======= During 1994, certain officers and directors of the Managing General Partners acquired interests in a company which provides certain property management services to a property owned by the Partnership. The fees earned by such company from the Partnership for the years ended December 31, 1997, 1996 and 1995 were approximately $32,500, $39,000 and $30,000 respectively, all of which has been paid at December 31, 1997. The General Partners have deferred receipt of certain of their distributions of net cash flow of the Partnership. The amount of such deferred distributions aggregated $2,075,000 as of December 31, 1997. The amount is being deferred in accordance with the subordination requirements of the Partnership Agreement as discussed above. The Partnership does not expect that the subordination requirements of the Partnership agreement will be satisfied to permit payment of the majority of these amounts. In addition, in 1994, an affiliate of the General Partner deferred $300,000 in leasing fees at the Riverside Square Mall pursuant to the management agreement, of which the final $33,000 was paid in February 1997. INVESTMENT IN UNCONSOLIDATED VENTURES Summary combined financial information for San Jose and Royal Executive as of and for the years ended December 31, 1997 and 1996 are as follows: 1997 1996 ------------ ----------- Current assets. . . . . . . . . $ 5,677,624 5,535,189 Current liabilities . . . . . . (792,509) (625,146) ------------ ----------- Working capital . . . . . . 4,885,115 4,910,043 ------------ ----------- Investment property, net. . . . 30,803,149 49,157,299 Other assets, net . . . . . . . 1,204,478 1,287,622 Long-term debt. . . . . . . . . (22,961,889) (23,338,875) Other liabilities . . . . . . . (181,229) (247,868) Venture partners' equity. . . . (7,038,462) (11,400,919) ------------ ----------- Partnership's capital . . . $ 6,711,162 20,367,302 ============ =========== Represented by: Invested capital. . . . . . . $ 77,738,617 77,738,617 Cumulative distributions. . . (81,831,137) (49,501,766) Cumulative losses . . . . . . 10,803,682 (7,869,549) ------------ ----------- $ 6,711,162 20,367,302 ============ =========== Total income. . . . . . . . . . $ 16,288,755 16,333,533 ============ =========== 1997 1996 ------------ ----------- Expenses applicable to operating earnings. . . . . . $ 9,387,265 12,124,390 ============ =========== Gain on disposition of investment property . . . . . $ 13,905,818 2,825,220 ============ =========== Net earnings (loss) . . . . . . $ 20,807,308 7,034,363 ============ =========== The total income, expenses related to operating earnings and net earnings for the above-mentioned ventures for the year ended December 31, 1995 were $15,525,621, $12,090,055 and $3,435,566, respectively. SCHEDULE III JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997
COSTS CAPITALIZED INITIAL COST TO SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED PARTNERSHIP (A) ACQUISITION AT CLOSE OF PERIOD (B) ----------------------- -------------- ------------------------------------- BUILDINGS BUILDINGS BUILDINGS AND AND AND ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL (C) ----------- ----------- ------------ -------------- ---------- ------------ ---------- SHOPPING CENTER: Hackensack, New Jersey. . $34,404,478 3,796,561 30,880,649 45,465,971 3,796,561 76,346,620 80,143,181 =========== ========= ========== ========== ========= ========== ==========
SCHEDULE III - CONTINUED JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
LIFE ON WHICH DEPRECIATION IN LATEST STATEMENT OF 1997 ACCUMULATED DATE OF DATE OPERATION REAL ESTATE DEPRECIATION(D) CONSTRUCTION ACQUIRED IS COMPUTED TAXES ---------------- ------------ ---------- --------------- ----------- SHOPPING CENTER: Hackensack, New Jersey. . . . . . . . . . . . $19,213,845 1977 10-19-83 5-30 years 2,314,503 =========== ========= - ------------- 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, 1997 for Federal income tax purposes was $83,183,293.
SCHEDULE III - CONTINUED JMB INCOME PROPERTIES, LTD. - XI (A LIMITED PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (C) Reconciliation of real estate owned:
1997 1996 1995 ------------ ------------ ------------ Balance at beginning of period . . . . . . . . . . $79,273,342 74,461,800 65,406,740 Additions during period. . . . . . . . . . . . . . 869,839 4,811,542 9,055,060 Dispositions during period . . . . . . . . . . . . -- -- -- ----------- ----------- ---------- Balance at end of period . . . . . . . . . . . . . $80,143,181 79,273,342 74,461,800 =========== =========== ========== (D) Reconciliation of accumulated depreciation: Balance at beginning of period . . . . . . . . . . $17,321,842 14,927,070 12,951,168 Depreciation expense . . . . . . . . . . . . . . . 1,892,003 2,394,772 1,975,902 ----------- ----------- ---------- Balance at end of period . . . . . . . . . . . . . $19,213,845 17,321,842 14,927,070 =========== =========== ==========
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. These financial statements are the responsibility of the General Partners of the Partnership. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by 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, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. As discussed in the Notes to the financial statements, in 1996 the Partnership changed its method of accounting for long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121. KPMG PEAT MARWICK LLP Chicago, Illinois March 25, 1998 ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSETS ------
1997 1996 ------------ ------------ Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 842,403 439,499 Rents and other receivables, net of allowance for doubtful accounts of $0 in 1997 and $82,032 in 1996 . . . . . . . . . . . . . . . . . . . . . . . . 15,549 557,570 ----------- ----------- Total current assets. . . . . . . . . . . . . . . . . . . 857,952 997,069 ----------- ----------- Investment property held for sale or disposition. . . . . . . . . . -- 20,726,634 ----------- ----------- Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . -- 327,630 ----------- ----------- $ 857,952 22,051,333 =========== =========== ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) BALANCE SHEETS - CONTINUED LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS ------------------------------------------ 1997 1996 ------------ ------------ Current liabilities: Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . $ 173,172 168,640 ----------- ----------- Total current liabilities . . . . . . . . . . . . . . . . 173,172 168,640 Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . -- 168,269 ----------- ----------- Commitments and contingencies Total liabilities . . . . . . . . . . . . . . . . . . . . 173,172 336,909 Partners' capital accounts. . . . . . . . . . . . . . . . . . . . . 684,780 21,714,424 ----------- ----------- $ 857,952 22,051,333 =========== =========== See accompanying notes to financial statements.
ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ----------- ----------- Income: Rental income . . . . . . . . . . . . . . . . . . $ 6,854,125 7,044,108 6,281,703 Interest income . . . . . . . . . . . . . . . . . 29,947 51,257 61,472 Gain on sale of investment property . . . . . . . 13,905,818 -- -- ----------- ----------- ----------- 20,789,890 7,095,365 6,343,175 ----------- ----------- ----------- Expenses: Depreciation. . . . . . . . . . . . . . . . . . . -- 915,666 912,943 Property operating expenses . . . . . . . . . . . 2,913,669 3,107,719 3,041,478 Amortization of deferred expenses . . . . . . . . 79,959 85,802 371,516 ----------- ----------- ----------- 2,993,628 4,109,187 4,325,937 ----------- ----------- ----------- Net earnings (loss) . . . . . . . . . . . $17,796,262 2,986,178 2,017,238 =========== =========== =========== See accompanying notes to financial statements.
ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
UNAFFILIATED VENTURE JMB-XI TOTAL ------------- ----------- ----------- Balance at December 31, 1994. . . . . . . . . . . . . . $ 6,400,728 18,435,662 24,836,390 Capital contributions . . . . . . . . . . . . . . . . . 304,860 -- 304,860 Cash distributions. . . . . . . . . . . . . . . . . . . -- (3,882,121) (3,882,121) Net earnings (loss) . . . . . . . . . . . . . . . . . . (147,303) 2,164,541 2,017,238 ----------- ----------- ----------- Balance at December 31, 1995. . . . . . . . . . . . . . 6,558,285 16,718,082 23,276,367 Cash distributions. . . . . . . . . . . . . . . . . . . -- (4,548,121) (4,548,121) Net earnings (loss) . . . . . . . . . . . . . . . . . . (5,524) 2,991,702 2,986,178 ----------- ----------- ----------- Balance at December 31, 1996. . . . . . . . . . . . . . 6,552,761 15,161,663 21,714,424 Cash distributions. . . . . . . . . . . . . . . . . . . (6,496,535) (32,329,371) (38,825,906) Net earnings (loss) . . . . . . . . . . . . . . . . . . 628,554 17,167,708 17,796,262 ----------- ----------- ----------- Balance at December 31, 1997. . . . . . . . . . . . . . $ 684,780 -- 684,780 =========== =========== =========== See accompanying notes to financial statements.
ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ----------- ----------- Cash flows from operating activities: Net earnings (loss) . . . . . . . . . . . . . . . $17,796,262 2,986,178 2,017,238 Items not requiring (providing) cash: Depreciation. . . . . . . . . . . . . . . . . . -- 915,666 912,943 Amortization of deferred expenses . . . . . . . 79,959 85,802 371,516 Gain on sale of investment property . . . . . . (13,905,818) -- -- Changes in: Rents and other receivables . . . . . . . . . . 542,021 460,777 561,279 Prepaid expenses. . . . . . . . . . . . . . . . -- 11,316 4,370 Accounts payable. . . . . . . . . . . . . . . . 4,532 (87,595) (156,596) Tenant security deposits. . . . . . . . . . . . (168,269) 621 -- ----------- ----------- ----------- Net cash provided by (used in) operating activities. . . . . . . . . . . 4,348,687 4,372,765 3,710,750 Cash flows from investing activities: Cash sale proceeds from sale of investment property, net of selling expenses . . . . . . . 35,445,723 -- -- Net sales and maturities (purchases) of short-term investments . . . . . . . . . . . -- -- 98,281 Additions to investment property. . . . . . . . . (559,799) (93,083) (186,896) Payment of deferred expenses. . . . . . . . . . . (5,801) -- (65,900) ----------- ----------- ----------- Net cash provided by (used in) investing activities. . . . . . . . . . . 34,880,123 (93,083) (154,515) ----------- ----------- ----------- ROYAL EXECUTIVE PARK II (A GENERAL PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED 1997 1996 1995 ----------- ----------- ----------- Cash flows from financing activities: Capital contributed to venture. . . . . . . . . . -- -- 304,860 Distributions to partners . . . . . . . . . . . . (38,825,906) (4,548,121) (3,882,121) ----------- ----------- ----------- Net cash provided by (used in) financing activities. . . . . . . . . . . (38,825,906) (4,548,121) (3,577,261) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . 402,904 (268,439) (21,026) Cash and cash equivalents, at beginning of year. . . . . . . . . . . 439,499 707,938 728,964 ----------- ----------- ----------- Cash and cash equivalents, at end of year. . . . . . . . . . . . . . $ 842,403 439,499 707,938 =========== =========== =========== 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, 1997, 1996 AND 1995 OPERATIONS AND BASIS OF ACCOUNTING GENERAL 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" or "Partnership") and an unaffiliated venture are the partners. Royal Executive Park II held an equity investment in commercial real estate property in the City of Rye Brook, New York. Business activities consisted of rentals to a wide variety of commercial companies, and the ultimate sale or disposition of such real estate in December 1997. As the Royal Executive venture had determined to sell the property, the property was classified as held for sale or disposition as of December 31, 1996, and therefore, had not been subject to continued depreciation. The results of operations of the property included in the accompanying financial statements were profits of $3,890,444, $2,986,178 and $2,017,238 for the years ended December 31, 1997, 1996 and 1995, respectively. On December 19, 1997, the Royal Executive venture sold the land and related improvements of the Royal executive Park II office complex for $36,000,000. A description of the sale of the property is contained in the Notes of the financial statements of JMB Income - XI. Such notes are incorporated herein by reference. The accounting policies of the Venture are the same as those of the Partnership. Accordingly, reference is made to the Notes to the Partnership's financial statements filed with this annual report. Such notes are incorporated herein by reference. The preparation of financial statements in accordance with GAAP requires the Partnership to make estimates and assumptions that affect the reported or disclosed amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. VENTURE AGREEMENT A description of the acquisition of the property and the venture agreement is contained in the Notes of the financial statements of JMB Income - XI. Such notes are incorporated herein by reference. MANAGEMENT AGREEMENT 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. TRANSACTIONS WITH AFFILIATES There were no fees, commissions and other expenses required to be paid by the Venture to the General Partners and their affiliates as of December 31, 1997 or for the years ended December 31, 1997, 1996 and 1995. INDEPENDENT AUDITORS' REPORT The Partners JMB/SAN JOSE ASSOCIATES: We have audited the financial statements of JMB/San Jose Associates (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 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/San Jose Associates at December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, 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. As discussed in the Notes to the financial statements, in 1996 the Partnership changed its method of accounting for long-lived assets and long-lived assets to be disposed of to conform with Statement of Financial Accounting Standards No. 121. KPMG PEAT MARWICK LLP Chicago, Illinois March 25, 1998 JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSETS ------
1997 1996 ----------- ----------- Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 2,783,007 2,260,010 Rents and other receivables, net of allowance for doubtful accounts of $0 in 1997 and $1,648,319 in 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,849,882 2,111,845 Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 89,913 92,041 Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 96,870 74,223 ----------- ----------- Total current assets. . . . . . . . . . . . . . . . . . . . 4,819,672 4,538,119 ----------- ----------- Investment property held for sale or disposition. . . . . . . . . . . 30,803,149 28,430,666 ----------- ----------- Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 1,204,478 959,992 ----------- ----------- $36,827,299 33,928,777 =========== =========== JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) BALANCE SHEETS - CONTINUED LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS ------------------------------------------ 1997 1996 ----------- ----------- Current liabilities: Current portion of long-term debt . . . . . . . . . . . . . . . . . $ 376,986 92,988 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 79,396 199,955 Accrued interest payable. . . . . . . . . . . . . . . . . . . . . . 162,955 163,563 ----------- ----------- Total current liabilities . . . . . . . . . . . . . . . . . 619,337 456,506 Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . 181,229 79,599 Long-term debt, less current portion. . . . . . . . . . . . . . . . . 22,961,889 23,338,875 ----------- ----------- Commitments and contingencies Total liabilities . . . . . . . . . . . . . . . . . . . . . 23,762,455 23,874,980 Partners' capital accounts. . . . . . . . . . . . . . . . . . . . . . 13,064,844 10,053,797 ----------- ----------- $36,827,299 33,928,777 =========== =========== See accompanying notes to financial statements.
JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ----------- ----------- Income: Rental income . . . . . . . . . . . . . . . . . . $ 9,249,115 9,125,251 9,071,667 Interest income . . . . . . . . . . . . . . . . . 155,568 112,917 110,779 Gain on sale of investment property . . . . . . . -- 2,825,220 -- ----------- ----------- ----------- 9,404,683 12,063,388 9,182,446 ----------- ----------- ----------- Expenses: Mortgage and other interest . . . . . . . . . . . 1,958,848 1,965,892 2,202,191 Depreciation. . . . . . . . . . . . . . . . . . . -- 1,044,296 1,114,143 Property operating expenses . . . . . . . . . . . 4,160,963 4,728,651 4,237,476 Amortization of deferred expenses . . . . . . . . 273,825 276,364 210,308 ----------- ----------- ----------- 6,393,636 8,015,203 7,764,118 ----------- ----------- ----------- Net earnings. . . . . . . . . . . . . . . $ 3,011,047 4,048,185 1,418,328 =========== =========== =========== See accompanying notes to financial statements.
JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
AFFILIATED JMB-XI PARTNER TOTAL ----------- ----------- ----------- Balance at December 31, 1994. . . . $ 6,076,945 5,719,465 11,796,410 Capital contributions . . . . . . . 1,233,436 1,233,437 2,466,873 Cash distributions. . . . . . . . . (1,250,000) (1,250,000) (2,500,000) Net earnings. . . . . . . . . . . . 709,165 709,164 1,418,329 ----------- ----------- ----------- Balance at December 31, 1995. . . . 6,769,546 6,412,066 13,181,612 Cash distributions. . . . . . . . . (3,588,000) (3,588,000) (7,176,000) Net earnings. . . . . . . . . . . . 2,024,093 2,024,092 4,048,185 ----------- ----------- ----------- Balance at December 31, 1996. . . . 5,205,639 4,848,158 10,053,797 Net earnings. . . . . . . . . . . . 1,505,523 1,505,524 3,011,047 ----------- ----------- ----------- Balance at December 31, 1997. . . . $ 6,711,162 6,353,682 13,064,844 =========== =========== =========== See accompanying notes to financial statements.
JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ------------ ----------- ----------- Cash flows from operating activities: Net earnings. . . . . . . . . . . . . . . . . . . $ 3,011,047 4,048,185 1,418,328 Items not requiring (providing) cash: Depreciation. . . . . . . . . . . . . . . . . . -- 1,044,296 1,114,143 Amortization of deferred expenses . . . . . . . 273,825 276,364 210,308 Gain on sale of investment property . . . . . . -- (2,825,220) -- Changes in: Rents and other receivables . . . . . . . . . . 261,963 398,749 (19,820) Prepaid expenses. . . . . . . . . . . . . . . . 2,128 (20,632) -- Escrow deposits . . . . . . . . . . . . . . . . (22,647) 232,577 (268,535) Accounts payable. . . . . . . . . . . . . . . . (120,559) 134,662 (323,557) Accrued interest payable. . . . . . . . . . . . (608) (562) (32,398) Tenant security deposits. . . . . . . . . . . . 101,630 30,729 (23,223) ----------- ----------- ----------- Net cash provided by (used in) operating activities. . . . . . . . . . . 3,506,779 3,319,148 2,075,246 ----------- ----------- ----------- Cash flows from investing activities: Additions to investment property. . . . . . . . . (2,372,483) (1,485,395) (156,254) Payment of deferred expenses. . . . . . . . . . . (518,311) (402,481) (218,059) Proceeds from sale of investment property . . . . -- 5,824,041 -- ----------- ----------- ----------- Net cash provided by (used in) investing activities. . . . . . . . . . . (2,890,794) 3,936,165 (374,313) ----------- ----------- ----------- JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) STATEMENTS OF CASH FLOWS - CONTINUED 1997 1996 1995 ----------- ----------- ----------- Cash flows from financing activities: Principal payments on long-term debt. . . . . . . (92,988) (85,989) (374,973) Paydowns on long-term debt. . . . . . . . . . . . -- -- (2,418,722) Capital contributed to venture. . . . . . . . . . -- -- 2,466,873 Distributions to partners . . . . . . . . . . . . -- (7,176,000) (2,500,000) ----------- ----------- ----------- Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . (92,988) (7,261,989) (2,799,822) ----------- ----------- ----------- Net increase (decrease) increase in cash and cash equivalents. . . . . . . 522,997 (6,676) (1,098,889) ----------- ----------- ----------- Cash and cash equivalents, beginning of year . . . . . . . . . . . . 2,260,010 2,266,686 3,365,575 ----------- ----------- ----------- Cash and cash equivalents, end of year . . . . . . . . . . . . . . . $ 2,783,007 2,260,010 2,266,686 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest . . . . $ 1,959,456 1,966,455 2,234,589 Non-cash investing and financing activities: Cash sale proceeds, net of selling expenses . . $ -- 5,824,041 -- Reduction in investment property, net . . . . . -- (2,966,325) -- Reduction in other assets and liabilities . . . -- (32,496) -- ----------- ----------- ----------- Gain recognized on sale of property . . . $ -- 2,825,220 -- =========== =========== =========== See accompanying notes to financial statements.
JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 OPERATIONS AND 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, JMB/San Jose Associates ("San Jose"), in which JMB Income Properties, Ltd.-XI ("JMB Income-XI" or "Partnership") and JMB Income Properties, Ltd.-XII ("JMB Income-XII" or "Affiliated Partner") are the partners. San Jose holds an equity investment in a commercial office complex in San Jose, California. Business activities consist of rentals to a wide variety of commercial companies and governmental entities, and the ultimate sale or disposition of such real estate. As San Jose had determined to sell the complex, all portions of the office complex have been classified as held for sale or disposition as of or during the period ended December 31, 1996. Therefore, the complex is not subject to continued depreciation. Certain portions of the office complex were sold during 1996. The results of operations of the complex included in the accompanying financial statements were earnings of $2,855,479, $1,110,048 and $1,307,549 for the years ended December 31, 1997, 1996 and 1995, respectively. On February 24, 1998, San Jose sold the land and related improvements of the remaining assets of the Park Center Financial Plaza office complex for $76,195,000. San Jose received approximately $49,400,000 of net sale proceeds at closing (after the repayment by San Jose of the mortgage loans secured by the 170 Almaden, 150 Almaden and 185 Park Avenue buildings with a balance of approximately $23,300,000, loan prepayment premiums of approximately $2,422,000 and closing costs), of which the Partnership's share was approximately $24,700,000. A description of the sale of the property is contained in the Notes of the financial statements of JMB Income - XI. Such notes are incorporated herein by reference. The Partnership uses the allowance method of accounting for doubtful accounts. Provisions for uncollectible tenant receivables in the amounts of $0, $588,052 and $783,417 were recorded in 1997, 1996 and 1995, respectively. Bad debt expense is included in Property Operating Expenses. The preparation of financial statements in accordance with GAAP requires San Jose to make estimates and assumptions that affect the reported or disclosed amount of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from those estimates. The accounting policies of San Jose are the same as those of the Partnership. Accordingly, reference is made to the Notes to the Partnership's consolidated financial statements filed with this annual report. Such notes are incorporated herein by reference. VENTURE AGREEMENT A description of the venture agreement and the management agreement is contained in the Notes to Consolidated Financial Statements of JMB Income - XI. Such note is incorporated herein by reference. MANAGEMENT AGREEMENT In December 1994, the property manager, an affiliate of the General Partners of the Partnership, sold substantially all of its assets and assigned its interest in the management contracts to an unaffiliated third party who continues to manage the complex. In addition, certain of the management personnel of the property manager became management personnel of the purchaser and its affiliates. LONG-TERM DEBT Long-term debt consists of the following at December 31, 1997 and 1996: 1997 1996 ---------- ---------- 7.85% mortgage note; secured by the 170 Almaden Building in San Jose, California; principal and interest payments of $13,537 are due monthly through September 2003 when the remaining principal of approximately $169,000 is due. . . . . . . . . $ 838,875 931,863 8.4% mortgage note; secured by the 150 Almaden and 185 Park Avenue buildings, and certain related parking improvements in San Jose, California; interest only payments of $157,500 are due monthly through December 1997; principal and interests payments of $179,663 are due monthly through November 2001 when the entire principal of approx- imately $21,421,000 is due . . . 22,500,000 22,500,000 ----------- ---------- Total debt. . . . . . . . 23,338,875 23,431,863 Less current portion of long-term debt. . . . 376,986 92,988 ----------- ---------- Total long-term debt. . . $22,961,889 23,338,875 =========== ========== Five year maturities of long-term debt are as follows: 1998. . . . . . . . . . $ 376,986 1999. . . . . . . . . . 409,305 2000. . . . . . . . . . 444,398 2001. . . . . . . . . . 21,723,357 2002. . . . . . . . . . 137,509 =========== TRANSACTIONS WITH AFFILIATES Fees, commissions and other expenses required to be paid by San Jose to the General Partners and their affiliates as of December 31, 1997 and for the years ended December 31, 1997, 1996 and 1995 were as follows: UNPAID AT DECEMBER 31, 1997 1996 1995 1997 -------- -------- -------- ------------ Property management and leasing fees. . $ 65,012 77,870 60,000 -- Insurance commissions 23,530 25,768 30,140 -- -------- ------- ------- ------ $ 88,542 103,638 90,140 -- ======== ======= ======= ====== SCHEDULE III JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997
INITIAL COST TO GROSS AMOUNT AT WHICH CARRIED PARTNERSHIP (A) COSTS AT CLOSE OF PERIOD (B) ------------------------------ CAPITALIZED ------------------------------------------ BUILDINGS SUBSEQUENT TO BUILDINGS AND ACQUISITION AND ENCUMBRANCE LAND IMPROVEMENTS (C) (D) LAND IMPROVEMENTS TOTAL (E) ----------- ----------- ------------ -------------- ---------- ------------ ---------- OFFICE BLDS: San Jose, California $23,338,875 21,078,745 62,309,815 (19,621,073) 5,867,750 42,688,742 48,556,492 =========== ========== ========== =========== ========== ========== ===========
SCHEDULE III - CONTINUED JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997
LIFE ON WHICH DEPRECIATION IN LATEST STATEMENT OF 1997 ACCUMULATED DATE OF DATE OPERATIONS REAL ESTATE DEPRECIATION(F) CONSTRUCTION ACQUIRED IS COMPUTED TAXES ---------------- ------------ ---------- --------------- ----------- OFFICE BUILDINGS: San Jose, 6/20/85 California . . . . . . . $17,753,343 1970 and 5/2/86 5-30 years 528,193 =========== ======= - -------------- Notes: (A) The initial cost to San Jose 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, 1997 for Federal income tax purposes was approximately $89,267,717. (C) Through December 31, 1997, San Jose has recorded provisions for value impairment totaling $45,811,547. (D) During 1996, San Jose sold the 190 San Fernando Building and one of the parking garage structures in the complex in two separate transactions as described more fully in the Notes to Consolidated Financial Statements of the Partnership.
SCHEDULE III - CONTINUED JMB/SAN JOSE ASSOCIATES (A GENERAL PARTNERSHIP) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 (E) Reconciliation of real estate owned:
1997 1996 1995 ------------ ------------ ------------ Balance at beginning of period . . . . . . . . . $46,184,009 49,530,107 49,373,853 Additions during period. . . . . . . . . . . . . 2,372,483 1,485,395 156,254 Sales of investment property. . . . . . . . . . -- (4,831,493) -- ----------- ----------- ----------- Balance at end of period . . . . . . . . . . . . $48,556,492 46,184,009 49,530,107 =========== =========== =========== (F) Reconciliation of accumulated depreciation: Balance at beginning of period . . . . . . . . . $17,753,343 18,574,214 17,460,071 Sales of investment property. . . . . . . . . . -- (1,865,167) -- Depreciation expense . . . . . . . . . . . . . . -- 1,044,296 1,114,143 ----------- ----------- ----------- Balance at end of period . . . . . . . . . . . . $17,753,343 17,753,343 18,574,214 =========== =========== ===========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes of or disagreements with accountants during 1996 and 1997. 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. Substantially all of the outstanding shares of JMB are owned, directly or indirectly, by certain of its officers, directors, members of their families and their affiliates. JMB has responsibility for all aspects of the Partnership's operations. The Associate General Partner of the Partnership is Income Associates-XI, L.P., an Illinois limited partnership with JMB as its sole general partner. The limited partners of Income Associates-XI, L.P. are generally officers, directors and affiliates of JMB or its affiliates. The Partnership is subject to certain conflicts of interest arising out of its relationships with the General Partners and their affiliates as well as the fact that the General Partners and their affiliates are engaged in a range of real estate activities. Certain services have been and may in the future be provided to the Partnership or its investment properties by affiliates of the General Partners, including property management services and insurance brokerage services. In general, such services are to be provided on terms no less favorable to the Partnership than could be obtained from independent third parties and are otherwise subject to conditions and restrictions contained in the Partnership Agreement. The Partnership Agreement permits the General Partners and their affiliates to provide services to, and otherwise deal and do business with, persons who may be engaged in transactions with the Partnership, and permits the Partnership to borrow from, purchase goods and services from, and otherwise to do business with, persons doing business with the General Partners or their affiliates. The General Partners and their affiliates may be in competition with the Partnership under certain circumstances, including, in certain geographical markets, for tenants and/or for the sale of property. Because the timing and amount of cash distributions and profits and losses of the Partnership may be affected by various determinations by the General Partners under the Partnership Agreement, including whether and when to sell a property, the establishment and maintenance of reasonable reserves, the timing of expenditures and the allocation of certain tax items under the Partnership Agreement, the General Partners may have a conflict of interest with respect to such determinations. The names, positions held and length of service therein of each director and the executive and certain other 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 Chief Financial Officer 2/22/96 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 Gary Nickele Executive Vice President 1/01/92 General Counsel 2/27/84 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 3, 1998. 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 3, 1998. 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-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.-III ("Mortgage Partners-III"), JMB Mortgage Partners, Ltd.-IV ("Mortgage Partners-IV"), Carlyle Income Plus, Ltd. ("Carlyle Income Plus") and Carlyle Income Plus, L.P.-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.-VII ("JMB Income-VII"), 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"). JMB is also the sole general partner of the associate general partner of most of the foregoing partnerships. Most of the foregoing directors and officers are also officers and/or directors of various affiliated companies of JMB including Arvida/JMB Managers, Inc. (the general partner of Arvida/JMB Partners, L.P. ("Arvida")) 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, directly or indirectly, of certain partnerships which are associate general partners in the following real estate limited partner- ships: the Partnership, Carlyle-VII, Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV, Carlyle-XV, Carlyle-XVI, Carlyle-XVII, JMB Income-VII, JMB Income-X, JMB Income-XII, JMB Income-XIII, 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 60) 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 also a director of Urban Shopping Centers, Inc. ("USC, 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 Certified Public Accountant. Neil G. Bluhm (age 60) 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 principal of Walton Street Real Estate Fund I, L.P. and a director of USC, Inc. He is a member of the Bar of the State of Illinois and a Certified Public Accountant. Burton E. Glazov (age 59) 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 56) has been associated with JMB since July, 1972. He is a member of the Bar of the State of Illinois. A. Lee Sacks (age 64) has been associated with JMB since December, 1972. He is also President and a director of JMB Insurance Agency, Inc. John G. Schreiber (age 51) 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 Advisors L.P., an affiliate of the Blackstone Group, L.P. Mr. Schreiber is also a director of USC, Inc., a trustee of Amli Residential Property Trust and 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 48) 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 50) has been associated with JMB since December, 1979. Prior to becoming Executive 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. Gary Nickele (age 45) 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. Gailen J. Hull (age 49) 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 62) 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. Reference is also made to the Notes for a description of such transactions, distributions and allocations. In 1997, 1996 and 1995, no cash distributions were paid to the General Partners. Affiliates of the Managing General Partner provided property management services to the Partnership for 1996 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. In 1997, such affiliates earned property management and leasing fees amounting to $244,256 which was paid as of December 31, 1997. 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 1997 aggregating $44,126 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 salaries, salary-related and direct expenses relating to the administration of the Partnership and the operation of the Partnership's real property investments. In 1997, an affiliate of the General Partners earned reimbursement for such expenses in the amount of $65,845 of which $23,679 was unpaid at December 31, 1997. The Partnership is permitted to engage in various transactions involving affiliates of the Managing General Partner of the Partnership. 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, its officers and directors and the Associate General Partner 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 and Assignee Interests Therein indirectly Limited Partnership Managing General 5 Interests (1) Less than 1% Interests and Assignee Partner, its indirectly Interests Therein officers and directors and the Associate General Partner as a group - -------------- (1) Includes 5 Interests owned by the Initial Limited Partner of the Partnership for which JMB Realty Corporation, as its indirect majority shareholder, is deemed to have sole 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. Reference is made to Item 10 for information concerning ownership of the Managing General Partner. (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.
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. Certain pages of the prospectus 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 relating to Riverside Square Mall 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 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-C. 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 hereby incorporated herein by reference to the Partnership's Report of Form 10-K for December 31, 1994 (File No. 0-15966) dated March 27, 1995. 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 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-C. 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. 10-D. Request for Full Reconveyance relating to the repayment of the mortgage indebtedness by San Jose to Connecticut General Life Insurance Company dated October 31, 1995 is hereby incorporated herein by reference to the Partnership's Report on Form 10-K (File No. 0-15966) dated March 25, 1996. 10-E. Purchase - Sale Agreement with exhibits dated December 5, 1997 relating to the sale by the Partnership, through its joint venture, of the Royal Executive Park office complex in Rye Brook, New York between Royal Executive Park I, Royal Executive Park II, Royal Executive III and Reckson Operating Partnership, L.P. are filed herewith. 10-F. First Amendment to the Purchase - Sale Agreement dated February 10, 1998 relating to the sale by San Jose of the Park Center Financial Plaza office complex in San Jose, California between JMB/San Jose Associates and Divco West Properties, LLC are filed herewith. 10-G. Purchase - Sale Agreement with exhibits dated December 3, 1997 relating to the sale by San Jose of the Park Center Financial Plaza office complex in San Jose, California between JMB/San Jose Associates and Divco West Properties, LLC are filed herewith. 21. List of Subsidiaries 24. Powers of Attorney 27. Financial Data Schedule -------------- (b) No reports on Form 8-K were required or filed since the beginning of the last quarter of the period covered by this report. No annual report or proxy material for the year 1997 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 25, 1998 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 Chief Financial Officer Date: March 25, 1998 NEIL G. BLUHM* By: Neil G. Bluhm, President and Director Date: March 25, 1998 H. RIGEL BARBER* By: H. Rigel Barber, Chief Executive Officer Date: March 25, 1998 GLENN E. EMIG* By: Glenn E. Emig, Chief Operating Officer Date: March 25, 1998 GAILEN J. HULL By: Gailen J. Hull, Senior Vice President Principal Accounting Officer Date: March 25, 1998 A. LEE SACKS* By: A. Lee Sacks, Director Date: March 25, 1998 By: STUART C. NATHAN* Stuart C. Nathan, Executive Vice President and Director Date: March 25, 1998 *By: GAILEN J. HULL, Pursuant to a Power of Attorney GAILEN J. HULL By: Gailen J. Hull, Attorney-in-Fact Date: March 25, 1998 JMB INCOME PROPERTIES, LTD. - XI EXHIBIT INDEX DOCUMENT INCORPORATED BY REFERENCE Page ------------ ---- 3-A. Certain pages 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 Park Center Financial Center Yes -- 4-C. Mortgage loan agreement related to Park Center Plaza Yes -- 10-A. Acquisition documents related to Riverside Square Yes -- 10-B. Acquisition documents related to Park Center Plaza Yes -- 10-C. Disposition documents related to Bank of Delaware Yes -- 10-D. Request for Full Reconveyance related to San Jose Yes -- 10-E. Purchase and Sale Agreement related to the Royal Executive Park office complex No -- 10-F. First Amendment to the Purchase and Sale Agreement related to San Jose No -- 10-G. Purchase and Sale Agreement with exhibits related to San Jose No -- 21. List of Subsidiaries No 24. Powers of Attorney No 27. Financial Data Schedule No EX-10.E 2 EXHIBIT 10-E - ------------ (J-XI) SALE-PURCHASE AGREEMENT ----------------------- BETWEEN ROYAL EXECUTIVE PARK I ROYAL EXECUTIVE PARK II AND ROYAL EXECUTIVE PARK III, SELLERS, AND RECKSON OPERATING PARTNERSHIP, L.P. BUYER. PREMISES -------- ROYAL EXECUTIVE PARK PHASES 1, 2 AND 3 RYE BROOK, NEW YORK DATED AS OF DECEMBER 5, 1997 Handsman & Kaminsky 609 Fifth Avenue, 6th Floor New York, New York 10017 (212) 750-3636 SALE-PURCHASE AGREEMENT (the "Agreement"), made as of the 5th day of December, 1997, among ROYAL EXECUTIVE PARK I ("REP I"), ROYAL EXECUTIVE PARK II ("REP II") and ROYAL EXECUTIVE PARK III ("REP III"), each a general partnership formed under the laws of the State of New York (individually, a "Seller" and collectively, the "Sellers"), having an office c/o London & Leeds Development Corporation, One Wall Street Court, New York, New York 10005, and RECKSON OPERATING PARTNERSHIP, L.P., a Delaware limited partnership, having an office at 225 Broadhollow Road, Melvillle, New York 11747-0983 ("Buyer"). W I T N E S S E T H : --------------------- 1. SALE-PURCHASE. In consideration of the mutual covenants and agreements hereinafter set forth, each Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase from Sellers, all of such Seller's right, title and interest in and to (a) those certain plots, pieces or parcels of land located in the Village of Rye Brook, Towns of Rye and Harrison, County of Westchester and State of New York and partly in the Town of Greenwich, County of Fairfield and State of Connecticut, more particularly described on Exhibits "A-1" through "A-3" annexed hereto and made a part hereof (collectively, the "Land"); (b) all easements, rights of way, privileges, permits, governmental grants of authority, appurtenances and other rights pertaining thereto; (c) all buildings and improvements thereon (collectively, the "Buildings"), and all fixtures, machinery, personal property and equipment used in connection therewith which are owned by such Seller and currently located on the Land or in the Buildings, except trade fixtures and property owned by space or other tenants, if any; and (d) all right, title and interest, if any, of such Seller in and to any land lying in the bed of any street, road or avenue opened or proposed, public or private, in front of or adjoining the Land to the center line thereof (the Land, the Buildings and other rights, improvements and property heretofore mentioned being hereinafter collectively referred to as the "Property")(the portion of the Property on the Land described on Exhibit "A-1" is hereinafter referred to as "Phase 1", the portion of the Property on the Land described on Exhibit "A-2" is hereinafter referred to as "Phase 2", the portion of the Property on the Land described on Exhibit "A-3" is hereinafter referred to as "Phase 3") . 2. PURCHASE PRICE. A. The purchase price for the Property (the "Purchase Price") is EIGHTY-ONE MILLION UNITED STATES DOLLARS ($81,000,000.00), payable as follows: (i) TWO MILLION DOLLARS ($2,000,000.00) (the "Initial Downpayment"), simultaneously with the execution and delivery of this Agreement, at the option of Buyer, either by (1) a good certified or official bank check, payable to the order of Commonwealth Land Title Insurance Company as Escrow Agent ("Escrow Agent"), or (2) federal funds wire transfer of immediately available funds to a bank account designated by Escrow Agent; (ii) TWO MILLION DOLLARS ($2,000,000.00) (the "Additional Downpayment"), not later than the expiration of the Review Period (hereinafter defined), time being of the essence, at the option of Buyer, either by (1) a good certified or official bank check, payable to the order of Escrow Agent, or (2) federal funds wire transfer of immediately available funds to a bank account designated by Escrow Agent (the Initial Downpayment and, once paid to the Escrow Agent, the Additional Downpayment are hereinafter referred to as the "Escrow Deposit"); and (iii) SEVENTY-SEVEN MILLION DOLLARS ($77,000,000.00) (the "Balance of the Purchase Price"), on the Closing Date (hereinafter defined), by federal funds wire transfer of immediately available funds to a bank account or accounts designated by Sellers. B. The Escrow Deposit shall be held and disbursed by the Escrow Agent in accordance with the provisions of Paragraph 3 of this Agreement. For purposes hereof, the Escrow Deposit, together with all interest earned thereon, is hereinafter collectively referred to as the "Deposit". C. The aggregate amount of the Purchase Price shall be allocated among Phases 1, 2, and 3 comprising the Property as follows: Phase 1 $37,000,000 Phase 2 $36,000,000 Phase 3 $ 8,000,000 Notwithstanding the foregoing allocations, the Property will be purchased and sold only in its entirety and no individual Phase or Phases thereof may be separately purchased. 3. ESCROW. The Deposit shall be held by the Escrow Agent, in trust, on the terms hereinafter set forth: A. The Escrow Agent shall deposit the Escrow Deposit in treasury bills, treasury backed repurchase agreements or as otherwise directed in writing by Sellers and Buyer. B. The Escrow Agent shall not commingle the Deposit with any other funds of the Escrow Agent or others and shall promptly advise Buyer and Sellers of the number of any bank account in which the Escrow Deposit has been deposited. C. If the Closing takes place under this Agreement (the "Closing"), then, on the Closing Date, the Escrow Agent shall deliver the Deposit to, or upon the instructions of, Sellers. In such event, any interest earned on the Escrow Deposit shall be credited against the Balance of the Purchase Price due from Buyer hereunder. D. If this Agreement is terminated in accordance with the terms hereof, then the Escrow Agent shall pay the Deposit to, or upon the instructions of, the party entitled thereto in accordance with the provisions of this Agreement. E. If the Closing does not take place under this Agreement by reason of the failure of either party to comply with its obligations hereunder, then the Escrow Agent shall pay the Deposit to the party entitled thereto in accordance with the provisions of this Agreement. F. It is agreed that the duties of the Escrow Agent are only as herein specifically provided, and, subject to the provisions of subparagraph G below, are purely ministerial in nature, and that the Escrow Agent shall incur no liability whatever except for willful misconduct or gross negligence, as long as the Escrow Agent has acted in good faith. Sellers and Buyer each release the Escrow Agent from any act done or omitted to be done by the Escrow Agent in good faith in the performance of its duties hereunder. Each of the Sellers and Buyer jointly and severally agrees to indemnify and hold the Escrow Agent harmless from any and all costs, expenses, claims or actions which may be incurred or asserted by or against the Escrow Agent, including without limitation claims or actions by any of them (except to the extent resulting from the Escrow Agent's willful misconduct or gross negligence). G. The Escrow Agent is acting as a stakeholder only with respect to the Deposit. If there is any dispute as to whether the Escrow Agent is obligated to deliver the Escrow Deposit or interest earned thereon or as to the party whom said Escrow Deposit and interest earned thereon is to be delivered, the Escrow Agent shall not make any delivery, but in such event the Escrow Agent shall hold same until receipt by the Escrow Agent of an authorization in writing, signed by all the parties having interest in such dispute, directing the disposition of same, or in the absence of such auth- orization the Escrow Agent shall hold the Deposit until the final determination of the rights of the parties in an appropriate proceeding. If such written authorization is not given, or proceedings for such determination are not begun within thirty (30) days of the Closing Date and diligently continued, the Escrow Agent may, but is not required to, bring an appropriate action or proceeding for leave to deposit the Deposit in court pending such determination. The Escrow Agent shall be reimbursed for all costs and expenses of such action or proceeding including, without limitation, reasonable attorneys' fees and disbursements, by the party determined not to be entitled to the Deposit. Upon making delivery of the Deposit in the manner herein provided, the Escrow Agent shall have no further liability hereunder. H. The Escrow Agent has executed this Agreement in order to confirm that the Escrow Agent will hold the Deposit in escrow, pursuant to the provisions hereof. 4. PERMITTED EXCEPTIONS. The Property shall be conveyed to Buyer subject to the following (collectively, the "Permitted Exceptions"): (i) Zoning regulations and ordinances, municipal building restrictions, environmental quality or land use restrictions or regulations and all other laws, ordinances, regulations, restrictions or other action of any public authority or other body having or exercising jurisdiction over the Property; (ii) Consents by Sellers or any former owner of the Property for the erection of any structure or structures on, under or above any street or streets on which the Property may abut; (iii) Any state of facts as would be shown by an accurate current survey or inspection of the Property, provided the same do not interfere with or prohibit the use of the Property as presently utilized, except that to the extent that improvements (a) on any parcel adjacent to the Property shall encroach upon the Property, such encroachment shall not be or be deemed to be an objection to title if such encroachment does not materially interfere with the present use and maintenance of the Property; and (b) on the Property shall encroach on any adjacent parcel or any street abutting the Property, such encroachment shall not be or be deemed to be an objection to title if the Title Company (as hereinafter defined) shall insure (without additional cost to Buyer) that such encroachment may remain as long as the relevant Building shall stand; (iv) Covenants, restrictions, reservations, conditions, easements and agreements of record, as set forth on Exhibits B-1, B-2 and B-3 hereof or otherwise furnished to Buyer during the Review Period; (v) Utility and telephone company rights and easements of record to maintain, install or remove poles, wires, cables, pipes, boxes and other facilities and equipment in, over and upon the Property; (vi) The lien of franchise taxes of any corporation in the chain of title to the Property, or the lien of any judgment, transfer tax, inheritance tax, estate tax or any other similar lien, provided the Title Company will, at the Closing, insure (at no additional cost to Buyer) Buyer against collection of such judgment, taxes or liens from the Property; (vii) Rights of tenants, licensees or other permittees of the Property set forth in Exhibit "F" annexed hereto (and subtenant and licensees thereof) under the terms and conditions of all leases, options or rights of first refusal to purchase and the other agreements affecting any space in the Property (collectively, the "Leases"); (viii) Easements that affect any land in the bed of any street, road, or avenue, opened or proposed, in front of or adjoining the Property, provided same are not violated by the existing Buildings and the present use thereof; (ix) Liens for taxes not yet due and payable, water charges, sewer rents and other governmental charges for which adjustment is to be made at the Closing; (x) Rights and easements for the installation, maintenance and replacement of water mains and sewer lines and facilities and equipment in, over and upon the Property, provided same are not violated by existing Buildings and the present use thereof; (xi) Mechanic's liens arising out of work performed or materials furnished to any tenants of the Buildings of which Sellers have no knowledge as of the date hereof; (xii) Financing statements and agreements made by, or judgments entered against, any tenant of the Buildings of which Sellers have no knowledge as of the date hereof; (xiii) Any violations of law or municipal ordinances, orders or requirements which have been noted in or issued by, the departments of building, fire, labor, health or other Federal, State, County or Municipal departments having jurisdiction against or affecting the Property and any other violations, whether or not of record; and (xiv) the matters set forth on Exhibit "B-1" through "B-3" annexed hereto and made a part hereof. 5. CLOSING DATE. The Closing shall take place at 10:00 A.M. at the offices of Handsman & Kaminsky LLP, 609 Fifth Avenue, 6th Floor, New York, New York 10017, on December 19, 1997, or on such other date fixed by Sellers in accordance with the provisions of Paragraph 10 hereof (each of the aforesaid dates, as adjourned by mutual agreement of the parties, being referred to herein as the "Closing Date"). By giving notice to the other party, either party may adjourn the Closing Date to a date not more than three (3) business days after such scheduled Closing Date. Time shall be of the essence as to Buyer's obligation to close title hereunder by the aforesaid Closing Date, as same may be so adjourned. The respective attorneys of the parties hereto, as herein identified, are hereby authorized to agree (on behalf of their respective clients) in writing to adjournments of the Closing. 6. VIOLATIONS. Buyer agrees that title to the Property shall be conveyed subject to, and Sellers shall have no obligation in respect of, any and all violations of law or municipal ordinances, orders or requirements, whether or not of record. Upon request made by Buyer, Sellers shall furnish Buyer with any required authorization to make violation searches. 7. REVIEW PERIOD. A. PROPERTY DUE DILIGENCE SCHEDULE. Buyer acknowledges that it has completed and approved its local market reviews and studies. Buyer shall have until 5:00 p.m., eastern standard time, on December 15, 1997 (the "Review Period"), time being of the essence, to complete its other reviews and inspections of the Property, which reviews and inspections may include an analysis of, but not limited to (i) the tenant leases, contracts, survey and title documents affecting the Property, (ii) using non-invasive tests and observations, the environmental and physical condition of the Property and the Property's compliance with applicable law and (iii) the financial condition of the Property. On or before the end of the Review Period (time being of the essence), Buyer either (x) will notify Sellers and Escrow Agent in writing that Buyer elects to proceed with this transaction or (y) will notify Sellers and Escrow Agent in writing that Buyer for any reason whatsoever is not interested in purchasing the Property, whereupon in the case of the failure to receive the notice in clause (x) on or before the end of the Review Period or the receipt of the notice in clause (y) on or before the end of the Review Period, the Escrow Agent shall immediately return the Deposit to Buyer and except as otherwise provided herein neither party shall have any further rights or obligations hereunder. If Buyer fails to deliver such notice to Sellers prior to the expiration of the Review Period time being of essence, then Buyer shall conclusively be deemed to have terminated this Agreement and such failure to notify shall have the same force and effect as if actual written notice to terminate this Agreement were received by Sellers. Buyer acknowledges that Sellers have informed it of certain existing environmental conditions at the Property, including without limitation the matters set forth in that certain project report numbered T-1775 (the "Report"), dated June 30, 1997, prepared by TETHYS Consultants, Inc., of Harrisburg Pennsylvania and certain incidents of oil spillage, Buyer understands that, if Buyer elects to proceed, Buyer shall assume and indemnify Sellers from and against all loss, cost, damage, liability and expense, including, without limitation, reasonable attorneys' fees and disbursements, arising from or relating to the remediation (or a request for remediation by any governmental authority) of the matters contained in such Report or with respect to such oil spillage incidents (and any other environmental matters of which Buyer has received written notice prior to the expiration of the Review Period or any other environmental matters arising after the Closing), provided, however, that if Sellers (as opposed to a third party) shall notify Buyer of any such additional environmental matters later than December 12, 1997, then the Review Period shall be extended until December 17, 1997 and the Closing shall occur within four (4) business days thereafter, as designated by Buyer (time being of the essence as to such dates), provided, however, that either party may adjourn the Closing by notice to the other party for not more than three (3) business days thereafter for any reason whatsoever, time being of the essence as to Buyer's obligation to close by such date. Buyer covenants that it will diligently perform and prosecute to completion as soon as reasonably practicable following the Closing, at its sole cost and expense, all work necessary to remedy the environmental conditions set forth in the Report or in connection with the aforesaid oil spillage incidents in accordance with applicable laws and regulations and to deliver documentary evidence of such compliance to Sellers, in form reasonably satisfactory to Sellers and Sellers' consultants. Buyer will commence its due diligence promptly upon the receipt of a fully executed counterpart of this Agreement and diligently work toward its completion. Buyer hereby waives any and all rights of contribution or other rights or remedies against Sellers under the Comprehensive Environmental Response Compensation and Liability Act or any other applicable environmental laws, rules or regulations. Buyer shall promptly notify Sellers if at any time during the Review Period Buyer determines that Buyer is not interested in purchasing Property. If Buyer shall determine to not proceed with this transaction as aforesaid, then upon written request of Sellers, Buyer shall promptly provide Sellers with complete copies of all materials arising from Buyer's due diligence activities other than Buyer's internally generated analyses, reports and memoranda. Buyer agrees to indemnify and hold harmless Sellers from and against all loss, cost, damage, expense or other liability resulting from the conduct of Buyer's inspections, tests, investigations or other due diligence, which indemnity shall survive the termination of this Agreement. B. INSPECTION. Subject to the rights of tenants, employees (including without limitation Tenant's employees and employees of Service Providers (hereinafter defined)) and workers at the Property, Sellers shall permit Buyer reasonable access to the Property and appropriate documents in order to complete its due diligence inspections and reviews. All inspections and reviews will be conducted at reasonable times agreed upon in advance by Sellers and Buyer, and at Sellers' election, Sellers may have a representative present at such inspections and reviews. Buyer will conduct its inspections and reviews in such a manner so as not to cause any damage, interruption, loss, cost or expense to, or claims against Sellers or the Property, and Buyer will indemnify, defend and hold Sellers, tenants, licensees, any of the respective direct or indirect partners of Sellers, any of their respective advisors, shareholders, officers, directors, trustees, beneficiaries, employees, agents and contractors and the Property harmless from and against any such damage, interruption, loss, cost or expense or claim. During the Review Period, Buyer shall not interview or discuss any matter with the union or non-union employees of Sellers, the Service Providers or the property management company at the Property (other than, upon prior notice to Sellers and the senior property manager on site). Additionally, during the Review Period Buyer shall not interview or discuss any matter with Tenants at the Property, provided, however, that Buyer, with Sellers' representative present, may interview MCI Telecommunications Corporation ("MCI"), Market Data, Entex Information Services, Inc. and Compass Group USA, Inc. (such tenants are hereinafter referred to as the "Major Tenants") regarding their respective tenancies and the condition of the Property. Sellers, upon reasonable prior notice, shall reasonably cooperate with Buyer in conducting such interviews. Buyer shall make no invasive tests of the Property or any part thereof without the Sellers' express written consent in each instance (which consent shall not be unreasonably withheld). C. CONFIDENTIALITY. Except to the extent required by Buyer's legal or other regulatory requirements, prior to Closing, Buyer (for itself and its agents, legal or financial advisors, or prospective lenders) agrees to keep all information obtained by or on behalf of Buyer with respect to the Property, Sellers and any tenant leases or in connection with Buyer's due diligence, in confidence, and not to disclose any such information to any person, governmental entity or other entity other than Buyer or its agents, legal or financial advisors, or prospective lenders, without Sellers' prior written consent in each instance, it being understood that in cases where disclosure is required by legal or regulatory requirements applicable to Buyer, Buyer will describe the Property in general terms and not disclose or reference information that could be used to identify the specific location of the Property or the identity of the Sellers or any partner of any Seller. Buyer agrees that it shall not directly or indirectly engage in or authorize any discussions with MCI, or any affiliate thereof, regarding the purchase and/or sale of the Property or any portion thereof, provided, however, that Buyer may interview MCI solely for the purposes specified in paragraph B above in accordance therewith. Sellers shall refrain from negotiating with any other prospective buyer of all or any portion of the Property (other than MCI) until November 26, 1997. D. "AS-IS" SALE; DISCLAIMER. (i) The Property will be sold to Buyer in its "AS IS" condition and Buyer shall rely upon Buyer's own due diligence in determining whether the Property is suitable for purchase by Buyer. Buyer represents, warrants and agrees (a) that Buyer shall have examined the Property and all of the articles of personal property and fixtures (if any) included as part of the Property prior to the expiration of the Review Period, (b) at the expiration of such Review Period, Buyer will be familiar with the physical and environmental condition of the Property and the operation thereof, the revenues and expenses of the Property, the zoning and other laws, regulations and rules applicable to the Property and the compliance of the Property therewith, the Leases and the rents payable thereunder and the quantity, quality and condition of the articles of personal property and fixtures agreed to be sold with the Property and any other matters related to the Property or the transactions contemplated hereby which Buyer deemed relevant in connection with its decision to proceed with this transaction (the "Pertinent Matters"), and (c) that no Seller nor any of Sellers' employees, agents or attorneys nor any of their respective direct or indirect partners, nor any of their respective officers, directors, advisors, employees, agents, trustees, shareholders, beneficiaries, contractors or representatives is making or shall be deemed to have made any express or implied representation or warranty of any kind or nature, and, in particular, that no representations or warranties have been made with respect to the Pertinent Matters, except as and solely to the extent herein specifically set forth. Subject to the provisions of Paragraph 14 hereof, Buyer agrees to accept the Property "as is", in its present condition, subject to reasonable use, wear, tear and natural deterioration between the date hereof and the Closing Date, and further agrees that Sellers shall not be liable for any latent or patent defects in the Property or bound in any manner by guarantees, promises, projections, operating statements, set-ups, or other information pertaining to the Property made, furnished or claimed to have been made or furnished by Sellers or any other person or entity, including any employee, agent, attorney or other person representing or purporting to represent Sellers, whether verbally or in writing, except as and solely to the extent that the same is expressly set forth herein. (ii) Except as and solely to the extent otherwise provided herein, Buyer hereby acknowledges and agrees that it shall not be entitled to, and shall not, rely on Sellers, its agents, employees or representatives, and Sellers hereby disclaim any representations or warranties of any kind, either express or implied, either under common law, by statute, or otherwise, as to (a) the quality, nature, adequacy or physical condition of the Property including, but not limited to, any structural elements, foundation, roof, appurtenances, access, landscaping, parking facilities or any electrical, mechanical, heating, ventilating and air-conditioning, plumbing, sewage or utility systems, facilities or appliances at the Property; (b) the quality, nature, adequacy or physical condition of soils and ground water or the existence of ground water at the Property; (c) the existence, quality, nature, adequacy or physical condition of any utilities serving the Property; (d) the development potential of the Property, its value, its profitability, its habitability, merchantability or fitness, suitability or adequacy of the Property for any particular purpose; (e) the zoning or other legal status of the Property; (f) the compliance of the Property or its operations with any applicable codes, statute, law, ordinance, rule, regulation, covenant, permit, authorization, standard, condition or restriction of any governmental or regulatory; (g) the presence or absence of asbestos containing material, radon, urea formaldehyde or other potentially hazardous substances, wastes, chemicals, pollutants or contaminants, including without limitation those identified under the Comprehensive Environmental Response, Compensation, and Liability Act , 42 U.S.C. Section 9601 et seq.; (h) the quality of any labor or materials relating in any way to the Property; (i) the square footage or acreage of the Property; (j) the leasing, physical or financial status of the Property or the Property's compliance with applicable laws; (k) the accuracy or completeness of any information or data provided or to be provided by Sellers including, without limitation, copies of any reports or documents prepared for Sellers whether by third parties or otherwise which may be included with such information; or (l) any other matter relating to the Property or Sellers. (iii) Buyer acknowledges and agrees that Sellers have not made, do not make and will not make any representation or warranty with regard to the past, present or future condition or compliance of the Property, or compliance of past owners and operators of the Property, with respect to any past, present or future environmental laws or land use laws, rules, regulations, orders or requirements. (iv) Buyer acknowledges and agrees that by the expiration of the Review Period, Buyer will have had an adequate opportunity to make such legal, factual and other inquiries and investigations as Buyer deems necessary, desirable or appropriate with respect to the Property. Such inquiries and investigations of Buyer shall be deemed to include an environmental audit of the Property, an inspection of the physical components and general condition of all portions of the Property, such state of facts as an accurate survey and inspection would show, the present and future zoning and land use ordinances, resolutions and regulations of the city, town, county and state where the Property is located and the value and marketability of the Property. E. TENANT PURCHASE RIGHTS. Buyer acknowledges and understands that its rights to purchase and hold title to the Property hereunder are subject to (a) the continuing rights of MCI Telecommunications Corporation ("MCI") and MCI International ("MCI International") to acquire certain portions of the Property pursuant to the terms of their respective Leases at the Property, and (b) New York Telephone's continuing right to acquire a portion of Phase III pursuant to the terms of its lease at the Property. Sellers represent to Buyer that they have previously delivered the right of first refusal notices required by the terms of the MCI Lease. Buyer acknowledges that it has reviewed the terms of the MCI International Lease, has determined that the transaction contemplated by this Agreement is not subject to the purchase right contained therein and agrees not to raise an objection to title on account of such purchase right. If MCI shall exercise its right to purchase any portion of the Property, then thereafter neither Buyer nor Sellers shall have any further rights or obligations hereunder (except for those matters which expressly survive the termination hereof) and the Deposit immediately will be returned to Buyer. As a condition precedent to Buyer's obligation to close on the Closing Date, REP II shall deliver to Buyer and to Buyer's title insurance companies copies of the notices which REP II caused to be delivered to MCI pursuant to MCI's right of first refusal, which copies shall be certified as true and correct by the general partners of REP II, which certification shall include the date such notices were sent by REP II and the method(s) of delivery thereof and that to the best of REP II's knowledge such notices substantially comply with the right of first refusal notice requirements of the MCI lease. It shall be a condition of Closing that Buyer's Title Insurance Company agree to omit or issue affirmative insurance that the instant transaction is not subject to the MCI right of first refusal, provided however that in no event shall any Seller pay any additional premium for such omission or affirmative insurance. In lieu of the Sellers' compliance with the preceding two sentences, Sellers may deliver to Buyer a written notice from MCI stating to the effect that MCI has received notice of the instant transaction and is not exercising MCI's right of first refusal in connection therewith, whereupon the provisions of the preceding two sentences shall be deemed satisfied and Buyer shall raise no objection to title based upon the MCI right of first refusal. F. SURVIVAL. The provisions of this Paragraph 7 shall survive the termination of this Agreement and the Closing. 8. APPORTIONMENTS AND PAYMENTS. A. The following are to be apportioned between Sellers and Buyer as of the Closing Date and the net amount thereof shall either be paid by Buyer to Sellers (with such amount to be paid to Sellers by Buyer's good certified or official bank check, payable to the order of Sellers, or wire transfer of immediately available funds), or credited by Sellers against the Balance of the Purchase Price, as the case may be, at the Closing: (i) real property taxes; (ii) water charges; (iii) sewer taxes and rents; (iv) annual permit, license and inspection fees, if any, on the basis of the fiscal year for which levied, if rights thereunder with respect thereto are transferable to Buyer; (v) fuel, steam and all other utilities; (vi) fixed, additional and escalation rents (including, without limitation, common area maintenance payments) payable under any Leases (as hereinafter defined) between Sellers and space tenants (collectively the "Rent"), if, as and when collected; (vii) interest and permitted administrative charges, if any, on tenants' security deposits; (viii) supplies on hand in the Property in unopened cartons, at Sellers' cost; (ix) wages, vacation pay, pension and welfare benefits and other fringe benefits of all persons employed at the Property; (x) amounts payable under any Contracts (as hereinafter defined) assumed by Buyer; and (xi) all other items customarily apportioned in connection with similar conveyances in the County of Westchester, State of New York. B. If the Closing Date shall occur before the real property taxes, water rates and charges and sewer taxes and rents are finally fixed, the apportionments thereof made at the Closing shall be upon the basis of the tax or water rates for the preceding year applied to the latest assessed valuation, but after the real property taxes, water rates and charges and sewer taxes and rents are finally fixed, Sellers and Buyer shall make a recalculation of the apportionment of same, and Sellers or Buyer, as the case may be, shall make an appropriate payment to the other based on such recalculation. C. Sellers shall arrange for a final reading of all master utility meters (covering steam, gas, electricity and water and the derivative sewer charges based on meters). Sellers and Buyer shall jointly execute a letter to each of such utility companies advising such utility companies of the termination of Sellers' responsibility for such charges for utilities furnished to the Property from and after the Closing Date. If a bill is obtained from any of such utility companies before the Closing Date, Sellers shall pay such bill on or before the Closing and deliver proof of payment thereof to Buyer. If such bill shall not have been obtained before the Closing, Sellers shall pay all such utility, water and sewer charges as evidenced by the last bill or bills relating to the period prior to the Closing Date and Buyer shall pay all such utility charges relating to the period after the Closing Date. Any bill which shall be rendered which shall cover a period both before and after the Closing Date shall be apportioned between Buyer and Sellers as of the Closing Date. An amount equal to all security deposits, prepayments or credits accrued with Service Providers under the assigned Contracts, or with utilities, water and sewer companies or other parties relating to the Property shall be paid to Sellers by Buyer at the Closing, provided that if such security deposits, prepayments or credits shall not be transferable to Buyer, Buyer shall cooperate with Sellers' efforts to collect and enjoy such amounts. D. The amount of any unpaid taxes, assessments, water rates and charges and sewer taxes and rents which Sellers are obligated to pay and discharge, with interest and penalties thereon to the second business day after the Closing Date, may, at the option of Sellers, be allowed to Buyer out of the Balance of the Purchase Price, provided that official bills therefor, with interest and penalties thereon, are furnished by Sellers at the Closing. If there are any other liens or encumbrances which Sellers are obligated to pay and discharge, Sellers may use any remaining portion of the Balance of the Purchase Price to satisfy the same, provided that Sellers shall deliver to Buyer, at the Closing, instruments in recordable form sufficient to satisfy such liens and encumbrances of record, together with a check for the cost of recording or filing said instruments. Buyer, if request is made at least three (3) business days prior to the Closing, agrees to provide Sellers at the Closing, with separate certified and/or official bank checks, payable as directed by Sellers, to facilitate the satisfaction of any of the aforesaid taxes, assessments, water rates and charges, sewer taxes and rents, liens and encumbrances. E. If Sellers receive Rent payments from tenants at the Property after the Closing Date which are for any period subsequent to the Closing Date, Sellers shall remit to Buyer the amount of such Rent. If any past- due Rent is owing as of the Closing Date, or if any Rent for the period prior to the Closing Date shall have accrued although the same is not then due and payable, Buyer agrees that the first monies received by Buyer from tenants owing such past-due or accrued Rent, in an amount not exceeding one month's Rent shall be received by Buyer, as trustee for Sellers, on account or in payment of, such past-due or accrued Rent, and Buyer shall forthwith remit to Sellers the amount of such past-due or accrued Rent out of such first monies received by Buyer (the "General Rule"). Buyer acknowledges that MCI International currently owes Sellers approximately $141,691.15 for certain items of additional rental under its Lease and for certain sidewalk repair work performed at the Property. If Sellers shall not have been paid such amounts from MCI International prior to Closing, then Buyer shall forthwith remit to Sellers, out of the first monies received by Buyer from MCI International an amount equal to the lesser of (i) $141,691.15 or (ii) the amount of one month's fixed and escalation Rent under the MCI International Lease, it being understood that Sellers shall not receive monies under the General Rule in payment of said $141,691.15 by MCI International to the extent that Sellers have been paid monies on account of such $141,691.15 under this sentence. Buyer agrees that Sellers shall be entitled to retain any monies paid by J.B. Hanauer & Co. ("Hanauer") in connection with the release of such tenant from its obligations under its Lease or otherwise. Nothing herein contained shall preclude Sellers from asserting separate and independent claims against such tenants, but only if each such claim to be asserted exceeds $5,000.00, including, but not limited to, the institution of such actions as Sellers shall deem necessary or advisable for the purpose of collecting such past due rentals, the right (but not the obligation) to do any of which is hereby reserved by Sellers. Buyer shall cooperate with Sellers to collect any Rents (including, without limitation, escalation additional rents) owing to Sellers in accordance herewith. F. Subject to the provisions of subparagraph E above, to the extent that Rent cannot be determined on the Closing Date, or is collected after the Closing Date for any period prior thereto, the amount of such Rent for the period ending on the Closing Date, and all accountings showing the calculations thereof, shall be paid and furnished to Sellers by Buyer if, as and when received after the Closing Date. The portion of the Rent consisting of additional rent and escalation rent shall be apportioned on a calendar year or fiscal year basis (depending upon which is appropriate under each Lease) so that the amount thereof under any of the Leases to which Sellers shall be entitled shall be an amount which bears the same ratio to the total additional and escalation rents due thereunder for the current period as the number of days in said period which shall have elapsed prior to the Closing Date bears to the total number of days in said period. In furtherance thereof, Buyer shall pay to Sellers all escalation additional Rent (i.e., tax, operating expense and other escalation additional Rent) payable under the Leases which relate to the period from January 1, 1997 through the actual Closing Date as and when collected by Buyer. Escalation additional Rent for calendar year 1997 shall be billed by Buyer on or about April 1, 1998, and Buyer shall pay to Sellers any portion thereof to which Sellers are entitled as aforesaid, as and when collected by Buyer. Sellers agree to make available for Buyer's examination, all records, statements and accounts bearing on or relating to Rent and, on the Closing Date, to furnish Buyer with a comprehensive and complete statement of prepaid Rent and uncollected Rent. Subsequent to the Closing and until all apportionments shall have been finally determined, Buyer agrees to make available for Sellers' examination, all records, statements and accounts bearing on or relating to Rent. Any prepaid Rents received by Sellers on or before the Closing Date covering any period of time subsequent thereto shall be credited to Buyer at the Closing. G. At the Closing, Sellers shall deliver to Buyer a good certified or official bank check, payable to the order of Buyer (or grant Buyer a credit against the Balance of the Purchase Price due at Closing), in the aggregate amount of any security deposits held under any Leases between Sellers and space tenants, together with any accrued interest earned thereon and credited to Sellers' security deposit account (adjusted pursuant to Paragraph 8(A) hereof). Buyer shall execute a receipt for the amount of all security deposits so paid over. If any tenant of the Property having a security deposit is in default under the terms of its Lease and either (x) notices of default and termination of such tenant's Lease shall have been duly given or (y) such estoppel certificate executed by the tenant acknowledges that the security deposit held by the landlord under the Lease has been reduced by reason of the tenant's default or fails to state a claim that the landlord is in default of such tenant's Lease by reason of such reduction in the security deposit, Sellers may retain so much of the security deposited by such tenant and the interest accrued thereon as shall be sufficient to cover Sellers' loss by reason of such tenant's default. H. At the Closing, Sellers shall pay their own counsel fees, deed stamps, transfer taxes and such other closing costs as are customarily paid by a seller and Sellers shall execute and deliver any appropriate return or form as may be required in connection therewith. Buyer shall pay its counsel fees, title insurance and survey costs, sales taxes (if any) and such other closing costs as are customarily paid by a buyer and execute and deliver any appropriate return or form as may be required in connection therewith. In addition, any costs relating to Buyer's due diligence, including, without limitation, those relating to appraisers, inspectors, auditors and environmental or engineering consultants, shall be Buyer's sole responsibility. Sellers shall have the option to grant to Buyer a credit against the Balance of the Purchase Price, at the Closing, in an amount equal to the amount of any deed stamps and transfer taxes payable by Sellers. If such adjustment is made by Sellers, Buyer agrees to pay the amount of such deed stamps and transfer taxes. I. Fuel oil, if any, owned by Sellers and on the Property on the date as of which adjustments shall be made, shall be adjusted at the cost price thereof to Sellers, as reflected in Sellers's last bill, plus taxes paid thereon. The amount of fuel oil is to be estimated in writing by the fuel company currently supplying fuel to the Property, as of a date which is not more than three (3) business days prior to the Closing Date. J. If, on the Closing Date, the Property or any part thereof shall be affected by any assessments which are payable in installments, then installments payable prior to the Closing Date shall be paid by Sellers (subject to apportionment as provided for herein), and installments payable after the Closing Date shall be paid by Buyer (subject to apportionment as provided herein). Any such installments payable by Buyer shall not be objections to title whether or not the same constitute liens on the Closing Date. K. Sellers have instituted prior to the Closing Date tax reduction proceedings seeking to reduce the assessed valuation of the Property (a "tax reduction proceeding") for certain periods before and after the Closing Date. Subsequent to the Closing, Sellers shall be permitted to continue such tax reduction proceedings, whether in the name of Sellers or Buyer. Any refund of taxes which results from a tax reduction proceeding commenced by Sellers ("refund") shall be the sole property of Sellers, except that Buyer shall be entitled to that portion of the refund (after deduction from the full refund of all of Sellers' expenses incurred in connection therewith, including without limitation attorneys' fees and expenses) which is refundable to tenants under the Leases, and that portion of such refund which relates to the period subsequent to the Closing. Sellers shall have the right to settle any tax reduction proceeding without Buyer's consent, except to the extent Buyer will be bound by any settlement for any tax year following the Closing and for any tax reduction proceeding relating solely to the tax year in which the Closing occurs, for which Buyer's prior written consent shall be required, which consent Buyer agrees not to unreasonably withhold or delay. Buyer shall execute and deliver any documents that may be reasonably required by Sellers in connection with such tax reduction proceeding and any recovery had thereunder, all without charge or expense to Sellers. L. The parties hereto agree that any errors or omissions in computing apportionments at the Closing shall be corrected promptly after their discovery. In furtherance thereof, the parties agree to recalculate apportionments and make appropriate payments to each other on or about the ninetieth (90) day following the Closing. M. The parties hereto agree that Buyer's attorneys shall be "the real estate reporting person" with respect to this transaction who is responsible for the completion of form 1099S or such other successor form as may be prescribed by the Internal Revenue Service and for fulfilling all of the obligations and requirements of Section 6045(e) of the Internal Revenue Code of 1986, as amended. N. Sellers shall be responsible for paying $771,450 on account of tenant improvement work in connection with Compass Group USA, Inc. Lease, and $13,617 representing brokerage commission in connection with the failure of MCI to exercise a right of termination in the MCI Lease. In addition, Sellers shall be responsible for all brokerage commissions which were due and payable or which accrued prior to the date of Closing, it being understood by way of example that if a lease is signed prior to the Closing and the brokerage agreement provides for the payment of a $20,000 brokerage commission in two instalments of $10,000, the first instalment payable before the Closing and the second instalment payable after the Closing, the Sellers shall nevertheless be responsible for the payment of both $10,000 instalments, unless the second instalment relates to circumstances (such as the tenant's failure to terminate or exercise of an expansion or renewal right) which by their nature will not occur until after the Closing in which latter case the Sellers shall pay the first $10,000 instalment and the Buyer shall pay the second $10,000 instalment. Notwithstanding the foregoing example, in all cases where a brokerage commission is claimed with respect to a current or future Lease and the right to earn the commission is or may be affected by events that occur or fail to occur subsequent to the Closing, Buyer shall be responsible for all such commissions. O. The provisions of this Paragraph 8 shall survive the Closing Date. 9. CLOSING DOCUMENTS. A. At the Closing, and upon payment by Buyer of the Balance of the Purchase Price (plus any other sums which Buyer has agreed herein to pay to Sellers at the Closing, but less any credits to which Buyer may be entitled to hereunder), each Seller shall deliver to Buyer the following with respect to the portion of the Property owned by such Seller: (i) A bargain and sale deed (without covenants) from each Seller (collectively, the "Deeds"), in proper statutory form for recording, which shall be duly executed and acknowledged so as to convey to Buyer title to that portion of the Property owned by each Seller, subject to the Permitted Exceptions. Specifically, subject to and in accordance with the terms hereof, REP I shall convey title, to that portion of the Property described on Exhibit "A-1" annexed hereto, REP II shall convey title to that portion of the Property described on Exhibit "A-2" annexed hereto and REP III shall convey title to that portion of the Property described on Exhibit "A-3" annexed hereto; (ii) An assignment and assumption of the Leases, in the form attached hereto as Exhibit "C"; (iii) An assignment and assumption of Contracts in the form attached hereto as Exhibit "D". Sellers, at Buyer's written request, shall terminate by notice given at the Closing any Contracts (other than all applicable brokerage or commission agreements with respect to tenants or Leases at the Property, none of which shall be terminable by Buyer) which Buyer elects not to assume, it being understood that Buyer shall be responsible for and indemnify Sellers against any amounts due under such terminated Contracts for the period subsequent to the Closing through the effective date of termination, it being further understood that Buyer shall notify Sellers as to which Contracts it elects not to assume by the Closing Date; (iv) Notices executed by Sellers addressed to all tenants in the Buildings, advising them of the within sale, the assignment of their respective Lease security deposit (including interest) (if held by such Seller) and the assumption by Buyer of the obligations as landlord thereunder, directing them to send Rent to Buyer or Buyer's managing agent, and containing such other information as may be required in order to relieve such Sellers from any liability to such tenants with respect to the security deposits delivered to Buyer, which notices Buyer shall mail, at Buyer's sole cost and expense, to each tenant by certified mail, return receipt requested; (v) As a condition to Closing, Sellers shall deliver executed estoppel certificates, substantially in the form of the estoppel certificate attached hereto as Exhibit "E" or in the form required by the applicable lease with no material omissions therefrom or material changes thereto or new provisions or statements added thereto, any of which are materially adverse to the rights or interests of the landlord under the lease of the tenant giving such certificate, from the Major Tenants (including MCI and MCI International and their affiliates that have a Lease to occupy space at the Property ) and from tenants occupying not less than fifty percent (50%) of the balance of the leased space at the Property; provided, however, that Sellers shall request estoppel certificates from all tenants in the Building. In the event an estoppel certificate delivered by a tenant does not conform to the form of the estoppel certificate attached hereto and if such non-conforming matter can be remedied by the performance of work or the payment of money, Sellers shall have the right but not the obligation to cure the non-conforming matter set forth in such estoppel certificate, by either performing or causing to be performed the work, paying the money, or by granting Buyer a credit against the Purchase Price in an amount reasonably necessary to perform such work, as reasonably determined by the parties. Additionally, if Sellers shall be unable to deliver an estoppel certificate for any tenant of the Building by the Closing Date other than the Major Tenants, for which Sellers shall be required to deliver an estoppel certificate, then Sellers shall have the right but not the obligation to deliver to Buyer, in substitution for such estoppel certificate, a certificate from Sellers (a "Sellers' Certificate"), certifying as to the matters set forth in the form of the estoppel certificate attached hereto as Exhibit "E" which shall survive the Closing until November 15, 1998; provided, however, that if Sellers shall deliver a partially completed estoppel certificate from a particular tenant, then such Sellers' Certificate shall cover only those matters set forth in the estoppel certificate which were not confirmed by the respective tenant. If Sellers deliver an estoppel certificate for a required tenant subsequent to the Closing Date, then such Sellers' Certificate shall be deemed canceled to the extent of the matters confirmed in such estoppel certificate, provided, however, that if the required estoppel certificate shall have been fully completed, then the Sellers' Certificate with respect thereto shall be canceled in full; (vi) Original or certified copies of all Leases, amendments and other documents relating thereto, rent records and related documents in the possession or under the control of Sellers (which documents may be delivered at the Property). Such records shall include a schedule of all cash security deposits, including any interest thereon, held by Sellers on the Closing Date under the Leases together with appropriate instruments of transfer or assignment with respect to any lease securities which are other than cash and a schedule updating the Lease Schedule and setting forth all arrears in rents and all prepayments of rents; (vii) Such affidavits and indemnities as the Title Company may reasonably require in order to omit from its title insurance policy all exceptions for (a) judgments, bankruptcies or other returns against persons or entities whose names are the same as or similar to Sellers' names; (b) parties in possession (other than tenants pursuant to the Leases and other occupants under the Contracts); and (c) mechanics' liens; (viii) Sellers shall make all tenant files and records including without limitation all tenant correspondence and billing for escalations and files and records for the Buildings available to Buyer for copying, which obligation shall survive the Closing; (ix) Original (or photocopies, if originals are unavailable to Sellers) of all site plans, surveys, soil and substrata studies, architectural drawings, plans and specifications, engineering plans and studies, floor plans, landscape plans and other plans or studies of any kind in the possession or under the control of Sellers that relate (a) to the Land, the Buildings, including without limitation as-built plans for tenant improvements, or (b) otherwise to the Property. Sellers shall also deliver (i) original (or photocopies, if originals are unavailable to Sellers) of all then effective assignable guaranties and warranties made by any person for the benefit of Sellers and in the possession or under the control of Sellers, with respect to the Property or any of its components, together with an instrument in form and substance reasonably satisfactory to Buyer assigning the same to Buyer, and (ii) all certificates, licenses, permits, authorizations and approvals issued for or with respect to the Property by governmental and quasi-governmental authorities having jurisdiction, except that photocopies may by substituted if the originals are posted at the Property. (x) All keys in Sellers' possession to all entrance doors to, and any equipment and utility rooms located in, the Property (appropriately tagged for identification); and (xi) An executed Affidavit of Non-Foreign Status, certifying that each Seller is not a "foreign person" pursuant to Section 1445 of the Internal Revenue Code; B. At the Closing, Buyer shall deliver to Sellers a duly executed and acknowledged agreement in form and substance reasonably satisfactory to Sellers whereby Buyer shall (i) assume all of Sellers' obligations under the Leases (arising from and after the Closing), and (ii) agree to indemnify Sellers against, and hold Sellers harmless from, any liability, damages, claims, losses, costs and expenses (including attorneys' fees) arising from or relating to (x) the Leases or the obligations or responsibilities of the landlord thereunder with respect only to the period subsequent to the Closing and the security deposits delivered under such Leases (but only to the extent same have been delivered to Buyer) and (y) the Pertinent Matters. C. The parties acknowledge and agree that no portion of the Purchase Price is for or allocated to any personal property (if any) located at the Property. However, if any governmental body deems any part of the Purchase Price to have been paid for any personal property transferred hereunder, then Buyer shall pay all such sales tax so payable, which payment shall be made at the Closing. The provisions of this subparagraph shall survive the Closing. 10. Title Insurance. A. Buyer shall order from a reputable title insurance company which is licensed to do business in the States of Connecticut and New York (the "Title Company"), within five (5) days after the execution of this Agreement, time being of the essence, a title report with respect to the Property and request the Title Company to deliver to the Sellers a copy thereof promptly upon receipt of the same, but, in all events, not later than the expiration of the Review Period, time being of essence. If such title report discloses title defects or exceptions to title which are not included within the Permitted Exceptions and if, by reason of such title defects or exceptions, the Sellers shall be unable to convey title to the Property in accordance with the provisions of this Agreement, then the Sellers shall have the right, but not the obligation, to attempt to cause the Title Company to omit such defects or exceptions from the title insurance policy to be issued to the Buyer and, for such purpose, the Sellers shall be entitled to one or more adjournments of the Closing for a period not exceeding sixty (60) days in the aggregate. If the Sellers refuse or are unable to eliminate any such title defects or exceptions and convey title to the Property in accordance with the terms of this Agreement by the Closing, as the same may be adjourned as aforesaid, then the Buyer, as its sole and exclusive remedy, may elect by written notice to the Sellers to either (i) reject title to the Property and terminate this Agreement, or (ii) accept title to the Property subject to such defects or exceptions without any abatement of the Purchase Price or liability on the part of the Sellers. If Buyer shall reject title under subsection (i) above, then neither party shall have any liability whatsoever to the other hereunder except that Buyer shall be entitled to a prompt refund of the Deposit and the net cost of any title commitments and survey charges not exceeding $15,000.00 in the aggregate. The existence of any condition to which Buyer agrees to take subject under this Agreement shall not be deemed or construed to render Sellers' title unmarketable, and notwithstanding that such conditions may render title unmarketable, Buyer shall not have the right to reject title by reason thereof, the Purchase Price shall not in any respect be reduced, and Buyer shall not be entitled to damages therefor. Anything contained in this subparagraph to the contrary notwithstanding, the Buyer shall accept such title to the Property as the Title Company shall be willing to insure, subject only to the Permitted Exceptions. Notwithstanding anything to the contrary contained herein, Sellers shall be obligated to remove any title exceptions for mortgages made by Sellers, tax liens against Sellers or imposed upon the Property, judgment liens against Sellers, or mechanics liens for work performed at the request of Sellers and which in each case may be removed by the payment of a liquidated sum and any title exception (other than the Permitted Exceptions) created by Sellers' voluntary acts after the date hereof. B. If a search of the title discloses judgments, bankruptcies or other returns entered against any other person or entity having a name the same as or similar to that of Sellers, Sellers shall, at the Closing, deliver to Buyer affidavits showing that such judgments, bankruptcies or other returns are not against Sellers. C. Except as provided in paragraph A above, the Sellers do not agree to undertake, and nothing herein contained shall be construed to require Sellers to bring any action or proceeding or otherwise to incur any expense whatsoever to render title to the Property either acceptable to Buyer, insurable, or to be in accordance with the provisions of this Agreement. D. Except as provided in paragraph A above, the premium for Buyer's title insurance policy to be issued by the Title Company pursuant to the Commitment, and all related charges and survey costs incurred in connection with the Commitment or such policy, shall be paid by Buyer. 11. THE LEASES. A. Buyer acknowledges that Buyer has examined the Leases set forth on the lease schedule (the "Lease Schedule") annexed hereto as Exhibit "F". Sellers represent and warrant that, except as disclosed to Buyer prior to the end of the Review Period, to the Sellers' actual knowledge, (i) the Leases set forth on such Lease Schedule constitute all of the agreements (other than any subleases and the Contracts) which relate to, affect the occupancy of, or create and/or affect the rights to the occupancy of, the Property or any portion thereof, and all amendments, renewals, extensions and modifications thereof, (ii) except as set forth in the Leases (and any subleases and Contracts), no person or firm has any right to occupy any portion of the Property, (iii) all of the Leases are in full force and effect and other than as set forth on the Lease Schedule, none of them have been modified, amended or extended and no renewal or expansion options have been granted to tenants except as specifically set forth in the Leases, (iv) except for MCI, MCI International and New York Telephone, no tenant has an option to purchase the Property or any part thereof, (v) except as set forth therein, the rents set forth on the Lease Schedule are being collected on a current basis and there are no arrearages in excess of one month, (vi) except as set forth in the Leases, no tenant is entitled to rental concessions or abatements for any period subsequent to the Closing Date, (vii) Sellers have not sent written notice to any tenant of the Property claiming that such tenant is in default, which default remains uncured, other than the unpaid Rent sums set forth on the Lease Schedule, (viii) no action or proceeding instituted against Sellers by any tenant of the Property is currently pending in any court, except with respect to claims involving personal injury or property damage which are covered by insurance and described on Exhibit "G", (ix) there are no security deposits or prepaid rent in the nature of a security deposit other than those set forth in the Lease Schedule or the Leases, (x) no rent has been paid more than thirty (30) days in advance under any of the Leases, (xi) all tenant improvement work required to be completed or paid for by Sellers has been or prior to the Closing Date will be completed or paid for, as the case may be, and (xii) except as set forth in the Leases and on Exhibits F (Lease Schedules) and H (Contracts), there are no unpaid leasing commissions or any liability therefor arising from options to expand or renew contained in any of the Leases. B. Except as is otherwise provided herein, Sellers agree that Sellers will not make any modifications of the Leases which affect the period subsequent to the Closing without the prior written consent of Buyer, which consent Buyer agrees not to unreasonably withhold or delay. Buyer acknowledges that Hanauer previously assigned its Lease to American Progressive Life and Health Insurance Company of N.Y. by Assignment and Assumption of Lease Agreement, dated September 29, 1997. By Consent to Assignment, dated October 8, 1997, REP II consented to such assignment. Buyer agrees that REP II shall have the right to release Hanauer from its obligations under its Lease and the aforesaid Assignment and Consent and REP II may receive any amounts payable in connection therewith. C. The right and privilege is reserved to Sellers to institute termination and eviction proceedings against any tenant prior to the Closing based upon such tenant's failure to observe or perform any of its obligations pursuant to its Lease, but notice thereof shall be given to the attorneys for Buyer. Sellers do not guarantee or undertake that any tenant of the Property will be in occupancy on the Closing or that any of the Leases will be in force or effect on the Closing. Buyer agrees that the vacating of any portion of the Property by any tenant, or the removal of any tenant by eviction proceedings, or the termination of any of the tenants' occupancies, by reason of defaults arising under the Lease or otherwise, prior to the Closing, shall not give rise to any claim on the part of Buyer or affect the obligations of Buyer hereunder in any manner whatsoever. D. If any of the rentable space in the Property is currently vacant or becomes vacant between the date of this Agreement and the Closing, the same shall not be relet, nor shall any extension or renewal of any lease be made, nor shall any modification of the terms of any lease or rental agreement be made (other than the Weston Insurance Brokerage, Inc. Amendment of Lease) and Hanauer release, except with the prior written consent of Buyer, which shall not be unreasonably withheld or delayed. 12. ACCEPTANCE OF DEED; REPRESENTATIONS AND WARRANTIES. A. The acceptance of the Deeds by Buyer shall be deemed to be an acknowledgment by Buyer that Sellers have fully performed, discharged and complied with all of Sellers' obligations, representations, warranties, covenants and agreements hereunder, that Sellers are discharged therefrom and that Sellers shall have no further liability with respect thereto, except for (i) the post-closing adjustments (if any) required hereunder, and (ii) those, if any, which are herein specifically stated to survive the Closing. B. Sellers and Buyer represent and warrant to each other that the execution, delivery and performance of this Agreement have been duly authorized and, except as otherwise provided herein, no other action or approval is required in order to enable each respective party to consummate the transaction contemplated by this Agreement. C. Each Seller as to its portion of the Property to its actual knowledge hereby represents and warrants to Buyer that: (i) Such Seller has full right, power and authority in accordance with law to sell and convey its interest in the Property to Buyer as provided herein, subject to the purchase rights set forth in Paragraph 7 above. (ii) Sellers know of no pending or threatened actions or proceedings regarding condemnation of the Property or any part thereof. (iii) Except as set forth on Exhibit "G" annexed hereto, pending tax certiorari proceedings, matters in the Report and the oil spillage incidents referenced in Paragraph 7(A), there is no action, suit, litigation, claim, administrative or governmental or quasi-governmental investigation or proceeding pending against or relating to the Property. (iv) Exhibit "H" annexed hereto lists all service, maintenance, supply and management contracts (collectively, the "Contracts") known to Sellers affecting the Property, and the information set forth therein is accurate and complete as of the date hereof. Except as otherwise specifically set forth in Exhibit "H" or elsewhere in this Agreement (1) all of the Contracts are in full force and effect and none of them have been modified, amended or extended, (2) Sellers have not sent written notice to, or received written notice from, any management company, maintenance or service provider (collectively, the "Service Providers") claiming default under any Contracts, and (3) no action or proceeding instituted by Sellers against any Service Providers or by any Service Providers against Sellers is currently pending in any court. (v) There are no employees of Seller employed at the Property and no union contracts affecting the Property except as noted on Exhibit H (Contracts). (vi) As of the Closing Date, there will be no outstanding rights of first refusal, rights of first offer, options or similar rights to purchase all or any portion of the Property other than the respective MCI, MCI International and New York Telephone's continuing options to purchase a portion of the Property or portions thereof as set forth in its lease, copies of which will be delivered to Buyer for its review during the Review Period. During the Review Period Sellers may notify Buyer of any matter that is the subject of any Seller's representation or warranty (including, without limitation, any matter related to brokerage or other Contracts and the Leases), which noticed matter will be deemed an exception to such representation or warranty and shall be deemed included in the appropriate obligations to be assumed by Buyer, provided, however, that if Sellers (as opposed to a third party) shall notify Buyer of any such additional matters later than December 12, 1997, then the Review Period shall be extended until December 17, 1997, and the Closing shall occur within four (4) business days thereafter, as designated by Buyer (time being of the essence as to such dates), provided, however, that either party may adjourn the Closing by notice to the other party for not more than three (3) business days thereafter for any reason whatsoever, time being of the essence as to Buyer's obligation to close by such date D. Anything to the contrary contained in this Agreement notwithstanding, the covenants, representations and warranties of each Seller shall survive until November 15, 1998, whereupon all covenants, representations and warranties of Sellers shall be deemed fully observed, paid and performed, and Buyer shall have no further rights or remedies with respect thereto, except for the breach of those covenants, representations and warranties that are the subject of (x) a notice given on or before November 15, 1998, from Buyer to Sellers in writing that describes with specificity the nature of the breach and the damages arising therefrom, and (y) litigation of the breach described in such notice that is duly commenced on or before the fifteenth (15th) day) after the notice is given pursuant to clause (x) and at all times prosecuted diligently thereafter, as to which notice and litigation dates time shall be of the essence. E. For purposes of this Agreement, all references to "knows," "known" or "knowledge" of any of the Sellers shall mean the actual knowledge without further inquiry as of the date of the relevant representation or warranty of the following individuals: For REP I: Douglas Welker or Thomas J. Collins, For REP II: Douglas Welker or Thomas J. Collins, and For REP III: Thomas J. Collins, it being understood that each Seller currently relies upon the knowledge of such individuals as representatives of the general partner of each Seller who are generally familiar with major current matters affecting the Property owned by such Seller (other than matters known to the property manager, the property engineer or other specialists entrusted with specific matters or responsibilities concerning the Property, to the extent that (x) the knowledge of such specialists has not been imparted to Messrs. Welker or Collins in writing and (y) such writing is not disclosed to the Buyer prior to the end of the Review Period). 13. BROKER Buyer represents and warrants to Sellers that Buyer has had no dealings with respect to this transaction with any real estate broker, firm or salesman, or any other person or corporation, except Richard Ellis LLC, Inc. (the "Broker"), and Sellers agree to pay the brokerage commission due to the Broker in accordance with the terms of a separate written agreement with said Broker. Buyer agrees to indemnify Sellers against, and defend Sellers and save Sellers harmless from and against any and all claims, and Sellers' reasonable expenses related thereto (including attorneys' fees), for brokerage commissions, fees or other compensation by any person, firm or corporation (other than the Broker) who shall allege to have acted in this transaction with Buyer or dealt with Buyer in connection herewith. Sellers agree to indemnify Buyer against, and defend Buyer and save Buyer harmless from any and all claims, and Buyer's reasonable expenses related thereto (including reasonable attorneys' fees), for brokerage commissions, fees or other compensation by any person, firm or corporation who shall allege to have acted in this transaction with Sellers or dealt with Sellers in connection herewith. The provisions of this Paragraph shall survive the Closing and any termination of this Agreement. 14. CONDEMNATION AND DESTRUCTION. A. If, prior to the Closing Date, all or any significant portion of the Property is taken by eminent domain or is the subject of a pending taking which has not been consummated (collectively, a "Taking"), Sellers shall notify Buyer of such fact and Buyer shall have the option to terminate this Agreement upon notice to Sellers given not later than ten (10) business days after receipt of Sellers's notice, time being of the essence. If this Agreement is terminated, as aforesaid, then the Deposit shall be returned to Buyer, and thereupon neither party shall have any further rights or obligations to the other hereunder except such obligations as survive termination of this Agreement. If Buyer elects not to terminate this Agreement as aforesaid, or if an "insignificant portion" (i.e., any Taking which does not materially interfere with access to the Property and does not serve to decrease in any material respect the size of any of the Buildings) of the Property is taken by eminent domain, there shall be no abatement of the Purchase Price, but Sellers shall assign and turn over at the Closing, and Buyer shall be entitled to receive and keep, all awards for such taking by eminent domain. B. If, prior to the Closing, a material part of any of the Buildings is destroyed or damaged by fire or other casualty ("material" being deemed to be any destruction greater than "immaterial", as defined below, or permitting Tenants paying Rents of more than ten percent (10%) of the aggregate Rents of the Property to terminate their leases), Sellers shall notify Buyer of such fact and Buyer shall have the option to terminate this Agreement upon notice to Sellers given not later than twenty (20) days after receipt of Sellers's notice. If this Agreement is terminated as aforesaid, then the Deposit shall be returned to Buyer, and thereupon neither party shall have any further rights or obligations to the other hereunder except such obligations as survive the termination of this Agreement. If Buyer elects not to terminate this Agreement as aforesaid, or if there is damage to or destruction of an "immaterial" part of any of the Buildings by fire or other casualty, then Sellers shall assign and turn over, and Buyer shall be entitled to receive and keep, all insurance proceeds paid or to be paid, and relating to the damage to the Property caused by such casualty (the "Proceeds"), which remain after payment or reimbursement is made for the work (if any) performed by Sellers in connection with such casualty together with a check for the deductible amount under Sellers' insurance policy (if any), without further abatement of the Purchase Price, provided, however, that in no event shall Sellers be obligated to restore any portion of the Property that is damaged by casualty. Sellers agree to maintain in force and effect until the Closing Date any existing casualty insurance coverage on the Property. Sellers represent and warrant to Buyer that its existing casualty insurance covers the Buildings for 100% of the replacement value thereof (less a reasonable deductible). An "immaterial" part of the Buildings shall be deemed to have been damaged or destroyed if either (i) the cost of repair or replacement shall be $2,500,000 or less, or (ii) the damage to the Buildings may be repaired (without regard to the cost therefor) within the period expiring one hundred twenty (120) days after the Closing Date as scheduled prior to such casualty, as reasonably determined by a reputable architect who is jointly selected by Sellers and Buyer. 15. DEFAULTS. A. If Sellers shall tender the Deeds in compliance with the Sellers' obligations hereunder, and Buyer shall fail or refuse to close title hereunder as required by the terms of this Agreement, then the Escrow Agent shall deliver the Deposit to Sellers (pro rata in proportion to the allocation of the Purchase Price set forth in Paragraph 2(C)), and the Sellers shall be entitled to retain the Deposit, free of any claim thereto of Buyer, as liquidated damages, as their sole and exclusive remedy hereunder, and neither party shall have any further rights or obligations to the other hereunder (other than those obligations which expressly survive the closing or termination hereof). In connection with the foregoing, the parties recognize that Sellers will incur expense in connection with the transaction contemplated by this Agreement and that the Property will be removed from the market; further, that it is extremely difficult and impracticable to ascertain the extent of detriment to Sellers caused by the breach by Buyer under this Agreement and the failure of the consummation of the transaction contemplated by this Agreement or the amount of compensation Sellers should receive as a result of Buyer's breach or default. In the event the sale of the Property shall not be consummated on account of Buyer's default, then the retention of the Deposit shall be Sellers' sole and exclusive remedy under this Agreement by reason of such default. B. If the transaction herein provided shall not be closed by reason of Sellers' default under this Agreement or the failure to satisfy the conditions set forth in this Agreement or the termination of this Agreement in accordance with the terms hereof, then the Deposit shall be returned to Buyer, and neither party shall have any further obligation or liability to the other; provided, however, if the transaction hereunder shall fail to close solely by reason of a material or wilful default by Sellers, Buyer shall have fully performed its obligations hereunder and shall be ready, willing and able to close, then Buyer shall be entitled to specifically enforce this Agreement; and provided further however, if Sellers shall willfully take actions so as to attempt to prevent the availability of a specific performance to Buyer, then Buyer shall, at its option, in lieu of specific performance, be entitled to a return of the Deposit and reimbursement of its actual out-of-pocket costs paid to third parties in connection with the transactions hereunder (such reimbursement not to exceed $50,000 in the aggregate). Except as set forth above, no other actions, for damages or otherwise, shall be permitted in connection with any default by Sellers. Notwithstanding anything to the contrary contained herein, if the closing of the transaction hereunder shall have occurred (and Buyer shall not have waived, relinquished or released any applicable rights in further limitation), the aggregate liability of Sellers arising to or in connection with the representations, warranties, indemnifications, covenants or other obligations (whether express or implied) of Sellers under this Agreement (or any document executed or delivered in connection herewith) shall not exceed $2,000,000.00, which amount shall be maintained by Sellers in Sellers' names until November 15, 1998, at which time, if no claim has been asserted by Buyer against Sellers, Sellers may distribute such funds. If a claim has been timely made such funds (up to the amount that might be necessary to satisfy such claim) shall continue to be held by Sellers until resolution of the claim. C. The liability of Sellers hereunder for damages or otherwise shall be limited to Sellers' interest in the Property including, without limitation, the proceeds of any insurance policies covering or relating to the Property, any awards payable in connection with any condemnation of the Property or any part thereof, and any other rights, privileges, licenses, claims, causes of actions or other interests, sums or receivables appurtenant to the Property. Sellers shall have no personal liability beyond Sellers' interest in the Property, and no other property or assets of Sellers shall be subject to levy, execution or other enforcement procedure for the satisfaction of Buyer's claims. In no event shall Sellers' officers, partners, trustees, directors, agents, employees or shareholders have personal liability in connection with the transactions hereunder or otherwise. No constituent partner in or agent of Sellers, nor any advisor, trustee, director, officer, employee, beneficiary, shareholder, participant, representative or agent of any corporation or trust that is or becomes a constituent partner in Sellers (including, but not limited to, JMB Realty Corporation or London & Leeds Development Corporation or any affiliates thereof) shall have any personal liability, directly or indirectly, under or in connection with this Agreement or any agreement made or entered into under or pursuant to the provisions of this Agreement, or any amendment or amendments to any of the foregoing made at any time or times, heretofore or hereafter, and Buyer and its successors and assigns and, without limitation, all other persons and entities, shall look solely to Sellers' interest in the Property for payment of any claim or for any performance, and Buyer, on behalf of itself and its successors and assigns, hereby waives any and all such personal liability. Notwithstanding anything to the contrary contained in this Agreement, neither the negative capital account of any constituent partner in Sellers, nor any obligation of any constituent partner in Sellers to restore a negative capital account or to contribute capital to Sellers (or any constituent partner of Sellers), shall at any time be deemed to be the property or an asset of Sellers or any constituent partner thereof, and neither Buyer nor any of its successors or assigns shall have any right to collect, enforce or proceed against or with respect to any such negative capital account or partner's obligation to restore or contribute. 16. ENTIRE AGREEMENT. This Agreement contains all of the terms agreed upon between the parties with respect to the subject matter hereof, and all understandings and agreements heretofore had or made between the parties hereto are merged in this Agreement which alone fully and completely expresses the agreement of said parties. 17. AMENDMENTS. This Agreement may not be changed, modified, supplemented or terminated, nor may any obligations hereunder be waived, except by an instrument executed by the party hereto which is or will be affected by the terms of such change, modification, supplementation or termination. 18. WAIVER. No waiver by either party of any failure or refusal by the other party to comply with its obligations shall be deemed a waiver of any other or subsequent failure or refusal to so comply. 19. SUCCESSORS AND ASSIGNS. The covenants, agreements, representations, and warranties herein contained shall inure to the benefit of, and shall bind, the heirs, administrators, successors and permitted assigns of the respective parties hereto. Anything contained herein to the contrary notwithstanding, each Seller shall be responsible only for, and be deemed to make, the covenants, conditions, representations and warranties of Sellers solely with respect to and to the extent of such Seller's interest in each of Phase 1, Phase 2 or Phase 3. 20. PARTIAL INVALIDITY. If any term or provision of this Agreement or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 21. GOVERNING LAW. A. This Agreement shall be governed by, interpreted under, and construed and enforced in accordance with, the laws of the State of New York applicable to agreements made and to be performed wholly within said State without regard to principles of conflicts of laws. B. Sellers and Buyer hereby irrevocably consent and agree that any legal action, suit or proceeding arising out of or in any way connected with this Agreement shall be instituted or brought in the courts of the State of New York, in the County of New York, or in the United States District Court serving such jurisdiction, and by execution and delivery of this Agreement, Sellers and Buyer hereby irrevocably accept and submit, for itself and in respect of its property, generally and unconditionally, to the exclusive jurisdiction of either of such courts, and to all proceedings in such courts. In addition to any method provided by applicable law, Sellers and Buyer irrevocably consent to service of any summons and/or legal process by registered or certified United States mail, postage prepaid, in accordance with the provisions of Paragraph 25 hereof, such method of service to constitute, in every respect, sufficient and effective service of process in any such legal action or proceeding. C. If any action or proceeding is brought by Sellers against Buyer (or Buyer against Sellers) in connection with this Agreement and the transactions contemplated hereby, then the losing party shall pay the reasonable attorneys' fees and disbursements incurred by the prevailing party in connection with such action or proceeding. 22. ASSIGNMENT. Buyer may not assign Buyer's interest in this Agreement without the prior written consent of Sellers, except that Sellers' consent shall not be required for an assignment to any Affiliate (hereinafter defined) of Buyer. As used herein, "Affiliate" shall mean any subsidiary corporation or partnership or other entity, at least a majority of which is owned, directly or indirectly, by Buyer. No assignment of Buyer's interest under this Agreement shall release Buyer from any of its obligations hereunder. Except as aforesaid, the parties hereto do not intend to confer any right or benefit hereunder to or on any other person, firm or corporation other than the parties hereto. 23. PARAGRAPH HEADINGS. The headings of the various paragraphs of this Agreement have been inserted solely for the purposes of convenience, are not part of this Agreement and shall not be deemed in any manner to modify, explain, expand or restrict any of the provisions of this Agreement. 24. BINDING EFFECT. This Agreement does not constitute an offer to sell and shall not bind Sellers unless and until Sellers, in Sellers' sole discretion, elect to be bound hereby by executing and unconditionally delivering to Buyer an original or an original counterpart hereof. 25. NOTICES. All notices, demands or requests (collectively, "notices") made pursuant to, under or by virtue of this Agreement must be in writing and sent to the party or parties to whom or to which such notice, demand or request is being sent, by certified mail, return receipt requested or delivered by hand with receipt acknowledged in writing or by facsimile (followed the next business day with a copy delivered by national overnight courier) or national overnight courier, as follows: To Sellers: c/o London & Leeds Development Corporation One Wall Street Court New York, New York 10005 Attn: Thomas J. Collins, Esq. Facsimile: 212-344-5166 with a copy to: Edward A. Kaminsky, Esq. Handsman & Kaminsky LLP 609 Fifth Avenue, Sixth Floor New York, New York 10017 Facsimile: 212-750-4699 and c/o JMB Realty Corporation 900 North Michigan Avenue - Suite 1900 Chicago, Illinois 60611 Attn: Gary Nickele, Esq. Facsimile: 312-915-1023 with a copy to: Pircher, Nichols & Meeks 1999 Avenue of the Stars - Suite 2600 Los Angeles, California 90067 Attn: Gary M. Laughlin, Esq. Facsimile: 310-201-8922 To Buyer: c/o Reckson Associates Realty Corporation 225 Broad Hollow Road Melville, New York 11747 Attn: Jason Barnett, Esq. Facsimile: 516-694-6952 with a copy to: Herrick Feinstein LLP Two Park Avenue - 20th Floor New York, New York 10016 Attn: Richard Brown, Esq. Facsimile: 212-889-7577 To Escrow Agent: c/o Commonwealth Land Title Insurance Company 655 Third Avenue New York, New York 10017 Attn: William N. Deatley Facsimile: 212-986-3049 All notices (i) shall be deemed given when received in accordance herewith and (ii) may be given either by a party or such party's attorney-at-law. Notices also may be given by telephone facsimile transmission, provided that an original copy of said transmission shall be sent to the addressee by nationally utilized overnight delivery services following such transmission. Telephone facsimiles shall be deemed delivered on the date of such transmission. Extensions of time and/or adjournments of dates may be granted by a party or such party's attorney-at-law as identified herein. 26. NO RECORDING OR NOTICE OF PENDENCY. The parties agree that neither this Agreement nor any memorandum or notice thereof shall be recorded and Buyer agrees not to file any notice of pendency against the Property unless (i) Sellers shall have defaulted in its obligations hereunder, (ii) Buyer shall have given Sellers written notice of same, and (iii) Sellers shall have failed to remedy same within thirty (30) days of said notice. In such event, Sellers shall timely provide Buyer with any acknowledgments necessary for recordation. 27. SELLERS' COVENANT. Sellers covenant and agree to continue to operate the Property between the date hereof and the Closing Date in a manner substantially equivalent to that manner in which the Property was operated by the Sellers in the past, provided however that in no event shall Sellers be obligated to make any capital expenditure at the Property. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the date above set forth. SELLERS: Tax ID#13-3120808 ROYAL EXECUTIVE PARK I By: JMB Income Properties, LTD.-X, a limited partnership, general partner By: JMB Realty Corporation, a Delaware Corporation, general partner By: Name: Title: By: London & Leeds-Rye Corporation, general partner By: Thomas J. Collins, vice president Tax ID #13-3202306 ROYAL EXECUTIVE PARK II By: JMB Income Properties, Ltd-XI, a limited partnership, general partner By: JMB Realty Corporation, a Delaware Corporation, managing general partner By: Name: Title: By: London & Leeds-Rye Corporation, General Partner By: Thomas J. Collins, vice president Tax ID #13-3379584 ROYAL EXECUTIVE PARK III By: London & Leeds-Rye Corporation, General Partner By: Thomas J. Collins, vice president BUYER: Tax ID #- RECKSON OPERATING PARTNERSHIP, L.P. By: Name: Title: As to its obligations under Paragraph 3 hereof Commonwealth Land Title Insurance Company, Escrow Agent By:________________ Name: Melvyn Mitzner Title: Exhibit A-1 ----------- Legal Description - Phase 1 Exhibit A-2 - ---------- Legal Description - Phase 2 Exhibit A-3 - ----------- Legal Description - Phase 3 Exhibit B-1, B-2 & B-3 - ---------------------- Permitted Exceptions The standard printed exceptions and exceptions numbered 1 through 7, 14 through 17, 20 through 23, and 25 through 27 as shown on the Title Report, dated November 24, 1997, of Commonwealth Land Title Insurance Company (Title No. WP971062), and Exceptions numbered 13 through 15 as shown on the Title Report, dated November 24, 1997, of First American Title Insurance Company of New York (Title No. 221-W-6813). Together with all matters disclosed to Buyer prior to the end of the Review Period. Exhibit "C" ----------- ASSIGNMENT AND ASSUMPTION OF LEASES FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, [ROYAL EXECUTIVE PARK I][ROYAL EXECUTIVE PARK II][ROYAL EXECUTIVE PARK III], having an office c/o London & Leeds Development Corporation, One Wall Street Court, New York, New York 10005 ("Assignor") hereby sells, assigns and transfers to RECKSON OPERATING PARTNERSHIP, L.P., a New York limited partnership, having an office at 225 Broadhollow Road, Melville, New York 11747-0983 ("Assignee") all its rights, title and interest in and to all the leases affecting the premises located at 6 International Drive, Royal Executive Park, Rye Brook, New York 10573 (collectively, the "Leases") and more particularly described on Schedule A attached hereto, with all security deposits and interest received thereon relating to said Leases listed on Schedule A attached hereto. This Assignment is made without recourse to Assignor and without covenant or warranty, express or implied, by Assignor, except as otherwise set forth herein or in the Sale-Purchase Agreement pursuant to which this Assignment is made. TO HAVE AND TO HOLD the Leases and said security deposits and interest received thereon unto the Assignee and its successors and assignees forever. Assignee hereby accepts said assignment and agrees to assume all of the obligations of "Landlord" under the Leases arising from and after the date hereof. Assignee hereby agrees to indemnify and hold harmless Assignor from any and all liabilities accruing under said Leases from and after the date hereof. Assignor hereby agrees to indemnify and hold harmless Assignee from any and all liabilities accruing under said Leases prior to the date hereof, subject to the provisions and limitations on Assignor's liability as set forth in the Sale-Purchase Agreement pursuant to which this Assignment is made (including without limitation Paragraph 15 (B) thereof). IN WITNESS WHEREOF, Assignor and Assignee have duly executed this Assignment as of the __ day of December, 1997. ASSIGNOR: [ROYAL EXECUTIVE PARK I By: JMB Income Properties, LTD.-X, a limited partnership, general partner By: JMB Realty Corporation, a Delaware Corporation, general partner By: Name: Title: By: London & Leeds-Rye Corporation, general partner By: Thomas J. Collins, vice president] [ROYAL EXECUTIVE PARK II By: JMB Income Properties, Ltd-XI, a limited partnership, general partner By: JMB Realty Corporation, a Delaware Corporation, managing general partner By: Name: Title: By: London & Leeds-Rye Corporation, General Partner By: Thomas J. Collins, vice president] [ROYAL EXECUTIVE PARK III By: London & Leeds-Rye Corporation, General Partner By: Thomas J. Collins, vice president] ASSIGNEE: RECKSON OPERATING PARTNERSHIP, L.P. By: Name: Title: Schedule A - ---------- Leases Exhibit "D" ----------- ASSIGNMENT AND ASSUMPTION OF CONTRACTS FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which is hereby acknowledged, [ROYAL EXECUTIVE PARK I][ROYAL EXECUTIVE PARK II][ROYAL EXECUTIVE PARK III], having an office c/o London & Leeds Development Corporation, One Wall Street Court, New York, New York 10005 ("Assignor") hereby sells, assigns and transfers to RECKSON OPERATING PARTNERSHIP, L.P., a New York limited partnership, having an office at 225 Broadhollow Road, Melville, New York 11747-0983 ("Assignee"), the following: 1. All of Assignor's interest in and to those certain contracts listed on Schedule A, attached hereto (the "Contracts") between Assignor and those certain contractors (the "Contractors"), which contracts relate to the operation and maintenance of buildings located at Rye Brook, New York, commonly known as Phase [I][II][III] of the Royal Executive Park (collectively, the "Premises"). 2. Assignee hereby assumes, from and after the date hereof, the performance of all of the terms, covenants and conditions of the Contracts herein sold, assigned and transferred by Assignor which are the owner's obligation thereunder and are to be performed by the owner from and after the date hereof, and will defend with counsel approved by Assignor, save harmless and indemnify Assignor from and against all claims, demands and liabilities and all costs and expenses arising out of any failure of Assignee to so perform from and after the date hereof or arising out of any breach of this Assignment. 4. Assignor hereby agrees to defend, with counsel approved by Assignee, save harmless and indemnify Assignee from and against all claims, demands and liabilities and all costs and expenses arising out of any failure of Assignor to perform any obligations of the owner thereunder arising under any of the Contracts prior to the date hereof, subject to the provisions and limitations on Assignor's liability as set forth in the Sale-Purchase Agreement pursuant to which this Assignment is made (including without limitation Paragraph 15 (B) thereof). 5. With respect to any actions now or hereafter being made against Assignor in connection with any of the Contracts, Assignor reserves all rights to the extent necessary to defend against any claims brought by any third parties and to assert counterclaims against such third parties, in circumstances where such third parties have asserted claims against Assignor (whether such claims are in response to a suit brought by Assignee or otherwise). 6. Assignor and Assignee from time to time will execute and deliver all such instruments and take all such action as the other may reasonably request in order further to effectuate the purposes of this instrument and to carry out the terms hereof. This Assignment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, Assignor and Assignee have dully executed this Assignment the __ day of December, 1997. ASSIGNOR: [ ROYAL EXECUTIVE PARK I By: JMB Income Properties, LTD.-X, a limited partnership, general partner By: JMB Realty Corporation, a Delaware Corporation, general partner By: Name: Title: By: London & Leeds-Rye Corporation, general partner By: Thomas J. Collins, vice president] [ROYAL EXECUTIVE PARK II By: JMB Income Properties, Ltd-XI, a limited partnership, general partner By: JMB Realty Corporation, a Delaware Corporation, managing general partner By: Name: Title: By: London & Leeds-Rye Corporation, General Partner By: Thomas J. Collins, vice president] [ROYAL EXECUTIVE PARK III By: London & Leeds-Rye Corporation, General Partner By: Thomas J. Collins, vice president] ASSIGNEE: RECKSON OPERATING PARTNERSHIP, L.P. By: Name: Title: Schedule A - ---------- Contracts Exhibit E - --------- Form of Tenant Estoppel Certificate - ---------------------------------- Exhibit F - ---------- Lease Schedule - ------------- Exhibit G - --------- Pending Actions - --------------- Exhibit H --------- ROYAL EXECUTIVE PARK I & II CONTRACT LIST EX-10.F 3 EXHIBIT 10-F - ------------ (J-XI) FIRST AMENDMENT TO PURCHASE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (Park Center Plaza, San Jose, California) THIS FIRST AMENDMENT TO PURCHASE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this "First Amendment"), is made as of February 10, 1998, by and between JMB/SAN JOSE ASSOCIATES, an Illinois general partnership ("Seller"), and DIVCO WEST PROPERTIES, LLC, a Delaware limited liability company ("Buyer"), with reference to the following facts: Seller and Buyer entered into that certain Purchase Agreement and Joint Escrow Instructions, dated as of December 3, 1997 (the "Purchase Agreement"). Each capitalized term used in this First Amendment, but not defined herein, shall have the meaning ascribed to it in the Purchase Agreement. Seller and Buyer desire to amend the Purchase Agreement as set forth in the First Amendment. NOW, THEREFORE, the parties agree as follows: Purchase Price. Price Reduction. Paragraph 2A of the Purchase Agreement is hereby deleted in its entirety and the following Paragraph 2A is hereby inserted in the place thereof: "The purchase price (the "Purchase Price") for the Property shall be the sum of Seventy-Six Million One Hundred Ninety-Five Thousand Dollars ($76,195,000.00)." Seller and Buyer hereby agree that the reduction to the Purchase Price represented by the foregoing has been agreed upon based on discussions by Seller and Buyer of Buyer's due diligence examinations, reviews and inspections and Buyer acknowledges that such adjustment appropriately and adequately takes such due diligence matters into account (including, without limitation, all roof, plaza basement pumping system and other physical matters, all environmental matters and all financial matters relating to such due diligence reviews). Environmental Matters. Without limitation on the foregoing matters, Buyer acknowledges that a portion of the foregoing Purchase Price reduction related to the alleged presence of Hazardous Material in groundwater at the Property and the alleged non-compliance with permitting requirements related to the discharge of pumped groundwater from the Property. Notwithstanding any other provision of the Purchase Agreement to the contrary, Buyer waives any and all rights it has or may have against Seller (including, without limitation, contribution rights under CERCLA) with respect to any Hazardous Material in groundwater at or from the Property, or with respect to any non-compliance with permitting requirements related to the discharge of pumped groundwater from the Property. At Closing, Buyer shall obtain from Zurich American/Steadfast Insurance Company the environmental liability insurance policy described in those certain letters dated January 23, 1998, and February 10, 1998, attached hereto as Schedule "I", such policy to have a liability limit of not less than $5,000,000, a deductible not to exceed $250,000, a term of not less than 10 years and an endorsement in favor of Seller. In the event that Buyer obtains such policy, Seller shall provide Buyer with a proration credit at Closing in an amount equal to the sum of Ten Thousand Dollars ($10,000). However, in the event Buyer fails to obtain such policy within sixty (60) days after the Closing, Buyer shall immediately refund to Seller the sum of Two Hundred and Fifty-Five Thousand Dollars ($255,000). Additional Escrow Deposit. The parties hereto agree that Buyer shall deliver the Additional Escrow Deposit to Escrow Holder within two (2) business days following the complete execution and delivery of this First Amendment. Notwithstanding anything to the contrary contained in the Purchase Agreement, the Additional Escrow Deposit shall not be an uncashed check of Buyer but shall be made by bank or cashier's check drawn on a major national money center banking institution (or by other delivery of good funds reasonably acceptable to Seller), the proceeds of which shall be held by Escrow Holder as part of the Escrow Deposit under the Purchase Agreement. Satisfaction of Certain Conditions. A. Due Diligence Period. Buyer hereby acknowledges that the Due Diligence Period has expired and that condition precedent set forth in Paragraph 4B of the Purchase Agreement has been satisfied or waived. Without limitation thereon, Buyer hereby acknowledges that Buyer has approved all title and survey matters and waives the provisions of Paragraph 4A(1) of the Purchase Agreement. B. Estoppel Certificates. Buyer hereby acknowledges that Buyer has received, reviewed and approved all Tenant Estoppel Certificates delivered to Buyer and that the condition set forth in Paragraph 4C of the Purchase Agreement is deemed satisfied. Without limitation thereon, Buyer acknowledges that the Stephenz Group estoppel contains certain claims related to proposed amendments which Buyer elected not to approve and, as a result, Seller has not executed (and Buyer agrees to acquire the Property subject to such claims, and releases Seller from any liability or obligation to Buyer or its successor and assigns in connection therewith). Buyer further acknowledges that no Seller's Estoppel shall be required at closing under the Purchase Agreement. Closing Date and Procedure. Notwithstanding anything to the contrary provided in the Purchase Agreement, including, without limitation, the provisions of Paragraph 5 thereof, the "Closing Date" shall mean February 24, 1998. Notwithstanding the Escrow closing provisions of the Purchase Agreement, Buyer hereby acknowledges that Seller shall have the right, upon not less than three (3) business days' prior written notice, to require that the closing of the purchase and sale transactions occur at a closing conference to be held on the Closing Date at the offices of Buyer's counsel, Orrick, Herrington & Sutcliffe at 400 Sansome Street, San Francisco, California 94111-3143. Heritage Bank Lease. Buyer hereby acknowledges that Buyer has approved the Heritage Bank of Commerce lease pursuant to that certain Lease Agreement dated November 18, 1997. In that connection, Buyer shall pay all third party leasing commissions (including those payable to Heitman) not to exceed the sum of Forty-Two Thousand Five Hundred Dollars ($42,500.00) and third party tenant improvements costs with respect to such extension agreement. Buyer further agrees that the rent commencement date may be extended for up to two (2) months after the original date specified in such extension agreement. Termination of Parking Lease. Seller covenants and agrees to terminate effective as of the Closing that certain parking agreement dated as of October 23, 1986 between Seller and Standard Parking Corporation, a California corporation, as amended by those certain amendments dated as of March 17, 1987, December 27, 1991, August 17, 1995 and April 3, 1996. Miscellaneous. Seller hereby approves an assignment of the Purchase Agreement (as amended hereby) to Park Center Plaza, LLC, a Delaware limited liability company formed by Buyer (the "Buyer Entity"), provided (i) such assignment shall be effective only at Closing, and (ii) Buyer Entity assumes the obligations of Buyer under the Purchase Agreement (as amended hereby). References in the Purchase Agreement to Seller being a "limited" partnership are hereby amended to reflect that Seller is a "general" partnership. The Exhibits attached hereto as Schedule "II" represent the final Exhibits to be attached to the Purchase Agreement (provided, however, Buyer acknowledges that such Exhibits are hereby supplemented by matters disclosed in the Tenant Estoppel Certificates delivered to Buyer prior to the date hereof). No Other Amendment; Conflict. Except as set forth in this First Amendment, the provisions of the Purchase Agreement shall be, and remain, in full force and effect (such Purchase Agreement being hereby ratified and confirmed by the parties hereto notwithstanding any prior termination thereof). If any provision of this First Amendment conflicts with any provision of the Purchase Agreement, then the provisions of this First Amendment shall prevail. Counterparts. This First Amendment may be signed in multiple counterparts (including facsimile counterparts) which, when signed by all parties, shall constitute a binding agreement. IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date first written above. BUYER: DIVCO WEST PROPERTIES, LLC, a Delaware limited liability company By: David A. Taran Member SELLER: JMB/SAN JOSE ASSOCIATES, an Illinois limited partnership By: JMB Income Properties, Ltd.-XI, an Illinois general partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Its: By: JMB Income Properties, Ltd.-XII, an Illinois general partnership, General Partner By: JMB Realty Corporation, a Delaware corporation, General Partner By: Its: Schedule "I" to first amendment to purchase agreement and joint escrow instructions" See Attached Schedule "II" to first amendment to purchase agreement and joint escrow instructions" See Attached EX-10.G 4 EXHIBIT 10-G - ------------ (J-XI) PURCHASE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (Park Center Plaza; San Jose, California) THIS AGREEMENT is made and entered into as of December ___, 1997 (the "Effective Date") by and between JMB/SAN JOSE ASSOCIATES, an Illinois limited partnership (hereinafter called _xe "Seller":"Seller"), and DIVCO WEST PROPERTIES LLC, a Delaware limited liability company (hereinafter called _xe "\"Buyer\":"_"Buyer"). R E C I T A L S A. Seller is the owner of that certain real property located in the City of San Jose, County of Santa Clara, State of California, consisting primarily of an office complex and related parking facilities sometimes known as "Park Center Plaza". B. Buyer desires to purchase such premises on the terms and conditions hereinafter documented. NOW, THEREFORE, in consideration of the mutual undertakings of the parties hereto, it is hereby agreed as follows: 1. Purchase and Sale. Seller shall sell to Buyer, and Buyer shall purchase from Seller, the following: A. That certain real property located in San Jose, California and commonly known as the Park Center Plaza, and being more particularly described on Exhibit "A" attached hereto (the "Real Property"); B. All of Seller's right, title and interest in and to any rights, privileges and easements appurtenant to the Real Property, including, without limitation, all minerals, oil, gas and other hydrocarbon substances on and under the Real Property, as well as all development rights, air rights, water, water rights, riparian rights and water stock relating to the Real Property and any rights-of-way or other appurtenances used in connection with the beneficial use and enjoyment of the Real Property, and all of Seller's right, title and interest in and to all roads and alleys adjoining or servicing the Real Property (collectively, the "Appurtenances"); C. All of Seller's right, title and interest in and to all improvements and fixtures located on the Real Property, including, without limitation, all buildings and structures presently located on the Real Property, all apparatus, equipment and appliances used in connection with the operation or occupancy of the Real Property, such as heating and air conditioning systems and facilities used to provide any utility, refrigeration, ventilation, garbage disposal, landscaping and cleaning equipment, or other services on the Real Property, and along with all on- site parking (collectively, the "Improvements"); D. All personal property owned by Seller located at the Property and utilized in connection with the operation or maintenance of the Property (the "Personal Property"); and E. All right, title and interest of Seller in and to the name "Park Center Plaza", any lease and occupancy rights (including, without limitation, the lessor's interest in and to all tenant leases, including all amendments, modifications and agreements and all material correspondence and other documents affecting in any way any of the parties' obligations under each such lease (the "Leases"), and Seller's interest in all refundable security deposits and prepaid rent, if any, under the Leases and any and all guaranties, letters of credit or other credit enhancement relating to the Leases), any and all licenses, permits, certificates of occupancy, development rights, plans and specifications, utility contracts and, to the extent approved by Buyer pursuant to this Agreement, all other agreements relating to the ownership, use and operation of the Property, as defined below (collectively, the "Intangible Property"). All of the items referred to in subparagraphs A, B, C, D and E above are collectively referred to as the "Property". 2. Purchase Price. A. The purchase price (the _xe "\"Purchase Price\":"_"Purchase Price") for the Property shall be the sum of Seventy- Eight Million Two Hundred Fifty Thousand and No/100 Dollars ($78,250,000). 3. Payment of Purchase Price. The Purchase Price shall be paid to Seller by Buyer as follows: A. Escrow Deposit. Within two (2) business days of the Effective Date, Buyer shall deliver $250,000 (together with all interest thereon, the _xe "\"Escrow Deposit\":"_"Initial Escrow Deposit") to Chicago Title Insurance Company, 110 West Taylor Street, San Jose, California 95110 Attention: Linda Tugade (which company or such other national title insurance company selected by Buyer within two (2) business days of the Effective Date, and reasonably approved by Seller, in its capacity as escrow holder hereunder, is called _xe "\"Escrow Holder\":"_"Escrow Holder"). In addition, if Buyer shall deliver the "Approval Notice" prior to the expiration of the "Due Diligence Period", as provided (and defined) in paragraph 4B hereof, Buyer shall concurrently therewith deliver Buyer's check in the amount of $500,000 (the "Additional Escrow Deposit") to Escrow Holder. The Additional Escrow Deposit shall be in the form of Buyer's check which shall be held uncashed by the Escrow Holder until such time as the Closing occurs or, pursuant to the terms hereof, Seller notifies Escrow Holder and Buyer that Seller believes in its good faith discretion that it is entitled to the Escrow Deposit. The Initial Escrow Deposit to be made hereunder shall be made by a bank or cashier's check drawn on a major national money center banking institution (or by other delivery of good funds reasonably acceptable to Seller), and the amounts so deposited shall be held by Escrow Holder as a deposit against the Purchase Price in accordance with the terms and provisions of this Agreement. The parties hereto hereby acknowledge that the closing of the transactions hereunder (the "Closing") will occur not later than December 30, 1997, and that the parties will reasonably cooperate to most effectively and efficiently cause the delivery of all sums hereunder so as to avoid multiple wires or deliveries of funds hereunder. As used herein, the term "Escrow Deposit" means the Initial Escrow Deposit and, from and after the delivery of good funds, the Additional Escrow Deposit, together with all interest earned on such deposits while the same are held in escrow hereunder. At all times in which the Escrow Deposit is being held by the Escrow Holder, the Escrow Deposit shall be invested by Escrow Holder in the following investments (_xe "\"Approved Investments\":"_"Approved Investments"): (i) United States Treasury obligations, (ii) United States Treasury-backed repurchase agreements issued by a major national money center banking institution reasonably acceptable to Seller, or (iii) such other manner as may be reasonably agreed to by Seller and Buyer. The Escrow Deposit shall be disposed of by Escrow Holder only as provided in this Agreement. Notwithstanding anything to the contrary contained herein the Escrow Holder shall not be obligated or entitled to cash the Buyer's check for the Additional Escrow Deposit until such time as the Closing occurs or Seller notifies Escrow Holder and Buyer that Seller believes in its good faith discretion that it is entitled to received the Escrow Deposit pursuant to the terms hereof. In the event that pursuant to the terms hereof Buyer is entitled to the return of the Escrow Deposit, Buyer's check for the Additional Escrow Deposit shall be returned to Buyer uncashed. B. Closing Payment. The balance of the Purchase Price (i.e., the Purchase Price less the sum of the Escrow Deposit available as of the date thereof in good funds, as such amounts shall be adjusted by the prorations and credits specified herein) shall be paid by wire transfer through "Escrow" as hereinafter provided of immediately available federal funds on the Closing Date (the amount to be paid under this subparagraph B being herein called the "Closing Payment"). 4. Conditions Precedent. A. Title Matters. Title Report. (a) Buyer has received a copy of a preliminary title report (_xe "\"Preliminary Title Report\":"_"Preliminary Title Report") covering the Property from Chicago Title Insurance Company (which company, or such other national title insurance company selected by Buyer within two (2) business days of the Effective Date and reasonably approved by Seller, in its capacity as title insurer hereunder, is herein called the _xe "\"Title Company\":"_"Title Company"). In addition, Seller has ordered (and will use good faith efforts to cause the delivery to Buyer on or before December 15, 1997) an update of that certain survey of the Property prepared by Mountain Pacific Surveys, which survey shall be certified in customary form to Buyer and Title Company (_xe "\"Survey\":"_"Survey"). If Buyer shall fail to deliver a "Title Objection Notice" (as hereinafter defined) setting forth those title and survey matters to which Buyer objects in its sole and absolute discretion on or before the date which is five (5) business days prior to the end of the "Due Diligence Period", as hereinafter defined (the "Title Review Period"), Buyer shall be deemed to have disapproved the exceptions to title shown on the Preliminary Title Report and the matters disclosed on any survey(s) obtained or delivered hereunder. (b) Additional Title Matters. Approval by Buyer in its sole and absolute discretion of any additional exceptions to title matters first disclosed to or discovered by Buyer after the delivery of the Title Objection Notice shall be a condition precedent to Buyer's obligation to purchase the Property. Unless Buyer gives written notice that it approves any such additional exceptions to title or survey matters, stating the exceptions so approved, on or before the sooner to occur of three (3) business days after receipt of written notice thereof and the Closing Date, Buyer shall be deemed to have disapproved said additional title exception matters. (c) Title Objections. If Buyer shall not approve any title or survey matters which Buyer is permitted to disapprove hereunder, Buyer shall have the right to give written notice thereof ("Title Objection Notice") to Seller within the time periods provided for in Paragraphs 4A(1)(a) or (b), as applicable. Upon receipt by Seller of a Title Objection Notice given in a timely manner (or a deemed title disapproval under Paragraphs 4A(1)(a) or (b) above), then Seller shall have until the sooner to occur of (1) three (3) business days from receipt of such Title Objection Notice (or from the date of Buyer's deemed disapproval as aforesaid) and (2) the Closing Date, within which to notify Buyer as to each properly disapproved matter either that (i) Seller elects not to cause such disapproved matter to be removed as of the Closing Date (or otherwise take any action with respect thereto), or (ii) Seller intends to either (a) use commercially reasonable efforts to cause such disapproved matter to be removed on the Closing Date, or (b) obtain a title endorsement (if available) reasonably acceptable to Buyer insuring over such disapproved matter; provided, however, Seller shall have no liability if for any reason, after electing under (ii) above, such additional disapproved matters are not removed or insured over in a form reasonably acceptable to Buyer as of the Closing Date. Failure to deliver any written notification by Seller of its election within such period shall be deemed to be an election not to cause any such additional disapproved matters to be removed. If Seller elects not to cause any or all such additional disapproved matters to be removed or insured over as aforesaid, Buyer shall have until the sooner to occur of (1) three (3) business days from receipt of written notice thereof (or from the date of Seller's deemed election as aforesaid) and (2) the Closing Date, within which to notify Seller in writing either that (x) Buyer revokes its disapproval and will proceed with the purchase of the Property without any reduction in the Purchase Price and will take subject to such matters, or (y) Buyer terminates this Agreement (and thereupon the Escrow Deposit shall be delivered to Buyer). Failure to deliver any written notification by Buyer of its election within such period shall be deemed to be an election to terminate this Agreement. (d) Permitted Exceptions. All matters set forth on the Preliminary Title Report which are approved by Buyer pursuant to the terms are herein called the "Permitted Exceptions". The term "Permitted Exceptions" shall additionally include (i) any title matters objected to by Buyer, which objections are subsequently waived in writing by Buyer, and (ii) any title matters objected to by Buyer, which objections are removed or which are otherwise satisfactorily cured as determined by Buyer in its sole and absolute discretion. Buyer shall have the option to waive the condition precedent set forth in this paragraph 4A(1) by written notice to Seller. In the event of such waiver, such condition shall be deemed satisfied. (2) Exceptions to Title. Buyer shall be obligated to accept title to the Property, subject to the following exceptions to title: (a) Real estate taxes and assessments not yet due and payable; (b) The standard printed exceptions of the standard form ALTA owner's policy of title insurance with so-called "extended coverage" issued by Title Company in the State of California; and (c) The Permitted Exceptions. Conclusive evidence of the availability of such title shall be the irrevocable commitment of Title Company to issue to Buyer on the Closing Date a standard ALTA owner's policy of title insurance with so-called "extended coverage" ("Owner's Policy"), in the face amount of the Purchase Price, which policy shall (i) show title to the Property to be vested of record in Buyer, (ii) show the Permitted Exceptions to be the only exceptions to title, and (iii) contain such endorsements or additional coverage as Buyer may have requested and Title Company shall have committed to issue in writing during the Due Diligence Period to issue. B. Due Diligence Reviews. Buyer shall have until 5:00 p.m. (Pacific time) on December 26, 1997 (the _xe "\"Due Diligence Period\":"_"Due Diligence Period"), within which to perform and complete all of Buyer's due diligence examinations, reviews and inspections of all matters pertaining to the purchase of the Property, including all leases, service contracts, survey and title matters, and all physical, environmental, structural, zoning, land use and compliance matters and conditions respecting the Property and any other matters Buyer deems relevant in its sole and absolute discretion. During the Due Diligence Period, Seller shall provide Buyer with reasonable access to the Property upon reasonable advance notice. Prior to the Effective Date, Seller shall have delivered to Buyer or made available to Buyer at the office of the Property in San Jose, California all leases, service contracts, third party reports or studies, correspondence with tenants or service providers and all other material documents respecting the Property (to the extent the same are known to Seller and are in Seller's possession or reasonably available to Seller). Buyer shall at all times conduct its due diligence review, inspections and examinations in a manner so as to not cause material damage, loss, cost or expense to Seller or the Property and so as to not materially interfere with or disturb any tenant at the Property, and Buyer will indemnify, defend, and hold Seller and the Property harmless from and against any such damage, loss, cost or expense (the foregoing obligation surviving any termination of this Agreement); provided, however, nothing contained in the foregoing shall impose any liability upon Buyer for the mere discovery by Buyer of any pre-existing conditions. Without limitation on the foregoing, in no event shall Buyer (a) make any intrusive physical testing (environmental, structural or otherwise) at the Property (such as soil borings, water samplings or the like) without Seller's express written consent. Buyer will coordinate any tenant contact with Seller and comply with any reasonable requirements of Seller in connection therewith (including scheduling tenant contacts toward the end of the Due Diligence Period). Seller shall have the right, at its option, to cause a representative of Seller to be present at all inspections, reviews and examinations conducted hereunder. Buyer shall promptly deliver to Seller true, accurate and complete copies of any final written reports relating to the Property prepared for or on behalf of Buyer by any third party (without representation or warranty of any kind by Buyer with respect thereto) and in the event of termination hereunder, shall return all documents and other materials furnished by Seller hereunder. Buyer shall keep all information or data received or discovered in connection with any of the inspections, reviews or examinations strictly confidential. If, on or before the expiration of the Due Diligence Period, based upon such review, examination or inspection, Buyer shall determine in its sole and absolute discretion that it intends to proceed with the acquisition of the Property, then Buyer shall promptly notify Seller and Escrow Holder of such determination in writing (such notice being herein called the "Approval Notice") and concurrently therewith Buyer shall deliver the Additional Escrow Deposit to Escrow Holder (and thereafter, Buyer shall have no further right to terminate this Agreement pursuant to this paragraph 4B). If, however, on or before the expiration of the Due Diligence Period, based upon such review, examination or inspection, Buyer shall determine in its sole and absolute discretion that it no longer intends to acquire the Property, then Buyer shall promptly notify Seller of such determination in writing (such notice being herein called the "Termination Notice"), whereupon the Escrow Deposit shall be returned to Buyer and this Agreement, and the obligations of the parties hereunder, shall terminate. In the event that, on or before the expiration of the Due Diligence Period, Buyer shall fail to have delivered the Approval Notice to Seller (and concurrently therewith deposit the Additional Escrow Deposit with Escrow Holder as provided for in this Agreement), Buyer shall be deemed to have elected not to proceed with the acquisition of the Property whereupon the Escrow Deposit shall be returned to Buyer and this Agreement, and the obligations of the parties hereunder, shall terminate. C. Estoppel Certificates. Receipt of estoppel certificates ("Tenant Estoppel Certificates"), from all tenants leasing more than 10,000 square feet of space, together with such additional tenants as may be required so that Tenant Estoppel Certificates are received from tenants leasing, in the aggregate, not less than 80% of the net rentable square feet of space covered by leases in effect as of the date hereof, shall be a condition precedent to Buyer's obligation to purchase the Property hereunder. Each Tenant Estoppel Certificate shall either be substantially in the form provided in Exhibit "C" attached hereto and made a part hereof or in the form, if any, prescribed in the applicable tenant lease and shall disclose no material defaults or other adverse information which is materially inconsistent with the leases or the "Rent Roll" (as hereinafter defined). Seller's sole obligation hereunder shall be to utilize commercially reasonable efforts to obtain a Tenant Estoppel Certificate from each tenant at the Property (such reasonable efforts obligations not including any obligation to institute legal proceedings or to expend monies therefor), but such obligation shall not affect the provision of such Tenant Estoppel Certificates as a condition precedent to closing. Without limiting the condition that Buyer received the Estoppel Certificates described above, Seller shall deliver at the Closing a Seller's estoppel certificate ("Seller's Estoppel") for each tenant that does not deliver a Tenant Estoppel Certificate. The Seller's Estoppel shall state that (i) attached to such estoppel is a true, correct and complete copy of the applicable tenant lease (including all amendments or modifications thereto), (ii) there is no default under the applicable lease, (iii) the rent and other charges payable under the applicable lease, (iv) the commencement and termination date of the applicable lease, and (v) the suite number and square footage covered by the applicable lease. The Seller's Estoppel shall be subject to the limitations on survival contained in paragraph 7C hereof and the limitations on liability contained in paragraph 9B hereof. 5. Closing Procedure. The sale and purchase herein provided shall be consummated on the Closing Date through escrow ("Escrow") with the Title Company. As used herein, _xe "\"Closing Date\":"_"Closing Date" means December 30, 1997, or such earlier date as may be agreed upon by Buyer and Seller; provided, however, if any of the conditions to Closing set forth in this Agreement is not satisfied on or before the Closing Date or if Buyer shall claim that Seller in is default or has otherwise breached its obligations under this Agreement, Seller shall have the right, at its sole option, to extend the Closing Date for up to ten (10) days in order to attempt to satisfy such conditions or cure such defaults or breaches. A. Escrow. On or before the Closing Date, the parties shall deliver to Title Company the documents described below. Such deliveries shall be made pursuant to escrow instructions (_xe "\"Escrow Instructions\":"_"Escrow Instructions") to be executed among Buyer, Seller and Title Company in form reasonably acceptable to such parties in order to effectuate the intent hereof. B. Delivery by Parties. (1) Seller Deliveries. Seller shall deliver to Escrow the following: (a) By Seller, a duly executed and acknowledged grant deed (_xe "\"Deed\":"_"Deed") in the form of Exhibit "D" attached hereto and made a part hereof, (b) A duly executed and acknowledged bill of sale, assignment and assumption agreement (_xe "\"Assignment and Assumption Agreement\":"_"Assignment and Assumption Agreement") in the form of Exhibit "E" attached hereto and made a part hereof; (c) Duly executed and acknowledged certificates sufficient for State and Federal law purposes) regarding the "non-foreign" status of Seller; (d) To the extent in Seller's possession or control, originals (or copies certified as true and complete, if originals are unavailable) of all tenant leases, Service Agreements, Parking Agreements and Rooftop Agreements. In addition, Seller shall deliver copies of all guaranties, warranties, licenses, permits, certificates of occupancy, plans and specifications, keys and other applicable management material respecting the Property (provided the foregoing items may be delivered by Seller causing the same to be retained at the Property); (e) Notices to tenants in form reasonably acceptable to Seller and Buyer informing tenants of the sale of the Property to Buyer and the transfer of security deposits ("Tenant Notices"); (f) A signed "Closing Statement" (as hereinafter defined); (g) Evidence reasonably satisfactory to Buyer and Title Company respecting the due organization of Seller and the due authorization and execution of this Agreement and the documents required to be delivered hereunder; and (h) Such additional documents as may be reasonably required by Buyer and Title Company in order to consummate the transactions hereunder (provided the same do not materially increase the costs to, or liability or obligations of, Seller in a manner not otherwise provided for herein). (2) Buyer Deliveries. Buyer shall deliver to Escrow the following: (a) The Closing Payment in immediately available federal funds; (b) A duly executed and acknowledged Assignment and Assumption Agreement; (c) A signed Closing Statement; (d) Evidence reasonably satisfactory to Seller and Title Company respecting the due organization of Buyer and the due authorization and execution of this Agreement and the documents required to be delivered hereunder; and (e) Such additional documents as may be reasonably required by Seller and Title Company in or to consummate the transactions hereunder (provided the same do not materially increase the costs to, or liability or obligations of, Buyer in a manner not otherwise provided for herein). (3) Delivery to Parties. Upon the satisfaction of the conditions set forth in the Escrow Instructions, then (x) the Deed shall be delivered to Buyer by Title Company's depositing the same for recordation, (y) the Closing Payment (and the Escrow Deposit) shall be delivered by Title Company to Seller and (z) the other deliveries appropriately exchanged and delivered to the parties. C. Closing Costs. Seller shall pay (i) the title insurance premium for the Owner's Policy at a rate not in excess of standard issue rates (but excluding any additional or extended coverage or endorsements requested by Buyer), (ii) any documentary transfer tax imposed by the County of Santa Clara and attributable to the Deed (the "County Tax"), (iii) one-half of any local transfer taxes (other than the County Tax) attributable to the Deed, (iv) the costs to update the Survey and (v) one- half of any escrow or recording charges attributable to the Deed. Buyer shall pay (i) the costs of any ALTA or so called "extended coverage" in connection with, or endorsements to, the Owner's Policy, together with the cost of any other title insurance coverage (such as lender's insurance policies), (ii) one-half of any local transfer taxes (other than the County Tax) attributable to the Deed, (iii) one-half of any escrow or recording charges and (iv) all fees, costs or expenses incurred by Buyer in connection with Buyer's due diligence reviews hereunder. Each of Seller and Buyer shall pay its own attorneys' fees and its respective share of prorations as hereinafter provided. Notwithstanding the foregoing, in the event the sale contemplated hereby does not close on the Closing Date, then each party shall pay all costs incurred by it. D. Prorations. (1) Items to be Prorated. The following shall be prorated between Seller and Buyer such that items of income and expense through the day prior to the Closing Date shall be allocated to Seller, and items of income and expense for the Closing Date and thereafter shall be allocated to Buyer: (a) All real estate taxes and assessments on the Property for the current year on a per diem basis. In no event shall Seller be charged with or be responsible for any increase in the taxes on the Property resulting from the sale of the Property or from any improvements made or leases entered into on or after the Closing Date. If any assessments on the Property are payable in installments, then the installment for the current period shall be prorated (with Buyer assuming the obligation to pay any installments due after the Closing Date). (b) All fixed and additional rentals under the leases, security deposits and other tenant charges. Seller shall deliver or provide a credit in an amount equal to all prepaid rentals for periods after the Closing Date and all refundable security deposits (to the extent the foregoing are held by Seller and are not applied or forfeited prior to the Closing Date) to Buyer on the Closing Date. Rents which are delinquent as of the Closing Date shall not be prorated on the Closing Date. Buyer shall include such delinquencies in its normal billing and shall diligently pursue the collection thereof in good faith after the Closing Date (but Buyer shall not be required to litigate or declare a default in any lease). To the extent Buyer receives rents on or after the Closing Date, such payments shall be applied first toward then current rent owed to Buyer in connection with the applicable lease for which such payments are received, and any excess monies received shall be applied toward the payment of any delinquent rents, with Seller's share thereof being promptly delivered to Seller within fifteen (15) days after receipt of the same by Buyer. Buyer may not waive any delinquent rents nor modify a lease so as to reduce or otherwise affect amounts owed thereunder for any period in which Seller is entitled to receive a share of charges or amounts without first obtaining Seller's written consent. Seller hereby reserves the right to pursue any damage remedy (but in no action for eviction or lease termination) against any tenant owing delinquent rents and any other amounts to Seller. Buyer shall reasonably cooperate with Seller in any collection efforts hereunder (but shall not be required to litigate or declare a default in any lease). With respect to delinquent rents and any other amounts or other rights of any kind respecting tenants who are no longer tenants of the Property as of the Closing Date, Seller shall retain all rights relating thereto. Reimbursement amounts due Seller under any reciprocal easement agreements affecting the Property shall be prorated in the same manner as rents hereunder. (c) All operating expenses, including those under any reciprocal easement agreements affecting the Property. (2) Calculation. The prorations and payments shall be made on the basis of a written statement submitted to Buyer and Seller by Escrow Holder prior to the Close of Escrow and approved by Buyer and Seller. In the event any prorations or apportionments made under this subparagraph D shall prove to be incorrect for any reason, then any party shall be entitled to an adjustment to correct the same provided written notice of such inaccuracy and request for correction is given within six months after the date hereof. Any item which cannot be finally prorated because of the unavailability of information shall be tentatively prorated on the basis of the best data then available and reprorated when the information is available. The obligations of Seller and Buyer under this paragraph 5D(2) shall survive the closing until June 15, 1998 (and all reprorations shall be finalized prior to such date). 6. Risk of Loss. If any of the Property is damaged or destroyed prior to the Closing Date, and such damage or destruction would cost less than Two Hundred Fifty Thousand Dollars ($250,000) to repair or restore and is covered by insurance (other than the deductible amount, if any), then this Agreement shall remain in full force and effect and Buyer shall acquire the Property upon the terms and conditions set forth herein. In such event, Buyer shall receive a credit against the Purchase Price equal to any deductible under Seller's property damage insurance policy and Seller shall assign to Buyer all of Seller's right, title and interest in and to all proceeds of insurance other than amounts expended to repair any damage or destruction and loss of rent proceeds attributable to the period prior to Closing on account of such damage or destruction. If any of the Property is damaged or destroyed prior to the Closing, and the cost of repair would exceed Two Hundred Fifty Thousand Dollars ($250,000), or if such cost of repair would not exceed $250,000 but such casualty damage is uninsured (and Seller shall elect not to credit Buyer with the amount necessary to repair the same, Seller having the right but not the obligation to so credit), or condemnation proceedings are commenced against any of the Property, then, Buyer shall have the right, at its election, either to terminate this Agreement or to not terminate this Agreement and purchase the Property. Buyer shall have the sooner to occur of the Closing Date or ten (10) business days after Seller notifies Buyer in writing that an event described in the immediately preceding sentence has occurred to make such election by delivery to Seller of an election notice (the "Election Notice"). Buyer's failure to deliver the Election Notice within such period shall be deemed an election to terminate this Agreement. If this Agreement is terminated by delivery of notice of termination to Seller, then Buyer and Seller shall each be released from all obligation hereunder, except as otherwise expressly provided to the contrary herein. If Buyer continues this Agreement, Buyer shall receive a credit against the Purchase Price equal to any deductible under Seller's property damage insurance policy and Seller shall assign to Buyer all of Seller's right, title and interest in and to all insurance proceeds (other than amounts expended to repair any damage or destruction and any loss of rent proceeds attributable to the period prior to the Closing, which shall remain the property of Seller) or condemnation awards on account of such damage, destruction or taking, and Buyer shall accept the Property as damaged or destroyed, on condemned, as the case may be, and the closing shall occur on the terms and conditions contained in this Agreement. As used in this paragraph 6, the cost to repair or restore shall include the cost of lost rental revenue, including additional rent and base rent, occurring after the Closing, if any. 7. Representations, Warranties and Covenants. A. Representations, Warranties and Covenants of Seller. (1) General Disclaimer. Except as specifically set forth in Paragraph 7A(2) below, the sale of the Property hereunder is and will be made on an "as is" basis, without representations and warranties of any kind or nature, express, implied or otherwise, including, but not limited to, any representation or warranty concerning title to the Property, the physical condition of the Property (including, but not limited to, the condition of the soil or the Improvements), the environmental condition of the Property (including, but not limited to, the presence or absence of hazardous substances on or respecting the Property), the compliance of the Property with applicable laws and regulations (including, but not limited to, zoning and building codes or the status of development or use rights respecting the Property), the financial condition of the Property or any other representation or warranty respecting any income, expenses, charges, liens or encumbrances, rights or claims on, affecting or pertaining to the Property or any part thereof. Buyer acknowledges that, during the Due Diligence Period, Buyer will have had the opportunity to examine, review and inspect all matters which in Buyer in its sole and absolute judgment bears upon the Property and its value and suitability for Buyer's purposes. Except as to matters specifically set forth in Paragraph 7A(2) below, Buyer will acquire the Property solely on the basis of its own physical and financial examinations, reviews and inspections and the title insurance protection afforded by the Owner's Policy. Without limitation thereon, Buyer agrees that it will not pursue any rights of contribution or other rights or remedies against Seller under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or any other applicable environmental laws, rules or regulations. The provisions of the preceding sentence shall not in any way limit Buyer's right to seek contribution or other rights or remedies against Seller under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or any other applicable environmental laws, rules or regulations in the event that any claim is made against Buyer under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or any other applicable environmental laws, rules or regulations by any governmental agency or any third party based on any facts or circumstances arising prior to the Closing (such rights or remedies in all events being subject to the limitations on liabilities set forth in this Agreement, including those set forth in paragraph 9B hereof). (2) Limited Representations and Warranties of Seller. Seller hereby represents and warrants that, except as set forth in Exhibit "F" attached hereto and made a part hereof, Seller has no knowledge that any of the following statements is untrue (and, for this purpose, Seller's knowledge shall mean only the present actual knowledge of Andrea Backman without any duty to investigate (other than to make inquiry of Bob Bronstein of Seller's third party property management company) and with any imputed or constructive knowledge being excluded): (a) Rent Roll. Attached as Exhibit "G" and made a part hereof is a true, complete and accurate list, as of the date thereof, of all tenant leases respecting the Property. Seller has made available, or during the Due Diligence Period will make available, to Buyer true and correct copies of the tenant leases. Seller has not received any written notice of a material default under any of such tenant leases that remains uncured. Notwithstanding anything to the contrary contained herein, if any of the foregoing matters are confirmed as correct in any Tenant Estoppel Certificate which may be delivered hereunder and thereafter the applicable tenant takes an inconsistent position with respect to such matters, Buyer shall look solely to such tenants for any liability or obligation in connection with such matters. (b) Litigation. There is no pending action, litigation, condemnation or other proceeding against the Property or against Seller with respect to the Property. (c) Compliance. Seller has received no written notice from any governmental authority having jurisdiction over the Property to the effect that the Property is not in compliance with applicable laws and ordinances. (d) Agreements Affecting the Property. Other than the leases or matters of record, Seller has not entered into any contracts or other agreements (other than as set forth in this Agreement) relating to the Property which will be in force on the Closing Date, except for the service agreements described in Exhibit "H-1" (the "Service Agreements"), the parking easements and agreements described in Exhibit "H-2" (the "Parking Agreements") and the rooftop agreements described in Exhibit "H-3" (the "Rooftop Agreements"). Seller has not received any written notice of any default under any of the foregoing agreements that remains uncured. (e) Due Authority. This Agreement and all agreements, instruments and documents herein provided to be executed or to be caused to be executed by Seller are and on the Closing Date will be duly authorized, executed and delivered by and are binding upon Seller. Seller is a partnership, duly organized and validly existing under the laws of the State of Illinois, and is duly authorized and qualified to do all things required of it under this Agreement. Seller has the capacity and authority to enter into this Agreement and consummate the transactions herein provided. (f) Environmental Matters. Except as set forth in the reports described in Exhibit "I" attached hereto and made a part hereof (the "Environmental Reports"), Seller has received no written notice of the existence, deposit, storage, removal, burial or discharge of any material known to Seller to be a "Hazardous Material" at, upon, under or within the Property, in an amount which would, as of the date hereof, give rise to an "Environmental Compliance Cost". The term "Hazardous Material" shall mean (i) asbestos, petrochemicals or hydrocarbons and any chemicals, flammable substances or explosives, any radioactive materials (including radon), any hazardous wastes or substances which have, as of the date hereof, been determined by any applicable Federal, State or local government law to be hazardous or toxic by the U.S. Environmental Protection Agency, the U.S. Department of Transportation, and/or any instrumentality now or hereafter authorized to regulate materials and substances in the environment which has jurisdiction over the Property ("Environmental Agency"), and (ii) any oil, petroleum or petroleum derived substance, any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, which materials listed under items (i) and (ii) above cause the Property (or any part thereof) to be in violation of any applicable environmental laws or the regulations of any Environmental Agency; provided, however, that the term "Hazardous Material" shall not include motor oil and gasoline contained in or discharged from vehicles not used primarily for the transport of motor oil or gasoline or any materials such as cleaning supplies, photocopy equipment supplies and other similar materials in quantities commonly stored, found or maintained for similar uses in properties similar to the Property. The term "Environmental Compliance Cost" means any out-of-pocket cost, fee or expense incurred directly to satisfy any requirement imposed by an Environmental Agency to bring the Property into compliance with applicable Federal, State and local laws and regulations directly relating to the existence on the Property of any Hazardous Material. Buyer hereby acknowledges that it is acquiring the Property subject to the matters disclosed in the Environmental Reports, and Buyer shall at Closing, assume the obligations for, and release Seller from any liability relating to (whether under local, state or federal law), any matters disclosed in the Environmental Reports; provided, however, nothing in the foregoing shall constitute an indemnification by Buyer in favor of Seller for any third party claims with respect to such matters and in the event that any claim is made against Buyer by any governmental agency or any third party based on any violation of environmental laws or any contamination of the Property by Hazardous Materials prior to the Closing Buyer shall be entitled to seek contribution or indemnification from Seller on account thereof in accordance with any applicable laws, rules, regulations or statutes (such rights or remedies in all events being subject to the limitations on liabilities contained in this Agreement, including those set forth in paragraph 9B hereof). (g) Options. Seller has not given or granted (nor does Seller have any knowledge of the existence of) any rights of first refusal, rights of first offer or other options to acquire the Property in whole or in part. (h) Structural Condition. Except as otherwise disclosed to Buyer, Seller has not received any written notice from any governmental authorities or any third party structural reports or studies that indicate that there are any material structural problems or deficiencies in the Property or any part thereof. B. Representations and Warranties of Buyer. Buyer hereby represents and warrants that this Agreement and all agreements, instruments and documents herein provided to be executed or to be caused to be executed by Buyer are and on the Closing Date will be duly authorized, executed and delivered by and are binding upon Buyer; Buyer is a limited liability company, duly organized and validly existing and in good standing under the laws of the State of Delaware, and is duly authorized and qualified to do all things required of it under this Agreement; and Buyer has the capacity and authority to enter into this Agreement and consummate the transactions herein provided. C. Survival. Any cause of action of a party for a breach of the foregoing representations and warranties shall survive until November 15, 1998, at which time such representations and warranties (and any cause of action resulting from a breach thereof not then in litigation) shall terminate. Notwithstanding the foregoing, if Buyer shall have actual knowledge as of the Closing Date that any of the representations or warranties of Seller contained herein are false or inaccurate or that Seller is in breach or default of any of its obligations under this Agreement, and Buyer nonetheless closes the transactions hereunder and acquires the Property, then Seller shall have no liability or obligation respecting such false or inaccurate representations or warranties or other breach or default (and any cause of action resulting therefrom shall terminate upon such closing hereunder). D. Interim Covenants of Seller. Until the Closing Date or the sooner termination of this Agreement: (1) Seller shall maintain the Property in the same manner as prior hereto pursuant to its normal course of business (such maintenance obligations not including extraordinary capital expenditures or expenditures not incurred in such normal course of business), subject to reasonable wear and tear and further subject to destruction by casualty or other events beyond the control of Seller. (2) Seller shall not enter into any additional service contracts or other similar agreements without the prior consent of Buyer, except those deemed reasonably necessary by Seller which are cancelable on thirty (30) days' notice. (3) Seller shall have the right to continue to offer the Property for lease in the same manner as prior hereto pursuant to its normal course of business and, upon request, shall keep Buyer reasonably informed as to the status of leasing prior to the Closing Date. After the Effective Date, Seller shall not enter into any new leases or material modifications of existing leases thereafter without the consent of Buyer (which consent, may be given or withheld in Buyer's sole and absolute discretion). In connection therewith, Buyer shall respond to Seller's request to enter into a new lease or a material modification within five (5) business days after Buyer's receipt of such request. In the event that Buyer fails to respond to such a request within such five (5) business day period, Buyer shall be deemed to have approved the new lease or material modification. In no event shall Seller have any obligation to enter into any new lease or modify any existing lease unless Buyer shall agree to pay or reimburse Seller on the Closing Date for all landlord costs, legal costs, tenant improvement costs and leasing commissions incurred by Seller under or in connection therewith. 9. DISPOSITION OF DEPOSIT. IF THE TRANSACTION HEREIN PROVIDED SHALL NOT BE CLOSED BY REASON OF SELLER'S DEFAULT UNDER THIS AGREEMENT OR THE FAILURE OF SATISFACTION OF THE CONDITIONS DESCRIBED IN PARAGRAPH 4 HEREOF OR THE TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH PARAGRAPH 6 HEREOF, THEN THE ESCROW DEPOSIT SHALL BE RETURNED TO BUYER, AND NEITHER PARTY SHALL HAVE ANY FURTHER OBLIGATION OR LIABILITY TO THE OTHER; PROVIDED, HOWEVER, IF THE TRANSACTIONS HEREUNDER SHALL FAIL TO CLOSE BY REASON OF SELLER'S DEFAULT, AND BUYER SHALL BE READY, WILLING AND ABLE TO CLOSE, THEN BUYER SHALL BE ENTITLED TO SPECIFICALLY ENFORCE THIS AGREEMENT; AND PROVIDED FURTHER THAT, IF FOLLOWING OR IN CONNECTION WITH A DEFAULT BY SELLER, SELLER SHALL TAKE ACTIONS SO AS TO EITHER PREVENT THE AVAILABILITY OF SPECIFIC PERFORMANCE TO BUYER OR WHICH MATERIALLY ADVERSELY IMPACT THE VALUE OF THE PROPERTY SUCH THAT SPECIFIC PERFORMANCE WOULD NOT PROVIDE BUYER SUBSTANTIALLY WITH THE BENEFITOF THE BARGAIN CONTEMPLATED IN THIS AGREEMENT, AND THE OTHER CONDITIONS SET FORTH ABOVE SHALL BE SATISFIED, BUYER SHALL BE ENTITLED TO A RETURN OF THE ESCROW DEPOSIT AND REIMBURSEMENT OF ITS ACTUAL OUT-OF-POCKET COSTS PAID TO THIRD PARTIES IN CONNECTION WITH THE TRANSACTIONS HEREUNDER (SUCH REIMBURSEMENT NOT TO EXCEED $150,000 IN THE AGGREGATE). EXCEPT AS SET FORTH ABOVE, NO OTHER ACTIONS, FOR DAMAGES OR OTHERWISE, SHALL BE PERMITTED IN CONNECTION WITH ANY DEFAULT BY SELLER IN THE EVENT THE TRANSACTIONS HEREUNDER SHALL FAIL TO CLOSE. IN THE EVENT THE TRANSACTION HEREIN PROVIDED SHALL NOT CLOSE FOR ANY REASON OTHER THAN THE FAILURE OF SATISFACTION OF THE CONDITIONS DESCRIBED IN PARAGRAPH 4 HEREOF OR THE TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH PARAGRAPH 6 HEREOF OR THE DEFAULT OF SELLER, THEN THE ESCROW DEPOSIT SHALL BE DELIVERED TO SELLER AS FULL COMPENSATION AND LIQUIDATED DAMAGES UNDER AND IN CONNECTION WITH THIS AGREEMENT. IN THE EVENT THE TRANSACTION HEREIN PROVIDED SHALL CLOSE, THE ESCROW DEPOSIT SHALL BE APPLIED AS A PARTIAL PAYMENT OF THE PURCHASE PRICE. IN CONNECTION WITH THE FOREGOING, THE PARTIES RECOGNIZE THAT SELLER WILL INCUR EXPENSE IN CONNECTION WITH THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT AND THAT THE PROPERTY WILL BE REMOVED FROM THE MARKET; FURTHER, THAT IT IS EXTREMELY DIFFICULT AND IMPRACTICABLE TO ASCERTAIN THE EXTENT OF DETRIMENT TO SELLER CAUSED BY THE BREACH BY BUYER UNDER THIS AGREEMENT AND THE FAILURE OF THE CONSUMMATION OF THE TRANSACTION CONTEMPLATED BY THIS AGREEMENT OR THE AMOUNT OF COMPENSATION SELLER SHOULD RECEIVE AS A RESULT OF BUYER'S BREACH OR DEFAULT. IN THE EVENT THE SALE OF THE PROPERTY SHALL NOT BE CONSUMMATED ON ACCOUNT OF BUYER'S DEFAULT, THEN THE RETENTION OF THE ESCROW DEPOSIT SHALL BE SELLER'S SOLE AND EXCLUSIVE REMEDY UNDER THIS AGREEMENT BY REASON OF SUCH DEFAULT, SUBJECT TO THE PROVISIONS OF PARAGRAPH 9I HEREOF. Seller's Initials Buyer's Initials 9. Miscellaneous. A. Brokers. (1) Except as provided in subparagraphs (2) and (3) below, Seller represents and warrants to Buyer, and Buyer represents and warrants to Seller, that no broker or finder has been engaged by it, respectively, in connection with any of the transactions contemplated by this Agreement or to its knowledge is in any way connected with any of such transactions. In the event of a claim for broker's or finder's fee or commissions in connection herewith, then Seller shall indemnify and defend Buyer from the same if it shall be based upon any statement or agreement alleged to have been made by Seller, and Buyer shall indemnify and defend Seller from the same if it shall be based upon any statement or agreement alleged to have been made by Buyer. The indemnification obligations under this Paragraph 9A(1) shall survive the closing of the transactions hereunder or the earlier termination of this Agreement. (2) If and only if the sale contemplated herein closes, Seller agrees to pay a brokerage commission to Richard Ellis, LLC and Alexis A. Fafenrodt (collectively, the "Seller's Broker") pursuant to separate written agreements between Seller's Broker and Seller. The foregoing payments shall be the sole commissions, fees or payments payable to Seller's Broker in connection with the transactions hereunder. (3) If and only if the sale contemplated herein closes, Buyer agrees to pay a brokerage commission to B.T. Commercial (the "Buyer's Broker") pursuant to separate written agreements between Buyer's Broker and Buyer. The foregoing payments shall be the sole commissions, fees or payments payable to Buyer's Broker in connection with the transactions hereunder. B. Limitation of Liability. (1) Notwithstanding anything to the contrary contained herein, if the closing of the transactions hereunder shall have occurred (and Buyer shall not have waived, relinquished or released any applicable rights in further limitation), the aggregate liability of Seller arising pursuant to or in connection with the representations, warranties, indemnifications, covenants, contribution or other obligations (whether express or implied) of, or rights or remedies against Seller under this Agreement (or any document executed or delivered in connection herewith) or otherwise in connection with the Property shall not exceed $2,500,000. (2) No constituent partner in or agent of Seller, nor any advisor, trustee, director, officer, employee, beneficiary, shareholder, participant, representative or agent of any corporation or trust that is or becomes a constituent partner in Seller (including, but not limited to, JMB Realty Corporation) shall have any personal liability, directly or indirectly, under or in connection with this Agreement or any agreement made or entered into under or pursuant to the provisions of this Agreement, or any amendment or amendments to any of the foregoing made at any time or times, heretofore or hereafter, and Buyer and its successors and assigns and, without limitation, all other persons and entities, shall look solely to Seller's assets for the payment of any claim or for any performance, and Buyer, on behalf of itself and its successors and assigns, hereby waives any and all such personal liability. Notwithstanding anything to the contrary contained in this Agreement, neither the negative capital account of any constituent partner in Seller (or in any other constituent partner of Seller), nor any obligation of any constituent partner in Seller (or in any other constituent partner of Seller) to restore a negative capital account or to contribute capital to Seller (or to any other constituent partner of Seller), shall at any time be deemed to be the property or an asset of Seller or any such other constituent partner (and neither Buyer nor any of its successors or assigns shall have any right to collect, enforce or proceed against or with respect to any such negative capital account of partner's obligation to restore or contribute). C. Entire Agreement. This Agreement contains the entire agreement between the parties respecting the matters herein set forth and supersedes all prior agreements between the parties hereto respecting such matters. This Agreement may not be modified or amended except by written agreement signed by both parties. D. Time of the Essence. Time is of the essence of this Agreement. E. Interpretation. Paragraph headings shall not be used in construing this Agreement. Each party acknowledges that such party and its counsel, after negotiation and consultation, have reviewed and revised this Agreement. As such, the terms of this Agreement shall be fairly construed and the usual rule of construction, to the effect that any ambiguities herein should be resolved against the drafting party, shall not be employed in the interpretation of this Agreement or any amendments, modifications or exhibits hereto or thereto. F. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of California. G. Successors and Assigns. Buyer may not assign or transfer its rights or obligations under this Agreement without the prior written consent of Seller, (in which event such transferee shall assume in writing all of the transferor's obligations hereunder, and transferor shall thereupon be released from any obligations hereunder first arising thereafter) provided, however, effective at, and conditioned upon, Closing hereunder, Buyer may assign its interest in this Agreement to an entity affiliated or associated with David Taran and/or Stuart Shiff. No consent given by Seller to any transfer or assignment of Buyer's rights or obligations hereunder shall be construed as a consent to any other transfer or assignment of Buyer's rights or obligations hereunder. No transfer or assignment in violation of the provisions hereof shall be valid or enforceable. Subject to the foregoing, this Agreement and the terms and provisions hereof shall inure to the benefit of and be binding upon the successors and assigns of the parties. H. Notices. Any notice, consent or approval required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given upon (i) hand delivery, (ii) delivery or refused delivery if deposited with Federal Express or another reliable overnight courier service, (iii) transmission if transmitted by facsimile telecopy (as evidenced by a printed confirmation slip), or (iv) delivery or refused delivery if deposited in the United States mail, registered or certified mail, postage prepaid, return receipt required (as evidenced by the return receipt), and addressed as follows: To Buyer: c/o Divco West Properties, LLC 111 W. St. John Street Suite 1010 San Jose, California 95113 Attention: Mr. David A. Taran Facsimile: (408) 293-9690 Telephone: (408) 293-9600 With Copy To: Orrick, Herrington & Sutcliffe LLP 400 Sansome Street San Francisco, California 94111 Attention: William G. Murray, Esq. Facsimile: (415) 773-5759 Telephone: (415) 773-5802 To Seller: c/o JMB Realty Corporation 900 North Michigan Avenue 12th Floor Chicago, Illinois 60611 Attention: Ms. Andrea Backman Facsimile: (312) 915-2502 Telephone: (312) 915-2367 With Copy To: Pircher, Nichols & Meeks 1999 Avenue of the Stars Suite 2600 Los Angeles, California 90067 Attention: Real Estate Notices (GML) Facsimile: (310) 201-8922 Telephone: (310) 201-8900 I. Legal Costs. The parties hereto agree that they shall pay directly any and all legal costs which they have incurred on their own behalf in the preparation of this Agreement, all deeds and other agreements pertaining to this transaction and that such legal costs shall not be part of the closing costs. In addition, if either Buyer or Seller brings any suit or other proceeding with respect to the subject matter or the enforcement of this Agreement, the prevailing party (as determined by the court, agency or other authority before which such suit or proceeding is commenced), in addition to such other relief as may be awarded, shall be entitled to recover reasonable attorneys' fees, expenses and costs of investigation actually incurred. The foregoing includes, but is not limited to, attorneys' fees, expenses and costs of investigation (including, without limitation, those incurred in appellate proceedings), costs incurred in establishing the right to indemnification, or in any action or participation in, or in connection with, any case or proceeding under Chapter 7, 11 or 13 of the Bankruptcy Code (11 United States Code Sections 101 et seq.), or any successor statutes. J. Counterparts; Facsimile Signatures. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. Each party hereto (i) has agreed to permit the use, from time to time and where appropriate, of telecopied signatures in order to expedite the transaction contemplated by this Agreement, (ii) intends to be bound by its respective telecopied signature, (ii) is aware that the other party will rely on the telecopied signature, and (iv) acknowledges such reliance and waives any defenses to the enforcement of documents and notices effecting the transaction contemplated by this Agreement based on the fact that a signature or notice was sent by telecopy. K. Waiver of Jury Trial and Consent to Venue. To the fullest extent permitted by law, Buyer and Seller hereby waive their respective right to trial by jury in any action, proceeding and/or hearing on any matter whatsoever arising out of, or in any way connected with this Agreement or any matter arising hereunder. Neither party will seek to consolidate any such action in which a jury has been waived, with any other action in which a jury trial cannot or has not been waived. In addition, each party consents to venue and jurisdiction in the Superior Court for the County of Santa Clara or the federal District Court sitting in San Jose. Each party acknowledges that it has received the advice of counsel with respect to this waiver. L. Exhibits. The parties acknowledge that Exhibits to be attached hereto have not yet been finalized and agreed upon. In that connection, the parties agree that they shall endeavor in good faith to finalize and attach such Exhibits as they shall each approve within ten (10) days of the Effective Date. Upon such agreement, the Exhibits shall be a part of and shall be deemed incorporated herein as a part of this Agreement. If the parties are unable to agree on such Exhibits within such ten (10) day period, then this Agreement, and the obligations of the parties to close hereunder, shall thereupon terminate (and the Deposit shall be promptly returned to Buyer). THE SUBMISSION OF THIS AGREEMENT FOR EXAMINATION IS NOT INTENDED TO NOR SHALL CONSTITUTE AN OFFER TO SELL, OR A RESERVATION OF, OR OPTION OR PROPOSAL OF ANY KIND FOR THE PURCHASE OF THE PROPERTY. IN NO EVENT SHALL ANY DRAFT OF THIS AGREEMENT CREATE ANY OBLIGATION OR LIABILITY, IT BEING UNDERSTOOD THAT THIS AGREEMENT SHALL BE EFFECTIVE AND BINDING ONLY WHEN A COUNTERPART HEREOF HAS BEEN EXECUTED AND DELIVERED BY EACH PARTY HERETO TO THE OTHER PARTY. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. SELLER: JMB/SAN JOSE ASSOCIATES, An Illinois limited partnership By: JMB INCOME PROPERTIES, LTD.-XI, an Illinois limited partnership, General Partner By: JMB REALTY CORPORATION, a Delaware corporation, General Partner By: _________________________ Name: _______________________ Title: ________________________ By: JMB INCOME PROPERTIES, LTD.-XII, an Illinois limited partnership, General Partner By: JMB REALTY CORPORATION, a Delaware corporation, General Partner By: _________________________ Name: _______________________ Title: ________________________ BUYER: DIVCO WEST PROPERTIES, LLC, a Delaware limited liability company By: Name: David A. Taran Title: Member ESCROW HOLDER'S ACKNOWLEDGEMENT The undersigned hereby executes this Agreement to evidence its agreement to act as Escrow Holder in accordance with the terms of this Agreement. Effective Date: ________, 1997 CHICAGO TITLE INSURANCE COMPANY, a corporation By:__________________________________ Name: _______________________________ Title: ________________________________ "Escrow Holder" EXHIBIT LIST "A" - Property Description "B" - Intentionally Deleted "C" - Form of Tenant Estoppel Certificate "D" - Deed "E" - Assignment and Assumption Agreement "F" - Exceptions to Seller's Representations and Warranties "G" - Rent Roll "H-1" - Service Agreements "H-2" - Parking Agreements "H-3" - Rooftop Agreements "I" - Environmental Reports "J" - Exception List for Tenant Options EXHIBIT "A" PROPERTY DESCRIPTION All that certain Real Property in the City of San Jose, County of Santa Clara, State of California, described as follows: All of Parcels 2, 3 and 4, as shown upon that certain Map entitled, Parcel Map of a portion of Parcel "A" as shown on record of Survey, recorded in Book 237 of Maps, at Page 24, Santa Clara County Records, which Map was filed for record in the Office of the Recorder of the County of Santa Clara, State of California on November 28, 1983 in Book 520 of Maps, at Pages 39, 40, 41 and 42. EXHIBIT "B" INTENTIONALLY DELETED EXHIBIT "C" FORM OF TENANT ESTOPPEL CERTIFICATE EXHIBIT "D" DEED Recording Requested By and | When Recorded Mail To: | | _____________________________ | ____________________________ | ____________________________ | ____________________________ | Attention: ________________ | | |_____________________________________ APN No.: _________________ DOCUMENTARY TRANSFER TAX - SEE SEPARATE TRANSFER TAX STATEMENT GRANT DEED FOR VALUE RECEIVED, , a ("Grantor"), grants to , a ____________________________________ ("Grantee"), all that certain real property (the "Property") situated in the City of , County of , State of California, and more particularly described in Exhibit A attached hereto and incorporated herein by reference. MAIL TAX STATEMENTS TO: _________________________________ _________________________________ _________________________________ Attention: ________________________ The Property is conveyed to Grantee subject to all matters of record. IN WITNESS WHEREOF, the undersigned has executed this Grant Deed on _______________, 199__. , a __________________ By: Name: Title: EXHIBIT "A" LEGAL DESCRIPTION EXHIBIT "E" ASSIGNMENT AND ASSUMPTION AGREEMENT BILL OF SALE, ASSIGNMENT AND ASSUMPTION ( , ) FOR VALUABLE CONSIDERATION, receipt of which is hereby acknowledged, the undersigned, , a ("Seller"), hereby sells, transfers, assigns and conveys to , a ("Buyer"), the following: 1. Personal Property. All right, title and interest of Seller in and to all personal property owned by Seller and used in connection with the ownership, use, operation or maintenance of the Property described below, including without limitation, those items of tangible personal property described in Exhibit "A" attached hereto and made a part hereof ("Personal Property"), located upon, and used in the operation of, that certain property commonly known as " ", located in the City of , County of , State of (collectively, the "Property"). 2. Leases. All right, title and interest of Seller in and to all leases ("Leases") relating to the Property and described in Exhibit "B" attached hereto. 3. Service Agreements. All right, title and interest of Seller in and to all service agreements ("Service Agreements") relating to the Property, or any part of the same and described in Exhibit "C" attached hereto. 4. Intangible Property. All right, title and interest of Seller, to the extent assignable, in and to the name "Park Center Plaza", Seller's interest in all refundable security deposits and prepaid rent, if any, under the Leases and any and all guaranties, letters of credit or other credit enhancement relating to the Leases), any and all licenses, permits, certificates of occupancy, development rights, plans and specifications, utility contracts and, to the extent approved by Buyer pursuant to this Agreement, all other agreements relating to the ownership, use and operation of the Property (collectively the "Intangible Property"). This Bill of Sale, Assignment and Assumption is given pursuant to that certain purchase agreement captioned "PURCHASE AGREEMENT" dated as of , 199__ (as amended, the "Agreement"), between the Seller and Buyer, providing for, among other things, the assignment of the Personal Property, Leases, Service Agreements and Intangible Property. The covenants, agreements, and limitations (including, but not limited to, the limitations of liability provided in paragraph 9B of the Agreement) provided in the Agreement with respect to the property conveyed hereunder are hereby incorporated herein by this reference as if herein set out in full and shall inure to the benefit of and shall be binding upon Seller and Buyer, and their respective successors and assigns. Said property is conveyed "as is" without warranty or representation, except as expressly provided in (and subject to the limitations of) the Agreement. This Bill of Sale, Assignment and Assumption may be executed in one or more counterparts, each of which shall constitute an original, and all of which, when taken together, shall constitute one and the same instrument. Buyer hereby accepts the foregoing assignment of Personal Property, Leases, Service Agreements and Intangible Property assigned hereby and agrees to assume and discharge, in accordance with the terms thereof, all of the burdens and obligations of Seller thereunder, to the extent the same arise from and after the date hereof. Seller shall continue to be responsible for all burdens and obligations of Seller under the Personal Property, Leases, Service Agreements and Intangible Property for the period prior to the date hereof and Buyer shall have no liability therefor. DATED: As of ________, 199__ SELLER: a By: Name: Title: BUYER: a By: Name: Title: EXHIBIT "F" EXCEPTIONS TO SELLER'S REPRESENTATIONS AND WARRANTIES NONE. EXHIBIT "G" RENT ROLL Mitsui Manufacturers Bank Lease Dated September 1983 First Amendment Dated February 13, 1985 Consent to Sublease Dated October 15, 1990 Sublease Dated October 9, 1990 Consent to Sublease Dated February 12, 1996 Sublease Dated February 12, 1996 Letter Agreement Dated February 12, 1996 First Amendment to Sublease Agreement Dated June 4, 1997 Second Amendment to Sublease Agreement Dated June 17, 1997 Consent to Modification of Sublease Agreement Dated June 17, 1997 Price Waterhouse LLP Lease Dated July 31, 1984 Amendment Dated March 1, 1985 (unexecuted) Amendment Dated March 12, 1986 Storage Agreement Dated October 1, 1988 Lease Extension Dated February 10, 1993 Subordination, Nondisturbance and Attornment Agreement Dated April, 1993 Tenant Expansion Dated September 30, 1994 Tenant Expansion Dated July 20, 1995 Tenant Expansion Dated October 25, 1995 Tenant Expansion Dated February 19, 1997 The Stephenz Group Lease Dated November 28, 1995 Subordination, Nondisturbance and Attornment Agreement Dated November 28, 1995 Grant Thornton LLP f/k/a Alexander Grant and Company Lease Dated November 9, 1984 First Amendment to Office Lease Dated February 10, 1986 Lease Extension Agreement Dated December 29, 1994 Subordination, Nondisturbance and Attornment Agreement Dated February 22, 1995 Tenant Expansion Agreement Dated October 31, 1995 Neuronetics Corporation Inc. (Suites 750, 760 and 1380) Lease Dated May 22, 1996 Tenant Expansion Agreement Dated September 11, 1997 Browning Ferris Industries of California, Inc. Suites 800/900 Lease Dated December 16, 1988 Addendum to Office Lease Dated December 16, 1988 Amendment No. 1 to Office Lease Dated December 16, 1988 Subordination, Nondisturbance and Attornment Agreement Dated December 31, 1988 Amendment No. 2 to Office Lease and Amendment No. 1 to Work Agreement Dated April 3, 1989 Office Sublease Dated December 16, 1994 Consent to Sublease Dated December 20, 1994 Suites 850 Lease Dated December 16, 1988 Addendum to Office Lease Dated December 16, 1988 Amendment No. 1 to Office Lease Dated December 16, 1988 Subordination, Nondisturbance and Attornment Agreement Dated December 31, 1988 Office Sublease Dated December 16, 1994 Consent to Sublease Dated December 20, 1994 TCSI Corporation Lease Agreement Dated January 31, 1996 People.Com Consultants, Inc. Lease Dated January 11, 1996 Expansion and Extension Agreement Dated December 6, 1996 PR Newswire Association, Inc. Lease Dated November 11, 1988 Lease Extension Agreement Dated November 16, 1993 Lease Extension Agreement Dated March 14, 1997 ITJ America, Inc. Lease Dated October 13, 1997 Michael P. Groom, Thomas R. Cave, Michael P. Groom as Trustee and Linda P. Cave a/k/a Groom and Cave Lease Dated May 10, 1988 Short Form Lease Dated May 27, 1988 Addendum to Office Lease Dated July 31, 1987 Relocation Agreement Dated February 16, 1995 The Golden 1 Credit Union Lease Dated January 18, 1996 Lease Extension Agreement Dated November 26, 1996 Asahi Shimbun America, Inc. Lease Dated November 22, 1996 Valley Credit Union Lease Dated September 21, 1990 Lease Extension Agreement Dated January 22, 1996 Kaplan Educational Centers, Inc. f/k/a Stanley H. Kaplan Educational Center, Ltd. Lease Dated August 16, 1990 Term Commencement Agreement Dated March 13, 1991 Haworth, Inc. Lease Dated June 1, 1989 Lease Extension Agreement Dated August 10, 1994 Lease Extension Agreement Dated August 9, 1996 Landmark Education Corporation Lease Dated September 8, 1997 Ghassan and Suhair Joudy d/b/a O' Deli Lease Dated May 15, 1989 Lease Amendment Dated April 1, 1993 Assignment of Lease Dated May 15, 1993 Pacific Bell Directory Lease Dated June 17, 1991 Lease Extension and Amendment Dated January 19, 1996 Term Commencement Agreement Dated March 27, 1996 Frequency Technology, Inc. Lease Dated December 23, 1996 C&H Travel and Tours, Inc. Lease Dated February 7, 1997 Heritage Bank Of Commerce Lease Dated October 9, 1996 (Suite 110) Subordination, Nondisturbance and Attornment Agreement Dated October 9, 1996 (Suite 110) Lease Dated March 18, 1997 (Suite 430) Lease Dated November 18, 1997 (Suite 300) De Leuw, Cather & Company Lease Dated March 16, 1989 Letter Agreement Dated May 16, 1989 Tenant Expansion Agreement Dated September 19, 1990 Assignment of Lease Dated July 18, 1995 Tenant Expansion Agreement Dated November 16, 1995 Lease Extension Agreement Dated July 29, 1996 Tenant Expansion Agreement Dated March 19, 1997 Extension and Space Reduction Agreement Dated June 12, 1995 Costantini, Dana & Immer, an accountancy corp. a/k/a Bondi & Danna Lease Dated January 20, 1989 Lease Expansion/Extension Dated January 11, 1993 Westin Engineering, Inc. Lease Dated June 15, 1990 Term Commencement Agreement Dated November 29, 1990 Lease Extension Agreement Dated April 5, 1995 Letter Regarding Expansion Rights Dated September 11, 1995 Rollins Hudig Hall Of Northern California/Aon Risk Services, Inc. Lease Dated April 11, 1995 Lease Termination Notice Dated November 17, 1997 Steven R. Manchester Incorporated & John L. Williams Incorporated Lease Dated June 15, 1990 Lease Extension Agreement Dated April 19, 1995 Letter Agreement Regarding Base Rent Abatement (undated) Ann B. Rundquist and J. Rudy Hale, individuals Lease Dated July 27, 1992 Relocation Agreement Lease Dated February 7, 1994 Tenant Expansion Agreement Dated May 24, 1994 Lease Extension Agreement Dated February 19, 1997 Assignment of Lease Dated October 13, 1995 Advanced Systems Control, Inc. Lease Dated October 8, 1996 Lease Extension Agreement Dated October 10, 1997 Caspr Library Systems Inc. Lease Dated December 7, 1995 The County Of Santa Clara Lease Dated November 13, 1989 Amendment Dated December 4, 1990 Expansion Agreement Dated March 8, 1994 Expansion Agreement Dated November 16, 1994 Amendment Dated May 23, 1995 City Year, Inc. Lease Dated May 5, 1994 Lease Extension Dated August 22, 1994 Tar Chair, Maykir Yen, Ted S. Lam and Tiffany M. Lam as assignee of PBRB Inc. d/b/a Caffe Dolce Lease Dated December 18, 1995 Assignment of Lease Dated March 21, 1996 Federal Express Corporation Lease Dated November 15, 1993 Amendment Dated March 14, 1995 TKW Enterprises Inc. d/b/a Yeung's Sung Yuan Restaurant Lease Dated June 27, 1994 Tam Enterprises Inc. d/b/a Sir Speedy Printing Center Lease Dated February 28, 1994 Team Ravioli's, Inc. Lease Dated March 30, 1992 Lease Amendment Dated June 24, 1992 Manpower, Inc./California Peninsula Lease Dated April 17, 1991 Lease Extension Agreement Dated March 5, 1996 Scott's San Jose d/b/a Scott's Seafood Restaurant Lease Dated October 17, 1985 Amendment No. 1 Dated September 15, 1992 Imwalle Stegner Lease Dated October 22, 1990 Lease Extension Agreement Dated February 8, 1996 Lease Extension Agreement Dated February 27, 1997 Biagini Properties, Inc. Lease Dated January 8, 1992 Lease Extension Agreement Dated June 10, 1997 Sublease Dated July 10, 1997 Comms People, Inc. Lease Dated May 28, 1997 Scott P. Feldman, O.D. Lease Dated April 11, 1989 Letter Agreement Regarding Partial Base Rent Abatement Dated May 11, 1989 Lease Extension Agreement Dated August 24, 1995 Oracle Corporation Lease Dated September 12, 1997 EXHIBIT "H(1)" SERVICE AGREEMENTS Diversified Fire Products_MTM Browning Ferris Industries of California, Inc._MTM Four Seasons Landscape and Maintenance, Inc._MTM Johnson Controls, Inc._MTM Montgomery KONE, Inc._06/30/00 Service By Medallion, Inc._06/30/98 Plantscaping_12/31/98 The Asset Assurance Co._MTM Valley Building Maintenance_MTM Xerox Corporation _06/30/02 Terminix Commercial_MTM Pitney Bowes Fax_07/23/99 Protection Service Industries (Fire monitoring, 185 Building)_03/19/98 Diversified Fire Products (Fire Monitoring, 100 Park Center Plaza, 150 Almaden and 190 Park Center Plaza)_MTM Diversified Fire Products (Fire Monitoring 130 Park Center Plaza)_12/17/98 EXHIBIT "H(2)" PARKING AGREEMENTS Agreements Date of Agreements - ---------- ------------------ Grant of Reciprocal Easement and Agreement for Maintenance September 22, 1970 Grant of Easements September 29, 1970 Agreement for Apportionment of Parking Revenue and Expense March 1, 1972 Parking Agreement November 22, 1972 Settlement Agreement February 14, 1973 Lease of Parking Spaces February 28, 1973 Lease of Parking Spaces Parcel C Parking Garage February 28, 1973 Grant of Easement October 22, 1973 Joinder in Grant of Reciprocal Easement and Agreement for Maintenance October 22, 1973 Amendment of Lease of Parking Spaces December 15, 1973 Assignment Agreement December 15, 1973 Declaration of Covenants June 10, 1974 Grant of Avigation Easement November 12, 1985 Joinder in Grant of Reciprocal Easement and Agreement for Maintenance August 6, 1976 Parcel Map with Certification of the Real Property Owners October 17, 1983 Grant of Easement December 14, 1983 Agreement Among Partners of Park Center Plaza Parcel C March 26, 1985 Parking Garage, Park Center Plaza- The Bank of California Building, Almaden-San Fernando Partnership Agreement Among Partners of New Almaden Associates March 26, 1985 EXHIBIT "H(2)" PARKING AGREEMENTS Parking Agreement between JMB/San Jose Associates, an Illinois general partnership and New Almaden Associates, a California General Partnership recorded June 20, 1985 in Book J377, page 1946, Official Records. Supplemental Parking Agreement between JMB/San Jose Associates, an Illinois general partnership, and New Almaden Associates. Public Parking Covenant and Easement by JMB/San Jose Associates, an Illinois general partnership, recorded October 23, 1985 in Book J494, page 1602, Official Records. Parking Agreement between Seller and Principal Mutual Life Insurance Company (undated). Parking Agreement among Park Center Plaza, Wells Fargo Bank and Wolff- Sesnon-Buttery dated August 26, 1985, as amended by First Amendment to Lease between Wells Fargo Bank and Seller dated October 27, 1997. Parking Sublease between Redevelopment Agency of the City of San Jose ("Redevelopment Agency") and Seller dated March 19, 1996, as amended by First Amendment to Parking Sublease between Redevelopment Agency and Seller dated October 27, 1997. Parcel 2 Public Parking Covenant and Easement between New Almaden Associates and Redevelopment Agency recorded October 23, 1985 as Instrument No. 8566697, as amended by First Amendment to Parcel 2 Public Parking Covenant and Agreement between Seller and Redevelopment Agency dated October 27, 1997, recorded on October 31, 1997, as Instrument No. 13919902. Parcel 1, 3 and 4 Public Parking Covenant and Easement between Seller and Redevelopment Agency, recorded October 23, 1985, as Instrument No. 8566696, as amended by First Amendment to Parcels 1, 3 and 4 Public Parking Covenant and Easement recorded on October 31, 1997, as Instrument No. 13919903. Lease of Parking Spaces between Seller and ALTA Broadcasting Company dated March 19, 1996. Parking Lease between West Park Center Plaza and United California Bank dated January 15, 1972, as amended by agreement dated June 1, 1981. Reciprocal Easement Agreement between Seller and ALTA intended to be recorded immediately prior to closing. EXHIBIT "H(3)" ROOFTOP AGREEMENTS Asahi Shimbun America, Inc. Roof License Agreement Dated August 13, 1997 (150 Almaden) Destineer Corporation Roof License Agreement Dated March 18, 1994 Addendum to Roof License (undated) Lease Amendment Dated September 15, 1994 Lease Extension Agreement Dated September 11, 1997 GTE Mobilnet of California Roof License Agreement Dated April 1, 1990 Roof License Amendment Dated March 25, 1992 License Extension Agreement Dated March 1, 1995 GWcom Roof License Agreement Dated November 7, 1997 EXHIBIT "I" ENVIRONMENTAL REPORTS Law Engineering Testing Company - August 13, 1987 Health Science Associates - June 1, 1989 Blasland, Bouck & Lee, Inc. - August 1994 Cygna Consulting Engineers (Building 100) - September 17, 1992 Cygna Consulting Engineers (Building 102-130) - September 17, 1992 Nabih Youssef & Associates - September 1992 Marx/Okubo & Associates - September 7, 1994 Nabih Youssef & Associates - February 1995 Nabih Youssef & Associates - January 12, 1998 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 held title to Royal Executive Park II prior to its sale in December 1997. Reference is made to 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 of JMB Realty Corporation, the managing 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 officers a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1997, 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 30th day of January, 1998. H. RIGEL BARBER - ----------------------- H. Rigel Barber Chief Executive Officer 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 officers, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1997, and any and all amendments thereto, the 30th day of January, 1998. 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 of JMB Realty Corporation, the managing 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 officers a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1997, 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 30th day of January, 1998. NEIL G. BLUHM - ----------------------- President and Director Neil G. Bluhm JUDD D. MALKIN - ----------------------- Chairman and Chief Financial Officer Judd D. Malkin A. LEE SACKS - ----------------------- Director of General Partner A. Lee Sacks STUART C. NATHAN - ----------------------- Executive Vice President Stuart C. Nathan 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 officers, a Report on Form 10-K of said partnership for the fiscal year ended December 31, 1997, and any and all amendments thereto, the 30th day of January, 1998. 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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN SUCH REPORT. 12-MOS DEC-31-1997 DEC-31-1997 42,298,264 0 3,812,450 0 0 46,110,714 60,929,336 0 118,582,025 1,610,049 33,820,205 0 0 0 83,063,638 118,582,025 13,500,646 14,218,708 0 10,262,970 631,592 0 2,897,399 5,750,839 0 5,750,839 0 13,349,139 0 19,099,978 108.05 108.05
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