-----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, KOK19buU6um7CcY6LGgijHhkII9OEl2f3bo+Gd1Xcj9kjG7tXJVoaBbScHzoriFk 8eVtZM9NHKKh8dcwd/PVDQ== 0000892626-98-000163.txt : 19980401 0000892626-98-000163.hdr.sgml : 19980401 ACCESSION NUMBER: 0000892626-98-000163 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JMB INCOME PROPERTIES LTD XII CENTRAL INDEX KEY: 0000765813 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 363337796 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-16108 FILM NUMBER: 98580756 BUSINESS ADDRESS: STREET 1: C/O JMB REALTY CORP STREET 2: 900 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3129151987 MAIL ADDRESS: STREET 1: C/O JMB REALTY CORP STREET 2: 900 N MICHIGAN 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. 0-16108 JMB INCOME PROPERTIES, LTD. - XII (Exact name of registrant as specified in its charter) Illinois 36-3337796 (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 . . . . . . . . . . . . . . . . . 5 Item 3. Legal Proceedings. . . . . . . . . . . . . . 7 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . 7 PART II Item 5. Market for the Partnership's Limited Partnership Interests and Related Security Holder Matters. . . . . . . 7 Item 6. Selected Financial Data. . . . . . . . . . . 8 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . . . . 12 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . 17 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . 18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . 58 PART III Item 10. Directors and Executive Officers of the Partnership . . . . . . . . . . . . . 58 Item 11. Executive Compensation . . . . . . . . . . . 61 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . 62 Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . 63 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. . . . . . . . . . . 63 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . 66 i PART I ITEM 1. BUSINESS All references to "Notes" are to Notes to Consolidated 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. - XII (the "Partnership"), is a limited partnership formed in 1984 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. On August 23, 1985, the Partnership commenced an offering to the public of $100,000,000 (subject to increase by up to $150,000,000) in Limited Partnership Interests (the "Interests") pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933 (Registration No. 2-96716). A total of 189,679 Interests were sold to the public at $1,000 per Interest. The offering closed on January 17, 1986. No Investor has made any additional capital contribution after such date. The Investors in the Partnership share in their portion of 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 of 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, 2035. The Partnership is self-liquidating in nature. Upon 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 SIZE PURCHASE CAPITAL PERCENTAGE (a) TYPE OF OWNERSHIP - ---------------------- ---------- -------- ---------------------- --------------------- 1. Park Center Financial Plaza office buildings San Jose, California. . . . . 408,000 06/20/85 27% fee ownership of land and sq.ft. improvements (through n.r.a. joint venture partnership) (c)(g)(i) 2. Topanga Plaza shopping center Los Angeles, California. . . . . 360,000 12/31/85 20% fee ownership of land and sq.ft. improvements (through g.l.a. joint venture partnership) (b)(c)(d)(e) 3. 40 Broad Street office building New York, New York. 247,800 12/31/85 12/30/97 fee ownership of land and sq.ft. improvements (through joint n.r.a. venture partnership) (c)(f) 4. Plaza Hermosa Shopping Center Hermosa Beach, California. . . . . 94,900 09/03/86 8% fee ownership of land and sq.ft. improvements (b)(d)(h) g.l.a. 5. Mid Rivers Mall shopping center St. Peters (St. Louis), Missouri. . . . . . 323,100 12/12/86 1/30/92 fee ownership of land and sq.ft. improvements (through g.l.a. joint venture partnership) 6. First Financial Plaza office building Encino, California. . . . . 216,000 05/20/87 9/11/96 fee ownership of land and sq.ft. improvements (through joint n.r.a. 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 to Schedule III filed with this annual report for the current outstanding principal balances 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) The joint venture sold this property. Reference is made to the Notes for a further description of such sale. (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 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 Partnership sold this property on January 13, 1998. Reference is made to the Notes for a description of the sale. (i) 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 vicinity in which it is located. Such competition is generally for the retention of existing tenants. Additionally, the Partnership is in competition for new tenants. Reference is made to Item 7 below for a discussion of possible future renovation and capital improvement plans of the Partnership and its consolidated venture. 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 is adequately insured. Although there is earthquake insurance coverage for a portion of the value of the Partnership's remaining investment property, the Managing General Partner does not believe that such coverage for its entire replacement cost is available on economic terms. In January 1994, an earthquake occurred in Los Angeles, California. The costs at Topanga for which the joint venture was responsible were approximately $11.9 million. The majority of this cost was recovered under the final settlement, reached in the third quarter of 1995, with the joint venture's earthquake insurance provider. Additional business interruption insurance proceeds were also received. Reference is made to Item 7 and to the Notes for further description of such event. 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 30, 1997, the Partnership, through its joint venture, sold the 40 Broad Street office building located in New York, New York. Reference is made to the Notes for a further description of such transaction. On January 13, 1998, the Partnership sold the land and related improvements of the Plaza Hermosa Shopping Center located in Hermosa Beach, California. 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 assets 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 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 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 (a). . . . . . . . . . . Accounting/ Telecommunications 85% 85% 87% 85% 86% 87% 87% 90% 2. Topanga Plaza Shopping Center Los Angeles, California . . . . . . . Retail 98% 94% 98% 98% 97% 98% 98% 98% 3. 40 Broad Street New York, New York . . . Insurance/ Financial Services 75% 78% 81% 74% 82% 90% 88% N/A 4. Plaza Hermosa Shopping Center Hermosa Beach, California (b) . . . . . Retail 95% 93% 92% 91% 91% 91% 91% 91% - ---------- 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 not owned by the Partnership at the end of the quarter. (a) Portions of this property were sold in March 1996. The percentages reflected in the table as of the respective dates are compared on the basis of the remaining portion of the complex owned by the Partnership. In addition, the remaining portion of the property was sold in February 1998. Reference is made to the Notes for a more complete description of these transactions. (b) This property was sold by the Partnership in January 1998 as more fully described in the Notes.
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 holders of Interests during 1996 and 1997. PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS As of December 31, 1997, there were 14,562 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 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 requirements 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 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 to 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. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES YEARS ENDED DECEMBER 31, 1997, 1996, 1995, 1994 AND 1993 (NOT COVERED BY INDEPENDENT AUDITORS' REPORT)
1997 1996 1995 1994 1993 ------------- ------------- ----------- ------------ ------------ Total income, includ- ing gain on sale or disposition of investment property in 1997 and 1996 . . . . $ 48,208,830 32,521,866 33,940,506 31,152,216 30,055,775 ============ ============ =========== =========== =========== Earnings (loss) before extra- ordinary item. . . . . . $ 21,259,326 5,928,741 (1,635,175) (2,235,341) (6,037,978) Extraordinary items (net of venture partners' share) . . . . 393,705 -- -- (2,300,838) -- ------------ ------------ ----------- ----------- ----------- Net earnings (loss) . . . $ 21,653,031 5,928,741 (1,635,175) (4,536,179) (6,037,978) ============ ============ =========== =========== =========== 1997 1996 1995 1994 1993 ------------- ------------- ----------- ------------ ------------ Net earnings (loss) per Interest (b): Earnings (loss) before gains on sales of investment properties and extraordinary item. . $ 36.35 14.70 (9.15) (12.41) (31.79) Net gain on sale or disposition of investment property . 73.47 15.78 -- -- -- Extraordinary items, net . . . . . . . . . 1.99 -- -- (11.65) -- ------------ ------------ ----------- ----------- ----------- Net earnings (loss) per Interest (b). . . $ 111.81 30.48 (9.15) (24.06) (31.79) ============ ============ =========== =========== =========== Total assets. . . . . . . $160,776,991 138,673,945 178,508,742 189,322,387 195,051,570 Long-term debt. . . . . . $ 63,123,525 63,630,727 88,670,160 64,470,886 87,612,869 Cash distributions per Interest (c). . . . $ 30.00 79.50 15.00 10.00 12.50 ============ ============ =========== =========== =========== - ------------- (a) The above selected financial data should be read in conjunction with the consolidated 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 each period (189,684). (c) Cash distributions from the Partnership are generally not equal to Partnership's 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 - -------- Topanga Plaza Shopping Center 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 . . . . . 94% $21.13 1994 . . . . . 95% 24.84 1995 . . . . . 98% 24.93 1996 . . . . . 98% 28.03 1997 . . . . . 98% 33.41 (1) Average base rent per square foot is based on GLA occupied as of December 31 of each year.
Base Rent Scheduled Lease Lease b) Significant Tenants Square Feet Per Annum Expiration Date Renewal Option(s) ------------------- ----------- --------- --------------- ----------------- None - no single tenant represents more than 10% of the total gross leasable area at the property.
c) The following table sets forth certain information with respect to the expiration of leases for the next ten years at the Topanga Plaza Shopping Center: 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 2 3,536 83,708 0.7% 1999 7 13,918 359,150 3.0% 2000 11 17,237 519,716 4.4% 2001 7 7,081 423,160 3.6% 2002 12 22,286 796,806 6.8% 2003 12 33,340 756,766 6.4% 2004 15 37,350 1,030,456 8.7% 2005 21 67,743 1,899,497 16.1% 2006 20 62,931 1,963,585 16.7% 2007 8 21,780 826,953 7.0% (1) Excludes leases that expire in 1998 for which renewal leases or leases with replacement tenants have been executed as of January 28, 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 as described in Item 1, the Partnership had approximately $171,306,000, after deducting selling expenses and other offering costs, with which to make investments in income-producing commercial real property, to pay legal fees and other costs (including acquisition fees) related to such investments and for working capital reserves. 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 $150 and $475 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 have expired. As of the date of this report, the Partnership is aware that 5.79% of the Interests have been purchased by such unaffiliated third parties either pursuant to such tender offers or through negotiated purchases. 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 any additional potential tender offers for Interests. At December 31, 1997, the Partnership had consolidated cash and cash equivalents of approximately $54,581,000, of which approximately $16,944,000 is held by the Partnership. The remaining $37,637,000 is held by the Partnership's consolidated joint ventures, of which approximately $25,505,000 represents the Partnership's share of undistributed sale proceeds from the sale of the 40 Broad Street office building in December 1997, which were subsequently received by the Partnership in January 1998, and cash flow from operations. These funds are available for distributions to partners, potential obligations related to representations and warranties given pursuant to the sale of the 40 Broad Street office building, tenant and capital improvements, leasing commissions, and other expenditures, including the Partnership's share of the costs associated with a possible expansion and mall enhancement, including a possible purchase of the Montgomery Ward parcel, at the Topanga Plaza Shopping Center. The Partnership and its consolidated venture has currently budgeted in 1998 approximately $1,088,000 for tenant improvements and other capital expenditures, excluding the possible expansion and mall enhancement at Topanga and purchase of the Ward store, of which the Partnership's share is currently budgeted to be approximately $631,000. 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. Additionally, as more fully described in the Notes, distributions to the General Partners have been deferred in accordance with the subordination requirements of the partnership agreement. The source of capital for such items and for both short-term and long-term future liquidity and distributions is expected to be through cash generated by the Partnership's remaining investment properties and through the sale of such investments. In such regard, reference is made to the Partnership's property specific discussions below and also to the Partnership's disclosure of certain property lease expirations in Item 6 above. 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. 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 $953,162 ($5 per Interest) for the first and second quarters of 1997 to the Limited Partners. In November 1997, the Partnership paid a special operating distribution of $3,812,648 ($20 per Interest) and an operating distribution of $953,162 ($5 per Interest) representing cash flow from operations for the third and fourth quarters of 1997. In February 1998, the Partnership made a distribution of sale proceeds primarily related to the sale of the 40 Broad Street office building of $22,875,888 ($120 per Interest) to the Limited Partners. 40 BROAD STREET JMB-40 Broad Street Associates ("Broad Street") had committed to a plan to sell the property, and therefore, had classified the property as held for sale as of July 1, 1997. The property was no longer subject to continued depreciation beyond such date. On December 30, 1997, the joint venture sold the 40 Broad Street office building for $34,735,000 (before selling costs). The joint venture received approximately $33,155,000 of sale proceeds at closing, of which the Partnership's share was approximately $22,731,000 which was subsequently received in January 1998. Reference is made to the Notes for a further description of such sale. 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. TOPANGA PLAZA SHOPPING CENTER Occupancy at the Topanga Plaza Shopping Center at December 31, 1997 was approximately 98%. The Topanga venture had committed to a plan to sell the property and therefore had classified the property as held for sale as of December 31, 1996. The property has no longer been subject to continued depreciation beyond such date. The Partnership is continuing its discussion with its joint venture partner to sell its interest in the joint venture to the joint venture partner. There can be no assurance that any agreement will be reached in this regard. PLAZA HERMOSA SHOPPING CENTER The property was classified as held for sale or disposition as of December 1, 1996 and therefore was not subject to continued depreciation. On January 13, 1998, the Partnership sold the land and related improvements of the Plaza Hermosa Shopping Center for $13,335,000. The Partnership received approximately $6,400,000 of net sale proceeds at closing (after the repayment by the Partnership of the letter of credit secured by the property to support the underlying bond financing with a balance of approximately $6,480,000 and closing costs). Reference is made to the Notes for a further description of such transaction. GENERAL 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. 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 the property's 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. In such regard, the Partnership's remaining investment property has been classified as held for sale as discussed above. Therefore, the affairs of the Partnership are expected to be wound up no later than December 31, 1999, perhaps in the 1998 timeframe, barring unforeseen economic developments. RESULTS OF OPERATIONS Significant variances between periods reflected in the accompanying consolidated financial statements not otherwise reported are primarily the result of the sales of the First Financial Plaza office building and the 40 Broad Street office building in September 1996 and December 1997, respectively. The decrease in escrow deposits at December 31, 1997 as compared to December 31, 1996 is primarily due to the release from escrow of approximately $300,000 in December 1997 by the letter of credit holder at the Plaza Hermosa investment property in anticipation of the sale of the property. The decrease in accounts payable at December 31, 1997 as compared to December 31, 1996, and the related extraordinary gain for the year ended December 31, 1997, is primarily due to the reversal of $678,801 (of which the Partnership's share is $393,705) in accrued costs related to earthquake damage in 1994 at the Topanga Plaza investment property, as more fully discussed in the Notes. The decrease is also partially due to the sale of the 40 Broad Street office building in December 1997. The decrease in unearned rents at December 31, 1997 as compared to December 31, 1996 is primarily due to the timing of rental receipts at the Topanga Plaza investment property. The decrease in rental income for the year ended December 31, 1997 as compared to the year ended December 31, 1996 and for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to the sale of the First Financial Plaza office building in September 1996. The decrease for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is partially offset by the receipt of proceeds totaling approximately $312,000 during 1997 from The Broadway and Nordstrom, relating to their share of prorata expenses and costs for repairs and restorations at the Topanga Plaza Shopping Center following the earthquake in early 1994. The decrease in rental income for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is also partially due to the receipt of insurance proceeds of approximately $3,200,000, in the third quarter of 1995, relating to business interruption at the Topanga Plaza Shopping Center following the earthquake in early 1994. Furthermore, the decrease in rental income for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is partially offset by the receipt of proceeds totaling approximately $513,000, in the second quarter of 1996, from Robinson-May and Montgomery Ward, relating to their pro rata share of expenses and costs for repairs and restorations at the Topanga Plaza Shopping Center following the earthquake in early 1994. The decrease in mortgage and other interest for the year ended December 31, 1997 as compared to the years ended December 31, 1996 and 1995 is primarily due to the sale of the First Financial Plaza office building in September 1996 and the $4,000,000 loan paydown at the First Financial Plaza in 1995. The decrease in depreciation expense for the year ended December 31, 1997 as compared to the years ended December 31, 1996 and 1995 is primarily due to the First Financial Plaza office building being classified as held for sale as of April 1, 1996, the Topanga Plaza and Plaza Hermosa investment properties being identified as held for sale or disposition as of December 31, 1996, and the 40 Broad Street investment property being identified as held for sale or disposition as of July 1, 1997, and therefore, no longer subject to depreciation beyond such dates. The increase in general and administrative expenses for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily attributable to an increase in reimbursable costs to affiliates of the General Partners in 1997. The decrease in general and administrative expenses for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily attributable to an increase in reimbursable costs to affiliates of the General Partners in 1995 including the recognition of certain additional prior year reimbursable costs to such affiliates. The provision for value impairment for the year ended December 31, 1995 is due to the Partnership recording a provision for value impairment of $5,500,000 at the Plaza Hermosa investment property at September 30, 1995. The increase in 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 an increase in earnings of the San Jose venture due to the San Jose properties being identified as held for sale or disposition as of December 31, 1996, and therefore, no longer subject to depreciation beyond such date. The decrease in 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 sale of the 190 San Fernando building and one of the parking structures at the San Jose investment property in 1996, partially offset by the write-off of receivables in 1995 related to a certain tenant at the San Jose investment property. The Partnership's share of gain on sale of investment properties of unconsolidated venture of $1,412,610 in 1996 relates to the sale of the 190 San Fernando building and one of the parking structures at the San Jose investment property. The increase in venture partners' share of consolidated ventures' operations before extraordinary item for the year ended December 31, 1997 as compared to the year ended December 31, 1996 is primarily due to the Topanga Plaza and 40 Broad Street investment properties being identified as held for sale or disposition as of December 31, 1996 and July 1, 1997, respectively, and therefore, no longer subject to depreciation beyond such dates. In addition, the increase is also due to a reduction in assessed real estate taxes for 1997 at the 40 Broad Street investment property. However, this increase is partially offset by the sale of the First Financial Plaza office building in September 1996. The decrease in venture partners' share of consolidated ventures' operations before extraordinary item for the year ended December 31, 1996 as compared to the year ended December 31, 1995 is primarily due to the sale of the First Financial Plaza office building in September 1996. The venture partner's share of gain on sale of investment property of $6,455,513 in 1997 is the gain on the sale of the 40 Broad Street investment property in December 1997. The venture partner's share of gain on sale of investment property of $1,270,596 in 1996 is the gain on the sale of the First Financial Plaza investment property in September 1996. 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 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 Partnership'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. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES INDEX Independent Auditors' Report Consolidated Balance Sheets, December 31, 1997 and 1996 Consolidated Statements of Operations, years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Partners' Capital Accounts, years ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows, years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Schedule -------- Consolidated 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 as the information is presented in the consolidated 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 consolidated financial statements or related notes. INDEPENDENT AUDITORS' REPORT The Partners JMB INCOME PROPERTIES, LTD. - XII: We have audited the consolidated financial statements of JMB Income Properties, Ltd. - XII (a limited partnership) and consolidated ventures as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated 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 consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of JMB Income Properties, Ltd. - XII and consolidated ventures at December 31, 1997 and 1996, and the results of their operations and their 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 consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in the Notes to the consolidated financial statements, in 1996, the Partnership and its consolidated ventures changed their 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. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSETS ------
1997 1996 ------------ ----------- Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 54,580,706 22,821,808 Rents and other receivables, net of allowance for doubtful accounts of $25,880 in 1997 and $255,866 in 1996. . . . . . . . . . . . . . . . . . . . . . . . . 217,745 774,707 Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 179,879 282,111 Escrow deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 878,669 1,053,916 ------------ ----------- Total current assets. . . . . . . . . . . . . . . . . . . . 55,856,999 24,932,542 ------------ ----------- Investment properties - Schedule III: Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,765,194 Buildings and improvements. . . . . . . . . . . . . . . . . . . . . -- 22,602,302 ------------ ----------- -- 24,367,496 Less accumulated depreciation . . . . . . . . . . . . . . . . . . . -- 14,873,703 ------------ ----------- Total properties held for investment, net of accumulated depreciation . . . . . . . . . . . . . -- 9,493,793 Properties held for sale or disposition . . . . . . . . . . . . . . 91,675,837 90,811,933 ------------ ----------- Total investment properties . . . . . . . . . . . . . . . . 91,675,837 100,305,726 Investment in unconsolidated ventures, at equity. . . . . . . . . . . 6,353,682 4,848,158 Deferred expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,125 6,491,467 Accrued rents receivable. . . . . . . . . . . . . . . . . . . . . . . 1,890,348 2,096,052 ------------ ----------- $160,776,991 138,673,945 ============ =========== JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED BALANCE SHEETS - CONTINUED LIABILITIES AND PARTNERS' CAPITAL ACCOUNTS ------------------------------------------ 1997 1996 ------------ ----------- Current liabilities: Current portion of long-term debt . . . . . . . . . . . . . . . . . $ 507,202 458,557 Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . 533,374 1,601,488 Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . 482,884 503,951 Unearned rents. . . . . . . . . . . . . . . . . . . . . . . . . . . 272,481 595,723 ------------ ----------- Total current liabilities . . . . . . . . . . . . . . . . . 1,795,941 3,159,719 Tenant security deposits. . . . . . . . . . . . . . . . . . . . . . . 147,624 200,990 Long-term debt, less current portion. . . . . . . . . . . . . . . . . 63,123,525 63,630,727 ------------ ----------- Commitments and contingencies Total liabilities . . . . . . . . . . . . . . . . . . . . . 65,067,090 66,991,436 Venture partners' subordinated equity in ventures . . . . . . . . . . 25,015,702 16,922,369 Partners' capital accounts: General partners: Capital contributions . . . . . . . . . . . . . . . . . . . . . 11,123 11,123 Cumulative net earnings . . . . . . . . . . . . . . . . . . . . 1,359,410 915,607 ------------ ----------- 1,370,533 926,730 ------------ ----------- Limited partners (189,684 interests): Capital contributions, net of offering costs. . . . . . . . . . 171,306,452 171,306,452 Cumulative net loss . . . . . . . . . . . . . . . . . . . . . . (3,091,192) (24,300,420) Cumulative cash distributions . . . . . . . . . . . . . . . . . (98,891,594) (93,172,622) ------------ ----------- 69,323,666 53,833,410 ------------ ----------- Total partners' capital accounts. . . . . . . . . . . . . . 70,694,199 54,760,140 ------------ ----------- $160,776,991 138,673,945 ============ =========== See accompanying notes to consolidated financial statements.
JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ------------ ------------ ------------ Income: Rental income . . . . . . . . . . . . . . . . . . $26,345,595 28,415,164 32,608,714 Interest income . . . . . . . . . . . . . . . . . 1,330,433 1,224,129 1,331,792 Gain on sale of investment property . . . . . . . 20,532,802 2,882,573 -- ----------- ----------- ----------- 48,208,830 32,521,866 33,940,506 ----------- ----------- ----------- Expenses: Mortgage and other interest . . . . . . . . . . . 6,108,328 7,665,413 8,991,027 Depreciation. . . . . . . . . . . . . . . . . . . 328,493 4,625,655 5,598,646 Property operating expenses . . . . . . . . . . . 10,106,333 12,174,612 12,602,194 Professional services . . . . . . . . . . . . . . 280,273 307,504 333,970 Amortization of deferred expenses . . . . . . . . 1,029,488 1,205,175 1,263,041 General and administrative. . . . . . . . . . . . 483,878 357,395 427,735 Provision for value impairment. . . . . . . . . . -- -- 5,500,000 ----------- ----------- ----------- 18,336,793 26,335,754 34,716,613 ----------- ----------- ----------- 29,872,037 6,186,112 (776,107) Partnership's share of earnings (loss) from operations of unconsolidated ventures . . . . . . 1,505,524 611,483 709,164 Partnership's share of gain on sale of investment properties of unconsolidated venture. . . . . . . -- 1,412,610 -- Venture partners' share of consolidated ventures' operations before extraordinary item. . . . . . . (3,662,722) (1,010,868) (1,568,232) Venture partners' share of gain on sale of investment property . . . . . . . . . . . . . . . (6,455,513) (1,270,596) -- ----------- ----------- ----------- Earnings (loss) before extraordinary item. . . . . . . . . . . 21,259,326 5,928,741 (1,635,175) Extraordinary item (net of venture partner's share of $285,096). . . . . . . . . . . . . . . . 393,705 -- -- ----------- ----------- ----------- Net earnings (loss) . . . . . . . . . . . $21,653,031 5,928,741 (1,635,175) =========== =========== =========== JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF OPERATIONS - CONTINUED 1997 1996 1995 ------------ ------------ ------------ Net earnings (loss) per limited partnership interest: Earnings (loss) before gain on sale of investment properties and extraordinary item . . . . . . . . . . . . . . . . . . . . . $ 36.35 14.70 (9.15) Gain on sale of investment properties. . . . . . 73.47 15.78 -- Extraordinary item, net. . . . . . . . . . . . . 1.99 -- -- ----------- ----------- ----------- Net earnings (loss) per limited partnership interest. . . . . . . . . . $ 111.81 30.48 (9.15) =========== =========== =========== See accompanying notes to consolidated financial statements.
JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
GENERAL PARTNERS LIMITED PARTNERS (189,684 INTERESTS) -------------------------------------------------- --------------------------------------------------- CONTRI- BUTIONS NET NET OF NET CONTRI- EARNINGS CASH OFFERING EARNINGS CASH BUTIONS (LOSS) DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL ------- ---------- ------------- ----------- ----------- ---------- ------------- ----------- Balance at December 31, 1994 . . . . $11,123 669,602 -- 680,725 171,306,452 (28,347,981) (75,157,860) 67,800,611 Cash distri- butions ($15 per limited partnership interest). . -- -- -- -- -- -- (2,859,487) (2,859,487) Net earnings (loss) . . . -- 99,593 -- 99,593 -- (1,734,768) -- (1,734,768) ------- ------- ------- ------- ----------- ----------- ----------- ---------- Balance at December 31, 1995 . . . . 11,123 769,195 -- 780,318 171,306,452 (30,082,749) (78,017,347) 63,206,356 Cash distri- butions ($79.50 per limited partnership interest). . -- -- -- -- -- -- (15,155,275)(15,155,275) Net earnings (loss) . . . -- 146,412 -- 146,412 -- 5,782,329 -- 5,782,329 ------- ------- ------- ------- ----------- ----------- ----------- ---------- JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS - CONTINUED GENERAL PARTNERS LIMITED PARTNERS (189,684 INTERESTS) -------------------------------------------------- --------------------------------------------------- CONTRI- BUTIONS NET NET OF NET CONTRI- EARNINGS CASH OFFERING EARNINGS CASH BUTIONS (LOSS) DISTRIBUTIONS TOTAL COSTS (LOSS) DISTRIBUTIONS TOTAL ------- ---------- ------------- ----------- ----------- ---------- ------------- ----------- Balance at December 31, 1996 . . . . 11,123 915,607 -- 926,730 171,306,452 (24,300,420) (93,172,622) 53,833,410 Cash distri- butions ($30 per limited partnership interest). . -- -- -- -- -- -- (5,718,972) (5,718,972) Net earnings (loss) . . . -- 443,803 -- 443,803 -- 21,209,228 -- 21,209,228 ------- --------- ------- --------- ----------- ----------- ----------- ---------- Balance at December 31, 1997 . . . . $11,123 1,359,410 -- 1,370,533 171,306,452 (3,091,192) (98,891,594) 69,323,666 ======= ========= ======= ========= =========== =========== =========== ========== See accompanying notes to consolidated financial statements.
JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ----------- ----------- Cash flows from operating activities: Net earnings (loss) . . . . . . . . . . . . . . . $21,653,031 5,928,741 (1,635,175) Items not requiring (providing) cash or cash equivalents: Depreciation. . . . . . . . . . . . . . . . . . 328,493 4,625,655 5,598,646 Amortization of deferred expenses . . . . . . . 1,029,488 1,205,175 1,263,041 Partnership's share of operations of unconsolidated venture. . . . . . . . . . . . (1,505,524) (611,483) (709,164) Partnership's share of gain on sale of investment properties of unconsolidated venture . . . . . . . . . . . . . . . . . . . -- (1,412,610) -- Venture partners' share of ventures' operations, gain on sale and extraordinary item. . . . . . . . . . . . . . 10,403,333 2,281,464 1,568,232 Total gain on sale of investment property . . . (20,532,802) (2,882,574) -- Provision for value impairment. . . . . . . . . -- -- 5,500,000 Extraordinary item. . . . . . . . . . . . . . . (678,801) -- -- Changes in: Rents and other receivables . . . . . . . . . . 556,962 1,670,049 (380,342) Prepaid expenses. . . . . . . . . . . . . . . . 102,232 (21,947) (33,566) Escrow deposits . . . . . . . . . . . . . . . . 175,247 (153,355) (192,229) Casualty insurance receivable . . . . . . . . . -- -- 853,000 Accrued rents receivable. . . . . . . . . . . . (1,559,728) (289,426) (151,292) Accounts payable. . . . . . . . . . . . . . . . (389,313) (436,529) (1,802,619) Accrued interest . . . . . . . . . . . . . . . (21,067) (6,671) 488,126 Unearned rents. . . . . . . . . . . . . . . . . (323,242) 572,414 (41,486) Tenant security deposits. . . . . . . . . . . . (53,366) (291,224) (17,279) ----------- ----------- ----------- Net cash provided by (used in) operating activities. . . . . . . . . . 9,184,943 10,177,679 10,307,893 ----------- ----------- ----------- JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED 1997 1996 1995 ----------- ----------- ----------- Cash flows from investing activities: Net sales and maturities (purchases) of short-term investments . . . . . . . . . . . -- -- 14,176,812 Cash proceeds on sale of investment property. . . 33,154,809 12,985,931 -- Additions to investment properties, net of related payables . . . . . . . . . . . . (1,743,255) (1,583,556) (1,658,644) Partnership's distributions from unconsolidated ventures . . . . . . . . . . . . -- 3,588,000 1,250,000 Partnership's contributions to unconsolidated ventures . . . . . . . . . . . . -- -- (1,233,437) Payment of deferred expenses. . . . . . . . . . . (350,070) (624,372) (577,311) ----------- ----------- ----------- Net cash provided by (used in) investing activities. . . . . . . . . . 31,061,484 14,366,003 11,957,420 ----------- ----------- ----------- Cash flows from financing activities: Principal payments on long-term debt. . . . . . . (458,557) (622,627) (4,593,543) Advances from venture partners. . . . . . . . . . -- -- (435,000) Venture partners' contributions to venture. . . . -- 161,356 1,580,310 Distributions to venture partners . . . . . . . . (2,310,000) (7,561,880) (2,723,400) Distributions to limited partners . . . . . . . . (5,718,972) (15,155,275) (2,859,487) ----------- ----------- ----------- Net cash provided by (used in) financing activities. . . . . . . . . . (8,487,529) (23,178,426) (9,031,120) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents. . . . . . . . . . 31,758,898 1,365,256 13,234,193 Cash and cash equivalents, beginning of year . . . . . . . . . . . 22,821,808 21,456,552 8,222,359 ----------- ----------- ----------- Cash and cash equivalents, end of year . . . . . . . . . . . . . . $54,580,706 22,821,808 21,456,552 =========== =========== =========== Supplemental disclosure of cash flow information: Cash paid for mortgage and other interest . . . . $ 6,129,395 7,672,084 8,502,901 =========== =========== =========== JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED 1997 1996 1995 ----------- ----------- ----------- Non-cash investing and financing activities: Total sales proceeds from sale of investment property, net of selling expenses . . . . . . . $33,154,809 37,690,486 -- Principal balance due on mortgage payable . . . . -- (24,704,555) -- ----------- ----------- ----------- Cash proceeds from sale of investment property, net of selling expenses . . . $33,154,809 12,985,931 -- =========== =========== =========== See accompanying notes to consolidated financial statements.
JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES NOTES TO CONSOLIDATED 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 real estate. Business activities consist of rentals to a wide 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 any unforeseen economic developments. The accompanying consolidated financial statements include the accounts of the Partnership and its majority-owned ventures, Topanga Plaza Partnership ("Topanga"), JMB-40 Broad Street Associates ("Broad Street"), JMB First Financial Associates ("First Financial", prior to its sale in September 1996) and First Financial's venture (prior to its sale in September 1996), JMB Encino Partnership, ("Encino"). The effect of all transactions between the Partnership and its consolidated ventures have been eliminated. The equity method of accounting has been applied in the accompanying consolidated financial statements with respect to the Partnership's venture interest in JMB/San Jose Associates ("San Jose"). Accordingly, the accompanying consolidated financial statements do not include the accounts of San Jose. The Partnership's records are maintained on the accrual basis of accounting as adjusted for Federal income tax reporting purposes. The accompanying consolidated 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") and to consolidate the accounts of the ventures as described above. Such GAAP and consolidation 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. . . . . . . . . . . . $160,776,991 89,829,763 138,673,945 103,781,808 Partners' capital accounts (deficits): General partners. . . . . . . . 1,370,533 (1,314,353) 926,730 (1,184,427) Limited partners. . . . . . . . 69,323,666 84,497,148 53,833,410 98,323,758 Net earnings (loss): General partners. . . . . . . . 443,803 (129,924) 146,412 (40,931) Limited partners. . . . . . . . 21,209,228 (8,107,640) 5,782,329 (276,439) Net earnings (loss) per limited partnership interest. . . . . . . . . . . . . 111.81 42.74 30.48 (1.46) =========== =========== =========== ===========
The net earnings (loss) per limited partnership interest is based upon the number of limited partnership interests outstanding at the end of each period (189,684). 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 its unconsolidated ventures are considered cash flow from operating activities to the extent of the Partnership's cumulative share of net earnings. In addition, the Partnership records amounts held in U.S. Government obligations at cost, which approximates market. For the purposes of these financial statements, the Partnership's policy is to consider all such amounts held with original maturities of three months or less ($53,859,686 and $21,768,622 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 commitment fees and loan related costs which are amortized over the term of the related mortgage loans, and lease commissions which are amortized over the term of the related leases, using the straight-line method. Although certain leases of the Partnership provide for tenant occupancy during periods for which no rent is due and/or increases in the minimum lease payments over the term of the lease, rental income is accrued for the full period of occupancy on a straight-line basis. Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial Instruments" (as amended), requires certain large 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 $63,630,727, has been calculated to have an SFAS 107 value of $69,174,577 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 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 circumstances, the Partnership has been 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 three shopping centers, two office buildings and an office complex. The Partnership sold its interest in the Mid Rivers Mall in St. Louis, Missouri in January 1992. 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. The Partnership sold its interest in the First Financial Plaza office building in September 1996. The Venture sold the 40 Broad Street Office Building in December 1997. All of the remaining properties were in operation at December 31, 1997. Subsequent to the end of the year, the Partnership sold the Plaza Hermosa Shopping Center and the remaining assets in the Park Center Financial Plaza office complex. The cost of the investment properties represents the total cost to the Partnership or its consolidated ventures 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 == 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 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 or the Partnership has concluded that it may dispose of the property by no longer funding operating deficits or debt service requirements of the property thus allowing the lender to realize upon its security. 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. In certain situations, such estimated fair value could be less than the existing non-recourse debt which is secured by the property. There can be no assurance that any estimated fair value of these properties would ultimately be realized by the Partnership in any future sale or disposition transaction. Under the prior impairment policy, provisions for value impairment were recorded with respect to investment properties whenever the estimated future cash flows from a property's operations and projected sale were less than the property's net carrying value. The amount of any such impairment loss recognized by the Partnership was limited to the excess, if any, of the property's carrying value over the outstanding balance of the property's non-recourse indebtedness. The results of operations, net of venture partners' share, for consolidated properties classified as held for sale or disposition as of December 31, 1997 or sold or disposed of during the past three years were profits of $5,866,318 and $1,961,979 and losses of $2,633,237 for the years ended December 31, 1997, 1996 and 1995, respectively. In addition, the accompanying consolidated financial statements include $1,505,524, $611,483 and $709,164 of the Partnership's share of total unconsolidated property operations of $3,011,047, $1,222,965 and $1,418,328 of the properties owned by the San Jose venture held for sale or disposition as of December 31, 1997 or sold or disposed of in the past three years, respectively. Certain investment properties are pledged as security for the long- term debt, for which there is no recourse to the Partnership. 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 consolidated financial statements. Certain 1996 and 1995 amounts have been reclassed to conform to 1997 presentation. INVESTMENT PROPERTIES PLAZA HERMOSA SHOPPING CENTER During September 1986, the Partnership acquired a multi-building neighborhood shopping center in Hermosa Beach, California. The Partnership's purchase price for the shopping center was $18,290,000, of which $11,890,000 was paid in cash at closing. The balance of the purchase price was represented by bond financing in the amount of $6,400,000. This financing was secured by a letter of credit facility which was ultimately secured by a deed of trust on the property. In December 1994, upon expiration of the letter of credit, the Partnership obtained a long- term replacement letter of credit with a new lender and simultaneously retired the original bond financing and issued new bonds to the existing bondholders in the aggregate amount of $6,400,000. The replacement letter of credit was scheduled to expire in December 1997, but was extended for a two year period in 1997. As a result of reduced projected cash flows, the upcoming maturity of the letter of credit facility in 1999 and the expected holding period of the property, there was uncertainty as to the Partnership's ability to recover the net carrying value of the Plaza Hermosa investment property through future operations or sale over its revised expected holding period. Therefore, the Partnership made a provision for value impairment at September 30, 1995 of $5,500,000 to reflect the then estimated fair value of the property based upon an analysis of discounted estimated future cash flows over the projected holding period. The property is managed by an affiliate of the General Partners of the Partnership for a fee calculated as 4% of gross receipts of the property. As the Partnership had committed to a plan to sell the property, the property had been classified as held for sale as of December 1, 1996 and therefore has not been subject to continued depreciation after such date. On January 13, 1998, the Partnership sold the land, building and related improvements of the Plaza Hermosa Shopping Center to an unaffiliated third party for a sale price of $13,335,000 (before selling costs and prorations). The sale will result in a gain in 1998 of approximately $4,000,000 and $2,400,000 for financial reporting and Federal income tax purposes, respectively. In addition, in connection with the sale of the property, as is customary in such transactions, the Partnership agreed to certain representations, warranties and covenants with a stipulated survival period that expires September 15, 1998. Although it is not expected, 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 $800,000 in the aggregate. VENTURE AGREEMENTS - GENERAL The Partnership at December 31, 1997 is a party to two operating venture agreements and has made capital contributions to the respective ventures as discussed below. Under certain circumstances, either pursuant to the venture agreements or due to the Partnership's obligations as a general partner, the Partnership may be required to make additional cash contributions to the ventures. 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.-XI, another partnership sponsored by the Managing General Partner of the Partnership ("JMB-XI"). 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-XI 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. As San Jose had committed to a plan to sell the properties, the 190 San Fernando Building and the parking structures 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, buildings, 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 costs and prorations). The sale will result in a gain in 1998 of approximately $41,000,000 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. TOPANGA In December 1985, the Partnership acquired a 58% interest in the Topanga Plaza Shopping Center in the Woodland Hills area of Los Angeles, California. The aggregate purchase price for the Partnership's interest in the venture was approximately $25,263,000, which was paid in cash at closing. Under the terms of the joint venture agreement, the Partnership generally will be allocated or distributed 58% of profits and losses, cash flow from operations and sale or refinancing proceeds. On January 17, 1994, an earthquake occurred in Los Angeles, California with its epicenter in the town of Northridge, approximately six miles from Topanga Plaza Shopping Center. The estimated costs at Topanga for which the joint venture was responsible was approximately $11.9 million. The majority of these costs were subject to recovery under the joint venture's earthquake insurance policy. The deductible on the earthquake casualty and business interruption coverages was approximately $2.1 million which was funded by Topanga from operations in 1995 and/or offset by other insurance recoveries as discussed below. The $11.9 million of total costs was reimbursed through insurance proceeds. Approximately $3.2 million of additional insurance proceeds were collected as a final settlement during the third quarter of 1995. Such amount represented recoveries under the joint venture's business interruption policy and was reflected as rental income in the accompanying consolidated financial statements. In the second quarter of 1996, Topanga received, in the aggregate, approximately $513,000 from Robinson-May and Montgomery Ward, relating to their prorata share of expenses and costs for repairs and restorations to the Topanga Plaza Shopping Center following the earthquake. During 1997, Topanga received, in the aggregate, approximately $312,000 from The Broadway and Nordstrom, relating to their prorata share of expenses and costs for repairs and restorations to the Topanga Plaza Shopping Center following the earthquake. As of the date of this report, Topanga is not expecting to receive any significant additional reimbursements from tenants related to the earthquake. The joint venture partner advanced funds to the joint venture for expenses incurred for certain development costs related to a potential future expansion of Topanga Plaza. The balance of these advances was $435,000 at December 31, 1994. Although such an expansion of the Shopping Center is still an option, such advances were repaid to the joint venture partner in early 1995 from available cash at the venture. The shopping center was subject to a long-term management agreement with an affiliate of the joint venture partner. Under the terms of the management agreement, the manager was entitled to receive a management fee based on a formula which relates to direct and general overhead costs and expenses incurred in the operation of the property. During 1994, the manager of the Topanga Plaza Shopping Center, an affiliate of the joint venture partner, was sold to an unaffiliated third party, who assumed management at the property on the same terms which existed prior to the sale. Sears had agreed to acquire the Broadway store site at the Shopping Center. Broadway closed in February 1996 and Sears completed its remodeling of the store and opened in October 1996. Montgomery Ward, a major department store which owns its own facility, filed for bankruptcy protection pursuant to Chapter 11 of the Federal bankruptcy code on July 7, 1997. The store continues to operate and fulfill its obligations under its operating agreement. Topanga is considering the possibility of purchasing the Ward store to protect the value of the shopping center. However, there is no assurance that any such transaction will occur. During the third quarter of 1997, $678,801 of the approximate $770,000 of remaining previously accrued costs related to earthquake damage in 1994, was reversed and recognized as an extraordinary gain. This liability was established in 1994 for Topanga's share of the estimated repair costs due to the earthquake damage. This reversal is attributable to repairs which are no longer considered necessary as a result of previously overestimated repair costs. The Topanga venture committed to a plan to sell the property and therefore classified the property as held for sale as of December 31, 1996. The property has no longer been subject to continued depreciation beyond such date. The Partnership is currently in discussions with the joint venture partner to explore the possibility of the joint venture partner buying the Partnership's interest in Topanga. There can be no assurance that any agreement will be reached in this regard. Concurrent with the discussions described above, the Partnership is currently preparing to cause the joint venture to market the property for sale to third parties, as provided for under the Topanga venture agreement. Under such agreement, the joint venture partner and the Partnership each have a limited right of first refusal to purchase the other's interest if a third party offer is tendered by the other partner, which could have the effect of lengthening the time necessary to effect a sale or discouraging offers for the property. There can be no assurance that any sale transaction will occur. 40 BROAD STREET During December 1985, the Partnership acquired, through Broad Street, a joint venture with JMB Income Properties, Ltd.-X, a partnership sponsored by an affiliate of the Managing General Partner, a 68.56% interest in the 40 Broad Street office building in New York, New York. Broad Street's purchase price for the building, which was paid in cash at closing, was approximately $65,100,000 of which the Partnership provided approximately $44,630,000. The Partnership was allocated or distributed profits and losses, cash flow from operations and sale or refinancing proceeds in the ratio of its capital contributions to Broad Street which is 68.56%. The property was managed by an unaffiliated third party for a fee calculated as 2% of gross receipts. As the Partnership had committed to a plan to sell the property as of July 1, 1997, the property had been classified as held for sale as of that date, and therefore, has not been subject to continued depreciation. On December 30, 1997, the Partnership, through the Affiliated Joint Venture, sold the land, building, related improvements and personal property of the 40 Broad Street office building to an unaffiliated third party for a sale price of $34,735,000 (before selling costs). The sale resulted in a gain of $20,532,803 (predominantly due to provisions for value impairment totaling approximately $52,000,000 recorded in 1990 and 1991, of which the Partnership's share was approximately $35,651,000), of which the Partnership's share was $14,077,289 and a loss of $9,703,264, of which the Partnership's share was $6,652,557 in 1997 for financial reporting and Federal income tax purposes, respectively. In addition, in connection with the sale of the property, as is customary in such transactions, the Affiliated Joint Venture agreed to certain representations, warranties and covenants with a stipulated survival period that expires December 1, 1998. Although it is not expected, the Affiliated 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 $1,500,000 in the aggregate. In February 1998, the Partnership made a distribution of sale proceeds primarily related to the sale of the property of $22,875,888 ($120 per Interest) to the Limited Partners. FIRST FINANCIAL On May 20, 1987, the Partnership, through First Financial, a joint venture with JMB-XIII, acquired an interest in a general partnership ("Encino") with an affiliate of the developer ("Encino Venture Partner"). Encino owned an office building in Encino (Los Angeles), California. First Financial made an initial investment in the aggregate amount of approximately $49,812,000 to Encino. In November 1987, First Financial caused Encino to obtain a third party first mortgage loan in the amount of $30,000,000. The proceeds of such loan were distributed to First Financial to reduce its contribution and to the Encino Venture Partner who subsequently repaid a $15,500,000 loan from First Financial. Thus, the total cash investment of First Financial for its interest in the office building, after consideration of the funding of the $30,000,000 permanent financing, was approximately $20,000,000, of which the Partnership's share was approximately $12,500,000. The first mortgage loan on the property matured November 1, 1995. Effective November 1, 1995, Encino and the existing lender amended and restated the existing mortgage loan. The new principal balance of the amended note at November 1, 1995 was $24,970,148. This amount was comprised of the then outstanding principal portion of $28,970,148 on the original $30,000,000 note less a required $4,000,000 principal paydown by Encino, all of which was advanced by First Financial at closing of which the Partnership's share of such paydown was $2,500,000. The amended loan had an interest rate of 8.67% and a term of two years resulting in a maturity date of November 1, 1997. In order to finalize the loan extension described above, the Partnership and its affiliated partner advanced approximately $4.0 million (approximately $2.5 million by the Partnership) to the joint venture to fund the required principal paydown and related loan fees. A capital call had been made on the unaffiliated joint venture partner for its share of the total required amount; however, the unaffiliated joint venture partner indicated that it did not intend to fund its required share. The Partnership and its affiliated partner reached an agreement with the unaffiliated partner to modify the joint venture agreement. In April 1996, the unaffiliated partner became a limited partner as a result of this modification. The First Financial office building appeared to have experienced only minor cosmetic damage as a result of the January 17, 1994 Northridge earthquake in southern California. On February 22, 1995, the city council of the city of Los Angeles passed an ordinance requiring certain buildings (identified by building type and location) to perform testing on the welded steel moment connections to determine if the earthquake had weakened such joint weldings and to repair such joint weldings if weakness is detected. This property qualified for the testing under the ordinance and therefore Encino retained a structural engineer to perform the testing. Results of the testing by the structural engineer indicated that some of the building's joint weldings suffered damage which, in accordance with the ordinance, were required to be repaired. Encino's structural engineer informed Encino that the damage detected did not pose a life safety risk for the building's tenants. All testing and repairs necessary to comply with such ordinance were completed as of October 1995. The total cost of such testing and repairs was approximately $826,000 (of which the Partnership's share was approximately $516,250). The First Financial office building was classified as held for sale as of April 1, 1996 and therefore was not subject to continued depreciation since such date. On September 11, 1996, the joint venture sold the First Financial office building to an unaffiliated third-party for a sale price of $37,900,000 (before selling costs and prorations). The joint venture received $13,095,445 of net sale proceeds at closing (which reflected the assumption by the buyer of the mortgage loan with a current balance of $24,704,555 and closing costs), substantially all of which were allocable to First Financial pursuant to the Encino venture agreement. The sale resulted in approximately $2,880,000 and $18,800,000 of gain for financial reporting purposes and Federal income tax purposes in 1996, respectively, of which approximately $1,612,000 and $2,000 of gain was allocated to the Partnership, respectively. The Partnership made a cash distribution of $42 per Interest from the sales proceeds in November 1996. The Encino partnership agreement generally provided that First Financial was entitled to receive (after any participating amounts due to Pepperdine University pursuant to its tenant lease) from cash flow from operations (as defined) an annual cumulative preferred return equal to 9.05% through April 30, 1995 (and 8.9% thereafter) of its capital contri- butions. Any remaining cash flow was to be split equally between First Financial and the Encino Venture Partner. Pepperdine University, under its tenant lease, was entitled to an amount based on 6.6% of the Venture Partner's share of the office building's net operating profit and net sale profit (as defined). All of Encino's operating profits and losses before depreciation were allocated to First Financial in 1995 and 1996. The Encino partnership agreement also generally provided that net sale proceeds and net refinancing proceeds (as defined), after any amounts due to Pepperdine University pursuant to its tenant lease, were to be distributed: first, to First Financial in an amount equal to the deficiency, if any, in its cumulative preferred return as described above; next, to First Financial in the amount of its capital contributions; next, to the Encino Venture Partner in an amount equal to $600,000; any remaining proceeds were to be split equally between First Financial and the Encino Venture Partner. The terms of the First Financial partnership agreement provided that annual cash flow, net sale or refinancing proceeds, and tax items were to be distributed or allocated, as the case may be, to the Partnership in proportion to its 62.5% share of capital contributions. The office building was managed by an affiliate of the Encino Venture Partner for a fee based upon a percentage of rental receipts (as defined) of the property. LONG-TERM DEBT Long-term debt consists of the following at December 31, 1997 and 1996: 1997 1996 ----------- ----------- 10-1/8% mortgage note secured by the Topanga Plaza shopping center in Los Angeles, California; payable in monthly installments of principal and interest of $523,225 through January 2002 when the remaining balance is due and payable . . . $57,230,727 57,689,284 Floating rate bond financing (certificates), secured by the Plaza Hermosa Shopping Center in Hermosa Beach, California; the certificates bear interest based on a floating rate which is adjustable weekly (as defined), with a maximum interest rate of 13.5%, interest only is payable monthly through December 2023 when the entire outstanding balance is due and payable (repaid upon sale in January 1998) . . . . . . . . 6,400,000 6,400,000 ----------- ----------- Total debt. . . . . . . 63,630,727 64,089,284 Less current portion of long-term debt . . 507,202 458,557 ----------- ----------- Total long-term debt. . $63,123,525 63,630,727 =========== =========== Five year scheduled maturities of long-term debt are summarized as follows: 1998. . . . . . . . . . $ 507,202 1999. . . . . . . . . . 561,008 2000. . . . . . . . . . 620,521 2001. . . . . . . . . . 686,348 2002. . . . . . . . . . 54,855,647 =========== 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) in an amount equal to the greater of 1% of such profits or the amount of cash distributable to the General Partners 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 capital contri- butions 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 2-1/2% 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 6% 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 second fiscal quarter of 1986 and (iii) have received cash distributions of sale and refinancing proceeds and of the Partnership's 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 and its consolidated ventures' principal assets are two shopping centers. The Partnership has determined that all leases relating to these properties are properly classified as operating leases; therefore, rental income is reported when earned and the cost of the properties, excluding the cost of the land, is depreciated over the estimated useful lives. Leases with tenants range in term from month- to-month to twenty-five years and provide for fixed minimum rent and partial reimbursement of operating costs. In addition, substantially all of the leases 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 dependent on 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. . . . . . . . . . $ 10,469,801 1999. . . . . . . . . . 10,277,342 2000. . . . . . . . . . 9,901,830 2001. . . . . . . . . . 9,645,557 2002. . . . . . . . . . 9,023,985 Thereafter. . . . . . . 25,281,458 ------------ Total . . . . . . . $ 74,599,973 ============ Contingent rent (based on sales by property tenants) included in rental income was as follows: 1995. . . . . . . . . . $438,733 1996. . . . . . . . . . 301,919 1997. . . . . . . . . . 183,895 ======== 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 . . . . $ 79,670 70,792 67,422 -- Insurance commissions. . . . . . . 22,214 34,632 75,330 -- Reimbursement (at cost) for accounting services . . . . . . . . 24,372 9,642 90,577 12,474 Reimbursement (at cost) for portfolio manage- ment services. . . . . . 39,225 25,996 38,217 11,405 Reimbursement (at cost) for legal services . . . 11,542 8,683 4,222 4,078 Reimbursement (at cost) for administrative charges and other out-of-pocket expenses . 842 1,026 170,348 -- -------- -------- -------- ------ $177,865 150,771 446,116 27,957 ======== ======== ======== ====== Certain of the Partnership's properties are managed by affiliates of the General Partners or their assignees for fees computed as a percentage of certain rents received by the properties. During 1994, certain officers and directors of the Managing General Partner 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. In accordance with the subordination requirements of the Partnership Agreement, the General Partners have deferred receipt of their distri- butions of net cash flow from the Partnership. The cumulative amount of such deferred distributions aggregated $8,684,505 at 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. These amounts or amounts currently payable do not bear interest. INVESTMENT IN UNCONSOLIDATED VENTURE Summary of financial information for San Jose as of and for the years ended December 31, 1997 and 1996 is as follows: 1997 1996 ------------ ------------ Current assets. . . . . . . . . . $ 4,819,672 4,538,120 Current liabilities . . . . . . . (619,337) (456,506) ------------ ------------ Working capital . . . . . . 4,200,335 4,081,614 Investment property, net. . . . . 30,803,149 28,430,666 Other assets, net . . . . . . . . 1,204,478 959,991 Long-term debt. . . . . . . . . . (22,961,889) (23,338,875) Other liabilities . . . . . . . . (181,229) (79,599) Venture partners' equity. . . . . (6,711,162) (5,205,639) ------------ ------------ Partnership's capital . . . $ 6,353,682 4,848,158 ============ ============ Represented by: Invested capital. . . . . . . . $ 48,767,680 48,767,680 Cumulative distributions. . . . (25,490,500) (25,490,500) Cumulative loss . . . . . . . . (16,923,498) (18,429,022) ------------ ------------ $ 6,353,682 4,848,158 ============ ============ Total income. . . . . . . . . . . $ 9,404,683 9,238,168 ============ ============ Expenses. . . . . . . . . . . . . $ 6,393,636 8,015,203 ============ ============ Gain on disposition of investment property . . . . . . $ -- 2,825,220 ============ ============ Net earnings. . . . . . . . . . . $ 3,011,047 4,048,185 ============ ============ Total income, expenses and net earnings for the above-mentioned venture for the year ended December 31, 1995 were $6,412,066, $9,182,446 and $1,418,328, respectively. SCHEDULE III JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997
COSTS CAPITALIZED INITIAL COST TO SUBSEQUENT GROSS AMOUNT AT WHICH CARRIED PARTNERSHIP (A) TO ACQUISITION AT CLOSE OF PERIOD (B) ------------------------- -------------- ------------------------------------ BUILDINGS BUILDINGS BUILDINGS AND AND AND ENCUMBRANCE LAND IMPROVEMENTS IMPROVEMENTS(D) LAND IMPROVEMENTS TOTAL (E) ----------- ----------- ------------ -------------- ---------- ------------ ----------- SHOPPING CENTERS: Los Angeles, California (C). . . . . $57,230,727 8,506,014 54,714,281 46,124,455 8,506,014 100,838,736 109,344,750 Hermosa Beach, California . 6,400,000 5,106,570 13,131,181 (3,073,895) 3,176,525 10,057,286 13,233,811 ----------- ---------- ----------- ----------- ---------- ----------- ----------- Total . . $63,630,727 13,612,584 67,845,462 43,050,560 11,682,539 110,896,022 122,578,561 =========== ========== =========== =========== ========== =========== ===========
SCHEDULE III - CONTINUED JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED 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 ---------------- ------------ ---------- --------------- ----------- SHOPPING CENTERS: Los Angeles, California (C). . . . . . . . . . $26,570,333 1964 12/31/85 5-30 years 753,698 Hermosa Beach, California . . . . . . . . . . . 4,332,391 1985 09/03/86 5-30 years 212,784 ----------- --------- Total . . . . . . . . . . . . . $30,902,724 966,482 =========== ========= - ------------------ Notes: (A) The initial cost to the Partnership represents the original purchase price of the properties, 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 $112,612,934. (C) Properties owned and operated by joint venture. (D) In 1995, the Partnership recorded a provision for value impairment totaling $5,500,000 (which included a reduction in deferred costs of $15,671) at the Plaza Hermosa Shopping Center.
SCHEDULE III - CONTINUED JMB INCOME PROPERTIES, LTD. - XII (A LIMITED PARTNERSHIP) AND CONSOLIDATED VENTURES CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED DECEMBER 31, 1997 (E) Reconciliation of real estate owned:
1997 1996 1995 ------------ ------------ ------------ Balance at beginning of period . . . . . . . . . $146,082,153 189,130,405 193,298,414 Additions during period. . . . . . . . . . . . . 1,743,255 1,583,556 1,316,320 Sale or disposal during period . . . . . . . . . (25,246,847) (44,631,808) -- Provision for value impairment . . . . . . . . . -- -- (5,484,329) ------------ ----------- ----------- Balance at end of period . . . . . . . . . . . . $122,578,561 146,082,153 189,130,405 ============ =========== =========== (F) Reconciliation of accumulated depreciation: Balance at beginning of period . . . . . . . . . $ 45,776,427 52,390,756 46,792,110 Depreciation expense . . . . . . . . . . . . . . 328,493 4,625,655 5,598,646 Sale or disposal during period . . . . . . . . . (15,202,196) (11,239,984) -- ------------ ----------- ----------- Balance at end of period . . . . . . . . . . . . $ 30,902,724 45,776,427 52,390,756 ============ =========== ===========
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, 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/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 ----------- ----------- 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 PARTNER JMB - XII 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.-XII ("JMB Income-XII" or "Partnership") and JMB Income Properties, Ltd.-XI ("JMB Income-XI" 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 has 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 - XII. 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 - XII. 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 scheduled 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 $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 1997 and 1996. 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 stock of which is 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. ABPP Associates, L.P., is an Illinois limited partnership with JMB as its sole general partner, is one of the Associate General Partners of the Partnership and is also the sole general partner of Income Partners - XII, an Illinois limited partnership that is the other Associate General Partner of the Partnership. The limited partners of ABPP Associates, 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") 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 officer and/or directors of various affiliated companies of Arvida/JMB Managers, Inc. (the general partner 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 partnerships: the Partnership, Carlyle-VII, Carlyle-XI, Carlyle-XII, Carlyle-XIII, Carlyle-XIV, Carlyle-XV, Carlyle-XVI, Carlyle-XVII, JMB Income-VI, JMB Income-VII, JMB Income-X, JMB Income-XI, 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 also 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 the 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 the 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. No such cash distributions were paid to the General Partners in 1997, 1996 and 1995. Affiliates of the Managing General Partner provided property management services to the Partnership for 1997 for the Plaza Hermosa Shopping Center in Hermosa Beach, California at a fee calculated at 4% of the gross receipts of the property and for the 40 Broad Street office building in New York, New York until December 1994 at a fee calculated at 2% of the gross receipts of the property. In 1997, the affiliates earned property management and leasing fees amounting to $79,670, all of which were paid at 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 and such agreements must be terminable by either party thereto, without penalty, upon 60 days' notice. 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, the Managing General Partner received reimbursement for such expenses and salaries in the amount of $75,981 of which $27,957 was unpaid at December 31, 1997. The Managing General Partner received no disbursement agent and data processing fees in 1997. JMB Insurance Agency, Inc., an affiliate of the Managing General Partner of the Partnership, earned and received insurance brokerage commissions in 1997 aggregating $22,214 in connection with the providing of insurance coverage for the real property investments of the Partnership. Such commissions are at rates set by insurance companies for the classes of coverage involved. 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 Partners 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 Interests and Assignee Interests Therein JMB Realty Corporation 5 Interests (1) Less than 1% indirectly Limited Partnership Interests and Assignee Interests Therein Managing General Partner, 5 Interests (1) Less than 1% its officers and indirectly directors and the Associate General Partners 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 August 23, 1985 as supplemented December 9, 1985 and January 10, pursuant to Rules 424 (b) and 424 (c), as filed with the Commission is hereby incorporated herein by reference. Copies of pages 8-12, 61-64 and A-8 to A-12 are hereby incorporated herein by reference to Exhibit 3-A to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-16108) 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. 0-16108) dated March 19, 1993. 3-C. Acknowledgement of rights and duties of the General Partners of the Partnership between ABPP Associates, L.P. (a successor Associated General Partner of the Partnership) and JMB Realty Corporation as of December 31, 1995 is hereby incorporated herein by reference to the Partnership's report for June 30, 1996 on Form 10-Q (File No. 0-16108) dated August 9, 1996. 4-A. Mortgage loan agreement between Topanga and Connecticut General Life Insurance Company dated January 31, 1992 relating to Topanga Plaza in Los Angeles, California is hereby incorporated herein by reference to Exhibit 4-A to the Partnership's Report on Form 10-K for December 31, 1992 (File No. 0-16108) dated March 19, 1993. 4-B. Amended and restated mortgage loan agreement between First Financial and The Prudential Insurance Company of America dated November 21, 1995 relating to First Financial Plaza in Encino, California is hereby incorporated herein by reference to the Partnership's Report for December 31, 1995 on Form 10-K (File No. 0-16108) dated March 25, 1996. 4-C. Mortgage loan modification agreement between Topanga and Connecticut General Life Insurance dated January 31, 1993 relating to Topanga Plaza in Los Angeles, California is hereby incorporated herein by reference to Exhibit 4 of the Partnership's Report on Form 10-Q (File No. 0-16108) dated November 11, 1993. 4-D. Letter of credit agreement between JMB Income Properties, Ltd-XII and Dresdner Bank AG dated November 15, 1994 relating to the letter of credit extension at Plaza Hermosa is hereby incorporated herein by reference to Exhibit 4-D of the Partnership's Report on Form 10-K for December 31, 1994 (File No. 0-16108) dated March 27, 1995. 4-E. 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 Exhibit 4-E to the Partnership's Report on Form 10-K for December 31, 1994 (File No. 0-16108) dated March 27, 1995. 10-A. Acquisition documents including the venture agreement relating to the purchase by the Partnership of Topanga Plaza in Los Angeles, California, are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-16108) dated December 31, 1985. 10-B. Acquisition documents including the venture agreement relating to the purchase by the Partnership of First Financial Plaza in Encino, California are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-16108) dated June 3, 1987. 10-C. Acquisition documents including the venture agreement relating to the purchase by the Partnership of 40 Broad Street in New York, New York, are hereby incorporated by reference to the Partnership's Report on Form 8-K (File No. 0-16108) dated December 31, 1985. 10-D. Third Amendment to amended and restated partnership agreement of JMB Encino Partnership L.P. dated April 24, 1996 between JMB First Financial Associates and JMB Encino Partnership are hereby incorporated by reference to the Partnership's report on Form 10-Q (File No. 0-16108) dated May 10, 1996. 10-E. Purchase Agreement and Amendments thereto dated August 9, 1996 relating to the sale of First Financial Plaza by JMB Encino Partnership, L.P. are hereby incorporated herein by reference to the Partnership's report for September 11, 1996 on Form 8-K (File No. 0-16108) dated September 26, 1996. 10-F. Sale documents relating to the sale of the 40 Broad Street office building in New York, New York are hereby incorporated by reference to the Partnership's report for December 30, 1997 on Form 8-K (File No. 0-16108) dated January 14, 1998. 10-G. 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-H. 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. 10-I. Purchase-Sale Agreement with amendments thereto dated November 25, 1997 relating to the sale by the Partnership of the Plaza Hermosa Shopping Center in Hermosa Beach, California between JMB Income Properties, Ltd. - XII and Pacific Retail Trust are filed herewith. 21. List of Subsidiaries 24. Powers of Attorney 27. Financial Data Schedule - ---------------- Although certain additional long-term debt instruments of the Registrant have been excluded from Exhibit 4 above, pursuant to Rule 601(b)(4)(iii), the Registrant commits to provide copies of such agreements to the Securities and Exchange Commissions upon request. (b) The following report on Form 8-K was filed since the beginning of the last quarter of the period covered by this report. The Partnership's report on Form 8-K (File No. 0-16108) for December 30, 1997 dated January 14, 1998 describing under Item 2 the sale of the 40 Broad Street office building was filed. No annual report or proxy material for 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. - XII 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. - XII EXHIBIT INDEX DOCUMENT INCORPORATED BY REFERENCE PAGE ------------- ---- 3-A. Pages 8-12, 61-64 and A-8 to A-12 of the Prospectus of the Partnership dated August 23, 1985, as supple- mented on December 9, 1985 and January 10, 1986 Yes 3-B. Amended and Restated Agreement of Limited Partnership Yes 3-C. Acknowledgement of rights and duties of the General Partners of the Partnership dated August 9, 1996 between ABPP Associates, L.P. and JMB Realty Corporation Yes 4-A. Mortgage loan agreement related to Topanga Plaza Yes 4-B. Mortgage loan agreement related to First Financial Plaza Yes 4-C. Mortgage loan modification agreement related to Topanga Plaza Yes 4-D. Letter of credit agreement related to Plaza Hermosa Yes 4-E. Mortgage loan agreement related to Park Center Plaza Yes 10-A. Acquisition documents related to Topanga Plaza Yes 10-B. Acquisition documents related to First Financial Plaza Yes 10-C. Acquisition documents related to 40 Broad Street Yes 10-D. Third Amendment to amended and restated partnership agreement of JMB Encino Partnership L.P. dated April 24, 1996 between JMB First Financial Associates and JMB Encino Partnership Yes 10-E. Purchase Agreement and Amendments thereto dated August 9, 1996 relating to the sale of First Financial Plaza by JMB Encino Partnership, L.P. Yes DOCUMENT INCORPORATED BY REFERENCE PAGE ------------- ---- 10-F. Sale documents related to the 40 Broad Street office building Yes 10-G. First Amendment to the Purchase- Sale Agreement related to the Park Center Financial Plaza office complex No 10-H. Purchase-Sale Agreement related to the Park Center Financial Plaza office complex No 10-I. Purchase-Sale Agreement with amendments thereto related to the Plaza Hermosa Shopping Center No 21. List of Subsidiaries No 24. Powers of Attorney No 27. Financial Data Schedule No EX-10.G 2 EXHIBIT 10-G - ------------ (JMB-XII) 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.H 3 EXHIBIT 10-H - ------------ (J-XII) 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-10.I 4 EXHIBIT 10-I. - ------------- (J-XII) PURCHASE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (Plaza Hermosa Shopping Center; Hermosa Beach, California) THIS AGREEMENT is made and entered into as of the _______ day of November, 1997 (the "Effective Date"), by and between JMB INCOME PROPERTIES, LTD.-XII, an Illinois limited partnership (hereinafter called "Seller"), and PACIFIC RETAIL TRUST, a Maryland real estate investment trust (hereinafter called "Buyer"). R E C I T A L S A. Seller is the owner of that certain real property located in the City of Hermosa Beach, County of Los Angeles, State of California, consisting primarily of a shopping center sometimes known as "Plaza Hermosa Shopping Center" (the "Premises"). B. Buyer desires to purchase, and Seller desires to sell, 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 land (the "Land") described in Exhibit "A" attached hereto and made a part hereof, together with all right, title and interest of Seller in and to all improvements, structures, supplies and fixtures located upon the Land, all right, title and interest of Seller in and to those items of personal property described in Exhibit "B" attached hereto and made a part hereof, all right, title and interest of Seller in and to the name "Plaza Hermosa Shopping Center", and, to the extent assignable, all right, title and interest of Seller in and to all leases, contract rights, agreements, tenant lists, advertising material and telephone exchange numbers (hereinafter, collectively, the "Property"), all upon the terms, covenants and conditions hereinafter set forth. 2. PURCHASE PRICE. The purchase price (the "Purchase Price") for the Property shall be the sum of $13,600,000. 3. PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid to Seller by Buyer as follows: A. ESCROW DEPOSIT. Within three (3) business days after the Effective Date, Buyer shall deliver $250,000 (which amount, together with all interest earned thereon, is herein called the "Escrow Deposit") to Chicago Title Insurance Company, at its offices at 700 South Flower Street, Los Angeles, California, Attention: Fran Butler (which company, in its capacity as escrow holder hereunder, is called "Escrow Holder"). The Escrow Deposit shall be delivered to Escrow Holder by wire transfer of immediately available federal funds or by bank or cashier's check evidencing good funds and drawn on a national bank reasonably satisfactory to Seller. The amounts deposited hereunder shall be held by Escrow Holder as a deposit against the Purchase Price in accordance with the terms and provisions of this Agreement. At all times that the Escrow Deposit is being held by the Escrow Holder, the Escrow Deposit shall be invested by Escrow Holder in the following investments, provided such funds are immediately available ("Approved Investments"): (i) United States Treasury obligations, (ii) United States Treasury-backed repurchase agreements issued by a major 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. B. CLOSING PAYMENT. The balance of the Purchase Price, as adjusted by the application of the Escrow Deposit and by the prorations and credits specified herein, shall be paid in cash 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. (1) PRELIMINARY TITLE REPORT. Seller has ordered (and within ten (10) days after the Effective Date will deliver) to Buyer and its counsel a copy of a preliminary title report (the "Preliminary Title Report") covering the Property from Chicago Title Insurance Company (which company, in its capacity as title insurer hereunder, is herein called the "Title Company"), together with copies of all exceptions to title referenced thereto. In addition, Seller has ordered (and within ten (10) days after the Effective Date will deliver) to Buyer and its counsel an update of that certain survey of the Property dated July 9, 1997, prepared by Anacal Engineering Co., which survey shall be certified to Buyer and Title Company ("Survey") in accordance with Exhibit "C" attached hereto and made a part hereof. If Buyer shall fail to deliver written notice ("Title Objection Notice") setting forth those title and survey matters to which Buyer objects on or before the date which is ten (10) days after the date Buyer has received both the Preliminary Title Report and the Survey (the "Title Review Period"), Buyer shall be deemed to have approved the exceptions to title shown on the Preliminary Title Report and the matters disclosed on the Survey. Approval by Buyer of any additional exceptions to title or survey matters disclosed after the end of the Title Review Period shall be a condition precedent to Buyer's obligation to purchase the Property. Unless Buyer gives written notice that it disapproves any such additional exceptions to title or survey matters, stating the exceptions so disapproved, on or before the sooner to occur of five (5) business days after receipt of written notice thereof or the Closing Date, Buyer shall be deemed to have approved said exceptions or survey matters. If for any reason, on or before the Closing Date Seller does not cause such exceptions to title or survey matters which Buyer disapproves (to the extent Buyer is permitted hereunder to so disapprove) to be removed at no cost or expense to Buyer (Seller having the right but not the obligation to do so), unless Buyer elects to waive any such objections by delivering written notice of such waiver to Seller on or before the Closing Date, the obligation of Seller to sell, and Buyer to buy, the Property as herein provided shall terminate (and Seller and Buyer shall have no further obligations in connection herewith). Buyer shall have the option to waive the condition precedent set forth in this paragraph 4A(1) by notice to Seller. In the event of such waiver, such condition shall be deemed satisfied. All matters set forth on the Preliminary Title Report which are not timely objected to by Buyer, 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 cured to Buyer's satisfaction. Notwithstanding the foregoing to the contrary, Seller shall be obligated to eliminate at or prior to "Closing" (as hereinafter defined) all liens in the nature of (x) a mechanics' or materialmans' lien created as a result of a direct contract entered into by Seller (or its agents), (y) a deed of trust or mortgage created by Seller and (z) a tax or judgment lien against Seller. In the event that Seller fails to eliminate a lien that Seller is obligated to eliminate in accordance with the immediately preceding sentence, Buyer shall receive at Closing a credit against the Purchase Price in an amount equal to the amount of the lien that Seller has failed to so eliminate. (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; and (b) The Permitted Exceptions. As a condition to Buyer's obligation to close, the Escrow Agent shall deliver to Buyer at Closing an ALTA Owner's Policy (Revised 10-17-70 and 10-17-84) (or other form if required by state law) of title insurance, with extended coverage (i.e., with ALTA General Exceptions 1 through 5 deleted, or with corresponding deletions if the Property is located in a non-ALTA state), issued by the Title Company as of the date and time of the recording of the "Deed" (as hereinafter defined), in the amount of the Purchase Price, containing the Buyer's Endorsements, insuring Buyer as owner of good, marketable and indefeasible fee simple title to the Property, and subject only to the Permitted Exceptions (the "Owner's Policy"). "Buyer's Endorsements" shall mean, to the extent such endorsements are available under the laws of the state in which the Property is located: (a) owner's comprehensive; (b) access; (c) survey (accuracy of survey); (d) location (survey legal matches title legal); (e) separate tax lot; (f) legal lot; (g) zoning 3.1, with parking and loading docks; and (h) such other endorsements as Buyer may require during the Due Diligence Period based on its review of the Preliminary Title Report and Survey. Seller shall execute at Closing an ALTA Statement (Owner's Affidavit) acceptable to Seller and such other documents or agreements required by the Title Company and acceptable to Seller to issue the Title Policy in accordance with the provisions of this Agreement. B. DUE DILIGENCE REVIEWS. Buyer shall have until 5:00 p.m. (Central time) on the date that is thirty (30) days after the Effective Date (the "Due Diligence Period") within which to complete all of Buyer's due diligence examinations, reviews and inspections of all matters pertaining to the purchase of the Property (other than the title and survey reviews contemplated in paragraph A above), including all leases, service contracts, and all physical, environmental and compliance matters and conditions respecting the Property. Seller has delivered (and Buyer hereby acknowledges receipt of), the due diligence materials listed on Exhibit "D" attached hereto and made a part hereof. During the Due Diligence Period, Seller shall provide Buyer with reasonable access to the Property upon reasonable advance notice. Buyer shall promptly commence, and shall diligently and in good faith pursue, its due diligence review hereunder. Buyer shall at all times conduct its due diligence review, inspections and examinations in a manner so as to not cause damage, loss, cost or expense to Seller or the Property and, to the extent reasonably practicable, so as to not 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). In no event shall Buyer make any intrusive physical testing (environmental, structural or otherwise) at the Property (such as soil borings, water samplings or the like) without Seller's prior written consent (and shall in all events promptly return the Property to its prior condition and repair thereafter). 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 (including any tenant interviews). At the request of Seller, Buyer shall promptly deliver to Seller true, accurate and complete copies of any written reports relating to the Property prepared for or on behalf of Buyer by any third party and in the event of termination hereunder, shall return all documents and other materials furnished to or on behalf of Buyer 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. Notwithstanding anything herein to the contrary, Buyer may disclose any such information to its employees, consultants and agents on a need to know basis for purposes evaluating the Property, and as may be required in order to comply with any laws or regulations applicable to Buyer (provided, however, that Buyer shall cause such employees, consultants and agents to keep such information strictly confidential). If, on or before the expiration of the Due Diligence Period, Buyer shall determine that it does not intend 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 "Disapproval Notice"), and in which event this Agreement, and the obligations of the parties, shall terminate and the Escrow Deposit will be returned to Buyer. If Buyer fails to timely deliver the Disapproval Notice, Buyer shall have no further right to terminate this Agreement pursuant to this paragraph 4B. During the Due Diligence Period, Buyer shall notify Seller as to which Service Agreements Buyer will assume and which Service Agreements will be terminated by Seller at Closing. Buyer will assume the obligations arising from and after the Closing Date under those Service Agreements that are not in default as of the Closing Date and which Buyer has elected to assume. Seller shall terminate at Closing all Service Agreements that are not so assumed; provided, however, that Buyer shall be responsible for paying any termination fees or costs associated therewith. Seller shall terminate at Closing, and Buyer shall not assume, any property management agreement affecting the Property. C. ESTOPPEL CERTIFICATES. Receipt of estoppel certificates consistent with the "Rent Roll" (as hereinafter defined) and Seller's representations and warranties set forth in paragraph 7A(2)(a) hereof, dated not more than thirty (30) days prior to the Closing Date from Vons, Savon, Aaron Brothers, Blockbuster and 70% of the balance of the tenants at the Property under leases at the Property in effect as of the date hereof, is a condition precedent to Buyer's obligation to purchase the Property hereunder. The estoppel certificates to be obtained from each tenant shall be substantially in the form of Exhibit "E" attached hereto and made a part hereof; provided, however, (i) with respect to the any major national tenant, the applicable estoppel certificate may be in the standard form otherwise required by such entity and (ii) if the applicable tenant lease limits the information required to be certified by the tenant, then an estoppel certificate setting forth only such required information shall be deemed acceptable. If the required tenant estoppel are not delivered to Buyer, or if any tenant estoppel either does not meet the foregoing requirements or discloses any facts objectionable to Buyer in its reasonable opinion, Buyer may elect to either: (x) terminate this Agreement by delivering written notice to Seller on or before the expiration of the Due Diligence Period (in which event the Escrow Deposit shall be promptly returned to Buyer); or (y) waive the satisfaction of this condition (and failure to provide such written notice of termination shall be deemed a waiver) and proceed with transaction contemplated hereunder. Seller's sole obligation hereunder shall be to utilize reasonable efforts to obtain such estoppel certificates (such reasonable efforts obligation not including any obligation to institute legal proceedings or to expend any monies therefor, other than for minor administrative charges incurred by Seller). D. PERFORMANCE BY SELLER. The performance and observance, in all material respects, by Seller of all covenants and agreements of this Agreement to be performed or observed by Seller prior to or on the Closing Date shall be a condition precedent to Buyer's obligation to purchase the Property. In addition, in the event that the "Seller Closing Certificate" (as hereinafter defined) shall disclose any material adverse changes in the representations and warranties of Seller contained in paragraph 7A below which are not otherwise permitted or contemplated by this Agreement, then Buyer shall have the right to terminate this Agreement. Buyer shall have the right to terminate this Agreement if any condition precedent set forth in this paragraph 4D is not satisfied, by delivering written notice to Seller. In the event Buyer fails to deliver such notice of termination, such conditions shall be deemed satisfied. E. PERFORMANCE BY BUYER. The performance and observance, in all material respects, by Buyer of all covenants and agreements of this Agreement to be performed or observed by it prior to or on the Closing Date shall be a condition precedent to Seller's obligation to sell the Property. In addition, in the event that the "Buyer Closing Certificate" (as hereinafter defined) shall disclose any material adverse changes in the representations and warranties of Buyer contained in paragraph 7B below which are not permitted or contemplated by this Agreement, then Seller shall have the right to terminate this Agreement. Seller shall have the right to terminate this Agreement if any condition precedent set forth in this paragraph 4E is not satisfied, by delivering written notice to Buyer. In the event Seller fails to deliver such notice of termination, such conditions shall be deemed satisfied. 5. CLOSING PROCEDURE TRANSACTIONS. The closing (the "Closing") of the sale and purchase herein provided shall be consummated at a closing conference ("Closing Conference"), which shall be held on the Closing Date either at the offices of the Seller at 900 North Michigan Avenue, Chicago, or through mutually agreeable escrow arrangements. As used herein, "Closing Date" means the date which is three (3) business days after the expiration of the Due Diligence Period, or such other date as may be agreed upon by Buyer and Seller in writing. A. ESCROW. On or before the Closing Date, the parties shall deliver to Title Company, at its office located at 700 South Flower Street, Los Angeles, California, the following: (1) by Seller, a duly executed and acknowledged original grant deed ("Deed") in favor of Buyer, in the form of Exhibit "F" attached hereto and made a part hereof, and (2) by Buyer, the Closing Payment in immediately available federal funds. Such deliveries shall be made pursuant to 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. The conditions to the closing of such escrow shall include the Title Company's receipt of the Deed, the Closing Payment, the issuance by the Title Company of the Owner's Policy in the form specified in paragraph 4A(2) hereof, and an authorization notice from each of Buyer and Seller (and each of Buyer and Seller shall be obligated to deliver such authorization notice at the Closing Conference as soon as it is reasonably satisfied that the other party is in a position to deliver the items to be delivered by such other party under subparagraph B below). B. DELIVERY TO PARTIES. Upon full satisfaction of the conditions set forth in the Escrow Instructions, then on the Closing Date (1) the Deed shall be delivered to Buyer by Title Company's depositing the same for recordation, (2) the Closing Payment (and the Escrow Deposit) shall be delivered to Seller and (3) at the Closing Conference, the following items shall be delivered: (1) SELLER DELIVERIES. Seller shall deliver to Buyer the following: (a) A duly executed and acknowledged bill of sale, assignment and assumption agreement ("Assignment and Assumption Agreement") in the form of Exhibit "G" attached hereto and made a part hereof; (b) A certificate of Seller ("Seller Closing Certificate") updating the representations and warranties contained in paragraph 7A hereof to the Closing Date and noting any changes thereto; (c) Duly executed and acknowledged certificates regarding the "non- foreign" status of Seller satisfying both federal and state law requirements; (d) Evidence reasonably satisfactory to Escrow Holder respecting the due organization of Seller 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 Buyer and Title Company in order to consummate the transactions hereunder (provided the same do not 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 Seller the following: (a) A duly executed and acknowledged Assignment and Assumption Agreement; (b) A certificate of Buyer ("Buyer Closing Certificate") updating the representations and warranties contained in paragraph 7B hereof to the Closing Date and noting any changes thereto; (c) Evidence reasonably satisfactory to Escrow Holder respecting the due organization of Buyer and the due authorization and execution of this Agreement and the documents required to be delivered hereunder; and (d) Such additional documents as may be reasonably required by Seller and Title Company in order to consummate the transactions hereunder (provided the same do not increase the costs to, or liability or obligations of, Buyer in a manner not otherwise provided for herein). C. CLOSING COSTS. Seller shall pay the documentary or transfer taxes attributable to the Deed, and the title insurance premiums (at a rate not in excess of standard issue rates) attributable to standard coverage respecting the CLTA portion of the Owner's Policy, and the cost of updating the Survey. Buyer shall pay all title insurance premiums attributable to the Owner's Policy in excess of standard coverage, as well as any costs attributable to ALTA coverage in connection therewith or for other so-called "extended coverage" or for any endorsements to the Owner's Policy, to the extent any of the foregoing is requested by Buyer, all costs and expenses related to Buyer's due diligence examinations, reviews and inspections, all costs and expenses of any financing which Buyer may obtain in connection with its acquisition and all recording fees for the Deed. Seller and Buyer shall each pay one-half of any closing escrow charges. Seller and Buyer shall each pay its own attorney's fees and expenses and its own respective shares of prorations as hereinafter provided. D. PRORATIONS. (1) ITEMS TO BE PRORATED. The following shall be prorated between Seller and Buyer as of the close of the day immediately preceding the Closing Date (the "Adjustment Date"): (a) TAXES. All real estate taxes and assessments on the Property applicable to any period prior to the Adjustment Date. Buyer shall receive a credit against the Purchase Price for any accrued but unpaid real estate taxes and assessments on the Property applicable to any period prior to the Adjustment Date. 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. In the event that 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 Adjustment Date). (b) RENTS. All fixed and additional rentals under the Leases, and other tenant charges. Seller shall deliver or provide a credit in an amount equal to all prepaid rentals for periods after the Adjustment Date to Buyer on the Closing Date. Rents which are delinquent as of the Adjustment Date shall not be prorated on the Closing Date. Buyer shall include such delinquencies in its normal billing and shall use commercially reasonable efforts to collect the same 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 (other than "Additional Amounts", as hereinafter defined) after the Adjustment 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 finally any excess monies received shall be applied toward the payment of any delinquent rents in the inverse order in which they accrued, with Seller's share thereof being promptly delivered to Seller. 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. Common area charges, taxes, operating expense and other similar expense reimbursement obligations of the tenants under the Leases, as well as any percentage payable thereunder (collectively, "Additional Amounts") shall be prorated as of the Adjustment Date. The parties will finalize such Additional Amounts prorations on the Closing Date or as soon as practicable thereafter (but in any event not later than September 15, 1998) In order for the parties to determine the credits and adjustments herein provided for, no later than three (3) business days prior to the Closing Date, Seller will deliver to Buyer (or otherwise make available to Buyer) copies of all relevant portions of its books and records and all back-up or supporting documentation corroborating the amount paid by Seller and the amount received from the tenants in respect of Additional Amounts, and at Closing, Seller shall deliver to Buyer at the Property copies of the same information for each that has audit rights and the ability to challenge any prior year's reconciliations. Seller agrees to cooperate in good faith and with reasonable diligence in providing to Buyer as and when needed copies of all relevant invoices, bills, evidence of payment and other information required by Buyer to make any required post-Closing reconciliations of Additional Amounts. Proration of expense items contained in the calculation of the Additional Amounts shall be made on the basis that Seller shall be entitled to reimbursement of the applicable expenses incurred by Seller (annualized or otherwise appropriately apportioned) on or prior to the Adjustment Date. To the extent that, based on such determinations, Seller has received amounts in excess of the amount due Seller, then Buyer shall receive a credit equal to such excess amount on the Closing Date (or if determined thereafter, then Seller shall deliver such amounts to Buyer within fifteen (15) days of such determination). To the extent that Seller has received an amount less than the amount so due, Buyer shall deliver such shortfall amount to Seller within fifteen (15) days after such amounts are received from the respective tenants. The amount of percentage rent to be allocated to Seller with respect to each Tenant Lease for the lease year (the "Current Lease Year") in which the Closing Date occurs shall be that amount equal to the amount of percentage rent owed by such tenant for the lease year multiplied by a fraction, the numerator of which is the number of days in such lease year prior to and including the Adjustment Date, and the denominator of which is the total number of days in such lease year. Buyer shall receive a credit at Closing equal to the amount, if any, of percentage rent received by Seller as of the Adjustment Date which is allocable to any period of time after the Adjustment Date. Buyer shall not be obligated to pay or credit Seller any sum on account of the proration of percentage rent as aforesaid unless and until the percentage rent to be prorated as aforesaid shall be received by Buyer. Buyer shall reasonably endeavor to collect delinquencies owed to Seller hereunder (but shall not be require to litigate or declare a default in any lease); provided, however, that Buyer shall not waive any claims for delinquencies relating to Seller's period of ownership without Seller's prior written consent. With respect to delinquent rents, Additional Amounts 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. (c) SECURITY DEPOSITS. Seller shall deliver or provide a credit to Buyer in an amount equal to all refundable security deposits (to the extent the foregoing are held by Seller and are not applied or forfeited prior to the Adjustment Date) (d) UTILITY AND OPERATING EXPENSES. All utility costs and other normal and customary operating expenses in connection with the Property. Seller shall cause the meters, if any, for utilities to be read on the Adjustment Date and to pay the bills rendered on the basis of such readings. If any such meter reading for any utility is not available, then adjustment therefor shall be made on the basis of the most recently issued bills therefor which are based on meter readings not earlier than thirty (30) days before the Closing Date; and such adjustment shall be re-prorated when the next utility bills are received. Seller or Buyer, as the case may be, shall receive a credit for regular charges under Service Agreements assumed by Buyer pursuant to this Agreement paid and applicable to Buyer's period of ownership or payable and applicable to Seller's period of ownership, respectively. (e) TENANT IMPROVEMENTS AND ALLOWANCES. Tenant improvement expenses (including all hard and soft construction costs, whether payable to the contractor or the tenant), tenant allowances, rent abatement, moving expenses and other out-of-pocket costs which are the obligation of the landlord under Tenant Leases shall be allocated between the parties according to whether such obligations arise in connection with (1) Leases executed as of the date of this Agreement other than with respect to renewal or expansion rights under such Tenant Leases properly exercised after the date of this Agreement (collectively, "Existing TI Obligations"); or (2) Tenant Leases or amendments entered into during the pendency of this Agreement and approved or deemed approved by Buyer pursuant to paragraph 8C and renewals or expansion rights properly exercised after the date of this Agreement ("New TI Obligations"): (i) EXISTING TI OBLIGATIONS. If, by the Adjustment Date, Seller has not completed and paid in full Existing TI Obligations, then such costs as reasonably agreed by Buyer and Seller shall be credited against the Purchase Price at Closing, and Buyer shall be responsible for completing and paying such Existing TI Obligations. (ii) NEW TI OBLIGATIONS. At Closing, Buyer shall reimburse Seller for the cost for New TI Obligations properly performed and paid for by Seller, and Buyer shall assume the obligation to perform and pay for such New TI Obligations. (iii) CHANGE ORDERS. Except as required by the respective terms of the applicable Tenant Leases, Seller shall not agree to any change orders or additions to tenant improvements or material changes in the scope of work or specifications with respect to Existing TI Obligations or New TI Obligations without Buyer's prior written approval (which shall not be unreasonably withheld or delayed). (iv) EVIDENCE OF PAYMENT. At Closing, Seller shall provide lien waivers, payment affidavits, certificates of completion, and other evidence reasonably necessary to confirm Seller's compliance with its obligations pursuant to this paragraph 5D(1)(e). (v) ASSIGNMENT OF CONSTRUCTION-RELATED CONTRACTS. If Buyer is responsible for completing tenant improvements pursuant to the foregoing provisions, at Closing Seller shall assign to Buyer all contracts (including, without limitation, contracts with contractors, architects and/or consultants) related to such construction other than any contracts which by their terms are non-assignable and the other party thereto refuses to consent to such assignment, pursuant to an assignment instrument in form and substance reasonably acceptable to Buyer, and Seller further shall cause to be delivered to Buyer at Closing written consents and acknowledgments of such other parties to such contracts consenting to such assignment and otherwise in form and substance reasonably acceptable to Buyer. (f) LEASING COMMISSIONS. On or before the Closing Date, Seller shall pay in full all leasing commissions due to leasing or other agents for the current remaining term of each Lease (determined without regard to any unexercised termination or cancellation right); provided, however, that at Seller's option, Buyer shall receive a credit against the Purchase Price at Closing in an amount equal to the then unpaid leasing commissions and Buyer shall assume, in writing, the obligation to pay any such leasing commissions due thereunder after the Adjustment Date up to the amount of such credit. (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. 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 September 15, 1998 (and all reprorations hereunder shall be finalized prior to such date). 6. CONDEMNATION OR DESTRUCTION OF PROPERTY. In the event that, after the date hereof but prior to the Closing Date, either any portion of the Property is taken pursuant to eminent domain proceedings or any of the improvements on the Property are damaged or destroyed by any casualty, Seller shall have no obligation to repair or replace any such damage or destruction. Seller shall, upon consummation of the transaction herein provided, assign to Buyer all claims of Seller respecting any condemnation or casualty insurance coverage, as applicable, and all condemnation proceeds or proceeds from any such casualty insurance received by Seller on account of any casualty (the damage from which shall not have been repaired by Seller prior to the Closing Date), as applicable. In connection with any assignment of insurance proceeds hereunder, Seller shall assign any rent loss insurance applicable to the period from and after the Closing, and Seller shall credit Buyer with an amount equal to the applicable deductible amount under Seller's insurance; provided, however, if the amount of such deductible amount shall exceed $100,000, then unless Buyer elects to proceed with the transaction without receiving further credit for the deductible in excess of $100,000, Seller shall have the right to terminate this Agreement by notice to Buyer given on or before the Closing Date (whereupon the Escrow Deposit shall be returned to Buyer). In the event the condemnation award or the cost of repair of damage to the Property on account of a casualty, as applicable, shall exceed $100,000 (or if a casualty is uninsured, and Seller does not elect to credit Buyer with an amount equal to the cost to repair such uninsured casualty, Seller having the right, but not the obligation, to do so), Buyer may, at its option, terminate this Agreement by notice to Seller, given on or before the Closing Date and receive a refund of the Escrow Deposit. 7. REPRESENTATIONS AND WARRANTIES. A. REPRESENTATIONS AND WARRANTIES OF SELLER. (1) GENERAL DISCLAIMER. Except as specifically set forth in paragraph 7A(2) below or in the documents delivered by Seller at closing pursuant to paragraph 5B(1) hereof, 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 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 examine, review and inspect all matters which in Buyer's judgment bear upon the Property and its value and suitability for Buyer's purposes. Except as to matters specifically set forth in paragraph 7A(2) below or in the documents delivered by Seller at closing pursuant to paragraph 5B(1) hereof, 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 hereby waives any and all rights of contribution or other rights or remedies against Seller under the Comprehensive Environmental Response, Compensation and Liability Act or any other applicable laws, rules or regulations as to all matters disclosed in the "Environmental Reports" (as hereinafter defined) and/or Buyer's environmental assessments of the Property. (2) LIMITED REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents and warrants to Buyer that, except as set forth in Exhibit "H" 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 (i) Andrea Backman, Vice President of JMB Realty Corporation and portfolio manager overseeing Seller's investment in the Property (after having made inquiry of Seller's third party property manager with respect to the representations and warranties contained in this Agreement, but otherwise without any duty to investigate and with any imputed or constructive notice being excluded), or (ii) Courtney Lackey, the on-site manager employed by Seller's third party property manager): (a) RENT ROLL. Attached as Exhibit "I-1" and made a part hereof is a true, complete and accurate list, as of the date thereof, of all tenant leases respecting the Property ("Rent Roll"), and Seller has not received any written notice of a material default under any of such tenant leases that remains uncured. Except as disclosed in the Rent Roll, no Tenant Lease has been modified, altered or amended in any respect. There are no leases, tenancies or other rights of occupancy or use for any portion of the Property other than as set forth in the Rent Roll. Except as set forth in Exhibit "I-2" attached hereto and made a part hereof (the "Additional Tenant Information List"), there are no outstanding tenant improvement or leasing commission obligations of the landlord under the Tenant Leases, and no understanding or agreement with any party exists as to payment of any leasing commissions or fees regarding future tenant leases or as to the procuring of tenants. Notwithstanding anything to the contrary contained herein, Seller shall have no obligation or liability to Buyer with respect to any of the foregoing matters which shall be confirmed as correct in any tenant estoppel certificate which may be delivered hereunder. (b) LITIGATION. There is no pending action, litigation, condemnation or other proceeding against the Property or against Seller (or any of its partners or principals) 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) SERVICE AGREEMENTS; OPERATING STATEMENTS. Other than those which are cancelable on 30 days' notice without payment of any fees, there are no service agreements or contracts ("Service Agreements") or other agreements (other than as expressly set forth in this Agreement) relating to the Property which will be in force on the Closing Date, except as described in Exhibit "J" attached hereto and made a part hereof, and Seller is not in monetary default or material non-monetary default thereunder that remains uncured. The documents constituting the Service Agreements that have been delivered to Buyer by Seller or its agents are true, correct and complete copies of all of the Service Agreements affecting the Property. The operating statements for the Property that have been delivered to Buyer by Seller or its agents were prepared in the ordinary course of business and are revised in connection with the operation of the Property. (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 limited 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 legal capacity and authority to enter into this Agreement and consummate the transactions herein provided without the consent or joinder of any other party (except as otherwise set forth in this Agreement). (f) ENVIRONMENTAL MATTERS. Except as set forth in the reports described in Exhibit "K" 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, in Seller's reasonable judgment, would, as of the date hereof, give rise to an "Environmental Compliance Cost". The term "Hazardous Material" shall mean (i) asbestos 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 material violation of any applicable environmental laws or the regulations of any Environmental Agency; provided, however, that the term "Hazardous Material" shall not include (x) motor oil and gasoline contained in or discharged from vehicles not used primarily for the transport of motor oil or gasoline, or (y) materials which are stored or used in the ordinary course of a tenant's occupancy at the Property, and which are stored, used, held or disposed of in compliance with all applicable environmental laws. The term "Environmental Compliance Cost" means any reasonable out-of-pocket cost, fee or expense exceeding $2,500 and 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. B. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller as follows: 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 real estate investment trust, duly organized and validly existing and in good standing under the laws of the State of Maryland, and is duly authorized and qualified to do all things required of it under this Agreement; and Buyer has the legal capacity and authority to enter into this Agreement and consummate the transactions herein provided without the consent or joinder of any other party (except as otherwise set forth in this Agreement). Buyer's actual knowledge shall mean the actual knowledge of Morgan Scott or Thomas McDonough as of the Closing Date. C. SURVIVAL. Any cause of action of a party for a breach of the foregoing representations and warranties, or any cause of action arising out of, or related to, the Property or the transaction that is the subject of this Agreement, shall survive until September 15, 1998, at which time such representations and warranties (and any cause of action resulting from a breach thereof not then in litigation), and any and all obligations arising out of, or related to, the Property or the transaction that is the subject of this Agreement (and any cause of action related thereto 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). 8. INTERIM COVENANTS OF SELLER. Until the Closing Date or the sooner termination of this Agreement: A. 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. B. 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 (and Seller shall promptly provide Buyer with copies of all such additional service contracts prior to execution). C. Seller shall continue to offer the Property for lease in the same manner as prior hereto pursuant to its normal course of business and shall keep Buyer reasonably informed as to the status of leasing prior to the Closing Date. From and after the Effective Date, Seller shall not materially amend, terminate, grant concessions regarding, waive any material default under or incur any leasing commissions in connection with, the Tenant Leases, or enter in any new leases thereafter without the prior written consent of Buyer (which consent will not be unreasonably withheld or materially delayed). Notwithstanding anything herein to the contrary, Seller shall have no obligation to enter into any new leases or modifications of existing leases unless Buyer shall agree to pay all tenant improvement costs, leasing commissions and other similar costs or expenses in connection therewith (Buyer agreeing not to unreasonably withhold or unduly delay any such approval if requested by Seller). 9. DISPOSITION OF DEPOSITS. 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 SOLELY BY REASON OF A MATERIAL DEFAULT BY SELLER, 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 SELLER SHALL WILLFULLY TAKE ACTIONS SO AS TO PREVENT THE AVAILABILITY OF A SPECIFIC PERFORMANCE TO BUYER, BUYER SHALL BE ENTITLED TO A RETURN OF THE ESCROW DEPOSIT AND REIMBURSEMENT OF ITS ACTUAL OF-OF-POCKET COSTS PAID TO THIRD PARTIES IN CONNECTION WITH THE TRANSACTIONS HEREUNDER (SUCH REIMBURSEMENT NOT TO EXCEED $75,000 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 TRANSACTION HEREIN PROVIDED SHALL NOT CLOSE BY REASON OF BUYER'S DEFAULT UNDER THIS AGREEMENT, 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 10I HEREOF. _______________ Seller's Initials Buyer's Initials 10. MISCELLANEOUS. A. BROKERS. (1) Except as provided in subparagraph (2) 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, except for any claims by Broker which are Seller's responsibility hereunder, 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 10A(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 (the "Broker") pursuant to separate written agreements between the Broker and Seller. The foregoing payments shall be the sole commissions, fees or payments payable to the 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 or related in any manner to the Property (including, without limitation, the representations, warranties, indemnifications, covenants or other obligations, whether express or implied, of Seller under this Agreement or any document executed or delivered in connection herewith) shall not exceed $800,000. (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 and the individual(s) specified in paragraph 7A(2) above) 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. The rights and remedies of Buyer and Seller specifically set forth in this Agreement shall be the sole and exclusive rights and remedies of Buyer and Seller with respect to the transaction that is the subject of this Agreement and the Property. 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, but such transferor shall not be released from its obligations hereunder); provided, however, Buyer may assign its interest in this Agreement to an "Affiliate". For purposes of this paragraph, the term "Affiliate" means: (I) an entity that directly or indirectly controls, in controlled by or is under common control with Buyer; or (ii) an entity at least a majority of whose economic interest is owned by Buyer; and the term "control" means the power to direct the management of such entity through voting rights, ownership or contractual obligations. 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 which a party is required or may desire to give the other shall be in writing and shall be sent the addresses set forth in this paragraph. Any such notices shall be either: (a) sent by overnight delivery using a nationally recognized overnight courier, in which case notice shall be deemed delivered one business day after deposit with such courier; (b) sent by facsimile transmission, in which case notice shall be deemed delivered upon receipt of electronic confirmation of transmission of such notice; or (c) sent by personal delivery, in which case notice shall be deemed delivered upon receipt. A party's address may be changed by written notice to the other party; provided, however, that no notice of a change of address shall be effective until actual receipt of such notice. To Buyer: Pacific Retail Trust 8140 Walnut Hill Lane, Suite 400 Dallas, Texas 75231 Attention: Morgan Scott Facsimile: (214) 750-9033 Telephone: (214) 969-9500 And To: Pacific Retail Trust 14200 Culver Drive, Suite S Irvine, California 92604 Attention: Mr. Thomas E. McDonough Facsimile No. (714) 653-9515 Telephone No. (714) 653-9500 With Copy To: Mayer, Brown & Platt 141 E. Palace Avenue Sante Fe, New Mexico 87501 Attention: Carrie Brower, Esq. Facsimile No. (505) 820-7334 Telephone No. (505) 820-8186 To Seller: JMB Income Properties, Ltd.-XII c/o JMB Realty Corporation 900 North Michigan Avenue Chicago, Illinois 60611 Attention: Andrea Backman Facsimile No. (312) 915-1910 Telephone No. (312) 915-2367 With Copies To: Pircher, Nichols & Meeks 1999 Avenue of the Stars Suite 2600 Los Angeles, California 90067 Attention: Real Estate Notices (GML) Facsimile No. (310) 201-8922 Telephone No. (310) 201-8900 And To: Richard Ellis, LLC Three First National Plaza Chicago, Illinois 60602 Attention: Ms. Kathleen Casey Facsimile No. (312) 899-0923 Telephone No. (312) 899-1900 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. 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. K. ORIGINAL TENANT ESTOPPELS. To the extent not previously delivered to Buyer, or at or prior to the Closing, Seller shall deliver to Buyer the original Tenant Estoppels. L. POSSESSION. At the time of Closing, Seller shall deliver to Buyer possession of the Property, subject only to the Permitted Exceptions. M. DELIVERY OF BOOKS AND RECORDS. At Closing, Seller shall turn over to Buyer at the Property: the original Tenant Leases and Service Agreements; copies or originals of all books and records of account, contracts, copies of correspondence with tenants and suppliers, receipts for deposits, unpaid bills and other papers or documents which pertain to the Property; all permits and warranties; all advertising materials, booklets, keys and other items, if any, used in the operation of the Property (except those containing proprietary information relating to either Seller or its third party property manager); and, if in Seller's possession or control, the original "as-built" plans and specification. Seller shall reasonably cooperate with Buyer after Closing to transfer to Buyer any such information stored electronically. The obligations of Seller under this paragraph shall survive Closing. N. CONFIDENTIALITY. Seller shall make no public announcement or disclosure of any information related to this Agreement to outside brokers or third parties, before or after Closing, without the specific, prior written consent of Buyer, except for such disclosures to Seller's lenders, creditors, officers, employees and agents as are necessary to perform Seller's obligations hereunder. O. CALCULATION OF TIME PERIODS. Unless otherwise specified, in computing any period of time described herein, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday for national banks in the location where the Property is located, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday, or legal holiday. The last day of any period of time described herein shall be deemed to end at 5 p.m. (Chicago time). P. INFORMATION AND AUDIT COOPERATION. At Buyer's request, at any time before or after Closing, Seller shall provide to Buyer's designated independent auditor access to the books and records of the Property, and all related information, regarding the period for which Buyer is required to have the Property audited under the regulations of the Securities and Exchange Commission. The Buyer agrees to indemnify and hold harmless the Seller from any claim, damage, loss, or liability to which Seller is at any time subjected by any person who is not a party to this Agreement as a result of Seller's compliance with this paragraph. Q. FURTHER ASSURANCES. In addition to the acts and deeds recited herein and contemplated to be performed, executed and/or delivered by either party at Closing, each party agrees to perform, execute and deliver, on or after Closing any further actions, documents, and will obtain such consents, as may be reasonably necessary or as may be reasonably requested to fully effectuate the purposes, terms and conditions of this Agreement or to further perfect the conveyance, transfer and assignment of the Property to Buyer. R. STATUS OF BUYER. In accordance with the declaration of trust of Buyer, notice is hereby given that all persons dealing with Buyer shall look solely to the assets of Buyer for the enforcement of any claim against Buyer, as neither the trustees, officers, employees nor shareholders of Buyer assume any personal liability for obligations entered into by or on behalf of Buyer. S. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 11. ESCROW DEPOSIT PROVISIONS. A. INVESTMENT AND USE OF FUNDS. The Escrow Agent shall invest the Escrow Deposit in government insured interest-bearing accounts satisfactory to Buyer and Seller, shall not commingle the Escrow Deposit with any funds of the Escrow Agent or others, and shall promptly provide Buyer and Seller with confirmation of the investments made. If the Closing under this Agreement occurs, the Escrow Agent shall deliver the Escrow Deposit to Seller on the Closing Date. B. TERMINATION BEFORE EXPIRATION OF DUE DILIGENCE PERIOD. The Buyer shall notify the Escrow Agent of the date that the Due Diligence Period ends promptly after such date is established under this Agreement, and Escrow Agent may rely upon such notice. If Buyer elects to terminate the Purchase Agreement pursuant to paragraph 4B, Escrow Agent shall pay the entire Escrow Deposit to Buyer one business day following receipt of a copy of the notice of termination delivered to Seller by Buyer (as long as the current investment can be liquidated in one day). During the Due Diligence Period, no notice to Escrow Agent from Seller shall be required for the release of the Escrow Deposit to Buyer by Escrow Agent. The Escrow Deposit shall be released and delivered to Buyer from Escrow Agent upon Escrow Agents receipt of a copy of the notice of termination delivered to Seller by Buyer prior to the termination of the Due Diligence Period despite any objection or potential objection by Seller. Seller agrees it shall, prior to the termination of the Due Diligence Period, have no right to bring any action against Escrow Agent which would have the effect of delaying, preventing, or in any way interrupting Escrow Agent's delivery of the Escrow Deposit to Buyer pursuant to this paragraph, any remedy of Seller being against Buyer, not Escrow Agent. C. TERMINATION AFTER EXPIRATION OF DUE DILIGENCE PERIOD. At any time after the expiration of the Due Diligence Period, Escrow Agent shall retain the Escrow Deposit until it receives written instructions executed by both Seller and Buyer as to the disposition and disbursement of the Escrow Deposit or until ordered by final court order, decree or judgment, which is not subject to appeal, to deliver the Escrow Deposit to a particular party, in which event the Escrow Deposit shall be delivered in accordance with such notice, instruction, order, decree or judgment. D. INTERPLEADER. Seller and Buyer mutually agree that in the event of any controversy regarding the Escrow Deposit, unless mutual written instructions are received by the Escrow Agent directing the Escrow Deposit's disposition, the Escrow Agent shall not take any action, but instead shall await the disposition of any proceeding relating to the Escrow Deposit or, at the Escrow Agent's option, the Escrow Agent may interplead all parties and deposit the Escrow Deposit with a court of competent jurisdiction in which event the Escrow Agent may recover all of its court costs and reasonable attorneys' fees. Seller or Buyer, whichever loses in any such interpleader action, shall be solely obligated to pay such costs and fees of the Escrow Agent, as well as the reasonable attorneys' fees of the prevailing party in accordance with the other provisions of this Agreement. E. LIABILITY OF ESCROW AGENT. The parties acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and for their convenience, that the Escrow Agent shall not be deemed to be the agent of either of the parties, and that the Escrow Agent shall not be liable to either of the parties for any action or omission on its part taken or made in good faith, and not in disregard of this Agreement, but shall be liable for its negligent acts and for any loss, cost or expense incurred by Seller or Buyer resulting from the Escrow Agent's mistake of law respecting the Escrow Agent's scope or nature of its duties. Seller and Buyer shall jointly and severally indemnify and hold the Escrow Agent harmless from and against all costs, claims and expenses, including reasonable attorneys' fees, incurred in connection with the performance of the Escrow Agent's duties hereunder, except with respect to actions or omissions taken or made by the Escrow Agent in bad faith, in disregard of this Agreement or involving negligence on the part of the Escrow Agent. F. ESCROW FEE. Except as expressly provided herein to the contrary, the escrow fee, if any, charged by the Escrow Agent for holding the Escrow Deposit or conducting the Closing, shall be shared equally by Seller and 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 ESCROW HOLDER. ESCROW HOLDER SHALL DATE THIS AGREEMENT WITH THE DATE ON WHICH ESCROW HOLDER SHALL HAVE RECEIVED THIS AGREEMENT EXECUTED BY BOTH OPTIONEE AND OPTIONOR (AND SUCH DATE SHALL BE THE "EFFECTIVE DATE" FOR PURPOSES HEREOF). IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. JMB INCOME PROPERTIES, LTD.-XII, an Illinois limited partnership By: JMB REALTY CORPORATION, a Delaware corporation Corporate General Partner By: ________________________ Name: _____________________ Title: _______________________ "Seller" PACIFIC RETAIL TRUST, a Maryland real estate investment trust By: ________________________ Name: _____________________ Title: _______________________ "Buyer" 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. Date: ________________ CHICAGO TITLE INSURANCE COMPANY, a Missouri corporation By: ____________________________ Name: ____________________________ Title: ____________________________ "Escrow Holder" EXHIBIT LIST "A" - Property Description "B" - Personal Property List "C" - Form of Surveyor's Certificate "D" - List of Due Diligence Materials "E" - Form of Tenant Estoppel Certificate "F" - Deed "G" - Assignment and Assumption Agreement "H" - Exceptions to Seller's Representations and Warranties "I-1" - Rent Roll "I-2" - Additional Tenant Information "J" - Service Agreements "K" - Environmental Reports EXHIBIT "J" LIST OF SERVICE AGREEMENTS December 31, 1997 Pacific Retail Trust 8140 Walnut Hill Lane, Suite 400 Dallas, Texas 75231 Attention: Mr. Morgan Scott Re: Amendment to Purchase Agreement and Joint Escrow Instructions dated as of November 25, 1997 by and between JMB Income Properties, Ltd.-XII, an Illinois limited partnership and Pacific Retail Trust, a Maryland real estate investment trust Ladies and Gentlemen: Reference is made to that certain Purchase Agreement and Joint Escrow Instructions dated as of November 25, 1997 (the "Purchase Agreement") by and between JMB Income Properties, Ltd.-XII, an Illinois limited partnership ("Seller") and Pacific Retail Trust, a Maryland real estate investment trust ("Buyer") with respect to "Plaza Hermosa Shopping Center". All of the terms used herein with capitalized initial letters and not otherwise defined in this letter agreement (the "Letter Agreement") shall have the meanings as set forth in the Purchase Agreement. The parties hereby agree that, in consideration of the mutual undertakings of the parties and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the second sentence of paragraph 5 of the Purchase Agreement is hereby amended in its entirety to read as follows: "As used herein, "Closing Date" means January 5, 1998, or such earlier date as may be agreed upon by Buyer and Seller in writing." Except as otherwise expressly modified herein, the Purchase Agreement shall remain unmodified and in full force and effect. This Letter Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. This Agreement may be executed by facsimile. Please indicate your consent to the foregoing by signing where noted below. Very truly yours, JMB INCOME PROPERTIES, LTD.-XII, an Illinois limited partnership By: JMB REALTY CORPORATION, a Delaware corporation Corporate General Partner By: Name: Title: AGREED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN: PACIFIC RETAIL TRUST, a Maryland real estate investment trust By: Name: Title: January 5, 1998 Pacific Retail Trust 8140 Walnut Hill Lane, Suite 400 Dallas, Texas 75231 Attention: Mr. Morgan Scott Re: Second Amendment to Purchase Agreement and Joint Escrow Instructions dated as of November 25, 1997 by and between JMB Income Properties, Ltd.-XII, an Illinois limited partnership ("Seller") and Pacific Retail Trust, a Maryland real estate investment trust ("Buyer") Ladies and Gentlemen: Reference is made to that certain Purchase Agreement and Joint Escrow Instructions dated as of November 25, 1997 (the "Purchase Agreement") by and between Seller and Buyer, as amended by that certain Amendment to Purchase Agreement and Joint Escrow Instructions dated as of December 31, 1997 (collectively, the "Purchase Agreement"), with respect to "Plaza Hermosa Shopping Center". All of the terms used herein with capitalized initial letters and not otherwise defined in this letter agreement (the "Letter Agreement") shall have the meanings as set forth in the Purchase Agreement. The parties hereby agree that, in consideration of the mutual undertakings of the parties and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the second sentence of paragraph 5 of the Purchase Agreement is hereby amended in its entirety to read as follows: "As used herein, "Closing Date" means January 6, 1998, or such earlier date as may be agreed upon by Buyer and Seller in writing." Except as otherwise expressly modified herein, the Purchase Agreement shall remain unmodified and in full force and effect. This Letter Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. This Agreement may be executed by facsimile. Please indicate your consent to the foregoing by signing where noted below. Very truly yours, JMB INCOME PROPERTIES, LTD.-XII, an Illinois limited partnership By: JMB REALTY CORPORATION, a Delaware corporation Corporate General Partner By: Name: Title: AGREED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN: PACIFIC RETAIL TRUST, a Maryland real estate investment trust By: Name: Title: January 6, 1998 Pacific Retail Trust 8140 Walnut Hill Lane, Suite 400 Dallas, Texas 75231 Attention: Mr. Morgan Scott Re: Fourth Amendment to Purchase Agreement and Joint Escrow Instructions dated as of November 25, 1997 by and between JMB Income Properties, Ltd.-XII, an Illinois limited partnership ("Seller") and Pacific Retail Trust, a Maryland real estate investment trust ("Buyer") Ladies and Gentlemen: Reference is made to that certain Purchase Agreement and Joint Escrow Instructions dated as of November 25, 1997 (the "Purchase Agreement") by and between Seller and Buyer, as amended by that certain Amendment to Purchase Agreement and Joint Escrow Instructions dated as of December 31, 1997, as further amended by that certain Second Amendment to Purchase Agreement and Joint Escrow Instructions dated as of January 5, 1998, and as further amended by that certain Third Amendment to Purchase Agreement and Joint Escrow Instructions dated as of January 6, 1998 (collectively, the "Purchase Agreement"), with respect to "Plaza Hermosa Shopping Center". All of the terms used herein with capitalized initial letters and not otherwise defined in this letter agreement (the "Letter Agreement") shall have the meanings as set forth in the Purchase Agreement. The parties hereby agree that, in consideration of the mutual undertakings of the parties and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the second sentence of paragraph 5 of the Purchase Agreement is hereby amended in its entirety to read as follows: "As used herein, "Closing Date" means January 9, 1998, or such earlier date as may be agreed upon by Buyer and Seller in writing." Except as otherwise expressly modified herein, the Purchase Agreement shall remain unmodified and in full force and effect. This Letter Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. This Agreement may be executed by facsimile. Please indicate your consent to the foregoing by signing where noted below. Very truly yours, JMB INCOME PROPERTIES, LTD.-XII, an Illinois limited partnership By: JMB REALTY CORPORATION, a Delaware corporation Corporate General Partner By: Name: Title: AGREED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN: PACIFIC RETAIL TRUST, a Maryland real estate investment trust By: Name: Title: January 9, 1998 Pacific Retail Trust 8140 Walnut Hill Lane, Suite 400 Dallas, Texas 75231 Attention: Mr. Morgan Scott Re: Fifth Amendment to Purchase Agreement and Joint Escrow Instructions dated as of November 25, 1997 by and between JMB Income Properties, Ltd.-XII, an Illinois limited partnership ("Seller") and Pacific Retail Trust, a Maryland real estate investment trust ("Buyer") Ladies and Gentlemen: Reference is made to that certain Purchase Agreement and Joint Escrow Instructions dated as of November 25, 1997, by and between Seller and Buyer, as amended by that certain Amendment to Purchase Agreement and Joint Escrow Instructions dated as of December 31, 1997, as further amended by that certain Second Amendment to Purchase Agreement and Joint Escrow Instructions dated as of January 5, 1998, as further amended by that certain Third Amendment to Purchase Agreement and Joint Escrow Instructions dated as of January 6, 1998, and as further amended by that certain Fourth Amendment to Purchase Agreement and Joint Escrow Instructions dated as of January 6, 1998 (collectively, the "Purchase Agreement"), with respect to "Plaza Hermosa Shopping Center". All of the terms used herein with capitalized initial letters and not otherwise defined in this letter agreement (the "Letter Agreement") shall have the meanings as set forth in the Purchase Agreement. The parties hereby agree that, in consideration of the mutual undertakings of the parties and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the second sentence of paragraph 5 of the Purchase Agreement is hereby amended in its entirety to read as follows: "As used herein, "Closing Date" means January 13, 1998, or such earlier date as may be agreed upon by Buyer and Seller in writing." Except as otherwise expressly modified herein, the Purchase Agreement shall remain unmodified and in full force and effect. This Letter Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. This Agreement may be executed by facsimile. Please indicate your consent to the foregoing by signing where noted below. Very truly yours, JMB INCOME PROPERTIES, LTD.-XII, an Illinois limited partnership By: JMB REALTY CORPORATION, a Delaware corporation Corporate General Partner By: Name: Title: AGREED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN: PACIFIC RETAIL TRUST, a Maryland real estate investment trust By: Name: Title : PACIFIC RETAIL TRUST 8140 Walnut Hill Lane, Suite 8140 Dallas, Texas 75231 214/696-9500 214/750-9033 (fax) January 6, 1998 VIA FACSIMILE (312/915-2367) JMB INCOME PROPERTIES, LTD.-XII c/o JMB Realty Corporation 900 North Michigan Avenue Chicago, IL 60611 Attn: Andrea Backman Re: Third Amendment to Purchase Agreement and Joint Escrow Instructions dated as of November 24, 1997 (as amended, the "Purchase Agreement") by and between JMB INCOME PROPERTIES, LTD.-XII ("Seller") and PACIFIC RETAIL TRUST, a Maryland real estate investment trust ("Buyer"), for the property known as Plaza Hermosa, Hermosa Beach, California (the "Property") Dear Ms. Backman: This letter sets forth our agreement concerning certain matters relating to the Purchase Agreement. Terms used herein and not otherwise defined shall have the respective meanings given such terms in the Purchase Agreement. In consideration of the mutual covenants hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, we agree as follows: 1. The Purchase Price as set forth in Section 2 of the Purchase Agreement is hereby reduced by $265,000, such that the Purchase Price shall be $13,335,000. 2. (a) With respect to the exception to Seller's representations and warranties set forth in Section 7.A(2) and Exhibit "H" of the Purchase Agreement, regarding potential litigation with Fran's Hallmark, and the provisions of the estoppel certificate dated December 10, 1997, regarding common area maintenance charges and taxes (the "Fran's Dispute"), Seller agrees to set aside at Closing, from the proceeds due Seller, the amount of $40,000 (the "Escrow Funds"), to be held by Escrow Agent in accordance with the terms and provisions of this letter agreement. Escrow Agent shall invest the Escrow Funds in government-insured interest-bearing accounts satisfactory to Buyer and Seller, shall not commingle the Escrow Funds with any funds of Escrow Agent, and shall promptly provide Buyer and Seller with confirmation of the investments made. All interest accruing on the Escrow Funds shall be deemed to be a part of the Escrow Funds. Any escrow fee due Escrow Agent, if any, for its services pursuant to this letter agreement shall be deducted from the Escrow Funds at the time of disbursement of the Escrow Funds as set forth below. (b) Buyer shall use reasonable efforts to resolve the Fran's Dispute in good faith no later than September 15, 1998. In the event Buyer settles the Fran's Dispute by such date, Buyer shall be entitled, JMB Income Properties, Ltd.-XII Attn: Andrea Backman January 6, 1998 Page 2 upon written notice to Seller and Escrow Agent, to direct Escrow Agent to disburse the Escrow Funds as follows: (i) to Fran's Hallmark, the amount of such settlement; (ii) to Buyer, the amount of Buyer's reasonable legal fees incurred by Buyer in connection with negotiating such settlement (such settlement negotiation legal fees not to exceed $5,000), plus any reasonable legal fees incurred by Buyer regarding any litigation with Fran's Hallmark in connection with the Fran's Dispute; and (iii) to Seller, any remaining Escrow Funds. (c) Seller shall have the right to participate jointly with Buyer in connection with any settlement discussions with Fran's Hallmark. Unless otherwise consented to by Seller in its sole discretion, any settlement with Fran's Hallmark shall contain a full release of Seller by all appropriate parties regarding the Fran's Dispute. (d) In the event such settlement contains such a release but results in a settlement amount which exceeds $20,000 (without, however, taking into account any reasonable legal fees due to Buyer), Seller shall have the right of reasonable approval of such settlement. If the settlement contains such a release but results in a settlement amount which amounts is less than or equal to $20,000, Seller's consent shall not be required. (e) If Buyer does not settle the Fran's Dispute by September 15, 1998, Escrow Agent shall disburse the Escrow Funds as follows: (i) to Buyer, $20,000 plus Buyer's reasonable legal fees (whether incurred in connection with (i) settlement negotiations [but subject to the maximum of $5,000] or (ii) as a result of litigation with Fran's Hallmark), and (ii) the remainder to Seller. (f) In consideration of Seller's agreeing to this paragraph 2 of this letter agreement, Buyer hereby waives any rights it may have had against Seller in connection with the Fran's Dispute. Seller's liability for any and all obligations or liabilities arising with respect to the Fran's dispute shall be limited to the Escrow Funds. Except as otherwise set forth herein, Buyer agrees to take subject to and assume any and all liabilities and obligation arising with respect to the Fran's Dispute. Buyer hereby releases Seller from any and all losses, costs, damages or expenses (including attorneys' fees and costs) in excess of the Escrow Funds regarding the Fran's Dispute. (g) The limitation on Seller's liabilities created pursuant to this letter agreement shall be in addition to and not a limitation on the provisions set forth in Section 10.B of the Purchase Agreement. 3. Seller shall deliver, prior to Closing, proof of payment (reasonable acceptable to Purchaser) of the following rent credits; (a) $21,180 regarding Wherehouse; and (b) $1,442.76 regarding Blockbuster. 4. This agreement may be executed in any number of counterparts and by the different parties on separate counterparts, and each such counterpart shall be deemed to be an original but all such counterparts shall together constitute one and the same agreement. The parties hereto may execute and deliver this agreement by forwarding facsimile, telefax, or other means of copies of this agreement showing execution by the parties sending the same, and the parties agree and intend that such signature shall have the same effect JMB Income Properties, Ltd.-XII Attn: Andrea Backman January 6, 1998 Page 3 as an original signature, that the parties shall be bound and such means of execution and delivery, and that the parties hereby waive any defense to validity based on any such copies or signatures. 5. Except as amended hereby, the Purchase Agreement shall remain in full force and effect as originally written and executed and previously amended. Please acknowledge your agreement to the foregoing by executing a copy of this letter, and returning it to the undersigned by facsimile transmission. Sincerely yours, PACIFIC RETAIL TRUST By: /s/ Morgan L. Scott --------------------------- Name: /s/ Morgan L. Scott --------------------------- Date: 1/6/97 Title: Vice President --------------- -------------------------- "Buyer" AGREED TO AND ACCEPTED: JMB INCOME PROPERTIES, LTD.-XII, an Illinois limited partnership By: JMB Realty Corporation, a Delaware corporation, its corporate general partner By: --------------------------- Name: --------------------------- Date: Title: --------------- -------------------------- "Seller" cc: Gregg Bernhard (310/201-8922) Morgan Scott (214/750-9033) Tom McDonough (714/653-9515) Matt Seeberger (505/820-7334) Marley Harrill (213/891-0834) Frank Jansen (213/891-0834) Fran Butler (213/488-4386) Nate Glover (213/488-4385) Kathy Casey (312/899-0923) JMB Income Properties, Ltd.-XII Attn: Andrea Backman January 6, 1998 Page 3 as an original signature, that the parties shall be bound and such means of execution and delivery, and that the parties hereby waive any defense to validity based on any such copies or signatures. 5. Except as amended hereby, the Purchase Agreement shall remain in full force and effect as originally written and executed and previously amended. Please acknowledge your agreement to the foregoing by executing a copy of this letter, and returning it to the undersigned by facsimile transmission. Sincerely yours, PACIFIC RETAIL TRUST By: --------------------------- Name: --------------------------- Date: Title: --------------- -------------------------- "Buyer" AGREED TO AND ACCEPTED: JMB INCOME PROPERTIES, LTD.-XII, an Illinois limited partnership By: JMB Realty Corporation, a Delaware corporation, its corporate general partner By: /s/ Andrea M. Backman --------------------------- Name: /s/ Andrea M. Backman --------------------------- Date: 1/7/98 Title: Vice President --------------- -------------------------- "Seller" cc: Gregg Bernhard (310/201-8922) Morgan Scott (214/750-9033) Tom McDonough (714/653-9515) Matt Seeberger (505/820-7334) Marley Harrill (213/891-0834) Frank Jansen (213/891-0834) Fran Butler (213/488-4386) Nate Glover (213/488-4385) Kathy Casey (312/899-0923) 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 Topanga Plaza Partnership, a California general partnership which holds title to Topanga Plaza. The Partnership is a general partner in JMB-40 Broad Street Associates, an Illinois general partnership which held title to the 40 Broad Street Building prior to its sale in December 1997. The Partnership's interest in the foregoing joint venture partnerships, and the results of their operations are included in the consolidated 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. - XII, 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. - XII, 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 54,580,706 0 1,276,293 0 0 55,856,999 91,675,837 0 160,776,991 1,795,941 63,123,525 0 0 0 70,694,199 160,776,991 26,345,595 48,208,830 0 11,464,314 764,151 0 6,108,328 27,714,839 0 27,714,839 (6,455,513) 393,705 0 21,653,031 111.81 111.81
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