-----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, JC1XJkX/UM2mVy9cG9hWVDoarDCTLUrawS7ktwTshgRV4kC+3i9MaaJFXgfqa8CD /OAm6Imj7OtXbNAsyNukVg== 0000950134-00-002451.txt : 20000328 0000950134-00-002451.hdr.sgml : 20000328 ACCESSION NUMBER: 0000950134-00-002451 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MURRAY INCOME PROPERTIES II LTD CENTRAL INDEX KEY: 0000786163 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 752085586 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-17183 FILM NUMBER: 579522 BUSINESS ADDRESS: STREET 1: 5550 LBJ FWY STE 675 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2149919090 MAIL ADDRESS: STREET 1: 5550 LBJ FRWY STREET 2: STE 675 CITY: DALLAS STATE: TX ZIP: 75240 10-K 1 FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 1999 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-K (Mark One) X Annual Report pursuant to Section 13 or 15(d) of the Securities - ------- Exchange Act of 1934 For the Fiscal Year Ended DECEMBER 31, 1999 OR Transition report pursuant to Section 13 or 15(d) of the Securities - ------- Exchange Act of 1934 For the transition period from ____________ to ____________ COMMISSION FILE NO. 0-17183 --------------- MURRAY INCOME PROPERTIES II, LTD. (Exact Name of Registrant as Specified in its Charter) TEXAS 75-2085586 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 5550 LBJ FREEWAY, SUITE 675, DALLAS, TEXAS 75240 (Address of principal executive offices) (Zip Code) (972) 991-9090 (Registrant's Telephone Number, Including Area Code) 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] 2 TABLE OF CONTENTS PART I
Page Item 1. Business 1 Item 2. Properties 3 Item 3. Legal Proceedings 3 Item 4. Submission of Matters to a Vote of Security Holders 3 PART II Item 5. Market for the Partnership's Limited Partnership Interests and Related Security Holder Matters 5 Item 6. Selected Financial Data 5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 10 Item 8. Financial Statements and Supplementary Data 11 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 22 PART III Item 10. Directors and Executive Officers of the Partnership 23 Item 11. Executive Compensation 24 Item 12. Security Ownership of Certain Beneficial Owners and Management 25 Item 13. Certain Relationships and Related Transactions 26 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 27 Signatures 34 Index to Exhibits 35
3 PART I ITEM 1. BUSINESS. General. Murray Income Properties II, Ltd. (the "Partnership") was formed December 23, 1985 under the Texas Uniform Limited Partnership Act to acquire recently constructed income-producing shopping centers located in growth markets. As of November 1989, the Partnership became governed by the Texas Revised Limited Partnership Act. The General Partners of the Partnership are Murray Realty Investors IX, Inc., a Texas corporation, and Crozier Partners IX, Ltd., a Texas limited partnership. In September 1986, the Partnership acquired a 15% interest in Tower Place Joint Venture, which owns Tower Place Festival Shopping Center ("Tower Place"). The remaining 85% interest in the joint venture is owned by Murray Income Properties I, Ltd., a publicly-registered real estate limited partnership, the general partners of which are affiliates of the General Partners. The Partnership also acquired Paddock Place Shopping Center ("Paddock Place") on December 17, 1986, Germantown Collection Shopping Center ("Germantown") on February 9, 1988, and 1202 Industrial Place (an office/warehouse facility) on February 26, 1988. All acquisitions were paid for in cash. For a more detailed description of the joint venture interest and the properties acquired by the Partnership, see "Item 2. Properties". The Partnership is in competition for tenants for its properties with other real estate limited partnerships as well as with individuals, corporations, real estate investment trusts, pension funds and other entities engaged in the ownership and operation of retail real estate. When evaluating a particular location to lease, a tenant may consider many factors, including, but not limited to, space availability, rental rates, lease terms, access, parking, quality of construction and quality of management. While the General Partners believe that the Partnership's properties are generally competitive with other properties with regard to these factors, there can be no assurance that, in the view of a prospective tenant, other retail properties will not be more attractive. Tower Place Festival Shopping Center. At December 31, 1999, Tower Place was 86% leased. One tenant, General Cinema, leases 27.8% of the total rentable space of the property and another, J&K Cafeterias, leases 10.6% of the total rentable space. The General Cinema lease expires on September 30, 2006, with the tenant having the option to extend the term of the lease for two successive terms of five years each. The J&K Cafeterias lease expires on April 30, 2004, and the tenant has the option to renew for two periods of five years each. At December 31, 1998, Tower Place was 98% leased. Tower Place is subject to competition from similar types of properties in the vicinity in which it is located. The following information on competitive properties in the vicinity of Mountain View has been obtained from sources believed reliable by the Partnership. The accuracy of this information was not independently verified by the Partnership.
Rentable Percent Leased at Property Square Feet December 31, 1999 -------- ----------- ----------------- 1 251,829 98% 2 40,946 100% 3 132,648 92%
1 4 Paddock Place Shopping Center. At December 31, 1999, Paddock Place was 96% leased. One tenant, Rafferty's, leases 11.6% of the total rentable space of the property. J. Alexander's, a full service restaurant, is occupying the space under a sub-lease. The Rafferty's lease expires on December 31, 2001 and the tenant has an option to extend the term of the lease for two successive periods of five years each. At December 31, 1998, Paddock Place was 90% leased. Paddock Place is subject to competition from similar types of properties in the vicinity in which it is located. The following information on such competitors has been obtained from sources believed reliable by the Partnership. The accuracy of this information was not independently verified by the Partnership.
Rentable Percent Leased at Property Square Feet December 31, 1999 -------- ----------- ----------------- 1 108,000 89% 2 15,000 100% 3 178,491 98%
Germantown Collection Shopping Center. At December 31, 1999, Germantown was 100% leased. One tenant, Chili's, leases 10% of the total rentable space. The Chili's lease expires on December 31, 2004, and the tenant has the option to extend the term of the lease for three consecutive terms of five years each. At December 31, 1998, Germantown was 100% leased. Germantown is subject to competition from similar types of properties in the vicinity in which it is located. The following information on such competitors has been obtained from sources believed reliable by the Partnership. The accuracy of this information was not independently verified by the Partnership.
Rentable Percent Leased at Property Square Feet December 31, 1999 -------- ----------- ----------------- 1 84,000 97% 2 37,760 97% 3 87,975 96%
1202 Industrial Place. At December 31, 1999 and 1998, 1202 was 100% leased. Pierce Family Partnership leases 69% of the total rentable space of the property and Care Management Enterprises, Inc. leases 31% of the total rentable space. The Pierce lease expires on October 31, 2014 and the tenant has an option to renew the lease for one additional term of five years. The Care Management Enterprises, Inc. lease expires on November 30, 2000. 1202 Industrial Place is subject to competition from similar types of properties in the vicinity in which it is located. The following information on such competitors has been obtained from sources believed reliable by the Partnership. The accuracy of this information was not independently verified by the Partnership.
Rentable Percent Leased at Property Square Feet December 31, 1999 -------- ----------- ----------------- 1 100,000 100% 2 80,000 100% 3 100,000 100%
The Partnership is reimbursed for 47% of the costs of four employees by Murray Income Properties I, Ltd., an affiliate of the Partnership. For a definition of the terms used herein and elsewhere in this Form 10-K, see "Glossary" incorporated by reference herein as contained in the Prospectus dated February 20, 1986 filed as 2 5 a part of Amendment No. 1 to Registrant's Form S-11 Registration Statement (File No. 33-2394) attached hereto as Exhibit 99a. ITEM 2. PROPERTIES. The Partnership owns a 15% interest in Tower Place Joint Venture which owns the property described below: Location Description of Property -------- ----------------------- Pineville (Charlotte), Tower Place Festival Shopping Center North Carolina A 114,186 square foot shopping center situated on 10.777 acres. At December 31, 1999, Tower Place was 86% leased at an average annual lease rate of $14.62. Lease rental rates range from $12.37 to $17.00 per square foot. The Partnership also owns the properties described below: Nashville, Tennessee Paddock Place Shopping Center A 68,629 square foot shopping center situated on 4.66 acres. At December 31, 1999, Paddock Place was 96% leased at an average annual lease rate of $14.46. Lease rates range from $9.79 to $19.00 per square foot. Germantown (Memphis), Germantown Collection Shopping Center Tennessee A 55,730 square foot shopping center situated on 11.4 acres. At December 31, 1999, Germantown was 100% leased at an average annual lease rate of $16.55. Lease rates range from $14.00 to $20.00 per square foot. Grand Prairie, Texas, 1202 Industrial Place An office/warehouse facility containing 172,800 square feet situated on 8.6 acres. At December 31, 1999, 1202 Industrial Place was 100% leased at an average annual lease rate of $2.73. Lease rates range from $2.40 to $3.45 per square foot. ITEM 3. LEGAL PROCEEDINGS. There are no material legal proceedings to which the General Partners or the Partnership is a party or to which any of the Partnership's properties are subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of the year covered by this report through the solicitation of proxies or otherwise. On March 10, 2000, a special meeting of the Limited Partners was held to approve the sale of the Partnership's properties, in one or a series of sale transactions (which may include one or more properties owned by Murray Income Properties I, Ltd., an affiliate of the Partnership under joint management), the subsequent dissolution and liquidation of the Partnership upon the sale of the partnership's last property and an amendment to the partnership agreement to permit the proposed asset sale, dissolution and liquidation on the terms set forth in a proxy statement mailed to the limited partners on or about January 14, 2000. At the meeting, holders of 246,488 Interests (78%) out of a total of 314,687 Interests were represented by proxy. The vote was 235,973 Interests (75%) for the proposal, 6,342 Interests (2%) against the proposal and 4,173 Interests (1%) abstaining. 3 6 Because more than 50% of the outstanding Interests voted to approve the proposal, the Partnership will begin marketing the properties for sale, and after the sale of the last property and the winding up of all other business affairs, the Partnership will be liquidated and dissolved. 4 7 PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS. A public market for Interests does not exist and is not likely to develop. Consequently, a Limited Partner may not be able to liquidate its investment in the event of emergency or for any other reason, and Interests may not be readily accepted as collateral for a loan. Further, the transfer of Interests is subject to certain limitations. For a description of such limitations, see Article XIII of the Agreement of Limited Partnership as contained in the Prospectus dated February 20, 1986 filed as a part of Amendment No. 1 to Registrant's Form S-11 Registration Statement (File No. 33-2394) attached hereto as Exhibit 99b. At December 31, 1999, there were 2,146 record holders, owning an aggregate of 314,687 Interests. The Partnership made its initial Cash Distribution from Operations following the quarter ended November 30, 1986, the first complete quarter subsequent to the acceptance of subscriptions for the minimum number of Interests offered, and has continued to make distributions after each subsequent quarter. See "Item 6. Selected Financial Data" for the cash distributions per Limited Partnership Interest during the years ended December 31, 1995 through December 31, 1999. The Partnership intends to continue making Cash Distributions from Operations on a quarterly basis. The Partnership Agreement provides that under certain circumstances, the General Partners may, in their sole discretion and upon the request of a Limited Partner, repurchase the Interests held by such Limited Partner. Murray Realty Investors IX, Inc. is obligated to set aside 25% of its share of Cash Distributions from Operations and Crozier Partners IX, Ltd. is obligated to set aside 25% of its 5% share of Cash Distributions from Operations that is subordinated to the prior receipt by the Limited Partners of a non-cumulative 7% annual return from Cash Distributions from Operations for this purpose. Any such repurchase shall be subject to the availability of funds set aside and the other terms and conditions set forth in the Partnership Agreement. For information on such terms and conditions, see Section 10.17 of the Agreement of Limited Partnership as contained in Amendment No. 9 to the Agreement of Limited Partnership contained in the Proxy Statement dated October 11, 1989 attached hereto as Exhibit 99c. As of December 31, 1999, no funds were available for this purpose. ITEM 6. SELECTED FINANCIAL DATA.
Year Ended December 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ----------- ----------- ----------- Income $ 3,237,453 $ 3,124,604 $ 2,927,389 $ 2,947,806 $ 2,794,261 Net Earnings 1,403,780 1,290,459 1,108,782 1,160,228 1,121,097 Basic earnings per Limited Partnership Interest* 4.32 3.97 3.40 3.56 3.44 Distributions per Limited Partnership Interest* 6.00 6.00 5.94 6.00 6.00 Total Assets at Year End $18,270,529 $18,748,341 $19,396,894 $20,161,224 $20,934,041
* Based on Limited Partnership Interests outstanding at year-end and net earnings or distributions allocated to the Limited Partners. 5 8 The above selected financial data should be read in conjunction with the financial statements and related notes appearing in Item 8 of this report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Liquidity and Capital Resources As of December 31, 1999, the Partnership had cash, cash equivalents and certificates of deposit of $1,504,622, which included $1,474,665 invested in certificates of deposit and other money market instruments. Such amounts represent cash generated from operations and working capital reserves. The increase in cash and cash equivalents from December 31, 1998 to December 31, 1999 is primarily due to an increase in the net cash flow generated from the operations of the Partnership's properties. Rental income from leases is accrued using the straight line method over the related lease terms. At December 31, 1999 and December 31, 1998, there were $326,341 and $232,338, respectively, of accounts receivable related to such accruals. Accounts receivable also consist of tenant receivables, receivables for rents collected (but not yet remitted to the Partnership by the property management companies managing the properties), and interest receivable on short-term investments. The increase in accounts receivable of $67,152 (exclusive of bad debts and recoveries) from December 31, 1998 to December 31, 1999 is primarily due to increases in receivables related to the accruals described above. Other assets consist primarily of deferred leasing costs. The increase in other assets of $152,457 (exclusive of amortization) is primarily due to an increase in leasing commissions paid at Germantown and Paddock Place and deferred costs related to a proxy solicitation mailed subsequent to year end. During the year ended December 31, 1999, the Partnership made Cash Distributions from Operations totaling $1,926,653. Subsequent to December 31, 1999 the Partnership made a Cash Distribution from Operations of $481,664, which related to the three months ended December 31, 1999. The funds distributed were derived from the net cash flow generated from operations of the Partnership's properties and from interest earned, net of administrative expenses, on funds invested in short-term money market instruments and certificates of deposit. Future liquidity is currently expected to result from cash generated from the operations of the Partnership's properties (which could be affected negatively in the event of weakened occupancies and/or rental rates), interest earned on funds invested in short-term money market instruments and certificates of deposit, and ultimately through the sale of the Partnership's properties. Overall market conditions remained stable in the cities in which the Partnership owns property. Average occupancies at Tower Place and Paddock Place decreased for the year, while Germantown increased and 1202 Industrial Place remained at 100% occupancy. Industry-wide and in the Partnership's markets, the year was characterized by increased vacancy in large anchor spaces caused by bankruptcies and consolidation among large retailers. In all three retail markets, and specifically at Tower Place, anchor and large space users have vacated their spaces due to increased competition within their industries. The development of power centers, or centers with several anchors, in the early 1990's has left many markets with an abundance of vacant anchor stores. This oversupply, coupled with the specific build-out needs and square footage requirements of large users, makes these spaces difficult to re-lease. The vacant space at Tower Place, which was occupied by General Cinema, has been leased to Bally Total Fitness and it is anticipated that they will take occupancy in late 2000 or early 2001. The theater will be demolished and a new building will be constructed for Bally. Management continues to work diligently to lease the space previously occupied by Famous Footwear at Tower Place. 6 9 Results of Operations Rental income increased $133,709 (5%) for the year ended December 31, 1999 as compared to the year ended December 31, 1998. Rental income increased $202,308 (8%) for the year ended December 31, 1998 as compared to the year ended December 31, 1997. The following information details the rental income generated, bad debt expense incurred, and average occupancy for the years ended December 31, 1999, 1998 and 1997.
For the years ended December 31, --------------------------------------- 1999 1998 1997 ---------- ---------- ----------- Paddock Place Shopping Center Rental income $1,183,885 $1,194,824 $ 1,166,486 Bad debt expense (recovery) 5,476 28,844 (7,200) Average occupancy 91% 95% 94% Germantown Collection Shopping Center Rental income $1,130,922 $1,084,570 $ 1,008,103 Bad debt expense -0- -0- 686 Average occupancy 100% 94% 94% 1202 Industrial Place Rental income $ 711,720 $ 613,424 $ 515,921 Bad debt expense -0- -0- -0- Average occupancy 100% 100% 100%
Rental income at Paddock Place Shopping Center in Nashville, Tennessee decreased $10,939 (1%) for the year ended December 31, 1999 as compared to the year ended December 31, 1998. Decreases in base rents due to lower average occupancy were offset by increases in percentage rent received from J. Alexander's Restaurant and tenant reimbursements for common area maintenance costs and real estate taxes. Rental income at Paddock Place increased $28,338 (2%) for the year ended December 31, 1998 as compared to the year ended December 31, 1997, with increases in base rent being offset by a decrease in percentage rent received from J. Alexander's Restaurant. Paddock Place averaged 91% occupancy for the year ended December 31, 1999, a four percent decrease from the previous year. One tenant who occupied 4,154 square feet moved to another space in the shopping center which contains 5,230 square feet. The space containing 4,154 square feet has subsequently been leased to a card and gift shop. Two tenants who occupy 5,354 square feet renewed their leases for five years and one tenant who occupies 1,254 square feet renewed its lease for three years. One tenant who occupied 1,330 square feet vacated its space prior to the expiration of its lease. During the year, repairs were completed to the parking lot, irrigation system, and downspouts. At December 31, 1999, Paddock Place was 96% leased. Rental income at Germantown Collection in Germantown (Memphis), Tennessee increased $46,352 (4%) for the year ended December 31, 1999 as compared to the year ended December 31, 1998. Increases in base rents due to higher occupancies and increases in tenant reimbursements for common area maintenance costs were offset by decreases in tenant reimbursements for real estate taxes. Rental income at Germantown Collection increased $76,467 (8%) for the year ended December 31, 1998 as compared to the year ended December 31, 1997 due to higher rental rates and an increase in tenant reimbursements for real estate taxes, offset by decreases in tenant reimbursements for common area maintenance costs. 7 10 Occupancy at Germantown averaged 100% for the year ended December 31, 1999, a six percent increase over the previous year. One tenant who occupies 1,284 square feet renewed its lease for five years and a tenant who occupies 1,100 square feet renewed its lease for three years. A tenant who occupied 1,200 square feet assigned its lease to a new owner, who then executed a new three year lease. One tenant who occupied 1,050 square feet vacated its space upon expiration of its lease. This space was then leased to a new tenant who took occupancy in September. During the year, parking lot repairs were completed and portions of the shopping center were painted. At December 31, 1999, Germantown was 100% occupied. Rental income at 1202 Industrial Place in Grand Prairie (Dallas), Texas increased $98,296 (16%) for the year ended December 31, 1999 as compared to the year ended December 31, 1998, primarily due to higher rental rates on a lease extension with Pierce Leahy, the warehouse's primary tenant, and an increase in tenant reimbursements for common area maintenance costs, real estate taxes and insurance costs. Rental income at 1202 Industrial Place increased $97,503 (19%) for the year ended December 31, 1998 as compared to the year ended December 31, 1997 primarily due to higher rental rates on a lease extension with Pierce Leahy, the warehouse's primary tenant, and an increase in tenant reimbursements for common area maintenance costs and real estate taxes. 1202 Industrial Place remained 100% occupied for the year ended December 31, 1999, unchanged from the previous year. A tenant who occupied 54,000 square feet subleased its space to a new tenant who will occupy the space until the lease expires on November 30, 2000. Effective December 1, 2000, the tenant occupying the remainder of the property will move into this space, and they will then occupy 100% of the building. Parking lot repairs were completed in September. As of December 31, 1999, 1202 Industrial Place was 100% leased. "Equity in earnings of joint venture" represents the Partnership's 15% interest in the earnings of Tower Place Joint Venture. Rental income at Tower Place Festival Shopping Center in Pineville (Charlotte), N.C. increased $16,465 (1%) for the year ended December 31, 1999 as compared to the year ended December 31, 1998, with increases in rental rates offset by decreases in tenant reimbursements for common area maintenance costs and insurance costs. Rental income at Tower Place increased $14,414 (1%) for the year ended December 31, 1998 as compared to the year ended December 31, 1997 with increases in rental rates offset by decreases in tenant reimbursements for common area maintenance costs, reimbursements for common advertising costs and a decrease in percentage rent received. Tower Place's total operating expenses increased $23,988 (6%), with higher repair and maintenance costs, landscaping costs and real estate taxes offset by lower utility costs and security costs. The following information details the rental income generated, bad debt expense incurred, and average occupancy for the years ended December 31, 1999, 1998 and 1997:
For the years ended December 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Tower Place Shopping Center Rental income $1,803,589 $1,787,124 $1,772,710 Bad debt expense (recovery) 8,799 448 2,997 Average occupancy 95% 96% 98%
The Partnership's share of income from the joint venture decreased $2,306 (2%) for the year ended December 31, 1999 as compared to the year ended December 31, 1998 for the reasons stated above. The Partnership's share of income from the joint venture increased $4,904 (4%) for the year ended December 31, 1998 as compared to the year ended December 31, 1997 for the reasons stated above. Tower Place averaged 95% occupancy for the year ended December 31, 1999, a one percent decrease from the previous year. A new lease for 1,600 square feet was signed and the tenant took occupancy in April. A lease for 2,310 square feet was signed; however, the tenant never opened for 8 11 business. This space was subsequently leased to a restaurant who took occupancy in the first quarter of 2000. Effective October 5, 1999, Famous Footwear, who occupied 9,600 square feet, exercised a clause in its lease which allowed it to terminate the lease and vacate its space. Management is pursuing a replacement tenant for this space. During the year, five tenants who occupy a total of 9,250 square feet renewed their leases for three years. One tenant who occupies 4,200 square feet renewed its lease for five years. Three tenants who occupied 3,710 square feet vacated their spaces prior to the expiration of their leases. Two tenants who occupied 2,170 square feet vacated their spaces upon expiration of their leases. General Cinema, who vacated their eight-screen theater in 1998, continued to pay rent according to the terms of its lease. Effective January 31, 2000, this lease was terminated and a new lease was signed with Bally Total Fitness, who will operate a health and fitness club at the center. Bally will occupy approximately 25,000 square feet and should take occupancy in late 2000 or early 2001. During the year, roof repairs were completed and some of the wood trim along the fascia of the property was repaired and painted. At December 31, 1999, Tower Place was 86% leased. Depreciation is provided over the estimated useful lives of the respective assets using the straight line method. The estimated useful lives of the buildings and improvements range from three to twenty-five years. Property operating expenses consist primarily of utility costs, repair and maintenance costs, leasing and promotion costs, real estate taxes, insurance and property management fees. Total property operating expenses increased $11,876 (2%) for the year ended December 31, 1999 as compared to the year ended December 31, 1998. The increase is due to higher repair and maintenance costs, property management fees, real estate taxes and amortization of leasing costs, offset by lower utility costs, landscaping costs and trash removal costs. Property operating expenses at Paddock Place increased $13,056 (5%), with increases in repair and maintenance costs and amortization of leasing costs being offset by decreases in trash removal costs and security costs. Property operating expenses at Germantown were flat, with increases in real estate taxes and amortization of leasing costs being offset by decreases in utilities costs and repair and maintenance costs. Property operating expenses at 1202 Industrial Place were also flat, with increases in roof repair and maintenance costs being offset by decreases in parking lot and general building repair and maintenance costs. Property operating expenses increased $25,788 (3%) for the year ended December 31, 1998 as compared to the year ended December 31, 1997. The increase is due to higher repair and maintenance costs, property management fees, real estate taxes and amortization of leasing costs, offset by lower utility costs and leasing and promotion expenses. Property operating expenses at Germantown increased $5,933 (2%), with increases in repair and maintenance costs and property management fees offset by decreases in leasing and promotion costs and real estate taxes. Property operating expenses at Paddock Place decreased slightly ($1,098), with increases in real estate taxes and amortization of leasing costs being more than offset by decreases in repair and maintenance costs and utility costs. Property operating expenses at 1202 Industrial Place increased $20,953 (11%) due to increases in real estate taxes, property management fees and amortization of leasing costs. General and administrative expenses incurred are related to legal and accounting expenses, rent, investor services costs, salaries and benefits and various other costs required for the administration of the Partnership. General and administrative expenses increased $4,744 (2%) for the year ended December 31, 1999 as compared to the year ended December 31, 1998 primarily due to increases in salaries and benefits, travel and entertainment expenses, and seminars and education costs offset by decreases in legal fees, investor services costs and telephone expenses. General and administrative expenses decreased $36,100 (10%) for the year ended December 31, 1998 as compared to the year ended December 31, 1997 primarily due to decreases in accounting and legal costs, investor services costs and telephone expenses, offset by increases in salaries and benefits. 9 12 The effect of inflation on results of operations for the years ended December 31, 1999, 1998, and 1997 was not significant. Through March 27, 2000, Management of the Partnership is unaware of any adverse effects of Year 2000 issues on its information technology system and non-information technology system. While Management does not believe it will experience any adverse effects, there can be no assurance that Year 2000 issues will not arise and have an adverse effect on the Partnership's financial position or results of operations. Words or phrases when used in the Form 10-K or other filings with the Securities and Exchange Commission, such as "does not believe" and "believes" or similar expressions, are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS. The Partnership's financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued property taxes payable, and security deposits. The carrying amount of these instruments approximate fair value due to the short-term nature of these instruments. Therefore, the Partnership believes it is relatively unaffected by interest rate changes or other market risks. 10 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following financial statements are filed as part of this report:
Page Number ------ Independent Auditors' Report 12 Balance Sheets - December 31, 1999 and 1998 13 Statements of Earnings - Years ended December 31, 1999, 1998, and 1997 14 Statements of Changes in Partners' Equity -Years ended December 31, 1999, 1998, and 1997 15 Statements of Cash Flows - Years ended December 31, 1999, 1998, and 1997 16 Notes to Financial Statements 17-21
11 14 INDEPENDENT AUDITORS' REPORT The Partners Murray Income Properties II, Ltd.: We have audited the accompanying balance sheets of Murray Income Properties II, Ltd. (a limited partnership) as of December 31, 1999 and 1998, and the related statements of earnings, changes in partners' equity and cash flows for each of the years in the three-year period ended December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Murray Income Properties II, Ltd. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. KPMG LLP Dallas, Texas February 10, 2000, except as to note 7 which is as of March 10, 2000 12 15 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) BALANCE SHEETS DECEMBER 31, 1999 AND 1998
1999 1998 ------------ ------------ ASSETS Investment properties, at cost (note 3): Land $ 5,789,291 $ 5,789,291 Buildings and improvements 17,841,734 17,813,151 ------------ ------------ 23,631,025 23,602,442 Less accumulated depreciation 9,152,398 8,431,219 ------------ ------------ Net investment properties 14,478,627 15,171,223 Investment in joint venture, at equity (note 4) 1,237,802 1,321,510 Cash and cash equivalents 908,676 745,995 Certificates of deposit 595,986 597,000 Accounts receivable, net of allowances of $5,476 and $-0- in 1999 and 1998, respectively (note 1) 515,346 453,670 Other assets, at cost, net of accumulated amortization of $631,315 and $554,007 in 1999 and 1998, respectively 534,092 458,943 ------------ ------------ $ 18,270,529 $ 18,748,341 ============ ============ LIABILITIES AND PARTNERS' EQUITY Accounts payable $ 19,004 $ 19,293 Accrued property taxes 317,344 297,194 Security deposits and other liabilities 76,156 72,906 Deferred income (note 3) 57,420 35,470 ------------ ------------ Total liabilities 469,924 424,863 ------------ ------------ Partners' equity: General Partners: Capital contributions 1,000 1,000 Cumulative net earnings 689,241 645,335 Cumulative cash distributions (684,246) (645,713) ------------ ------------ 5,995 622 ------------ ------------ Limited Partners (314,687 Interests): Capital contributions, net of offering costs 27,029,395 27,029,395 Cumulative net earnings 14,503,014 13,143,140 Cumulative cash distributions (23,737,799) (21,849,679) ------------ ------------ 17,794,610 18,322,856 ------------ ------------ Total partners' equity 17,800,605 18,323,478 ------------ ------------ $ 18,270,529 $ 18,748,341 ============ ============
See accompanying notes to financial statements. 13 16 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) STATEMENTS OF EARNINGS
Years Ended December 31, ------------------------------------- 1999 1998 1997 ---------- ---------- ----------- INCOME: Rental (note 3) $3,026,527 $2,892,818 $ 2,690,510 Interest 72,934 91,488 101,485 Equity in earnings of joint venture (note 4) 137,992 140,298 135,394 ---------- ---------- ----------- 3,237,453 3,124,604 2,927,389 ---------- ---------- ----------- EXPENSES: Depreciation 721,179 714,903 724,411 Property operating (note 5) 790,603 778,727 752,939 General and administrative 316,415 311,671 347,771 Bad debts (recoveries), net 5,476 28,844 (6,514) ---------- ---------- ----------- 1,833,673 1,834,145 1,818,607 ---------- ---------- ----------- Net earnings $1,403,780 $1,290,459 $ 1,108,782 ========== ========== =========== Basic earnings per limited partnership interest $ 4.32 $ 3.97 $ 3.40 ========== ========== ===========
See accompanying notes to financial statements. 14 17 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) STATEMENTS OF CHANGES IN PARTNERS' EQUITY YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
General Limited Partners Partners Total ------------ ------------ ------------ YEAR ENDED DECEMBER 31, 1997: Balance at December 31, 1996 $ (2,333) $ 19,759,806 $ 19,757,473 Net earnings 38,100 1,070,682 1,108,782 Cash distributions ($5.94 per limited partnership interest) (38,132) (1,868,450) (1,906,582) ------------ ------------ ------------ Balance at December 31, 1997 $ (2,365) $ 18,962,038 $ 18,959,673 ------------ ------------ ------------ YEAR ENDED DECEMBER 31, 1998: Net earnings 41,520 1,248,939 1,290,459 Cash distributions ($6.00 per limited partnership interest) (38,533) (1,888,121) (1,926,654) ------------ ------------ ------------ Balance at December 31, 1998 $ 622 $ 18,322,856 $ 18,323,478 ------------ ------------ ------------ YEAR ENDED DECEMBER 31, 1999: Net earnings 43,906 1,359,874 1,403,780 Cash distributions ($6.00 per limited partnership interest) (38,533) (1,888,120) (1,926,653) ------------ ------------ ------------ Balance at December 31, 1999 $ 5,995 $ 17,794,610 $ 17,800,605 ============ ============ ============
See accompanying notes to financial statements. 15 18 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) STATEMENTS OF CASH FLOWS
Years ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Cash flows from operating activities: Net earnings $ 1,403,780 $ 1,290,459 $ 1,108,782 Adjustments to reconcile net earnings to net cash provided by operating activities: Bad debts (recoveries), net 5,476 28,844 (6,514) Depreciation 721,179 714,903 724,411 Equity in earnings of joint venture (137,992) (140,298) (135,394) Amortization of other assets 77,308 73,530 66,877 Amortization of deferred income (6,498) (6,498) (6,498) Change in assets and liabilities: Accounts and notes receivable (67,152) (74,713) (22,371) Other assets (152,457) (289,013) (74,868) Accounts payable (289) 12,892 865 Accrued property taxes, security deposits and other liabilities and deferred income 51,848 (18,752) 39,103 ----------- ----------- ----------- Net cash provided by operating activities 1,895,203 1,591,354 1,694,393 ----------- ----------- ----------- Cash flows from investing activities: Additions to investment properties (28,583) (317,961) (31,585) Purchases of certificates of deposit (993,972) (498,000) (996,000) Proceeds from redemptions of certificates of deposit 994,986 797,000 995,000 Distributions from joint venture 221,700 210,000 212,700 ----------- ----------- ----------- Net cash provided by investing activities 194,131 191,039 180,115 ----------- ----------- ----------- Cash flows from financing activities - cash distributions (1,926,653) (1,926,654) (1,906,582) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 162,681 (144,261) (32,074) Cash and cash equivalents at beginning of year 745,995 890,256 922,330 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 908,676 $ 745,995 $ 890,256 =========== =========== ===========
See accompanying notes to financial statements. 16 19 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1999 AND 1998 1. ORGANIZATION AND BASIS OF ACCOUNTING The Partnership was formed December 23, 1985 by filing a Certificate and Agreement of Limited Partnership with the Secretary of State of the State of Texas. The Partnership Agreement authorized the issuance of up to 500,000 limited partnership interests at a price of $100 each, of which 314,687 limited partnership interests were issued. Proceeds from the sale of limited partnership interests, net of related selling commissions, dealer-manager fees and other offering costs, are recorded as contributed capital. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Rental income is recognized as earned under the leases. Accordingly, the Partnership accrues rental income for the full period of occupancy using the straight line method over the related terms. At December 31, 1999 and 1998, there were $326,341 and $232,338, respectively, of accounts receivable related to such accruals. Other assets consist primarily of deferred leasing costs which are amortized using the straight line method over the lives of the related leases. Depreciation is provided over the estimated useful lives of the respective assets using the straight line method. The estimated useful lives of the buildings and improvements range from three to twenty-five years. The Partnership periodically reevaluates the propriety of the carrying amounts of investment properties to determine whether current events and circumstances warrant an adjustment to such carrying amounts. Such evaluations are performed utilizing annual appraisals performed by independent appraisers as well as internally developed estimates of expected undiscounted future cash flows. In the event the carrying value of an individual property exceeds expected future undiscounted cash flows, the property is written down to the most recently appraised value. Since inception of the Partnership, none of the Partnership's properties have required write downs. No provision for income taxes has been made as the liabilities for such taxes are those of the individual Partners rather than the Partnership. The Partnership files its tax return on the accrual basis used for Federal income tax purposes. Basic earnings and cash distributions per limited partnership interest are based upon the limited partnership interests outstanding at year-end and the net earnings and cash distributions allocated to the Limited Partners in accordance with the Partnership Agreement, as amended. Basic earnings per limited partnership interest is based on year-end partnership interests outstanding as there has been no change in partnership interests in any period included in these financial statements. There are no dilutive potential partnership interests and, therefore, there is no difference in basic earnings per limited partner interest and diluted earnings per limited partner interests. Continued 17 20 MURRAY INCOME PROPERTIES II LTD. (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS Certificates of deposit are held at commercial banks and are stated at cost, which approximates market. For purposes of reporting cash flows, the Partnership considers all certificates of deposit and highly liquid debt instruments with original maturities of three months or less to be cash equivalents. The following information relates to estimated fair values of the Partnership's financial instruments as of December 31, 1999 and 1998. For cash and cash equivalents, certificates of deposit, accounts receivable, accounts payable, accrued property taxes payable, and security deposits, the carrying amounts approximate fair value because of the short maturity of these instruments. Effective January 1, 1999, the Partnership implemented the provisions of Statement of Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that the costs of start-up activities, including organizational costs, be expensed as incurred. SOP 98-5 required the initial application to be recorded as of the beginning of the fiscal year in which the SOP is first adopted. Due to the nature of capitalized costs of the Partnership, there was no effect of implementation of this new pronouncement on the financial condition or results of operations of the Partnership. 2. PARTNERSHIP AGREEMENT Pursuant to the terms of the Partnership Agreement, Cash Distributions from Operations ("Operating Distributions") are allocated and paid 7% to the Non-corporate General Partner, 3% to the Corporate General Partner and 90% to the Limited Partners. An amount equal to 5% of Operating Distributions out of the 7% allocated to the Non-corporate General Partner and the entire amount of Operating Distributions allocated to the Corporate General Partner is subordinated to the prior receipt by the Limited Partners of a non-cumulative 7% annual return from either Operating Distributions or Cash Distributions from Sales or Refinancings. Net profits or losses, excluding depreciation and gain or loss from sales or refinancing, are allocated to the General Partners and Limited Partners in the same proportions as the Operating Distributions for the year. All depreciation is allocated to those Limited Partners subject to Federal income taxes. Cash Distributions from the sale or refinancing of a property are allocated as follows: (a) First, all Cash Distributions from Sales or Refinancings shall be allocated 99% to the Limited Partners and 1% to the Non-corporate General Partner until the Limited Partners have been returned their Original Invested Capital from Cash Distributions from Sales or Refinancings, plus their Preferred Return from Cash Distributions from Operations or Cash Distributions from Sales or Refinancings. (b) Next, all Cash Distributions from Sales or Refinancings shall be allocated 99% to the General Partners and 1% to the Non-corporate General Partner in an amount equal to any unpaid Cash Distributions from Operations subordinated to the Limited Partners' 7% non-cumulative annual return. Such 99% shall be allocated 62 1/2% to the Non-corporate General Partner and 37 1/2% to the Corporate General Partner. (c) Next, all Cash Distributions from Sales or Refinancings shall be allocated 1% to the Non-corporate General Partner and 99% to the Limited Partners and the General Partners. Such 99% will be allocated 85% to the Limited Partners and 15% to the General Partners. Such 15% shall be allocated 62 1/2% to the Non-corporate General Partner and 37 1/2% to the Corporate General Partner. Continued 18 21 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS (d) Upon the sale of the last property owned by the Partnership, Cash Distributions from Sales or Refinancings shall be allocated and paid to the Partners in an amount equal to, and in proportion with, their existing capital account balances. Such distributions shall be made only after distribution of all Cash Distributions from Operations and only after all allocations of Partnership income, gain, loss, deduction and credit (including net gain from the sale or other disposition of the properties) have been closed to the Partners' respective capital accounts. 3. INVESTMENT PROPERTIES The Partnership owns and operates Paddock Place Shopping Center in Nashville, Tennessee, Germantown Collection Shopping Center located in Germantown (Memphis), Tennessee and 1202 Industrial Place (an office/warehouse facility) located in Grand Prairie, Texas. The Partnership has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", which established standards for the way that public business enterprises report information about operating segments in audited financial statements, as well as related disclosures about products and services, geographic areas, and major customers. The Partnership defines each of its shopping centers and its warehouse as operating segments; however, management has determined that all of its properties have similar economic characteristics and also meet the other criteria which permit the properties to be aggregated into one reportable segment. Management of the Partnership makes decisions about resource allocation and performance assessment based on the same financial information presented throughout these financial statements. The Partnership had no outstanding receivable balances at December 31, 1999 or 1998, which, individually, exceeded 5% of the Partnership's total assets. Rental income from a major customer was approximately $356,000 during year ended December 31, 1999 and approximately $282,000 and $257,000 for the years 1998 and 1997, respectively. Operating leases with tenants range in terms from thirty-three months to fifteen years. Fixed minimum future rentals under existing leases at December 31, 1999 are as follows: Year ending December 31: 2000 $ 2,332,447 2001 2,023,608 2002 1,649,434 2003 1,011,133 2004 691,908 Thereafter 5,732,923 ------------- $ 13,441,453 =============
Rental income includes $572,487, $563,986, and $543,118 in 1999, 1998, and 1997, respectively, related to reimbursements from tenants for common area maintenance costs, real estate taxes and insurance costs. Continued 19 22 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS During 1990, the Partnership reached a settlement with a tenant which provided for the receipt of $245,000 in settlement of all past due rent and a modification of future rental obligations. In connection with this settlement, $12,997 and $19,495 at December 31, 1999 and 1998, respectively, is classified as deferred income and recognized on a straight line basis over the remaining term of this lease. 4. INVESTMENT IN JOINT VENTURE The Partnership owns a 15% interest in Tower Place Joint Venture, a joint venture that owns and operates Tower Place Festival Shopping Center located in Pineville (Charlotte), North Carolina. The Partnership accounts for the joint venture using the equity method. The remaining 85% interest in the joint venture is owned by Murray Income Properties I, Ltd. ("MIP I"), an affiliated real estate limited partnership. The Tower Place Joint Venture Agreement provides that the Partnership will share profits, losses, and cash distributions according to the Partnership's 15% ownership interest in the joint venture. Summarized financial information for the joint venture is as follows:
December 31, ----------------------- 1999 1998 ---------- ---------- Total assets, principally investment property $8,453,953 $8,995,551 ========== ========== Total liabilities 201,940 185,484 Venturers' capital 8,252,013 8,810,067 ---------- ---------- $8,453,953 $8,995,551 ========== ==========
Years ended December 31, ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- Income $1,826,369 $1,810,269 $1,797,162 Expenses 906,422 874,946 894,538 ---------- ---------- ---------- Net earnings $ 919,947 $ 935,323 $ 902,624 ========== ========== ==========
5. TRANSACTIONS WITH AFFILIATES Murray Realty Investors IX, Inc. ("MRI IX"), the Corporate General Partner, entered into a property management agreement with the Partnership for the management of 1202 Industrial Place, effective January 1, 1996. Pursuant to this agreement, MRI IX earned property management fees in the amount of $18,792 and $17,832 during the years ended December 31, 1999 and 1998. MRI IX entered into a property marketing agreement with the Partnership for the leasing of 1202 Industrial Place, effective August 4, 1998. Pursuant to this agreement, MRI IX earned leasing commissions in the amount of $197,865 during the year ended December 31, 1998. No such fees were earned during the year ended December 31, 1999. Continued 20 23 MURRAY INCOME PROPERTIES II, LTD. (A LIMITED PARTNERSHIP) NOTES TO FINANCIAL STATEMENTS 6. RECONCILIATION OF FINANCIAL STATEMENT NET EARNINGS AND PARTNERS' EQUITY TO FEDERAL INCOME TAX BASIS NET EARNINGS AND PARTNERS' EQUITY Reconciliation of financial statement net earnings to Federal income tax basis net earnings is as follows:
Years Ended December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Net earnings - financial statement basis $ 1,403,780 $ 1,290,459 $ 1,108,782 ----------- ----------- ----------- Financial statement basis depreciation/amortization over tax basis depreciation/amortization 115,172 94,799 111,112 Financial statement basis joint venture earnings under tax basis joint venture earnings 16,370 4,798 6,560 Tax basis rental income over (under) financial statement basis rental income (71,300) (41,302) 23,404 ----------- ----------- ----------- Sub-total 60,242 58,295 141,076 ----------- ----------- ----------- Net earnings - Federal income tax basis $ 1,464,022 $ 1,348,754 $ 1,249,858 =========== =========== ===========
Reconciliation of financial statement partners' equity to Federal income tax basis partners' equity is as follows:
Years Ended December 31, --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Total partners' equity - financial statement basis $17,800,605 $18,323,478 $18,959,673 Current year tax basis net earnings over financial statement basis net earnings 60,242 58,295 141,076 Cumulative prior years tax basis net earnings over financial statement basis net earnings 1,375,272 1,316,977 1,175,901 ----------- ----------- ----------- Total partners' equity - Federal income tax basis $19,236,119 $19,698,750 $20,276,650 =========== =========== ===========
Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported above may be subject to change at a later date upon final determination by the taxing authorities. 7. SUBSEQUENT EVENT On March 10, 2000 in a special meeting of the Partnership, the Limited Partners approved the sale of the Partnership's properties, in one or a series of sale transactions (which may include one or more properties owned by MIP I), the subsequent dissolution and liquidation of the Partnership upon the sale of the Partnership's last property, and an amendment to the partnership agreement to permit the proposed asset sale, dissolution and liquidation on the terms set forth in a proxy statement mailed to the limited partners on or about January 14, 2000. As a result, the Partnership will begin marketing the properties for sale, and after the sale of the last property and the winding up of all other business affairs, the Partnership will be liquidated. Management of the Partnership expects no loss to result from the sale of properties. 21 24 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. 22 25 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP. Murray Realty Investors IX, Inc., a Texas corporation, and Crozier Partners IX, Ltd., a Texas limited partnership, are the General Partners of the Partnership. The Limited Partners voting a majority of the interests may, without the consent of the General Partners, remove a General Partner and elect a successor General Partner. The Partnership Agreement provides that the Partnership will have an Investment Committee consisting initially of three members, appointed by Murray Realty Investors IX, Inc. (the "Corporate General Partner"). A person appointed to the Investment Committee may be removed by the Corporate General Partner, but the Corporate General Partner must name a replacement. The acquisition, sale, financing or refinancing of a Partnership property must be approved by a majority of the members of the Investment Committee. The members of the Investment Committee currently are Messrs. Jack E. Crozier, Mitchell L. Armstrong and W. Brent Buck. Murray Realty Investors IX, Inc. is owned 60% by Mr. Armstrong and 40% by Mr. Buck. The following is a brief description of Jack E. Crozier, a general partner of Crozier Partners IX, Ltd., a General Partner, and the directors and executive officers of the Corporate General Partner: Crozier Partners IX, Ltd., General Partner Jack E. Crozier, 71, General Partner. From 1954 through July 1990, Mr. Crozier was affiliated with Murray Financial Corporation and various of its affiliates. From 1977 through 1988, he was President of Murray Financial Corporation, and from 1982 until June 1989, he also served as President of Murray Savings Association, a principal affiliate of Murray Financial Corporation. He served as President or Director of various other subsidiaries of Murray Financial Corporation which were engaged in real estate finance, development and management. He also served as the general partner in a number of publicly registered limited partnerships, and a number of non-registered limited partnerships, all of which had real estate as their principal assets. He is a consultant to several companies. Murray Realty Investors IX, Inc., Corporate General Partner The directors and executive officers of Murray Realty Investors IX, Inc. are: Mitchell L. Armstrong, 49, President and Director. Mr. Armstrong became President of Murray Realty Investors IX, Inc. on November 15, 1989. From September 1984 to that date, he was Senior Vice President - Product Development of Murray Realty Investors, Inc. and Murray Property Investors, and Vice President - Tax for Murray Properties Company. From November 1988 to November 15, 1989, he also served as Secretary to these companies. From August 1983 to September 1984, he was Executive Vice President of Dover Realty Investors. From September 1980 to August 1983, he was with Murray Properties Company, in charge of tax planning and reporting. From July 1972 to August 1980, he was with the international accounting firm of Deloitte Haskins and Sells (now Deloitte & Touche). Mr. Armstrong is a Certified Public Accountant and a Certified Financial Planner and holds a Bachelor of Business Administration degree with high honors in Accounting from Texas Tech University. He is a member of the American Institute of Certified Public Accountants and a member of the Institute of Certified Financial Planners. W. Brent Buck, 44, Executive Vice President and Director. Mr. Buck became Executive Vice President of Murray Realty Investors VIII, Inc., on November 15, 1989. From September 1981 to November 15, 1989, Mr. Buck served in various capacities for Murray Properties Company and certain subsidiaries. His primary responsibilities included property acquisitions and asset management. He was responsible for initially identifying and negotiating the purchase of all 23 26 properties in the Partnership, except for Mountain View Plaza Shopping Center. Since their acquisition to the present time, he has continued to oversee the management of all properties of the Partnership. Mr. Buck holds a Master of Business Administration degree in Finance and a Bachelor of Public Administration degree in Urban Administration from the University of Mississippi. He also holds a Texas real estate salesman license and a Mississippi broker's license. ITEM 11. EXECUTIVE COMPENSATION. Pursuant to an amendment to the Partnership Agreement effective November 15, 1989, Murray Income Properties II, Ltd. is reimbursed by Murray Income Properties I, Ltd. for forty-seven percent (47%) of executive compensation incurred in the management of the two partnerships. Murray Income Properties I, Ltd. is a real estate limited partnership, the general partners of which are affiliates of the General Partners. The following table presents Murray Income Properties II, Ltd.'s share of executive compensation. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ----------------------------------- All Other Name and Principal Position Year Salary Compensation (1) ---- ---------- ---------------- Mitchell L. Armstrong, 1999 $ 67,687 $ 2,874 President* 1998 66,621 2,848 1997 65,507 2,815 W. Brent Buck, 1999 50,405 1,773 Executive Vice President* 1998 49,611 1,733 1997 48,782 1,695
* Offices held in Murray Realty Investors IX, Inc., the Corporate General Partner. (1) The Partnership provides the named executive officers with certain group life, health, medical and other non-cash benefits generally available to all salaried employees. The amounts shown in this column include the following: (a) Matching contributions by the Partnership under its SIMPLE-IRA plan which equaled 3% of each employee's covered compensation (salary and term insurance value). During 1999 the Partnership's matching contributions were $2,050 for Mr. Armstrong and $1,521 for Mr. Buck. (b) Full premium cost of term insurance that will benefit the executive. The Partnership and Murray Income Properties I, Ltd. entered into severance agreements with Mr. Armstrong and Mr. Buck effective September 16, 1996. Pursuant to these agreements, upon the occurrence of specified events, the Partnership will be obligated for fifty-three (53%) of any benefits paid pursuant to the agreements to either Mr. Armstrong or Mr. Buck. The agreement with Mr. Armstrong provides for a benefit amount equal to the value of the aggregate of one month of his highest monthly salary paid at any time during the twelve months prior to his termination multiplied by fifteen (15), plus the current monthly cost of such health, disability and life benefits (including spousal or similar coverage and coverage for children) which he was receiving or entitled to receive immediately prior to termination multiplied by eighteen (18). The agreement with Mr. Buck provides for a benefit amount equal to the value of the aggregate of one month of his highest monthly salary paid at any time during the twelve months prior to his termination multiplied by twelve (12), plus the current monthly cost of such health, disability and life benefits (including 24 27 spousal or similar coverage and coverage for children) which he was receiving or entitled to receive immediately prior to termination multiplied by fourteen (14). The Partnership has not paid and does not propose to pay any bonuses or deferred compensation, compensation pursuant to retirement or other plans, or other compensation to the officers, directors or partners of the General Partners other than described in the above table or the above paragraph. In addition, there are no restricted stock awards, options or stock appreciation rights, or any other long term incentive payouts. During the operational and liquidation stages of this Partnership, the General Partners and their affiliates receive various fees and distributions. For information on these types of remuneration, reference is made to the section entitled "Management Compensation" as contained in the Prospectus dated February 20, 1986 filed as a part of Amendment No. 1 to Registrant's Form S-11 Registration Statement (File No. 33-2394) attached hereto as Exhibit 99d. See "Item 13. Certain Relationships and Related Transactions" for information on the fees and other compensation or reimbursements paid to the General Partners or their Affiliates during the year ended December 31, 1999. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. No person (including any "group" as that term is used in Section 13 (d)(3) of the Securities Exchange Act of 1934) is known to the Partnership to be the beneficial owner of more than five percent of the outstanding voting Interests as of December 31, 1999. The following table presents certain information regarding the number of Interests owned, directly or indirectly, by (i) a general partner of a General Partner and executive officers and directors of a General Partner and (ii) a general partner of a General Partner and executive officers and directors of a General Partner as a group as of December 31, 1999:
Amount and Nature Of Beneficial Percent Title of Class Beneficial Owner Beneficial Ownership of Class - ------------------------------- ---------------- -------------------- -------- Limited Partnership Interests, Mitchell L. Armstrong 377(1) .12% $100 per Interest W. Brent Buck 251(2) .08% Jack E. Crozier 736(3) .23% Limited Partnership Interest, All General Partners $100 per Interest as a group 1,057 .34%
(1) The total of 377 Interests listed above includes 126 Interests owned beneficially and of record by First Trust Corporation, Trustee for the benefit of Mitchell L. Armstrong IRA; 195 Interests owned by Murray Realty Investors IX, Inc., a corporation in which Mr. Armstrong is an officer, director, and substantial owner; and 56 Interests owned by Crozier Partners IX, Ltd., a partnership in which Mr. Armstrong is a limited partner. (2) The total of 251 Interests listed above includes 195 Interests owned by Murray Realty Investors IX, Inc., a corporation in which Mr. Buck is an officer, director and substantial owner; and 56 Interests owned by Crozier Partners IX, Ltd., a partnership in which Mr. Buck is a limited partner. (3) The total of 736 Interests listed above included 272 Interests owned by Crozier Partners IX, Ltd., a partnership in which Mr. Crozier is a general partner and 464 Interests owned by Mrs. Irma Crozier as her separate property. 25 28 No arrangements are known to the Partnership which may result in a change of control of the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During the year ended December 31, 1999 the Partnership was reimbursed by Murray Income Properties I, Ltd. ("MIP I") for forty-seven percent (47%) of the costs associated with the management of the Partnership and MIP I. MIP I is a publicly-registered real estate limited partnership, the general partners of which are affiliates of the General Partners. The reimbursement has been accounted for as a reduction of general and administrative expenses. Murray Realty Investors IX, Inc. ("MRI IX"), the Corporate General Partner, entered into a property management agreement with the Partnership for the management of 1202 Industrial Place, effective January 1, 1996. Pursuant to this agreement, MRI IX earned property management fees in the amount of $18,792 and $17,832 during the years ended December 31, 1999 and 1998. MRI IX entered into a property marketing agreement with the Partnership for the leasing of 1202 Industrial Place, effective August 4, 1998. Pursuant to this agreement, MRI IX earned leasing commissions in the amount of $197,865 during the year ended December 31, 1998. 26 29 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements - See Index to Financial Statements in Item 8 of this Form 10-K 2. Financial Statement Schedules with Independent Auditors' Report Thereon: (i) Valuation and Qualifying Accounts (Schedule II) - Years ended December 31, 1999, 1998, and 1997. (ii) Real Estate and Accumulated Depreciation (Schedule III) - December 31, 1999 All other schedules have been omitted because they are not required or the required information is shown in the financial statements or notes thereto. (b) Reports on Form 8-K filed during the last quarter of the year: None (c) Exhibits: 2a Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on January 13, 2000. (File No. 0-17183) 2b Definitive Soliciting Additional Materials to Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on February 9, 2000. (File No. 0-17183) 2c Definitive Soliciting Additional Materials to Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on February 23, 2000. (File No. 0-17183) 3a Agreement of Limited Partnership of Murray Income Properties II, Ltd.. Reference is made to Exhibit A of the Prospectus dated February 20, 1986 contained in Amendment No. 1 to Partnership's Form S-11 Registration Statements filed with the Securities and Exchange Commission on February 13, 1986. (File No. 33-2294). 3b Amended and Restated Certificate and Agreement of Limited Partnership dated as of November 15, 1989. Reference is made to Exhibit 3b to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (File No. 0-17183) 3c Amended and Restated Certificate and Agreement of Limited Partnership dated as of January 10, 1990. Reference is made to Exhibit 3c to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (File No. 0-17183) 3d Amendment to Amended and Restated Certificate and Agreement of Limited Partnership, dated March 22, 2000. Filed herewith. 27 30 10a Form of Joint Venture Agreement between the Partnership and Murray Income Properties II, Ltd. Reference is made to Exhibit 10h to Post-Effective Amendment No. l to Partnership's Form S-11 Registration Statements, filed with the Securities and Exchange Commission on July 29, 1989. (File No. 33-2394) 10b Lease Agreement with General Cinema to lease certain premises as described within the Lease Agreement dated July 23, 1985 at Tower Place Festival Shopping Center. Reference is made to Exhibit 10q to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (File No. 0-17183) 10c Termination of Lease Agreement with General Cinema Corporation of North Carolina, dated February 11, 2000, terminating the Lease Agreement dated July 23, 1985 at Tower Place Festival Shopping Center. Filed herewith. 10d Lease Agreement with Bally Total Fitness Corporation to lease certain premises as described within the Lease Agreement dated February 14, 2000 at Tower Place Festival Shopping Center. Filed herewith. 10e Lease Agreement with Rafferty's Inc. to lease certain premises as described within the Lease Agreement dated August 12, 1985 at Paddock Place Shopping Center. Reference is made to Exhibit 10r to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (File No. 0-17183) 10f Lease Agreement with Chili's Inc. to lease certain premises as described within the Lease Agreement dated May 19, 1988 at Germantown Collection Shopping Center. Reference is made to Exhibit 10t to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (File No. 0-17183) 10g Settlement and Release Agreement with Rafferty's Inc. and Mid-South Management Group, Inc., dated December 1, 1990. Reference is made to Exhibit 10u to the 1990 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1991. (File No. 0-17183) 10h Management Agreement with Murray Realty Investors IX, Inc. for management and operation services described in the Management Agreement dated January 1, 1996 at 1202 Industrial Place. Reference is made to Exhibit 10a to the Form 10-Q for the Quarter ended March 31, 1996 filed with the Securities and Exchange Commission on May 13, 1996. (File No. 0-17183) 10i Marketing Agreement with Murray Realty Investors IX, Inc. for leasing services described in the Marketing Agreement dated August 4, 1998 at 1202 Industrial Place. Reference is made to Exhibit 10a to the Form 10-Q for the Quarter ended September 30, 1998 filed with the Securities and Exchange Commission on November 6, 1998. (File No. 0-17183) 10j Data Processing System Use Agreement between Murray Income Properties II, Ltd. and The Mavricc Management Systems, Inc., dated September 1, 1998. Reference is made to Exhibit 10h to the 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 1999. (File No. 0-17183) 10k Management Agreement with CK Charlotte Overhead Limited Partnership for management and operation services described in the Management Agreement dated December 2, 1999 at Tower Place Festival Shopping Center. Filed herewith. 28 31 10l Management Agreement with Trammell Crow SE, Inc. for management and operation services described in the Management Agreement dated August 8, 1990 (as extended pursuant to the Modification to Management Agreement dated December 15, 1999) at Germantown Collection Shopping Center. Filed herewith. 10m Management Agreement with Brookside Commercial Services for management and operation services described in the Management Agreement dated March 1, 1991 (as extended pursuant to the Extension of Property Management Agreement dated December 15, 1999 at Paddock Place Shopping Center. Filed herewith. 10n Lease Agreement with Calidad Foods, Inc. to lease certain premises as described within the Lease Agreement dated October 19, 1992, at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10v to the Form 10-Q for the Quarter ended September 30, 1992 filed with the Securities and Exchange Commission on November 13, 1992. (File No. 0-17183) 10o Lease Agreement with Pierce Family Partnership to lease certain premises as described within the Lease Agreement dated October 23, 1992, at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10x to the Form 10-Q for the Quarter ended September 30, 1992 filed with the Securities and Exchange Commission on November 13, 1992. (File No. 0-17183) 10p Amendment to Lease Agreement with Calidad Foods, Inc. dated December 28, 1992 at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10n to the 1992 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 19, 1993. (File No. 0-17183) 10q Amendment to Lease Agreement with Pierce Leahy Corp., a Pennsylvania corporation, as successor in interest to Pierce Family Partnership Ltd., a Pennsylvania limited partnership, dated October 8, 1998, at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10o to the 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 1999. (File No. 0-17183) 10r Lease Agreement with Pierce Leahy Corp., a Pennsylvania corporation, to lease certain premises as described within the Lease Agreement dated October 8, 1998, at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10p to the 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 1999. (File No. 0-17183) 10s Lease Agreement with Brown Group Retail, Inc. to lease certain premises as described within the Lease Agreement dated November 9, 1993 at Tower Place Festival Shopping Center. Reference is made to Exhibit 10p to the 1993 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 1994. (File No. 0-17183) 10t Lease Agreement with Care Management Enterprises, Inc. to lease certain premises as described within the Lease Agreement dated November 16, 1995 at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10p to the 1995 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 22, 1996. (File No. 0-14105) 10u Severance Agreements by and among Murray Income Properties I, Ltd. and Murray Income Properties II, Ltd. and Mitchell L. Armstrong dated September 16, 1996. Reference is made to Exhibit 10a to the 1996 3rd Quarter Report on Form 10-Q filed with the Securities and Exchange Commission on November 8, 1996. (File No. 0-14105) 29 32 10v Severance Agreements by and among Murray Income Properties I, Ltd. and Murray Income Properties II, Ltd. and W. Brent Buck dated September 16, 1996. Reference is made to Exhibit 10b to the 1996 3rd Quarter Report on Form 10-Q filed with the Securities and Exchange Commission on November 8, 1996. (File No. 0-14105) 27 Financial Data Schedule. Filed herewith. 99a Glossary, as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith. 99b Article XIII of the Agreement of Limited Partnership as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith. 99c Amendment No. 9 to the Agreement of Limited Partnership contained in the Proxy Statement dated October 11, 1989. Filed herewith. 99d Management Compensation as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith. (d) Financial Statement Schedules with Independent Auditors' Report Thereon: (i) Valuation and Qualifying Accounts (Schedule II) - Years ended December 31, 1999, 1998, and 1997. (ii) Real Estate and Accumulated Depreciation (Schedule III) - December 31, 1999. All other schedules have been omitted because they are not required or the required information is shown in the consolidated financial statements or notes thereto. 30 33 INDEPENDENT AUDITORS' REPORT The Partners Murray Income Properties II, Ltd.: Under date of February 10, 2000, except as to note 7 which is as of March 10, 2000, we reported on the balance sheets of Murray Income Properties II, Ltd. (a limited partnership) as of December 31, 1999 and 1998, and the related statements of earnings, changes in partners' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, as contained in Item 8 of this annual report on Form 10-K. In connection with our audits of the aforementioned financial statements, we also audited the related financial statement schedules as listed in Item 14(a)2 of this annual report on Form 10-K. These financial statement schedules are the responsibility of the Partnership`s management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG LLP Dallas, Texas February 10, 2000, except as to note 7 which is as of March 10, 2000 31 34 Schedule II MURRAY INCOME PROPERTIES II LTD. (A LIMITED PARTNERSHIP) VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
Balance at Charged to Balance at beginning costs and end of Description of period expenses Deductions period ----------- ----------- ----------- ----------- Allowance for doubtful accounts: Year ended December 31, 1997 $ 9,485 (6,514) 1,524 1,447 =========== =========== =========== =========== Year ended December 31, 1998 $ 1,447 28,844 30,291 -0- =========== =========== =========== =========== Year ended December 31, 1999 $ -0- 5,476 -0- 5,476 =========== =========== =========== ===========
Deductions are primarily for writeoffs of accounts receivable deemed uncollectible by management. 32 35 Schedule III MURRAY INCOME PROPERTIES II, LTD. (a limited partnership) Real Estate and Accumulated Depreciation December 31, 1999
Costs Capitalized Gross Amount Initial Cost Subsequent at which carried at to Partnership (A) to Acquisition Close of Period (D) ------------------------- ---------- --------------------------------------- Buildings and Buildings and Description Encumbrances Land Improvements Improvements Land Improvements Total ----------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Shopping Center Nashville, Tennessee $ 0 $3,153,285 $ 6,615,549 $ 664,184 $3,153,285 $ 7,279,733 $10,433,018 Shopping Center Germantown (Memphis) Tennessee $ 0 $1,751,518 $ 6,395,078 $1,158,565 $1,751,518 $ 7,553,643 $ 9,305,161 Office Warehouse Grand Prairie Texas $ 0 $ 884,488 $ 2,895,376 $ 112,982 $ 884,488 $ 3,008,358 $ 3,892,846 ----------- ---------- ----------- ---------- ---------- ----------- ----------- $ 0 $5,789,291 $15,906,003 $1,935,731 $5,789,291 $17,841,734 $23,631,025 =========== ========== =========== ========== ========== =========== =========== Life on which Depreciation in Fiscal Latest Statement Accumulated Year of Year of Earnings Description Depreciation Construction Acquired is Computed ----------- ----------- ----------- ----------- ---------------- Shopping Center Nashville, Tennessee $3,877,097 1985/86 1986 3-25 YEARS Shopping Center Germantown (Memphis) Tennessee $3,791,991 1987 1988 3-25 YEARS Office Warehouse Grand Prairie Texas $1,483,310 1980 1988 3-25 YEARS ---------- $9,152,398 ==========
Notes: (A) The initial cost to the Partnership represents the original purchase price of the properties (B) Reconciliation of real estate owned for 1999, 1998 and 1997:
1999 1998 1997 ----------- ----------- ----------- Balance at beginning of period $23,602,442 $23,284,481 $23,252,896 Additions during period $ 28,583 $ 317,961 $ 31,585 Retirements during period $ 0 $ 0 $ 0 ----------- ----------- ----------- Balance at close of period $23,631,025 $23,602,442 $23,284,481 =========== =========== ===========
(C) Reconciliation of accumulated depreciation for 1999, 1998 and 1997:
1999 1998 1997 ----------- ----------- ----------- Balance at beginning of period $ 8,431,219 $ 7,716,316 $ 6,991,905 Depreciation expense $ 721,179 $ 714,903 $ 724,411 Retirements during period $ 0 $ 0 $ 0 ----------- ----------- ----------- Balance at close of period $ 9,152,398 $ 8,431,219 $ 7,716,316 =========== =========== ===========
(D) The aggregate cost of real estate at December 31, 1999 for Federal income tax purposes is $24,452,401. 33 36 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MURRAY INCOME PROPERTIES II, LTD. By: Crozier Partners IX, Ltd. a General Partner Dated: March 27, 2000 By: /s/ Jack E. Crozier -------------------------------- Jack E. Crozier a General Partner By: Murray Realty Investors IX, Inc. a General Partner Dated: March 27, 2000 By: /s/ Mitchell Armstrong -------------------------------- Mitchell Armstrong President 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. Murray Realty Investors IX, Inc. a General Partner Dated: March 27, 2000 By: /s/ Brent Buck -------------------------------- Brent Buck Executive Vice President Director Dated: March 27, 2000 By: /s/ Mitchell Armstrong -------------------------------- Mitchell Armstrong Chief Executive Officer Chief Financial Officer Director 34 37 INDEX TO EXHIBITS
Document 2a Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on January 13, 2000. (File No. 0-17183) 2b Definitive Soliciting Additional Materials to Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on February 9, 2000. (File No. 0-17183) 2c Definitive Soliciting Additional Materials to Proxy Statement pursuant to Section 14(a) of the Securities Exchange Act of 1934. Reference is made to the Partnership's Schedule 14A, filed with the Securities and Exchange Commission on February 23, 2000. (File No. 0-17183) 3a Agreement of Limited Partnership of Murray Income Properties II, Ltd.. Reference is made to Exhibit A of the Prospectus dated February 20, 1986 contained in Amendment No. 1 to Partnership's Form S-11 Registration Statements filed with the Securities and Exchange Commission on February 13, 1986. (File No. 33-2294). 3b Amended and Restated Certificate and Agreement of Limited Partnership dated as of November 15, 1989. Reference is made to Exhibit 3b to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (File No. 0-17183) 3c Amended and Restated Certificate and Agreement of Limited Partnership dated as of January 10, 1990. Reference is made to Exhibit 3c to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (File No. 0-17183) 3d Amendment to Amended and Restated Certificate and Agreement of Limited Partnership, dated March 22, 2000. Filed herewith. 10a Form of Joint Venture Agreement between the Partnership and Murray Income Properties II, Ltd. Reference is made to Exhibit 10h to Post-Effective Amendment No. l to Partnership's Form S-11 Registration Statements, filed with the Securities and Exchange Commission on July 29, 1989. (File No. 33-2394) 10b Lease Agreement with General Cinema to lease certain premises as described within the Lease Agreement dated July 23, 1985 at Tower Place Festival Shopping Center. Reference is made to Exhibit 10q to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (File No. 0-17183) 10c Termination of Lease Agreement with General Cinema Corporation of North Carolina, dated February 11, 2000, terminating the Lease Agreement dated July 23, 1985 at Tower Place Festival Shopping Center. Filed herewith. 10d Lease Agreement with Bally Total Fitness Corporation to lease certain premises as described within the Lease Agreement dated February 14, 2000 at Tower Place Festival Shopping Center. Filed herewith.
35 38
Document 10e Lease Agreement with Rafferty's Inc. to lease certain premises as described within the Lease Agreement dated August 12, 1985 at Paddock Place Shopping Center. Reference is made to Exhibit 10r to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (File No. 0-17183) 10f Lease Agreement with Chili's Inc. to lease certain premises as described within the Lease Agreement dated May 19, 1988 at Germantown Collection Shopping Center. Reference is made to Exhibit 10t to the 1989 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1989. (File No. 0-17183) 10g Settlement and Release Agreement with Rafferty's Inc. and Mid-South Management Group, Inc., dated December 1, 1990. Reference is made to Exhibit 10u to the 1990 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1991. (File No. 0-17183) 10h Management Agreement with Murray Realty Investors IX, Inc. for management and operation services described in the Management Agreement dated January 1, 1996 at 1202 Industrial Place. Reference is made to Exhibit 10a to the Form 10-Q for the Quarter ended March 31, 1996 filed with the Securities and Exchange Commission on May 13, 1996. (File No. 0-17183) 10i Marketing Agreement with Murray Realty Investors IX, Inc. for leasing services described in the Marketing Agreement dated August 4, 1998 at 1202 Industrial Place. Reference is made to Exhibit 10a to the Form 10-Q for the Quarter ended September 30, 1998 filed with the Securities and Exchange Commission on November 6, 1998. (File No. 0-17183) 10j Data Processing System Use Agreement between Murray Income Properties II, Ltd. and The Mavricc Management Systems, Inc., dated September 1, 1998. Reference is made to Exhibit 10h to the 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 1999. (File No. 0-17183) 10k Management Agreement with CK Charlotte Overhead Limited Partnership for management and operation services described in the Management Agreement dated December 2, 1999 at Tower Place Festival Shopping Center. Filed herewith. 10l Management Agreement with Trammell Crow SE, Inc. for management and operation services described in the Management Agreement dated August 8, 1990 (as extended pursuant to the Modification to Management Agreement dated December 15, 1999) at Germantown Collection Shopping Center. Filed herewith. 10m Management Agreement with Brookside Commercial Services for management and operation services described in the Management Agreement dated March 1, 1991 (as extended pursuant to the Extension of Property Management Agreement dated December 15, 1999 at Paddock Place Shopping Center. Filed herewith. 10n Lease Agreement with Calidad Foods, Inc. to lease certain premises as described within the Lease Agreement dated October 19, 1992, at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10v to the Form 10-Q for the Quarter ended September 30, 1992 filed with the Securities and Exchange Commission on November 13, 1992. (File No. 0-17183) 10o Lease Agreement with Pierce Family Partnership to lease certain premises as described within the Lease Agreement dated October 23, 1992, at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10x to the Form 10-Q for the Quarter ended September 30, 1992 filed with the Securities and Exchange Commission on November 13, 1992. (File No. 0-17183)
36 39
Document 10p Amendment to Lease Agreement with Calidad Foods, Inc. dated December 28, 1992 at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10n to the 1992 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 19, 1993. (File No. 0-17183) 10q Amendment to Lease Agreement with Pierce Leahy Corp., a Pennsylvania corporation, as successor in interest to Pierce Family Partnership Ltd., a Pennsylvania limited partnership, dated October 8, 1998, at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10o to the 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 1999. (File No. 0-17183) 10r Lease Agreement with Pierce Leahy Corp., a Pennsylvania corporation, to lease certain premises as described within the Lease Agreement dated October 8, 1998, at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10p to the 1998 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 1999. (File No. 0-17183) 10s Lease Agreement with Brown Group Retail, Inc. to lease certain premises as described within the Lease Agreement dated November 9, 1993 at Tower Place Festival Shopping Center. Reference is made to Exhibit 10p to the 1993 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 1994. (File No. 0-17183) 10t Lease Agreement with Care Management Enterprises, Inc. to lease certain premises as described within the Lease Agreement dated November 16, 1995 at 1202 Industrial Place (an office/warehouse facility). Reference is made to Exhibit 10p to the 1995 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 22, 1996. (File No. 0-14105) 10u Severance Agreements by and among Murray Income Properties I, Ltd. and Murray Income Properties II, Ltd. and Mitchell L. Armstrong dated September 16, 1996. Reference is made to Exhibit 10a to the 1996 3rd Quarter Report on Form 10-Q filed with the Securities and Exchange Commission on November 8, 1996. (File No. 0-14105) 10v Severance Agreements by and among Murray Income Properties I, Ltd. and Murray Income Properties II, Ltd. and W. Brent Buck dated September 16, 1996. Reference is made to Exhibit 10b to the 1996 3rd Quarter Report on Form 10-Q filed with the Securities and Exchange Commission on November 8, 1996. (File No. 0-14105) 27 Financial Data Schedule. Filed herewith. 99a Glossary, as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith. 99b Article XIII of the Agreement of Limited Partnership as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith. 99c Amendment No. 9 to the Agreement of Limited Partnership contained in the Proxy Statement dated October 11, 1989. Filed herewith.
37 40
Document 99d Management Compensation as contained in the Prospectus dated February 20, 1986 filed as part of Amendment No. 2 to Registrant's Form S-11 Registration Statement (File No. 33-2394). Filed herewith.
38
EX-3.D 2 AMEND. TO AMEND/RESTATED CERT. AND AGREEMENT 1 EXHIBIT 3d CERTIFICATE OF AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP OF MURRAY INCOME PROPERTIES II, LTD. Pursuant to the provisions of Section 2.02 of the Texas Revised Limited Partnership Act, as amended, the undersigned limited partnership desires to amend its amended and restated certificate and agreement of limited partnership and for that purpose submits the following certificate of amendment, which is executed by a general partner. I. The name of the limited partnership is: Murray Income Properties II, Ltd. II. The Amended and Restated Certificate of Limited Partnership is hereby further amended by adding a new Article XXV and Section 25.1 which shall read in its entirety as follows: "ARTICLE XXV 25.1 Notwithstanding Sections 11.4 and 15.1 or any other provision in this Agreement to the contrary, the General Partners shall have full authority and power to consummate the sale of all of the Partnership's assets and to subsequently dissolve the Partnership upon completion of the asset sale in accordance with the terms approved by a majority of the Limited Partners and as described in that certain Proxy Statement on Schedule 14A filed by the Partnership with the U. S. Securities and Exchange Commission on or about January 13, 2000." IN WITNESS WHEREOF, the undersigned General Partner of the Partnership has caused this Certificate of Amendment to the Amended and Restated Certificate and Agreement of Limited Partnership to be executed to be effective upon filing. MURRAY INCOME PROPERTIES II, LTD. By: Murray Realty Investors IX, Inc., a general partner By: /s/ Mitchell Armstrong ------------------------------ Mitchell Armstrong President EX-10.C 3 TERMINATION OF LEASE AGREEMENT - 2/11/2000 1 EXHIBIT 10c TERMINATION OF LEASE THIS TERMINATION OF LEASE (this "Agreement") is made this 11th day of February, 2000 between TOWER PLACE JOINT VENTURE, a joint venture and successor in interest to Crow-Charlotte Retail #2, Ltd. ("Landlord"), and GENERAL CINEMA CORP. OF NORTH CAROLINA ("Tenant"). Background Statement A. Crow-Charlotte Retail #2, Ltd., predecessor in interest to Landlord, and Tenant entered into that certain Theatre Lease dated July 23, 1985 ("Lease") covering certain premises located in Charlotte, North Carolina and described more particularly therein (Premises"). Landlord has succeeded to the interest of Crow-Charlotte Retail #2, Ltd. with respect to the Premises and the Lease. B. Landlord and Tenant have agreed to terminate the Lease pursuant to the provisions of this Agreement. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency is acknowledged, Landlord and Tenant agree as follows: 1. PAYMENT. On or before the date five (5) business days after Landlord shall have executed this Agreement ("Payment Date"), Tenant shall pay to Landlord, in immediately available funds by wire transfer the sum of Two Million Two Hundred Fifty Thousand and no/100 Dollars ($2,250,000) (the "Release Payment"). The Release Payment shall be wired to the account of Landlord as follows: Account Name: Tower Place Joint Venture Account Number: 08805059654 Bank Name: Texas Commerce Bank ABA Number: 113000609 Contact: Mitchell Armstrong FAX (972) 991-9086 Tenant shall be entitled to a credit against the Release Payment for all base rent, common area maintenance charges and insurance reimbursements paid in accordance with the Lease with respect to the month of January, 2000. 2. TERMINATION OF LEASE: Landlord agrees that upon timely receipt of the Release Payment on the Payment Date, the term of the Lease will be deemed to have expired as of 11:59 p.m. on the Payment Date and Tenant shall have no further obligation to Landlord with respect to the Lease or the Premises, other than those obligations and liabilities which pursuant to the provisions of the Lease or applicable law would survive the Lease's expiration. Tenant agrees that on the Effective Date Tenant shall vacate the Premises and surrender exclusive possession thereof to Landlord in full compliance with all provisions of the Lease. 3. ADDITION PRO-RATA AMOUNTS. Tenant shall remain responsible for all charges accruing under the Lease through the Effective Date including but not limited to common area maintenance charges, common area maintenance reconciliation amounts, base rent, and Tenant's pro-rata share of 1999 property taxes, which pro-rata share of taxes equals the amount of Twenty Eight Thousand Seven Hundred Nineteen and 54/100 Dollars ($28,719.54). No amounts paid by Tenant to Landlord under this Section shall reduce the Release Payment except as expressly provided in Section 1. 4. ACCESS TO PREMISES. Tenant agrees that notwithstanding the provisions of the Lease to the contrary Landlord shall have access to the Premises to show the property to prospective tenants. 5. REPRESENTATIONS AND WARRANTIES. Landlord and Tenant hereby represent and warrant unto the other that (a) the execution, delivery and performance of this Agreement has been duly authorized by each party, respectively; and (b) Landlord and Tenant are the "Landlord" and "Tenant" respectively, under the Lease, and that no assignment of each of their respective interest have been made. 6. RELEASE. (a) Upon timely performance by Tenant of all of its obligations under this Agreement and all obligations accruing under the Lease on or before December 31, 1999, Landlord shall release and forever discharge Tenant and its officers, directors, shareholders, partners, agents, employees, predecessors, successors and assigns, including but not limited to Harcourt General, Inc. (formerly known as General Cinema Corporation), from all claims, contracts, liabilities, obligations or causes of action of any kind, whether known or unknown, fixed or contingent, liquidated or unliquidated, whether sounding in contract or tort, including but not limited to, all claims arising out of or existing in connection with the occupancy of the Premises or the execution of the Lease or any of the terms or provisions thereof, except for Tenant's obligations pursuant to this Agreement, provided, however, that this release shall not cover any rights of Landlord which by their nature would have survived the expiration or early termination of the Lease, all of which are specifically reserved by Landlord. 2 (b) Tenant hereby releases and forever discharges Landlord and its officers, directors, shareholders, partners, members, managers, agents, employees, predecessors, successors and assigns from all claims, contracts, liabilities, obligations or causes of action of any kind, whether known or unknown, fixed or contingent, liquidated or unliquidated, whether sounding in contract or tort, including but not limited to, all claims arising out of or existing in connection with the occupancy of the Premises or the execution of the Lease or any of the terms or provisions thereof, except for Landlord's obligations pursuant to this Agreement. 7. CONFIDENTIALITY. Tenant shall not at any time or in any manner, either directly or indirectly, disclose, divulge, communicate or otherwise reveal or allow to be revealed to any third party the terms, substance or content of this Agreement or the terms, substance or content of any communications, whether written or oral, concerning the negotiation, execution or implementation of this Agreement. 8. BROKERAGE COMMISSIONS. Landlord hereby indemnifies and holds Tenant from all loss, claim, obligation, liability, damage, expense, actions and demands of every kind or nature, including without limitation reasonable attorneys' fees, relating to any brokerage commissions which may now or hereafter be claimed with respect to the Lease or a replacement tenant leasing the Premises. 9. GOVERNING LAW. This Agreement shall be enforced and interpreted according to the laws of the State of North Carolina excluding any choice of law rule which would direct the application of the law of any other state. IN WITNESS WHEREOF, Landlord and Tenant have caused this Agreement to be executed as of the day and year first above written. TENANT: Date of Signature by Tenant: GENERAL CINEMA CORP. OF NORTH CAROLINA January 13, 2000 By: /s/ Frank Stryjewski ----------------------------------------- Its: President LANDLORD: Date of Signature by Landlord: TOWER PLACE JOINT VENTURE, a joint venture February 11, 2000 By: Murray Income Properties I, Ltd., a Texas limited partnership, a Joint Venture By: Murray Realty Investors VIII, Inc. a Texas corporation, General Partner By: /s/ Brent Buck -------------------------------- Title: Executive VP EX-10.D 4 LEASE AGREEMENT WITH BALLY TOTAL FITNESS CORP. 1 EXHIBIT 10d LEASE AGREEMENT BALLY TOTAL FITNESS CORPORATION, TENANT WITH TOWER PLACE JOINT VENTURE, LANDLORD Date: FEBRUARY 14, 2000 Premises: Tower Place Festival Shopping Center Charlotte, North Carolina 2 TABLE OF CONTENTS Article 1 Incorporation and Definitions.....................................................1 1.1 Incorporation.............................................................1 1.2 Definitions...............................................................1 Article 2 Lease and Term....................................................................1 2.1 Lease of the Premises.....................................................1 2.2 Permitted Use.............................................................2 2.3 Term......................................................................2 2.4 Option Terms..............................................................2 2.5 Rent Commencement Date....................................................3 Article 3 Rent..............................................................................4 3.1 Rent......................................................................4 3.2 Measurement of Premises and Memorandum....................................4 3.3 Payment of Rent...........................................................4 3.4 Late Payment..............................................................5 Article 4 Operating Expenses................................................................5 4.1 Operating Expenses........................................................5 4.2 Common Areas..............................................................8 4.3 Taxes.....................................................................8 4.4 Tenant's Proportionate Share..............................................9 4.5 Payment of Operating Expenses............................................10 4.6 Landlord's Books and Records.............................................11 4.7 Personal Property Tax....................................................11 Article 5 Title Insurance..................................................................12 5.1 Title Insurance Policy...................................................12 Article 6 Landlord's Agreements............................................................12 6.1 Landlord's Representations, Warranties and Covenants.....................12 6.2 Parking and Common Areas.................................................14 6.3 Exclusivity..............................................................15 Article 7 Use of the Premises and the Common Areas; Signage................................16 7.1 Quiet Enjoyment..........................................................16 7.2 Compliance with Laws.....................................................16 7.3 Covenant Against Waste...................................................17 7.4 Exterior Signs...........................................................17 7.5 Utilities................................................................17 7.6 Interruption of Utilities................................................18 7.7 Rules and Regulations....................................................18 Article 8 Repairs, Maintenance and Alterations.............................................18 8.1 Repairs, Maintenance and Operation.......................................18 8.2 Tenant's Property........................................................19 8.3 Fixtures and Alterations.................................................20 8.4 Performance of Alterations...............................................20 8.5 Mechanics' Liens and Claims Against Landlord.............................20 Article 9 Assignment and Sublease..........................................................21 9.1 Consent Required.........................................................21 9.2 No Consent Required......................................................21 9.3 Continued Liability......................................................22 9.4 Consent Procedure........................................................22 Article 10 Default by Tenant...............................................................23 10.1 Default In Payment of Rent...............................................23 10.2 Non-Monetary Defaults....................................................23 10.3 Financial Defaults.......................................................23 10.4 Remedies After Default...................................................23 10.5 Reletting After Default..................................................24 10.6 Rights Upon Holding Over.................................................25 10.7 Landlord's Right to Perform Tenant's Covenants...........................25 10.8 Remedies Cumulative; No Acceleration or Consequential Damages............25
- ii - 3 Article 11 Insurance.......................................................................25 11.1 Waivers of Claims and Subrogation........................................25 11.2 Tenant's Insurance.......................................................25 11.3 Landlord as Additional Insured...........................................26 11.4 Landlord's Insurance.....................................................26 Article 12 Damage or Destruction...........................................................28 12.1 Notice...................................................................28 12.2 Restoration after Damage or Destruction..................................28 12.3 Total Destruction........................................................29 12.4 Rent Abatement...........................................................29 12.5 Payment for Restoration..................................................29 12.6 Restoration Near End of Term.............................................30 Article 13 Indemnity.......................................................................30 13.1 Tenant's Indemnity.......................................................30 13.2 Landlord's Indemnity.....................................................30 Article 14 Condemnation....................................................................31 14.1 Total Taking.............................................................31 14.2 Partial Taking...........................................................31 14.3 Parking Areas............................................................31 14.4 Distribution of Award....................................................31 Article 15 Environmental Matters...........................................................31 15.1 Representations..........................................................31 15.2 Covenants................................................................32 15.3 Breach...................................................................32 15.4 Environmental Indemnities................................................33 Article 16 Landlord's Work.................................................................33 16.1 Performance of Landlord's Work...........................................33 16.2 No Liens by Landlord.....................................................35 Article 17 Tenant's Work...................................................................35 17.1 Plans and Specifications.................................................35 17.2 Permits..................................................................36 17.3 Access to Premises.......................................................36 17.4 Performance of Tenant's Work.............................................36 Article 18 Landlord Contribution...........................................................37 18.1 Landlord Contribution....................................................37 18.2 Security.................................................................37 Article 19 Priority of Lease...............................................................38 19.1 Existing Encumbrances....................................................38 19.2 Future Encumbrances......................................................38 Article 20 Landlord's Default..............................................................39 20.1 Remedies for Landlord's Default..........................................39 Article 21 Miscellaneous...................................................................39 21.1 Notices..................................................................39 21.2 Modification of Lease....................................................40 21.3 Covenants Severable......................................................40 21.4 Payment or Performance Under Protest.....................................40 21.5 Tenant's Obligation to Open and Tenant's Right to Cease Operations.......40
- iii - 4 21.6 Construction.............................................................40 21.7 Attorneys' Fees..........................................................40 21.8 Time of the Essence......................................................41 21.9 Short Form Lease.........................................................41 21.10 Landlord's Access to Premises............................................41 21.11 Choice of Law............................................................41 21.12 Parties Bound............................................................41 21.13 Force Majeure............................................................41 21.14 Estoppel Certificate.....................................................42 21.15 Brokerage Commission.....................................................42 21.16 Pre-Sale Space and Grand Opening.........................................42 21.17 Merchants' Association...................................................43 21.18 No Partnership or Joint Venture..........................................43 21.19 Landlord Liability.......................................................43
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SIGNATURES EXHIBIT A LEGAL DESCRIPTION OF THE SHOPPING CENTER EXHIBIT B SITE PLAN EXHIBIT C GUARANTY OF BALLY TOTAL FITNESS HOLDING CORPORATION EXHIBIT D PERMITTED EXCEPTIONS EXHIBIT E SIGN PLAN EXHIBIT F LANDLORD'S WORK EXHIBIT G SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
- v - 6 INDEX TO DEFINITIONS accrue ........................................... 9 ADA .............................................. 7 Additional Rent .................................. 4 Alterations ...................................... 20 Base Rent ........................................ 4 Building ......................................... 1 Capital Items .................................... 6 Certificates ..................................... 3 Commencement Date ................................ 2 Common Areas ..................................... 8 Default Interest Rate ............................ 5 Delivery Date .................................... 3 Delivery Notice .................................. 3 Environmental Laws ............................... 32 Exhibit A ........................................ 1 Exhibit B ........................................ 1 Exhibit C ........................................ 1 Exhibit D ........................................ 12 Exhibit E ........................................ 17 Exhibit F ........................................ 33 Exhibit G ........................................ 38 Expiration Date .................................. 2 Final Plans ...................................... 36 First Option Term ................................ 2 force majeure .................................... 41 Guarantor ........................................ 1 Hazardous Materials .............................. 32 HVAC ............................................. 2 Initial Term ..................................... 2 insurance proceeds ............................... 30 IRC .............................................. 8 Land ............................................. 1 Landlord ......................................... 1 Landlord Contribution ............................ 37 Landlord's Work .................................. 33 Lease Year ....................................... 2 Local Permitting Authorities ..................... 36 Major Title Document ............................. 38 Major Title Document Holder ...................... 38 mechanics' liens ................................. 20 Memorandum of Lease .............................. 41 Operating Expense Statement ...................... 10 Operating Expenses ............................... 5 Option Terms ..................................... 2 Outside Delivery Date ............................ 33 Parking Areas .................................... 8 Permits .......................................... 36 Permitted Exceptions ............................. 12 Permitted Use .................................... 2 Pre Sale Period .................................. 42 Pre Sale Space ................................... 42 Premises ......................................... 1 Punch List ....................................... 34 Rent ............................................. 4 Rent Commencement Date ........................... 3 repair ........................................... 20 Second Option Term ............................... 2
- vi - 7 Shopping Center .................................. 1 Site Plan ........................................ 1 SNDA ............................................. 38 Substantially Completed .......................... 3 Taking Date ...................................... 31 Tax Year ......................................... 9 Taxes ............................................ 8 Tenant ........................................... 1 Tenant's Proportionate Share ..................... 9 Tenant's Work .................................... 35 Term ............................................. 2 Third Option Term ................................ 2 Title Policy ..................................... 12 Work Period Expiration Date ...................... 3
- vii - 8 LEASE AGREEMENT THIS LEASE AGREEMENT is made and entered into on February 14, 2000, by and between TOWER PLACE JOINT VENTURE, a Texas joint venture ("LANDLORD"), having its principal place of business at 5550 LBJ Freeway, Suite 675, Dallas, Texas 75240 and BALLY TOTAL FITNESS CORPORATION, a Delaware corporation ("TENANT"), having a place of business located at 8700 West Bryn Mawr Avenue, Chicago, Illinois 60631. RECITALS: WHEREAS, Landlord owns fee simple title to that certain real property commonly known as the Tower Place Festival Shopping Center, located on NC Highway 51 in Pineville, North Carolina and situated on the land more particularly described on EXHIBIT A attached hereto (the "LAND"), together with all improvements thereon and appurtenances thereto, whether now existing or hereafter to be constructed or created (the "SHOPPING CENTER"), which improvements include, without limitation, the building in which the Premises are located (the "BUILDING"). WHEREAS, Landlord desires to lease to Tenant certain premises (the "PREMISES"), consisting of that portion of the Building (to contain approximately twenty-five thousand (25,000) square feet of space) indicated on the site plan attached hereto as EXHIBIT B (the "SITE PLAN"), as well as to grant to Tenant certain rights to use the Common Areas (including, without limitation, the Parking Areas). Tenant desires to lease the Premises from Landlord, and to use the Common Areas (including, without limitation, the Parking Areas), pursuant to the terms and conditions set forth in this Lease. WHEREAS, as a material inducement for Tenant to enter into this Lease and perform its obligations hereunder, Landlord has agreed to perform Landlord's Work and to provide Tenant with a Landlord Contribution in accordance with the terms hereof. WHEREAS, the performance of the obligations of Tenant under this Lease is to be guaranteed by BALLY TOTAL FITNESS HOLDING CORPORATION, a Delaware corporation ("GUARANTOR"), having a place of business located at 8700 West Bryn Mawr Avenue, 2nd Floor, Chicago, Illinois 60631 pursuant to a Guaranty in the form of EXHIBIT C attached hereto. NOW, THEREFORE, in consideration of the covenants and conditions herein contained and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties hereby agree as follows: ARTICLE 1 INCORPORATION AND DEFINITIONS 1.1 INCORPORATION. The recitals set forth above, as well as the exhibits attached to this Lease, are hereby incorporated into this Lease in their entirety. 1.2 DEFINITIONS. Any term defined in this Lease shall have the meaning ascribed to it herein, regardless of whether the usage of such term shall appear in the text hereof before or after the definition of the same. ARTICLE 2 LEASE AND TERM 2.1 LEASE OF THE PREMISES. Landlord hereby leases and demises the Premises to Tenant, and Tenant hereby hires and takes the Premises from Landlord, for Tenant's use, occupancy and benefit, as well as for the use, occupancy and benefit of Tenant's customers, employees, agents, invitees, subtenants, licensees and concessionaires, during the Term. Landlord hereby also grants to Tenant, for Tenant's benefit, as well as for the benefit of Tenant's customers, employees, agents, invitees, subtenants, licensees, concessionaires and suppliers, a non-exclusive, irrevocable license, coterminous with the Term, for the use of all of the Common Areas for their respective intended purposes (including, without limitation, for purposes of ingress to and egress from the Shopping - 1 - 9 Center and the Premises and, with respect to the Parking Areas, the parking of motor vehicles), such use to be in common only with Landlord, the other tenants of the Shopping Center and their respective customers, employees, agents, invitees, subtenants, licensees, concessionaires and suppliers. Landlord hereby further grants to Tenant an irrevocable license, coterminous with the Term, for the installation, maintenance, repair, replacement, alteration, use and/or operation of telecommunications equipment, utilities and heating, ventilating and air conditioning ("HVAC") equipment on the roof of the Building, subject to governmental requirements and to Landlord's approval as to their location and manner of attachment thereto (such approval not to be unreasonably withheld or delayed). Landlord acknowledges that its grants of the foregoing irrevocable licenses are material inducements for Tenant to enter into this Lease and perform its obligations hereunder. 2.2 PERMITTED USE. The Premises may be used and occupied for the operation of a health and fitness center between the hours of 6:00 a.m. and midnight (or such other hours as Tenant shall determine), seven (7) days a week (or such lesser number of days as Tenant shall determine), and Landlord shall permit Tenant to operate the Premises during all such hours and days, offering such fitness programs, recreational facilities and other services as Tenant may determine (which may include, but need not be limited to, a jogging track, racquetball courts, gymnasiums, jacuzzi, whirlpools, swimming pool, saunas, steam rooms, aerobics and/or floor exercise, free weights, exercise machinery and equipment and physical therapy and rehabilitative services) and the following uses as incidental thereto: massage, office space, child nursery facilities, a restaurant and/or snack/juice bar, retail sales activities (including, without limitation, the sale of vitamins and nutritional supplements) and other usual amenities found in a modern health club facility (collectively, the "PERMITTED USE"), it being understood and agreed that the foregoing list is illustrative and not exhaustive, and that Tenant shall not be obligated to offer each item on such list to its customers. Except for the Permitted Use, the Premises may not be used for any other purpose without the consent of Landlord, not to be unreasonably withheld or delayed. 2.3 TERM. The initial term of this Lease shall be for a period of fifteen (15) years (the "INITIAL TERM"), unless sooner terminated in accordance with the terms of this Lease. This Lease shall commence on the later to occur (the "COMMENCEMENT DATE") of: (a) the date hereof; (b) the date upon which Tenant receives the Subordination, Non-Disturbance and Attornment Agreement required pursuant to Article 19 below; and (c) the date upon which Tenant receives confirmation that Landlord has terminated the existing lease with General Cinema Corporation. and shall expire, unless sooner terminated in accordance with the terms of this Lease, at 11:59 PM on the date (the "EXPIRATION DATE") that is fifteen (15) years after the Rent Commencement Date, plus, if applicable, a sufficient number of additional days so that the Expiration Date shall occur on the last day of a calendar month. The Initial Term, together with all exercised Option Terms, are collectively called the "TERM". The first "LEASE YEAR" shall begin on the Rent Commencement Date and end twelve (12) months thereafter, plus, if applicable, a sufficient number of additional days so that the first Lease Year will end on the last day of a calendar month. Subsequent Lease Years shall mean each successive twelve (12) month period, or portion thereof, of the Term after the first Lease Year. 2.4 OPTION TERMS. Tenant shall have the right to extend the Initial Term for three (3) additional periods of five (5) years each (respectively, the "FIRST OPTION TERM," "SECOND OPTION TERM," "THIRD OPTION TERM" and, collectively, the "OPTION TERMS"). Provided that Tenant is not then in default under the terms of this Lease (after the giving of notice of such default and the expiration of the applicable cure period), Tenant may exercise such extension right by delivering to Landlord written notice of Tenant's election to extend the Initial Term or the then Option Term (as the case may be) no later than six (6) months prior to the expiration of the Initial Term or the then Option Term (as the case may be). If Tenant fails to exercise its extension right for any Option Term, any subsequent extension rights shall lapse. - 2 - 10 2.5 RENT COMMENCEMENT DATE. (a) The "RENT COMMENCEMENT DATE" shall be the earlier to occur of: (i) the date upon which Tenant opens its doors for business to the general public (meaning the commencement of continuous, daily operation of a health club facility therein, and not merely the pre-selling of memberships, the giving of demonstrations or tours in connection therewith and/or the storage or calibration of equipment therein); and (ii) the date (the "WORK PERIOD EXPIRATION DATE") that is one hundred twenty (120) days after the later to occur of: (x) the Commencement Date; (y) the date (the "DELIVERY DATE") that is ten (10) days after the date upon which Landlord shall substantially complete Landlord's Work and give Tenant written notice thereof (the "DELIVERY NOTICE"); and (z) the date upon which Tenant obtains all Permits necessary to complete Tenant's Work. Landlord's Work shall be deemed to be "SUBSTANTIALLY COMPLETED" when the only work remaining to be performed are minor items of decoration, mechanical adjustment and the like, the non-completion of which shall not materially interfere with the performance of Tenant's Work in and to the Premises. (b) For purposes of determining when the Rent Commencement Date shall occur, the Work Period Expiration Date shall be deemed to be postponed by one day for each day, or fraction thereof, that the performance or completion of Tenant's Work shall be hindered or delayed by reason of force majeure. Further, if, by the date that would otherwise be the Work Period Expiration Date, Tenant shall not have obtained final certificates of occupancy or compliance for the Premises (jointly, the "CERTIFICATES") as a result, in whole or in part, of Landlord's failure to complete any of Landlord's Work (including, without limitation, the completion of any work set forth in any Punch List); then, and in any such event, the Work Period Expiration Date shall be deemed to be postponed until all of such work shall be performed or completed and/or any such condition or circumstance shall be remedied or corrected, plus a reasonable period of time thereafter for Tenant to receive all of the Certificates. Additionally, Tenant shall have the right to demand that Landlord perform and complete all of such work, and/or remedy and correct any such condition and/or circumstance, at Landlord's sole cost and expense, whereupon Landlord shall promptly commence the performance of the same and thereafter pursue the same with diligence and continuity to completion. If Landlord shall fail to complete the same within a reasonable time after having been notified of the necessity thereof, Tenant shall have the right to perform and complete any or all of such work, and/or to remedy and correct any or all of such conditions and/or circumstances, for the account and at the expense of Landlord, in which event Tenant shall have the right to set-off all reasonable costs and expenses incurred against the Rent payments next due and owing hereunder. - 3 - 11 ARTICLE 3 RENT 3.1 RENT. Commencing on the Rent Commencement Date, and on the first day of each month thereafter during the Term, Tenant shall pay a fixed base rent ("BASE RENT") for the Premises in the amount set forth below:
ANNUAL RENT ANNUAL LEASE YEAR PSF RENT MONTHLY RENT - ----------------------------- ----------- -------- ------------ 1 - 5 $13.26 $331,500 $27,625.00 6 - 10 $14.26 $356,500 $29,708.33 11 - 15 $15.26 $381,500 $31,791.67 16 - 20 (First Option Term) $15.26 $381,500 $31,791.67 21 - 25 (Second Option Term) $16.26 $406,500 $33,875.00 26 - 30 (Third Option Term) $17.26 $431,500 $35,958.33
All other amounts that become due and payable to Landlord under this Lease shall be deemed to constitute additional rent ("ADDITIONAL RENT"). For purposes of this Lease, the Base Rent and the Additional Rent are sometimes collectively called the "RENT". The Rent for any partial month or other partial period during the Term shall be prorated based upon the actual number of days contained in such period. 3.2 MEASUREMENT OF PREMISES AND MEMORANDUM. After the completion of Landlord's Work and Tenant's Work, either party shall have the right to have the Premises remeasured. If the parties cannot agree on such remeasurement, the parties shall mutually agree upon an architect whose decision shall be binding. If such measurement (from the outside face of any exterior walls of the Building and from the center line of walls shared with other premises, with the Common Areas and with other non-leaseable areas) is different from twenty-five thousand (25,000) square feet (which is the square foot area upon which the Base Rent figures set forth in Section 3.1 above, the Tenant's Proportionate Share figure set forth in Section 4.4 below and the Landlord Contribution amount set forth in Section 18.1 below were all based), then the Base Rent, Tenant's Proportionate Share and the Landlord Contribution shall each be deemed to be adjusted to conform to said measurement for all purposes of this Lease. Regardless of whether such an adjustment is required to be made, Landlord and Tenant shall, not later than thirty (30) days after the prior written request of either of them, execute a Memorandum of Lease Commencement setting forth the following items (each of which shall be calculated in accordance with the terms of this Lease): (a) the Rent Commencement Date; (b) the actual square foot area of the Premises; (c) the Base Rent payments for the Initial Term and the Option Terms; (d) Tenant's Proportionate Share as of such date; and (e) the amount of the Landlord Contribution. For purposes of this Lease, it is hereby understood and agreed that no mezzanine area shall be included in the leaseable square footage of the Premises, and there shall be no Rent payable for any such mezzanine area. 3.3 PAYMENT OF RENT. The Base Rent shall be paid to Landlord in equal monthly installments, in advance, in lawful money of the United States of America. Tenant shall pay each installment on account of Base Rent to Landlord on or before the first day of the month for which - 4 - 12 the same is due, without demand, deduction, or set-off (except as otherwise set forth herein), at such place as Landlord, from time to time, may designate in writing to Tenant. In the absence of such designation, Base Rent shall be paid at the place identified herein for notices to Landlord. 3.4 LATE PAYMENT. If Tenant shall fail to pay any Rent payment when the same is due and payable, such unpaid amount shall bear interest from the due date thereof (after notice and applicable grace periods) to the date of payment at the rate of four percent (4%) over the "prime rate" per annum announced by First Chicago/NBD Bank (or its successor) as of the date of default, twelve percent (12%) per annum, or the maximum legal rate, whichever is lower ("DEFAULT INTEREST RATE"). In addition, Tenant shall pay, as Additional Rent, a fee of Three Hundred and No/100 Dollars ($300.00) for the processing of such late payment if not received by Landlord within five (5) days after notice that the same is due. ARTICLE 4 OPERATING EXPENSES 4.1 OPERATING EXPENSES. (a) "OPERATING EXPENSES" means all costs incurred and paid by Landlord for each calendar year during the Term, from and after the calendar year in which the Rent Commencement Date shall occur, for: (i) maintaining, repairing, operating, lighting, cleaning, painting, landscaping, securing and insuring the exterior Common Areas (including, without limitation, all Parking Areas), but specifically excluding any and all interior Common Areas; and (ii) paying all Taxes that are levied, charged, or assessed against the Shopping Center by any lawful taxing authority. (b) Anything contained in Section 4.1(a) above or elsewhere in this Lease to the contrary notwithstanding: (i) wages, unemployment insurance payments, social security taxes and other employee-related expenses of Landlord's employees shall be included in Operating Expenses only for those employees who are below the level of property manager and who perform services with respect to the Shopping Center (the foregoing expenses with respect to any employee who provides services with respect to the Shopping Center, along with other facilities, shall be included only to the extent of the portion of such expenses that is equitably allocable to the Shopping Center based upon objective criteria reasonably established by Landlord); and (ii) there shall be excluded from Operating Expenses: (A) depreciation of any improvement or other item whatsoever; (B) interest on, amortization of and all other costs and expenses (including without limitation, brokerage commissions, points, commitment fees, title charges, recording charges, taxes and the like) related to any mortgage or deed of trust encumbering the Shopping Center or any portion thereof; (C) the costs of all repairs, improvements and/or replacements, as well as the purchase or leasing of any machinery, equipment, vehicles, supplies, or the like, that, under generally accepted accounting principles consistently applied, are required to be capitalized on the books and records of Landlord (collectively - 5 - 13 "CAPITAL ITEMS"), except as specifically provided otherwise in Section 4.1(c) below; (D) costs of alterations, maintenance and repairs to premises of other tenants (including, without limitation, any permit, license and/or inspection fees) and/or the cost of relocating tenants; (E) costs incurred directly or indirectly in connection with the acquisition of the Land, the construction of the Shopping Center (including, without limitation, the Common Areas), the remodeling or rehabilitation of the Shopping Center (including, without limitation, all or any portion of the Common Areas), the acquisition of any additional land and/or the construction or installation of any additional buildings or other improvements at the Shopping Center (including, without limitation, on any such additional land); (F) the direct and indirect costs and expenses of furnishing any service or facility that is provided to, or available for the use of, one or more tenants (whether or not for a specific charge thereto), but not provided to Tenant; (G) real estate brokerage and leasing commissions and expenses such as advertising; (H) repairs or other work occasioned by a casualty or condemnation; (I) legal expenses (including, without limitation, any costs attributable, directly or indirectly, to entering into leases or other agreements with, enforcing leases or other agreements against, or otherwise related to disputes with any actual or prospective tenant or other occupant of the Shopping Center); (J) costs incurred for, or in connection with, the creation or augmentation of any contingency fund, reserve fund, sinking fund, or other fund or reserve for any purpose (including, without limitation, any reserve fund for bad debts or rent loss); (K) any cost or expense for which Landlord has been reimbursed by any tenant or tenants, by insurance proceeds, by condemnation awards and/or damages, or from any other source, except for any cost or expense reimbursed to Landlord solely through the payment by other tenants of the Shopping Center of their pro-rata contributions toward Operating Expenses pursuant to provisions of similar import to this Article 4; (L) franchise, income and other such taxes; (M) space planner or architect fees related to the construction or remodeling of tenants' space within the Shopping Center; (N) costs incurred for the correction of any defects in the design, workmanship and/or construction of the Shopping Center (including, without limitation, the Common Areas), or any subsequent improvement constructed or installation made with respect to the same, the need for which is discovered within one (1) year after the substantial completion of the same or covered (whenever incurred) by any manufacturer's or installer's warranty; - 6 - 14 (O) costs of repairs or other work necessitated by the negligence or willful misconduct of Landlord, its agents, contractors, or employees; (P) costs of "clean up", remediation, or removal from the Shopping Center of any hazardous substance or material; (Q) costs of insurance maintained on any rentable space in the Shopping Center, whether occupied or vacant; (R) the cost of any increased insurance premiums resulting from the nature or manner of the use of premises by any tenant or occupant of the Shopping Center and/or any alterations or improvements made thereby; (S) any bad debt loss or rent loss; (T) costs of rendering any portion of the Shopping Center (including, without limitation, the Common Areas) in compliance with any applicable law (including, without limitation, the Americans with Disabilities Act ("ADA") and other similar laws), to the extent that the same shall not be in compliance therewith as of the Delivery Date; (U) costs associated with achieving Year 2000 Compliance; (V) any wages, fringe benefits and/or other compensation paid by Landlord to any clerk, attendant, or other person in a commercial concession (if any) operated by Landlord or any affiliate of Landlord; (W) any costs or expenses for sculpture, paintings, or other works of art (including, without limitation, with respect to the purchase, ownership, leasing, insuring, repair and/or maintenance of such works of art); (X) costs related to the formation of Landlord (if Landlord is other than an individual), costs associated with any internal matters of Landlord (including, without limitation, the preparation of tax returns and financial statements and the gathering of data relating thereto, the defense of any lawsuits, the participation in any disputes and/or the selling, syndicating, financing, mortgaging and/or hypothecating of any of Landlord's interest in the Shopping Center) and any other costs associated with the operation of the business of the entity that constitutes Landlord (including, without limitation, Landlord's general overhead) as distinguished from the costs and expenses of operating the Shopping Center; and (Y) any other cost or expense that, under generally accepted accounting principles, consistently applied, would not be considered to be an "operating expense" of the Shopping Center. All management, administrative and other like fees and costs included in Operating Expenses shall be at market rates, regardless of whether payable to Landlord or to a third party. In no event, however, may the aggregate amount of such fees and costs included in Operating Expenses for any calendar year exceed ten percent (10%) of the other Operating Expenses for such calendar year, determined net of Taxes and insurance premiums. - 7 - 15 (c) If, and to the extent that, any Capital Item either: (i) must be made, purchased, or leased by Landlord in order to comply with any legal requirement(s) applicable to Landlord and/or the Shopping Center; or (ii) is such that, at the time in question, Landlord reasonably estimates that the making, purchase, or leasing of the same will result in the avoidance of, or savings in, one or more other items of Operating Expenses, then the cost of such Capital Item shall be amortized on a straight line basis over the useful life thereof in accordance with generally accepted accounting principles consistently applied, the Internal Revenue Code of 1984, as amended (the "IRC") and the regulations promulgated under the IRC. The Operating Expenses for each year of such useful life shall include only that portion of the cost of such Capital Item so amortized during such year, and, with respect to Capital Items of the nature described in subsection (ii) above, only to the extent of any actual avoidance of, or savings in, Operating Expenses as a result of the making, purchase, or leasing of such Capital Item. (d) Landlord shall use all reasonable efforts to control the amount of Operating Expenses for each calendar year. Without intention to limit the generality of the foregoing in any respect, Landlord shall not be permitted to recover more than the actual out-of-pocket costs and expenses incurred by Landlord for those items included in Operating Expenses and for which the tenants at the Shopping Center share pro-rata, plus the administrative and/or management fee referred to in subsection (b) above. To the extent that the cost or expense incurred by Landlord for a product or service, otherwise properly includable in Operating Expenses, shall be greater than the generally prevailing cost or expense for such product or service in the area in which the Shopping Center is located, only the amount of such generally prevailing cost or expense shall be included in Operating Expenses for purposes of this Lease. There shall be no duplications of any item(s) included in Operating Expenses. 4.2 COMMON AREAS. The term "COMMON AREAS" means those portions of the Shopping Center now or hereafter intended for the common use of all tenants thereof (including, without limitation, all parking areas now existing, or hereafter constructed, private streets and alleys, landscaping, curbs, loading areas, sidewalks, lighting facilities and the like at the Shopping Center), EXCLUDING, HOWEVER, space designed for rental or commercial purposes (or otherwise for the exclusive use of any tenant), as the same may exist from time to time, as well as streets and alleys maintained by a public authority. The term "PARKING AREAS" means those portions of the Common Areas intended for use as parking areas, whether now existing or hereafter made available for such use (including, without limitation, those areas designated on the Site Plan as being parking areas). Landlord reserves the right to change, from time to time, the dimensions and location of the Common Areas, as well as the dimensions, identity and type of any buildings in the Shopping Center, SUBJECT, HOWEVER, to the applicable provisions of this Lease (including, without limitation, Section 6.2 hereof). 4.3 TAXES. (a) The term "TAXES" means all real estate taxes, special or extraordinary assessments, or other governmental levies that accrue, during any calendar year, against the Land, the buildings and/or the equipment constituting the Shopping Center, or any similar tax imposed in lieu of such real estate taxes. Landlord's reasonable expenditures for attorneys' fees, appraisers' fees and experts' fees incurred by Landlord in any calendar year in an attempt to minimize Taxes shall be included in the definition of Taxes to be paid pursuant to the terms of this Article 4 to the extent of any actual reduction in Taxes. However, anything contained in this Section 4.3 or elsewhere in this Lease to the contrary notwithstanding, there shall be excluded from Taxes: (i) any increase in the amount of Taxes caused by a "change of ownership" (as defined in the law under which reassessment or real estate tax - 8 - 16 increase results) or otherwise, resulting directly or indirectly from a transfer of all or a portion of Landlord's interest in the Shopping Center; (ii) any increase in the amount of Taxes caused by the creation of additional rentable area at the Shopping Center, or resulting from any construction, improvements, alterations, or replacements made by Landlord or by, or on behalf of, any other tenant except the approximate 6,500 square feet of small tenant space which Landlord is constructing adjacent to the Premises; (iii) any franchise, income, corporate, profit, estate, inheritance, succession, gift, transfer, mortgage, recording and other such taxes, together with any other capital levies, that are, or may be, imposed upon Landlord, the Shopping Center, or any revenue derived therefrom; (iv) any penalties and/or interest for the late payment of any taxes, assessments, or levies; and (v) any impact fees, hook-up fees and other similar charges which shall be Landlord's responsibility. In the event that any real estate taxes, special or extraordinary assessments and/or other governmental levies shall be payable, or shall be subject to conversion so that the same may be payable, in annual or other periodic installments, Landlord shall elect to pay the same in such installments over the longest period available, and there shall be included in Taxes hereunder, with respect to each calendar year or other period in which such an installment shall be payable, only the amount of such installment (together with any interest charged by the taxing authority for the privilege of paying in installments). (b) The term "TAX YEAR" means the fiscal year used by the taxing authorities where the Shopping Center is located. Taxes for any calendar year not coinciding with a Tax Year shall be prorated based upon the actual number of days Tenant is in possession of the Premises and is obligated to pay Rent pursuant to the terms of this Lease. (c) The meaning of "ACCRUE" to define the amount of the Taxes to be included in the Operating Expenses payable by Tenant pursuant to this Article 4 for a particular calendar year is illustrated by the following example. If: (i) the Rent Commencement Date is October 1st; (ii) the applicable Tax Year is the fiscal year commencing on July 1st, then the amount of Taxes to be included in Operating Expenses for the calendar year in which the Rent Commencement Date occurs will be 92/365ths of the Taxes for the then current Tax Year. 4.4 TENANT'S PROPORTIONATE SHARE. "TENANT'S PROPORTIONATE SHARE" means a fraction, the numerator of which shall be the leaseable square foot area of the Premises and the denominator of which shall be the leaseable square foot area of the Shopping Center, PROVIDED, HOWEVER, that: (a) if the real estate tax lot or parcel on which the Building is located does not include the entire Shopping Center, then, for purposes of determining Tenant's contribution toward the payment of Taxes only, "TENANT'S PROPORTIONATE SHARE" shall mean a fraction, the numerator of which shall be the leaseable square foot area of the Premises and the denominator of which shall be the leaseable square foot area of the buildings located on the real estate tax lot or parcel on which the Building is located; and (b) if any tenant or tenants in the Shopping Center pay Taxes directly to the taxing authority and/or provide insurance, operational services and/or maintenance services to such tenant's or tenants' premises (but not to any portion of - 9 - 17 the Common Areas), then, in lieu of Tenant's payment of a share of such Taxes and/or the cost of such services (as the case may be), the floor area(s) of such tenant's or tenants' premises shall be deducted from the denominator in the calculation of Tenant's Proportionate Share for determining Tenant's pro rata contribution toward such Taxes and/or costs (as the case may be). As of the date of this Lease, Landlord represents that Tenant's Proportionate Share is 24%. 4.5 PAYMENT OF OPERATING EXPENSES. (a) Commencing on the first day of the calendar month occurring after the Rent Commencement Date, Tenant shall pay to Landlord, in equal monthly installments, Tenant's Proportionate Share of Landlord's reasonable estimate of the Operating Expenses for the then calendar year, which estimate shall not exceed one hundred and three percent (103%) of the previous calendar year's Operating Expenses exclusive of the cost of security and snow removal. Each installment becoming due to Landlord under this Section 4.5(a) shall be payable as Additional Rent, in the same manner and at the same place as the corresponding installment of Base Rent is payable under this Lease, without demand, deduction, or set-off (except as otherwise set forth in this Lease). Landlord estimates that Tenant's Proportionate Share of Operating Expenses shall be $2.51 for the first Lease Year. (b) Within sixty (60) days after the end of each calendar year during the Term (including, without limitation, the calendar year in which the Expiration Date occurs), Landlord shall furnish Tenant with a written statement, certified by an officer of Landlord, setting forth: (i) the actual amount of the Operating Expenses incurred by Landlord for such calendar year; (ii) a reasonably detailed breakdown of such Operating Expenses on a budget line by budget line basis; (iii) a statement as to the leaseable areas of the Shopping Center upon which Tenant's Proportionate Share is based; (iv) the amount of Tenant's Proportionate Share of such Operating Expenses; (v) the aggregate amount of the installments paid by Tenant pursuant to Section 4.5(a) above during such calendar year; (vi) the amount of any overpayment to be credited to Tenant or any deficiency payable to Landlord; and (vii) the amount of Landlord's reasonable estimate of the Operating Expenses for the then current calendar year, which estimate shall be made subject to the limitations set forth in Section 4.5(a) above and which estimate may be provided prior to the end of each calendar year. Each such statement (an "OPERATING EXPENSE STATEMENT") shall be accompanied by a copy of the real estate tax bill(s) covering, in whole or in part, the calendar year in question. Tenant shall remit the amount of any deficiency to Landlord within thirty (30) days after receipt of the Operating Expense Statement. Landlord shall apply any surplus to payments next falling due from Tenant under this Article 4 or, with respect to the last year of the Term, shall refund such surplus to Tenant simultaneously with the delivery of such Operating Expense Statement. (c) Pending Tenant's receipt of an Operating Expense Statement after the beginning of a calendar year, Tenant shall continue to make the payments set forth in Section 4.5(a) above, on an interim basis, in the same amount as during the preceding calendar year. If, in such Operating Expense Statement (when ultimately received), Landlord's reasonable estimate of the Operating - 10 - 18 Expenses for the then current calendar year shall be greater than Landlord's estimate upon which such interim payments had been based, then, commencing on the first day of the month that shall be more than thirty (30) days after Tenant shall have received such Operating Expense Statement, Tenant shall pay, in addition to and concurrently with Tenant's other payment required by Section 4.5(a) above, Tenant's Proportionate Share of the excess divided by the number of months remaining in the calendar year. If Landlord's reasonable estimate of the Operating Costs for the then current calendar year shall be less than Landlord's estimate upon which such interim payments had been based, then Tenant shall be entitled to credit the amount of the resultant overpayment against the subsequent payments required by this Section, in similar fashion as if there were an underpayment. (d) In the event that Landlord shall receive any refund, rebate, reimbursement, or recovery with respect to any item previously included in Operating Expenses as to which Tenant shall have been assessed Tenant's Proportionate Share thereof (including, without limitation, any refund of Taxes obtained by reason of a reduction in the assessed valuation of the Shopping Center or in the tax rate in effect during any Tax Year), Landlord shall promptly refund to Tenant an amount equal to Tenant's Proportionate Share of the amount of such refund, rebate, reimbursement, or recovery, after first deducting therefrom all reasonable costs and expenses incurred by Landlord in obtaining the same (excluding attorneys' fees, appraisers' fees and experts' fees incurred by Landlord in an attempt to minimize Taxes, to the extent that such costs and expenses were included in Taxes pursuant to Section 4.3(a) above). (e) Landlord's and Tenant's rights and obligations under this Section 4.5 shall survive the expiration of the Term. 4.6 LANDLORD'S BOOKS AND RECORDS. Landlord shall keep complete and accurate books and records, showing all Operating Expenses in accordance with generally accepted accounting practices consistently applied, which books and records shall be maintained on a year-to-year basis and shall be kept for a period of not less than three (3) years after the expiration of the calendar year in question. Tenant shall have the right to dispute in writing any specific item or items on any Operating Expense Statement(s) submitted by Landlord to Tenant pursuant to Section 4.5(b) above. If Tenant shall dispute in writing any such item or items, the parties shall exercise their reasonable good faith efforts to settle such dispute within ninety (90) days following Tenant's notice. Landlord shall reimburse to Tenant all or any part (as the case may be) of such disputed amount determined to be due and owing to Tenant, together with interest thereon at the Default Interest Rate. Upon Tenant's written request, Landlord shall forward to Tenant photocopies of any requested receipts or other back-up items relating to any specific item or items of Operating Expenses disputed by Tenant. Tenant shall have the further right to audit, or to have audited, the bookkeeping and calculation of Landlord's charges to Tenant on account of Operating Expenses (at Tenant's election, either with respect to specific item(s) or generally). Landlord shall cooperate, and shall cause its agents, employees and contractors (including, without limitation, any managing agent of the Shopping Center) to cooperate, in good faith and in all reasonable respects with Tenant and (if applicable) Tenant's designated representative(s) in connection with any such audit. In the event that Tenant's audit discloses discrepancies, the appropriate adjustments shall be made. If such discrepancies are in excess of three percent (3%) of the annual billing to Tenant for such charges, Landlord shall also reimburse Tenant for its actual out-of-pocket costs of such audit. Landlord's and Tenant's rights and obligations under this Section 4.6 shall survive the expiration of the Term. 4.7 PERSONAL PROPERTY TAX. Tenant shall pay in a timely manner personal property taxes on any personal property owned or possessed by Tenant that is located in the Premises. - 11 - 19 ARTICLE 5 TITLE INSURANCE 5.1 TITLE INSURANCE POLICY. It shall be a condition precedent to Tenant's obligations under this Lease that Tenant receive, not later than fifteen (15) days after the date of this Lease, a title insurance policy, a marked-up title insurance binder, or other similar confirmation from Chicago Title Insurance Company, evidencing that ALTA extended coverage leasehold title insurance has been issued in Tenant's favor in an amount of at least $2,000,000, insuring fee simple title to the Shopping Center in Landlord and Tenant's leasehold interest in the Premises subject only to those exceptions described on EXHIBIT D attached hereto (the "PERMITTED EXCEPTIONS"), together with either: (a) an endorsement insuring that no other parties, except Landlord, has rights in and to the Premises; or (b) the deletion from the standard title exceptions of parties in possession pursuant to unrecorded leases. Each party shall execute and promptly return to the title company any documents that are reasonably required by the title company in connection with the issuance of such a policy, binder, or confirmation (as the case may be, the "TITLE POLICY"). Tenant shall be responsible for the payment, in a timely fashion, of all amounts necessary to obtain the Title Policy (including, without limitation, the cost of title insurance premiums and any endorsements thereto requested by Tenant). If Tenant has not received the Title Policy within fifteen (15) days after the date of this Lease (other than solely by reason of Tenant's failure or refusal to pay the foregoing costs and expenses), Tenant shall be entitled, in its sole discretion, to either: (i) terminate this Lease by giving written notice thereof to Landlord at any time thereafter (but prior to Tenant's receipt of the Title Policy), in which event: (x) Tenant shall have no further obligations under this Lease; and (y) Landlord shall reimburse Tenant, within fifteen (15) days after Tenant's written demand, for all costs and expenses (including, without limitation, all reasonable architectural, engineering and legal fees) incurred by Tenant in planning Tenant's leasehold improvements, as well as in negotiating and documenting this Lease; or (ii) waive, or extend the time for completion of, such condition precedent, but nevertheless shall be deemed to reserve the right to avail itself of any and all other rights and remedies available to Tenant under this Lease, at law, or in equity. ARTICLE 6 LANDLORD'S AGREEMENTS 6.1 LANDLORD'S REPRESENTATIONS, WARRANTIES AND COVENANTS. (a) Landlord represents and warrants to Tenant that the following are true and correct as of the date of this Lease, and shall continue to be true and correct as of the Delivery Date, as well as covenants with Tenant as follows: (i) Landlord is a joint venture duly organized, validly existing and in good standing under the laws of the State of Texas. Landlord has the requisite power to own and lease the Shopping Center, including, without limitation, the Common Areas (including, without limitation, the Parking Areas) and the Premises, and to carry on its business as and where presently conducted. - 12 - 20 (ii) Landlord has the full right, power and lawful authority to enter into this Lease, to lease the Premises to Tenant and to perform all of Landlord's obligations hereunder. All proceedings required by, or on the part of, Landlord and/or its principals to authorize Landlord to execute, deliver and carry out this Lease have been duly and properly taken. This Lease constitutes a legal, valid, binding and enforceable obligation of Landlord. (iii) The execution and delivery of this Lease by Landlord, and Landlord's compliance with its terms and consummation of the transactions contemplated hereby, will not violate, conflict with, or result in a breach of any provisions of the joint venture agreement of Landlord, or constitute a default, require third party consent that has not been obtained by Landlord, or result in the creation of a lien or a right of acceleration under, or otherwise result in a breach or violation of, any contract, commitment, indenture, mortgage, easement, restriction, covenant, note, bond, license, lease, deed of trust, or other instrument or obligation, or any judgment, order, or decree of any court, administrative agency, or other governmental authority, to which Landlord or any of its principals is a party or by which the Shopping Center (including, without limitation, the Premises) may otherwise be bound. There are no reciprocal easement or other agreements that could affect Tenant's rights under this Lease. (iv) Landlord has insurable fee simple title to the Shopping Center (including, without limitation, the Premises, the Common Areas and the Parking Areas), free and clear of all liens, claims, encumbrances and tenancies, except the Permitted Exceptions. (v) All Taxes on the Shopping Center are current and paid, and Landlord has received no written notice from any taxing authority, and has no actual knowledge, of any special charges, impact fees, or assessments levied, or proposed to be levied, against the Shopping Center or any part thereof other than a stormwater assessment fee which is billed monthly as part of utility charges. (vi) The Shopping Center is currently in compliance with all ordinances, rules, regulations and restrictions governing the present uses of the Shopping Center. The Premises are zoned for general business by the Town of Pineville, North Carolina, which allows the Premises to be used for the Permitted Use. Landlord has no knowledge of any fact, action, or proceeding, whether actual, pending, or threatened, that could result in a modification or termination of such zoning classification, ordinances, regulations, or restrictions. Landlord has complied, and shall continue to comply, to the best of Landlord's actual knowledge, with all applicable laws, ordinances, regulations, statutes, rules and restrictions pertaining to and affecting the Shopping Center (including, without limitation, the Building and the Common Areas) as required by the governing bodies having jurisdiction over the Shopping Center. Landlord has received no notice, and has no actual knowledge, that the Shopping Center or the Building violates any applicable zoning ordinance, fire regulation, building code, health code, or other governmental ordinances, orders, or restrictions. Landlord shall cause the Shopping Center (including, without limitation, the Common Areas and the exterior of the Building), as well as the operation and maintenance thereof, to comply with all applicable zoning ordinances, fire regulations, building codes, health codes, the ADA and all other applicable governmental ordinances, orders, or restrictions. Further, Landlord shall, if Tenant's rights under this Lease could be adversely affected, maintain and keep all covenants, restrictions and other agreements of record affecting the Shopping Center or any portion thereof free from any default. (vii) Except as described in this Lease, there are no agreements with any municipality, governmental unit, or subdivision relating to the Shopping Center or the Building that could result in any increased Operating Expense. - 13 - 21 (viii) There is no pending or, to the best of Landlord's knowledge, threatened condemnation or similar proceeding affecting the Shopping Center or any part thereof (including, without limitation, the Building and/or any of the Common Areas), and Landlord is not aware of any facts or circumstances that might result in such a suit or other proceedings. (ix) The Premises have a floor load capacity of not less than 100 lbs. per square foot live load. (b) In the event that: (i) any of the representations and warranties contained in Section 6.1(a) or elsewhere in this Lease is not true and correct as of the applicable date or dates with respect thereto; or (ii) any of the covenants contained in Section 6.1(a) is breached, then, and in either such event, Tenant may, in its sole discretion, after ten (10) days' notice to Landlord and, in the event of a breach of covenant only and then except in an emergency, after thirty (30) days for Landlord to cure (or such longer cure period as may be reasonable under the circumstances, provided that Landlord commences such cure within such thirty (30) day period and diligently prosecutes the same to completion) pursue Tenant's remedies at law or equity, including, without limitation, the right to injunctive relief, cumulatively or alternatively, singularly or in combination. 6.2 PARKING AND COMMON AREAS. (a) Landlord represents and warrants to Tenant that there are currently approximately seven hundred (700) parking spaces in the Parking Areas, all of which are non-designated or non-restricted as to use (other than as required under the ADA or similar law) and all of which are and will be available for parking by customers, employees and other invitees of all tenants of the Shopping Center. Landlord further represents and warrants to Tenant that the Parking Areas are subject only to the agreements (if any) contained in the Permitted Exceptions. (b) Notwithstanding anything to the contrary contained in Section 4.2 above or elsewhere in this Lease, Landlord covenants that: (i) none of the parking lot configuration within the area delineated on the Site Plan as the "Bally Primary Parking Area", traffic patterns (both vehicular and pedestrian), rights to egress, rights to ingress, curbs, driveways and walkways shall be reconfigured, reconstructed, redirected, or altered without Tenant's prior written consent (including, without limitation, changing the size of any parking spaces); (ii) the visibility of the Premises and Tenant's signage from the surrounding streets shall not be impaired by any building or sign located within the Shopping Center, or otherwise constructed within the Shopping Center, that do not presently exist or that are not shown on the Site Plan; (iii) Landlord shall not grant any "exclusive parking" or "designated parking" rights in or to any portion of the Parking Areas, or otherwise restrict the use of any portion of the parking area by Tenant's customers, employees, agents, invitees, subtenants, licensees, concessionaires and suppliers, except as may be required under the ADA or similar law and/or, if Landlord shall so elect, for the restriction of parking by employees of the tenants, subtenants, licensees and concessionaires of the Shopping Center (including, without limitation, Tenant) to a designated area or areas on a non-discriminatory basis as between each of such employees; (iv) Landlord shall not grant any easements of any nature whatsoever directly in front of the Premises (excluding, however, underground utility and other - 14 - 22 similar easements that do not affect the use of the encumbered portions of the Common Areas for their intended purposes and/or access to the Premises), or designate any portion of the Parking Areas located directly in front of the Premises for employee parking pursuant to Subsection (iii) above or otherwise; (v) Landlord shall not establish, charge, or collect any fee or charge of any nature whatsoever for the use of the Parking Areas or any portion thereof (other than through Operating Expenses payable by Tenant pursuant to the provisions of Article 4 of this Lease and by other tenants of the Shopping Center pursuant to any corresponding provisions of their respective leases); and (vi) Other than a freestanding one-story building along the Highway 51 frontage of the Shopping Center as delineated on the Site Plan as "Future Building Area", there shall be no material change to the Site Plan (including, without limitation, the construction and/or installation of any additional stores, shops, buildings, outlots, developments, or improvements (including, without limitation, signs and kiosks) in the Shopping Center) without Tenant's prior written consent, which consent shall not be unreasonably withheld provided that: (x) the proposed change shall not result in a reduction in the number of parking spaces in the Parking Areas below 700 or in a material decrease in the parking ratio with respect to the Shopping Center; (y) in Tenant's reasonable judgment, the proposed change would not materially adversely affect access to and egress from the Premises and the Parking Areas, the visibility of the Premises and/or Tenant's signage, or Tenant's business operations at the Premises; and (z) the proposed change is not to be made, in whole or in part, to any portion of those areas identified on the Site Plan as the "No Build" areas. (c) Landlord acknowledges that the covenants contained in this Section are among the material inducements to Tenant's entering into this Lease, and that any breach thereof by Landlord would be a material breach of this Lease for which monetary damages would not be adequate. In recognition thereof, in the event of any such breach, Tenant shall be entitled (after written notice to Landlord specifying the breach and if Landlord does not cure such breach within thirty (30) days thereafter, or such longer cure period as may be reasonable under the circumstances, provided that Landlord commences such cure within such thirty (30) day period and diligently prosecutes the same to completion), to all rights and remedies available to it at law or in equity (including, without limitation, obtaining injunctive relief forever restraining such breach by Landlord) and to recover from Landlord all of Tenant's costs, expenses and reasonable attorneys' fees incurred in connection with enforcing this Section. 6.3 EXCLUSIVITY. (a) During the entire Term (including, without limitation, during any renewal terms or extension periods, whether or not specifically provided for in this Lease), Tenant shall have the exclusive right to operate a health and fitness center at the Shopping Center. Without limiting the generality of the foregoing in any respect, Landlord shall not enter into any new lease for space in the Shopping Center, modify any existing lease and/or give its consent for, or permit, any other tenant in the Shopping Center to use its premises for a martial arts studio, a weight-reducing salon, or a health and fitness center, any of which offers services and/or activities such as those non-incidental services and/or activities described in the Permitted Use. Landlord further represents and warrants to Tenant that the only leases heretofore entered into by Landlord for spaces in the Shopping Center, and that are in effect or pending commencement as of the date hereof, contain specific permitted use provisions that do not permit the premises demised thereunder to be used for - 15 - 23 any of the aforesaid uses. If, in derogation of its lease of space in the Shopping Center (whether now existing or hereafter entered into), any tenant uses all or any portion of its premises for a use described above, Landlord shall, upon Tenant's written request and at Landlord's sole cost and expense, diligently pursue in good faith any and all remedies available to Landlord (including, without limitation, the commencement and prosecution to final judgment of suitable legal or equitable proceedings) to cause the termination of such use. (b) In the event of a breach of the provisions of this Section 6.3 by Landlord, or a breach of the representation and warranty made by Landlord herein, Tenant may, in its sole discretion, if Landlord fails to cure such default within five (5) days after notice from Tenant: (i) terminate this Lease and receive from Landlord an amount equal to the unamortized cost (as set forth in Tenant's books and records) of Tenant's Work and any subsequent Alterations; (ii) reduce the Rent payable under this Lease to One Dollar ($1.00) per month; and/or (iii) have all other rights and remedies available to it at law or in equity (including, without limitation, the right of injunction). ARTICLE 7 USE OF THE PREMISES AND THE COMMON AREAS; SIGNAGE 7.1 QUIET ENJOYMENT. Landlord covenants that Tenant, upon paying the Rent and all other amounts herein provided, and upon performing all of its obligations under the Lease, shall peacefully and quietly have, hold and enjoy the Premises and the Common Areas, including the Parking Areas. 7.2 COMPLIANCE WITH LAWS. (a) Tenant, at its expense, shall promptly comply with all applicable laws and ordinances, as well as all applicable requirements of the various governmental departments and subdivisions having jurisdiction over the operation of Tenant's business at the Premises. Tenant may, at its expense (and, if necessary, in the name of Landlord), contest, by appropriate proceedings prosecuted diligently and in good faith, the validity, or applicability to the Premises, of any mandate of the nature described above, and Landlord shall cooperate with Tenant in such proceedings. Notwithstanding anything to the contrary provided in this subsection (a) or elsewhere in this Lease, Tenant shall not be obligated to comply with any such mandate during the pendency of such contest, provided that such non-compliance shall neither place Landlord, or any agent, servant, or employee thereof, in imminent jeopardy of prosecution for a crime nor place the Shopping Center, or any part thereof (including, without limitation, the Premises), in imminent jeopardy of being condemned or vacated. (b) Landlord, at its expense, shall promptly comply with all applicable laws and ordinances, as well as all requirements of Landlord's policies of insurance at any time in force and all applicable requirements of the various governmental departments and subdivisions having jurisdiction over the Shopping Center and those parts of the Premises for which Landlord has responsibility hereunder. Landlord may, at its expense, contest, by appropriate proceedings prosecuted diligently and in good faith, the validity, or applicability to the Shopping Center (including, without limitation, the Premises), of any mandate of the nature described above, and Tenant shall cooperate with Landlord in such proceedings. Notwithstanding anything to the contrary provided in this subsection (b) or elsewhere in this Lease, Landlord shall not be obligated to comply with any such mandate during the pendency of such contest, provided that such non-compliance shall neither place Tenant, or any agent, servant, or employee thereof, in imminent jeopardy of prosecution for a crime nor place the Shopping Center, or any part thereof (including, without limitation, the Premises), in imminent jeopardy of being condemned or vacated. - 16 - 24 7.3 COVENANT AGAINST WASTE. Tenant shall not commit any waste to the Premises or permit any overloading of the floors of the Premises. 7.4 EXTERIOR SIGNS. Tenant shall have the right to attach its signs to the exterior elevations of the Premises at any time from and after the date hereof. In addition, from and after the date hereof, Tenant shall have the right to install its signs at any other location on the Building or at the Shopping Center (including any pylon or monument signs) as delineated on the Site Plan. Attached hereto as EXHIBIT E is the Sign Plan for the Premises and for any pylon or monument signs (indicating the design, dimension and location of Tenant's signs), which is hereby approved by Landlord. If EXHIBIT E does not include all possible signs that Tenant may install pursuant to applicable law, Tenant shall have the right, subject to Landlord's prior written consent which shall not be unreasonably withheld or delayed, to place additional written signs on the Building and at such other locations as other tenants of the Shopping Center display their respective signs (exclusive of buildings containing signage only of tenants located therein), including, without limitation, on any monument and/or pylon signs that currently exist or may hereafter be erected at the Shopping Center, all of which shall have the maximum size permitted by applicable code and, with respect to such other locations where other tenants are permitted to display their signs, having a size and prominence at least commensurate with the size of the Premises when compared to the size of the premises occupied by such other tenants. Further, from and after the date hereof, Landlord shall appropriately include the Premises on all maps, directories and/or directional aids situated in the Common Areas (including, without limitation, in the Parking Areas) on which the locations of two or more other tenants' premises are noted, each of which listings of Tenant shall have a size and prominence at least commensurate with the size of the Premises when compared to the size of the premises occupied by such other listed tenants. Landlord shall cooperate with Tenant in obtaining variances, if necessary, in connection with Tenant's signage. All signs must be erected in conformity with city ordinances and other governmental agency requirements. Tenant shall provide panels for such sign and shall be responsible for the maintenance thereof. Notwithstanding anything to the contrary contained herein, during the Term, Landlord shall not alter the position, location, dimensions, visibility or prominence (relative to other tenants) of Tenant's signage in the Shopping Center. 7.5 UTILITIES. From and after the Rent Commencement Date, Tenant shall pay directly to the service provider for all charges for gas, water, electricity, light power, telephone, and all other utility services used or supplied upon, or in connection with, the Premises, PROVIDED, HOWEVER, Landlord shall be responsible for arranging, as well as for paying the cost of, the connection and installation of all meters in connection therewith to the extent not already available at the Premises. Provided that its receipt of utility services therefrom is physically practicable, Tenant shall have the right to negotiate and contract directly with utility service providers of its own choosing for the purchase of utility services. Tenant shall promptly pay all bills for said utilities. In the event that any utilities are furnished to the Premises by Landlord, whether sub-metered or otherwise, then, and in that event: (a) Tenant shall pay Landlord for such utilities, but the applicable per unit cost charged to Tenant for each such utility service (such as, for example, the cost per kilowatt hour of electricity consumed in the Premises) shall not exceed the lesser of: (i) the corresponding per unit cost actually paid by Landlord to the public utility company during the period in question; and (ii) the corresponding per unit cost that Tenant would have paid to the public utility company if its services were being furnished directly to Tenant; (b) Landlord shall, in no event, be permitted to charge any profit, overhead, administrative fee, management fee, surcharge, or the like on any utility payments made by Tenant; (c) provided that the same does not violate any rules or regulations of the applicable utility companies, or violate any applicable laws, ordinances, rules, or - 17 - 25 regulations of any governmental authority having jurisdiction, Tenant shall have the right to install, at Tenant's sole cost and expense, a separate checkmeter to verify the accuracy of Tenant's bills, whereupon the readings from Tenant's checkmeter shall prevail unless Landlord shall reasonably establish that such checkmeter has malfunctioned; and (d) Tenant shall have the right to arrange for its own direct service of any such utility or utilities, at Tenant's sole cost and expense (including, without limitation, the installation of all wires, chases, pipes, meters and the like in accordance with the applicable provisions of this Lease), provided that the same is physically practicable. 7.6 INTERRUPTION OF UTILITIES. In the event that any utilities serving the Premises are discontinued or interrupted, and such discontinuance or interruption was caused, in whole or in part, by the negligence or misconduct of Landlord, its employees or agents, resulting in Tenant's inability to reasonably operate its business at the Premises, Tenant's obligation to pay Rent shall abate in proportion to the interruption of Tenant's ability to carry on its business from the date of such interruption until such time as Tenant is again able to reasonably operate its business at the Premises. 7.7 RULES AND REGULATIONS. Landlord shall have the right to promulgate, from time to time and upon not less than thirty (30) days' prior written notice to Tenant, reasonable rules and regulations governing the use of the Common Areas. Tenant shall comply with such reasonable rules and regulations, provided that the same: (a) are enforced equally, and in a non-discriminatory manner, against all tenants of the Shopping Center; and (b) do not interfere with Tenant's rights under this Lease. Landlord may further, from time to time and upon not less than thirty (30) days' prior written notice to Tenant (other than in an emergency, in which case Landlord shall give Tenant only such notice as is reasonably practicable under the circumstances), close one or more portions of the Common Areas on a temporary basis for purposes of making repairs thereto or, subject to the provisions of Section 6.2 above, alterations thereof, provided, however, that: (i) the extent and duration of each such closure shall be limited to those reasonably necessary under the circumstances; (ii) Landlord shall pursue such work as expeditiously as possible to completion; and (iii) access to the Premises and/or the Parking Areas shall not be unreasonably impaired. ARTICLE 8 REPAIRS, MAINTENANCE AND ALTERATIONS 8.1 REPAIRS, MAINTENANCE AND OPERATION. (a) During the Term, Landlord shall keep and maintain in good condition and repair the roof (keeping the same water tight at all times), foundation, slab, load bearing walls, exterior walls and structural members of the Building, as well as all utilities, electrical, water and sewer systems and facilities located inside of the Premises and not servicing the Premises exclusively. In addition, to the extent that the same are not maintained and repaired by the respective utility companies, Landlord shall keep and maintain in good condition and repair all utilities, electrical, water and sewer systems and facilities located outside of the Premises and servicing the same (whether or not exclusively). Further, Landlord shall keep and maintain in good condition and repair, as well as in a clean and safe condition, the Common Areas (including, without limitation, the Parking Areas), all in compliance with the ADA and all other applicable legal requirements as required by the - 18 - 26 governing bodies having jurisdiction over the Shopping Center, and shall operate and manage the Common Areas (including, without limitation, the Parking Areas) in accordance with generally accepted principles of sound and prudent management consistently applied to the operation and management of comparable shopping centers. Without intention to limit the generality of the foregoing in any respect, Landlord shall perform the following in and to the Common Areas: (i) periodically patch and resurface all driveways, sidewalks, streets and the Parking Areas so as to keep the same free of chuck holes, fissures and cracks, as well as the restripe all Parking Areas not less frequently than once every three (3) years; (ii) keep the Common Areas properly cleaned and swept (which shall be performed as often as necessary, but not less than once per week), drained, free of snow, ice, standing water, rubbish and other obstructions and in a sightly condition; (iii) keep the Common Areas lighted during, and for appropriate periods before and after, the business hours of the Shopping Center (including, without limitation, the cost of electricity to operate any lighting standards or fixtures located in the common areas and the cost of relamping the same as necessary); (iv) maintain signs, markers, painted lines and other means and methods of pedestrian and vehicular traffic control; (v) provide and maintain security and patrol services (including, without limitation, the cost of appropriate measures adopted by Landlord to prevent unauthorized parking in the Parking Areas) to the extent deemed necessary in Landlord's reasonable discretion; (vi) maintain any plantings and landscaped areas; (vii) if required by any governmental authority having jurisdiction thereof, operate and maintain traffic signals or lights, as the case may be, that are presently installed or may be installed hereafter servicing the Shopping Center; and (viii) employ an adequate number of persons to perform, as well as to supervise the performance of, all of the services to be provided by Landlord to the Common Areas (including, without limitation, pay the wages, salaries and fringe benefits of such employees). All costs and expenses paid by Landlord to comply with the provisions of this Section 8.1(a) shall be included as Operating Expenses. (b) During the Term, Tenant shall keep and maintain in good condition and repair, as well as in a clean, tenantable and safe condition, the Premises (including, without limitation, the storefront, entrances, plate glass and, to the extent located within the Premises and servicing the same exclusively, utilities, electrical, water and sewer systems and facilities), other than those items that are Landlord's responsibility to maintain and/or repair pursuant to the terms of Section 8.1(a) hereof. Tenant shall not permit any garbage rubbish, refuse or unreasonable quantities of dirt to accumulate in or about the Premises. Removal of garbage and trash shall be made in the manner and in the areas reasonably prescribed by Landlord. (c) As used in this Lease, unless specifically set forth to the contrary, whenever a party shall have the obligation to "REPAIR" any portion of the Shopping Center, any improvement, system, facility, or the like, or any item of personal property, such obligation shall be deemed to include the obligation to replace such improvement, system, facility, or the like, or item of personal property, as, if, when and to the extent replacement of the same shall be appropriate. 8.2 TENANT'S PROPERTY. All fixtures, signs, equipment, or other personal property, of whatever nature, placed, installed, or affixed in or upon the Premises shall remain the property of - 19 - 27 Tenant and may be removed at any time, provided that Tenant repairs any damage caused by such removal. Tenant shall be under no obligation to restore or remove any of Tenant's leasehold improvements or any changes or Alterations made in accordance with the terms of this Article 8, but shall leave the Premises in broom-clean condition upon the expiration of the Term. 8.3 FIXTURES AND ALTERATIONS. During the Term, Tenant shall have the right to attach fixtures or articles to any portion of the Premises and to make any alterations, additions, improvements or changes or perform any other work in and to the Premises ("ALTERATIONS"). In the event that: (a) such Alterations constitute structural changes; (b) such Alterations affect the exterior portion of the Premises; or (c) if the cost of such Alterations (in Tenant's reasonable estimation) exceeds the sum of Seventy-Five Thousand and No/100 ($75,000) Dollars (excluding the cost of any carpeting, wall coverings and other decorative work performed in conjunction therewith), such Alterations shall be subject to Landlord's prior consent, which consent shall not be unreasonably withheld or delayed. In each case where Landlord's consent is required pursuant to the terms hereof, Tenant shall give Landlord for its approval, which approval shall not be unreasonably withheld or delayed, written notice of its intention to perform such Alterations, together with the plans and specifications covering such Alterations. If Landlord does not respond to Tenant's request for approval of plans and specifications within thirty (30) days of its receipt thereof (silence being deemed approval), then the plans and specifications shall be deemed approved. 8.4 PERFORMANCE OF ALTERATIONS. Tenant shall complete all Alterations promptly and in conformity with the standards set forth in this Article. During the performance of any Alterations, Tenant shall carry "Builder's Risk" insurance naming Landlord and Landlord's mortgagee (provided Tenant has received a non-disturbance agreement in the form specified herein from such mortgagee) as additional insureds, in commercially reasonable amounts. All Alterations performed pursuant to this Article shall be done pursuant to validly issued permits, if required, and in conformity with all applicable laws and ordinances. Tenant shall give Landlord copies of all permits (including occupancy permits) within ten (10) days after request therefor from Landlord. In the event governmental approval is required for any Alterations, upon completion of such Alterations, Tenant shall provide Landlord with copies of revised plans for the Premises reflecting such Alterations. Landlord shall cooperate with, and assist, Tenant in all reasonable respects in connection with obtaining any necessary permits and approval from governmental authorities having jurisdiction with respect to any Alteration that Tenant desires to perform in or to the Premises, provided, however, that Landlord shall not be obligated to incur any expense (other than Landlord's own administrative expense and overhead) in connection with any such cooperation or assistance, and provided, further, that, with respect to any such Alterations that shall require Landlord's consent pursuant to the provisions of this Lease, Tenant shall have theretofore obtained Landlord's prior written consent thereto. 8.5 MECHANICS' LIENS AND CLAIMS AGAINST LANDLORD. Subject to the remaining part of this Section, Tenant shall not permit any mechanics' or materialmen's liens ("MECHANICS' LIENS") to be recorded against the Premises by reason of the Alterations. However, Tenant shall not be required to pay or discharge any such mechanics' liens if, within thirty (30) days after notice of the recording of same, Tenant commences and thereafter proceeds diligently, in good faith, to contest said lien by appropriate proceedings. Before Tenant commences such contest, it shall, upon request, provide Landlord with: (a) a bond which will release the effect of the lien from the Premises and the Shopping Center; or (b) title insurance, insuring Landlord against any defect in Landlord's title resulting from any such mechanics' liens. - 20 - 28 In the event Tenant fails within such thirty (30)-day period to either cause such mechanics' liens to be removed or to contest same in accordance with the terms of this Section 8.5, Landlord shall have the right to discharge the same by paying the amount claimed to be due, and the amount so paid by Landlord shall be due and payable by Tenant on the first day of the next following month as Additional Rent. ARTICLE 9 ASSIGNMENT AND SUBLEASE 9.1 CONSENT REQUIRED. Tenant shall not sublease or license any portion of the Premises, or assign any of its rights contained in this Lease, without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed. Sale by Tenant of more than fifty percent (50%) of its assets or common stock (but only if Tenant's common stock is not publicly traded on any exchange regulated by the United States Securities and Exchange Commission) shall be deemed to be an assignment for purposes of this Section. Notwithstanding the foregoing, Tenant shall have the right to assign or sublease to a health or fitness club that is reasonably acceptable to Landlord, considering its credit standing, reputation and demonstrated operating ability, which will continue to use the Premises in substantially the same fashion as Tenant and for the same Permitted Use as is set forth herein and has operational skills reasonably commensurate with those of Tenant. 9.2 NO CONSENT REQUIRED. Notwithstanding anything to the contrary contained in this Lease, Landlord's consent shall not be required with respect to any of the following transactions: (a) Tenant may license, sublet, or contract with concessionaires to operate certain ancillary parts of Tenant's business customarily offered in a health club (including, without limitation, a restaurant and/or snack/juice bar, retail sales, physical therapy or rehabilitative services, etc.); (b) Tenant may assign this Lease or sublet all or a portion of the Premises: (i) to any corporation with which Tenant is merged or consolidated; (ii) to any person, corporation, or other entity to which substantially all of Tenant's assets or common stock are transferred; or (iii) to any person, corporation, or other entity that controls, or is controlled by, or is under common control with Tenant, provided, however, that: (x) with respect to any such assignment of this Lease, such assignment shall provide, or the assignee shall enter into a written separate agreement providing, that the assignee assumes all of the obligations imposed upon Tenant under the terms of this Lease; and (y) with respect to any such subletting of all or a portion of the Premises, such sublease shall provide, or the sublessor and sublessee shall enter into a separate written agreement providing, that such sublease is subject and subordinate, in all respects, to this Lease and all of the terms, covenants and conditions hereof; and - 21 - 29 (c) Tenant may mortgage, pledge, collaterally assign, hypothecate, or otherwise grant a security interest in this Lease and/or the right, title and interest of Tenant hereunder in the form of a blanket lien covering at least five (5) health and fitness club locations (including the Premises) operated by Tenant and/or any affiliate(s) thereof in connection with any financing obtained by Tenant and/or such affiliate(s). Tenant shall also have the right to mortgage, pledge, collaterally assign, hypothecate, or otherwise grant a security interest in any one or more items of Tenant's furniture, trade fixtures, equipment, merchandise and other personal property used, or otherwise located, in the Premises, as well as to lease (as opposed to own) all or any portion of the same. In this regard, Landlord hereby unconditionally waives: (A) any and all liens and/or security interests (whether by statute or by common law) that Landlord, or its successor or assigns, might otherwise have, or might otherwise hereafter acquire, in or to any of the personal property referred to above; and (B) any and all rights of levy, distraint, or execution with respect to any and all of such personal property, whether afforded to Landlord pursuant to this Lease or otherwise at law or in equity. If Tenant shall default under any loan secured in whole or in part by such personal property, or under any lease of such personal property to Tenant, Landlord shall permit the personal property lender or lessor to enter the Premises, after reasonable advance notice to both Landlord and Tenant, for the purpose of removing such personal property therefrom, regardless of whether a default shall have been committed by Tenant and be outstanding under this Lease. Landlord shall have the right to have its designated representative physically present in the Premises during any actual removal of such personal property. Landlord shall, from time to time upon Tenant's written request, promptly execute and return any confirmations, certificates and other documents (except an amendment to this Lease, unless Landlord agrees to do so in its sole discretion) that such personal property lender or lessor reasonably requests in connection with any such financing or leasing. 9.3 CONTINUED LIABILITY. No assignment or sublease shall relieve Tenant of, or effectuate a release or assignment of, Tenant's liabilities under the terms of this Lease, it being specifically understood and agreed that Tenant shall, in all events, be and remain liable to Landlord throughout the entire Term, except in the event where Tenant becomes merged or consolidated into a different legal entity following an assignment of this Lease to the successor entity pursuant to Section 9.2(b) above and, upon such merger or consolidation, ceases to exist. 9.4 CONSENT PROCEDURE. If Landlord's consent to a proposed assignment or sublease is required hereunder, Tenant shall give Landlord a copy of the prospective assignment or sublease, together with a written request for Landlord's consent (which shall state that Landlord's failure to respond within twenty (20) business days shall be deemed consent) and all reasonably requested information (including but not limited to, financial and operating statements, previous operating experience and qualifications of the proposed assignee or sublessee). Within twenty (20) business days after receiving such request, accompanied by the required information and such other information as Landlord reasonably requests, Landlord shall give Tenant a written notice either: (a) approving the assignment or sublease; or (b) withholding approval of the assignment or sublease with a description of the reasons for such withholding of approval. If Landlord fails to respond within the designated time, then the proposed assignment or sublease shall conclusively be deemed approved. In the event Tenant requests Landlord's consent as aforesaid, Tenant agrees to reimburse Landlord for all expenses, including attorneys' fees incurred by Landlord in connection therewith, which the parties agree shall be in an amount not to exceed the sum of Seven Hundred Fifty and No/100 Dollars ($750.00). - 22 - 30 ARTICLE 10 DEFAULT BY TENANT 10.1 DEFAULT IN PAYMENT OF RENT. If Tenant fails to make payment of any Rent when due, and such failure continues for ten (10) days after Tenant receives written notice thereof from Landlord, then such failure to pay Rent shall be a default under this Lease. 10.2 NON-MONETARY DEFAULTS. If Tenant fails to perform any covenant or is otherwise in breach of any provision of this Lease (except for the defaults set forth in Sections 10.1 and 10.3) for a period of thirty (30) days after Tenant receives written notice thereof from Landlord specifying the nature of such failure, then such failure shall be deemed a default under this Lease; provided, however, that, if the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within thirty (30) days after Tenant's receipt of written notice of such default from Landlord and thereafter diligently prosecutes such cure to completion. 10.3 FINANCIAL DEFAULTS. The following shall be a default under this Lease: (a) if a voluntary or involuntary petition in bankruptcy shall be filed by or against Tenant that is not dismissed within ninety (90) days after its filing; (b) if Tenant shall enter into any formal arrangement with its creditors as a class extending the time within which Tenant may pay any of its obligations and attempting to modify Tenant's obligations under this Lease; (c) if Tenant shall effect any composition that materially alters Tenant's obligations to pay Rent under this Lease; (d) if Tenant shall make any assignment for the benefit of its creditors; (e) if all or any part of Tenant's interest in the Premises shall be: (i) levied upon under execution to satisfy all, or part of, a judgment entered by a court of competent jurisdiction; (ii) levied upon or distrained to pay all, or part of, any governmental tax; or (iii) the subject matter of a receivership proceeding or trusteeship that is not removed or dismissed within ninety (90) days after Tenant receives written notice of such event; or (f) without limiting the terms and conditions of Section 9.2(c) hereof, if Landlord shall receive any written assertion of the existence of a default on the part of Tenant under any documents evidencing, securing or otherwise relating to any indebtedness secured, in whole or in part, by any interest of Tenant related to the Premises or this Lease. 10.4 REMEDIES AFTER DEFAULT. In the event of a default under this Lease as provided herein, and after Tenant's receipt of written notice of such default and the expiration of the applicable cure period, Landlord shall have the option to exercise the following remedies: (a) prosecute and maintain an action or actions, as often as Landlord deems advisable, for collection of Rent, other charges and damages as the same accrue (including without limitation, court costs, attorneys' fees and other costs incurred by Landlord in collection of past due Rent without entering into possession of the Premises or terminating this Lease); - 23 - 31 (b) reenter and take possession of the Premises, and remove Tenant, Tenant's agents, any subtenants, licensees, concessionaires, or invitees and any or all of their property from the Premises, which reentry and removal may be effected by summary proceedings or any other legal or equitable action or proceedings; and/or (c) terminate this Lease by written notice to Tenant, upon which termination: (i) Tenant shall immediately surrender possession of the Premises to Landlord; and (ii) if Tenant fails or refuses to so surrender the Premises, Landlord may take possession in accordance with Section 10.4 (b) above. If Landlord elects to reenter the Premises and relet the same without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. If Landlord terminates this Lease (whether without or after a reentry), Tenant shall have no further interest in this Lease or in the Premises. However, Tenant shall remain liable to Landlord for all damages that Landlord may sustain by reason of Tenant's default, including, without limitation: (x) the cost of reletting the Premises (including, without limitation, the portion of the cost of any tenant improvements and brokerage commissions incurred by Landlord that is fairly allocable to the remainder of the Term, but excluding any portion of the costs thereof that relate to any period beyond such remainder); and (y) an amount equal to the Rent that, but for termination of this Lease, would have been payable by Tenant during the remainder of the Term, less any proceeds from reletting the Premises, payable monthly as such amounts become due. The amount of the Rent payable for the remainder of the Term shall be calculated on the basis of the Monthly Base Rent and Additional Rent payable by Tenant at the time of default plus any future increases which are determinable at the time of calculation. 10.5 RELETTING AFTER DEFAULT. Upon recovery of possession of the Premises by reason of Tenant's default, Landlord shall exercise reasonable efforts to mitigate Tenant's obligations hereunder and shall diligently attempt to procure one or more substitute tenants for all or any portion of the Premises, for the account of Tenant or otherwise, for such rental terms and conditions (which may be for a term extending beyond the Term) and collect the rents therefor, applying them in the following manner: (a) first, to the payment of such reasonable expenses as Landlord may have incurred in recovering possession of the Premises (including, without limitation, reasonable attorneys' fees) and other expenses paid by Landlord in connection with reletting the Premises (including, without limitation, the portion of the cost of any tenant improvements and brokerage commissions incurred by Landlord that is fairly allocable to the remainder of the Term, but excluding any portion of the cost thereof that relates to any period beyond such remainder); and (b) then to the fulfillment of Tenant's obligation to pay Rent hereunder. Any such reletting may be for the remainder of the Term hereof as originally granted or for a longer or shorter period. Notwithstanding the foregoing, Tenant shall have the right to secure and present for Landlord's approval, which approval shall not be unreasonably withheld or delayed, one or more substitute tenants for the Premises. If such rentals received from such reletting during any month shall be less than that to be paid during that month by Tenant hereunder, then Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly. If such rentals received from such reletting shall, on a cumulative basis, exceed the Rent and other obligations of the Tenant owing herein, Landlord shall be entitled to retain the excess rentals. - 24 - 32 10.6 RIGHTS UPON HOLDING OVER. Tenant shall surrender the Premises at the end of the Term. In the event that Tenant shall for any reason remain in possession after the expiration of the Term, such possession shall be as a month-to-month tenant during which time Tenant's liability shall be the same monthly rental plus ten percent (10%) of the Base Rent paid by Tenant during the previous Lease Year. 10.7 LANDLORD'S RIGHT TO PERFORM TENANT'S COVENANTS. If Tenant shall, at any time, be in default in the performance of any act on its part to be performed hereunder (after Tenant's receipt of written notice of such default and the expiration of the applicable cure period), Landlord may (but shall not be obligated to), in lieu of invoking any other remedy for such default, perform such act on the part of Tenant to be performed, in a good and workmanlike manner, and pay any reasonable expenses incidental thereto. All sums so paid by Landlord shall constitute Additional Rent payable thirty (30) days after demand (with interest at the Default Interest Rate). Failure to make such payment when due shall constitute a new default by Tenant, and Landlord thereupon shall have the same rights and remedies as in the case of default by Tenant in the payment of any installment of Base Rent. 10.8 REMEDIES CUMULATIVE; NO ACCELERATION OR CONSEQUENTIAL DAMAGES. The above remedies are in addition to all other remedies available to Landlord at law or in equity. However, notwithstanding anything hereinbefore provided, or contained elsewhere in this Lease, in no event shall Landlord have the right to receive consequential, speculative, punitive, or other similar measures of damages against Tenant, nor shall Landlord be entitled to any remedy that involves or entails acceleration of any Rent payable by Tenant in the future pursuant to this Lease, and Landlord hereby irrevocably waives, for itself and its successors and assigns, its right to seek or receive any such measure of damages or remedy. ARTICLE 11 INSURANCE 11.1 WAIVERS OF CLAIMS AND SUBROGATION. Landlord and Tenant each hereby waive each and every claim for recovery from the other, as well as from any person or entity claiming under or through the party making such waiver (whether by subrogation or otherwise), for any and all loss of, or damage to, the Shopping Center, the Building, the Premises and/or the contents of any of the foregoing, but only to the extent that such loss or damage either: (a) is recoverable under insurance policies carried by the waiving party; or (b) would have been recoverable under insurance policies carried by the waiving party had such party maintained in force the insurance policies and limits required to be maintained by such party under this Lease. Inasmuch as this mutual waiver will preclude the assignment of any such claim, by subrogation or otherwise, to an insurance company or any other person or entity, each party shall, if such party's insurance policies do not themselves permit such waiver of subrogation, cause such insurance policies to be endorsed to permit the same. 11.2 TENANT'S INSURANCE. During the Term, from and after the Delivery Date, Tenant shall maintain insurance, issued by companies licensed and admitted in the State in which the Shopping Center is located, as follows: (a) commercial general liability insurance covering the Premises for bodily injury, death and third party property damage (including, without limitation, contractual liability, personal injury, products liability and completed operations coverages), in an amount not less than $2,000,000 per occurrence and not less than $3,000,000 in the aggregate; - 25 - 33 (b) property insurance covering Tenant's leasehold improvements, as well as all of Tenant's signs, trade fixtures, personal property and equipment located in the Premises, which insurance shall: (i) be written on a special form (all risks) of physical loss or damage basis, for the full replacement cost of the covered items without deduction for physical depreciation thereof; and (ii) provide that any proceeds thereof shall be paid to Tenant; and (c) during the performance of any Alterations, builder's risk insurance against loss or damage from such causes of loss as are embraced by insurance policies of the type known, on the date of this Lease, as "builder's risks" property insurance, which insurance shall: (i) be written on a special form (all risks) of physical loss or damage basis, for not less than the completed value, on a non-reporting form, of the Alterations then being performed; and (ii) provide that any proceeds thereof shall be paid to Tenant. Tenant shall have the right to maintain any or all of the insurance coverages set forth in this Section 11.2 under one or more blanket insurance policies, covering the Premises together with other premises owned and/or occupied by Tenant and/or its affiliates, so long as such blanket policies comply, as to coverages and amounts, with the requirements hereinbefore set forth. Tenant shall further have the right to maintain the liability coverage referred to above in the form of primary and umbrella or excess liability coverages, in such segments as Tenant shall determine from time to time. Any or all of the insurance coverages to be maintained by Tenant pursuant to this Lease may provide for such deductibles as Tenant shall determine, provided that no such policy shall have a deductible in excess of $250,000 (or such greater deductible as is customarily carried, from time to time, by large commercial tenants in the geographic area in which the Shopping Center is located). 11.3 LANDLORD AS ADDITIONAL INSURED. Landlord and Landlord's mortgagee (provided that Tenant has received a non-disturbance agreement in the form specified herein from such mortgagee or as may have been agreed by the Tenant) shall be named as additional insured(s)/loss payee(s) as its (their) interest(s) may appear with respect to all other insurance policy or policies maintained by Tenant pursuant to Section 11.2 hereof with respect to the commercial general liability insurance policy or policies maintained by Tenant pursuant to Section 11.2. Each such policy shall provide, to the extent obtainable, that cancellation or material modification thereof shall require thirty (30) days' prior written notice to Landlord (fifteen (15) days' notice for non-payment of premiums). Certificate(s) of such policies shall be delivered to Landlord not later than thirty (30) days after the Delivery Date. Each such policy shall be renewed, and new certificate(s) deposited with Landlord, at least ten (10) days prior to the expiration thereof. 11.4 LANDLORD'S INSURANCE. Landlord shall maintain insurance, issued by companies licensed and admitted in the State in which the Shopping Center is located, as follows: (a) commercial general liability insurance covering the Common Areas (together with such other portions of the Shopping Center as Landlord may elect) for bodily injury, death and third party property damage (including, without limitation, contractual liability, personal injury, products liability and completed operations coverages), in an amount not less than $2,000,000 per occurrence and not less than $3,000,000 in the aggregate; (b) property insurance covering the Shopping Center (including, without limitation, the Common Areas, the Building and the Premises, but excluding - 26 - 34 Tenant's leasehold improvements), as well as any personal property contained therein and owned by Landlord, which insurance shall: (i) be written on a special form (all risks) of physical loss or damage basis (including, but not limited to, fire and extended coverage, collapse of improvements, flood and earthquake coverage), for the full replacement cost of the buildings located in the Shopping Center (including, without limitation, the Building) and Landlord's personal property, without deduction for physical depreciation thereof, and shall contain an agreed amount endorsement; (ii) include an ordinance or law (including, but not limited to, increased cost of construction and demolition) endorsement; and (iii) provide that any proceeds thereof shall be paid to Landlord; (c) Flood insurance covering all of the buildings located in the Shopping Center (including, without limitation, the Building) in an amount equal to the lesser of: (i) the full replacement cost of such buildings without deduction for physical depreciation thereof; or (ii) the maximum amount of insurance obtainable, PROVIDED, HOWEVER, THAT, if the Shopping Center is located in a flood zone (A or B), a federal flood insurance policy must be maintained in full force and effect in an amount equal to the full replacement cost such buildings without deduction for physical depreciation thereof or $500,000 (whichever is less), in which event the insurance coverage first described in this subsection (c) shall be maintained as excess coverage above the federal flood insurance coverage; (d) during any period of restoration following a casualty or condemnation, or of construction of any additional improvements, builder's risk insurance against loss or damage from such causes of loss as are embraced by insurance policies of the type known, on the date of this Lease, as "builder's risks" property insurance, which insurance shall: (i) be written on a special form (all risk) of physical loss or damage basis (including, but not limited to, fire and extended coverage, collapse of the improvements, flood and earthquake coverage), for either: (x) as to any improvements then being restored following a casualty or condemnation, the full replacement cost of such improvements; and (y) as to any additional improvements then being constructed, an amount not less than the completed value, on a non-reporting form, of the additional improvements then being constructed; and (ii) provide that any proceeds thereof shall be paid to Landlord; and (e) rent insurance for up to twelve (12) months of interruption of rents. - 27 - 35 The proceeds of Landlord's property and builder's risk insurance, in case of loss or damage, shall be applied to repair or rebuild the Shopping Center (including, without limitation, the Common Areas, the Building and the Premises, excluding Tenant's leasehold improvements) in a manner and respect consistent with the requirements of this Lease. Upon request from Tenant, Landlord shall furnish Tenant with evidence of its insurance in the form of an ACORD 27 certificate (or its equivalent, if no longer available). All amounts paid by Landlord for obtaining the insurance required herein shall be included in Operating Expenses. ARTICLE 12 DAMAGE OR DESTRUCTION 12.1 NOTICE. Tenant shall give prompt written notice to Landlord of any damage caused to the Premises by fire or other casualty. 12.2 RESTORATION AFTER DAMAGE OR DESTRUCTION. (a) In the event that the Premises, the Building, or the Common Areas shall be damaged or destroyed by fire or other casualty and this Lease is not terminated as hereinafter provided, Landlord shall promptly rebuild and repair the Premises, the Building and the Common Areas in a first-class manner and with first-class materials to the condition they were in immediately prior to such casualty, at Landlord's sole cost and expense. If the Building or the Premises (which, for purposes of this Article 12, shall not include Tenant's leasehold improvements, signs, personal property, furniture, fixtures and equipment) shall be destroyed or rendered untenantable to an extent in excess of fifty percent (50%) of the floor area thereof, then Landlord may elect either to terminate this Lease or to proceed to rebuild and repair the Building, the Premises and the Common Areas. Landlord shall give notice to Tenant of such election within thirty (30) days after the occurrence of such casualty and, if it elects to rebuild and repair, shall thereafter commence to do so in accordance with the terms hereof within thirty (30) days after such notice. Failure of Landlord to notify Tenant of its election within such thirty (30)-day period shall conclusively result in Landlord's election to rebuild and repair in accordance with the terms hereof. Landlord shall not discriminate unreasonably against Tenant in the exercise of its right to terminate this Lease in accordance with the provisions hereof. (b) In the event that Landlord fails to repair and restore the Premises, the Building and the Common Areas as required in this Article 12, Tenant shall be entitled to have the same, or such portion thereof as Tenant elects, repaired and restored at Landlord's sole cost and expense, and, if Landlord fails to immediately pay Tenant for such work upon demand by Tenant, Tenant shall have the right to set-off against the Rent next due and owing the amount expended by Tenant for such repair and restoration, all without further notice to and cure period of Landlord. Notwithstanding anything to the contrary contained in this Lease, in the event that Landlord does not commence the repair or restoration of such damage within the required time, or in the event that such repairs or restorations are not completed within one hundred eighty (180) days after the date of the casualty, Tenant shall have the right to terminate this Lease upon written notice to Landlord delivered to Landlord (i) not earlier than two hundred ten (210) days after the casualty and (ii) not later than two hundred seventy (270) days after the casualty. (c) Notwithstanding anything in this Lease to the contrary, Landlord's obligation to rebuild and repair the Premises shall, in any event, be limited to (i) the amount of insurance proceeds actually received by Landlord for use in rebuilding and repairing and (ii) restoring them to substantially the same condition in which they existed prior to such casualty, exclusive of Tenant's leasehold improvements, trade fixtures, signs and equipment installed by Tenant. Provided that Landlord's restoration and repairs described in Section 12.2(a) above have been completed and Tenant has received its insurance proceeds covering the Premises, Tenant shall thereafter proceed with reasonable diligence at its sole cost and expense and in any event within thirty (30) days of substantial completion by Landlord of its repairs, to restore, repair and replace its leasehold improvements, trade fixtures, signs and equipment installed by Tenant to substantially the same condition in which they existed prior to such damage or destruction and to use commercially reasonable efforts to reopen within one hundred twenty (120) days after Landlord's restoration and repairs. Tenant shall assign to Landlord, and shall cause any co-insured in Tenant's stead, if - 28 - 36 applicable, to assign to Landlord, immediately upon receipt thereof, all proceeds of Landlord's insurance policies that name Tenant and/or such other co-insured as an additional insured, which proceeds shall be used for such reconstruction. 12.3 TOTAL DESTRUCTION. If the Building or the Premises shall be totally destroyed by fire or other casualty, or if the Building or the Premises shall be so damaged by fire or other casualty that its repair or restoration (including, without limitation, restoration of reasonable means of ingress and egress) under applicable laws and regulations requires more than one hundred eighty (180) days (as determined by a contractor mutually satisfactory to the parties), Landlord and Tenant shall each have the option to terminate this Lease by giving the other party written notice to such effect within sixty (60) days after the date of the casualty, which termination shall be effective as of the date of such notice. Failure of either party to notify the other of its election within such sixty (60) day period shall conclusively result in Landlord's and Tenant's election not to terminate this Lease. 12.4 RENT ABATEMENT. During any period of reconstruction or repair of the Premises, Tenant shall continue the operation of its business within the Premises to the extent practicable. In the event that the entire Premises are totally destroyed, there shall be a complete abatement of Rent. If: (a) the Building, the Common Areas or the Shopping Center shall be damaged or destroyed by fire or other casualty thereby causing the Premises to be inaccessible; or (b) the Premises shall be partially damaged by fire or other casualty, then: (i) if access to, or use of, the Premises as a health club as it was prior to the casualty is not materially impaired, Rent shall abate in the proportion that the unusable area of Premises, as determined by Tenant and Landlord in their good faith discretion, bears to the total area of the Premises; or (ii) if access to, or use of, the Premises as a health club as it was prior to the casualty is materially impaired, Rent shall abate based upon the extent to which access to or use of the Premises as a health club as it was prior to the casualty has been impaired, as determined by Tenant and Landlord in their good faith discretion. In the event that any casualty occurs prior to Tenant's opening the Premises for business, Rent shall abate until Tenant is reasonably able to open the Premises for the purpose of doing business. 12.5 PAYMENT FOR RESTORATION. (a) Subject to Section 12.2(c) and provided that this Lease has not been terminated in accordance with the provisions of this Article, the proceeds of all hazard insurance carried pursuant to Article 11 ("HAZARD INSURANCE PROCEEDS") shall be used to pay for the repair and restoration work performed pursuant to the terms hereof. Landlord and Tenant shall timely make all claims with respect to obtaining the hazard insurance proceeds from the insurer. (b) If the total cost of restoring the Premises, as provided in this Article, is less than the amount of the hazard insurance proceeds applicable to such restoration work, the balance of the hazard insurance proceeds shall be paid to the party responsible for maintaining such insurance upon delivery of final waivers of lien and such other documentation as may be reasonably requested by the other party in order to confirm that such restoration work has been completed in substantial accordance with the terms hereof. - 29 - 37 (c) If this Lease is terminated by either party pursuant to the terms and provisions of this Article, all Rent shall be prorated to the date of such damage or destruction and all hazard insurance proceeds shall be retained by the party whose insurance policies yielded such proceeds. 12.6 RESTORATION NEAR END OF TERM. If the Premises are damaged or destroyed to such an extent as to render them untenantable for a period in excess of thirty (30) days within twenty-four (24) months of the expiration of the Initial Term or of any Option Term hereof, then, at Tenant's or Landlord's option and upon notice to the other given within thirty (30) days after the date of the casualty, this Lease shall terminate as of the date of such damage or destruction. However, if Tenant notifies Landlord that it elects to extend the Term for the next Option Term, such termination shall be deemed to be null and void, and the provisions of the remainder of this Article 12 shall apply. ARTICLE 13 INDEMNITY 13.1 TENANT'S INDEMNITY. Subject to the waiver of subrogation contained in Section 11.1 hereof, Tenant shall indemnify, hold harmless and defend Landlord from and against any and all claims, proceedings, injuries, damages, losses, costs and expenses (including, without limitation, reasonable attorneys' fees and legal costs) suffered or incurred by Landlord (whether directly or by reason of any claim, suit, or judgement brought by, or awarded in favor of, any person or persons) for damages, losses, costs and/or expenses due to, but not limited to, personal injury (including, but not limited to, death resulting at any time therefrom) and/or property damage sustained by any person or persons that arise out of, is occasioned by, or is in any way attributable to the use, operation and/or management of the Premises by Tenant and/or others, as well as the acts or omissions of Tenant, its agents, employees, or contractors while in the Premises, except to the extent that the same is caused intentional misconduct or gross negligence of Landlord or its employees, agents, or contractors. 13.2 LANDLORD'S INDEMNITY. Subject to the waiver of subrogation contained in Section 11.1 hereof, Landlord shall indemnify, hold harmless and defend Tenant from and against any and all claims, proceedings, injuries, damages, losses, costs and expenses (including, without limitation, reasonable attorneys' fees and legal costs) suffered or incurred by Tenant (whether directly or by reason of any claim, suit, or judgement brought by, or awarded in favor of, any person or persons) for damages, losses, costs and/or expenses due to, but not limited to, personal injury (including, but not limited to, death resulting at any time therefrom) and/or property damage sustained by any person or persons that arise out of, is occasioned by, or is in any way attributable to the ownership, operation and/or management of the Shopping Center by Landlord and/or others, as well as the acts or omissions of Landlord, its agents, employees, or contractors, except to the extent that the same is caused by the acts, omissions, or negligence of Tenant or its employees, agents, or contractors while in the Premises. - 30 - 38 ARTICLE 14 CONDEMNATION 14.1 TOTAL TAKING. If more than thirty (30%) percent of the floor area of the Premises (or a lesser amount, in the event that Tenant is unable to reasonably operate its business in the remainder) shall be taken for any public or quasi-public use under any law, ordinance, or regulation, by right of eminent domain, or by private purchase in lieu thereof, this Lease shall terminate, and the Rent shall be abated during the unexpired portion of this Lease effective on the date physical possession is taken by the condemning authority (the "TAKING DATE"). 14.2 PARTIAL TAKING. If this Lease is not terminated in accordance with Section 14.1 above, the Base Rent payable hereunder during the unexpired portion of the Term shall be reduced according to the extent that the interference of such taking has on the operation of Tenant's business at the Premises, effective on the Taking Date. Following such partial taking, Landlord shall make all repairs or alterations that are required to make the remaining portions of the Premises an architectural whole. Tenant's Proportionate Share of Operating Expenses shall be adjusted as of the date of the taking. 14.3 PARKING AREAS. If ten (10%) percent or less of the Parking Areas shall be taken as aforesaid, this Lease shall not terminate, nor shall the Rent payable hereunder be reduced, unless a portion of the Premises shall also be taken (in which event the provisions of Section 14.1 or 14.2, as the case may be, shall apply thereto without regard to the taking of a portion of the Parking Areas). However, if the area of the Parking Areas remaining following such taking, plus any additional parking area provided by Landlord in reasonable proximity to the Shopping Center, shall be less than ninety (90%) percent of the area of the Parking Areas as of either the Delivery Date or immediately prior to the taking (whichever shall be the larger), then, whether or not a portion of the Premises shall also be taken, Tenant may terminate this Lease by giving written notice thereof to Landlord within sixty (60) days after the Taking Date. 14.4 DISTRIBUTION OF AWARD. All compensation awarded for any taking (or the proceeds of private sale in lieu thereof) of the Premises or Parking Areas shall be the property of Landlord, except, however, that: (a) Tenant shall receive from such award an amount equal to its share of the unamortized value of Tenant's leasehold improvements, which shall be deemed to be amortized on a straight-line basis over the period commencing on the Rent Commencement Date and expiring on the last day of the Initial Term; and (b) Landlord shall have no interest in any award made to Tenant for Tenant's loss of business goodwill, moving and relocation expenses, or for the loss of Tenant's fixtures and other tangible personal property. ARTICLE 15 ENVIRONMENTAL MATTERS 15.1 REPRESENTATIONS. Landlord represents and warrants to Tenant as of this date and to the best of Landlord's actual knowledge that : (a) Landlord has received no notice, and has no knowledge, of any respect in which the Shopping Center, or any part thereof, is in violation of any federal, state or local environmental law (including, without limitation, any laws dealing with Hazardous Materials). (b) Landlord has never caused or permitted any Hazardous Materials (except for normal cleaning supplies and construction materials used in accordance with manufacturer's instructions) to be placed, held, located or disposed on, under, or at the Shopping Center, the Premises, or any part thereof; - 31 - 39 (c) Landlord has no notice or knowledge that the Premises or the Shopping Center has ever been used, whether by Landlord or by any other person or entity, as a dump site, or a storage site, whether permanent or temporary, for any Hazardous Materials; and (d) the Premises, the Shopping Center and any ground water existing thereon are free from any underground storage tanks and any toxic and/or hazardous substances as defined in Section 101(14) of the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. Section 9601(14). As used in this Article 15, the term "HAZARDOUS MATERIALS" shall mean any hazardous, toxic, or dangerous substance or material, or any substance or material defined as such in (or for purposes of) the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "super fund" or "super lien" law, or any other federal, state, or local statute, law, ordinance, code, regulation, order, or other requirement of any governmental authority regulating, relating to, or imposing liability for, or standard of conduct concerning, any hazardous, toxic, or dangerous waste, substance, or material, as now or at any time hereafter in effect (collectively, "ENVIRONMENTAL LAWS"). Without limiting the generality of the foregoing, Hazardous Materials shall be deemed to include asbestos (in any form or condition), petroleum, crude oil, natural gas, natural gas liquids and/or polychlorinated biphenyls. 15.2 COVENANTS. Neither Landlord nor Tenant shall generate, transport, treat, store, or dispose of, or in any manner arrange for the disposal or treatment (within the meaning of Environmental Laws) of, any Hazardous Material within the Shopping Center, excepting, however, the proper storage, use and disposal, in the normal operation of the Shopping Center (with respect to Landlord) or of the Premises (with respect to Tenant), of typical, commercially-available chemicals and products (including, without limitation, cleaning products and lubricating oils), so long as such storage, use and disposal comply with all applicable Environmental Laws and any other applicable provisions of this Lease. 15.3 BREACH. If Landlord shall breach any of the representations, warranties, or covenants made by Landlord in this Article 15, Tenant shall have the right, in its sole discretion, upon written notice and, in the event of a breach of covenant only, after allowing Landlord thirty (30) days after the giving of such notice of default within which to cure such breach of covenant (or such longer cure period as may be reasonably necessary under the circumstances, provided that such cure is commenced within the aforesaid thirty (30) day period and is diligently prosecuted to completion), to: (a) terminate this Lease, but only if a governmental agency or political subdivision requires that Tenant cease operating its business at the Premises for a period of thirty (30) consecutive days due to any environmental matters or conditions that were not caused by the acts or negligence of Tenant, its agents, or employees; (b) continue this Lease, but if the Premises, or any portion thereof, shall be rendered untenantable, or if access to the Premises shall be materially impaired, as a direct or indirect result of any environmental matter or condition at the Shopping Center (including, without limitation, as a consequence of any remediation work), abate the Rents payable under this Lease in the same manner, and to the same degree, as provided in Section 12.4 of this Lease, as if such impairment of use or access were instead caused by a fire or other casualty; and/or (c) pursue Tenant's other remedies under this Lease, at law, or in equity, which Tenant may do cumulatively or alternatively, singularly or in combination. If Tenant shall breach the covenant made by Tenant in Section 15.2 above, Landlord shall have the right to pursue Landlord's remedies under this Lease (including, without limitation, the right to terminate this Lease pursuant to Section 10.2 above), at law, or in equity, which Landlord may do cumulatively or alternatively, singularly or in combination. - 32 - 40 15.4 ENVIRONMENTAL INDEMNITIES. Each party shall indemnify, defend (with counsel selected or reasonably approved by the other party) and hold the other party and its officers, employees and agents harmless from any claims, judgments, damages, penalties, fines, costs, liabilities (including sums paid in settlement of claims) or loss, including reasonable attorneys' fees, consultant fees and expert fees (consultants and experts to be selected or reasonably approved by the other party) that arise during or after the Term from, or in connection with, the presence or suspected presence of Hazardous Materials in the soil, ground water, or soil vapor, or in, on, or under the Premises or the Shopping Center (including, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or restoration work required by any federal, state or local governmental agency, or political subdivision because of the presence, or suggested presence, of Hazardous Materials therein or thereon), except to the extent that such Hazardous Materials are present solely as a result of the acts or negligence of such other party, its officers, employees, contractors, or agents. The foregoing indemnities shall survive the expiration or earlier termination of this Lease. ARTICLE 16 LANDLORD'S WORK 16.1 PERFORMANCE OF LANDLORD'S WORK. (a) Attached hereto as EXHIBIT F is a description of the work that Landlord shall perform, at its sole cost and expense, in order to prepare the Shopping Center and the Premises for Tenant's use and occupancy ("LANDLORD'S Work"). Landlord's Work shall be performed pursuant to validly issued permits and, when completed, shall comply with all applicable laws, ordinances, rules, orders and regulations of the governmental authorities having jurisdiction thereover. Landlord shall submit plans for Landlord's Work to Tenant for Tenant's approval within thirty (30) days of lease execution. Tenant shall have a period of ten (10) business days within which to either approve such plans or to make comments or changes thereon. If applicable, Landlord shall promptly revise the plans and resubmit same to Tenant for approval. Landlord's Work shall be substantially completed not later than 210 days after the Commencement Date (the "OUTSIDE DELIVERY DATE"). If Landlord fails to perform and/or substantially complete Landlord's Work as aforesaid, Tenant shall be entitled to: (i) have the same done and paid for by Landlord, and if Landlord fails to immediately pay Tenant for such work upon demand by Tenant, Tenant shall have the right to set-off against Rent payments next due and owing the amount expended by Tenant for such work plus fifteen percent (15%) of the amount thereof, all without further notice or cure period of Landlord; (ii) terminate this Lease by giving written notice thereof to Landlord at any time after the Outside Delivery Date and prior to the Delivery Date, in which event: (x) Tenant shall have no further obligations under this Lease; and (y) Landlord shall reimburse Tenant, within fifteen (15) days after Tenant's written demand, for all costs and expenses (including, without limitation, all reasonable architectural, engineering and legal fees) incurred by Tenant in planning Tenant's leasehold improvements, as well as in negotiating and documenting this Lease; and/or (iii) pursue Tenant's other remedies under this Lease, at law and/or in equity, cumulatively or alternatively, singularly or in combination. (b) Within thirty (30) days after the Delivery Date, Tenant shall prepare and submit to Landlord a list of those items of Landlord's Work requiring correction and/or completion (the "PUNCH LIST"). In the event that Landlord shall object to any item set forth on the Punch List, - 33 - 41 Landlord shall give Tenant written notice thereof within five (5) days after Landlord's receipt of the Punch List, setting forth in reasonable detail the item or items to which Landlord objects and the grounds for such objection. If Landlord shall fail to so notify Tenant within such five (5) day period, then Landlord shall be deemed to have accepted the Punch List and agreed to correct and/or complete (as the case may be) all items set forth thereon in accordance with the provisions of paragraph (c) below. Conversely, if Landlord shall so notify Tenant within such five (5) day period, then: (i) if Landlord shall fail to object to all of the items set forth in the Punch List, then Landlord shall be deemed to have accepted those items on the Punch List as to which Landlord shall not have objected and agreed to correct and/or complete (as the case may be) such items in accordance with the provisions of paragraph (c) below; and (ii) with respect to those items set forth on the Punch List as to which Landlord has so objected: (x) Landlord and Tenant shall attempt in good faith to resolve the dispute within ten (10) days thereafter, and, to the extent that the parties shall agree as to any item(s) to which Landlord has objected, they shall confirm such agreement in writing; and (y) to the extent that the parties are unable to resolve their dispute as to one or more items on the Punch List and join in such a confirmatory writing within such ten (10) day period, Tenant shall have the right, at any time thereafter prior to such a resolution, to submit the dispute for determination by an independent architect mutually selected by the parties, whose written determination shall be conclusive and binding upon the parties. (c) Landlord shall correct and/or complete all items on the Punch List with reasonable diligence but, in any event, within thirty (30) days after Landlord's receipt of the same or, if Landlord shall object to one or more items on the Punch List as and when provided in paragraph (b) above, as to those items within thirty (30) days after Landlord's objection has been resolved as provided in the said paragraph. If Landlord fails to correct and/or complete any of such items within such thirty (30) day period, then Tenant shall be entitled to: (i) have the same done and paid for by Landlord, and if Landlord fails to immediately pay Tenant for such work upon demand by Tenant, Tenant shall have the right to set-off against Rent payments next due and owing the amount expended by Tenant for such work plus fifteen percent (15%) of the amount thereof, all without further notice or cure period of Landlord; and/or (ii) pursue Tenant's remedies at law and in equity, cumulatively or alternatively, singularly or in combination. (d) Tenant's acceptance of possession of the Premises shall, in all respects, be deemed to be subject to Landlord's continuing obligation to correct and/or complete the items set forth on any Punch List theretofore or thereafter delivered to Landlord as set forth in Paragraph (b) above, as well as to correct, diligently and in good faith, any latent defect(s) in the Premises as to which Tenant shall give Landlord written notice, from time to time, within twelve (12) months after the Rent Commencement Date. In the event that Landlord shall fail to so correct any such latent defect(s), Tenant shall have the same remedies as set forth in paragraph (c) above for Landlord's failure to timely correct any Punch List item. (e) None of the costs incurred by Landlord in connection with the performance of Landlord's Work (including, without limitation, in correcting and/or completing any Punch List items(s) and/or in correcting any latent defect(s) as hereinabove provided) shall be included in Operating Expenses. - 34 - 42 16.2 NO LIENS BY LANDLORD. During the Term hereof, Landlord shall not create, or permit to be created or to remain, any mechanics' or materialmen's liens, or any other encumbrances or charges, upon all or a portion of the Premises or upon Tenant's leasehold estate. If any such lien, encumbrance, or charge shall at any time be filed, Landlord shall forthwith cause the same to be discharged of record, PROVIDED, HOWEVER, that Landlord shall not be required to pay or discharge any such liens if, within thirty (30) days after the recording of same, Landlord commences and thereafter proceeds diligently, in good faith, to contest said lien by appropriate proceedings. Before Landlord commences such contest, it shall, upon request, provide Tenant with: (a) a bond that will release the effect of the lien from the Premises or upon Tenant's leasehold estate; or (b) title insurance, insuring Tenant against any defect in Tenant's interest resulting from any such lien or encumbrance. Landlord further agrees to indemnify Tenant for all reasonable costs, attorneys' fees, or other charges incurred by Tenant as a result of any such lien or encumbrance being filed against the Premises or upon Tenant's leasehold estate, and against any costs or claims against Tenant arising out of any such liens or encumbrances. ARTICLE 17 TENANT'S WORK 17.1 PLANS AND SPECIFICATIONS. Other than Landlord's Work, all work in and to the Premises that shall be necessary or desirable in order to prepare the same for Tenant's use and occupancy ("TENANT'S WORK") shall be performed by Tenant at its sole cost and expense (except to the extent that all or a portion of the same is to be reimbursed to Tenant through the Landlord Contribution as and when hereinafter provided). Within thirty (30) days after the latest to occur of: (a) the Commencement Date; (b) the date upon which Landlord delivers to Tenant a complete set of plans for the Building, showing the Premises as the same will be constituted after the completion of Landlord's Work, in form and having content sufficient to permit Tenant's architect to begin to prepare its preliminary plans and specifications for Tenant's Work based thereon; and (c) the date upon which Tenant receives a signed, original copy of the Asbestos Certificate, Tenant shall prepare or cause to be prepared preliminary plans and specifications for Tenant's Work and shall submit the same to Landlord for approval, such approval not to be unreasonably withheld. Landlord shall have a period of fifteen (15) days within which to either approve such plans and specifications or to make comments or changes thereon. If Landlord does not respond to Tenant's submission of plans and specifications within such fifteen (15)-day period, Landlord shall be deemed to have approved the same. Within sixty (60) days after Landlord's approval of Tenant's preliminary plans, Tenant shall prepare and submit to Landlord for its approval (not to be unreasonably withheld) final plans and specifications for Tenant's Work. If Landlord does not respond to Tenant's submission of final plans and specifications within fifteen (15) days after they have been provided to Landlord, Landlord shall be deemed to have approved the same. In the event Landlord disapproves any submission of Tenant pursuant to the terms hereof, Landlord shall simultaneously with such disapproval give Tenant detailed reasons therefor and the parties shall diligently attempt to resolve all outstanding matters as soon as possible, PROVIDED, HOWEVER, that in the event the parties are unable to agree upon same within one hundred twenty (120) days after the commencement of such dispute, either party shall have the right, upon notice to the other, to terminate the Lease, and neither party shall thereafter have any further obligation or liability to the other. The final plans and specifications, when approved by Landlord, are referred to in this Lease as the "FINAL PLANS." - 35 - 43 17.2 PERMITS. Promptly after Landlord has approved the Final Plans, Tenant shall submit them to the City of Charlotte, North Carolina and any other relevant governmental authority (collectively, the "LOCAL PERMITTING Authorities") as part of its application for all building and other permits necessary in connection with performing Tenant's Work (the "PERMITS") and shall diligently prosecute such application. Upon Tenant's request, Landlord shall cooperate with, and assist, Tenant in all reasonable respects in connection with obtaining any of the Permits (including, without limitation, signing all applications and other forms required by such authorities to be signed by Landlord in connection with the same), PROVIDED, HOWEVER, that Landlord shall not be obligated to incur any expense (other than Landlord's own administrative expense and overhead) in connection with any such cooperation or assistance. If the Local Permitting Authorities will not issue, or have not issued, the Permits within one (1) year after the date of Tenant's submission thereto of the Final Plans, Tenant shall have the right, upon notice to Landlord, to terminate this Lease in which event neither party shall have any further obligation to the other. For purposes of this Lease, issuance of the Permits shall also include the Local Permitting Authorities' approval of Tenant's proposed signage for the Premises and Shopping Center. 17.3 ACCESS TO PREMISES. Tenant, its agents and/or contractors shall have the right (in Tenant's sole discretion) to enter the Premises and commence to perform Tenant's Work in and to the same prior to the Delivery Date, at any time after: (a) Tenant shall have obtained all necessary Permits for the performance of the items of work then to be performed; and (b) Landlord's Work shall have reached such a level of completion to permit Tenant (in its reasonable judgment) to efficiently commence and perform Tenant's Work simultaneously with Landlord's completion of Landlord's Work. If, however, the commencement or performance of Tenant's Work prior to the Delivery Date shall interfere with, or delay the completion of, Landlord's Work to more than a de minimus extent, and Landlord shall give Tenant written notice to such effect, then Tenant shall promptly cease the performance of Tenant's Work (or of so much of the same as is necessary to alleviate such interference or delay) until the earlier to occur of: (i) the Delivery Date; and (ii) the date upon which Landlord's Work has reached such a level of completion that the performance of Tenant's Work (or such portion of the same) shall not so interfere with, or delay, the completion of Landlord's Work. In all events, however, Landlord shall be deemed to have delivered possession of the Premises to Tenant upon the giving of the Delivery Notice thereto, and Tenant shall have the absolute right to enter the Premises and commence to perform Tenant's Work in and to the same at any time thereafter (provided only that Tenant shall have obtained all necessary Permits for the performance of the items of work then to be performed), regardless of any interference that the same may cause to, or any delay that may result thereby in the completion of, any of Landlord's Work then remaining to be performed. Notwithstanding Tenant's commencement, performance and/or completion of Tenant's Work in and to the Premises and/or its installation of its fixtures and other equipment therein, Tenant's obligation to pay Rent or other amounts pursuant to this Lease shall not commence until the Rent Commencement Date. 17.4 PERFORMANCE OF TENANT'S WORK. Tenant shall commence to perform Tenant's Work not later than sixty (60) days after the Delivery Date, SUBJECT, HOWEVER, to Tenant's receipt of all requisite Permits for the same and to force majeure. Tenant's Work shall be performed in accordance with all applicable legal requirements, in a good and workmanlike manner, with reasonable diligence (subject to force majeure) and otherwise in accordance with good construction practices. - 36 - 44 ARTICLE 18 LANDLORD CONTRIBUTION 18.1 LANDLORD CONTRIBUTION. In connection with the performance of Tenant's Work, Landlord has unconditionally agreed, as a condition of this Lease and Tenant's obligations hereunder, to pay an amount equal to Two Hundred Fifty Thousand Dollars ($250,000), based upon $10.00 per square foot of gross leaseable area contained in the Premises, to be used for Tenant's Work (the "LANDLORD CONTRIBUTION"). The Landlord Contribution shall be paid without set-off by Landlord to Tenant in two (2) installments -- $125,000 upon 50% completion of the Building and the balance upon Tenant's payment of the first installment of Base Rent and the opening for business in the Premises. 18.2 SECURITY. Landlord shall provide Tenant with adequate security, whether in the form of a "set aside letter", letter of credit, escrow account, or other form, to assure Tenant that the Landlord Contribution will be available to Tenant for Tenant's Work. In the event that Landlord shall fail to make payment to Tenant for invoices properly submitted to Landlord pursuant to Section 18.1 above within thirty (30) days of presentation of same to Landlord, Tenant, in its sole discretion, may: (a) continue to perform its obligations under this Lease, including construction of Tenant's Work to completion, in which case Tenant shall pay for all Tenant's Work and both: (i) set-off against Rent payments that portion of the Landlord Contribution that was remaining to be paid by Landlord, plus interest on the outstanding amount thereof at the rate of eighteen percent (18%) per annum, from the date when such portion of the Landlord Contribution was due through and including the date it was recovered by Tenant's set-off against the Rent payments then due and coming due hereunder; and (ii) receive an annual reduction of Base Rent for the entire balance of the Initial Term in the amount of fourteen cents ($0.14) for each dollar of the Landlord Contribution not funded; (b) terminate this Lease, in which event: (i) Tenant shall have no further obligations under this Lease; and (ii) Landlord shall reimburse Tenant, within fifteen (15) days after Tenant's written demand, for all costs and expenses (including, without limitation, all reasonable architectural, engineering and legal fees) incurred by Tenant in planning Tenant's leasehold improvements, as well as in negotiating and documenting this Lease; and/or (c) pursue Tenant's other remedies under this Lease, at law and/or in equity, cumulatively or alternatively, singularly or in combination. - 37 - 45 ARTICLE 19 PRIORITY OF LEASE 19.1 EXISTING ENCUMBRANCES. It shall be a condition precedent to Tenant's obligations under this Lease that Landlord receive, not later than fifteen (15) days after the date of this Lease, a Subordination, Non-Disturbance and Attornment Agreement ("SNDA") with respect to each mortgage, deed of trust, other similar encumbrance and/or ground lease (as the case may be, a "MAJOR TITLE DOCUMENT") encumbering the Shopping Center, or any portion thereof that shall include the Premises, and existing of record at the time when the Memorandum of Lease is placed of record, which SNDA shall be: (a) in the form attached hereto as EXHIBIT G, or in such other form as is reasonably acceptable to Tenant; and (b) duly signed, in form for recording, by Landlord and the mortgagee, trust deed beneficiary, other lien or, or ground lessor (as the case may be) under such Major Title Document (as the case may be, a "MAJOR TITLE DOCUMENT HOLDER"). If Tenant has not received all of the foregoing SNDA's within fifteen (15) days after the date of this Lease, Tenant shall be entitled, in its sole discretion, to either: (i) terminate this Lease by giving written notice thereof to Landlord at any time thereafter (but prior to Tenant's receipt of all of the outstanding SNDA's), in which event: (x) Tenant shall have no further obligations under this Lease; and (y) Landlord shall reimburse Tenant, within fifteen (15) days after Tenant's written demand, for all costs and expenses (including, without limitation, all reasonable architectural, engineering and legal fees) incurred by Tenant in planning Tenant's leasehold improvements, as well as in negotiating and documenting this Lease; or (ii) waive, or extend the time for completion of, such condition precedent, but nevertheless shall be deemed to reserve the right to avail itself of any and all other rights and remedies available to Tenant under this Lease, at law, or in equity. 19.2 FUTURE ENCUMBRANCES. Subject to the further provisions of this Section 19.2, this Lease and the leasehold estate of Tenant created hereby shall be prior in lien, right, title and interest with respect to any lien, encumbrance, or other interest (except statutory liens, to the extent required by law) created or imposed, or caused or allowed to be created or imposed, by Landlord from and after the date hereof upon or against the Shopping Center or any portion thereof that shall include the Premises. Tenant shall, upon Landlord's written request, enter into an SNDA in the form attached hereto as EXHIBIT G, or in such other form as is reasonably acceptable to Tenant, with Landlord and the Major Title Document Holder of any bona-fide Major Title Document entered into from and after the date hereof in connection with the construction or refinancing of the Shopping Center, pursuant to which SNDA, among other things, Tenant shall subordinate the priority of this Lease and the leasehold estate of Tenant created hereby to the lien, right, title and interest of such Major Title Document Holder under such Major Title Document, PROVIDED, HOWEVER, that Tenant shall be obligated to enter into such SNDA only if such subordination would not adversely affect Tenant's priority rights with respect to intervening liens, if any, that are recorded after the Memorandum of Lease but prior to the recordation of the Major Title Document in question. Tenant shall receive not less than one (1) original counterpart of each such SNDA, duly signed, in form for recording, by Landlord and such Major Title Document Holder. - 38 - 46 ARTICLE 20 LANDLORD'S DEFAULT 20.1 REMEDIES FOR LANDLORD'S DEFAULT. In the event that: (a) Landlord fails to perform any obligation required of it pursuant to this Lease, and fails to commence curing such default within thirty (30) days, or to complete such cure within sixty (60) days (or such longer period of time as is reasonable under the circumstances, provided that such cure has been timely commenced and is diligently being prosecuted, or such shorter period of time as is reasonable under the circumstances in the event of an emergency), after Tenant's written notice to Landlord; (b) Landlord fails to pay any amount required therefrom pursuant to this Lease; or (c) Tenant is given the right of set-off pursuant to the terms of this Lease, then Tenant shall have the right to pay such amount(s) or cause such work to be performed and set-off such amounts or such costs against the next succeeding Rent payments due by Tenant hereunder, plus interest on such amounts or costs at the Default Interest Rate from the date upon which such amount or cost was paid or due through and including the date upon which it was recovered by Tenant's set-off against such Rent payments. Tenant's rights of set-off under this Lease are not the sole and exclusive remedies of Tenant hereunder, Tenant being entitled to pursue all of its remedies under this Lease, at law, or in equity, cumulatively or alternatively, singularly or in combination. ARTICLE 21 MISCELLANEOUS 21.1 NOTICES. Whenever either party wishes to give any notice, request, or document to the other (whether required by this Lease or otherwise), such notice, request, or document shall be sent by a nationally recognized overnight courier delivery service properly addressed to the last address previously specified in writing by the party to whom the written notice is given. If no other address has been specified, all notices, requests, or documents directed to Landlord shall be sent to it as follows: Tower Place Joint Venture 5550 LBJ Freeway, Suite 675 Dallas, Texas 75240 With a copy to: Childress Klein Properties 2800 One First Union Center 301 S. College Street Charlotte, NC 28202-6021 Attn: Managing Partner - Retail All notices, requested or documents directed to Tenant shall be sent to it as follows: Bally Total Fitness Corporation 8700 West Bryn Mawr Avenue Second Floor Chicago, IL 60631 Attn: Director of Property Management - 39 - 47 With a copy to: Bally Total Fitness Corporation 8700 West Bryn Mawr Avenue Second Floor Chicago, IL 60631 Attn: General Counsel Notices, requests and documents given in the manner prescribed shall constitute sufficient notice of the contents thereof for all purposes and shall be deemed to have been given when the same have been received by the addressee thereof, when delivery thereof shall be refused by such addressee, or when the same is returned to the giver thereof as undeliverable (as the case may be). 21.2 MODIFICATION OF LEASE. This Lease constitutes the entire agreement of Landlord and Tenant and supersedes all oral and written agreements and understandings made and entered into by the parties hereto prior to the date hereof. None of the terms of the Lease shall be waived or modified to any extent, except by a written instrument signed and delivered by both parties. 21.3 COVENANTS SEVERABLE. Whenever possible, each provision of this Lease shall be interpreted in such a manner as to be effective and valid under applicable state law. If any provision of this Lease be prohibited or invalidated under applicable law, such provision(s) shall only be ineffective to the extent of such prohibition of invalidity, without invalidating the remaining provisions of this Lease. 21.4 PAYMENT OR PERFORMANCE UNDER PROTEST. If, at any time, a dispute shall arise as to any amount to be paid, or any other act to be performed, by either party under any provision hereof, the party against whom the obligation to pay money or to perform another act is asserted shall have the right to make payment or perform (as the case may be) "under protest." A payment or performance "under protest" shall not be regarded as voluntary payment or performance, and the payor or performer (as the case may be) may institute suit for the recovery of the payment or the cost of performing such act (as the case may be). If it shall be adjudged that there was no legal obligation on the part of the payor to make such payment or any part thereof, or on the part of the performer to perform such act or any part thereof (as the case may be), the payor or performer shall be entitled to recover such payment or the cost of performing such act (as the case may be), or so much thereof as it was not legally required to pay or perform, together with its reasonable expenses of suit (including, without limitation, reasonable attorneys' fees and costs). 21.5 TENANT'S OBLIGATION TO OPEN AND TENANT'S RIGHT TO CEASE OPERATIONS. Tenant shall be required to open for business eighteen (18) months after the later of (i) the Delivery Date and (ii) the date upon which Tenant obtains all Permits necessary to complete Tenant's Work. Notwithstanding anything contained in this Lease to the contrary, Tenant shall not have any obligation to continuously operate a health and fitness club, or any other business, in the Premises. Rather, Tenant shall have the right, in its sole and absolute discretion, to cease its business operations in the Premises, to reopen the Premises for business to the public, to remove any or all of its property therefrom and/or to reinstall any or all of its property therein, each from time to time throughout the Term. However, Tenant's election to cease business operations in the Premises shall not affect Tenant's obligation to pay all Rents as and when due hereunder, as well as to perform all of Tenant's other obligations under this Lease. 21.6 CONSTRUCTION. Any word contained in the text of this Lease shall be read as the singular or plural, or in the masculine, feminine, or neuter gender, as may be applicable in the particular context. The captions of this Lease are for convenience and reference only, and in no way limit or expand the scope or intent of this Lease or any Section hereof. 21.7 ATTORNEYS' FEES. Should either party hereto institute any action or proceeding at law or in equity to enforce or interpret any provision hereof for damages or other relief by reason of an alleged breach of any provision hereof, the prevailing party shall be entitled to receive from the losing party, in addition to allowable court costs, such amount as the court may adjudge to be - 40 - 48 reasonable as attorneys' fees for the services rendered the prevailing party in such action or proceeding, and such amount may be made a part of the judgment against the losing party. 21.8 TIME OF THE ESSENCE. Time is of the essence of this Lease and all of the terms, provisions, covenants and conditions hereof. 21.9 SHORT FORM LEASE. Contemporaneously with their execution and delivery of this Lease, the parties have executed and delivered a memorandum or so-called "short form" of this Lease in recordable form for the purposes of recordation at Tenant's expense (as the case may be, the "MEMORANDUM OF LEASE"). In the event of any conflict between the terms and provisions of the Memorandum of Lease and the terms and provisions of this Lease, the terms and provisions of this Lease shall govern and control. 21.10 LANDLORD'S ACCESS TO PREMISES. Notwithstanding anything to the contrary contained in this Lease, except for emergencies, Landlord shall only enter the Premises after giving twenty-four (24) hours' advance notice to Tenant, during reasonable business hours and in a manner so as not to interfere with the operation of Tenant's business. To the greatest extent that circumstances shall permit, any work required or permitted to be performed in and to the Premises by Landlord pursuant to this Lease shall be performed other than during Tenant's hours of operation of the Premises, if Tenant shall so elect, and pursuant to plans and specifications approved in writing by Tenant (which approval shall not be unreasonably withheld, delayed, or conditioned). Any installations required or permitted to be made in the Premises by Landlord pursuant to this Lease shall be located in concealed locations above Tenant's hung ceilings (if any), below Tenant's finish flooring (if any) and/or in existing columns. Any other repairs, alterations and/or additions required or permitted to be performed in and to the Premises by Landlord pursuant to this Lease shall be of a nature and design that shall cause the least practicable interference with the operation of Tenant's business and shall, in no event, affect ingress to, or egress from, the Premises in any respect. Any installation and/or other work required or permitted to be performed in and to the Premises by Landlord pursuant to this Lease shall be performed diligently and continuously to completion, so as to complete the same at the earliest possible time. To the extent that any such installation and/or other work shall damage any of Tenant's trade fixtures, Tenant's equipment, Tenant's inventory, Tenant's other movable personal property, any fixtures and/or any leasehold improvement made to the Premises (including, without limitation, Tenant's Work and any Alterations subsequent thereto), Landlord shall, promptly after the completion of such installation and/or other work, repair any such damage and restore such assets and/or improvements (as the case may be) to their former condition, all at Landlord's sole cost and expense. 21.11 CHOICE OF LAW. This Lease shall be governed by, and construed in accordance with, the laws of the State in which the Premises are located. 21.12 PARTIES BOUND. Except as expressly otherwise provided, all of the terms, covenants and conditions hereof shall be binding upon, and inure to the benefit of, the parties hereto and their respective heirs, personal representatives, executors, successors in interest and assigns. Landlord may, at any time, assign or transfer its interest as Landlord in and to this Lease, and sell or transfer its interest in Shopping Center or any part thereof,. In the event of any such conveyance and transfer, all of Landlord's obligations hereunder shall thereafter be binding only upon each such transferee, PROVIDED, HOWEVER, that in no event shall such sale or transfer relieve Landlord of its obligation to complete Landlord's Work or fund the Landlord Contribution in accordance with the terms of this Lease. In the event of such transfer, Tenant shall attorn to the purchaser or successor to Landlord's interest in the Lease and recognize such purchaser or successor as Landlord under this Lease and such other party shall recognize Tenant as tenant under this Lease and shall be bound by all of Landlord's obligations hereunder. 21.13 FORCE MAJEURE. For purposes of this Lease, "FORCE MAJEURE" shall mean delays due to any acts of God, adverse weather conditions, strikes, labor disputes, wars, riots, governmental regulation or restriction, material and labor shortages, fire or other casualty, or other cause beyond the reasonable control of the party affected. If force majeure occurs, the time for performance or completion of any act required in this Lease (but not including Tenant's obligation to pay Rent once - 41 - 49 the Rent Commencement Date has occurred, unless Rent is abated in accordance with the terms of this Lease) shall be extended one (1) day for each day of delay. 21.14 ESTOPPEL CERTIFICATE. Either party shall, within twenty (20) business days after receiving a written request from the other party, make a statement in writing certifying: (a) that the Term has commenced, setting forth the date of such commencement and termination; (b) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the Lease is in full force and effect, as modified, and stating the modification(s)); (c) whether to its knowledge (without independent investigation) there are then existing any offsets or defenses against the enforcement of any of such party's covenants hereunder (and, if so, specifying them); (d) the dates to which Base Rent, Additional Rent and all other amounts to be paid by Tenant hereunder have been paid in advance, if at all; (e) whether or not Tenant has acquired any interest in the Premises, except for its interest under this Lease; (f) whether, to its knowledge, there are any uncured defaults by the other party, and, if defaults are claimed, stating the facts giving rise thereto; and (g) such other factual statements as may be reasonably requested. Any such statement given by a party may be relied upon by the other party, by a prospective purchaser or assignee (as the case may be) of the other party's interest in the Shopping Center, by any mortgagee, assignee, or prospective mortgagee, by any person merging with or consolidating into the other party, or by any person acquiring any or all of the assets of the other party, through the date of the estoppel certificate. 21.15 BROKERAGE COMMISSION. Landlord and Tenant each represent and warrant to the other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, and that it knows of no real estate broker or agent who is, or might be, entitled to a commission in connection herewith, other than Divaris Real Estate, Inc. and Childress Klein Properties. Landlord and Tenant each agree to indemnify and hold harmless the other from and against any liability or claim, whether meritorious or not, arising with respect to any broker who alleges it has dealt with such indemnifying party in connection with this Lease, other than the broker(s) named above. 21.16 PRE-SALE SPACE AND GRAND OPENING. (a) During the period (the "PRE-SALE PERIOD") commencing on the date hereof and continuing until the earlier of: (i) the date Tenant opens the Premises for business; or (ii) the date this Lease is terminated, Tenant shall have the right to conduct pre-sales of health club memberships from an in-line space at the Shopping Center approximately two thousand (2,000) square feet in size, the exact location of such space (the "PRE-SALE SPACE") to be mutually agreeable to Landlord and Tenant. Tenant may at its sole expense finish, furnish and equip the Pre-Sale Space as it sees fit. The Pre-Sale Space shall be occupied by Tenant rent-free, and Tenant's use of the same for pre-sale purposes shall not constitute Tenant's opening for business or taking possession of the Premises for any purpose hereunder. At any time, and from time to time, during the Pre-Sale Period, Tenant shall have the - 42 - 50 right, in addition to Tenant's signage rights pursuant to Section 7.4 above and to the fullest extent permitted by applicable codes, to place at Tenant's sole expense one or more temporary signs upon the exterior of the Premises, as well as upon any pylon sign to which Tenant shall have signage rights pursuant to this Lease, announcing the coming of Tenant's health and fitness club to the Shopping Center and/or the grand opening of the Premises. Each of such temporary signs shall be subject to Landlord's prior written consent as to the design, dimension and location thereof, not to be unreasonably withheld or delayed. (b) Notwithstanding anything to the contrary set forth in this Lease, for a period not to exceed sixty (60) days from the date of Tenant's so-called "Grand Opening" of the Premises, Tenant shall have the right, subject to receipt of any necessary local governmental approvals, to utilize banners, balloons, streamers, flags and similar promotional devices on the exterior of the Premises and/or in the Common Areas substantially adjacent to the Premises. 21.17 MERCHANTS' ASSOCIATION. Tenant shall not be required to become a member of, participate in, contribute to, nor otherwise remain in good standing in any Merchants' Association now existing or hereafter formed with respect to the Shopping Center. 21.18 NO PARTNERSHIP OR JOINT VENTURE. It is the intention of the parties hereto to create only the relationship of landlord and tenant between them in this Lease, and no provision hereof, or act of either party hereunder, shall ever be construed as creating the relationship between the parties of principal and agent, partners, or joint venturers. 21.19 LANDLORD LIABILITY. Notwithstanding anything in this Lease to the contrary, all obligations of Landlord hereunder will be construed as covenants, not conditions, and all such obligations will be binding upon Landlord only during the period of its ownership and possession of the Premises and not thereafter. The term "Landlord" shall mean only the owner of the Premises with respect to the time at which any claim is asserted in a written notice delivered to the owner at such time, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged from all covenants and obligations of the Landlord thereafter accruing, but such covenants and obligations shall be binding during the Term upon each new owner for the duration of such owner's ownership. Notwithstanding any other provision hereof, Landlord shall not have any personal liability hereunder. In the event of any breach or default by Landlord in any term or provision of this Lease, Tenant agrees to look solely to the equity or interest then owned by Landlord in the land and improvements which constitute the Premises or the Shopping Center; however, in no event, shall any deficiency judgment or any money judgment of any kind be sought or obtained against any landlord which is now or hereafter a party to this Lease. - 43 - 51 IN WITNESS WHEREOF, the parties have duly executed this Lease as of the day and year first above written. TENANT: BALLY TOTAL FITNESS CORPORATION, a Delaware corporation By: /s/Cary A. Gaan ---------------------------------------- CARY A. GAAN, SENIOR VICE PRESIDENT LANDLORD: TOWER PLACE JOINT VENTURE, a Texas joint venture By: Murray Income Properties I, Ltd., a Texas Limited Partnership Its: Joint Venturer By: Murray Realty Investors VIII, Inc., a Texas corporation Its: General Partner By: /s/Brent Buck ------------------------------ Brent Buck Executive Vice President - 44 - 52 EXHIBIT A LEGAL DESCRIPTION OF THE SHOPPING CENTER That certain tract or parcel of land situate in the town of Pineville, Mecklenburg County, North Carolina, being more particularly described as follows: BEGINNING at a point in the northerly margin of the 100 foot wide right of way of North Carolina Highway No. 51 (the Matthews-Pineville Road, said Beginning Point being also located in the southeasterly line of the property conveyed to Faye S. Dixon (widow) et al by deed dated February 15, 1983, recorded in Book 4626 at page 305 in the Mecklenburg Registry, and running thence from said Beginning Point with the aforesaid Dixon property (now or formerly) in two calls as follow: (1) N. 23-19-23 E. 250.0 feet to an iron; thence (2) N. 70-30-00 W. 150.34 feet to an old nail; thence with two lines of the property of Lorick Enterprises, Inc. (now or formerly) as follow: (1) N. 23-19-23 E. 75.67 feet to a nail; thence (2) N. 66-40-37 W. 89.14 feet to a nail; thence with two lines of the property of Brevard S. Myers (now or formerly) as follow: (1) N. 26-46-23 E. 196.47 feet to an iron; thence (2) N. 61-16-23 E. 90.00 feet to an iron; thence with a line of the property of Brevard S. Myers (now or formerly) and continuing with the line of the property of Park Road Associates (now or formerly) N. 26-46-23 E. 103.50 feet to an iron; thence S. 71-19-59 E. 680.05 feet crossing two irons to a point; thence a new line S. 18-40-01 W. 705.53 feet to a point located in the aforesaid northerly margin of the 100 foot wide right of way of N.C. Highway No. 51; thence with said northerly margin of said highway right of way N. 70-30-00 W. 570.60 feet to the point or place of Beginning; containing 10.777 acres. A-1 53 EXHIBIT B SITE PLAN B-1 54 EXHIBIT C GUARANTY OF BALLY TOTAL FITNESS HOLDING CORPORATION FOR VALUE RECEIVED, and in consideration for, and as an inducement to Tower Place Joint Venture, as Landlord, to enter into a Lease dated as of February 14, 2000 (the "LEASE"), for certain premises located within the property commonly known as Tower Place Festival Shopping Center and located on NC Highway 51 Pineville, North Carolina (the "DEVELOPMENT"), with Bally Total Fitness Corporation, a Delaware corporation, as Tenant, the undersigned guarantees the full performance and observance of all the covenants, conditions and agreements contained in the Lease to be performed and observed by Tenant, Tenant's successors and assigns, and expressly agrees that the validity of this Guaranty and any obligations of the undersigned, as guarantor (the "GUARANTOR") hereunder shall not be terminated, affected, or impaired by reason of the granting by Landlord of any indulgences to Tenant or by reason of the assertion by Landlord against Tenant of any of the rights or remedies reserved to Landlord pursuant to the provisions of the Lease. The undersigned further covenants and agrees that this Guaranty shall remain and continue in full force and effect as to any renewal, modification, or extension of said Lease, provided that notice thereof is duly delivered to the Guarantor as provided in the Lease. The undersigned further agrees that its liability under this Guaranty shall be primary, and that if any right or action shall accrue to Landlord under the Lease, Landlord may, at Landlord's option, proceed against the undersigned without having commenced an action against or having obtained any judgment against Tenant. In any action under this Guaranty, the prevailing party shall be entitled to recover, in addition to any damages, its reasonable attorneys' fees and costs incurred in such proceeding. The undersigned, further represents to Landlord, as an inducement for Landlord to enter into the Lease, that the undersigned owns, directly or indirectly, all of the outstanding capital stock of Tenant, that the execution and delivery of the Guaranty is not in contravention of its Charter or By-laws or applicable state laws, and has been duly authorized by its Board of Directors. The failure of Landlord to insist in any one of more instances upon a strict performance or observance of any of the terms, provisions, or covenants of the Lease, or to exercise any right therein contained, shall not be construed or deemed to be a waiver or relinquishment for the future of such term, provision, covenant, or right, and that the same shall continue and remain in full force and effect. Receipt by Landlord of Rent with knowledge of the breach of any provision of the Lease shall not be deemed a waiver of such breach. No subletting, assignment, or other transfer of the Lease, or any interest therein, other than as specifically provided herein or in the Lease, shall operate to extend or diminish the liability of the Guarantor under this Guaranty. Whatever reference is made to the liability of Tenant within the Lease, such reference shall be deemed likewise to refer to the Guarantor. It is further agreed that all of the terms and provisions hereof shall inure to the benefit of the successors and assigns of Landlord, and shall be binding upon the successors and assigns of the undersigned. This Guaranty is a guarantee of payment and performance and not merely a guarantee of collection. IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be executed as of this 10th day of February, 2000 . BALLY TOTAL FITNESS HOLDING CORPORATION, a Delaware corporation By: /s/Cary A. Gaan ------------------------------------- CARY A. GAAN, SENIOR VICE PRESIDENT C-1 55 EXHIBIT D PERMITTED EXCEPTIONS 1. Taxes, dues and assessments for the year 2000, and subsequent years, not yet due and payable. 2. Covenants, conditions, restrictions and easements contained in instrument filed for record in Book 4626, page 305 and Book 4731, page 524. 3. Easement to Duke Power Company recorded in Book 5114, page 807. 4. Thirty-five (35) foot easement for ingress and egress reserved to Park Cedar Associates, Ltd. from Crow-Charlotte Retail #2, Ltd. recorded in Book 4974, page 53 and amended in Book 5227, page 305. 5. Driveway Easement Agreement recorded in Book 4469, page 774; amended in Book 4581, page 309 and Book 4620, page 536 and further amended by Agreement recorded in Book 5227, page 283. 6. Utility easement granted under deed recorded in Book 4544, page 910. 7. Roadway Construction Cost and Maintenance Agreement recorded in Book 4973, page 728. 8. Development Agreement recorded in Book 4985, page 684. 9. Fifteen (15) foot sanitary sewer right of way recorded in Book 4787, page 722. 10. Easement Agreement for Construction and Maintenance of a sign in favor of Park Cedar Associates recorded in Book 5272, page 300. 11. Terms and provisions of the Lease by and between Tower Place Joint Venture and E1 Cancun Tower Place as evidenced by a Memorandum of Lease recorded in Book 6649, page 567. 12. Terms and provisions of the unrecorded Lease by and between Tower Place Joint Venture and The Bagel Works, Inc. as assigned by The Bagel Works, Inc. to The Neighborhood Bagel Corp. as evidenced by an Assignment of Lease recorded in Book 7785, page 628. 13. Terms and provisions of the Lease by and between Tower Place Joint Venture and Brown Group Retail, Inc. d/b/a Famous Footwear as evidenced by a Memorandum of Lease recorded in Book 8044, page 959. 14. UCC Financing Statement No. 97-3811 with lease from Myra E. Cornwell in favor of Sun Life Assurance Co. of Canada. 15. UCC Financing Statement No. 97-3812 and lease from Sosebee Enterprises in favor of Tower Place Joint Venture. 16. UCC Financing Statement No. 97-9553 and lease from Moobasi, Inc. in favor of Tower Place Joint Venture. 17. UCC Financing Statement No. 98-13576 and lease from James and Cathy S. Burgess d/b/a Simply Weight Loss in favor of Tower Place Joint Venture. 18. UCC Financing Statement No. 99-8323 and lease from Judy Brown d/b/a Simply Weight Loss in favor of Tower Place Joint Venture. 19. UCC Financing Statement No. 99-8326 and lease from Natures' Secret, Inc. in favor of Tower Place Joint Venture. D-1 56 20. UCC Financing Statement No. 99-8978 and lease from Sewing Center of North Carolina, Inc. in favor of Tower Place Joint Venture. 21. UCC Financing Statement No. 99-8980 and lease from Truyen C. Nguyen and Trang Thi Nguyen d/b/a Vina Alterations in favor of Tower Place Joint Venture. 22. UCC Financing Statement No. 99-8981 and lease from John W. Gluth, Jr. d/b/a Pop Muzic in favor of Tower Place Joint Venture. D-2 57 EXHIBIT E SIGN PLAN E-1 58 EXHIBIT F LANDLORD'S WORK The Landlord will provide, at its expense, the following building and site improvements on its land, per plans and specifications as provided by Landlord and approved by Tenant. All construction shall be in conformance with all local and state building codes, and the Americans With Disabilities Act (ADA). All permits required to construct the project will be obtained by Landlord at its expense. IMPROVEMENTS 1. Utilities (service to and stubbed into the Premises) o 6" Sewer max or 4" if sufficient per local code. o 3" Domestic Water (60 lbs. pressure) (2" or 21/2" might suffice if pressure is adequate) o 6" Fire Sprinkler Line. o Natural Gas approximately 2,000 cubic feet per hour (exact requirements to be determined). o Electric Service (1600 amp at 120/208 volt) or (800 amp at 480 volt). o Conduit for telephone. o Hook-up fees, tap fees, impact fees. 2. Heating, Ventilating, Air Conditioning o Cooling - one ton per 200 square feet (roof top units). o Distribution duct per ASHRAE standards. o Controls - computerized central control system. o Fire Dampers, Registers and Diffusers. o HVAC roof top units provided with curbs. o Exhaust fans as required (by Tenant). 3. Building Roof o Roof structure per building code requirements. o Roofing - rubber membrane with 20 year warranty. o Walk pads per roofing manufacturer's requirements. o Drainage - 1/4" slope per foot to drains. o Roof drains. o Roof insulation per code. 4. Building Exterior o Single story structure. o Exit doors as required by occupancy load exit requirements. o Split face masonry with cavity construction or metal studs with stucco/dryvit. o Front or entrance elevation - aluminum entrance and vestibule fabricated with anodized aluminum system, glazed with 1" insulated glass with a feature entrance form constructed with premium material. o Other elevations - anodized aluminum glazing system with 1" insulated glass in locations as required per Tenant design standards. o Building insulation per code. 5. Building Interior o 4" reinforced concrete slab on grade. Level concrete throughout with 2" depression at locker, toilet, shower rooms. o 16' clearance from top of slab to underside of roof structure. o Demising walls constructed full height of block or metal studs and sheet rock with sound insulation and fire rated, as required by code. F-1 59 6. Parking Lot o Bituminous paving - base course 6" thick compacted depth, type A stone, surface course minimum 3" thick total compacted depth (2" course hot mix binder and 1" wearing course). o Parking spaces - striped to meet dimensions of code requirements. o Accessible parking spaces and accessible route per ADA requirements. o Drainage - surface drainage to inlet structures per local code requirements. o Lighting - minimum of 1 foot candle or local code requirements, whichever is greater. o Landscaping - per local code requirements. o Walkways and curbs as required. 7. Environmental o Removal from the site, at Landlord's cost, all asbestos and/or hazardous materials, if any, and obtaining a certificate indicating that the property is free of all hazardous materials. F-2 60 EXHIBIT G SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT, made as of this _____ day of ________, 2000, by and among BALLY TOTAL FITNESS CORPORATION, a Delaware corporation (herein called "TENANT"), ___________________________, a (herein called "LENDER"), and TOWER PLACE JOINT VENTURE, a Texas joint venture (herein called "LANDLORD"). STATEMENTS OF FACT Tenant has entered into a certain lease dated as of ___________, 2000 (herein called the "LEASE") with Landlord covering premises (herein called the "DEMISED PREMISES") located within a building located on NC Highway 51 in Pineville, California (herein called the "BUILDING"), which Building is located on the land more particularly described on Exhibit A attached hereto and made a part hereof (herein called the "LAND" and, together with the Building and any other buildings and improvements on the Land, called the "MORTGAGED PROPERTY") and constitutes a portion of the shopping center known as Tower Place Festival Shopping Center. Lender is the holder of a certain mortgage dated __________, 199___, made by Landlord in favor of Lender encumbering the Mortgaged Property, which mortgage was recorded in the Office of ______________________ on ___________, 199___, in Reel ___ at page _____ (herein called the "MORTGAGE"). As a condition of entering into the Lease, Tenant has required that Lender and Landlord join with Tenant in the mutual execution and delivery of this Agreement in proper form for recording. NOW, THEREFORE, in consideration of the premises and mutual covenants hereinafter contained, the parties hereto mutually covenant and agree as follows: 1. The Lease, any extensions, renewals, replacements, or modifications thereof and all of the right, title and interest of Tenant in and to the Premises are, and shall continue to be, subject and subordinate to the Mortgage, to all of the terms and conditions contained therein and to any renewals, modifications, replacements, consolidations and extensions thereof. Lender hereby consents to the Lease. 2. If Lender, or any designee or nominee thereof or successor thereto (herein, as the case may be, called a "SUCCESSOR LANDLORD"), comes into possession of, or acquires title to, the Premises as a result of the enforcement or foreclosure of the Mortgage or the note secured thereby, by a deed or other conveyance in lieu of foreclosure, or as a result of any other means, Tenant shall not be disturbed in its possession of the Premises as a consequence thereof or otherwise unless, at such time, Tenant shall be in default under the terms of the Lease such that, were it not for such enforcement, foreclosure, conveyance, or other means, Landlord would then be entitled to terminate the Lease under its terms (including, without limitation, that the applicable notice of default has been given and the applicable grace period has expired). Unless Tenant shall be in uncured default as aforesaid, Tenant shall not be named in, or joined as a party defendant or otherwise to, any suit, action, or proceeding for the foreclosure of the Mortgage or otherwise to enforce any rights under the Mortgage, or the note or other obligations secured thereby, nor in any other way shall Tenant be deprived of its rights under the Lease. 3. If possession of, or title to, the Mortgaged Property shall be transferred to, or otherwise become owned by, a Successor Landlord, such Successor Landlord shall recognize and be bound to Tenant, and Tenant shall attorn to and be bound to such Successor Landlord, under all of the terms, covenants and conditions of the Lease for the balance of the term thereof remaining, and for any extensions or renewals thereof that may be effected in accordance with any option therefor in the Lease, with the same force and effect as if such Successor Landlord were the landlord specifically named in the Lease. Such recognition and attornment shall be self-operative, and shall become effective without the execution of any further instruments on the part of any of the parties G-1 61 hereto, immediately upon the Successor Landlord obtaining possession of, or title to, the Mortgaged Property. However, upon the written request of either the Successor Landlord or Tenant, made to the other within twenty (20) days after the Successor Landlord obtains possession of, or title to, the Mortgaged Property, the Successor Landlord and Tenant shall both execute an instrument in confirmation of the foregoing provisions, reasonably satisfactory to both of them, in which the parties shall acknowledge their respective recognition and attornment, as well as set forth the terms and conditions of Tenant's continuing tenancy. 4. If possession of, or title to, the Mortgaged Property shall be transferred to, or otherwise become owned by, a Successor Landlord, Tenant shall, from and after such event, have the same remedies against such Successor Landlord for the breach of any provision contained in the Lease that Tenant would have had under the Lease against the former landlord thereunder, PROVIDED, HOWEVER, that such Successor Landlord shall not be: (a) personally liable for any act or omission of any prior landlord under the Lease, provided that such Successor Landlord shall not be released from all of the continuing obligations of the landlord under the Lease (including, but not limited to, providing those on-going services, repairs and maintenance set forth in the Lease); (b) bound by any base rent or additional rent that Tenant may have paid for more than the current or next succeeding month to any prior landlord (provided, however, that Lender shall be bound by any previous estimated payments made by Tenant on account of "Operating Costs" as such term is defined in the Lease); (c) bound by any material amendment or modification of the Lease hereafter made without Lender's consent; or (d) obligated to perform any work in the Premises or any part thereof, other than such work (including, without limitation, "Landlord's Work", as such term is defined in the Lease) that is required to be performed by the landlord under the Lease. Notwithstanding the foregoing, however, Tenant's obligation to pay Rent (as defined in the Lease) shall be and remain subject to Tenant's rights of set-off and abatement, along with Tenant's other rights, as provided in the Lease. 5. All condemnation awards and/or insurance proceeds received with respect to the Mortgaged Property shall be applied to the restoration thereof, and paid in the manner set forth in the Lease, notwithstanding any contrary provision contained in the Mortgage. Further, all fixtures and equipment, whether owned by Tenant or leased by Tenant from any lessor/landlord (an "EQUIPMENT LESSOR"), installed in or on the Mortgaged Property (regardless of the manner or mode of attachment) shall be and remain the property of Tenant or any such Equipment Lessor, and may be removed by Tenant or such Equipment Lessor at any time. In no event (including, without limitation, a default under the Lease or the Mortgage) shall Lender or any Successor Landlord have any lien on, right in, or claim with respect to any such fixtures or equipment, whether or not all or any part thereof shall be deemed fixtures, and Lender expressly waives (for itself and for any Successor Landlord) all rights of levy, distraint, or execution with respect to such fixtures and equipment. 6. Until Tenant has been notified that the Mortgage has been released of record, Tenant shall, upon receipt by Tenant of written notice from Lender directing Tenant to make payment of rents under the Lease to Lender, comply with such direction, and shall not be required to determine whether Landlord is in default under the Mortgage or related loan documents. Lender shall indemnify, defend and hold harmless Tenant from and against any and all losses, costs, expenses, claims, obligations and liabilities incurred or otherwise suffered by Tenant resulting from Tenant's compliance with Lender's said direction to pay rent. Landlord hereby releases Tenant from any obligation to pay to Landlord any amounts paid to Lender based upon Tenant's compliance with such a direction to pay rent from Lender. G-2 62 7. All notices, demands or other communications required or permitted to be given pursuant to this Agreement shall be in writing, and shall be sent by overnight courier service, addressed to the party at its following address, or at such other place as such party or successor or assign may, from time to time, designate in a notice to the other parties: Notices To Landlord: Tower Place Joint Venture 5550 LBJ Freeway, Suite 675 Dallas, Texas 75240 With a copy to: Childress Klein Properties 2800 One First Union Center 301 S. College Street Charlotte, NC 28202-6021 Attention: Managing Partner - Retail Notices to Tenant: Bally Total Fitness Corporation 8700 W. Bryn Mawr Avenue - 2nd Floor Chicago, Illinois 60631 Attention: Director of Property Management With a copy to: Bally Total Fitness Corporation 8700 W. Bryn Mawr Avenue - 2nd Floor Chicago, Illinois 60631 Attention: General Counsel Notices shall be deemed delivered and received upon the date of receipt, rejection, other refusal to accept, or inability to deliver because of changed address for which no notice has been given. 8. Prior to a Successor Landlord's succeeding to Landlord's interest in accordance with the terms hereof, in the event that Landlord shall default in the performance or observance of any of the terms, conditions, or agreements in the Lease, Tenant shall give written notice thereof to Lender, and Lender shall have the right (but not the obligation) to cure such default within any applicable cure period provided for in the Lease. 9. This Agreement shall bind, and inure to the benefit of, the parties hereto, along with their respective successors and assigns. 10. This Agreement shall be the whole and only agreement between the parties hereto with regard to the subject matter hereof (including, without limitation, the subordination of the Lease and/or the leasehold interest of Tenant thereunder to the lien or charge of the Mortgage), and shall completely supersede and preempt any prior agreement(s) of the parties (including, but not limited to, any provisions contained in the Lease that might be otherwise applicable thereto) with respect to all or any portion of such subject matter. This Agreement may not be modified or amended except by a writing signed by all of the parties hereto and/or their respective successors or assigns. 11. The use of the neuter gender in this Agreement shall be deemed to include any other gender, and words in the singular number shall be held to include the plural, when the sense requires. G-3 63 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written. TENANT: BALLY TOTAL FITNESS CORPORATION, a Delaware corporation By: ------------------------------------- CARY A. GAAN, SENIOR VICE PRESIDENT LENDER: ---------------------------------------- a corporation ------------------- By: ------------------------------------- Name: Title: LANDLORD: TOWER PLACE JOINT VENTURE, a Texas joint venture By: Murray Income Properties I, Ltd., a Texas Limited Partnership Its: Joint Venturer By: Murray Realty Investors VIII, Inc., a Texas corporation Its: General Partner By: ------------------------ Brent Buck Executive Vice President ADD ACKNOWLEDGMENTS G-4 64 EXHIBIT "A" LEGAL DESCRIPTION That certain tract or parcel of land situate in the town of Pineville, Mecklenburg County, North Carolina, being more particularly described as follows: BEGINNING at a point in the northerly margin of the 100 foot wide right of way of North Carolina Highway No. 51 (the Matthews-Pineville Road, said Beginning Point being also located in the southeasterly line of the property conveyed to Faye S. Dixon (widow) et al by deed dated February 15, 1983, recorded in Book 4626 at page 305 in the Mecklenburg Registry, and running thence from said Beginning Point with the aforesaid Dixon property (now or formerly) in two calls as follow: (1) N. 23-19-23 E. 250.0 feet to an iron; thence (2) N. 70-30-00 W. 150.34 feet to an old nail; thence with two lines of the property of Lorick Enterprises, Inc. (now or formerly) as follow: (1) N. 23-19-23 E. 75.67 feet to a nail; thence (2) N. 66-40-37 W. 89.14 feet to a nail; thence with two lines of the property of Brevard S. Myers (now or formerly) as follow: (1) N. 26-46-23 E. 196.47 feet to an iron; thence (2) N. 61-16-23 E. 90.00 feet to an iron; thence with a line of the property of Brevard S. Myers (now or formerly) and continuing with the line of the property of Park Road Associates (now or formerly) N. 26-46-23 E. 103.50 feet to an iron; thence S. 71-19-59 E. 680.05 feet crossing two irons to a point; thence a new line S. 18-40-01 W. 705.53 feet to a point located in the aforesaid northerly margin of the 100 foot wide right of way of N.C. Highway No. 51; thence with said northerly margin of said highway right of way N. 70-30-00 W. 570.60 feet to the point or place of Beginning; containing 10.777 acres. G-5
EX-10.K 5 MANAGEMENT AGREEMENT WITH CK CHARLOTTE OVERHEAD LP 1 EXHIBIT 10k December 2, 1999 Mr. Brent Buck Murray Income Properties 299 South 9th Street Suite 203 Oxford, MS 38655 RE: Tower Place Festival Management Contract Renewal Dear Brent: Our current management agreement, dated December 12, 1994 and renewed each year in letter agreements between Murray Income Properties and CK Retail Charlotte Overhead Limited Partnership is in the process of expiring. It is our desire to renew this management contract upon the same terms and conditions as the previous management, dated December 12, 1994, with the exception that the term shall now expire on December 31, 2000. I have attached as Exhibit "A", a copy of the December 12, 1994 management agreement and would like you to indicate your approval of the renewal and the new expiration date by signing this renewal agreement in the appropriate space below. It has been a pleasure to be the property manager/leasing agent at Tower Place Festival and we look forward to continuing our relationship as your management agent in the future. RENEWAL AGREEMENT ACCEPTED: CK Charlotte Overhead Limited Partnership Tower Place Joint Venture a North Carolina Limited Partnership By: Murray Income Properties I, LTD. By: Childress Klein Retail-Charlotte a Texas Ltd. Partnership, Joint Venturer #2, Inc., Its General Partner By: Murray Realty Investors VIII, Inc. a Texas Corp., General Partner BY: /s/ David Haggart By: /s/ Brent Buck ------------------------------ ----------------------------------------- David Haggart, Vice President Brent Buck, Executive Vice President Attest/Witness: Witness: /s/ Wendy Roy /s/ Joni Armstrong - ----------------------------------- ------------------ Title: Secretary Name: Joni Armstrong (Corporate Seal)
EX-10.L 6 MANAGEMENT AGREEMENT WITH TRAMMELL CROW SE, INC. 1 EXHIBIT 10L STATE OF TENNESSEE COUNTY OF SHELBY MODIFICATION TO MANAGEMENT AGREEMENT This Modification to management Agreement is made and entered into this 15th day of December, 1999, by and between Murray Income Properties, II, LTD, a Texas Limited Partnership ("Owner") and TC Tennessee, Inc., a Delaware Corporation ("Operator"). WITNESSETH: Whereas, Owner and Operator entered into that certain Management Agreement for the managing and operating of certain improved real property, ("Project") commonly known as Germantown Collection, dated August 8, 1990 and extended December 30, 1993. Whereas, the Owner and Operator desire to modify and amend the Management Agreement; Now, therefore, for and in consideration of the Modification to Management Agreement, the sum of One and 00/100 Dollars ($1.00) in hand paid by Owner to Operator, the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto do agree as follows: 1. Owner and Operator acknowledge and agree the management Agreement shall be extended to expire on December 31, 2000. 2. All other terms and conditions of the Management Agreement not specifically amended by this Modification to Management Agreement, are hereby deemed to remain in full force and effect. IN WITNESS WHEREOF, the parties have executed the foregoing Modification as of the day and year written above. Owner: Operator: Murray Income Properties, II, LTD TC Tennessee, Inc., a Delaware corporation BY: Murray Realty Investors, IX, Inc. BY: /s/ Brent Buck BY: /s/ Vince Dunavant ----------------------------------- -------------------------- Brent Buck Vince Dunavant Title: Executive Vice President Title: Senior Vice-President ----------------------------------- -------------------------- EX-10.M 7 MANAGEMENT AGREEMENT WITH BROOKSIDE COMMERCIAL 1 EXHIBIT 10M EXTENSION OF PROPERTY MANAGEMENT AGREEMENT The Extension of Property Management Agreement entered into this 15th day of December, 1999 by and between Murray Income Properties II, Ltd., a Texas limited partnership (hereinafter called the "Owner") and Brookside Properties, Inc., (hereinafter called the "Agent"). RECITALS: 1. Owner and Agent are parties to that certain Property Management Agreement dated March 1, 1991 covering the Paddock Place Shopping Center, located at the Southwest corner of White Bridge Road and Brookwood Terrace, Nashville, Tennessee. 2. The term of the aforesaid Property Management Agreement expired on February 28, 1994, was extended with an expiration date of February 28, 1995, was extended with an expiration date of February 29, 1996, was extended with an expiration date of February 28, 1997, was extended with an expiration date of February 28, 1998, was extended with an expiration date of December 31, 1998, and was extended with an expiration date of December 31, 1999. The parties thereto are mutually desirous of extending the term of the Property Management Agreement. NOW, THEREFORE, it is hereby agreed as follows: 1. The expiration date of the Property Management Agreement shall be midnight, December 31, 2000 2. All other terms and conditions of the Property Management Agreement shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this document the day and year first above written. WITNESS BROOKSIDE PROPERTIES, INC. /s/ Charles H. Warfield, Jr. /s/ W. Miles Warfield - ------------------------------- ------------------------------------- Charles H. Warfield, Jr. W. Miles Warfield MURRAY INCOME PROPERTIES II, LTD a Texas Limited Partnership by Murray Realty Investors IX, Inc. a Texas Corporation, its General Partners (Owners) /s/ Brent Buck - ------------------------------- ------------------------------------- By: Brent Buck, Executive Vice President EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MURRAY INCOME PROPERTIES II, LTD. BALANCE SHEET AND STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999. YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 908,676 595,986 520,822 5,476 0 2,020,008 23,631,025 9,152,398 18,270,529 336,348 0 0 0 0 17,800,605 18,270,529 0 3,237,453 0 1,511,782 0 5,476 0 1,403,780 0 1,403,780 0 0 0 1,403,780 4.32 4.32
EX-99.A 9 GLOSSARY 1 EXHIBIT 99.A above are not met, the General Partners may repurchase a portion of such Interests or defer the repurchase of all such Interests. If the General Partners determine to defer all or a portion of the repurchase of certain Interests, the affected Limited Partners will be deemed to have priority over subsequent requests for repurchases. Investors should be aware that the General Partners have no obligation to repurchase Interests. If Interests are repurchased, the General Partner then owning such Interests shall in all respects be treated as a Limited Partner with respect to those Interests repurchased. Special Power of Attorney Under the Partnership Agreement and Subscription Agreement each Limited Partner irrevocably appoints the General Partners his attorneys-in-fact to make, execute, sign, acknowledge, swear to, deliver, record and file any document or instrument which may be considered necessary or desirable by the General Partners executing the same to carry out fully the provisions of the Partnership Agreement. Dissolution and Liquidation Article XV of the Partnership Agreement provides that the Partnership shall be dissolved and its business wound up upon the earliest to occur of (a) 180 days from the date of this Prospectus, unless subscriptions for 30,000 Interests are accepted by such date, (b) the date of disposition of all assets of the Partnership, (c) the date of the removal, resignation, adjudication of bankruptcy, insolvency or dissolution of a General Partner, unless the Limited Partners elect to continue the business of the Partnership, (d) that date on which Limited Partners holding a majority of Interests vote in favor of dissolution and termination, or (e) January 31, 2025. Upon the election by the Limited Partners to continue the business of the Partnership after an event specified in (c) above, the Partnership shall be required to purchase the General Partners' general partnership interest pursuant to Section 12.2 and Section 12.3 of the Partnership Agreement. Upon the completion of the liquidation of the Partnership, the General Partners have the authority to execute and record a certificate of cancellation of the Partnership, as well as any and all other documents required to effectuate the dissolution and termination of the Partnership. GLOSSARY As used in this Prospectus, the following definitions of terms are applicable: "Affiliate": (i) any person directly or indirectly controlling, controlled by, or under common control with, another person, (ii) a person owning or controlling 10% or more of the outstanding voting securities or beneficial interests of such other person, (iii) any officer, director, partner, general trustee, or any other person acting in a substantially similar capacity of such person, and (iv) if such other person is an officer, director, partner, trustee or holder of 10% or more of the voting securities or beneficial interests of such person, any other entity for which such person acts in any capacity. "Average Annual Unreturned Invested Capital": The total of all the Limited Partners' Original Invested Capital reduced by the total of all Cash Distributions from Sales or Refinancings (excluding Cash Distributions from Sales or Refinancings applied to the Limited Partners' Preferred Return) to Limited Partners (but not below zero), as reflected on the partnership's books and records, weighted on a daily average basis for the period. "Cash Distributions from Operations": Distributions of cash receipts from Gross Revenues after (i) operating expenses (without deduction for depreciation), (ii) amounts set aside for reasonable reserves, and (iii) payments on the Partnership's other current obligations. "Cash Distributions from Sales or Refinancings": Distributions of cash receipts from Net Proceeds from Sales or Refinancings realized by the Partnership from sales or refinancings of the 68 2 Partnership's properties after (i) amounts set aside for reasonable reserves, and (ii) payments on the Partnership's other current obligations. "Closing Date": Such date as designated by the General Partners as the date when the last Interest has been sold by the Partnership, but in no event later than 18 months after the Registration Statement first became effective. "Crozier Partners": Crozier Partners IX, Ltd. "Escrow Agent": MBank Dallas, N.A., Dallas, Texas, or its successor. "General Partners": Murray Realty Investors IX, Inc. and Crozier Partners IX, Ltd. "Gross Revenues": All Partnership revenues from whatever source derived, exclusive of revenues from the sale or refinancing of Partnership properties. "Initial Closing Date": The date on which subscriptions for the minimum of 30,000 Interests have been accepted by the General Partners. "Initial Limited Partner": Richard H. Shaw. "Interest": The limited partnership interest in the Partnership acquired by the payment of $100 to the Partnership. "Limited Partners": All subscribers for Interests who are admitted to the Partnership as limited partners and listed on Schedule A to the Partnership Agreement. "Minimum Deadline": The date that is 180 days after the date of this Prospectus. "MRI": Murray Realty Investors IX, Inc. "NASAA Guidelines": The guidelines for real estate programs as adopted by the North American Securities Administrators Association as they exist on the date the Partnership's Registration Statement is declared effective by the Securities and Exchange Commission. "Net Proceeds from Sales or Refinancings": The net cash realized by the Partnership from sales, refinancings or other dispositions of Partnership properties after the payment of all debts and expenses related to the transactions. "Organizational and Offering Expenses": Expenses incurred in connection with the organization of the Partnership and the offering of the Interests (excluding selling commissions and the dealer manager fee), including legal fees, accounting fees, printing costs, filing and qualification fees, reimbursement of expenses (excluding salaries and related salary expenses incurred during the organization of the Partnership) incurred by the General Partners or their Affiliates and other disbursements in connection with the sale and distribution of Interests. "Original Invested Capital": An amount equal to $100 per Interest. "Partner": Any General Partner, Limited Partner or, until the Initial Closing Date, the Initial Limited Partner. "Partnership": The partnership created under the Amended and Restated Certificate and Agreement of Limited Partnership attached as Exhibit A. "Partnership Agreement": The Amended and Restated Certificate and Agreement of Limited Partnership attached as Exhibit A. "Preferred Return": The cumulative preferred return to each Limited Partner equal to 10% per annum on his Average Annual Unreturned Invested Capital from either Cash Distributions from Operations or Cash Distributions from Sales or Refinancings. Such cumulative preferred return shall be calculated from the beginning of the first full fiscal quarter after such Limited Partner purchased such Interest. A Limited Partner shall be deemed to have purchased an Interest as of 69 3 the date on which the purchase of such Interest is reflected on the certificate of limited partnership filed with the Secretary of State of Texas. "Property Management Fee": The fee payable for property management services. "Prospectus": The prospectus contained in the Registration Statement, as amended or supplemented. "Registration Statement": The Partnership's Registration Statement on Form S-11 filed with the Securities and Exchange Commission and as amended from time to time. "Repurchase Fund": 25% of MRI's share of Cash Distributions from Operations to be used to repurchase Limited Partner Interests under certain circumstances. "Subordinated Amount": MRI's unpaid Cash Distributions from Operations subordinated to the Limited Partners' 7% noncumulative annual return. THE OFFERING Subject to the conditions set forth in this Prospectus and in accordance with the terms and conditions of the Partnership Agreement, the Partnership offers through the Dealer Manager 300,000 Interests at $100 per Interest, subject to the right of the Dealer Manager to increase the offering by up to an additional 200,000 Interests. Except for investors in certain states that have imposed higher purchase requirements as set forth in the Subscription Agreement, a form of which is included as Exhibit B, the minimum subscription for an Individual Retirement Account or a Keogh Plan is 20 Interests. The minimum subscription for other investors is 50 Interests. The Interests are being offered on a "best efforts" basis through Murray Securities Corporation (the "Dealer Manager"), an Affiliate of the General Partners. As compensation for their services in soliciting and obtaining subscribers for the purchase of the Interests, the Partnership has agreed to pay the Dealer Manager a commission of up to a maximum of 8% of the gross proceeds on all sales made directly by it or by other dealers in accordance with the following schedule:
Amount of Investment -------------------- Commission From To Rate ---------- -------- ---------- $ 2,000 $ 99,999 8% 100,000 249,999 7% 250,000 499,999 6% 500,000 749,999 5% 750,000 999,999 4% 1,000,000 and over 2%
Subscriptions may be combined for the purpose of determining the total commissions payable in the case of subscriptions made by any investor who, subsequent to his initial purchase of Interests, subscribes for the purchase of additional Interests. To be eligible for combination, subscriptions must be identical for all of the following: registration, type of ownership and tax identification or social security number. Any request to combine subscriptions will be subject to verification by the General Partners that all of such subscriptions were made by a single investor. In such an event, the commission payable with respect to the initial purchase of Interests will be computed using the commission schedule set forth above. The commission payable with respect to any subsequent purchase of Interests will equal the commission that would have been payable in accordance with the commission schedule set forth above if all purchases had been made simultaneously, less the commissions that previously have been paid with respect to all prior purchases of Interests by such an investor. The difference between 8% of the gross proceeds from the sale of Interests and the amount payable to the Dealer Manager with respect to such sale will be reimbursed to the Limited Partner as soon as possible after his admission to the Partnership or, at the option of such Limited Partner, as evidenced on his executed subscription agreement in the form of Exhibit B hereto, will be applied to 70
EX-99.B 10 ARTICLE XIII OF AGREEMENT OF LIMITED PARTERSHIP 1 EXHIBIT 99.B "Terminated General Partner") shall be purchased by the Partnership for a purchase price determined according to the provisions of Section 12.3 hereof. The last to remain of MRI and Crozier Partners, and the successors thereof, shall not resign or withdraw from the Partnership without the concurrence of a majority in interest of the Limited Partners. If such retirement or resignation is voluntary, the purchase price shall be paid in the form of a non-interest bearing unsecured promissory note with principal payable, if at all, from distributions which the Terminated General Partner otherwise would have received had the Terminated General Partner not resigned or retired. If such termination is involuntary, the Partnership shall have the option to pay the purchase price of such interest to the Terminated General Partner either in cash or by a promissory note of the Partnership, payable to such Terminated General Partner in a face amount equal to said purchase price and containing provisions as would be usual and customary in a commercial promissory note, including provisions for interest, at a rate equal to the prime rate of interest from time to time charged by MBank Dallas, N.A. to its best commercial customers (but in no event to exceed the maximum rate permitted by law to be paid to the Terminated General Partners by the Partnership), such interest to be payable at the time of each installment of principal, which shall be payable as the Terminated General Partner and the Partnership may agree, or if they cannot so agree, then annually over a period of five years from the date of the Terminated General Partner's removal, adjudication of bankruptcy, insolvency or dissolution. No prepayment penalty shall be charged to the Partnership for the early payment of its note. 12.3 The fair market value of the Terminated General Partner's interest to be purchased by the Partnership according to the provisions of Section 12.2 above shall be determined by agreement between the Terminated General Partner and the Partnership. If the Terminated General Partner and the Partnership cannot agree upon the fair market value of such Partnership interest within 90 days after the date of the Terminated General Partner's resignation, removal, adjudication of bankruptcy, insolvency or dissolution, then the Terminated General Partner and the Partnership shall each select an independent appraiser within the next thirty days. If such appraisers fail to agree on the fair market value of the Terminated General Partner's interest within the next 90 days, then the two appraisers shall jointly appoint a third appraiser whose determination shall be final and binding. The Terminated General Partner and the Partnership shall each compensate their respective appraisers, and the compensation of the third appraiser, if necessary, shall be borne equally by each party. If the Partnership or the Terminated General Partner fails to appoint an independent appraiser within the thirty day period provided for in this paragraph, then the fair market value of the Terminated General Partner's interest will be determined in accordance with the then current rules of the American Arbitration Association, and the expense of such arbitration shall be borne equally by the Terminated General Partner and the Partnership. 12.4 Within 90 days after the resignation, removal, adjudication of bankruptcy, insolvency or dissolution of a General Partner (except that a General Partner shall not voluntarily withdraw from the Partnership without complying with the terms of Section 12.2 and without at least 90 days' prior written notice to the other General Partner and the Limited Partners of intention to withdraw, and in such event, within the period from the date of the notice of intention to withdraw to the date of withdrawal specified in the notice of intention), Limited Partners holding a majority of the Interests may elect to continue the business of the Partnership and, if they desire to do so, may elect a successor General Partner or continue the business of the Partnership with the remaining General Partner. ARTICLE XIII TRANSFER OF A PARTNERSHIP INTEREST 13.1 The General Partners may, pursuant to this Article XIII, admit as a substituted Limited Partner any successor in interest to a Limited Partner who is either deceased or under legal disability or who is an assignee of a Limited Partner. 2 13.2 Subject to the provisions of this Article XIII, compliance with the suitability standards imposed by the Partnership, applicable "blue sky" laws and the applicable rules of any other governmental authority, a Limited Partner shall have the right to assign the whole or any portion of his Interests (but not less than 50 Interests unless to an Individual Retirement Account or Keogh Plan and then not less than 20 Interests) by a written assignment, the terms of which are not in contravention of any of the provisions of this Agreement. Any assignment in contravention of any of the provisions of this Article XIII shall be of no force and effect and shall not be binding upon or recognized by the Partnership. (a) Except as provided in (b) below, an assignee of a Limited Partner's Interest who is not admitted as a substituted Limited Partner shall have no right to require any information or account of the Partnership's transactions or to inspect the Partnership's books; he shall only be entitled to receive distributions from the Partnership and the share of income, gain, loss, deduction and credit attributable to the Interests acquired by reason of such assignment from the first day of the month following the month in which the written instrument of assignment, executed by the assignor and in form and substance reasonably satisfactory to the General Partners, and other documents reasonably deemed necessary or appropriate by the General Partners (as, for example, evidence that the assignee meets investor suitability standards) shall have been received by the Partnership. (b) Anything herein to the contrary notwithstanding, both the Partnership and the General Partners shall be entitled to (i) treat the assignor of such Interests as the absolute owner thereof in all respects, and shall incur no liability for allocations of income, gain, loss, deduction or credit or for distributions or for transmittal of reports and notices required to be given to holders of Interests, until the last day of the month in which the Partnership shall have received the written assignment executed by the assignor in form and substance reasonably satisfactory to the General Partners and other documents reasonably deemed necessary or appropriate by the General Partners (including evidence of the assignee's compliance with standards imposed by applicable "blue sky" laws) or (ii) treat the assignee as a substituted Limited Partner in the place of his assignor, should the General Partners deem, in their absolute discretion, that such treatment is in the best interests of the Partnership for any of its purposes or for any of the purposes of this Agreement. 13.3 No assignee shall have the right to become a substituted Limited Partner in place of his assignor unless all of the following conditions are satisfied: (a) The written consent of the General Partners to such substitution shall be obtained, the granting of which shall not be unreasonably withheld; (b) A duly executed written instrument of assignment setting forth the intention of the assignor that the assignee shall become a substituted Limited Partner in his place shall have been filed with the Partnership; (c) The Interests being acquired by the assignee shall consist of at least 20 Interests if such assignee is an Individual Retirement Account or Keogh Plan and at least 50 Interests if such assignee is not an Individual Retirement Account or Keogh Plan and, if the assignor shall retain any Interests, such retention shall consist of at least 20 Interests if such assignor is an Individual Retirement Account or Keogh Plan and at least 50 Interests if such assignor is not an Individual Retirement Account or Keogh Plan; (d) The assignor and assignee shall execute and acknowledge such other instruments as the General Partners reasonably deem necessary or desirable to effect such assignment and admission, including, but not limited to, evidence of the assignee's compliance with standards imposed by any applicable "blue sky" laws, the written acceptance and adoption by the assignee of the provisions of this Agreement and his execution, acknowledgement and delivery to the General A-21 3 Partners of a special power of attorney, the form and content of which are more fully described in Article XXI hereof; and (e) The Partnership shall have received from the assignor or assignee a transfer fee to cover all reasonable expenses of the transfer, not to exceed $500 per transaction, but such transfer fee may be waived by the General Partners, in their discretion. 13.4 Any person admitted to the Partnership as a substituted Limited Partner shall be subject to all of the provisions of this Agreement as if an original party to it. 13.5 The General Partners shall amend the certificate of limited partnership at least once each quarter to add assignees as substituted Limited Partners. 13.6 Upon the death or legal disability of an individual who is a Limited Partner, his personal representative shall have all of the rights of a Limited Partner for the purpose of settling or managing his estate, and such power as the decedent or incompetent possessed to constitute a successor as an assignee of his Interests and to join with such assignee in making application to substitute such assignee as a Limited Partner. However, such personal representative shall not have the right to become a substituted Limited Partner in the place of his predecessor in interest unless the conditions of this Article XIII (other than the requirement that the assignor execute and acknowledge instruments) are first satisfied. 13.7 Upon the adjudication of bankruptcy or insolvency, dissolution or other cessation of existence as a legal entity of a Limited Partner which is not an individual, the authorized representative of such entity shall have all of the rights of a Limited Partner for the purpose of effecting the orderly winding up and disposition of the business of such entity and such power as such entity possessed to constitute a successor as an assignee of its Interests and to join with such assignee in making application to substitute such assignee as a Limited Partner. However, such representative shall not have the right to become a substituted Limited Partner in the place of his predecessor in interest unless the conditions of this Article XIII (other than the requirement that the assignor execute and acknowledge instruments) are first satisfied. 13.8 A General Partner may not assign his or its interest as a General Partner to anyone other than the Partnership as provided in Article XII of this Agreement. 13.9 No assignment of any Interests may be made if the Interests sought to be assigned, when added to the total of all other Interests assigned within the period of 12 consecutive months prior to the proposed date of assignment, would, in the opinion of counsel for the Partnership, result in the termination of the Partnership under Section 708 of the Internal Revenue Code of 1954, as amended. 13.10 Any assignment, sale, exchange or other transfer in contravention of any of the provisions of this Article XIII shall be void and ineffectual, and shall not bind or be recognized by the Partnership. ARTICLE XIV INDEMNIFICATION 14.1 No General Partner and no officer, director, partner or Affiliate of a General Partner shall be liable to the Partnership or any Limited Partner for any loss or damage suffered by the Partnership or any Limited Partner which arises out of any error in judgment or other action or inaction not constituting negligence (gross or ordinary), fraud or breach of fiduciary duty which was taken in good faith, in accordance with the exercise of reasonable business judgment and pursuant to a determination that such course of conduct was in the best interest of the Partnership. The Partnership or its receiver or trustee shall indemnify, save harmless and pay all judgments and claims against the General Partners (and each of them) or their officers, directors, partners and Affiliates from any liability, loss or damage incurred by them or by the Partnership by reason of any act performed or omitted to be A-22 EX-99.C 11 AMEND. NO.9 TO AGREEMENT OF LIMITED PARTNERSHIP 1 EXHIBIT 99.C for this purpose include only the price of goods and materials paid to independent third parties and direct costs incurred by the General Partners or their Affiliates in the transaction, including overhead directly attributable to the transaction but excluding general and administrative overhead. Further, all such transactions between the Partnership and a General Partner or an Affiliate of a General Partner must be pursuant to the terms of a written contract between the Partnership and such General Partner or Affiliate which precisely described the services to be rendered or the goods or materials to be provided and the compensation therefor. These provisions are inconsistent with the direct management by the Partnership of its business, operations and affairs and the proposed restructuring wherein the Partnership and Murray Income Properties, Ltd.-84 will employ their own executive and managerial personnel, secretaries, accountants and other staff, rent office space, pay their own utility bills, and in general run their own business, operations and affairs and share expenses. Murray Income Properties, Ltd.-84 is an Affiliate of the Partnership. Consequently, this amendment proposes to create an exception to the scope of Section 10.9 that would allow the Partnership, in conjunction with Murray Income Properties, Ltd.-84, to manage its own business and affairs and conduct its own operations through its own staff out of its own office and to share personnel, office and other general and administrative overhead expenses with Murray Income Properties, Ltd.-84. Further, the amendment allows the salaried personnel to be persons who are Affiliates of the General Partners so long as their compensation and benefits are comparable to the amounts that would be paid for their services if they were not Affiliates of a General Partner. The Amendment. A new paragraph is hereby added to the end of Section 10.9 that reads as follows: "Notwithstanding anything contained in this Section 10.9 or elsewhere in this Agreement, the Partnership may directly conduct, operate and manage its business and affairs. The Partnership may employ, either alone or in association with Murray Income Properties, Ltd.-84, managerial and executive personnel, secretaries, accountants and other support staff in the conduct of the business, operations and affairs of the Partnership. If any person employed by the Partnership is an Affiliate of a General Partner (or if an Affiliate of a General Partner is employed by Murray Income Properties, Ltd.-84 and the Partnership is to reimburse Murray Income Properties, Ltd.-84 for a portion of the compensation and benefits paid to such person), the compensation and benefits paid by the Partnership (or by Murray Income Properties, Ltd.-84 as appropriate) for the services of such person shall be comparable to the amount that would be paid to such person if such person was not an Affiliate of a General Partner. The Partnership may reimburse Murray Income Properties, Ltd.-84 for that proportion of any expenditure made by Murray Income Properties, Ltd.-84 which the General Partners deem to be the fair, just and equitable share that should be borne by the Partnership and, conversely, the Partnership may pay, and seek reimbursement from, Murray Income Properties, Ltd.-84 for that proportion of any expenditure made by the Partnership which the General Partners deem to be the fair, just and equitable share that should be borne by Murray Income Properties, Ltd.-84." Amendment No. 9 Explanation of Amendment. Section 10.17 requires MRI to allocate 25% of its share of Cash Distributions from Operations to a "Repurchase Fund" for the purchase of Interests upon the request of a Limited Partner. MRI is permitted to commingle the amount allocated to the "Repurchase Fund" with other assets of MRI. To the present time, however, MRI has not been paid any Cash Distributions from Operations since the allocation and payment of Cash Distributions to MRI is subordinated to the prior receipt by the Limited Partners of a noncumulative 7% annual return from either Cash Distributions from Operations or Cash Distributions from Sales or Refinancings, or both, on their Average Annual Unreturned Invested Capital. (vi) EX-99.D 12 MANAGEMENT COMPENSATION 1 EXHIBIT 99.D MANAGEMENT COMPENSATION The following table sets forth the types and estimates of the amounts of all fees, compensation, income, distributions and other payments that the General Partners and their Affiliates will or may receive in connection with the operations of the Partnership. SUCH FEES, COMPENSATION, INCOME, DISTRIBUTIONS AND OTHER PAYMENTS WERE NOT DETERMINED BY ARM'S- LENGTH BARGAINING. See "Conflicts of Interest."
Entity Receiving Method of Determination Form of Compensation Compensation and Estimated Dollar Amount - -------------------- ---------------- --------------------------- Offering Stage Selling Commissions Murray Securities Up to $8 per Interest sold, Corporation(1) reduced for purchases by one investor of more than 1,000 Interests and for purchases by officers, directors, partners, employees or Affiliates of the General Partners or their Affiliates. Actual amount depends upon number of Interests sold but could be $2,400,000 if 300,000 Interests are sold or $4,000,000 if 500,000 Interests are sold.(2) Dealer Manager Fee Murray Securities Up to $2 per Interest sold, Corporation(1) reduced for purchases by officers, directors, partners, employees or Affiliates of the General Partners or their Affiliates. Actual amount depends upon number of Interests sold but could be $600,000 if 300,000 Interests are sold or $1,000,000 if 500,000 Interests are sold.(2) Reimbursement of MRI or its Affiliates Actual out-of-pocket Organizational Organizational and Offering Offering Expenses(3) Expenses, including accounting, legal, printing, registration fees, etc. Acquisition Stage Reimbursement of Murray Properties Actual costs incurred in Acquisition and Company or its acquiring and holding Holding Costs(4) Affiliates properties prior to their acquisition by the Partnership. Dollar amount is not determinable at this time.(5) Title Insurance Dallas Title Company A portion of the premium paid for Commissions(6) or Texas Title title insurance upon acquisition Company(7) of a property. The premium in Texas is fixed by the State. Dollar amount is not determinable at this time.(5)
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Entity Receiving Method of Determination Form of Compensation Compensation and Estimated Dollar Amount - -------------------- ---------------- --------------------------- Operational Stage Property Management Murray Management For its management services, Fees Corporation(8) an amount not to exceed the lesser of (i) in the case of apartment complexes, 5% of gross revenues, in the case of shopping centers, office buildings and office/showroom centers, 6% of gross revenues (or 3% if leasing performed by third parties) and in the case of shopping centers, office buildings and office/ showroom centers which are leased on a long-term (ten or more years) net (or similar) basis, 1% of gross revenues or (ii) the amount customarily charged in arm's-length transactions by others rendering comparable services in the locality where the property is located, considering the size and type of each such property. In addition, Murray Management Corporation will be reimbursed for the actual costs of on-site personnel engaged in the management, leasing and maintenance of the property of the Partnership. Dollar amount is not determinable at this time.(5) Reimbursement of MRI or its Affiliates Actual cost of goods and Partnership materials used for and by the Operational Partnership and obtained from Expenses(9) an entity not affiliated with a General Partner or an Affiliate of the General Partners and certain administrative services. Dollar amount is not determinable at this time.(5) Casualty Insurance Murray General A portion of the premiums paid Commissions Agency, Inc.(10) for casualty insurance. The cost of the insurance cannot exceed the lower quote for comparable terms and coverage from two independent brokers. Dollar amount is not determinable at this time.(5) Partnership Murray Savings The excess of Murray Savings Administrative Association(11) Association's rate of return Account and on the Partnership funds in Property Operating such accounts over the interest Accounts rate paid to the Partnership on such accounts. Dollar amount is not determinable at this time.(5)
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Entity Receiving Method of Determination Form of Compensation Compensation and Estimated Dollar Amount - -------------------- ---------------- --------------------------- Interest and Other A General Partner or An amount not in excess of the Financing Charges an Affiliate of the amounts that would be charged or Fees General Partners(12) by unrelated lending institutions on comparable loans for the same purpose and in the same locality but never in excess of 2% over the prime rate of MBank Dallas, N.A., Dallas, Texas. Dollar amount is not determinable at this time.(5) Distributive Share of Crozier Partners and Crozier Partners will receive Cash Distributions MRI(14) 2% of all Cash Distributions from Operations(13) from Operations. MRI will receive 8% of all Cash Distributions from Operations, subject to the Limited Partners having received a noncumulative annual cash return equal to 7% of their Average Annual Unreturned Invested Capital, calculated from the Initial Closing Date. Dollar amount is not determinable at this time.(5) Liquidation Stage Real Estate Crozier Partners or An amount not to exceed the Commissions its Affiliates; lesser of (i) 50% of the MRI or its competitive real estate Affiliates(14)(15) commission or (ii) 3% of the sales price of the property, provided that all real estate commissions or similar fees paid to all persons shall not exceed the lesser of the competitive real estate commission or 6% of the sales price of the property. Such commissions will be payable only after Limited Partners have been returned their Original Invested Capital from Cash Distributions from Sales or Refinancings, plus their Preferred Return from either Cash Distributions from Operations or Cash Distributions from Sales or Refinancings. Dollar amount is not determinable at this time.(5) Title Insurance Dallas Title Company A portion of the premiums paid Commissions or Texas Title for title insurance upon sale, Company(7) financing or refinancing of a property if such title insurance is provided by Dallas Title Company or Texas Title Company. The premium in Texas is fixed by the State. Dollar amount is not determinable at this time.(5)
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Entity Receiving Method of Determination Form of Compensation Compensation and Estimated Dollar Amount - -------------------- ---------------- --------------------------- Distributive Share Crozier Partners Crozier Partners will receive of Cash and MRI(14) 1% of all Cash Distributions Distributions from from Sales or Refinancings. Sales or The remaining 99% shall be Refinancings(13)(16) allocated (a) first, to the Limited Partners until they have been returned their Original Invested Capital from Cash Distributions from Sales or Refinancings, plus their Preferred Return from either Cash Distributions from Operations or Cash Distributions from Sales or Refinancings, (b) then, to MRI in an amount equal to any unpaid Cash Distributions from Operations subordinated to the Limited Partners' 7% noncumulative annual return and (c) thereafter, the remainder shall be allocated 85% to the Limited Partners and 15% to the General Partners. See "Income and Losses and Cash Distributions." Dollar amount is not determinable at this time.(5)
- -------------------- (1) The Dealer Manager may authorize certain other broker-dealers who are members of the National Association of Securities Dealers, Inc., to sell Interests on a "best efforts" basis. In the event of sales by such other broker-dealers, the Dealer Manager has advised the Partnership that the Dealer Manager will reallow to such other broker- dealers all or a portion of the selling commissions with respect to such sales. Such other broker-dealers, together with the Dealer Manager, may also be reimbursed up to an additional 1/2% of gross offering proceeds in connection with their due diligence activities. (2) See "The Offering" for a discussion of the rebate of selling commissions payable with respect to sales to one purchaser of more than 1,000 Interests and the rebate of selling commissions and the dealer manager fee with respect to sales to officers, directors, partners, employees or Affiliates of the General Partners or their Affiliates. (3) For nonleveraged programs such as the Partnership, the NASAA Guidelines require that, at a minimum, 82% of the Limited Partners' capital contributions be committed to investment in properties. Investment in properties, as defined under the NASAA Guidelines, is the amount of capital contributions actually paid or allocated to the purchase, development, construction or improvement of properties acquired by the Partnership (including the purchase of properties, working capital reserves not in excess of 5% of gross offering proceeds and other cash payments such as interest and taxes but excluding front- end fees, defined as fees and expenses paid by any party for any services rendered during the Partnership's organizational or acquisition phase including organization and offering expenses, acquisition fees, acquisition expenses and any other similar fees, however designated). The remaining capital contributions not invested in properties are available for the payment of Organizational and Offering Expenses, selling commissions, acquisition fees and acquisition expenses. Acquisition fees for this purpose shall be the total of all fees and commissions paid by any party in connection with the purchase or development of property by the Partnership, including real estate commissions, acquisition fees, selection fees, development fees, nonrecurring management fees, or any fees of a similar nature, 13 5 however designated, but excluding a development fee paid to a person not affiliated with the General Partners or their Affiliates in connection with actual development of property after acquisition by the Partnership. Acquisition expenses for this purpose include, but are not limited to, legal fees and expenses, travel and communication expenses, costs of appraisals, loan commitment and loan fees ("points"), nonrefundable option payments on properties not acquired, accounting fees and expenses, title insurance, and miscellaneous expenses related to selection and acquisition of properties, whether or not acquired. The Partnership will acquire its properties on an unleveraged basis. In addition, the Partnership will not pay any acquisition fees to the General Partners or their Affiliates and the total of acquisition fees to unaffiliated parties and acquisition expenses will not exceed 1% of the Limited Partners' capital contributions. Based on those assumptions and assuming the sale of 300,000 Interests with Organizational and Offering Expenses, selling commissions and the dealer manager fee equal to 13.0% of the Limited Partners' capital contributions, the amount that would be invested in properties would be equal to 86.0% of such contributions. The amount invested in Partnership properties will comply with the NASAA Guidelines limitations set forth above. (4) An Affiliate of the General Partners may purchase property in its own name and temporarily hold title thereto for the purpose of facilitating the acquisition of such property or any other purpose related to the business of the Partnership. In such event, such Affiliate may be reimbursed for its costs incurred in acquiring and holding such real property prior to the acquisition of such property by the Partnership. Such costs will consist of the price paid by such Affiliate for such property, plus the amount of any net cash flow deficit or minus the amount of any net cash flow surplus incurred by such Affiliate during its ownership and operation of such property. (5) Any prediction of such dollar amount would necessarily involve assumptions of future events that cannot be determined at this time. (6) To the extent a seller of property to the Partnership sets the sales price at a level sufficient to cover the premium for title insurance, the Partnership, if effect, will pay the premium in the purchase price of the property. (7) The Partnership has entered into nonexclusive contracts with Dallas Title Company and Texas Title Company, Affiliates of the General Partners, pursuant to which each has agreed that, upon the request of the Partnership, it will handle the closing of purchases, sales, financings or refinancings by the Partnership of properties situated in Texas and will cause to be issued title insurance policies on such properties. Either of such title insurance agencies may receive a portion of the commission on premiums paid for title insurance by the Partnership or by a seller of real property to the Partnership. In Texas, title insurance premiums and the policy forms are prescribed by the State. Each contract provides that if such title insurance agency does not derive, in any calendar year, at least 75% if its gross income from persons or entities not affiliated with a General Partner, that agency's contract will terminate upon the earlier of 60 days after the end of the calendar year or as soon as the Partnership can arrange for another person or entity to perform such services. Each contract also provides that it may be terminated by either party, without penalty, on 60 days' prior written notice and that such title insurance agency shall not render services or receive title insurance commissions in connection with the reinvestment of any proceeds from a sale or refinancing of Partnership properties. (8) The Partnership has entered into an agreement with Murray Management Corporation, an Affiliate of the General Partners, pursuant to which Murray Management Corporation will be responsible for the management of each property and the collection of its rental income, for which services it will receive a monthly Property Management Fee. This Property Management Fee is payable for professional supervisory management services undertaken in connection with the operation of the Partnership's properties. In the case of apartment complexes, such fee shall include all leasing and releasing fees and bonuses, and leasing-related services. In the case of shopping centers, office buildings and office/showroom centers, where Murray Management Corporation is not responsible for leasing, re-leasing and leasing- related services with respect to 14 6 the property, its fee shall not exceed 3% of gross revenues. Notwithstanding the foregoing, a separate competitive fee may be paid for the one-time initial lease-up of a newly constructed property if such service is not included in the purchase price of the property, provided that such fee shall not exceed the lesser of cost or 90% of the competitive price that would be charged by unaffiliated persons rendering similar services in the same or comparable geographic location. In the case of shopping centers, office buildings and office/ showroom centers which are leased on a long-term net (or similar) basis, a one-time initial leasing fee of 3% of gross revenues may be taken on each lease payable over the first five full years of the original term of the lease. Murray Management Corporation shall pay from the Property Management Fee, and not as an expense of the Partnership, the expenses of rendering supervisory property management services; provided, however, that the wages and expenses of on-site personnel engaged in the management, leasing and maintenance of the Partnership's properties and personnel, supplies, repairs, furniture and equipment costs and other costs directly attributable to the Partnership's property operations shall be deemed to be property operating expenses and as such shall be borne by the Partnership by reimbursement to Murray Management Corporation. Wages and other actual expenses of personnel may be allocated between properties of the Partnership and other properties managed by Murray Management Corporation if such properties are owned by (i) a public or private program sponsored by the General Partners or their Affiliates or any joint venture in which a General Partner or an Affiliate is a party or (ii) an unaffiliated third party. Murray Management Corporation has the right to subcontract to third parties a portion or all of the management services to be rendered by it with respect to any particular property, provided that (a) Murray Management Corporation shall at all times remain responsible for the management of such property, (b) the Partnership shall not be required to pay for duplicative services and (c) the aggregate cost to the Partnership will not exceed the amount which would be customarily charged in arm's-length transactions by others rendering similar services in the locality where the property is located, considering the size and type of each such property, if only one entity had provided all such services. The agreement between the Partnership and Murray Management Corporation may be terminated by either party, without penalty, on 60 days' prior written notice. (9) Except as set forth below, reimbursements to a General Partner or an Affiliate of a General Partner shall not be allowed. A General Partner or an Affiliate of a General Partner may be reimbursed for: (a) the actual cost of goods and materials used for or by the Partnership and obtained from an entity not affiliated with a General Partner or an Affiliate of a General Partner; and (b) the lesser of the cost or 90% of the competitive price charged by unaffiliated parties for (i) salaries and related salary expenses for services that could be performed directly for the Partnership by independent parties, including legal, accounting, transfer agent, data processing, duplicating and administration of investor accounts and (ii) Partnership reports and communications to investors. All such transactions shall be pursuant to the terms of a written contract between the Partnership and such General Partner or Affiliate which precisely describes the services to be rendered or the goods or materials to be provided and the compensation therefor. No reimbursement shall be permitted for services for which the General Partners or Affiliates receive a separate fee or for (i) salaries, related salary expenses, traveling expenses, and other administrative items which are incurred by any Controlling Person or which are not directly attributable to the rendering of reimbursable services to the Partnership and (ii) any indirect expenses incurred in performing services for the Partnership, such as rent or depreciation, utilities, capital equipment, and other administrative items. "Controlling Person" for this purpose shall mean any person, regardless of title, who performs executive or senior management functions for the General Partners or Affiliates similar to those of directors, executive management and senior management, or any person who either holds 5% or more equity interest in the General Partners or Affiliates or has the power to direct or cause the direction of the General Partners or Affiliates, whether through the ownership of voting securities, by contract, or otherwise, or, in the absence of a specific role or title, any person having the power to direct or cause the direction of the management level employees and policies of the General Partners or 15 7 Affiliates. It is not intended that every person who carries a title such as vice president, senior vice president, secretary or treasurer be included in the definition of Controlling Person. In no event shall any amount charged to the Partnership as a reimbursable expense by the General Partners exceed the lesser of the actual cost of such services or 90% of the amount which the Partnership would be required to pay to independent parties for comparable services. "Costs" for purposes of this paragraph shall include the price of goods and materials paid to independent third parties, and direct costs incurred by the General Partners or their Affiliates in the transactions including overhead directly attributable to the transaction but excluding general or administrative overhead. Notwithstanding the foregoing, reimbursements are also allowable for certain organizational and offering expenses and for the actual costs of on-site personnel engaged in the management, leasing and maintenance of the property of the Partnership as provided in note (8) above. (10) The Partnership has entered into a nonexclusive contract with Murray Insurance Agency, Inc., an Affiliate of the General Partners, pursuant to which, upon the request of the Partnership, such agency will endeavor to obtain fire, casualty, or similar insurance on the properties of the Partnership. Any commission on any casualty insurance brokered by it will not exceed the amount customarily received by it from the brokerage of comparable policies for unaffiliated persons. Before such agency brokers any fire, casualty or similar insurance on any property of the Partnership, quotes must have been received from two unaffiliated insurance brokers for coverage and terms comparable to that proposed to be provided by such agency. No insurance will be brokered by the Partnership through such agency unless the cost of such insurance will be no greater than the lower quote of the two unaffiliated insurance agencies. The contract with Murray Insurance Agency, Inc., provides that if such agency does not derive at least 75% of its gross income from business done with persons or entities not affiliated with a General Partner, that agency's contract will terminate upon the earlier of 60 days after the end of the calendar year or as soon as the Partnership can arrange for another person or entity to perform such services. The contract also provides that it may be terminated by either party, without penalty, on 60 days' prior written notice. Murray General Agency, Inc., an Affiliate of the General Partners, will receive commissions on insurance premiums paid through Murray Insurance Agency, Inc., by virtue of contractual arrangements between it and Murray Insurance Agency, Inc. (11) The General Partners may open and maintain an interest-bearing Partnership administrative account and property operating accounts at Murray Savings Association, a stock association organized under the Texas Savings and Loan Act. Murray Savings Association is a wholly- owned subsidiary of Murray Financial Corporation, an Affiliate of the General Partners. Such accounts are insured up to a maximum of $100,000 in the aggregate by the Federal Savings and Loan Insurance Corporation ("FSLIC"). The General Partners will not permit the balance of such accounts to exceed the maximum amount insured by the FSLIC. Murray Savings Association may receive indirect compensation to the extent that Murray Savings Association's rate of return on the Partnership funds in such accounts exceeds the interest rate paid to the Partnership on such accounts. The Partnership will receive an interest rate competitive with similar accounts at unrelated institutions and will not be charged any servicing fees on the accounts. (12) It is not contemplated that a General Partner or any Affiliate of a General Partner will make a loan to the Partnership, but the Partnership Agreement permits a General Partner or any Affiliate of a General Partner to make a loan to the Partnership if the interest and other financing charges or fees on any such loan are not in excess of the amounts which would be charged by unaffiliated lending institutions on comparable loans for the same purpose in the same locality but not in excess of 2% over the prime rate of MBank Dallas, N.A. Any financing charges or fees on any loan to the Partnership by a General Partner or an Affiliate of a General Partner will be only those incurred by such General Partner or Affiliate in connection with the making of such loan. Neither a General Partner nor an Affiliate of a General Partner will make a profit from the Partnership's payment of financing charges or fees. No property of the Partnership shall secure 16 8 any loan made to the Partnership by a General Partner or an Affiliate of a General Partner if, at the inception of the loan, any payment of principal or interest is to be made more than two years after the date of the loan. No loans, secured or unsecured, may be made to the Partnership by a General Partner or an Affiliate of a General Partner if at the inception of the loan any payment of principal or interest is to be made more than three years after the date of the loan. (13) For a discussion of Cash Distributions from Operations and Cash Distributions from Sales or Refinancings, see "Income and Losses and Cash Distributions." (14) Crozier Partners was formed as of December 19, 1985, under The Texas Uniform Limited Partnership Act with Jack E. Crozier as the general partner and Fulton Murray, individually, Fulton Murray in his capacity as Trustee of the Beverly Murray Wilson Trust and Fulton Murray and RepublicBank Dallas, N.A., in their capacities as Trustees of a trust created under the Will of Owen M. Murray, Deceased, as the limited partners. (15) Real estate commissions are payable to the General Partners or their Affiliates only if such General Partner or Affiliate provides a substantial amount of the services in the sales effort. All real estate commissions payable to the General Partners or their Affiliates for services in connection with sales of properties of the Partnership shall be cumulative but shall be paid only after the Limited Partners have been returned their Original Invested Capital from Cash Distributions from Sales or Refinancings, plus their Preferred Return. If an unaffiliated broker participates in the sale of a Partnership property, the subordination requirement will apply only to the commission, if any, earned by the General Partners or their Affiliates. The total of all real estate commissions payable to all parties in connection with the sale of a Partnership property shall not exceed the lesser of a competitive real estate commission which is reasonable, customary and competitive in light of the size, type and location of the property or 6% of the sales price of the property. Real estate commissions payable to the General Partners or their Affiliates will be allocated one-third to Crozier Partners or its Affiliates and two-thirds to MRI or its Affiliates. (16) Cash Distributions from Sales or Refinancings payable to the General Partners (other than the 1% of Cash Distributions from Sales or Refinancings payable to Crozier Partners) will be allocated one-third to Crozier Partners and two-thirds to MRI. CONFLICTS OF INTEREST The General Partners are subject to various conflicts of interest because of other activities and entities in which they have a direct or indirect financial interest. This Prospectus attempts to highlight those conflicts of interest but a potential investor should be aware that because of future activities or circumstances not now foreseen, the listing herein may not be complete. The General Partners, having the exclusive authority to manage the operations and affairs of the Partnership and to make all decisions regarding the business of the Partnership, will seek to resolve any matter involving a conflict of interest in a manner which, in their best judgment, is fair and reasonable to the Partnership. Murray Realty Investors IX, Inc., a General Partner, is a wholly-owned subsidiary of Murray Realty Investors, Inc., which is a wholly-owned subsidiary of Murray Properties Company. Murray Properties Company is a wholly-owned subsidiary of Murray Financial Corporation. The general partner of Crozier Partners IX, Ltd., a General Partner, is Jack E. Crozier, and the limited partners are Fulton Murray, individually, Fulton Murray in his capacity as Trustee of the Beverly Murray Wilson Trust and Fulton Murray and RepublicBank Dallas, N.A. in their capacities as Trustees of a trust created under the Will of Owen M. Murray, Deceased. Jack E. Crozier owns approximately 11% of the outstanding stock and is the President of Murray Financial Corporation and is an officer and director of substantially all Affiliates of Murray Financial Corporation. Fulton Murray, members of his family and trusts for their benefit own the remaining outstanding stock of Murray Financial Corporation. Mr. Murray is the Chairman of the Board and Chief Executive Officer and a director of Murray Financial Corporation and is an officer and director of substantially all Affiliates of Murray Financial Corporation. Murray Financial Corporation is engaged, directly or through subsidiaries, in various real estate 17
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