<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-5305
BRE PROPERTIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 94-1722214
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Montgomery Street
Telesis Tower, Suite 2500
San Francisco, CA 94104-5525
- ------------------------------- ---------------------------
(Address of principal office) (Zip Code)
(415) 445-6530
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed
since last report)
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 .
-------- -------
Number of shares of common stock
outstanding as of November 12, 1997 37,044,837
-----------------------
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BRE Properties, Inc.
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PART I FINANCIAL INFORMATION
ITEM 1 - Financial Statements
--------------------
BALANCE SHEETS (unaudited)
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<TABLE>
<CAPTION>
(Dollar amounts in thousands) September 30, December 31,
1997 1996
------------ -------------
<S> <C> <C>
ASSETS
Investments in rental properties
Multifamily $ 853,762 $ 710,240
Commercial and retail 12,169 103,528
Less: Accumulated depreciation and amortization (44,627) (49,690)
--------- ---------
821,304 764,078
Investments in limited partnerships 2,687 2,621
--------- ---------
Real estate portfolio 823,991 766,699
Mortgage loans, net 14,294 9,716
Cash and short-term investments 875 184
Other 26,923 7,115
========= =========
TOTAL ASSETS $ 866,083 $ 783,714
========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
LIABILITIES
Mortgage loans $ 112,710 $ 114,985
Unsecured notes 123,000 73,000
Unsecured lines of credit 34,000 124,000
Accounts payable and accrued expenses 10,671 7,615
--------- ---------
Total liabilities 280,381 319,600
--------- ---------
Commitments and contingencies (Notes C and E)
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares authorized. No -- --
shares outstanding at September 30, 1997 or December 31, 1996
Common stock, $.01 par value, 100,000,000 shares authorized at 370 329
September 30, 1997; 50,000,000 shares authorized at December 31,
1996. Shares issued and outstanding: 37,035,680 at September 30,
1997; 32,879,741 at December 31, 1996. (Note D)
Additional paid-in capital 585,332 463,785
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Total shareholders' equity 585,702 464,114
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 866,083 $ 783,714
========= =========
</TABLE>
See notes to financial statements.
2
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STATEMENTS OF INCOME (unaudited)
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(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
September 30, September 30,
--------------------- ------------------------
1997 1996 1997 1996
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUE
Rental income:
Multifamily $ 30,577 $ 21,308 $ 86,174 $ 53,240
Commercial and retail 1,115 2,969 5,370 11,796
Other income 2,186 1,992 6,267 6,907
-------- -------- -------- --------
Total revenue 33,878 26,269 97,811 71,943
-------- -------- -------- --------
EXPENSES
Real estate expenses:
Multifamily 11,016 8,316 30,723 20,202
Commercial and retail 60 (815) 392 973
Depreciation and amortization 4,339 3,654 12,635 9,379
Interest expense 4,605 4,307 15,344 11,219
General and administrative 872 1,040 3,114 3,167
-------- -------- -------- --------
Total expenses 20,892 16,502 62,208 44,940
-------- -------- -------- --------
Net income before gain on sales of 12,986 9,767 35,603 27,003
real estate investments
Net gain on sales of real estate 2,557 49,352 28,160 49,578
investments
-------- -------- -------- --------
Net income $ 15,543 $ 59,119 $ 63,763 $ 76,581
======== ======== ======== ========
Income per share:
Before gains on sales of real estate $ 0.35 $ 0.30 $ 1.02 $ 0.91
investments
Gains on sales of real estate $ 0.07 $ 1.50 $ 0.81 $ 1.67
investments
-------- -------- -------- --------
Net income per share $ 0.42 $ 1.80 $ 1.83 $ 2.58
======== ======== ======== ========
Dividends declared and paid per share $ 0.345 $ 0.330 $ 1.035 $ 0.995
======== ======== ======== ========
Weighted average shares outstanding 37,020 32,810 34,790 29,740
======== ======== ======== ========
</TABLE>
See notes to financial statements
3
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STATEMENT OF CASH FLOWS (UNAUDITED)
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(Dollar amounts in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
------------------------------
1997 1996
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 63,763 $ 76,581
Non-cash revenues and expenses included in income:
Provision for depreciation and amortization 12,635 9,379
(Gain) on sales of investments (28,160) (49,578)
Increase (decrease) in accounts payable and other liabilities 3,056 (4,094)
(Increase) decrease in other assets and investments in limited (19,874) 4,244
partnerships
--------- ---------
Net cash flows generated by operating activities 31,420 36,532
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Multifamily properties purchased (143,002) (173,200)
Capital expenditures-multifamily (1,092) (414)
Capital expenditures-commercial and retail (446) (441)
Capital expenditures-rehabilitation and other (2,229) (1,451)
Advances on mortgage loans receivable (6,000) (3,214)
Payments on mortgage loans receivable 1,422 936
Proceeds from sales of property, net 105,068 87,973
--------- ---------
Net cash flows used in investing activities (46,279) (89,811)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loans (2,275) (1,107)
Issuance of unsecured notes 50,000 --
Lines of credit:
Advances 74,500 86,000
Principal repayments (164,500) (20,200)
Proceeds from equity offering, net 90,999 --
Proceeds from exercises of stock options 3,746 2,715
Dividends paid (36,920) (28,956)
--------- ---------
Net cash flows generated by financing activities 15,550 38,452
--------- ---------
Increase (decrease) in cash and short-term investments 691 (14,827)
Balance at beginning of period 184 16,057
========= =========
BALANCE AT END OF PERIOD $ 875 $ 1,230
========= =========
</TABLE>
See notes to financial statements
4
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NOTES TO FINANCIAL STATEMENTS (unaudited)
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September 30, 1997
NOTE A - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and should be read in conjunction with the
Annual Report of BRE Properties, Inc., (the "Company" or "BRE"), on Form 10-K
for the year ended December 31, 1996, as amended. In the opinion of management,
all adjustments (consisting of normal recurring adjustments only) have been made
which are necessary for a fair statement of the results for the interim periods
presented herein.
Certain reclassifications have been made to the 1996 financial statements to
conform to the presentation of the 1997 financial statements.
NOTE B - NET INCOME PER SHARE
- -----------------------------
Net income per share is based upon the average weighted number of shares
outstanding during the periods. In February 1997, the Financial Accounting
Standards Board issued Statement No.128, "Earnings per share," which is required
to be adopted on December 31, 1997. The impact of the adoption of Statement No.
128 is not expected to be material.
NOTE C - LITIGATION
- -------------------
BRE is defending various claims and legal actions that arise from its normal
course of business. While it is not feasible to predict or determine the
ultimate outcome of these matters, in the opinion of management, none of these
actions will have a material adverse effect on BRE's results of operations or
financial position.
NOTE D - INCREASE IN AUTHORIZED SHARES
- --------------------------------------
On April 21, 1997, the number of authorized shares of the Company's common stock
was increased from 50,000,000 to 100,000,000.
NOTE E - TRANSACTION WITH TRAMMELL CROW RESIDENTIAL
- ---------------------------------------------------
On September 29, 1997, the Company signed a definitive agreement pursuant to
which BRE will acquire the assets and certain operations of Trammell Crow
Residential located in the Western U.S. ("TCR-West") for a total purchase price
of approximately $600 million. The purchase price is based on a BRE share price
of $26.93 (subject to certain adjustments) and includes payment in common stock,
operating company units ("OC Units"), cash and the assumption of debt and other
liabilities.
The OC Units will be convertible into shares of BRE common stock on a 1:1 basis,
or into an equivalent amount of cash at BRE's election, beginning one year after
the closing. Certain adjustments will be made to the number of shares of common
stock and OC Units to be issued at closing should BRE's average stock price fall
below $26.93. The parties also have certain rights to terminate or to elect to
proceed with the transaction under certain circumstances should BRE's average
price fall below $25.00 per share.
5
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Subject to certain adjustments, the value of the shares of common stock and OC
Units to be issued at closing is expected to be approximately $188 million and
the cash portion of the purchase price would be $166 million. The debt portion
of the purchase price is approximately $120 million. Over the next two years,
BRE expects to provide funding for development properties with costs to complete
of approximately $110 million.
The transaction is subject to customary closing conditions and is expected to
close in the fourth quarter of 1997. The acquisition will be structured using a
newly organized operating company and will be treated as a purchase for
accounting purposes.
6
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ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
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September 30, 1997
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this form 10-Q.
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations," including statements regarding the
Company's beliefs, expectations or strategies regarding the future, constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the
Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, such statements are subject to
risks and uncertainties, including those discussed under the heading "Risk
Factors" in the Company's Annual Report on Form 10-K for the year ended December
31, 1996, as amended (the "1996 Form 10-K"), that could cause actual results to
differ materially from those projected.
Overview
BRE Properties, Inc. (the "Company" or "BRE") is a regionally focused,
self-administered equity real estate investment trust ("REIT") which primarily
owns and manages a portfolio of apartment communities in nine major markets of
the Western United States. The Company also owns nine commercial and retail
properties, including three partnership interests. The Company's revenues
consist primarily of rental income (93% of total revenues in the quarter ended
September 30, 1997 and 92% in the quarter ended September 30, 1996) derived from
its portfolio of income-producing properties. Other income includes interest
from notes receivable and, to a lesser extent, income from partnership
investments. The policy of the Company is to emphasize cash flows from
operations rather than the realization of capital gains through property
dispositions. As dispositions of real estate assets are made, the Company
typically seeks to reinvest net proceeds from sales in income-producing real
estate.
Although the Company has embarked upon a strategic initiative to redeploy its
real estate investments into multifamily assets, no time frame has been
established for completion of this activity and ultimate dispositions of
commercial and retail assets are dependent upon offers with acceptable prices
and terms including satisfactory completion of potential buyer due diligence
procedures. For example, it is reasonably possible that the holding period for
remaining commercial and retail assets could extend well beyond one year.
Furthermore, changes to the plan are not unlikely (which would result in
extended holding periods for the existing properties) as market conditions could
result in a lack of acceptable offers and it is possible some properties could
be held indefinitely. Real estate is not classified as "held for sale" until it
is likely, in the opinion of management, that a property will be disposed of in
the near term, even if sales negotiations for such property are currently under
way; no properties were considered "held for sale" for this purpose as of
September 30, 1997 or December 31, 1996 and therefore depreciation continues to
be provided on these assets.
As more fully described in Note E to the accompanying unaudited financial
statements, on September 29, 1997, the Company entered into an agreement (the
"Agreement") to acquire the assets and certain operations of Trammell Crow
Residential located in the Western U.S. ("TCR-West"). Among the assets expected
to be acquired pursuant to the transaction (the "Transaction") are 17 apartment
properties comprising approximately 4,786 units and eight apartment properties
comprising approximately 2,445 units currently under development and
7
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construction. The acquisition is being structured using a newly organized
operating company (the "LLC") and will be treated as a purchase for accounting
purposes. As of the date of this filing, pursuant to the terms of the Agreement,
BRE expects it will issue shares of its common stock ("Common Stock") and units
of interest in the LLC ("OC Units") valued at approximately $188 million (based
on a price per share of Common Stock of $26.93) upon the closing of the
Transaction. The OC Units will be convertible into shares of Common Stock on a
1:1 basis, or into an equivalent amount of cash at BRE's election, beginning one
year after the closing. BRE also expects to pay approximately $166 million in
cash and to cause the LLC to assume approximately $120 million in mortgage debt
on certain of the properties to be acquired. An additional $110 million is
expected to be funded over two years following the closing in connection with
the properties under development and construction. The Company expects that if
the Transaction is completed in the fourth quarter of 1997, the 1998 results
will be materially different than those if the Transaction were not completed.
The preceding represents forward looking information; no assurance can be given
that the Agreement with TCR-West will be consummated or that the actual terms of
the Transaction will be as the Company expects, including but not limited to,
the actual properties to be contributed by TCR-West, the stock price of BRE, the
performance of the properties contributed by TCR-West, or the timing of the
close of the Transaction.
8
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE QUARTERS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES
Total revenues were $33,878,000 for the three months ended September 30, 1997
compared to $26,269,000 for the same period in 1996. This increase was primarily
due to an increase in multifamily rental revenues resulting from property
acquisitions, including ten direct apartment investments, which contributed
approximately $10,237,000 and $1,536,000 to revenue for the three months ended
September 30, 1997 and 1996, respectively. Multifamily rental revenue for this
period also benefited from an increase in average physical occupancy (calculated
as shown below), and an average increase in rental rates of approximately 6%,
when compared to the earlier quarter for properties held during both periods.
Rental revenues from commercial and retail properties decreased 62% in the
quarter ended September 30, 1997 when compared to the same period in 1996 due
largely to the sale of 24 properties in these categories (which properties
contributed approximately $1,062,000 and $3,283,000 in revenues during the
quarters ended September 30, 1997 and 1996, respectively).
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
(Dollars in 000s) SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
-------------------------------- -------------------------------
% CHANGE
% OF TOTAL % OF TOTAL FROM 1996 TO
REVENUES REVENUES REVENUES REVENUES 1997
--------------- --------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Multifamily $30,577 90% $21,308 81% 44%
Commercial and retail 1,115 3% 2,969 11% (62%)
Other income 2,186 7% 1,992 8% 10%
------- ------- ------- ------- -------
Total revenue $33,878 100% $26,269 100% 29%
======= ======= ======= ======= =======
Portfolio physical occupancy rates as of September 30, 1997 and 1996 were as
follows:
1997 1996
- ----------------------------------------------------------------------------------------------------
Multifamily 97% 96%
- ----------------------------------------------------------------------------------------------------
Commercial and retail * 96% 94%
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Note - For 1997 represents six properties with a gross book value of
approximately $12 million; in 1996, there were 21 properties with a
gross book value of approximately $123 million
For multifamily properties, portfolio occupancy is calculated by dividing the
total occupied units by the total units in the portfolio. For commercial and
retail properties, portfolio occupancy is calculated by dividing the total
occupied square footage by the total square footage in the portfolio.
9
<PAGE>
EXPENSES
Real Estate Expenses
Real estate expenses for multifamily properties (which include maintenance and
repairs, utilities, on-site staff payroll, property taxes, insurance,
advertising and other direct operating expenses) for the quarter ended September
30, 1997 increased 32% to $11,016,000 from the comparable period in 1996
primarily due to expenses of ten new multifamily property acquisitions. Real
estate expenses for commercial and retail properties changed from ($815,000) in
the quarter ended September 30, 1996 to $60,000 in the same period in 1997 due
primarily to the sale of 24 such properties during 1996 and 1997. The 1996
amount is net of a reclassification from reimbursed common area expenses in
retail assets, which are now included as an offset to revenues received. Real
estate expenses for multifamily properties as a percentage of multifamily rental
revenues decreased from 39% for the third quarter in 1996 to 36% for the third
quarter 1997. Although not measurable with precision, management believes that
this decrease resulted in part from the full internalization of property
management during 1997 and economies of scale derived from increased
concentration of assets in the Company's markets during 1997.
Provision for Depreciation and Amortization
The provision for depreciation and amortization increased by $685,000 to
$4,339,000 for the quarter ended September 30, 1997 from the comparable period
of 1996. The increase in 1997 resulted primarily from multifamily property
acquisitions and was offset in part by dispositions of commercial and retail
properties.
Interest Expense
Interest expense was $4,605,000 for the quarter ended September 30, 1997, up
from $4,307,000 for the same period in 1996. This increase was due largely to
interest on the Company's $50 million in unsecured notes due 2007 and offset in
part by interest on lower average borrowing levels on the Company's lines of
credit in the quarter ended September 30, 1997.
General and Administrative
General and administrative costs were $872,000 or 2.6% of total revenues for the
second quarter in 1997 and $1,040,000 or 4.0% of total revenues for the second
quarter in 1996. The decrease in these costs as a percent of total revenue is
primarily from economies of scale in administering a much larger portfolio in
the quarter ended September 30, 1997, with total revenues approximately 29%
greater than in the quarter ended September 30, 1996.
Net Gains on Sales of Real Estate Investments
The net gains on sales of real estate investments for the quarter ended
September 30, 1997 were primarily due to the sale of a shopping center and a
medical office building. Net gains on sales of real estate investments for the
comparable period in 1996 were primarily due to the sale of land underlying
apartments owned by others.
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Impact Of Inflation
For the quarter ended September 30, 1997, nearly 90% of the Company's total
revenues were derived from apartment properties. Due to the short-term nature of
most apartment leases (typically one year or less), the Company may seek to
adjust rents to help counter the impact of inflation upon renewal of existing
leases or commencement of new leases, although there can be no assurance that
the Company will be able to adjust rents in response to inflation. In addition,
occupancy rates may fluctuate due to short-term leases, which permit apartment
residents to leave at the end of each lease term at minimal cost to the
resident.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES
Total revenues were $97,811,000 for the nine months ended September 30, 1997
compared to $71,943,000 for the same period in 1996. This increase was primarily
due to an increase in multifamily rental revenues resulting from property
acquisitions, including the 22 apartment communities acquired in the merger with
Real Estate Investment Trust of California (the "Merger") on March 15, 1996 and
thirteen other direct apartment investments, which contributed approximately
$52,685,000 and $20,599,000, respectively, to revenue for the nine months ended
September 30, 1997 and 1996. Multifamily rental revenue for this period also
benefited from an increase in average occupancy, and an average increase in
revenues of approximately 9%, when compared to the earlier period for properties
held during both periods.
Rental revenues from commercial and retail properties decreased $6,426,000 in
the nine months ended September 30, 1997 when compared to the same period in
1996 due to the sale of 24 properties in these categories (which properties
contributed approximately $4,965,000 and $14,074,000 in revenues during the nine
months ended September 30, 1997 and 1996, respectively) offset in part by the
commercial and retail properties acquired in the Merger which were held for the
entire nine months during 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
(Dollars in 000s) SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
-------------------------------- -------------------------------
% CHANGE
% OF TOTAL % OF TOTAL FROM 1996 TO
REVENUES REVENUES REVENUES REVENUES 1997
--------------- --------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Multifamily $86,174 88% $53,240 74% 62%
Commercial and retail 5,370 6% 11,796 16% (54%)
Other income 6,267 6% 6,907 10% (9%)
------- ------- -------- ------- -------
Total revenue $97,811 100% $71,943 100% 36%
======= ======= ======== ======= =======
</TABLE>
11
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EXPENSES
Real Estate Expenses
Real estate expenses for multifamily properties (which include maintenance and
repairs, utilities, on-site staff payroll, property taxes, insurance,
advertising and other direct operating expenses) for the nine months ended
September 30, 1997 increased 52% to $30,723,000 from the comparable period in
1996 primarily due to expenses of the 22 properties acquired in the Merger and
thirteen new multifamily property acquisitions. Real estate expenses for
commercial and retail properties decreased from $973,000 in the nine months
ended September 30, 1996 to $392,000 in the same period in 1997 due to the sale
of 24 such properties during 1996 and 1997. Real estate expenses for multifamily
properties as a percentage of multifamily rental revenues decreased from 37.9%
for the nine months ended September 30, 1996 to 35.6% for the same period in
1997. Although not measurable with precision, management believes that this
decrease resulted in part from the internalization of property management and
economies of scale derived from increased concentration of assets in the
Company's markets.
Provision for Depreciation and Amortization
The provision for depreciation and amortization increased by $3,256,000 to
$12,635,000 for the nine months ended September 30, 1997 from the comparable
period of 1996. The increase in 1997 resulted from properties acquired in the
Merger held for the entire period in 1997 and additional multifamily property
acquisitions, offset in part by dispositions of commercial and retail
properties.
Interest Expense
Interest expense was $15,344,000 for the nine months ended September 30, 1997,
up from $11,219,000 in the comparable period in 1996. This increase was due to
interest on indebtedness assumed in the Merger, interest on the unsecured notes
due 2007 and interest on subsequent borrowings on the Company's lines of credit
to fund multifamily property acquisitions.
General and Administrative
General and administrative costs were $3,114,000 or 3.2% of total revenues for
the Nine months ended September 30, 1997 and $3,167,000 or 4.4% of total
revenues for the same period in 1996. The decrease in these costs as a percent
of total revenue is primarily from economies of scale in administering a much
larger portfolio in the nine months ended September 30, 1997, with total
revenues approximately 36% greater than in the nine months ended September 30,
1996.
Net Gains on Sales of Real Estate Investments
The net gains on sales of real estate investments for the nine months ended
September 30, 1997 were primarily due to the sale of three shopping center
properties and the Villa Serra land lease. The net gain on sales of real estate
investments in the comparable period in 1996 were due largely to the sale of
land underlying apartments owned by others.
12
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company's cash and cash equivalents totaled $875,000,
up from $184,000 at December 31, 1996. Borrowings under the Company's lines of
credit were $34,000,000 at September 30, 1997, compared to $124,000,000 at
December 31, 1996. Lines of credit are available to fund new acquisitions, fund
capital improvements and operating expenses and pay dividends to shareholders.
The Company typically reduces lines of credit with cash balances as available.
Borrowings of up to $150,000,000 are available under the Company's lines of
credit, with one line totaling $35,000,000 and another totaling $115,000,000. At
September 30, 1997, $34,000,000 was outstanding and $116,000,000 was available
for future borrowings. During the quarter ended September 30, 1997, the lines of
credit were amended and restated and bear interest at LIBOR plus .80%. Costs of
the lines of credit are .125% per annum on the total commitment amount and an
unuse fee of .125% per annum as to amounts not outstanding on the $35,000,000
line.
Additionally, the Company had $73,000,000 of unsecured indebtedness at September
30, 1997, with an interest rate of 7.44% per annum as to $55,000,000 and 7.88%
per annum as to $18,000,000. This indebtedness is to be repaid through scheduled
principal payments in the years from 2000 to 2005. The Company also had
$50,000,000 outstanding principal amount of unsecured notes due 2007, with an
effective rate, reflecting the settlement of a Treasury Lock Swap Agreement,
underwriting fees and other costs, of approximately 7.8%. At September 30, 1997,
the Company also had outstanding mortgage indebtedness of $112,710,000 at
interest rates ranging from 5.5% to 8.4%, with remaining terms of from three to
31 years.
For additional information regarding the Company's lines of credit, unsecured
notes payable and mortgage loans payable, including scheduled principal payments
over the next five years, see Notes 5 and 6 to Notes to Financial Statements
contained in the Company's 1996 Form 10-K as amended. Certain of the Company's
indebtedness contains financial covenants as to minimum net worth, interest
coverage ratios, maximum secured debt and total debt to capital, among others.
The Company was in compliance with all such covenants during the quarter ended
September 30, 1997.
As previously discussed, the Company expects the Transaction with TCR-West will
require cash payments of approximately $166 million at closing. This amount is
in excess of the available balances on the Company's lines of credit. To provide
the funds required for the Transaction, the Company is in negotiations to
increase its $115 million line to $265 million with terms similar to that of the
existing line. While the Company believes this increase will be completed, no
assurance can be given that such increase will be obtained or that the terms of
such increase will be acceptable to the Company. Further, the approximately $110
million necessary to complete the properties acquired in the Transaction which
are under development and construction will require financing in addition to the
amounts available under the increased line of credit, if such increase is indeed
obtained. Although no assurance can be given, the Company believes it will be
successful in obtaining such additional financing to complete these projects
within the timeframe required.
During the quarter ended June 30, 1997, the Company completed a public offering
of 4,600,000 shares of its common stock, 650,000 of which were sold by a
non-management shareholder and the remainder of which were sold by the Company.
Net proceeds to the Company from this offering totaled approximately $91,000,000
and were used to repay then-outstanding balances under the Company's lines of
credit. Additionally, the Company issued $50,000,000 of ten year unsecured notes
during the second quarter of 1997, and the proceeds of approximately $49,400,000
were used to pay down line of credit balances and maintain cash balances.
13
<PAGE>
The Company believes that its cash flow and cash available from lines of credit
will be sufficient to meet its short-term liquidity needs during 1997, which
include normal recurring expenses, debt service requirements, budgeted
expenditures for improvements to certain properties and distributions required
to maintain the Company's REIT qualification under the Internal Revenue Code.
However, the Company anticipates that it will continue to require outside
sources of financing to meet its long-term liquidity needs, such as scheduled
debt repayments, property acquisitions and the development and construction
activity discussed above.
DIVIDENDS
A cash dividend has been paid to shareholders each quarter since the Company's
inception in 1970. On February 24, 1997, the Company increased its dividend from
$1.32 per year to $1.38 per year. Total dividends paid to shareholders for the
nine months ended September 30, 1997 and 1996 were $36,920,000 and $28,956,000,
respectively.
14
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.0 (i) Amended and Restated Articles of Incorporation (1)
3.1 (i) Articles of Amendment (2)
4.0 Indenture dated as of June 23, 1997 between the
Company and Chase Trust Company of California
relating to the $50 million principal amount of the
Company's 7.2% Notes due 2007 (3)
10.44 Amended and Restated 1992 Employee Stock Plan
10.45 Contribution Agreement dated as of September 29, 1997
between the Company, BRE Property Investors LLC and
the TCR Signatories.
11 Primary and Fully Diluted Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a current report under Item 2 (without
financial statements) on Form 8-K on September 3, 1997
concerning the purchase of Lakeshore Landing Apartments.
- -----------------------------------------
(1) Incorporated by reference to Exhibit 3.1 of the Company's Current report on
Form 8-K, dated March 15, 1996.
(2) Incorporated by reference to Exhibit 4.2 of the Company's Registration
Statement on Form S-3 (No. 333-24915) filed with the Securities and Exchange
Commission on April 28, 1997, as amended.
(3) Incorporated by reference to Exhibit 4.1 of the Company's
Current report on Form 8-K, dated June 18, 1997.
15
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
BRE PROPERTIES, INC.
(Registrant)
Date: November 13, 1997 /s/LeRoy E. Carlson
-------------------- -------------------
LeRoy E. Carlson
Executive Vice President,
Chief Financial Officer and Secretary
16
<PAGE>
EXHIBIT 10.44
CONFORMED EXECUTION COPY
CONTRIBUTION AGREEMENT
by and between
The Parties Identified on Schedule A
as
the TCR Signatories,
on the one hand
and
BRE Properties, Inc.
and
BRE Property Investors LLC
collectively as
the Transferee,
on the other hand
Dated as of September 29, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE 1. SUBJECT OF CONVEYANCE AND ASSIGNMENT............................. 1
Section 1.1. Conveyance of the Real Property and Related Assets........ 1
Section 1.2. Pre-Approved Conveyances of Partnership Interests......... 3
Section 1.3. Additional Conveyances of Partnership Interests........... 4
Section 1.4. Assignment of Office Leases and Conveyance of Office
Personal Property......................................... 5
Section 1.5. Assignment of Land Acquisition Contracts.................. 5
Section 1.6. Assignment of Management Contracts........................ 6
Section 1.7. Assignment of Construction Contracts...................... 7
Section 1.8. Several Liability......................................... 7
Section 1.9. Access to Books and Records............................... 7
Section 1.10. Excluded Assets........................................... 7
Section 1.11. No Contributing Partner Liability......................... 8
ARTICLE 2. VALUE AND PAYMENT TERMS.......................................... 8
Section 2.1. Issuance of Equity Securities............................. 8
Section 2.2. Assumption of Indebtedness................................ 9
Section 2.3. Assumption of Assigned Property........................... 10
Section 2.4. Assumption of Construction-Related Warranties and
Guaranties................................................ 10
Section 2.5. Completion Costs.......................................... 10
Section 2.6. Cash Consideration........................................ 12
Section 2.7. Designation of Issuance of Equity Securities.............. 13
Section 2.8. Withdrawn Properties...................................... 13
Section 2.9. Guaranty.................................................. 13
Section 2.10. Certain Definitions....................................... 14
ARTICLE 3. TITLE; MATTERS TO WHICH THIS CONTRIBUTION IS SUBJECT............. 14
Section 3.1. Permitted Encumbrances.................................... 14
Section 3.2. Easements, Licenses and Dedications Prior to Closing...... 16
Section 3.3. Title Insurance........................................... 16
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTORS............... 16
Section 4.1. Operating Representations and Warranties.................. 16
Section 4.2. Definition of Knowledge................................... 21
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE OPERATING
COMPANY.......................................................... 21
Section 5.1. Operating Representations and Warranties.................. 21
Section 5.2. Definition of Knowledge................................... 26
</TABLE>
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(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C>
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE ASSIGNORS.................. 27
Section 6.1. Operating Representations and Warranties.................. 27
ARTICLE 7. COVENANTS........................................................ 29
Section 7.1. Conduct of the Business of the Contributors and the
Assignors................................................. 29
Section 7.2. Conduct of the Business of the Transferee................. 31
Section 7.3. LLC Agreement............................................. 33
Section 7.4. Information Statement..................................... 33
Section 7.5. Good Faith Efforts........................................ 34
Section 7.6. Good Faith Cooperation.................................... 34
Section 7.7. Public Announcements...................................... 34
Section 7.8. Government Filings........................................ 34
Section 7.9. Listing of Shares......................................... 35
Section 7.10. Registration of Shares.................................... 35
Section 7.11. Investor Representations.................................. 35
Section 7.12. Time of Closing........................................... 36
Section 7.13. Accommodations America.................................... 36
Section 7.14. Additional Properties..................................... 36
Section 7.15. No Solicitation........................................... 36
Section 7.16. Shareholder Approval of Share Issuances................... 36
Section 7.17. Termination of Management Agreements...................... 36
Section 7.18. Prohibited Activities..................................... 37
ARTICLE 8. INDEMNIFICATION.................................................. 37
Section 8.1. By the TCR Parties........................................ 37
Section 8.2. By the Transferee......................................... 37
Section 8.3. Cooperation............................................... 38
Section 8.4. Claims for Indemnification................................ 38
Section 8.5. Right of Offset........................................... 39
Section 8.6. Limitation on Obligations................................. 39
ARTICLE 9. CLOSING.......................................................... 39
Section 9.1. The Closing............................................... 39
Section 9.2. Deliveries at the Closing by the TCR Parties.............. 40
Section 9.3. Deliveries at the Closing by the Transferee............... 42
Section 9.4. Fees and Expenses......................................... 43
Section 9.5. No Warranties............................................. 43
ARTICLE 10. ADJUSTMENTS..................................................... 45
Section 10.1. Adjustments at the Closing Date.......................... 45
Section 10.2. Reimbursement of Deposits and Out-of-Pocket Expenses..... 46
Section 10.3. Other Adjustments........................................ 46
Section 10.4. Errors in Calculations................................... 46
</TABLE>
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(CONTINUED)
<TABLE>
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<S> <C>
Section 10.5. Survival................................................. 46
ARTICLE 11. CONDITIONS PRECEDENT TO CLOSING................................. 46
Section 11.1. Conditions to Obligations of the TCR Parties............. 46
Section 11.2. Conditions to Obligations of the Company and the Operating
Company.................................................. 47
ARTICLE 12. ASSIGNMENT...................................................... 48
ARTICLE 13. NO BROKERS...................................................... 48
ARTICLE 14. CASUALTY LOSS................................................... 49
Section 14.1. Maintenance of Insurance Policies........................ 49
Section 14.2. Casualties............................................... 49
Section 14.3. Interim Repairs.......................................... 49
Section 14.4. Casualties Other than Major Casualties................... 49
ARTICLE 15. CONDEMNATION.................................................... 50
ARTICLE 16. TERMINATION..................................................... 50
Section 16.1. Termination.............................................. 50
Section 16.2. Payment of Certain Fees and Expenses..................... 51
Section 16.3. Break-Up Fee and Break-Up Expenses....................... 51
Section 16.4. Effect of Termination.................................... 53
ARTICLE 17. TAX MATTERS..................................................... 53
Section 17.1. Payment of Taxes by the Contributors..................... 53
Section 17.2. Payment of 1997 Taxes.................................... 53
Section 17.3. Definition of Taxes...................................... 53
Section 17.4. Allocation Method........................................ 53
Section 17.5. Survival................................................. 54
ARTICLE 18. EMPLOYEE MATTERS................................................ 54
ARTICLE 19. NOTICE.......................................................... 54
ARTICLE 20. MISCELLANEOUS................................................... 56
Section 20.1. Limited Survival of Representations and Warranties....... 56
Section 20.2. Entire Agreement; No Third-Party Rights.................. 56
Section 20.3. Amendment................................................ 56
Section 20.4. Governing Law............................................ 56
Section 20.5. Section Headings......................................... 56
Section 20.6. Severability............................................. 57
Section 20.7. No Other Rights or Obligations........................... 57
Section 20.8. Counterparts............................................. 57
</TABLE>
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(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C>
Section 20.9. Construction............................................. 57
Section 20.10. Representatives.......................................... 57
Section 20.11. Attorneys' Fees.......................................... 57
Section 20.12. Interpretation........................................... 57
Section 20.13. Updates to Schedule...................................... 57
</TABLE>
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Accommodations America Agreement................................ 7.13
Addendum A...................................................... 1.2(a)(i)
Addendum B...................................................... 1.2(a)(ii)
Additional Development Expenditures............................. 1.5(d)
Additional Equity Securities.................................... 2.1(a)(iii)
Additional Properties........................................... 7.14
Additional Retained Units....................................... 2.1(a)
Adjusted Closing Price.......................................... 2.10
Agreement....................................................... Preface
Anticipated Cash Consideration Amount........................... 2.6
Arbitrator...................................................... 2.8
Assigned Property............................................... 1.7
Assigned Value.................................................. 2.8
Assignor........................................................ Preface
Assumed Loans................................................... 2.10
Assumed Loan Documents.......................................... 4.1(m)
Auditable Components............................................ 2.5(a)
Audited Completion Costs........................................ 2.5(a)
Base Amount..................................................... 16.3(b)
Bills of Sale................................................... 9.2(a)
Books and Records............................................... 1.1(f)
Break-Up Expenses............................................... 16.3(c)
Break-Up Expenses Tax Opinion................................... 16.3(c)
Break-Up Fee.................................................... 16.3(b)
Break-Up Fee Tax Opinion........................................ 16.3(b)
Business Day.................................................... 2.10
Cash Consideration.............................................. 2.6
Casualty........................................................ 14.2
Casualty Notice................................................. 14.2
Claim........................................................... 8.4
Claim Notice.................................................... 8.4
Closing......................................................... 9.1
Closing Date.................................................... 9.1
Closing Price................................................... 2.10
Code............................................................ 5.1(l)(i)
Company......................................................... Preface
Completion Costs................................................ 2.10
Condemned Property.............................................. 15
Construction Auditor............................................ 2.10
Construction Contracts.......................................... 1.7
Contract Assignment and Assumption Agreements................... 9.2(a)
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Contract Revenue Reduction...................................... 7.1(c)
Contributing Partners........................................... 1.3(a)
Contributor..................................................... 1.1
Covered Contributor Party....................................... 8.1
Damages......................................................... 8.1
Damaged Property................................................ 14.2
Deeds........................................................... 9.2(a)
De Minimus Development Expenditures............................. 1.5(f)
Development Expenditures Amount................................. 1.5(f)
Development Incentive Units..................................... 2.1(a)
Development Properties.......................................... 2.5(a)
Distributees.................................................... 2.1(c)
Distributee Agreement........................................... 7.11
Effective Date.................................................. Preface
Effective Price................................................. 2.10
Estimated Completion Costs...................................... 2.5(a)
Estimated Punch List Costs...................................... 2.5(c)
Equity Securities............................................... 2.10
Exchange Act.................................................... 5.1(f)
Final Audited Costs............................................. 2.5(c)
Final Audited Punch List Costs.................................. 2.5(c)
GAAP............................................................ 5.1(g)
Governmental Authorities........................................ 3.1(d)
Guaranty........................................................ 2.9
Improvements.................................................... 1.1(a)
Information Statement........................................... 7.4
Initial Development Expenditures................................ 1.5(a)
Initial Equity Securities....................................... 2.1(a)
Insurance Policies.............................................. 14.1
Intangible Property............................................. 1.1(e)
Land............................................................ 1.1(a)
Land Acquisition Contracts...................................... 1.5(a)
Leases.......................................................... 1.1(d)
Liability....................................................... 4.1(l)(ii)
Legal Requirements.............................................. 3.1(d)
LLC Agreement................................................... 7.3
Loan Assumption Documents....................................... 2.2
Major Casualty.................................................. 14.2
Management Contracts............................................ 1.6
Material Adverse Effect......................................... 4.1(a)
Material Taking................................................. 15
Net Value....................................................... 2.1(b)
Non-Signing Contributor......................................... 1.1
</TABLE>
vi
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<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
Office Leases................................................... 1.4(a)
Office Personal Property........................................ 1.4(b)
Offset Value.................................................... 8.5
Operating Company............................................... Preface
Other Employees................................................. 18
Partner......................................................... 1.2(a)
Partnership Interests........................................... 1.2(a)
Performance Incentive Units..................................... 2.1(a)
Permits and Licenses............................................ 1.1(e)
Permitted Encumbrances.......................................... 3.1
Personal Property............................................... 1.1(c)
Physical Inspections............................................ 9.5(c)
Property........................................................ 1.7
Property Financials............................................. 4.1(l)(i)
Proposed Acquisition Transaction................................ 7.15
Qualifying Income............................................... 16.3(b)
Real Estate Property............................................ 1.1
Real Property................................................... 1.1(b)
Recipient....................................................... 16.3(c)
Registration Rights Agreement................................... 7.10
Rehired Employees............................................... 18
REIT Requirements............................................... 16.3(b)
Rent Roll....................................................... 4.1(c)
Required Transfer Consent....................................... 1.3(a)
Reserve Amount.................................................. 2.5(a)
Reserve Funds................................................... 2.5(b)
Revised Completion Costs........................................ 2.5(a)
SEC............................................................. 5.1(c)
SEC Documents................................................... 5.1(f)
Securities Act.................................................. 4.1(o)
Security Deposits............................................... 1.1(d)
Service Contracts............................................... 1.1(e)
Share........................................................... 2.10
Submission Date................................................. 2.8
Subsidiaries.................................................... 5.1(g)
Substantial Completion.......................................... 2.5(e)
Surveys......................................................... 3.1(e)
Taxes........................................................... 17.3
TCR............................................................. 2.10
TCR General Partner............................................. 2.10
TCR Indemnified Party........................................... 8.2
TCR Parties..................................................... Preface
TCR Proprietary Names........................................... 1.1(g)
</TABLE>
vii
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<TABLE>
<CAPTION>
Defined Term Section
- ------------ -------
<S> <C>
TCR Representatives............................................. 2.1(a)
TCR Signatory................................................... Preface
Telephone Numbers............................................... 1.4(b)
Tenants......................................................... 1.1(d)
Trademarks...................................................... 1.1(g)
Transferee...................................................... Preface
Transferee Indemnified Party.................................... 8.1
Transferee Representatives...................................... 20.10
Unapproved Property............................................. 1.2(b)
Unit............................................................ 2.10
Warranty Assumption Documents................................... 2.4
Withdrawn Property.............................................. 2.8
</TABLE>
viii
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule A TCR Signatories
Schedule B Assignors
Schedule 1.1 Contributors and Real Property
Schedule 1.1(c) Excluded Personal Property Located at the Real Property
Schedule 1.1(e)(i) Excluded Permits and Licenses Related to the Real Property
Schedule 1.1(e)(ii) Service Contracts
Schedule 1.1(g) Excluded Trademarks and Trade Names
Schedule 1.2(a) Contributors and Partners for Pre-Approved Partnership Interest
Transfers
Schedule 1.4(a) Assigned Office Leases
Schedule 1.4(b)(i) Excluded Office Personal Property from Assigned Offices
Schedule 1.4(b)(ii) Excluded Telephone Numbers
Schedule 1.5 Land Acquisition Contracts and Development Expenditures
Schedule 1.6(a) Third-Party Management Contracts
Schedule 1.6(b) Terms of Transitional Accounting Services
Schedule 1.7 Construction Contracts (including descriptions of subcontracts)
Schedule 1.10 Excluded Assets and Entities Not Participating
Schedule 2.1(a) TCR Representatives
Schedule 2.1(a)(a) Adjustment and Issuance of Development Incentive Units
Schedule 2.1(a)(b) Issuance of Additional Retained Units
Schedule 2.1(a)(c) Issuance of Additional Retained Units
Schedule 2.1(a)(d) Performance Incentive Units
Schedule 2.1(a)(i) Additional Equity Securities - Formula 1
Schedule 2.1(a)(ii) Additional Equity Securities - Formula 2
Schedule 2.1(b) Assumed Loans
Schedule 2.5(a) Development Properties - Estimated Completion Costs
Schedule 2.5(e) Completion Costs - Procedures, Assumptions and Methodologies
Schedule 2.6 Anticipated Cash Consideration Adjustment and Value of "X"
Schedule 2.8 Agreed Assigned Values
Schedule 3.1(c) Preliminary Title Reports
Schedule 3.1(e) Surveys
Schedule 4.1 TCR General Partners Executing the Agreement on Behalf of the
Non-Signing Contributors
Schedule 4.1(b) Consents Required by Contributors
Schedule 4.1(f) Litigation
Schedule 4.1(g) Proceedings Related to the Real Property
Schedule 4.1(h) Notices of Violations of Legal Requirements from Governmental
Authorities
Schedule 4.1(j) Liens on Personal Property
Schedule 4.1(n) Tax Audits
Schedule 4.2 Contributors' Knowledge Designees
Schedule 5.1(i) Transferee Subsidiaries
Schedule 5.1(j) Transferee Changes
</TABLE>
ix
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
<S> <C>
Schedule 5.1(k)(iii) Transferee Options, Warrants and Convertible Securities
Schedule 5.1(l)(i) Transferee Tax Deficiencies
Schedule 5.1(o) Transferee Shareholder Agreements
Schedule 5.1(p) Transferee Loan Defaults
Schedule 5.2 Transferee's Knowledge Designees
Schedule 6.1(b) Consents Required by Assignors
Schedule 7.2 Exceptions to Transferee's Conduct of its Business
Schedule 7.14 Additional Properties
Schedule 18 Key Rehired Employees
Schedule 20.10 Transferee Representatives
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit 1.2(a)(i) Form of Addendum A
Exhibit 1.2(a)(ii) Form of Addendum B
Exhibit 7.3 Required LLC Agreement Terms
Exhibit 7.10 Form of Registration Rights Agreement
Exhibit 7.11 Form of Distributee Agreement
Exhibit 7.13 Terms of Accommodations America Agreement
</TABLE>
xi
<PAGE>
CONTRIBUTION AGREEMENT
This CONTRIBUTION AGREEMENT (the "AGREEMENT") dated as of September
29, 1997 (the "EFFECTIVE DATE") is made and entered by and between (i) each of
the parties identified on Schedule A (individually a "TCR SIGNATORY,"
----------
collectively the "TCR SIGNATORIES" and together with any Contributing Partners
(as defined in Section 1.3(a)) that become parties to this Agreement pursuant to
--------------
Section 1.2 or Section 1.3, the "TCR PARTIES"), on the one hand; and (ii) BRE
- ----------- -----------
Properties, Inc., a Maryland corporation (the "COMPANY"), and BRE Property
Investors LLC, a Delaware limited liability company (the "OPERATING COMPANY"),
on the other hand. The Company and the Operating Company are sometimes
hereinafter collectively referred to as the "TRANSFEREE." For ease of
reference, the TCR Parties identified on Schedule B which will assign and convey
----------
to the Operating Company or its designee the Assigned Property (as defined in
Section 1.7) pursuant to this Agreement, are sometimes hereinafter collectively
- -----------
referred to as the "ASSIGNORS."
RECITALS
A. The TCR Parties own, develop and manage various multifamily
properties located throughout the Western United States. The Company and the
Operating Company, of which the Company is the sole managing member, own and
manage various multifamily properties located throughout the Western United
States.
B. The TCR Parties and the Transferee have determined that it
is in their respective best interests to combine their respective properties and
related assets.
C. Accordingly, the TCR Parties desire to transfer, convey,
contribute and assign to the Transferee the properties and related assets
specified herein and the Transferee desires to acquire the same from the TCR
Parties; each in accordance with the terms and subject to the conditions of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises hereinafter
set forth and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound hereby, do hereby agree as follows:
ARTICLE 1. SUBJECT OF CONVEYANCE AND ASSIGNMENT.
Section 1.1. Conveyance of the Real Property and Related Assets.
--------------------------------------------------
In accordance with the terms and conditions of this Agreement and
subject to the Transferee's performance and satisfaction of the conditions,
covenants and obligations contained herein, each of the TCR-affiliated entities
identified on Schedule 1.1 (individually a "CONTRIBUTOR" and collectively the
------------
"CONTRIBUTORS") shall convey to the Operating Company all of its right, title
and interest in and to the following assets (it being understood (i) that each
TCR Signatory identified on Schedule 4.1 as the TCR General Partner of the
------------
Contributor listed adjacent to its name on Schedule 4.1 (individually a "NON-
------------
SIGNING CONTRIBUTOR" and collectively the "NON-SIGNING CONTRIBUTORS") is
<PAGE>
executing this Agreement on behalf of such Non-Signing Contributor and hereby
agrees to cause the Non-Signing Contributor to fully perform its obligations
under this Agreement as if it were a signing Contributor including, without
limitation, the conveyance to the Operating Company of all of its right, title
and interest in and to the assets specified in this Section 1.1, (ii) that the
-----------
Contributors identified on Schedule 1.1 by footnotes (2) and (3) will be
------------
entitled to assign the Property identified in footnotes (2) and (3) to the
entities identified in footnotes (2) and (3) prior to Closing and the
Contributors who so assign these Properties hereby agree to cause the entity to
which the Property is transferred to convey to the Operating Company all of its
right, title and interest in and to the Property so transferred, and (iii) that,
with respect to the following assets transferred in consideration for the
issuance of Shares by the Company, the conveyance shall be deemed to be a
conveyance to the Company, followed by a contribution by the Company to the
Operating Company, and the conveyance by the Contributor to the Operating
Company shall be deemed made for the administrative convenience of consolidating
those transfers):
(a) the real property listed adjacent to the Contributor's name on
Schedule 1.1 which includes all the real property with respect to which the
- ------------
Contributors have commenced development activities (the "LAND"), and all of the
improvements located on the Land whether completed or under construction (the
"IMPROVEMENTS");
(b) all rights, privileges, grants and easements appurtenant to the
Contributor's interest in the Land and the Improvements, if any, including,
without limitation, all of the Contributor's right, title and interest in and to
all land lying in the bed of any public street, road or alley, all mineral and
water rights and all easements, licenses, covenants and rights-of-way or other
appurtenances used in connection with the beneficial use and enjoyment of the
Land and the Improvements (the Land and the Improvements and all such rights,
privileges, easements, grants and appurtenances are sometimes referred to herein
as the "REAL PROPERTY");
(c) except as set forth adjacent to its name on Schedule 1.1(c), all
---------------
personal property, fixtures, equipment, inventory and computer programming and
software owned or licensed by the Contributor and located on the Real Property
(the "PERSONAL PROPERTY");
(d) all leases and other agreements with respect to the use and
occupancy of the Real Property, together with all amendments and modifications
thereto and any guaranties provided thereunder (the "LEASES"), and all rents,
additional rents, reimbursements, profits, income, receipts and any amounts
deposited (the "SECURITY DEPOSITS") under the Leases in the nature of refundable
security for the performance of the obligations of the parties occupying space
at the Real Property pursuant to the Leases (the "TENANTS");
(e) (i) except as set forth adjacent to the Contributor's name on
Schedule 1.1(e)(i), all permits, licenses, guaranties, approvals, certificates
- ------------------
and warranties relating to the Real Property and the Personal Property to the
extent that any of the foregoing are assignable (collectively, the "PERMITS AND
LICENSES"); and (ii) all of the Contributor's right, title and interest in and
to those contracts and agreements listed under its name on Schedule 1.1(e)(ii)
-------------------
for the servicing, maintenance and operation of the Real Property, including,
without limitation, equipment leases and other agreements affecting the Real
Property and all such contracts and
2
<PAGE>
agreements entered into subsequent to the date hereof, in each case to the
extent assignable (the "SERVICE CONTRACTS") (and together with the Permits and
Licenses, the "INTANGIBLE PROPERTY");
(f) all books, records, promotional material, tenant data, leasing
material and forms, past and current rent rolls, files, statements, tax returns,
market studies, keys, plans, specifications, reports, tests and other materials
of any kind owned by the Contributor that are or may be used by the Contributor
in the use and operation of the Real Property or the Personal Property
(collectively, the "BOOKS AND RECORDS");
(g) except as set forth on Schedule 1.1(g), all trademarks, trade
---------------
names or symbols, if any, under which the Contributor's Real Property (or any
part thereof) is operated (the "TRADEMARKS"); provided, however, that the
-------- -------
Transferee acknowledges and agrees that the right to use the name "Trammell
Crow," the acronym "TCR" or any name containing "Trammell Crow" or "TCR"
(collectively, the "TCR PROPRIETARY NAMES") is not included within the
Trademarks and, accordingly, the Transferee shall have no right to the use of
any TCR Proprietary Names in connection with any of the Real Property, but shall
be allowed a period of ninety (90) days after the Closing Date to change any
signage on the Real Property containing any TCR Proprietary Names;
(h) all other rights, privileges and appurtenances owned by the
Contributor, if any, related in any way to the rights and interests described
above in this Section 1.1.
-----------
The Real Property, the Personal Property, the Leases, the Security
Deposits, the Intangible Property, the Books and Records, the Trademarks and the
other property interests being transferred pursuant to this Section 1.1 are
-----------
hereinafter collectively referred to as the "REAL ESTATE PROPERTY." The term
"Real Estate Property" may mean all the Real Estate Property of the Contributors
collectively, or when so indicated by the context, may refer only to that
portion of the Real Estate Property owned by an individual Contributor.
Section 1.2. Pre-Approved Conveyances of Partnership Interests.
-------------------------------------------------
(a) The parties hereto have agreed that each of the
Contributors listed on Schedule 1.2(a) may cause each of its constituent
--------------
partners or members (each a "PARTNER" and collectively its "PARTNERS") listed
adjacent to the Contributor's name on Schedule 1.2(a) to transfer to the
---------------
Operating Company 100% of their respective partnership interests
or member interests in the Contributor, as applicable (the "PARTNERSHIP
INTERESTS"), in lieu of the Contributor's direct transfer of its Real Estate
Property to the Operating Company, if and only if the following conditions are
satisfied:
(i) each of the Contributor's Partners designated on Schedule 1.2(a)
---------------
as a TCR-affiliated entity executes and delivers to the Operating Company an
agreement in the form attached hereto as Exhibit 1.2(a)(i) ("ADDENDUM A")
-----------------
pursuant to which the Partner (aa) agrees to be bound by the terms of this
Agreement with the same force and effect as if it were an original signatory
hereto; and (bb) makes the representations and warranties set forth in Addendum
A; and
3
<PAGE>
(ii) each of the Contributor's Partners designated on Schedule 1.2(a)
---------------
as a third-party equity investor executes and delivers to the Operating Company
an agreement in the form attached hereto as Exhibit 1.2(a)(ii) ("ADDENDUM B");
------------------
provided, that if, prior to the Closing, a TCR-affiliated entity acquires the
- --------
Partnership Interest of the Contributor's third-party equity investor, that TCR-
affiliated entity shall execute and deliver to the Operating Company an Addendum
A, in which case the Contributor's third-party equity investor shall no longer
be required to execute and deliver to the Operating Company an Addendum B.
(b) In the event a Contributor listed on Schedule 1.2(a) fails to
---------------
satisfy either of the conditions to the transfer of its Partnership Interests
specified in this Section 1.2, and the Contributor is otherwise unable to
-----------
transfer its Real Estate Property to the Operating Company, the Transferee may
terminate this Agreement as to that Real Estate Property by giving prompt notice
of such termination to the TCR Representatives and the Real Estate Property
shall thereupon become "UNAPPROVED PROPERTY."
(c) In the event the transfer of all of the Partnership Interests of a
Contributor is permitted pursuant to this Section 1.2, notwithstanding any
-----------
contrary provision in this Agreement, the Contributor reserves the right to
distribute all cash on hand and in its accounts to its Partners prior to
Closing.
Section 1.3. Additional Conveyances of Partnership Interests.
-----------------------------------------------
(a) In the event that any Contributor (other than the Contributors
listed on Schedule 1.2(a)) is unable, despite its good faith efforts to the
---------------
contrary, to obtain a consent necessary to authorize the direct transfer of its
Real Estate Property to the Operating Company (a "REQUIRED TRANSFER CONSENT"),
the Partners of that Contributor may transfer 100% of their respective
Partnership Interests to the Operating Company pursuant to this Section 1.3, in
-----------
lieu of the Contributor's transfer of its Real Estate Property to the Operating
Company, if and only if the following conditions are satisfied (such Partners,
together with the Partners transferring Partnership Interests pursuant to
Section 1.2, the "CONTRIBUTING PARTNERS"):
- -----------
(i) the Contributor shall have provided the Transferee with
notice of its inability to obtain a Required Transfer Consent at least twenty
(20) days before the Closing Date, which notice shall specify the party from
whom the Required Transfer Consent has not been obtained and that party's
reasons for withholding its consent;
(ii) each of the Contributor's Partners that is a TCR-affiliated
entity executes a separate Addendum A, and each of the Contributor's Partners
that is a third-party equity investor executes a separate Addendum B, and the
same are delivered to the Operating Company; and
(iii) the Transferee gives its consent (which it may give or
withhold in its sole discretion) to the Partners' contribution of Partnership
Interests in lieu of the Contributor's direct transfer of its Real Estate
Property.
4
<PAGE>
(b) In the event the transfer of all of the Partnership Interests of a
Contributor is permitted pursuant to this Section 1.3, notwithstanding any
-----------
contrary provision in this Agreement, the Contributor reserves the right to
distribute all cash on hand and in its accounts to its Partners prior to
Closing.
(c) In the event a Contributor is unable to obtain a Required Transfer
Consent and any of the conditions to the transfer of Partnership Interests
specified in Section 1.3(a) above fails to be satisfied, the Transferee may
--------------
terminate this Agreement as to the Real Estate Property owned by that
Contributor by giving prompt notice of such termination to the TCR
Representatives and that Real Estate Property shall thereupon become Unapproved
Property.
(d) With the prior written consent of the Company (which it may give
or withhold in its sole discretion), the Partners of a Contributor may
contribute less than 100% of the Partnership Interests in the Contributor to the
Operating Company, in lieu of the transfer of the Real Estate Property by the
Contributor, in which event the Net Value referred to in Section 2.1 hereof
-----------
shall be reduced by an amount mutually agreeable to the Company and the Partners
contributing less than 100% of their Partnership Interests in the Contributor.
If the Company and the Partners are unable to agree on such amount prior to five
(5) Business Days prior to the Closing Date, then any such party may request
binding arbitration of such amount by the method set forth in Section 2.8.
-----------
Section 1.4. Assignment of Office Leases and Conveyance of Office
----------------------------------------------------
Personal Property.
- -----------------
(a) Each TCR Party set forth on Schedule 1.4(a) shall assign to the
---------------
Operating Company or its designee all of its right, title and interest as tenant
or lessee in and to each of the leases of management office space listed under
its name on Schedule 1.4(a) (the "OFFICE LEASES").
---------------
(b) Each TCR Party set forth in Schedule 1.4(a) shall also convey to
---------------
the Operating Company or its designee all of its right, title and interest in
and to (i) except as set forth on Schedule 1.4(b)(i), all of the personal
------------------
property, removable fixtures, equipment, inventory and computer programming and
software owned or licensed by such TCR Party and located on or in each of the
management office spaces referenced under its name on Schedule 1.4(a)
---------------
(collectively, the "OFFICE PERSONAL PROPERTY"), and (ii) except as set forth on
Schedule 1.4(b)(ii), all of the telephone numbers in use at such management
- -------------------
office spaces (the "TELEPHONE NUMBERS").
Section 1.5. Assignment of Land Acquisition Contracts.
----------------------------------------
(a) Each of the contracts and agreements for the purchase of raw
land intended for development to which any of the TCR Parties is a party and all
entitlements related thereto are listed on Schedule 1.5 (the "LAND ACQUISITION
------------
CONTRACTS") which also sets forth the amount of all land escrow deposits and
other actual predevelopment expenditures, including, without limitation, costs
of inspections, tests, surveys, title commitments, legal and engineering fees
and expenses incurred as of the Effective Date under or in connection with the
Land Acquisition Contracts (collectively, the "INITIAL DEVELOPMENT
EXPENDITURES").
5
<PAGE>
(b) Within ten (10) Business Days of the Effective Date, the Transferee
shall determine which, if any, of the Land Acquisition Contracts it elects to
assume and shall notify the TCR Representatives of the same, at which time
Schedule 1.5 shall be revised to delete any and all Land Acquisition
- ------------
Contracts the Transferee has elected not to assume.
(c) In addition to the foregoing, the TCR Parties shall promptly
present to the Transferee for its consideration any additional contracts and
agreements for the purchase of raw land intended for development and any
entitlements related thereto that any of the TCR Parties enters into or obtains
subsequent to the Effective Date, which, if approved by the Transferee, shall be
added to Schedule 1.5 and thereby included within the meaning of the defined
------------
term "Land Acquisition Contracts."
(d) Schedule 1.5 shall be further updated to reflect any
additional expenditures relating to the development of the raw land that is the
subject of the Land Acquisition Contracts that are approved by the Transferee as
provided in Section 7.1(k) and incurred by a TCR Party between the Effective
--------------
Date and the Closing Date (the "ADDITIONAL DEVELOPMENT EXPENDITURES").
(e) At Closing, after giving effect to the revisions to Schedule
--------
1.5 contemplated by paragraphs (b), (c) and (d) of this Section 1.5, each TCR
- --- -----------
Party identified on Schedule 1.5 shall assign to the Operating Company all of
------------
its right, title and interest in and to each of the Land Acquisition Contracts
listed under its name on Schedule 1.5.
------------
(f) For the purposes hereof, the "DEVELOPMENT EXPENDITURES AMOUNT"
shall mean the sum of (i) the aggregate Initial Development Expenditures
associated with all Land Acquisition Contracts the Transferee elects to assume
pursuant to Section 1.5(b), (ii) the aggregate Additional Development
--------------
Expenditures; and (iii) any expenditures relating to the development of the raw
land that is the subject of the Land Acquisition Contracts incurred by a TCR
Party between the Effective Date and the Closing Date for which the Transferee's
prior approval is not required by Section 7.1(k) (the "DE MINIMUS DEVELOPMENT
--------------
EXPENDITURES"); provided, in the case of clause (iii), that the appropriate TCR
--------
Party has updated Schedule 1.5 to reflect the De Minimus Development
------------
Expenditures it has so incurred no less than five (5) Business Days before
Closing.
(g) If prior to Closing the Transferee elects not to proceed with any
Land Acquisition Contract, the right to such contract will revert back to the
appropriate TCR Party if the TCR Representatives so elect and the Transferee
shall have no obligation to reimburse the TCR Parties for the Development
Expenditures Amount related to such contract.
Section 1.6. Assignment of Management Contracts. Each of the TCR
----------------------------------
Parties set forth on Schedule 1.6(a) shall assign to the Operating Company all
---------------
of its right, title and interest in and to the property management contracts
related to its management of each of the third-party owned properties listed
under its name on Schedule 1.6(a) and any
---------------
additional property management contracts relating to the management of third-
party owned properties that any of these TCR Parties enters into subsequent to
the date hereof in the ordinary course of business and which are added to
Schedule 1.6(a) pursuant to Transferee's prior consent (collectively, the
- ---------------
"MANAGEMENT
6
<PAGE>
CONTRACTS"). In connection with the Transferee's assumption of the
Management Contracts, the TCR-affiliated entities identified on Schedule 1.6(b)
---------------
shall provide accounting services to the Transferee on the terms specified on
Schedule 1.6(b).
- ---------------
Section 1.7. Assignment of Construction Contracts. Each of the TCR Parties
------------------------------------
set forth on Schedule 1.7 shall assign to the Operating Company or its designee
------------
all of its right, title and interest in and to each of the construction
contracts listed under its name on Schedule 1.7, and all subcontracting
agreements referenced thereon relating to the completion of improvements at each
of the Development Properties and any additional construction contracts or
subcontracting agreements relating to the completion of improvements at the
Development Properties that any of these TCR Parties enters into subsequent to
the date hereof in the ordinary course of business and which are added to
Schedule 1.7 (the "CONSTRUCTION CONTRACTS").
- ------------
The Office Leases, the Office Personal Property, the Telephone
Numbers, the Land Acquisition Contracts, the Management Contracts, the
Construction Contracts and all other rights, assets and interests being assigned
or conveyed pursuant to Sections 1.4 through 1.7 are hereinafter collectively
------------------------
referred to as the "ASSIGNED PROPERTY." For ease of reference, the Real Estate
Property and the Assigned Property are sometimes hereinafter collectively
referred to as the "PROPERTY."
Section 1.8. Several Liability. Except as provided in Article 8 hereof,
----------------- ---------
none of the TCR Parties shall have joint and several liability hereunder.
Instead, except as provided in Article 8 hereof, each TCR Party shall have
several liability hereunder for the covenants, agreements, representations and
warranties made by it hereunder to the extent and only to the extent that any
such covenant, agreement, representation or warranty relates to itself or to the
Property or Partnership Interests, as the case may be, owned or transferred by
it.
Section 1.9. Access to Books and Records. The Transferee agrees that (a)
---------------------------
each Contributor shall have access after the Closing to its respective Books and
Records relating to periods prior to the Closing for inspection or duplication
at the offices of the Transferee at reasonable times and upon reasonable notice
and (b) through the eighth (8th) anniversary of the Closing Date, before any
Contributor's Books and Records relating to periods prior to the Closing are
destroyed or disposed of by the Transferee, the Transferee shall offer to return
such Books and Records (and the computer programs necessary to retrieve the
same) to the TCR Representatives, at the TCR Representatives' cost and expense,
if the TCR Representatives affirmatively respond to such offer within ten (10)
Business Days after receipt of same.
Section 1.10. Excluded Assets. In addition to such other property,
---------------
rights and interests of the TCR Parties which are excluded from the conveyances
contemplated by this Agreement through separate, specific reference elsewhere in
this Agreement, all of the TCR Parties' rights, title and interests in and to
the items described on Schedule 1.10, including, without limitation, all rights
-------------
related to development and construction management services rendered to Homegate
Hospitality, Inc. and all cash on hand and in accounts of the TCR Parties, are
expressly retained by the TCR Parties and excluded from any Property conveyances
or assignments otherwise contemplated by this Agreement. Except as otherwise
expressly provided for in this Agreement,
7
<PAGE>
no property, assets or rights owned by, or interests in, any of the TCR-
affiliated entities listed on Schedule 1.10 are included in the conveyances
-------------
contemplated by this Agreement.
Section 1.11. No Contributing Partner Liability. Except as otherwise
---------------------------------
expressly provided in Section 1.8, nothing herein shall create any liability or
-----------
obligation of any (i) Contributing Partner or any of their employees, directors,
shareholders, partners, members or other affiliates or (ii) Non-Signing
Contributor or its non TCR-affiliated employees, directors, shareholders,
partners, members or other affiliates. Notwithstanding the foregoing, no
Contributing Partner or Non-Signing Contributor shall have any Liability under
this Agreement (notwithstanding references in this Agreement to covenants or
representations and warranties being made by a Contributing Partner or Non-
Signing Contributor) unless the Contributing Partner or Non-Signing Contributor
(i) is a signatory to this Agreement or (ii) executes an Addendum A or an
Addendum B, and then, in either circumstance, the Liability of such Contributing
Partner or Non-Signing Contributor shall be several, and not joint (except as
provided in Article 8 hereof), and limited exclusively to the terms
---------
of this Agreement and Addendum A or Addendum B, as applicable.
ARTICLE 2. VALUE AND PAYMENT TERMS.
Section 2.1. Issuance of Equity Securities.
-----------------------------
(a) At Closing, the Transferee shall issue and deliver to the
persons set forth on Schedule 2.1(a), as the designated representatives of the
---------------
TCR Parties (the "TCR REPRESENTATIVES"), that number of Equity Securities
determined by dividing the Net Value by the Effective Price (the "INITIAL EQUITY
SECURITIES"). The Equity Securities so delivered shall be registered in the
names and the amounts designated by the TCR Representatives pursuant to Section
-------
2.7 hereof. Notwithstanding the foregoing, the Transferee shall retain from the
- ---
Equity Securities to be so delivered Units representing $11,267,400 of the Net
Value (the "DEVELOPMENT INCENTIVE UNITS"), Units representing $3,972,175 of the
Net Value (the "ADDITIONAL RETAINED UNITS") and Units representing $134,650 of
the Net Value (the "PERFORMANCE INCENTIVE UNITS"). The actual number of
Development Incentive Units to be issued by the Operating Company to the parties
and at the times set forth on Schedule 2.1(a)(a) in connection with the
-------------------
completion of the Development Properties shall be increased or decreased in the
manner described on Schedule 2.1(a)(a). The Additional Retained Units shall be
------------------
issued by the Operating Company to the parties and at the times set forth on
Schedule 2.1(a)(b) and Schedule 2.1(a)(c). The Performance Incentive Units
- ------------------ ------------------
shall be issued by the Operating Company as set forth on Schedule 2.1(a)(d).
------------------
(i) If the Closing Price is less than the Effective Price but greater
than or equal to $25.00, then the Transferee shall be obligated to proceed to
Closing and to issue and deliver to the TCR Representatives at Closing that
number of additional Equity Securities calculated pursuant to the formula set
forth on Schedule 2.1(a)(i).
------------------
(ii) If the Closing Price is less than $25.00 but greater than or
equal to $23.00, the condition to Closing specified in Section 11.1(h) shall be
---------------
deemed to have been satisfied and the TCR Parties shall be required to proceed
to Closing if not later than the fourth day prior to the Closing Date, the
Transferee shall have delivered to the TCR Representatives a written notice of
its agreement to issue and deliver to the TCR Representatives at Closing that
8
<PAGE>
number of additional Equity Securities calculated pursuant to the formula set
forth on Schedule 2.1(a)(ii).
-------------------
(iii) Notwithstanding clause (ii) of this Section 2.1(a), if
--------------
the Closing Price is less than $25.00, the TCR Representatives may, at any time
that is no later than the third day prior to Closing, deliver to the Transferee
a written notice of its election to waive the condition to Closing specified in
Section 11.1(h), and thereby obligate the Transferee to proceed to Closing and
- ---------------
to issue and deliver to the TCR Representatives at Closing that number of
additional Equity Securities calculated pursuant to the formula set forth on
Schedule 2.1(a)(i). Any additional Equity Securities that may be issued
- ------------------
pursuant to clause (i), (ii) or (iii) of this Section 2.1(a) shall hereinafter
--------------
be referred to as the "ADDITIONAL EQUITY SECURITIES."
(iv) Notwithstanding any of the provisions in this Section 2.1(a), the
--------------
total number of Shares that the Company may issue in connection with the
transactions contemplated by this Agreement shall not exceed 19.9% of the total
number of Shares outstanding immediately prior to Closing or the voting power
represented by the total number of Shares outstanding immediately prior to
Closing.
(b) The value of the Property which shall be used for determining the
number of Equity Securities to be issued to the TCR Representatives is herein
called the "NET VALUE," which shall be an amount equal to $597,520,650, reduced
by the sum of the following: (i) the outstanding principal balance plus all
accrued and unpaid interest thereon due on the Closing Date on the Assumed
Loans, (ii) the Revised Completion Costs as set forth in Section 2.5(a), (iii)
--------------
the Cash Consideration, (iv) the Assigned Value of each Withdrawn Property as
determined pursuant to Section 2.8, (v) the amount of any reduction in the Net
-----------
Value made pursuant to Section 1.3(d) hereof in the event of a transfer of less
--------------
than 100% of the Partnership Interests in a Contributor, and (iv) the amount by
which the Contract Revenue Reduction (as set forth in Section 7.1(c) hereof)
--------------
exceeds $495,600 (which represents 15% of the aggregate amount of the annual
revenue for all Management Contracts on Schedule 1.6(a)).
---------------
(c) During the period commencing on the Closing Date and ending 90
days after the Closing Date, without the prior written consent of the Company,
no person to whom the Equity Securities issued pursuant to this Agreement are to
be distributed, either directly or indirectly through one or more intermediaries
(the "DISTRIBUTEES"), shall, directly or indirectly, offer, sell, contract to
sell or otherwise transfer or dispose of all or any interest in the Shares;
provided, however, that the distribution of Shares from a Distributee that is an
- -------- -------
entity to its constituent shareholders, partners or members shall not violate
this provision, nor shall the delivery of the Equity Securities received by a
TCR Party as nominee for a Partner of a Contributor violate this provision.
Section 2.2. Assumption of Indebtedness. At Closing, the Operating Company
--------------------------
shall assume and agree to pay and perform all indebtedness and obligations of
the Contributors under all Assumed Loans, and the Contributors, the Contributing
Partners, and any of their constituent owners who have guaranteed any amount
with respect to the Assumed Loans shall be released from any and all liability
for the Assumed Loans. At Closing, the Transferee shall execute and deliver,
with respect to each Assumed Loan, all the documents and instruments
(collectively, the
9
<PAGE>
"LOAN ASSUMPTION DOCUMENTS") reasonably requested by, and in a form satisfactory
to, the TCR Representatives to evidence Transferee's assumption of the Assumed
Loan, and the release of the Contributor's and the Contributing Partners'
obligations thereunder. In the event that the Transferee is unable for any
reason to consummate any such assumption, the Operating Company shall cause the
Assumed Loan to be paid in full at Closing and such payment, in lieu of
assumption, shall not affect the determination of Net Value under Section 2.1(b)
or the Cash Consideration designated under Section 2.6. Each Contributor (and
each Contributing Partner) shall be responsible for the payment at Closing of
any prepayment premium or penalty due in connection with the Operating Company's
prepayment of any Assumed Loan of that Contributor (or in the case of a
Contributing Partner, the Assumed Loan of the Contributor of which that
Contributing Partner is a Partner).
Section 2.3. Assumption of Assigned Property. At Closing, the
-------------------------------
Operating Company and/or a designated subsidiary of the Company shall assume the
rights and obligations of the applicable Contributors and Assignors under the
Leases, the Service Contracts, the Office Leases, the Land Acquisition
Contracts, the Trademarks, the Management Contracts and the Construction
Contracts, and shall execute and deliver all the documents and instruments
reasonably requested by, and in a form satisfactory to, the TCR Representatives
to evidence the assumption of the foregoing by the Operating Company or its
designee; provided, however, that all fees payable under the
-------- -------
Construction Contracts shall be terminated at Closing.
Section 2.4. Assumption of Construction-Related Warranties and
-------------------------------------------------
Guaranties. At Closing, the Operating Company or its designee shall (i) assume
- ----------
all warranties and guarantees of the TCR Parties related to the construction of
any of the Development Properties and release the TCR Parties of any obligations
they may have thereunder, (ii) release the TCR Parties from any obligations they
may have under warranties outstanding with respect to any of the Real Properties
other than the Development Properties, and (iii) shall execute and deliver all
documents and instruments (collectively, the "WARRANTY ASSUMPTION DOCUMENTS")
reasonably requested by, and in a form satisfactory to, the TCR Representatives
to evidence the foregoing assumptions and releases.
Section 2.5. Completion Costs.
----------------
(a) Table 1 of Schedule 2.5(a) sets forth an estimate by the
---------------
TCR Parties of each component of the Completion Costs (the "ESTIMATED COMPLETION
COSTS") anticipated to finalize construction of each of the Real Properties
listed thereon (collectively, the "DEVELOPMENT PROPERTIES"). Twenty (20) days
before the Closing Date, the TCR Representatives shall provide the Transferee a
revised estimate of the following components of the Completion Costs for one or
more of the Development Properties: "Hard Cost" and/or "Operating Income Offset"
(together, the "AUDITABLE COMPONENTS"). Based on such revised components and the
instructions set forth in Schedule 2.5(e), a revised estimate
---------------
of each component of the Completion Costs (the "REVISED COMPLETION COSTS") shall
be calculated for each of the Development Properties, and Table 1 of Schedule
--------
2.5(a) shall be revised to incorporate the Revised Completion Costs. From and
- ------
after the Effective Date until the Closing or until this Agreement is terminated
as herein provided, the TCR Representatives shall provide, and each of the
Contributors and the Contributing Partners shall cooperate with the TCR
Representatives in the provision of, all reasonable information requested
10
<PAGE>
by the Construction Auditor for the purpose of determining its estimate of the
Auditable Components for each of the Development Properties. Ten (10) Business
Days before the Closing Date, the Construction Auditor shall report to the TCR
Representatives and the Transferee its estimate of the Auditable Components for
each Development Property as of the Closing Date. Based on the Auditable
Components as so determined by the Construction Auditor and the instructions set
forth in Schedule 2.5(e), an audited estimate of the Completion Costs (the
---------------
"AUDITED COMPLETION COSTS") shall be calculated for each of the Development
Properties, and Table 2 of Schedule 2.5(a) shall be completed by incorporating
---------------
those audited estimates therein and calculating the reserve amounts shown
thereon (each, a "RESERVE AMOUNT"), which shall be, for each Development
Property, the excess, if any, of (i) the Audited Completion Costs for the
Property over (ii) the Revised Completion Costs for the Property.
(b) At Closing, an amount equal to the sum of the Reserve Amounts for
all the Development Properties (the "RESERVE FUNDS") shall be reserved from
either the Cash Consideration or the Equity Securities (at the election of the
TCR Representatives) to be delivered at the Closing and deposited by the
Transferee with an escrow agent who is, and upon terms that are, mutually
satisfactory to the Transferee and the TCR Representatives. All interest earned
on the Reserve Funds while in the escrow shall be credited to the TCR
Representatives and shall be paid to them upon termination of the escrow.
(c) Within thirty (30) days after Substantial Completion of each
Development Property, the Construction Auditor shall issue a second report to
the TCR Representatives and the Transferee that indicates (i) the amounts
incurred between the Closing Date and the completion of that Development
Property with respect to the Auditable Components, and (ii) an estimate of the
"punch list" completion costs associated with the completed Development Property
(the "ESTIMATED PUNCH LIST COSTS"). Based on the actual amounts for the
Auditable Components as so determined by the Construction Auditor and the
instructions set forth in Schedule 2.5(e), the parties shall calculate the
---------------
"FINAL AUDITED COSTS" for that Development Property, which shall consist of the
Auditable Components (as so determined) and the Offsite Overhead and Interest
(as so calculated). Within sixty (60) days after Substantial Completion of each
Development Property, the Construction Auditor shall issue a final report to the
TCR Representatives and the Transferee that indicates the actual "punch list"
completion costs incurred with respect to that Development Property (the "FINAL
AUDITED PUNCH LIST COSTS"). Within three (3) Business Days after receipt of the
Construction Auditor's second report with regard to a Development Property, the
Transferee shall direct the escrow agent to release to (i) the TCR
Representatives an amount from the Reserve Funds (which shall not be in excess
of that Development Property's Reserve Amount) equal to the amount, if any, by
which the Audited Completion Costs exceed the sum of the Final Audited Costs and
the Estimated Punch List Costs, and (ii) the Transferee the remainder of the
Reserve Amount for that Development Property, less the amount of the Estimated
Punch List Costs. Within three (3) Business Days after receipt of the
Construction Auditor's report of the Final Audited Punch List Costs with respect
to a Development Property, the Transferee shall direct the escrow agent to
release to (i) the TCR Representatives an amount from the Reserve Funds (which
shall not be in excess of the balance of that Development Property's Reserve
Amount) equal to the amount, if any, by which the
11
<PAGE>
Estimated Punch List Costs exceed the Final Audited Punch List Costs, and (ii)
the Transferee the remainder of the Reserve Amount for that Development
Property.
(d) If, after all Development Properties have been completed and the
Construction Auditor's report of the Final Audited Punch List Costs for the last
Development Property has been received, it is determined that the aggregate
Revised Completion Costs for all Development Properties exceeded the sum of the
aggregate Final Audited Costs and Final Audited Punch List Costs for all
Development Properties, then within three (3) Business Days after receipt of the
last such report, the Company shall deliver to the TCR Representatives cash in
the amount of such excess (or, if less, the aggregate of the Contingency
components of the Revised Completion Costs for all Development Properties);
provided that alternatively the Company, at its option, may deliver Units to the
- --------
TCR Representatives (to be issued in the names of such Contributors,
Contributing Partners or Distributees as the TCR Representatives may designate)
in a number equal to (A) the amount of cash the Company would otherwise be
required to deliver, divided by the Effective Price, plus (B) if the Closing
Price was less than $25.00, then, unless the condition to Closing set forth in
Section 11.1(h) has been waived under the provisions of Section 2.1(a)(iii), an
- --------------- -------------------
additional number equal to (x) the number determined under (A) above, multiplied
by (y) a fraction, the numerator of which is the amount by which $25.00 exceeded
the Closing Price, and the denominator of which is the Closing Price.
(e) The Auditable Components of the Audited Completion Costs and the
Final Audited Costs, the Estimated Punch List Costs and the Final Audited Punch
List Costs determined by the Construction Auditor shall be conclusive and
binding on all parties to this Agreement. For each Development Property, the
appropriate Contributor or Contributing Partners on the one hand and the
Transferee on the other hand shall each pay one-half of all fees and costs
charged by the Construction Auditor for performing its duties as described in
this Section 2.5. "SUBSTANTIAL COMPLETION" shall mean, as to any specific
-----------
Development Property, the point in time at which a certificate of occupancy is
issued for the final building constructed on the Development Property. In
performing its services hereunder, the Construction Auditor shall determine the
Auditable Components of the Completion Costs in accordance with the procedures,
assumptions and methodologies set forth on Schedule 2.5(e). Should the
---------------
Construction Auditor fail to perform its duties hereunder to the mutual
satisfaction of the Transferee and the TCR Representatives, the Transferee and
the TCR Representatives may mutually terminate the services of the Construction
Auditor, in which case Arthur Andersen llp shall be retained to act as the
successor Construction Auditor. The Transferee shall assume and agree to pay
all actual costs necessary to complete the Development Properties whether such
actual costs are more or less than the Audited Completion Costs.
Section 2.6. Cash Consideration. At the Closing, the Transferee shall pay the
------------------
TCR Representatives, for the accounts of the TCR Parties, an amount of cash
designated as the "CASH CONSIDERATION," which amount shall be $143,200,000 (the
"ANTICIPATED CASH CONSIDERATION AMOUNT"); provided, however, that the Transferee
-------- -------
agrees to increase or decrease the amount of Cash Consideration by an amount
equal to no more than 20% of the Anticipated Cash Consideration Amount. In
addition to such 20% increase, the Anticipated Cash Consideration Amount may be
further increased by up to $72,809,750 pursuant to the contractual obligations
12
<PAGE>
described in Schedule 2.6. The TCR Representatives shall submit to the
-------------
Transferee their request for any increase or decrease of the Anticipated Cash
Consideration Amount no less than ten (10) Business Days before the Closing
Date.
Section 2.7. Designation of Issuance of Equity Securities. The TCR
---------------------------------------------
Representatives shall give Transferee notice at least ten (10) Business Days
before the Closing Date designating the name, address and other reasonable
information required by the Company or the Operating Company of or relating to
the TCR Parties to which the Equity Securities are to be issued at the Closing
as provided in Section 2.1.
-----------
Section 2.8. Withdrawn Properties. A "WITHDRAWN PROPERTY" shall be any
Unapproved Property, Damaged Property or Condemned Property as to which this
Agreement has been terminated pursuant to Section 1.2, Section 1.3, Section 14.2
----------- ----------- ------------
or Article 15, respectively, or any Real Property which has tax exempt bond
----------
financing associated therewith and which if transferred to the Operating Company
pursuant this Agreement, either by direct conveyance or by the transfer of the
Partnership Interests in the Contributor which owns that Real Property, would
cause the interest payable on such tax exempt bond financing to cease to be tax
exempt. In the event any Real Property becomes a Withdrawn Property, Schedule
2.1(b) shall be revised to delete the loan associated with such Withdrawn
Property for the definition of Assumed Loans and the TCR Representatives and the
Transferee shall each use good faith efforts to mutually agree upon the assigned
value for that Real Property (the "ASSIGNED VALUE"), taking into account the
relation of the Withdrawn Property to the value of the entire portfolio of Real
Properties being acquired, unless the Assigned Value is specified on Schedule
--------
2.8, in which event the Assigned Value for the Real Property shall be the
- ---
Assigned Value so specified on Schedule 2.8. If the parties are unable to agree
------------
on the Assigned Value by the fifth Business Day prior to the Closing Date, then
either party may request binding arbitration of the Assigned Value by the
following method. Ernst & Young LLP is hereby appointed by both parties as the
neutral arbitrator (the "ARBITRATOR") of the Assigned Value; provided, that if
for any reason Ernst & Young LLP is unable to act as the Arbitrator, Ernst &
Young LLP shall appoint an arbitrator to serve in its place. The party electing
determination by the Arbitrator shall give written notice to the Arbitrator and
the other party of such election. On the date (the "SUBMISSION DATE") which is
five (5) Business Days from the date of such notice, each party shall submit to
the Arbitrator its proposed Assigned Value, together with any materials it
wishes to submit in support of its position. The Arbitrator shall then make its
own determination of value and, within ten (10) Business Days after the
Submission Date, shall select, in the Arbitrator's sole discretion, the value
proposed by one or the other of the parties (the Arbitrator not being authorized
to select any other value), which selected value shall then be the Assigned
Value. In making its decision, the Arbitrator may make such investigation of the
Real Property and the transactions contemplated by this Agreement, and hold such
hearings, as it deems appropriate.
Section 2.9. Guaranty. At Closing, the Company shall execute and
--------
deliver to the TCR Representatives a guarantee (the "GUARANTY") in form and
substance satisfactory to the TCR Representatives whereby the Company guarantees
the full and complete performance of the obligations of the Operating Company
under this Agreement.
13
<PAGE>
Section 2.10. Certain Definitions. Where used in this Agreement, the
-------------------
following terms shall have the following meanings:
"ADJUSTED CLOSING PRICE" means the average of the closing prices of
the Shares on the New York Stock Exchange for all trading days during the period
of ten (10) consecutive trading days concluding with the last trading day which
precedes the Closing Date.
"ASSUMED LOANS" mean the obligations listed in Schedule 2.1(b)
---------------
regardless of whether such obligations are assumed or paid at Closing as
provided in Section 2.2.
-----------
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in San Francisco, California, are authorized or required
by law to close.
"CLOSING PRICE" means the average of the closing prices of the Shares
on the New York Stock Exchange for all trading days during the period of fifteen
(15) consecutive trading days concluding with the fifth trading day preceding
the Closing Date.
"COMPLETION COSTS" means the aggregate development and construction
costs which are estimated or incurred, as the case may be, for a Development
Property, consisting of the sum of the following components as set forth in
Schedule 2.5(a) and calculated in accordance with the instructions set forth in
- ---------------
Schedule 2.5(e): "Hard Cost," "Offsite Overhead," "Operating Income Offset,"
- ---------------
"Interest" and (in the case of Estimated, Revised and Audited Completion Costs)
"Contingency."
"CONSTRUCTION AUDITOR" means Ernst & Young llp or Arthur Andersen llp
as the successor Construction Auditor in the event the TCR Representatives and
the Transferee mutually terminate the services of Ernst & Young llp pursuant to
Section 2.5(e).
- --------------
"EFFECTIVE PRICE" means $26.93.
"EQUITY SECURITIES" means Shares and Units collectively.
"SHARE" means a share of Common Stock of the Company.
"TCR" means Trammell Crow Residential Company.
"TCR GENERAL PARTNER" means each of the TCR-affiliated entities
which serves as the general partner of the Non-Signing Contributor listed
adjacent to its name on Schedule 4.1.
------------
"UNIT" means a unit of limited liability company membership
interest in the Operating Company.
ARTICLE 3. TITLE; MATTERS TO WHICH THIS CONTRIBUTION IS SUBJECT.
Section 3.1. Permitted Encumbrances. The Real Property to be contributed to
----------------------
the Operating Company by direct conveyance from the Contributors (or indirectly
in the case of the transfer of Partnership Interests by any Contributing
Partners pursuant to Section 1.2 or Section
----------- -------
14
<PAGE>
1.3 above) shall be subject to the following encumbrances (collectively, the
- ----
"PERMITTED ENCUMBRANCES"):
(a) any liens of real estate taxes, personal property taxes, water
charges and sewer charges provided the same are not due and payable, but subject
to adjustment as provided herein;
(b) the rights of the Tenants, as tenants only;
(c) any and all restrictions, covenants, agreements, easements,
matters and things which are, in each case, of record as set forth in the
preliminary title reports listed on Schedule 3.1(c) affecting title to the Real
---------------
Property (except for loans that do not constitute Assumed Loans), and such
easements, covenants and restrictions granted, created or entered into after the
Effective Date in accordance with Section 3.2 below;
-----------
(d) any and all laws, statutes, ordinances, codes, rules, regulations,
requirements, or executive mandates affecting the Real Property, including,
without limitation, those related to zoning and land use ("LEGAL REQUIREMENTS"),
of any applicable agency, board, bureau, commission, department or body of any
municipal, county, state or federal governmental unit, or any subdivision
thereof, having, asserting or acquiring jurisdiction over all or any part of the
Real Property or the management, operation, use or improvement thereof
(collectively, "GOVERNMENTAL AUTHORITIES");
(e) the state of facts shown on the surveys described on Schedule
--------
3.1(e) for each individual Real Property comprising the Real Property
- ------
(collectively, the "SURVEYS") and any other state of facts which a recent and
accurate survey of the Real Property would actually show;
(f) the Service Contracts and the Construction Contracts;
(g) any installment of assessments affecting the Real Property or any
portion thereof due and payable after the Closing Date;
(h) any utility company rights, easements and franchises to maintain
poles, lines, wires, cables, pipes, boxes and other fixtures and facilities in,
over, under or upon the Real Property;
(i) any prohibition against the interference with the natural and
unobstructed flow of any applicable brook crossing the Real Property or other
riparian rights;
(j) such matters as the Title Company shall be willing, without
special premium, to omit as exceptions to coverage including minor variations
between record lines and tax lot lines; and
(k) the liens of the Assumed Loans on those parcels of Real Property
encumbered by the Assumed Loans.
15
<PAGE>
Section 3.2. Easements, Licenses and Dedications Prior to Closing.
----------------------------------------------------
From and after the Effective Date, no Contributor will voluntarily grant, create
or enter into any encumbrance, covenant, easement or restriction on any Real
Property without the prior written consent of the Operating Company, which
consent will not be unreasonably withheld, conditioned or delayed.
Notwithstanding the foregoing, any Contributor may enter into agreements or
grant easements, licenses and dedications for usual and customary utilities
(including telephone and cable television service through shared tenant service
or other arrangements), water, parking, sewer, ingress and egress granted in the
ordinary course of business without the Operating Company's consent; provided,
--------
that the Contributor shall give the Operating Company written notice of any such
easement, license or dedication, which shall thereupon become a Permitted
Encumbrance.
Section 3.3. Title Insurance. Concurrent with the execution of this
Agreement, Transferee has obtained a commitment for title insurance for each
Real Property, by which the title company has agreed to insure the Operating
Company's title at Closing subject only to the Permitted Encumbrances and such
matters as may appear of record between the date of the commitment and the date
of Closing. In the event that a title exception other than the Permitted
Encumbrances appears of record prior to Closing, the Operating Company shall
nevertheless take title to the Real Property subject to the exception; provided,
--------
that:
(a) If the exception is a matter which can be cured by the payment of
money, such as a mechanics' lien, judgment lien, mortgage, or the like, the
exception shall be removed at Closing by the TCR Parties' payment of the
indebtedness or obligation served by the lien or by bonding against such lien to
the satisfaction of the title company.
(b) If the exception is non-monetary and adversely impacts the value
of the Real Property, the parties shall negotiate an appropriate reduction in
Net Value for such matter, and if they are unable to determine the amount of
such reduction prior to Closing, the amount of the reduction claimed by the
Transferee shall be held in escrow pending determination of the proper
reduction. If the parties are unable to agree on the amount of the reduction
post-Closing, the amount of the reduction shall be submitted to binding
arbitration by an experienced real estate appraiser jointly selected by the
parties.
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF THE CONTRIBUTORS.
Section 4.1. Operating Representations and Warranties. In order to induce
----------------------------------------
the Company and the Operating Company to enter into this Agreement and to
perform their respective obligations hereunder, each Contributor, except for the
Non-Signing Contributors listed on Schedule 4.1, hereby severally warrants and
------------
represents with respect to itself, and each TCR General Partner hereby severally
warrants and represents with respect to the Non-Signing Contributor listed
adjacent to its name on Schedule 4.1, the following:
------------
(a) Organization, Good Standing and Corporate/Partnership Power. The
-----------------------------------------------------------
Contributor is a general or limited partnership or a limited liability company,
duly formed and validly existing under the laws of the jurisdiction in which it
was organized, is duly authorized to transact business under the laws of each
state in which the character of the properties owned or leased by it therein or
in which the transaction of its business makes such qualification necessary,
16
<PAGE>
except where the failure to be so qualified would not have a material adverse
effect on the business, results of operations or financial operation of such
entity or its ability to consummate the transactions provided for in this
Agreement (a "MATERIAL ADVERSE EFFECT," which term, when used in this Agreement
with respect to an individual, shall mean a material adverse effect on the
ability of the individual to consummate the transactions provided for in this
Agreement), has all requisite, corporate or partnership power and authority to
execute and deliver this Agreement and all other documents and instruments to be
executed and delivered by it hereunder, and to perform its obligations hereunder
and thereunder in accordance with the terms and conditions hereof and thereof.
(b) Authorization; No Violation. Assuming the due and valid
---------------------------
authorization, execution and delivery of this Agreement by the Transferee, this
Agreement, and the other agreements and documents to be executed by the
Contributor hereunder, will be the legal, valid and binding obligation of the
Contributor, enforceable against the Contributor in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, moratorium or
similar laws relating to creditors' rights and general principles of equity.
The performance by the Contributor, as applicable, of its duties and obligations
under this Agreement and the documents and instruments to be executed and
delivered by it hereunder will not (i) conflict with, or result in a breach of,
or default under, any provision of any of the organizational documents of the
Contributor or any agreement, instrument, decree, judgment, injunction, order,
writ, law, rule or regulation, or any determination or award of any court or
arbitrator, to which the Contributor is a party or by which its assets are or
may be bound, except for any of the foregoing matters that, individually or in
the aggregate, would not have a Material Adverse Effect on the Contributor, or
(ii) require any consent, approval or authorization of, or declaration, filing
or registration with, any domestic governmental or regulatory authority or any
other person or entity, except as set forth adjacent to the Contributor's name
of Schedule 4.1(b), and except where the failure to obtain any such consent,
---------------
approval or authorization of, or filing or registration with, any governmental
or regulatory authority or other person or entity would not have a Material
Adverse Effect on the Contributor.
(c) Rent Roll. The Contributor has delivered or caused to be
---------
delivered to the Operating Company a rent roll (a "RENT ROLL") for each Real
Property that it owns immediately prior to the Closing that is current as of
July 31, 1997. To the Contributor's knowledge, the information set forth in the
Rent Roll is true and correct as of July 31, 1997 in all material respects. To
the Contributor's knowledge, the Rent Roll reflects all of the leases, tenancies
or occupancies materially affecting the Real Property as of such date.
(d) Work on Real Property. To the Contributor's knowledge, no work
---------------------
has been performed on the Real Property that it owns immediately prior to the
Closing that would require an amendment to the certificate of occupancy for such
Real Property for which an amendment has not been obtained, and, to the
Contributor's knowledge, any and all work performed at such Real Property as of
the Effective Date has been, and to the Closing Date will be, performed in all
material respects in accordance with all Legal Requirements of all applicable
Governmental Authorities.
17
<PAGE>
(e) Validity of Service Contracts. To the Contributor's knowledge,
-----------------------------
there are no service contracts, equipment leases, union contracts, employment
agreements, management agreements or other agreements materially affecting its
Real Estate Property or the operation thereof other than the Service Contracts.
To the Contributor's knowledge, all of the Service Contracts of which it is a
party or which affect in any way its Real Estate Property are in full force and
effect without any material default or claim of material default by any party
thereto. To the Contributor's knowledge, all sums presently due and payable by
it under such Service Contracts have been fully paid.
(f) No Litigation. Except as set forth adjacent to the Contributor's
-------------
name on Schedule 4.1(f) or except as covered by insurance, there are no actions,
---------------
suits, claims, investigations, labor disputes, litigation or proceedings
currently pending or, to the Contributor's knowledge, threatened, at law or in
equity, against or related to the Contributor or to all or any part of its Real
Estate Property, the environmental condition thereof, or the operation thereof
before or by any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality.
(g) No Actions Relating to Real Property. Except as set forth
------------------------------------
adjacent to the Contributor's name on Schedule 4.1(g), the Contributor has
---------------
received no written notice nor does it otherwise have knowledge of (i) pending
or contemplated annexation or condemnation proceedings, or private purchase in
lieu thereof, affecting or which may affect its Real Property, or any part
thereof, (ii) proposed or pending proceedings to change or redefine the zoning
classification of all or any part of its Real Property, (iii) proposed or
pending special assessments affecting its Real Property or any portion thereof,
(iv) penalties or interest due with respect to real estate taxes assessed
against its Real Property and (v) proposed changes in any road or grades with
respect to the roads providing a means of ingress and egress to its Real
Property.
(h) No Violations of Legal Requirements. Except as set forth adjacent
-----------------------------------
to its name on Schedule 4.1(h), the Contributor has not received written notice
---------------
from any Governmental Authority of any violations (including environmental) of
any Legal Requirements nor does the Contributor have knowledge that any such
Governmental Authority contemplates the issuance thereof. To the Contributor's
knowledge, except as disclosed adjacent to its name on Schedule 4.1(h), there
---------------
are no outstanding orders, judgments, injunctions, decrees or writ of any
Governmental Authority against or involving the Contributor or its Real
Property, which individually or in the aggregate, would have a Material Adverse
Effect on the Contributor.
(i) Solvency. The Contributor has been and will be solvent at all
--------
times prior to and immediately following the transactions provided for in this
Agreement. There does not exist in effect with respect to the Contributor (i)
any general assignment for the benefit of creditors, (ii) any voluntary petition
in bankruptcy, (iii) any involuntary petition filed by the creditors of the
Contributor, (iv) any appointment of a receiver to take possession of all, or
substantially all, of the assets of the Contributor, (v) any attachment or other
judicial seizure of all, or substantially all, of the assets of the Contributor,
(vi) any admission in writing of the inability of the Contributor to pay its
debts as they come due or (vii) any offer of settlement, extension or
composition to the creditors generally.
18
<PAGE>
(j) Title to Personal Property. Except as set forth adjacent to its
--------------------------
name on Schedule 4.1(j), the Contributor's Personal Property will be owned by
---------------
the Contributor free and clear of any conditional bills of sale, chattel
mortgages, security agreements or financing statements or other security
interests of any kind, other than liens securing any of the Assumed Loans.
(k) Insurance/Casualty Losses. The Contributor has not received
-------------------------
written notice of any outstanding requirements or recommendations by (i) any
insurance company currently insuring its Real Estate Property, (ii) any board of
fire underwriters or other body exercising similar functions or (iii) the holder
of any Assumed Loan encumbering any of its Real Estate Property, which in any
case require or recommend any repairs or work to be done on its Real Estate
Property of a material nature. There has been no damage to any portion of the
Contributor's Real Estate Property caused by fire or casualty which has not been
fully repaired or restored.
(l) Property Financials; Absence of Undisclosed Liabilities.
-------------------------------------------------------
(i) The operating statements of the Contributor representing the
results of operations of the Contributor (excluding only those operations and
assets not contemplated to be contributed to the Operating Company pursuant to
this Agreement) including the results of operations of the Real Estate Property
owned by the Contributor which have been provided to the Transferee (the
"PROPERTY FINANCIALS"), fairly present the operating results of the Contributor
and its Real Estate Property, in each case in accordance with accounting
practices applied on a basis consistent with the historical operating statements
of the Contributor (except as otherwise indicated thereon or in the notes
thereto). The Property Financials for the period ended June 30, 1997 are
subject to normal year-end adjustments.
(ii) The Contributor has no liability, indebtedness, obligation,
commitment, expense, claim, or guarantee of any type ("LIABILITY"), including,
without limitation, any Liability to the person or entity from whom or which the
Contributor acquired any of its Real Estate Property, except (aa) Permitted
Encumbrances, (bb) prepaid rents, (cc) refundable security deposits, (dd)
Assumed Loans, and (ee) obligations to be repaid in full by the Contributor at
or prior to the Closing.
(m) Validity of Assumed Loan Documents. All documents, instruments
----------------------------------
and agreements evidencing, governing, securing and guaranteeing the Assumed
Loans which relate to the Real Property owned by the Contributor of (the
"ASSUMED LOAN DOCUMENTS"), are in full force and effect, and the Contributor has
not received written notice from the holder of any such Assumed Loan, nor does
it otherwise have knowledge, of any default or event of default thereunder.
(n) Taxes. The Contributor and each of its respective predecessors
-----
have paid on a timely basis all material Taxes for which the Company or the
Operating Company could be held liable or in respect of which a claim may be
made against the Contributor's Real Estate Property and have timely filed (after
giving effect to any filing extension properly granted by a Governmental
Authority having authority to do so) all material returns and reports required
to be
19
<PAGE>
filed with respect to the ownership and operation of its Real Property and
for which the Operating Company could be held liable or a claim made against
such Real Property. The returns and reports were and are accurate and complete
in all material respects. Except as set forth adjacent to the Contributor's
name on Schedule 4.1(n), there are no audits or other proceedings by any
---------------
Governmental Authority pending or, to the Contributor's knowledge, threatened
with respect to Taxes resulting from the ownership and operation of its Real
Estate Property for which the Operating Company could be held liable or against
which a claim could be made and no agreement extending the period for assessment
and collection has been executed with respect thereto.
(o) Restrictions on Sale; Legend. The Contributor hereby acknowledges
----------------------------
that the Equity Securities are being issued and sold in a transaction not
involving any public offering within the meaning of the Securities Act of 1933,
as amended (the "SECURITIES ACT"), and that the Equity Securities have not been
registered under the Securities Act. Except for any distributions of Equity
Securities to the Distributees and without prejudice to the Contributor's and
its Distributees' rights at all times to sell or otherwise dispose of all or any
part of the Equity Securities pursuant to an effective Registration Statement
under the Securities Act or under an exemption from registration available under
the Securities Act, the Contributor hereby agrees not to offer, sell, transfer
or otherwise dispose of any of the Equity Securities it is issued pursuant to
this Agreement in the absence of registration unless the Contributor delivers to
the Company and the Operating Company an opinion of a lawyer experienced in
securities matters and reasonably satisfactory to the Company and the Operating
Company, in form and substance reasonably satisfactory to the Company and the
Operating Company, to the effect that the proposed sale, transfer or other
disposition may be effected without registration under the Securities Act and
under applicable state securities or "blue sky" laws. The Contributor hereby
further acknowledges that each certificate representing the Equity Securities
shall bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
UNLESS THE COMPANY AND THE OPERATING COMPANY HAVE BEEN FURNISHED WITH AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND THE OPERATING
COMPANY, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY AND
THE OPERATING COMPANY, TO THE EFFECT THAT SUCH TRANSFER, SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS."
The provisions of this Section 4.1(o) shall survive the Closing.
--------------
(p) Accredited Investor; Investment Intent. The Contributor and each
--------------------------------------
of its Distributees is an "accredited investor" as defined in Regulation D
promulgated under the
20
<PAGE>
Securities Act. Any Equity Securities acquired by the Contributor or its
Distributees will be so acquired for the Contributor's and its Distributees' own
accounts for investment only and not with a view to, or with any intention of, a
distribution or resale thereof, in whole or in part, in violation of the
Securities Act or state securities or "blue sky" laws, without prejudice,
however, to the Contributor's and its Distributees' rights at all times to sell
or otherwise dispose of all or any part of the Equity Securities pursuant to an
effective registration statement under the Securities Act or under an exemption
from registration available under the Securities Act. The provisions of this
Section 4.1(p) shall survive the Closing.
- --------------
(q) Employees. The Contributor does not have any employees. The
---------
provisions of this Section 4.1(q) shall survive the Closing.
--------------
(r) Tax Exempt Bonds. No modifications of any tax exempt bonds or
----------------
other tax exempt indebtedness relating to any Property have been made during the
six (6) month period ending on the Effective Date.
Section 4.2. Definition of Knowledge. As used in this Agreement, the
terms to the "CONTRIBUTOR'S KNOWLEDGE" or "KNOWLEDGE OF THE CONTRIBUTOR" shall
mean only the current actual knowledge of the persons listed on Schedule 4.2
------------
after consultation with the district manager with oversight responsibilities for
the Real Estate Property that is the subject of the representation being made
concerning the subject matter of the representation being made. As used herein,
the term "CURRENT ACTUAL KNOWLEDGE" shall mean only the actual, current,
conscious (and not constructive, imputed or implied) knowledge of such
designees, and does not include constructive, imputed or implied knowledge of
any partner or agent of any Contributor other than such designees. Anything
herein to the contrary notwithstanding, none of the persons listed on Schedule
--------
4.2 shall have any personal liability or obligation whatsoever with respect to
- ---
any of the matters set forth in this Agreement or any of the representations
made by the Contributor being or becoming untrue, inaccurate or incomplete in
any respect.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE OPERATING
COMPANY.
Section 5.1. Operating Representations and Warranties. In order to
----------------------------------------
induce the Contributors and the Contributing Partners to enter into this
Agreement and to perform their respective obligations hereunder, the Company and
the Operating Company hereby jointly and severally warrant and represent the
following:
(a) Organization, Good Standing and Corporate Power of the Company.
--------------------------------------------------------------
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland, is duly authorized to transact
business under the laws of any state in which the character of the properties
owned or leased by it therein or in which the transaction of its business makes
such qualification necessary, except where the failure to be so qualified would
not have a Material Adverse Effect on the Company, has all requisite corporate
power and authority to execute and deliver this Agreement and all other
documents and instruments to be executed and delivered by it hereunder, and to
perform its obligations hereunder and thereunder in
21
<PAGE>
accordance with the terms and conditions hereof and thereof. The Board of
Directors of the Company has approved this Agreement and the transactions
contemplated hereby.
(b) Organization, Good Standing and Corporate Power of the Operating
----------------------------------------------------------------
Company. The Operating Company is a limited liability company duly organized
- -------
and validly existing under the laws of the State of Delaware, is duly authorized
to transact business under the laws of any state in which the character of the
properties owned or leased by it therein or in which the transaction of its
business makes such qualification necessary, except where the failure to be so
qualified would not have a Material Adverse Effect on the Operating Company, has
all requisite corporate power and authority to execute and deliver this
Agreement and all other documents and instruments to be executed and delivered
by it hereunder, and to perform its obligations hereunder and thereunder in
accordance with the terms and conditions hereof and thereof.
(c) Authorization; No Violation. Assuming the due and valid
---------------------------
authorization, execution and delivery of this Agreement by the Contributors, the
Contributing Partners and the Assignors, this Agreement and the other agreements
and documents to be executed and delivered by each of the Company and the
Operating Company hereunder, when duly executed and delivered, will be the
legal, valid and binding obligation of each of the Company and the Operating
Company, enforceable against the Company and the Operating Company in accordance
with their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to creditors' rights and
general principles of equity. The performance by each of the Company and the
Operating Company of its respective duties and obligations under this Agreement
and the documents and instruments to be executed and delivered by each of them
hereunder will not (i) conflict with, or result in a breach of, or default
under, any provision of any of the organizational documents of either of the
Company or the Operating Company or any agreements, instruments, decrees,
judgments, injunctions, orders, writs, laws, rules or regulations, or any
determination or award of any court or arbitrator, to which either of the
Company or the Operating Company is a party or by which the assets of either are
or may be bound, except for any of the foregoing matters that, individually or
in the aggregate, would not have a Material Adverse Effect on the Company or the
Operating Company, or (ii) require any consent, approval or authorization of, or
declaration, filing or registration with, any domestic governmental or
regulatory authority or other person or entity, except for customary disclosure
filings (which do not include any solicitation of shareholder approval) with the
Securities and Exchange Commission (the "SEC"), the SEC filings required under
Section 7.10, listing applications with the New York Stock Exchange, the consent
- ------------
of the lender under the terms of the Company's unsecured long-term debt, and
state "Blue Sky" filings and except where the failure to obtain such consent,
approval or authorization of, or filing or registration with, any governmental
or regulatory authority or other person or entity would not have a Material
Adverse Effect on the Company or the Operating Company.
(d) No Shareholder Approval Required. The approval of the Company's
--------------------------------
shareholders of the transactions contemplated by this Agreement is not a
prerequisite to the Company's corporate power to execute and deliver this
Agreement or any other documents and instruments to be executed and delivered by
it hereunder or to perform its obligations hereunder and thereunder, including,
without limitation, the issuance of the Equity Securities.
22
<PAGE>
(e) Equity Securities. The Equity Securities to be issued to the TCR
-----------------
Representatives are or prior to the Closing will be duly authorized and, when
issued by the Transferee, will be, in the case of Units, validly issued under
the terms of the LLC Agreement and, in the case of the Shares, fully paid and
non-assessable, free and clear of any mortgage, pledge, lien, encumbrance,
security interest, claim or rights of interest of any third party of any nature
whatsoever, other than restrictions under federal and applicable state
securities laws. The Shares to be issued by the Company, including those issued
upon exchange of the Units, are, or prior to the Closing will be, reserved for
future listing with the New York Stock Exchange prior to the date of issuance,
and, upon such issuance, will be fully paid and non-assessable, free and clear
of any mortgage, pledge, lien, encumbrance, security interest, claim or rights
of interest of any third party of any nature whatsoever.
(f) SEC Documents. The Company has caused to be delivered to the TCR
-------------
Representatives copies of the Company's Annual Reports on Form 10-K for the
years ended December 31, 1995 and 1996 as filed with the SEC pursuant to the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June
30, 1997 as filed with the SEC pursuant to the Exchange Act, all current reports
on Form 8-K (if any) filed with the SEC pursuant to the Exchange Act subsequent
to December 31, 1996 and the Company's Prospectus Supplement dated May 8, 1997
as filed with the SEC pursuant to Rule 424(b) under the Securities Act
(collectively, the "SEC DOCUMENTS"). The Company will cause to be delivered to
the TCR Representatives copies of such additional documents as may be filed by
the Company with the SEC pursuant to the Securities Act or the Exchange Act
between the Effective Date and the Closing Date. The SEC Documents were, and
those additional documents filed between the Effective Date and the Closing Date
will be, (i) prepared and filed in material compliance with the rules and
regulations promulgated by the SEC and applicable to such SEC Documents, (ii)
did not and will not, as of their respective dates, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein in order to make the statements contained therein, in light of the
circumstances under which they were made or will be made, not misleading (except
to the extent such statements have been modified by subsequently filed SEC
Documents), and (iii) include all the documents (other than preliminary
material) that the Company was required to file with the SEC since December 31,
1996.
(g) Financial Statements. The consolidated financial statements
--------------------
included in the SEC Documents have been prepared in accordance with generally
accepted accounting procedures ("GAAP") applied on a consistent basis during the
period involved (except as may be indicated in the notes thereto or, in the case
of the unaudited statements, as permitted by applicable rules and regulations of
the SEC) and present fairly (subject, in the case of the unaudited statements,
to normal year-end audit adjustments) the consolidated financial position of the
Company and its consolidated Subsidiaries at the dates thereof and the
consolidated results of operations and cash flows for the periods then ended.
For purposes of this Agreement, the terms "SUBSIDIARY" and "SUBSIDIARIES" shall
mean (i) any entity of which the Company (or other specified entity) shall own
directly or indirectly through a subsidiary, a nominee arrangement or otherwise
(x) at least a majority of the outstanding capital stock (or other shares of
beneficial interest) or (y) at least a majority of the partnership, joint
venture or similar interests, and (ii) any
23
<PAGE>
entity in which the Company (or other specified entity) is a general partner or
joint partner, including, without limitation, the Operating Company.
(h) No Litigation. Except as covered by insurance, there is no
-------------
action, suit, claim, investigation or proceeding, whether legal or
administrative or in mediation or arbitration, pending or, to the Company's and
the Operating Company's knowledge, threatened, at law or in equity, against
either of the Company or the Operating Company before or by any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality which would prevent either of the Company or
the Operating Company from performing its respective obligations pursuant to
this Agreement or which, if determined adversely, would have a Material Adverse
Effect on either the Company or the Operating Company. There are no judgments,
decrees or orders entered on a suit or proceeding against the Company or the
Operating Company, an adverse decision with respect to which might, or which
judgment, decree or order does, adversely affect the Company's or the Operating
Company's ability to perform its respective obligations pursuant to, or the
Contributors', the Contributing Partners' and the Assignors' rights under, this
Agreement, or which seeks to restrain, prohibit, invalidate, set aside, rescind,
prevent or make unlawful this Agreement or the performance of this Agreement or
the transactions contemplated hereby.
(i) Subsidiaries. Except as set forth on Schedule 5.1(i), the
------------ ---------------
Transferee has no Subsidiaries nor any interest or investment in any
partnership, trust or other entity or organization. Each Subsidiary of the
Transferee listed on Schedule 5.1(i) has been or will be duly organized, is
---------------
validly existing and in good standing under the laws of the jurisdiction in
which it was organized, has the power and authority to own its properties and to
conduct its business and is duly registered, qualified and authorized to
transact business and is in good standing in each jurisdiction under the laws of
any state in which the character of the properties owned or leased by it therein
or in which the transaction of its business makes such qualification necessary,
except where the failure to be so qualified would not have a Material Adverse
Effect on the Operating Company, the Company or such Subsidiary. All of the
outstanding equity or other participating interests of each Subsidiary listed on
Schedule 5.1(i) have been duly authorized and validly issued, are fully paid and
- ---------------
non-assessable.
(j) Absence of Certain Changes or Events. Except as disclosed in the
------------------------------------
SEC Documents filed with the SEC prior to the Effective Date or on Schedule
--------
5.1(j), since June 30, 1997, the Company, the Operating Company and each of
- ------
their respective Subsidiaries has conducted its business only in the ordinary
course of such business (taking into account prior practices, including the
acquisition and disposition of properties and the issuance of securities), and
there has not been any change, circumstance or event that has resulted in a
Material Adverse Effect on the business, properties, results of operations or
financial condition of the Company, the Operating Company and their
Subsidiaries, taken as a whole.
(k) Capital Structure.
-----------------
(i) As of September 18, 1997: (A) the authorized capital
stock of the Company consisted of 100,000,000 shares of Common Stock, par value
$0.01 per share, and 10,000,000 shares of Preferred Stock, par value $0.01 per
share; (B) the issued and outstanding
24
<PAGE>
shares of capital stock of the Company consisted of 37,027,491 shares of Common
Stock (excluding 2,612,141 shares of Common Stock reserved for issuance under
the Company's stock option and dividend reinvestment plans); and (C) all the
outstanding shares of capital stock of the Company have been duly and validly
issued and are fully paid and non-assessable. There has been no material change
in the number of shares of capital stock outstanding or reserved for issuance
between September 18, 1997 and the Effective Date or the Closing Date.
(ii) As of the second Business Day immediately preceding the
Effective Date no Units were outstanding.
(iii) Except for the Units, shares reserved for issuance
under any stock option or dividend reinvestment plan and the conversion or
exchange rights which attach to warrants and convertible securities which are
listed on Schedule 5.1(k)(iii), there are no shares of Common Stock or any other
--------------------
equity security of the Company issuable upon conversion or exchange of any
security of the Company or the Operating Company or any Subsidiary of either of
them. No shareholder of the Company is entitled to any preemptive or similar
rights to subscribe for shares of capital stock of the Company.
(l) Taxes.
-----
(i) The Company and each of its Subsidiaries has (A) filed
all Tax returns and reports required to be filed by it (after giving effect to
any filing extension properly granted by a Governmental Authority having
authority to do so) and all such returns and reports are accurate and complete
in all material respects; and (B) paid (or the Company has paid on its behalf)
all Taxes shown on such returns and reports as required to be paid by it, and
the most recent financial statements contained in the SEC Documents reflect an
adequate reserve for all material Taxes payable by the Company (and by those
Subsidiaries whose financial statements are contained therein) for all taxable
periods and portions thereof through the date of such financial statements.
Since December 31, 1996, the Company has incurred no liability for Taxes under
Sections 857(b), 860(c) or 4981 of the Internal Revenue Code of 1986, as amended
(the "CODE"), and neither the Company nor any of its Subsidiaries has incurred
any material liability for Taxes other than in the ordinary course of business.
To the Company's knowledge, no event has occurred, and no condition or
circumstance exists, which presents a material risk that any Tax described in
the preceding sentence will be imposed upon the Company. Except as set forth on
Schedule 5.1(l)(i), to the Company's knowledge no deficiency for any Taxes has
- ------------------
been proposed, asserted or assessed against the Company or any of its
Subsidiaries, and no requests for waivers of the time to assess any such Taxes
are pending.
(ii) The Company (A) for all taxable years commencing with
1992 through December 31, 1996, has been subject to taxation as a REIT within
the meaning of the Code and has satisfied all requirements to qualify as a REIT
for such years, (B) has operated, and intends to continue to operate, in such a
manner as to qualify as a REIT for the tax year ending December 31, 1997, and
(C) has not taken or omitted to take any action which would reasonably be
expected to result in a challenge to its status as a REIT, and to the Company's
knowledge, no such challenge is pending or threatened. Each Subsidiary which is
a partnership, joint venture or limited liability company has been treated
during and since 1993 and continues to be treated for
25
<PAGE>
federal income tax purposes as a partnership and not as a corporation or as an
association taxable as a corporation. Except for any subsidiaries of the Company
to be formed prior to the Closing Date to facilitate the assignment of certain
of the Assigned Property as contemplated by this Agreement, each Subsidiary
which is a corporation for federal income tax purposes and with respect to which
all of the outstanding capital stock is owned solely by the Company (or solely
by a Subsidiary that is a corporation wholly owned by the Company) is a
"qualified REIT subsidiary" as defined in section 856(i) of the Code. Neither
the Company nor any of its Subsidiaries holds any asset (x) the disposition of
which would be subject to rules similar to Section 1374 of the Code as a result
of an election under IRS Notice 88-19 or (y) that is subject to a consent filed
pursuant to Section 341(f) of the Code and the regulations thereunder.
(m) No Default. Neither the Company nor the Operating Company nor
----------
any of their respective Subsidiaries is in default under, or in violation of,
any provision of its organizational documents.
(n) Solvency. There is not in effect with respect to either the
--------
Company or the Operating Company, nor has the Company or the Operating Company
made (i) any general assignment for the benefit of creditors, (ii) any voluntary
petition in bankruptcy, (iii) any involuntary petition in bankruptcy, (iv) any
appointment of a receiver to take possession of all, or substantially all, of
the Company's or the Operating Company's assets, (v) any attachment or other
judicial seizure of all, or substantially all, of the Company's or the Operating
Company's assets, (vi) any admission in writing of its inability to pay its
debts as they come due or (vii) any offer of settlement, extension or
composition to its creditors generally.
(o) No Restrictions on Equity Securities. Except for the LLC
------------------------------------
Agreement, this Agreement and as set forth on Schedule 5.1(o), there are no
---------------
shareholders' agreements, partners' agreements, voting trust agreements or other
restrictive agreements relating to the sale or voting of the Units or the
Shares.
(p) Debt Instruments. Neither the Transferee nor any of its
----------------
Subsidiaries is in violation of or in default under (nor does there exist any
condition which upon the passage of time or the giving of notice or both would
cause such a violation of or default under) any material loan or credit
agreement, note, bond, mortgage, indenture, lease, permit, concession,
franchise, license or any other material contract, agreement, arrangement or
understanding, to which it is a party or by which it or any of its properties or
assets is bound, except as set forth on Schedule 5.1(p) and except for
---------------
violations or defaults that would not, individually or in the aggregate, result
in a Material Adverse Effect.
(q) Treatment as a Partnership. The Operating Company is a
--------------------------
partnership for federal and state and local income tax purposes.
Section 5.2. Definition of Knowledge. As used in this Agreement, the
-----------------------
terms "COMPANY'S KNOWLEDGE" or "OPERATING COMPANY'S KNOWLEDGE" or "KNOWLEDGE
OF THE COMPANY" or "KNOWLEDGE OF THE OPERATING COMPANY" shall mean only the
"current actual knowledge" of the persons listed on Schedule 5.2. As used
------------
herein, the term "CURRENT ACTUAL KNOWLEDGE" shall mean only the actual,
current, conscious (and not constructive, imputed or
26
<PAGE>
implied) knowledge of such designees, and current actual knowledge does not
include constructive, imputed or implied knowledge of any employee, agent or
other representative of the Company or the Operating Company other than such
designees. Anything herein to the contrary notwithstanding, none of the persons
listed on Schedule 5.2 shall have any personal liability or obligation
-----------
whatsoever with respect to any of the matters set forth in this Agreement or any
of the representations made by the Company or the Operating Company being or
becoming untrue, inaccurate or incomplete in any respect.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF THE ASSIGNORS.
Section 6.1. Operating Representations and Warranties. In order to
----------------------------------------
induce the Company and the Operating Company to enter into this Agreement and to
perform their respective obligations hereunder, each Assignor hereby severally
warrants and represents with respect to itself and its Assigned Property the
following:
(a) Organization, Good Standing and Corporate/Partnership Power. The
-----------------------------------------------------------
Assignor is a corporation, a general or limited partnership or a limited
liability company, duly formed and validly existing under the laws of the
jurisdiction in which it was organized, is duly authorized to transact business
under the laws of each state in which the character of the properties owned or
leased by it therein or in which the transaction of its business makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect on such Assignor, has all requisite, corporate or
partnership power and authority to execute and deliver this Agreement and all
other documents and instruments to be executed and delivered by it hereunder,
and to perform its obligations hereunder and thereunder in accordance with the
terms and conditions hereof and thereof.
(b) Authorization; No Violation. Assuming the due and valid
---------------------------
authorization, execution and delivery of this Agreement by the Transferee, this
Agreement, and the other agreements and documents to be executed by the Assignor
hereunder, will be the legal, valid and binding obligation of the Assignor,
enforceable against the Assignor in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, moratorium or similar laws
relating to creditors' rights and general principles of equity. The performance
by the Assignor, as applicable, of its duties and obligations under this
Agreement and the documents and instruments to be executed and delivered by it
hereunder will not (i) conflict with, or result in a breach of, or default
under, any provision of any of the organizational documents of the Assignor or
any agreement, instrument, decree, judgment, injunction, order, writ, law, rule
or regulation, or any determination or award of any court or arbitrator, to
which the Assignor is a party or by which its assets are or may be bound, except
for any of the foregoing matters that, individually or in the aggregate, would
not have a Material Adverse Effect on the Assignor, or (ii) require any consent,
approval or authorization of, or declaration, filing or registration with, any
domestic governmental or regulatory authority or any other person or entity
except as set forth under the Assignor's name on Schedule 6.1(b) and except
---------------
where the failure to obtain any such consent, approval or authorization of, or
filing or registration with, any governmental or regulatory authority or other
person or entity would not have a Material Adverse Effect on the Assignor.
27
<PAGE>
(c) Title to Office Personal Property. All of the Assignor's Office
---------------------------------
Personal Property, if any, is owned by the Assignor free and clear of any
conditional bills of sale, chattel mortgages, security agreements or financing
statements or other security interests of any kind.
(d) Validity of Office Leases. All Office Leases of which the
-------------------------
Assignor is a party are in full force and effect without any material default or
claim of material default by any party thereto.
(e) Validity of Contracts to be Assigned. All of the Land Acquisition
------------------------------------
Contracts, the Management Contracts and the Construction Contracts of which the
Assignor is a party are in full force and effect without, to the Assignor's
knowledge, any material default or claim of material default by any party
thereto, excluding those Management Contracts that have been terminated in the
ordinary course of business.
(f) Restrictions on Sale; Legend. The Assignor hereby acknowledges
----------------------------
that the Equity Securities are being issued and sold in a transaction not
involving any public offering within the meaning of the Securities Act and that
the Equity Securities have not been registered under the Securities Act. Except
for any distributions of Equity Securities to the Distributees and without
prejudice to the Assignor's and its Distributees' rights at all times to sell or
otherwise dispose of all or any part of the Equity Securities pursuant to an
effective Registration Statement under the Securities Act or under an exemption
from registration available under the Securities Act, the Assignor hereby agrees
not to offer, sell, transfer or otherwise dispose of any of the Equity
Securities it is issued pursuant to this Agreement in the absence of
registration unless the Assignor delivers to the Company and the Operating
Company an opinion of a lawyer experienced in securities matters and reasonably
satisfactory to the Company and the Operating Company, in form and substance
reasonably satisfactory to the Company and the Operating Company, to the effect
that the proposed sale, transfer or other disposition may be effected without
registration under the Securities Act and under applicable state securities or
"blue sky" laws. The Assignor hereby further acknowledges that each certificate
representing the Equity Securities shall bear a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
UNLESS THE COMPANY AND THE OPERATING COMPANY HAVE BEEN FURNISHED WITH AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND THE OPERATING
COMPANY, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY AND
THE OPERATING COMPANY, TO THE EFFECT THAT SUCH TRANSFER, SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT
REGISTRATION UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES OR "BLUE
SKY" LAWS."
The provisions of this Section 6.1(f) shall survive the Closing.
--------------
28
<PAGE>
(g) Accredited Investor; Investment Intent. The Assignor is an
--------------------------------------
"accredited investor" as defined in Regulation D promulgated under the
Securities Act. Any Equity Securities acquired by the Assignor will be so
acquired for the Assignor's own account for investment only and not with a view
to, or with any intention of, a distribution or resale thereof, in whole or in
part, in violation of the Securities Act or state securities or "blue sky" laws,
without prejudice, however, to the Assignor's right at all times to sell or
otherwise dispose of all or any part of the Equity Securities pursuant to an
effective registration statement under the Securities Act or under an exemption
from registration available under the Securities Act. The provisions of this
Section 6.1(g) shall survive the Closing.
- --------------
ARTICLE 7. COVENANTS.
Section 7.1. Conduct of the Business of the Contributors and the
---------------------------------------------------
Assignors. The Contributors, the Contributing Partners and the Assignors
- ---------
severally, and not jointly, covenant and agree that between the Effective Date
and the Closing Date, unless the Transferee has consented in writing to any
other act or omission (such consent not to be unreasonably withheld, conditioned
or delayed), they shall perform or observe the following with respect to the
Property for which such party is responsible for conveying pursuant to this
Agreement:
(a) Each Contributor will, or the Contributing Partners of each
Contributor will cause it to, operate and maintain its Real Estate Property in
the ordinary course of business and in compliance with all Legal Requirements
and use reasonable efforts to preserve for the Operating Company the
relationships of such Contributor's Tenants, suppliers, managers, employees and
others having on-going relationships with the Real Estate Property. The
Contributor and the Contributing Partners of such Contributor will not defer
taking any actions or spending any of its funds (including, without limitation,
the expenditures of funds for capital improvements), or otherwise manage the
Property differently, due to the transactions contemplated by this Agreement;
provided, that no Contributor or Contributing Partners shall incur indebtedness
- --------
for borrowed money other than borrowings which are used to finance the
construction of Improvements.
(b) No Contributor, nor any of the Contributing Partners of the
Contributor, will renew, extend or modify any of its Service Contracts except in
the ordinary course of its business and unless any such Service Contract so
renewed, extended or modified grants to the Contributor and its successors and
assigns a right to terminate on thirty (30) days' notice with no material cost
to exercise such right.
(c) Each Assignor shall comply with all material terms, covenants and
conditions of its respective Management Contracts and Construction Contracts.
The termination of any Management Contract in the ordinary course of business
shall not be a violation of this covenant under any circumstance and it shall
not have any effect on Net Value so long as the sum of the estimated annual
revenue specified on Schedule 1.6(a) hereof for each of the Management Contracts
---------------
so terminated (reduced by the estimated annual revenue from Management Contracts
entered into subsequent to the date hereof) (the "CONTRACT REVENUE REDUCTION")
does not exceed $495,600 (which represents 15% of the aggregate amount of the
estimated annual revenue for all Management Contracts specified on Schedule
--------
1.6(a)). Otherwise, the Net Value shall be
- -------
29
<PAGE>
reduced pursuant to Section 2.1(b) by the amount by which the Contract Revenue
--------------
Reduction exceeds $495,600.
(d) No Contributor, nor any of the Contributing Partners of the
Contributor, shall remove any Personal Property located in or on its Real
Property, except as may be required for repair and replacement or discarded in
the ordinary course of business. All replacements shall be free and clear of
liens and encumbrances except to the extent the original Personal Property was
so encumbered and shall be of quality at least equal to the replaced items and
shall be deemed included in Personal Property to be contributed pursuant to this
Agreement, without cost or expense to the Operating Company, other than as
expressly provided herein.
(e) Each Contributor and the Contributing Partners of the Contributor
shall, upon request of the Transferee at any time after the Effective Date,
assist the Transferee in its preparation of audited statements of income and
expense and such other documentation as the Transferee may reasonably request,
covering the period of the Contributor's ownership of its Real Property.
(f) Each Contributor and each Assignor, as applicable, will make all
required payments within any applicable grace period under any indebtedness
secured by a lien on its Real Property, including, without limitation, the
Assumed Loans, and will comply with all material terms, covenants and conditions
under any such indebtedness and under the Office Leases, the leases on personal
property and the Service Contracts. Each Contributor will pay all other
accounts payable, including trade debt, when due in accordance with its past
business practices.
(g) Except for the Permitted Encumbrances and as permitted by Section
-------
3.2, no Contributor shall cause or permit its Real Property, or any interest
- ---
therein, to be alienated, mortgaged, licensed, encumbered or otherwise be
transferred.
(h) Each Contributor will maintain and keep in full force and effect
the hazard, liability and casualty insurance it is currently maintaining with
respect to its Real Property.
(i) Each Contributor shall promptly give the Transferee written notice
of, and promptly deliver to the Transferee, a true and complete copy of any
written notice such Contributor may receive, on or before the Closing Date, from
any Governmental Authority concerning a violation of any applicable Legal
Requirements pertaining to its Real Estate Property or of any written notice of
default from the holder of any Assumed Loan.
(j) Each Contributor which is the owner of a Development Property
shall diligently prosecute all work in progress in connection with construction
of such Development Property in a good and workmanlike manner and in accordance
with all applicable Legal Requirements and all documents and instruments
governing or relating to such construction.
(k) With respect to the raw land that is the subject of any Land
Acquisition Contract, neither the Assignor nor any other TCR Party or TCR-
affiliated entity shall make any individual expenditure or commitment for an
individual expenditure in excess of $10,000 or make aggregate expenditures or
commitments for aggregate expenditures in a total amount in excess of
30
<PAGE>
$50,000 without the prior written consent of the Company (which consent may be
withheld in the Company's reasonable discretion).
(l) Except for actions taken in the ordinary course of business or in
connection with the transactions contemplated by this Agreement (including,
without limitation, one time compensation benefits related hereto), none of the
TCR-affiliated entities shall increase the compensation or benefits paid to any
of the Rehired Employees or adopt, enter into, amend or terminate any
employment, consulting, termination, severance or retention agreement to which a
Rehired Employee is a party.
(m) Each Contributor will obtain all consents from third parties
necessary for the Contributor or the Contributing Partner of the Contributor, as
the case may be, to consummate the transactions provided for herein.
(n) All sums that become due and payable pursuant to the Service
Contracts between the Effective Date and the Closing Date shall be fully paid by
the Contributor within customary time periods.
(o) No modifications will be made to the terms of any tax exempt bonds
or other tax exempt indebtedness relating to any Property.
Section 7.2. Conduct of the Business of the Transferee. The Company
-----------------------------------------
and the Operating Company covenant and agree that between the Effective Date and
the Closing Date, unless the TCR Representatives have consented in writing to
any other act or omission (such consent not to be unreasonably withheld,
conditioned or delayed) and except as described in Schedule 7.2, the Company
------------
and the Operating Company shall perform or observe the following:
(a) The Company and the Operating Company shall, and shall cause each
of their respective Subsidiaries and affiliates to, conduct their operations
according to their usual, regular and ordinary course in substantially the same
manner as heretofore conducted, which may include the acquisition of properties
and/or portfolios of properties consistent with past practices; provided,
--------
however, that, without limiting the generality of the foregoing, the Company and
- -------
the Operating Company shall be permitted to bid on and purchase the business
and/or assets of Trammell Crow Residential Company located in the Pacific
Northwest; and provided further that the acquisition of a portfolio of
----------------
properties (alone or in conjunction with the making of one or more property
secured loans referenced in Section 7.2(f)) with an aggregate value in excess of
--------------
$50,000,000 shall not be considered to be the conduct of business in the
ordinary course.
(b) Neither the Company nor the Operating Company shall amend its
respective articles of incorporation, bylaws, partnership agreement or other
charter document, except as contemplated by this Agreement.
(c) Neither the Company nor the Operating Company shall, except
pursuant to the exercise of options, warrants, conversion rights and other
contractual rights or pursuant to existing dividend reinvestment, stock purchase
or other similar plans (or as otherwise required by
31
<PAGE>
this Agreement), issue any partnership units or interests or shares of its
capital stock or effect any stock split, reverse stock split, stock dividend,
recapitalization or similar transaction.
(d) Neither the Company nor the Operating Company shall (i) declare,
set aside or pay any dividend or make any other distribution or payment with
respect to any shares of its capital stock (other than quarterly dividends paid
by the Company in the ordinary course of business or as required to maintain its
REIT qualification) or (ii) directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or the capital stock of any of its
affiliates in an aggregate amount in excess of $1,000,000 or make any
commitments for any such action, except for the repurchase of stock from
employees upon termination of employment or pursuant to the Company's existing
stock option plan.
(e) Neither the Company nor the Operating Company shall, and shall not
permit any of its respective Subsidiaries or their respective affiliates to,
sell or otherwise dispose of, except in the ordinary course or business, any of
their assets that are material individually or in the aggregate to the Company,
the Operating Company and their respective Subsidiaries, taken as a whole,
except to the extent disclosed in writing by the Company at or prior to the
Effective Date.
(f) Neither the Company nor the Operating Company shall, and shall not
permit any of its respective Subsidiaries or affiliates to, make, in amounts
that are in the aggregate material to the Company or the Operating Company any
loans, advances or capital contributions to, or investments in, any unaffiliated
third party other than contemplated by this Agreement or in the ordinary course
of the Transferee's business consistent with past practice, which may include
the making of property secured loans consistent with past practices; provided
--------
that the making of one or a number of related property secured loans (alone or
in conjunction with the acquisition of properties and/or portfolios of
properties referenced in Section 7.2(a)) with an aggregate value in excess of
--------------
$50,000,000 shall not be considered to be the conduct of business in the
ordinary course.
(g) Neither the Company nor the Operating Company shall make any tax
election (unless required by law or necessary to preserve the Company's status
as a REIT or the status of the Operating Company or of any other Subsidiary as a
partnership for federal income tax purposes).
(h) Neither the Company nor the Operating Company shall (i) change in
any material manner any of its methods, principles or practices of accounting in
effect at the Effective Date, or (ii) make or rescind any express or deemed
election relating to Taxes, settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes, except in the case of settlements or compromises relating to
Taxes on real property in an amount not to exceed, individually or in the
aggregate, $100,000, or change any of its methods of reporting income or
deductions for federal income tax purposes from those employed in preparation of
its federal income tax return for the most recently completed taxable year
except, in the case of clause (i), as may be required by the SEC, applicable law
or GAAP.
32
<PAGE>
(i) Neither the Company nor the Operating Company shall, except as
provided in this Agreement, adopt any new employee benefit plan, incentive plan,
severance plan, stock option or similar plan or amend any existing plan or
rights, except for such changes as are necessary to accommodate the consummation
of the transactions contemplated herein or are required by law and except for
changes in benefit plans affecting primarily property-level employees currently
contemplated by the Company.
(j) Neither the Company nor the Operating Company shall enter into or
amend or otherwise modify any agreement or arrangement with persons that are
affiliates or, as of the Effective Date, are executive officers or directors of
the Company or any Subsidiary.
(k) Neither the Company nor the Operating Company shall, and shall not
permit any of its respective Subsidiaries or affiliates to, pay, discharge or
satisfy any material amount of claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business consistent
with past practice or in accordance with their terms, of liabilities reflected
or reserved against in, or contemplated by, the most recent consolidated
financial statements (or the notes thereto) of the Company included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
or incurred in the ordinary course of business consistent with past practice,
except any such payment, discharge or satisfaction that will not have a Material
Adverse Effect on the Company or the Operating Company.
(l) Neither the Company nor the Operating Company shall merge or
consolidate with any person.
(m) The Company will obtain the consent of the lender under the terms
of the Company's unsecured long-term debt necessary for the Transferee to
consummate the transactions provided for herein.
Section 7.3. LLC Agreement. The Company and each of the TCR Parties
-------------
that receives Units in connection with the transactions contemplated by this
Agreement shall enter into the Limited Liability Company Agreement of the
Operating Company, which shall contain such terms and conditions as are
satisfactory to the Company and the TCR Representatives, including, without
limitation, those terms set forth on Exhibit 7.3 (the "LLC AGREEMENT"). The
-----------
Transferee shall provide a draft of the LLC Agreement to the TCR
Representatives within ten (10) Business Days of the Effective Date.
Section 7.4. Information Statement. No less than fifteen (15) days
---------------------
prior to the Closing Date, the Company will distribute to each of the
Distributees an information statement (which, together with all supplements and
amendments thereto, if any, is referred to herein as the "INFORMATION
STATEMENT") containing certain information concerning the Company, the Operating
Company and the Equity Securities. The TCR Representatives will cooperate with
the Company in the preparation of the Information Statement and provide the
Company with such information (including financial information) relating to the
Property as the Company may request for purposes of preparing the Information
Statement. Promptly upon their receipt of the Information Statement, the TCR
Parties shall distribute the Information Statement (unless
33
<PAGE>
otherwise instructed by the Company) to each of the Distributees referred to in
Section 7.11 of this Agreement.
- ------------
Section 7.5. Good Faith Efforts. Each of the TCR Parties, on the
------------------
one hand, and the Company and the Operating Company, on the other hand, shall
act in good faith and shall not take, and shall use commercially reasonable
efforts to cause its respective Subsidiaries, if any, to refrain from taking,
any action that would result in (i) any of the representations and warranties of
such party set forth in this Agreement that are qualified as to materiality
becoming untrue, (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect or (iii) any of the conditions
precedent to Closing set forth in Article 11 not being satisfied.
----------
Section 7.6. Good Faith Cooperation. Subject to the terms and
----------------------
conditions herein provided, the parties to this Agreement shall (a) use their
best efforts to cooperate with each other in (i) determining which filings are
required to be made prior to the Closing Date with, and which consents,
approvals, permits or authorizations are required to be obtained prior to the
Closing Date from Governmental Authorities, third party secured and unsecured
lenders and rating agencies in connection with the execution and delivery of
this Agreement and the transactions contemplated hereby, (ii) timely making all
such filings and timely seeking all such consents, approvals, permits or
authorizations and (iii) preparing such financial statements (including pro
forma financial statements) as may be required by the Company or the Operating
Company for incorporation in the Information Statement, any registration
statement contemplated by Section 7.10 hereof, or any filing required to be made
------------
with the SEC or as may otherwise be required to enable the Company to satisfy
its obligations under applicable law or regulations; (b) use their best efforts
to obtain in writing any consents required from third parties necessary to
effectuate the transactions contemplated hereby; and (c) use their best efforts
to take, or cause to be taken, all other actions and do, or cause to be done,
all other things necessary, proper or appropriate to consummate and make
effective the transactions contemplated by this Agreement. If, at any time after
the Closing Date, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors and other duly
authorized representatives of the parties hereto shall take all such necessary
action.
Section 7.7. Public Announcements. The initial press release relating
--------------------
to this Agreement shall be a joint press release, approved by all the parties
hereto and thereafter the parties shall, subject to their respective legal
obligations (including requirements of stock exchanges and similar regulating
bodies), consult with each other, and use reasonable efforts to agree upon the
text of any press release, before issuing any such press release or otherwise
making public statements with respect to the transactions contemplated hereby
and in making any filing with any federal or state governmental or regulatory
agency or with any national securities exchange with respect thereto.
Section 7.8. Government Filings. The Company shall use its best
------------------
efforts to make, prior to the Closing Date, all necessary filings with all
Governmental Authorities to carry out the transactions contemplated by this
Agreement and will pay all expenses incident thereto.
34
<PAGE>
Section 7.9. Listing of Shares. Within thirty (30) days following
-----------------
the Effective Date, the Company shall prepare and file with the New York Stock
Exchange a listing application covering the Shares to be issued hereunder and
upon exchange of the Units and shall use its best efforts to obtain, prior to
the Closing Date, approval of the listing of such Shares, subject to official
notice of issuance, which approval is a condition precedent to the obligations
of the TCR Parties to consummate the transactions contemplated by this
Agreement. The obligations of this Section 7.9 shall survive the Closing.
-----------
Section 7.10. Registration of Shares. Within six (6) months
----------------------
following the Closing Date, the Company shall cause to be filed with the SEC a
shelf registration statement and related prospectus that comply in all material
respects with applicable SEC rules providing for registration under the
Securities Act of the offer and sale by the Investors (as defined in the
Registration Rights Agreement) of the total number of Shares that the Investors
would own if they were to convert all Units owned by them into Common Stock of
the Company, and within ten (10) Business Days following the Closing Date, the
Company shall cause to be filed with the SEC a shelf registration statement and
related prospectus that comply in all material respects with applicable SEC
rules providing for registration under the Securities Act of the offer and sale
by the Investors of all Shares received hereunder. The Company shall use its
best efforts to cause such registration statements to be declared effective by
the SEC as soon as practicable and to keep such registration statements
effective thereafter to the extent specified in the Registration Rights
Agreement (the "REGISTRATION RIGHTS AGREEMENT") to be entered into on or prior
to the Closing Date substantially in the form of Exhibit 7.10.
------------
Section 7.11. Investor Representations. Each of the TCR Parties
------------------------
covenants and agrees (a) to deliver a certificate to the Company and the
Operating Company prior to or at the Closing certifying that it and each of the
Distributees is (i) acquiring or receiving the Equity Securities for investment
(for its own account or for accounts over which it exercises investment
control), and not with a view to, or for offer or sale in connection with, any
distribution thereof that would be in violation of the Securities Act, without
prejudice, however, to the Distributee's right at all times to sell or otherwise
dispose of all or any part of the Equity Securities pursuant to an effective
registration statement under the Securities Act or under an exemption from
registration available under the Securities Act, (ii) is knowledgeable,
sophisticated and experienced in business and financial matters and fully
understands the limitations on transfer of the Equity Securities, (iii) has
received and reviewed a copy of the Information Statement, and (iv) is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the Securities Act; and (b) that before any Equity Securities are
distributed, either directly or indirectly, to a Distributee, the TCR Party
initially receiving such Equity Securities from the Company or the Operating
Company as contemplated by this Agreement will obtain from each Distributee (and
deliver to the Company and the Operating Company a fully executed copy of) an
acknowledgment to and agreement with the Company and/or the Operating Company in
the form attached hereto as Exhibit 7.11 (the "DISTRIBUTEE AGREEMENT"); and
------------
(c) the Equity Securities distributed to each Distributee will be so distributed
to the Distributee in accordance with the interest of the Distributee in a
Contributor, a Contributing Partner or any other entity owning, directly or
indirectly, any interest in a Contributor or Contributing Partner. The
provisions of this Section 7.11 shall survive the Closing.
------------
35
<PAGE>
Section 7.12. Time of Closing. Each of the parties hereto shall use
---------------
its best efforts and act in good faith to take all actions necessary to
consummate the transactions contemplated hereby on or prior to the Closing Date.
Section 7.13. Accommodations America. The Transferee shall offer
----------------------
certain apartments for lease to Accommodations America, a TCR-affiliated entity,
upon the terms set forth in Schedule 7.13 hereto and such other terms as shall
-------------
be mutually acceptable to Accommodations America and the Transferee (the
"ACCOMMODATIONS AMERICA AGREEMENT").
Section 7.14. Additional Properties. The TCR Parties shall use
---------------------
their best efforts both prior to the Closing Date and for a period of one year
thereafter to obtain the necessary consents and to take such other reasonable
actions to authorize and effect the conveyance to the Operating Company of the
properties listed on Schedule 7.14 (the "ADDITIONAL PROPERTIES") upon the terms
-------------
and conditions set forth on Schedule 7.14 and shall engage the Company (or a
-------------
designated affiliate) to manage these properties for the period and upon the
terms set forth on Schedule 7.14.
-------------
Section 7.15. No Solicitation. Except in connection with the
---------------
reorganization of the ownership structure of the Partnership Interests of a
Contributor among its current Partners and/or any TCR-affiliated entities to
facilitate the transactions contemplated by this Agreement, none of the TCR
Parties shall, nor shall any of their partners, shareholders, members,
affiliates or representatives cause or permit the TCR Parties to, in each and
any case directly or indirectly, enter into, solicit, initiate or continue any
discussions or negotiations with, or encourage or respond to any inquires or
proposals by, or participate in any negotiations with, or provide any
information to, or otherwise cooperate in any other way with, any person or
entity other than Transferee and its respective officers, directors and
representatives, concerning any sale of all or a portion of the TCR Parties'
assets, or any merger, consolidation, liquidation, dissolution or similar
transaction involving any of the TCR Parties (each such transaction being
referred to herein as a "PROPOSED ACQUISITION TRANSACTION"). None of the TCR
Parties is currently engaged in discussions or negotiations with any person or
entity other than the Transferee with respect to any Proposed Acquisition
Transaction.
Section 7.16. Shareholder Approval of Share Issuances. At the next
---------------------------------------
meeting of its shareholders, which shall be held prior to the first anniversary
of the Closing Date, the Company agrees to solicit its shareholders' approval
(but only if required by the provisions of Section 312.03 of the New York Stock
Exchange Listed Company Manual) of the Company's issuance of a sufficient number
of Shares to enable the Company to exchange all of the issued and outstanding
Units that may be tendered for redemption on or after the first anniversary of
the Closing Date for Shares (in lieu of redeeming any tendered Units for cash if
the Company so elects) unless the Company shall have received the prior approval
of the New York Stock Exchange as to the issuance of such Shares. In connection
with this solicitation of shareholder approval, the Company's executive officers
shall recommend that the shareholders' authorization of the proposed issuances
of Shares is in the best interest of the Company. The provisions of this Section
-------
7.16 shall survive the Closing.
- ----
Section 7.17. Termination of Management Agreements. Each Contributor
------------------------------------
agrees that all management agreements, if any, relating to the Real Property
listed adjacent to its name on
36
<PAGE>
Schedule 1.1(a) shall be terminated prior to Closing, and such Contributor shall
- ---------------
deliver such Real Property unencumbered by any such management agreements.
Section 7.18. Prohibited Activities. During the one-year period
---------------------
following the Closing, no Contributor, Contributing Partner or Assignor and no
direct or indirect shareholder, partner, member or affiliate of a Contributor,
Contributing Partner or Assignor, shall, directly or indirectly, engage in any
negotiations with any party concerning the management of any property covered by
a Management Contract or accept any offer to manage or enter into any agreement
or arrangement to manage any property covered by a Management Contract.
ARTICLE 8. INDEMNIFICATION.
Section 8.1. By the TCR Parties. The TCR Parties shall jointly and
------------------
severally indemnify, save and hold harmless the Company, the Operating Company
and their respective directors, officers, employees, agents, representatives and
affiliates (each of which is a "TRANSFEREE INDEMNIFIED PARTY"), from and against
any and all costs, losses (including, without limitation, diminution in value),
taxes, liabilities, obligations, damages, lawsuits, deficiencies, claims,
demands, and expenses (whether or not arising out of third-party claims),
including, without limitation, interest, penalties, lost profits and other
losses, attorneys' fees and all amounts paid in investigation, defense or
settlement of any of the foregoing ("DAMAGES"), incurred in connection with,
arising out of, resulting from or incident to (a) the inaccuracy of any
representation made by, or the failure to comply with any agreement of any TCR
Party set forth in Sections 4.1(o), 4.1(p) or 4.1(q) of this Agreement, Article
--------------------------------- -------
18 of this Agreement, Addendum A or any other provision of this Agreement that
- --
survives the Closing or in the certificate or certificates delivered to the
Transferee pursuant to Section 7.11 hereof, (b) the breach by a TCR Party of any
------------
of its fiduciary duties (including duties of disclosure) to any other person or
entity arising in connection with the transactions contemplated by this
Agreement, or (c) any document filed or to be filed by or on behalf of any
Contributor, Contributing Partner or any direct or indirect shareholder,
partner, member or affiliate of a Contributor or Contributing Partner (the
"COVERED CONTRIBUTOR PARTY") with any Governmental Authority or any other
document prepared or distributed by or on behalf of any Covered Contributor
Party in connection with the transactions contemplated hereby, including any
document distributed in connection with the solicitation of consents to the
consummation by the Contributor or the Contributing Partner of the transactions
contemplated by this Agreement, (provided, however, that the foregoing shall not
-----------------
apply to information supplied by the Company or the Operating Company in writing
to the Covered Contributor Party specifically for inclusion or incorporation by
reference in any such document or to any document prepared or filed by the
Company or the Operating Company.)
Section 8.2. By the Transferee. Transferee shall indemnify and
-----------------
save and hold harmless each of the Contributors, the Contributing Partners and
their respective directors, officers, employees, agents, representatives and
affiliates (each of which is a "TCR INDEMNIFIED PARTY") from and against any and
all Damages incurred in connection with, arising out of, resulting from or
incident to (a) the inaccuracy of any representation made by, or the failure to
comply with any agreement of, Transferee in Section 7.10 of this Agreement or in
------------
any other provision of this Agreement that survives the Closing, or (b) any
untrue statement of a material fact contained in the Information Statement or
omission to state any material fact in the Information Statement
37
<PAGE>
required to be stated in the Information Statement with respect to the Company,
the Operating Company or the Equity Securities or necessary in order to make the
statements in the Information Statement with respect to the Company, the
Operating Company or the Equity Securities, in light of the circumstances under
which they were made, not misleading.
Section 8.3. Cooperation. Each indemnified party shall cooperate in
-----------
all reasonable respects with each indemnifying party and its representatives
(including without limitation its attorneys) in the investigation, trial and
defense of any lawsuit or action and any appeal arising therefrom; provided,
--------
however, that the indemnified party may, at its own cost, participate in
- -------
negotiations, arbitrations and the investigation, trial and defense of such
lawsuit or action and any appeal arising therefrom. The parties shall cooperate
with each other in any notifications to insurers.
Section 8.4. Claims for Indemnification. If a claim for Damages
--------------------------
(a "CLAIM") is to be made by a party entitled to indemnification hereunder
against the indemnifying party, the party claiming such indemnification shall
give written notice (a "CLAIM NOTICE") to the indemnifying party as soon as
practicable after the party entitled to indemnification becomes aware of any
fact, condition or event which may give rise to Damages for which
indemnification may be sought under this Article 8. Such Claim Notice shall
---------
specify the nature and amount of the Claim asserted, if actually known to the
party entitled to indemnification hereunder. If any lawsuit or enforcement
action is filed against any party entitled to the benefit of indemnity
hereunder, written notice thereof shall be given to the indemnifying party as
promptly as practicable (and in any event within 15 calendar days after the
service of the citation or summons). The failure of any indemnified party to
give timely notice hereunder shall not affect rights to indemnification
hereunder, except to the extent that the indemnifying party demonstrates actual
damage caused by such failure. After such notice, if the indemnifying party
shall acknowledge in writing to the indemnified party that the indemnifying
party shall be obligated under the terms of its indemnity hereunder in
connection with such lawsuit or action, then the indemnifying party shall be
entitled, if it so elects at its own cost, risk and expense, (i) to take control
of the defense and investigation of such lawsuit or action, (ii) to employ and
engage attorneys of its own choice to handle and defend the same unless the
named parties to such action or proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and the
indemnified party has been advised in writing by counsel that there may be one
or more legal defenses available to such indemnified party that are different
from or additional to those available to the indemnifying party, in which event
the indemnified party shall be entitled, at the indemnifying party's cost, risk
and expense, to separate counsel of its own choosing, and (iii) to compromise or
settle such Claim, which compromise or settlement shall be made only with the
written consent of the indemnified party, such consent not to be unreasonably
withheld. If the indemnifying party fails to assume the defense of such Claim
within 15 calendar days after receipt of the Claim Notice, the indemnified party
against which such Claim has been asserted will (upon delivering notice to such
effect to the indemnifying party) have the right to undertake, at the
indemnifying party's cost and expense, the defense, compromise or settlement of
such claim on behalf of and for the account and risk of the indemnifying party;
provided, however, that such Claim shall not be compromised or settled without
- -------- -------
the written consent of the indemnifying party, which consent shall not be
unreasonably withheld. In the event the indemnified party assumes the defense
of the Claim, the indemnified
38
<PAGE>
party will keep the indemnifying party reasonably informed of the progress of
any such defense, compromise or settlement. The indemnifying party shall be
liable for any settlement of any action effected pursuant to and in accordance
with this Article 8 and for any final judgment (subject to any right of appeal),
---------
and the indemnifying party agrees to indemnify and hold harmless an indemnified
party from and against any Damages by reason of such settlement or judgment.
Section 8.5. Right of Offset. Notwithstanding any other provision
---------------
of this Agreement to the contrary, the Transferee Indemnified Parties shall have
the right to offset against the Development Incentive Units retained by the
Transferee that have not yet been paid or distributed to the person or entity
entitled to receive them as provided in Section 2.1(a) hereof, the amount of any
--------------
Damages with respect to which the Transferee Indemnified Parties shall be
entitled to indemnification hereunder. For purposes of the offset, each
Development Incentive Unit shall be deemed to have a value (the "OFFSET VALUE")
equal to the average of the closing prices of a Share on the New York Stock
Exchange for the fifteen (15) consecutive trading days concluding on the fifth
trading day preceding the date of the offset. Upon offset of any Damages against
a Development Incentive Unit, the Development Incentive Unit shall be cancelled
and any obligation of the Transferee to distribute the Development Incentive
Unit so cancelled shall cease. The Transferee Indemnified Parties shall have no
right of offset against any Development Incentive Units which are no longer
retained by the Transferee and have been paid or distributed to the person or
entity entitled to receive them as provided on Schedule 2.1(a)(a).
------------------
Notwithstanding the provisions of Section 2.1(a) or any other provision of this
--------------
Agreement to the contrary, if one or more Claim Notice(s) shall have been filed
by or on behalf of a Transferee Indemnified Party and the Claim or Claims
described in the Claim Notices have not been resolved, neither the Company nor
the Operating Company shall be obligated, until all such Claims have been
resolved, to pay or distribute any Development Incentive Units pursuant to
Section 2.1(a) hereof to the extent that the Offset Value of the minimum number
- --------------
of remaining Development Incentive Units retained by the Transferee and then
required to be issued by the Operating Company pursuant to Section 2.1(a) will
--------------
be less than the amount of the Claims following the payment or distribution.
Section 8.6. Limitation on Obligations. The Transferees' sole
-------------------------
recourse for Damages for which the TCR Parties shall be liable under
Section 8.1 hereof shall be the rights of offset set forth in Section 8.5
- ----------- -----------
hereof. Neither the TCR Parties nor the Transferee shall be liable for
Damages, in the aggregate, under Section 8.1 hereof or Section 8.2 hereof,
----------- -----------
respectively, in excess of an amount which, as of any date, is greater
than an amount computed by multiplying the number of Development Incentive Units
required to be distributed pursuant to Section 2.1(a) hereof which have not been
--------------
so distributed by the lower of (i) the Effective Price, or (ii) the average of
the closing prices of a Share on the New York Stock Exchange for the fifteen
(15) consecutive trading days concluding on the fifth trading day preceding such
date.
ARTICLE 9. CLOSING.
Section 9.1. The Closing. The consummation of the transactions
-----------
contemplated hereunder (the "CLOSING") shall take place at the offices of Latham
& Watkins in San Francisco, California on November 18, 1997, if the parties
mutually agree to such date, or on such later date as may be provided for herein
(the "CLOSING DATE") or at such other place as the parties hereto
39
<PAGE>
shall mutually agree; provided, that if the Closing does not occur on or prior
--------
to November 18, 1997, either the TCR Representatives or the Company may extend
the Closing Date to a date on or prior to December 8, 1997 mutually agreeable to
the parties and, if the parties fail to agree, the Closing Date shall be
extended to December 8, 1997, provided, however, that the TCR Representatives
-------- -------
shall have the option, which it may exercise only once, to notify the Company on
the Closing Date that it elects to extend the Closing Date by ten days (but not
less than ten days), in which event the Closing Date shall be the day to which
the Closing Date is so extended by the election of the TCR Representatives
without further adjustment by the parties.
Section 9.2. Deliveries at the Closing by the TCR Parties. At the
--------------------------------------------
Closing, each of the TCR Parties, as applicable, will deliver or cause to
be delivered to the Operating Company the following and, where appropriate, duly
executed on behalf of all necessary parties thereto other than the Company and
the Operating Company:
(a) With respect to all Property conveyed to the Operating Company by
the Contributor as contemplated in Section 1.1 and Section 1.4(b) hereof, (i) a
----------- --------------
special warranty deed, or the equivalent in the jurisdiction in which the Real
Property is situated (collectively, the "DEEDS") in a form reasonably
satisfactory to the Company, duly executed by the appropriate TCR Parties in
proper form for recording so as to convey to the Operating Company good and
marketable title to its Real Property, free and clear of all liens and
encumbrances, except the Permitted Encumbrances; (ii) a bill of sale
(collectively, the "BILLS OF SALE") in a form reasonably satisfactory to the
Company duly executed by the appropriate TCR Parties conveying to the Operating
Company all of the TCR Parties' right, title and interest in and to the Personal
Property, the Office Personal Property, the Security Deposits, the Permits and
Licenses, the Telephone Numbers, and the Books and Records; and (iii) an
assignment and assumption agreement (collectively, the "CONTRACT ASSIGNMENT AND
ASSUMPTION AGREEMENTS") in a form reasonably satisfactory to the Company duly
executed by the appropriate TCR Parties assigning to the Operating Company or
its designee, as applicable, the Leases, the Service Contracts, the Trademarks,
the Office Leases, the Land Acquisition Contracts, the Management Contracts and
the Construction Contracts, and whereby the Operating Company or its designee,
will assume and agree to perform all of the TCR Parties' duties and obligations
under the foregoing assigned documents from and after the Closing Date.
(b) With respect to all Partnership Interests conveyed to the
Operating Company by the Contributing Partners as contemplated in Section 1.2
-----------
and Section 1.3 hereof, Assignments of Partnership Interest in a form reasonably
-----------
satisfactory to the Company.
(c) All original Leases and all other documents pertaining thereto or
copies of same if the Contributor, using its best efforts, is unable to deliver
originals.
(d) All other original documents or instruments referred to herein,
including, without limitation, the Service Contracts, the Office Leases, the
Licenses and Permits, the Land Acquisition Contracts, the Management Contracts,
the Construction Contracts, and the Books and Records, or copies of same if the
Contributor, using its best efforts, is unable to deliver originals; and keys to
the Improvements and the management offices leased pursuant to the Office
Leases.
40
<PAGE>
(e) A letter to Tenants in a form reasonably satisfactory to the
Company advising the Tenants of the transactions to be consummated hereunder and
directing that rent and other payments thereafter be sent to the Operating
Company or its designee, as the Operating Company shall so direct.
(f) Any affidavits and such other documents or instruments required by
the Title Company to consummate the transactions contemplated hereby.
(g) Affidavits and other instruments, including but not limited to all
organizational documents of the Contributors and their general partners, the
Contributing Partners and the Assignors, as applicable, including partnership
agreements, operating agreements, bylaws, articles of incorporation and
certificates of good standing and/or existence reasonably requested by the
Company or the Title Company evidencing the power and authority of such entities
to enter into and perform this Agreement and any documents to be delivered
hereunder.
(h) A list of all Security Deposits delivered by Tenants under
the Leases.
(i) A certificate executed by a duly authorized representative of each
of the TCR Parties, in a form reasonably satisfactory to the Company, stating
that the representations and warranties made by the TCR Parties in this
Agreement are true and correct in all material respects as of the Closing Date,
or if there have been any changes, a description thereof.
(j) A Rent Roll for each Real Property, current as of a date not more
than ten (10) days prior to the Closing Date, certified by a duly authorized
representative of the appropriate Contributor as being true and correct in all
material respects.
(k) All proper instruments, in a form reasonably satisfactory to the
Company, as shall be reasonably required for the conveyance to the Operating
Company of all right, title and interest, if any, of any Contributor in and to
any award or payment made, or to be made, (i) for any taking in condemnation,
eminent domain or agreement in lieu thereof of land adjoining all or any part of
the Real Property, (ii) for damage to the Land or the Improvements or any part
thereof by reason of change of grade or closing of any such street, road,
highway or avenue, and (iii) for any taking in condemnation or eminent domain of
any part of the Land or the Improvements.
(l) In order to avoid the imposition of the withholding tax payment
pursuant to section 1445 of the Code, a certificate signed by a duly authorized
representative of each of the TCR Parties to the effect that it is not a
"foreign person" as that term is defined in section 1445(f)(3) of the Code.
(m) All such transfer and other tax declarations and returns and
information returns, duly executed and sworn to by each Contributor or
Contributing Partner and in a form reasonably satisfactory to the Company, to
the extent required by law in connection with the conveyance of the Real
Property or the Partnership Interests as the case may be to the Operating
Company.
41
<PAGE>
(n) Possession of the Real Property, subject only to the Leases
and the Permitted Encumbrances.
(o) The Loan Assumption Documents.
(p) The Warranty Assumption Documents.
(q) The Distributee Agreements required by Section 7.11.
------------
(r) An opinion of counsel to TCR reasonably satisfactory to the
Transferee, in a form to be mutually agreed upon by the Transferee and the TCR
Representatives.
(s) The Accommodations America Letter Agreement.
(t) Such other documents as may be reasonably required or
appropriate to effectuate the consummation of the transactions contemplated by
this Agreement, in forms reasonably satisfactory to the Company.
Section 9.3. Deliveries at the Closing by the Transferee. At the
-------------------------------------------
Closing, the Company and the Operating Company shall deliver or cause to be
delivered to the TCR Representatives the following and, where appropriate, duly
executed by all necessary parties thereto other than the Contributors or the
Contributing Partners.
(a) The Cash Consideration.
(b) The certificates representing the Units to be issued at the
Closing properly issued to the appropriate party.
(c) The certificates representing Shares to be issued at the
Closing properly issued to the appropriate party.
(d) The Contract Assignment and Assumption Agreements.
(e) The Loan Assumption Documents.
(f) The Warranty Assumption Documents.
(g) The Guaranty duly executed by the Company.
(h) A certificate executed by a duly authorized representative of
the Company and the Operating Company, in a form reasonably satisfactory to the
TCR Representatives, stating that the representations and warranties made by the
Company and the Operating Company in this Agreement are true and correct in all
material respects as of the Closing Date, or if there have been any changes, a
description thereof.
(i) Affidavits and other instruments, including but not limited
to all organizational documents of the Company and the Operating Company
including limited partnership agreements, filed copies of limited partnership
certificates, articles of organization,
42
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and certificates of good standing and existence, reasonably requested by the TCR
Representatives evidencing the power and authority of the Company and the
Operating Company to enter into and perform this Agreement and any documents to
be delivered hereunder.
(j) An opinion of counsel to the Company reasonably satisfactory
to the TCR Representatives and in a form to be mutually agreed upon by the
Transferee and the TCR Representatives.
(k) The LLC Agreement.
(l) The Registration Rights Agreement.
(m) Evidence satisfactory to the TCR Representatives of approval
of the listing of the Shares to be issued hereunder and upon exchange of the
Units by the New York Stock Exchange, subject to official notice of issuance.
(n) The Accommodations America Letter Agreement.
(o) Such other documents as may be reasonably required or
appropriate to effectuate the consummation of the transactions contemplated by
this Agreement, in forms reasonably satisfactory to the TCR Representatives.
Section 9.4. Fees and Expenses. All customary recordation and
------------------
transfer charges payable with respect to a Real Property shall be paid in
accordance with customary closing practices in the state in which that Real
Property is located. The Company shall pay all title insurance premiums, title
examination fees and survey costs. All other costs and expenses incurred in
connection with this Agreement shall be paid by the party incurring such
expenses, including all fees and expenses of agents, representatives, counsel
and accountants. The provisions of this Section 9.4 shall survive the Closing.
-----------
Section 9.5. No Warranties.
-------------
(a) THE COMPANY AND THE OPERATING COMPANY ACKNOWLEDGE AND AGREE THAT,
EXCEPT AS SET FORTH IN THIS AGREEMENT, THE OPERATING COMPANY IS ACQUIRING THE
PROPERTY IN ITS "AS IS" CONDITION "SUBJECT TO ALL FAULTS" AND SPECIFICALLY AND
EXPRESSLY WITHOUT ANY WARRANTIES, REPRESENTATIONS OR GUARANTEES, EITHER EXPRESS
OR IMPLIED, OF ANY KIND, NATURE, OR TYPE WHATSOEVER FROM OR ON BEHALF OF THE TCR
PARTIES. THE COMPANY AND THE OPERATING COMPANY ACKNOWLEDGE THAT, EXCEPT AS SET
FORTH IN THIS AGREEMENT, NEITHER THE OPERATING COMPANY NOR THE COMPANY HAS
RELIED AND IS NOT RELYING ON ANY INFORMATION, DOCUMENT, REPORT, SALES BROCHURE
OR OTHER LITERATURE, MAPS OR SKETCHES, FINANCIAL INFORMATION, PROJECTIONS, PRO
FORMAS OR STATEMENTS, THAT MAY HAVE BEEN GIVEN BY OR MADE BY OR ON BEHALF OF THE
TCR PARTIES. THE COMPANY AND
43
<PAGE>
THE OPERATING COMPANY FURTHER ACKNOWLEDGE THAT, EXCEPT AS OTHERWISE SET FORTH
HEREIN, ALL MATERIALS RELATING TO THE PROPERTY WHICH HAVE BEEN PROVIDED BY THE
CONTRIBUTORS HAVE BEEN PROVIDED WITHOUT ANY WARRANTY OR REPRESENTATION,
EXPRESSED OR IMPLIED, AS TO THEIR CONTENT, SUITABILITY FOR ANY PURPOSE,
ACCURACY, TRUTHFULNESS OR COMPLETENESS AND NEITHER THE OPERATING COMPANY NOR THE
COMPANY SHALL HAVE ANY RECOURSE AGAINST THE TCR PARTIES S OR THEIR COUNSEL,
ADVISORS, AGENTS, OFFICERS, DIRECTORS OR EMPLOYEES FOR ANY INFORMATION IN THE
EVENT OF ANY ERRORS THEREIN OR OMISSIONS THEREFROM. THE COMPANY AND THE
OPERATING COMPANY EACH REPRESENT THAT THEY ARE SOPHISTICATED AND EXPERIENCED IN
ALL MATTERS RELATING TO THE PROPERTY AND ARE RELYING SOLELY ON SUCH EXPERIENCE
AND SOPHISTICATION IN MAKING ALL DECISIONS WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREIN.
(b) THE COMPANY AND THE OPERATING COMPANY HEREBY ACKNOWLEDGE AND AGREE
THAT, EXCEPT AS SET FORTH HEREIN, THE TCR PARTIES HAVE NOT MADE, DO NOT MAKE AND
SPECIFICALLY DISCLAIM ANY REPRESENTATION OR WARRANTY, PROMISE, COVENANT,
AGREEMENT OR GUARANTEE OF ANY NATURE, EXPRESS OR IMPLIED, ORAL OR WRITTEN, AS TO
OR REGARDING: (i) THE QUALITY, NATURE, ADEQUACY OR PHYSICAL CONDITION, WHETHER
LATENT OR PATENT, OF THE PROPERTY, INCLUDING, BUT NOT LIMITED TO, THE STRUCTURAL
ELEMENTS, FOUNDATION, ROOF, APPURTENANCES, ACCESS, LANDSCAPING, PARKING
FACILITIES OR THE ELECTRICAL, MECHANICAL, HVAC, PLUMBING, SEWAGE OR UTILITY
SYSTEMS, FACILITIES OR APPLIANCES AT OR IN CONNECTION WITH THE REAL ESTATE
PROPERTY, IF ANY; (ii) THE EXISTENCE, QUALITY, NATURE, ADEQUACY, PHYSICAL
CONDITION, OR LOCATION OF ANY UTILITIES SERVING THE REAL ESTATE PROPERTY; (iii)
THE DEVELOPMENT POTENTIAL OF THE REAL ESTATE PROPERTY, ITS HABITABILITY,
MERCHANTABILITY OR FITNESS, SUITABILITY OR ADEQUACY FOR ANY PARTICULAR PURPOSE;
(iv) THE ZONING OR OTHER LEGAL STATUS OF THE REAL ESTATE PROPERTY OR THE
POTENTIAL USE OF THE PROPERTY; (v) THE REAL ESTATE PROPERTY'S OR ITS OPERATIONS'
COMPLIANCE WITH ANY APPLICABLE LEGAL REQUIREMENTS; (vi) THE QUALITY OF ANY LABOR
OR MATERIALS RELATING IN ANY WAY TO THE REAL ESTATE PROPERTY; (vii) COMPLIANCE
WITH ANY ENVIRONMENTAL PROTECTION, POLLUTION OR LAND USE LAWS, RULES,
REGULATIONS, ORDERS OR REQUIREMENTS, INCLUDING THE EXISTENCE IN, ON OR UNDER THE
REAL ESTATE PROPERTY OF ANY HAZARDOUS MATERIALS; OR (viii) THE CONDITION OF
TITLE TO THE REAL ESTATE PROPERTY OR THE NATURE, STATUS AND EXTENT OF ANY RIGHT,
ENCUMBRANCE, LICENSE, RESERVATION, COVENANT, CONDITION, RESTRICTION OR ANY OTHER
MATTER AFFECTING TITLE TO THE PROPERTY.
44
<PAGE>
(c) The Company and the Operating Company acknowledge that, to the
extent they have deemed necessary or appropriate, they have conducted
appropriate environmental and soil tests, physical inspections and other due
diligence with respect to the Real Property (collectively, the "PHYSICAL
INSPECTIONS") and have relied upon the Physical Inspections in electing whether
or not to enter into and perform this Agreement. The Company and the Operating
Company further acknowledge that the Properties have been available for that
purpose. Should the transactions contemplated by this Agreement fail to close
for any reason, whether by reason of the Transferee's default or otherwise, the
Transferee will (i) indemnify, defend and hold harmless the TCR Parties from and
against all claims, damages, losses, costs, liabilities and expenses (including
attorneys' fees and expenses) asserted against or incurred by the TCR Parties
and (ii) repair any damage to the Property, in each case to the extent caused
by, resulting from or arising out of the Physical Inspections conducted by the
Transferee. At the TCR Parties' option, the Transferee will reimburse the TCR
Parties for all reasonable expenses incurred by the TCR Parties in repairing
such damages if the Transferee does not promptly repair such damages after
written notice of such damages has been delivered by the TCR Parties to the
Transferee.
ARTICLE 10. ADJUSTMENTS.
Section 10.1. Adjustments at the Closing Date. The following items
--------------------------------
shall be prorated as of midnight on the date preceding the Closing Date based on
the actual number of days in the month, and shall be made in cash at Closing,
with the Contributors making a cash payment to the Transferee of the net amount
due the Transferee or vice versa (which adjustments shall have no effect on the
calculation of Net Value under Section 2.1):
-----------
(a) Rents shall be prorated based upon rent rolls to be prepared by
each Contributor at Closing showing current tenants. If any Tenant is more
than, five (5) days delinquent in payment of current rent, such Tenant shall not
be included in the proration. All moneys received from Tenants from and after
the Closing shall be applied by the Operating Company first to current rents and
other charges and then to any past due rents during the Operating Company's
ownership; any balance representing past due rents during the Contributor's
ownership shall be remitted to the Contributor. After the Closing, the
Contributors shall be entitled to initiate and prosecute proceedings to collect
their respective rents delinquent as of the Closing Date.
(b) At the Closing, each Contributor shall pay to the Operating
Company an amount equal to all Security Deposits and any prepaid rents relating
to its Real Property.
(c) Utility charges payable by the Contributors, including, without
limitation, electricity, water and sewer bills. If there are meters on the Real
Property, the Contributors will cause readings of all said meters to be
performed not more than ten (10) Business Days prior to the Closing Date. To
the extent said meters are not read prior to Closing, the Operating Company will
cause same to be read promptly thereafter and a pro-rata adjustment shall be
made upon said reading.
(d) Amounts payable under the Service Contracts and the Office
Leases.
45
<PAGE>
(e) Real estate taxes and assessments due or payable for the calendar
year or fiscal year, as applicable. If the Closing Date shall occur before the
tax rate is fixed, the apportionment of real estate taxes shall be upon the
basis of the tax rate for the preceding year applied to the latest assessed
valuation. If subsequent to the Closing Date, real estate taxes (by reason of
change in either assessment or rate or for any other reason) for the Real
Property should be determined to be higher or lower than those that are
apportioned, a new computation shall be made, and the Contributors agree to pay
the Operating Company any increase shown by such recomputation and vice versa.
Section 10.2. Reimbursement of Deposits and Out-of-Pocket Expenses.
----------------------------------------------------
At the Closing, the Operating Company shall (i) pay to the TCR Representatives
the Development Expenditures Amount as determined pursuant to Section 1.5(f)
--------------
and (ii) refund and replace all letters of credit, bond deposits and other
amounts relating to the Real Properties, which in the aggregate shall not exceed
$2,400,000 without the prior written approval of the Transferee. All of the
foregoing payments shall be made in cash at Closing and none of the foregoing
shall have any effect on the calculation of Net Value under Section 2.1.
-----------
Section 10.3. Other Adjustments. Except as otherwise provided in this
------------------
Agreement, all other adjustments and prorations to be made with respect to any
Real Property shall be made in cash and in accordance with customary title
closing practices in the State in which the Real Property is located.
Section 10.4. Errors in Calculations. Any errors in calculations or
----------------------
adjustments shall be corrected or adjusted within sixty (60) days after the
Closing.
Section 10.5. Survival. The provisions of this Article 10 shall
--------- ----------
survive the Closing Date for one hundred and twenty (120) days.
ARTICLE 11. CONDITIONS PRECEDENT TO CLOSING.
Section 11.1. Conditions to Obligations of the TCR Parties.
--------------------------------------------
The obligations of each of the Contributors to convey its Property, each of the
Contributing Partners to convey its Partnership Interests and each of the
Assignors to assign its Assigned Property and to perform the other covenants and
obligations to be performed by the Contributors, the Contributing Partners and
the Assignors on the Closing Date shall be subject to satisfaction of the
following conditions (all or any of which may be waived, in whole or in part, by
the TCR Representatives):
(a) The representations and warranties made by the Company and the
Operating Company herein shall be true and correct in all material respects with
the same force and effect as though such representations and warranties had been
made on and as of the Closing Date; provided, however, that a failure of any
-------- -------
representations or warranties to be true and correct in all material respects
shall not give rise to a claim or right of termination by the Contributors or
the Contributing Partners hereunder so long as such matters do not have a
Material Adverse Effect on the transactions contemplated herein.
46
<PAGE>
(b) The Company and the Operating Company shall have executed and
delivered to the TCR Representatives, the Contributors and the Contributing
Partners all of the items and documents provided herein for said delivery.
(c) The Company and the Operating Company shall have performed all
covenants and obligations undertaken by the Company and the Operating Company
herein in all material respects and materially complied with all conditions
required by this Agreement to be performed or complied with by them on or before
the Closing Date.
(d) The Company shall have been treated as a real estate investment
trust for tax purposes in its most recent federal income tax return, and shall
be in compliance with all applicable laws, rules and regulations, including the
Code, necessary to permit it to be so treated. The Company shall not have taken
any action or have failed to take any action which could be expected to, alone
or in conjunction with any other factors, result in the loss of its status as a
real estate investment trust for federal income tax purposes.
(e) The Operating Company shall be a partnership for federal and
all state and local income tax purposes.
(f) The Shares to be issued hereunder and upon exchange of the Units
shall have been approved for listing on the New York Stock Exchange, subject to
official notice of issuance.
(g) The Closing shall have occurred on or before the Closing
Date.
(h) The Closing Price shall not be less than $25.00; provided, that
--------
this condition will be deemed to have been satisfied in the event the conditions
set forth in Section 2.1 (a)(ii) or Section 2.1(a)(iii) are satisfied.
------------------- -------------------
(i) The Company shall have executed the LLC Agreement.
Section 11.2. Conditions to Obligations of the Company and the
------------------------------------------------
Operating Company. The obligations of the Company and the Operating Company
- -----------------
to accept title to the Property and the Partnership Interests and the Company's
and the Operating Company's obligations to perform the other covenants and
obligations to be performed by the Company and the Operating Company on the
Closing Date shall be subject to satisfaction of the following conditions (all
or any of which may be waived, in whole or in part, by the Company or the
Operating Company):
(a) The representations and warranties made by the Contributors, the
Contributing Partners and the Assignors herein shall be true and correct in all
material respects with the same force and effect as though such representations
and warranties had been made on and as of the Closing Date; provided, however,
-------- -------
that a failure of a representation or warranty to be true and correct in all
material respects shall not give rise to a claim or right of termination by the
Company or the Operating Company hereunder so long as such matters do not have a
Material Adverse Effect on the transactions contemplated herein.
47
<PAGE>
(b) The Contributors, the Contributing Partners and the Assignors
shall have performed all covenants and obligations undertaken by the
Contributors, Contributing Partners and the Assignors herein in all material
respects and materially complied with all conditions required by this Agreement
to be performed or complied with by them on or before the Closing Date.
(c) The Contributors, the Contributing Partners and the Assignors
shall have executed and delivered to the Company and the Operating Company all
of the items and documents provided herein for said delivery.
(d) The Company or the Operating Company (i) shall have entered into
an employment agreement with Bruce C. Ward upon terms satisfactory to the
Company and the Operating Company and (ii) shall have completed employment
arrangements satisfactory to the Company with the other individuals identified
prior to the Effective Date in writing by the Company or the Operating Company.
(e) The Closing shall have occurred on or before the Closing
Date.
(f) The sum of the Assigned Values of all the Withdrawn Properties, as
determined by mutual agreement of the TCR Representatives and the Transferee or
by binding arbitration pursuant to Section 2.8, shall be no more than
-----------
$50,000,000.
(g) Each of the individuals or entities to receive Units in connection
with the consummation of the transactions contemplated by this Agreement,
including, without limitation, the Distributees, shall have executed the LLC
Agreement.
ARTICLE 12. ASSIGNMENT.
Except as expressly provided or contemplated herein, no party may
assign this Agreement or any interest therein to any other person without the
prior written consent of the other parties hereto.
ARTICLE 13. NO BROKERS.
The TCR Parties, severally and not jointly, on the one hand, and the
Transferee, on the other hand, covenant and agree one with the other that,
except for customary fees payable to the Transferee's investment bankers' for a
fairness opinion it is rendering in connection with the transactions
contemplated by this Agreement, no real estate commissions, finders' fees or
brokers' fees have been or will be incurred in connection with this Agreement or
the transactions contemplated hereby. The TCR Parties, severally and not
jointly, on the one hand, and the Transferee, on the other hand, shall
indemnify, defend and hold each other harmless from and against any claims,
liabilities, obligations or damages for commissions, finders' or brokers' fees
resulting from or arising out of the Transferee's acquisition of the Property
hereunder asserted against either party by any broker or other person claiming
by, through or under the indemnifying party or whose claim is based on the
indemnifying party's acts or omissions. The provisions of this Article 13 shall
----------
survive the Closing or other termination of this Agreement.
48
<PAGE>
ARTICLE 14. CASUALTY LOSS.
Section 14.1. Maintenance of Insurance Policies. The Contributors
---------------------------------
shall continue to maintain, in all material respects, the fire and extended
coverage insurance with respect to the Property (the "INSURANCE POLICIES") which
are currently in effect, through the Closing Date.
Section 14.2. Casualties. If at any time prior to the Closing Date
----------
all or any portion of any Property (each, a "DAMAGED PROPERTY") is destroyed or
damaged as a result of fire or any other casualty (a "CASUALTY"), the TCR
Representatives shall promptly give written notice thereof (the "CASUALTY
NOTICE") to the Transferee. If the estimated cost to repair or restore the
Damaged Property following such Casualty equals or exceeds Five Million Dollars
($5,000,000), such Casualty is herein called a "MAJOR CASUALTY." Notwithstanding
the occurrence of a Major Casualty, the Transferee shall not have the right to
terminate this Agreement as to the Damaged Property, provided that (a) the
damage resulting from the Casualty is covered by an Insurance Policy, (b)
subject to the rights of any holders of existing debt, the proceeds of any
applicable Insurance Policy, together with credits equal to the deductible under
such Insurance Policy and any amount by which the damage is not covered by such
insurance, shall be paid to the Operating Company at the Closing, (c) all unpaid
claims and rights in connection with the Casualty shall be assigned to the
Operating Company at Closing without in any manner affecting the consideration
payable to the TCR Representatives hereunder, (d) there is rent interruption
insurance in place for a period of at least six (6) months sufficient to cover
any anticipated loss in revenue from the Damaged Property resulting from such
Casualty, and (f) there is no known impediment to obtaining all Governmental
Approvals to permit the Damaged Property to be rebuilt or repaired. Upon the
occurrence of a Major Casualty, if any provision set forth in the preceding
sentence is not satisfied, the Transferee may terminate this Agreement as to the
Affected Property only by written notice to the TCR Representatives within
fifteen (15) days after receipt of the Casualty Notice. In that event, such
Damaged Property shall be treated as a Withdrawn Property under
Section 2.8, and this Agreement shall continue in full force and effect
- -----------
as to all other Property.
Section 14.3. Interim Repairs. If a Property is the subject
---------------
of a Major Casualty but the Transferee either is not entitled to or does not
terminate this Agreement as to such Damaged Property pursuant to the provisions
of this Article 14, then the appropriate Contributor shall prior to the
----------
Closing Date cause all temporary repairs to be made to the Damaged Property as
shall be required to prevent further deterioration and damage to the Damaged
Property and to protect public health and safety; provided, that the cost of any
--------
such repairs shall not exceed the amount of proceeds made available to such
Contributor. The appropriate Contributor shall have the right to be reimbursed
from the proceeds of any insurance with respect to the Damaged Property for the
cost of such temporary repairs.
Section 14.4. Casualties Other than Major Casualties. If a Property
--------------------------------------
is the subject of a Casualty which is not a Major Casualty, this Agreement shall
continue in full force and effect, and (a) subject to the rights of any holders
of existing debt, the proceeds of any applicable Insurance Policy, together with
credits equal to the deductible under such Insurance Policy and any amount by
which the damage is not covered by such insurance, shall be paid to the
Operating Company at Closing, and (b) all unpaid claims and rights in connection
with the Casualty shall be assigned to
49
<PAGE>
the Operating Company at Closing without in any manner affecting the
consideration payable to the appropriate Contributor hereunder.
ARTICLE 15. CONDEMNATION.
In the event of a Material Taking of any Property (the "CONDEMNED
PROPERTY"), the Transferee shall have the right, at its sole option, to either
(a) terminate this Agreement as to the Condemned Property only by giving the
appropriate Contributor written notice to such effect within fifteen (15) days
after its receipt of written notification of any such occurrence or (b) accept
title to the Condemned Property without reduction of any consideration to be
given to the appropriate Contributor hereunder. Should the Transferee so
terminate this Agreement as to Condemned Property in accordance with this
Article 15, such Condemned Property shall be treated as a Withdrawn Property
- ----------
under Section 2.8, and this Agreement shall continue in full force and effect as
-----------
to all other Property. In the event that the Transferee either is not entitled
to or elects not to terminate this Agreement under this Article 15, or in the
----------
event of a taking which is not a Material Taking, the appropriate Contributor
shall, subject to the rights of the holder of any existing mortgage, assign all
proceeds of such taking to the Operating Company, and same shall be the
Operating Company's sole property, and the Operating Company shall have the sole
right to settle any claim in connection with the Condemned Property. The term
"MATERIAL TAKING" as to a Condemned Property or any portion thereof shall be
defined to mean the institution of any proceedings, judicial, administrative or
otherwise, which (a) causes access to the Real Property to be taken or
materially diminished (i.e., following such taking the Real Property no longer
has access to a publicly dedicated street or traffic flow from and to the Real
Property is materially impaired), (b) results in parking no longer being in
compliance with applicable zoning laws, or (c) results in a taking of any
portion of any buildings constituting the Improvements.
ARTICLE 16. TERMINATION.
Section 16.1. Termination. This Agreement may be terminated by the
------------
written agreement of the Company and the TCR Representatives or by written
notice given by the Terminating Party to the other party as follows:
(a) by the Company if any of the conditions to the obligations of the
Company and the Operating Company set forth in Section 11.2 are not satisfied at
------------
the Closing for any reason other than a breach by any of the TCR Parties of any
of the covenants or obligations of the TCR Parties set forth in Section 7.5 or
--------------
7.6;
- ---
(b) by the Company if any of the conditions to the obligations of the
Company and the Operating Company set forth in Section 11.2 are not satisfied at
------------
the Closing because of a breach by any TCR Party of any of the covenants or
obligations of the TCR Parties set forth in Section 7.5 or 7.6;
------------------
(c) by the TCR Representatives if any of the conditions to the
obligations of the TCR Parties set forth in Section 11.1 are not satisfied at
------------
the Closing for any reason other than a breach by the Company or the Operating
Company of the covenants or obligations of the Company or the Operating Company
set forth in Section 7.5 or 7.6;
------------------
50
<PAGE>
(d) by the TCR Representatives if any of the conditions to the
obligations of the TCR Parties set forth in Section 11.1 are not satisfied at
------------
the Closing because of a breach by the Company or the Operating Company of the
covenants or obligations of the Company or the Operating Company set forth in
Section 7.5 or 7.6; or
- ------------------
(e) automatically at 12:01 a.m. San Francisco time, on the second
Business Day following the Closing Date or such later date permitted pursuant to
Section 9.1 if (i) the Closing shall not have occurred on or before the Closing
- -----------
Date or such later date, and (ii) this Agreement has not previously been
terminated pursuant to this Section 16.1.
------------
Notwithstanding the foregoing, neither the Company nor the TCR
Representatives (i) shall be entitled to terminate this Agreement pursuant to
the foregoing clauses (a) or (c) if the Transferee or any of the TCR Parties,
respectively, shall then be in breach of any representation, warranty or
covenant set forth in this Agreement, or (ii) shall be entitled to terminate
this Agreement pursuant to the foregoing clauses (b) or (d) if the Transferee or
any of the TCR Parties, respectively, shall be in breach or shall have breached
any of their covenants or obligations under Section 7.5 or 7.6.
------------------
Section 16.2. Payment of Certain Fees and Expenses. If this
------------------------------------
Agreement shall be terminated:
(a) by the Company pursuant to Section 16.1(a), then the TCR Parties
---------------
jointly and severally agree to pay the Company, within 7 days following receipt
of a request for payment by the Company and in immediately available funds, the
Break-Up Expenses (as defined in Section 16.3(c) hereof);
---------------
(b) by the Company pursuant to Section 16.1(b), then the TCR Parties
---------------
jointly and severally agree to pay the Company, within 7 days following such
termination, an amount in immediately available funds equal to the Break-Up Fee
(as defined in Section 16.3(b) hereof);
---------------
(c) by the TCR Representatives pursuant to Section 16.1(c), then the
---------------
Company agrees to pay to the TCR Representatives, as representatives of the TCR
Parties, within 7 days following receipt of a request for payment by the TCR
Representatives and in immediately available funds, the Break-Up Expenses;
(d) by the TCR Representatives pursuant to Section 16.1(d) then the
---------------
Company agrees to pay to the TCR Representatives, as representatives of the TCR
Parties, within 7 days following such termination, an amount in immediately
available funds equal to the Break-Up Fee.
Section 16.3. Break-Up Fee and Break-Up Expenses.
----------------------------------
(a) Payment. The payment of the Break-Up Fee shall be compensation
-------
and liquidated damages for loss suffered by the part or parties receiving the
liquidated damages, and is not a penalty. The parties to this Agreement have
agreed that the amount of the Break-Up Fee is a reasonable estimate of the
amount of the damages that the party or parties receiving the fee
51
<PAGE>
would be likely to sustain as the actual amount of the damages would be
difficult or impracticable to determine, and no party shall have any liability
to any other after payment of the Break-Up Fee.
(b) Break-Up Fee. As used in this Agreement, "BREAK-UP FEE" shall be
------------
an amount, when payable to the TCR Representatives, equal to $10,000,000, and an
amount, when payable to the Company, equal to the lesser of (i) $10,000,000 (the
"BASE AMOUNT"), or (ii) the sum of (A) the maximum amount that can be paid to
the Company without causing it to fail to meet the requirements of Sections
856(c)(2) and (3) of the Code determined as if the payment of such amount did
not constitute income described in Sections 856(c)(2)(A)-(H) and 856(c)(3)(A)-
(I) of the Code ("QUALIFYING INCOME"), as determined by independent accountants
to the Company, and (B) in the event the Company receives a letter from legal
counsel (the "BREAK-UP FEE TAX OPINION") indicating that the Company has
received a ruling from the Internal Revenue Service holding that the Company's
receipt of the Base Amount would either constitute Qualifying Income or would be
excluded from gross income within the meaning of Sections 856(c)(2) and (3) of
the Code (the "REIT REQUIREMENTS") or that the receipt by the Company of the
remaining balance of the Base Amount following the receipt of and pursuant to
such ruling would not be deemed constructively received prior thereto, the Base
Amount less the amount payable under clause (A) above. In the event that the
Company is not able to receive the full Base Amount, the TCR Parties shall place
the unpaid amount in escrow and shall not release any portion thereof to the
Company unless and until the TCR Parties receive either one or a combination of
the following: (i) a letter from the Company's independent accountants
indicating the maximum amount that can be paid at that time to the Company
without causing the Company to fail to meet the REIT Requirements, or (ii) a
Break-Up Fee Tax Opinion, in either of which events the TCR Representatives
shall pay to the Company the lesser of the unpaid Base Amount or the maximum
amount stated in the letter referred to in (i) above. All funds remaining in
the escrow account shall be released to the TCR Representatives on the third
anniversary of the Effective Date.
(c) Break-Up Expenses. The "BREAK-UP EXPENSES" payable to the Company
-----------------
or the TCR Representatives, as the case may be (the "RECIPIENT"), shall be an
amount equal to the lesser of (i) $1,000,000, (ii) the Recipient's out-of-pocket
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, all attorneys', accountants'
and investment bankers' fees and expenses), and (iii) if the Recipient is the
Company, the sum of (A) the maximum amount that can be paid to the Company
without causing it to fail to meet the requirements of Sections 856(c)(2) and
(3) of the Code determined as if the payment of such amount did not constitute
Qualifying Income, as determined by independent accountants to the Company, and
(b) in the event the Company receives a letter from legal counsel (the "BREAK-UP
EXPENSES TAX OPINION") indicating that the Company has received a ruling from
the Internal Revenue Service holding that the Company's receipt of the Break-Up
Expenses would either constitute Qualifying Income or would be excluded from
gross income within the meaning of the REIT Requirements or that receipt by the
Company of the remaining balance of the Break-Up Expenses following the receipt
of and pursuant to such ruling would not be deemed constructively received prior
thereto, the Break-Up Expenses less the amount payable under clause (A) above.
In the event that the Company is not able to receive the full Break-Up Expenses,
the TCR Representatives shall place the unpaid amount in escrow and
52
<PAGE>
shall not release any portion thereof to the Company unless and until the TCR
Representatives receive any one or a combination of the following: (i) a letter
from the Company's independent accountants indicating the maximum amount that
can be paid at that time to the Company without causing the Company to fail to
meet the REIT Requirements, or (ii) a Break-Up Expense Tax Opinion, in either of
which events the TCR Representatives shall pay to the Company the lesser of the
unpaid Break-Up Expenses or the maximum amount stated in the letter referred to
in (i) above. All funds remaining in the escrow account shall be released to the
TCR Representative on the third anniversary of the Effective Date.
Section 16.4. Effect of Termination. In the event of termination of
this Agreement as provided in this Article 16, this Agreement shall terminate
----------
and have no further force and effect, without any liability or obligation of
any of the parties hereto, other than under Section 9.4, Articles 13, 19, and
----------- --------------------
20 and this Article 16.
- -- -----------
ARTICLE 17. TAX MATTERS.
Section 17.1. Payment of Taxes by the Contributors. Each Contributor
-------------------------------------
will pay or provide for payment of all Taxes due and payable on or after the
Closing and will file all returns and reports required to be filed on or after
the Closing with respect to Taxes imposed in connection with the ownership and
operation of its Property for all taxable periods (or portions thereof) ending
on or prior to the Closing for which the Company or the Operating Company could
be held liable on a claim made against the Company or the Operating Company.
Section 17.2. Payment of 1997 Taxes. The Operating Company is hereby
----------------------
authorized by each of the Contributors with respect to its respective Property,
in the Operating Company's sole discretion, to file any applicable proceeding
for the 1997 tax roll for a reduction of the assessed valuation of the Property.
The refund of taxes, net of all expenses incurred in connection therewith, if
any, for any tax year for which the Contributor(s) or the Operating Company
shall be entitled to share in the refund shall be divided between the
appropriate Contributor(s) and the Operating Company in accordance with the
apportionment of taxes pursuant to the provisions hereof. No Contributor shall
be liable for any such expenses that exceed its apportionment of taxes.
Section 17.3. Definition of Taxes. "TAXES" means all federal, state,
--------------------
county, local, foreign and other taxes of any kind whatsoever (including,
without limitation, income, profits, premium, estimated, excise, sales, use,
occupancy, gross receipts, franchise, ad valorem, severance, capital levy,
production, transfer, license, stamp, environmental, withholding, employment,
unemployment compensation, payroll related and property taxes, import duties and
other governmental charges or assessments), whether or not measured in whole or
in part by net income, and including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including expenses associated
with contesting any proposed adjustment related to any of the foregoing.
Section 17.4. Allocation Method. The Company and its affiliates will
------------------
use the "traditional method" (as defined in Treas. Reg. Section 1.704-3(b)) of
allocating income, gain, loss and deduction to account for the variation between
the fair market value and adjusted basis of the
53
<PAGE>
Property for federal income tax purposes with respect to (i) the contribution of
the Property, and (ii) any revaluation of the Property in accordance with the
provisions of Treas. Reg. Sections 1.704-1(b)(2)(iv)(f), 1.704-1(b)(2)(iv)(g)
and 1.704-3(a)(6).
Section 17.5. Survival. The provisions of this Article 17 shall
--------- ----------
survive the Closing Date.
ARTICLE 18. EMPLOYEE MATTERS.
As soon as reasonably practicable and in any event not later than
twenty (20) days prior to the Closing Date, the Transferee shall identity those
employees it desires to hire after the Closing Date (the "REHIRED EMPLOYEES")
and shall extend offers of employment to each of the Rehired Employees, which
offers shall be on terms and conditions which Transferee shall determine in its
sole discretion. Immediately prior to the Closing, each of the TCR Parties
shall terminate the employment of each employee, if any, designated by the
Transferee as Rehired Employees pursuant to this Article 18 and shall cooperate
----------
with and use its best efforts to assist Transferee in its efforts to secure
satisfactory employment arrangements with those Rehired Employees. The
Transferee shall not assume any of the TCR Parties' or their affiliates'
employee benefit plans or any obligation or liability thereunder. Nothing
contained in this Agreement shall confer upon any Rehired Employee any right
with respect to continuance of employment by the Transferee, nor shall anything
herein interfere with the right of the Transferee to terminate the employment of
any of the Rehired Employees at any time, with or without cause, or restrict the
Transferee in the exercise of its independent business judgment in modifying any
of the terms and conditions of the employment of the Rehired Employees. No
provision of this Agreement shall create any third party beneficiary rights in
any Rehired Employee, any beneficiary or dependents thereof, or any collective
bargaining representative thereof, with respect to the compensation, terms and
conditions of employment and benefits that may be provided to any Rehired
Employee by the Transferee or under any benefit plan which the Transferee may
maintain. For a period of two years following the Closing, none of the TCR
Parties nor any of their affiliates shall, directly or indirectly, hire or offer
employment to, or seek to hire or offer employment to any Rehired Employee who
is listed on Schedule 18 or any other Rehired Employee who exercised significant
-----------
responsibility relating to the construction, development, marketing or
management of residential properties on behalf of the TCR Parties immediately
prior to the Closing and whose name is added to Schedule 18 by the Transferee no
-----------
less than five (5) Business Days prior to Closing. For a period of one year
following the Closing, none of the TCR Parties nor any of their affiliates
shall, directly or indirectly, hire or offer employment to any other employee of
the Transferee (the "OTHER EMPLOYEES") except for incidental contacts of Other
Employees not made as part of a plan or attempt to hire three or more Other
Employees, or any successor or affiliate of the Transferee, unless in either
case the Transferee first terminates the employment of such employee or gives
its written consent to such employment or offer of employment.
ARTICLE 19. NOTICE.
All notices, demands, requests, or other writings in this Agreement
provided to be given, made or sent, or which may be given, made or sent, by any
party hereto to another, shall be in writing and shall be delivered by
depositing the same with any nationally recognized overnight
54
<PAGE>
delivery service, or by telecopy or fax machine, in either event with all
transmittal fees prepaid, properly addressed, and sent to the following
addresses:
If to the Transferee:
BRE Properties, Inc.
One Montgomery Street, Suite 2500
Telesis Tower
San Francisco, California 94104
Attention: Frank C. McDowell
Phone: (415) 445-6530
Fax: (415) 445-6599
with a copy to:
Farella Braun & Martel LLP
Thirtieth Floor
Russ Building
235 Montgomery Street
San Francisco, California 94109
Attention: Morgan P. Guenther, Esq.
Phone: (415) 954-4400
Fax: (415) 954-4480
If to the TCR Parties:
Trammell Crow Residential Company
717 North Harwood, Suite 1200
Dallas, Texas 75201
Attention: Randy Pace
Phone: (214) 922-8433
Fax: (214) 922-8466
and
Trammell Crow Residential Services
2222 East Camelback Road, Suite 250
Phoenix, Arizona 85016
Attention: Bruce C. Ward
Phone: (602) 381-8181
Fax: (602) 381-8179
55
<PAGE>
with a copy to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
2200 Ross Avenue, Suite 900
Dallas, Texas 75201
Attention: R. Brent Clifton, Esq.
Phone: (214) 220-4800
Fax: (214) 220-4899
or to such other address as either party may from time to time designate by
written notice to the other. Notices given by (i) overnight delivery service as
aforesaid shall be deemed received and effective on the first Business Day
following such dispatch and (ii) telecopy or fax machine shall be deemed given
at the time and on the date of machine transmittal provided same is sent prior
to 5:00 p.m., Phoenix, Arizona time, on a Business Day (if sent later, then
notice shall be deemed given on the next Business Day) and if the sending party
receives a written send confirmation on its machine and forwards a copy thereof
by regular mail accompanied by such notice or communication. Notices may be
given by counsel for the parties described above, and such notices shall be
deemed given by said party, for all purposes hereunder.
ARTICLE 20. MISCELLANEOUS.
Section 20.1. Limited Survival of Representations and Warranties.
--------------------------------------------------
Unless otherwise expressly provided herein, no representation or warranty in
this Agreement or in any instrument delivered pursuant to this Agreement (other
than the special warranty of title in the Deeds) shall survive the Closing.
Section 20.2. Entire Agreement; No Third-Party Rights. This Agreement
---------------------------------------
constitutes the entire agreement between the parties and incorporates and
supersedes all prior negotiations and discussions between the parties. This
Agreement shall be binding upon and inure solely to the benefit of each party
hereto and their successors and assigns, and nothing in the Agreement, express
or implied, is intended to confer upon any other person any rights or remedies
of any nature whatsoever under or by reason of this Agreement.
Section 20.3. Amendment. This Agreement cannot be amended, waived or
----------
terminated orally, but only by an agreement in writing signed by each party
hereto.
Section 20.4. Governing Law. This Agreement shall be interpreted and
--------------
governed by the laws of the State of Texas, without regard to its rules of
conflicts of laws and shall be binding upon the parties hereto and their
respective successors and assigns.
Section 20.5. Section Headings. The caption headings in this
-----------------
Agreement are for convenience only and are not intended to be part of this
Agreement and shall not be construed to modify, explain or alter any of the
terms, covenants or conditions herein contained.
56
<PAGE>
Section 20.6. Severability. If any term, covenant or condition of
-------------
this Agreement is held to be invalid, illegal or unenforceable in any respect,
this Agreement shall be construed without such provision.
Section 20.7. No Other Rights or Obligations. Nothing contained in
-------------------------------
this Agreement shall be deemed to create any rights or obligations of
partnership, joint venture or similar association between any of the TCR Parties
and the Transferee.
Section 20.8. Counterparts. This Agreement may be executed by the
-------------
parties hereto in counterparts, all of which together shall constitute a single
Agreement.
Section 20.9. Construction. All references herein to any Article,
-------------
Section, Schedule or Exhibit shall be to the Articles and Sections of this
Agreement and to the Schedules and Exhibits annexed hereto unless the context
clearly dictates otherwise. All of the Schedules and Exhibits annexed hereto
are, by this reference, incorporated herein.
Section 20.10. Representatives. Any approval, consent, mutual
----------------
satisfaction or similar determination required to be made hereunder by the TCR
Parties or any person included within such terms shall be granted exclusively by
any one of the TCR Representatives. Any approval, consent, mutual satisfaction
or similar determination required to be made hereunder by the Transferee or any
person included in such term shall be granted exclusively by the "TRANSFEREE
REPRESENTATIVES," who for purposes of this Agreement, until further notice to
the TCR Representatives, shall be the persons listed on Schedule 20.10.
--------------
Section 20.11. Attorneys' Fees. In the event of any litigation or
----------------
alternative dispute resolution between the Transferee and any of the TCR
Parties, in connection with this Agreement or the transactions contemplated
herein, the non-prevailing party in such litigation or alternative dispute
resolution shall be responsible for payment of all expenses and reasonable
attorneys' fees incurred by the prevailing party. The provisions of this
Section 20.11 shall survive the Closing.
- -------------
Section 20.12. Interpretation. Whenever used herein, the singular
---------------
number shall include the plural, the plural shall include the singular, and the
use of any gender shall be applicable to all genders.
Section 20.13. Updates to Schedule. Each schedule hereto may be
--------------------
amended prior to Closing by the party responsible therefor. If the party
receiving such schedule does not object to the revised schedule within ten (10)
days upon receipt thereof, such party shall be deemed to have approved the
revised schedule.
REMAINDER OF THIS PAGE
INTENTIONALLY LEFT BLANK
57
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the Effective Date.
"TCR SIGNATORIES"
TCR SOUTH MOUNTAIN LIMITED PARTNERSHIP,
an Arizona limited partnership
By: TC Residential Phoenix II, Inc.
Its: General Partner
/s/ Randy J. Pace
------------------------
By: Randy J. Pace
Its: Vice President and Secretary
58
<PAGE>
TCR SQUAW PEAK LIMITED PARTNERSHIP,
a Texas limited partnership
By: TC Residential Phoenix III, Inc.
Its: General Partner
/s/ Randy J. Pace
-----------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
TCR UNION HILLS LIMITED PARTNERSHIP,
a Texas limited partnership
By: TC Residential Phoenix III, Inc.
Its: General Partner
/s/ Randy J. Pace
----------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
TCR KOLB LIMITED PARTNERSHIP,
a Texas limited partnership
By: TC Residential Phoenix II, Inc.
Its: General Partner
/s/ Randy J. Pace
---------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
ITCR ELLIOT GROVE LIMITED PARTNERSHIP,
a Texas limited partnership
By: TCR Elliot Grove Limited Partnership
Its: General Partner
By: TC Residential Phoenix II, a TX corp.
Its: General Partner
/s/ Randy J. Pace
---------------------
By: Randy J. Pace
Its: Vice President
<PAGE>
TCR SNYDER LIMITED PARTNERSHIP,
a Texas limited partnership
By: TC Residential Phoenix II, Inc.
Its: General Partner
/s/ Randy J. Pace
----------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
PINNACLE TERRACE APARTMENTS, L.P.,
a Texas limited partnership
By: ITCR Chandler Limited Partnership
Its: General Partner
By: TCR Chandler Limited Partnership
Its: General Partner
By: TC Residential Phoenix III, Inc.
Its: General Partner
/s/ Randy J. Pace
--------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
TCR #812 DEER VALLEY LIMITED PARTNERSHIP,
a Texas limited partnership
By: TCR Northern California 1993, Inc.
Its: General Partner
/s/ Randy J. Pace
--------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
VALLEJO HIGHLANDS ASSOCIATES LIMITED
PARTNERSHIP, a California limited partnership
By: Crow-Western N.C. Highlands Limited Partnership
Its: General Partner
By: TCF Residential Partnership, Ltd.
Its: Managing General Partner
By: Mills Springs Holdings, Inc.
Its: General Partner
/s/ Timothy J. Hogan
------------------------
Timothy J. Hogan, Vice President
<PAGE>
BLUE RAVINE REALTY PARTNERS,
a California limited partnership
By: TCR #411 Blue Ravine Limited Partnership
Its: General Partner
By: TCR North Bay Area 1990, Inc.
Its: General Partner
/s/ Randy J. Pace
---------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
TCR RIVERSIDE I, LTD.,
a Texas limited partnership
By: TCR Riverside, Inc.
Its: General Partner
/s/ Randy J. Pace
----------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
TCR RIVERVIEW LIMITED PARTNERSHIP
a Texas limited partnership
By: TCR Riverside, Inc.
Its: General Partner
/s/ Randy J. Pace
----------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
VALLEJO SOMERSET LIMITED PARTNERSHIP,
a Texas limited partnership
By: Crow-Western #402 - Vallejo II Limited Partnership
Its: Managing General Partner
By: TCF Residential Phoenix, Ltd.
Its: Managing General Partner
By: Mills Springs Holdings, Inc.
Its: General Partner
/s/ Timothy J. Hogan
--------------------------------
Timothy J. Hogan, Vice President
<PAGE>
ITCR THORNTON LIMITED PARTNERSHIP,
a Texas limited partnership
By: TCR Thornton Limited Partnership
Its: General Partner
By: TC Residential Phoenix III, Inc.
Its: General Partner
/s/ Randy J. Pace
-------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
ITCR FLAMINGO LIMITED PARTNERSHIP,
a Texas limited partnership
By: TCR Flamingo Limited Partnership
Its: General Partner
By: TC Residential Phoenix III, Inc.
Its: General Partner
/s/ Randy J. Pace
---------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
TCR CIMARRON LIMITED PARTNERSHIP,
a Texas limited partnership
By: TC Residential Phoenix III, Inc.
Its: General Partner
/s/ Randy J. Pace
---------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
TCR HIGH DESERT LIMITED PARTNERSHIP,
a Texas limited partnership
By: TC Residential Phoenix, Inc.
Its: General Partner
/s/ Randy J. Pace
---------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
TC RESIDENTIAL PHOENIX II, INC.
a Texas corporation
/s/ Randy J. Pace
- --------------------------------
By: Randy J. Pace
Its: Vice President
<PAGE>
ITCR ESTATES LIMITED PARTNERSHIP,
a Texas limited partnership
By: TCR Estates Limited Partnership
Its: General Partner
By: TC Residential Phoenix III, Inc.
Its: General Partner
/s/ Randy J. Pace
----------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
ITCR CLEARFIELD LIMITED PARTNERSHIP,
a Texas limited partnership
By: TCR Clearfield Limited Partnership
Its: General Partner
By: TC Residential Phoenix III, Inc.
Its: General Partner
/s/ Randy J. Pace
---------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
TCR FORT UNION LIMITED PARTNERSHIP,
a Texas limited partnership
By: TC Residential Phoenix II, Inc.
Its: General Partner
/s/ Randy J. Pace
----------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
MSK TCR OREM PARTNERS
By: TCR Orem Limited Partnership
Its: Partner
By: TC Residential Phoenix II, Inc.
Its: General Partner
/s/ Randy J. Pace
---------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
WOODLAKE HOLDINGS L.L.C.,
an Arizona limited liability company
By: TCR Woodlake Limited Partnership
Its: Managing Member
By: TCR Riverside, Inc.
Its: General Partner
/s/ Randy J. Pace
---------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
TCR DRAPER LIMITED PARTNERSHIP,
a Texas limited partnership
By: TC Residential Phoenix II, Inc.
Its: General Partner
/s/ Randy J. Pace
---------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
ITCR VILLA VERDE LIMITED PARTNERSHIP,
a Texas limited partnership
By: TCR V.V. Limited Partnership
Its: General Partner
By: TC Residential Phoenix II, Inc.
Its: General Partner
/s/ Randy J. Pace
---------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
SOUTHWEST RS, INC.,
a Texas corporation
/s/ Randy J. Pace
- ------------------------------
By: Randy J. Pace
Its: Vice President
<PAGE>
TCR BUILDERS, INC.,
a Texas corporation
/s/ Randy J. Pace
- ------------------------------
By: Randy J. Pace
Its: Vice President
<PAGE>
WEST RS, INC.,
a Texas corporation
/s/ Randy J. Pace
- ------------------------------
By: Randy J. Pace
Its: Vice President
<PAGE>
TC RESIDENTIAL PHOENIX, INC.
a Texas corporation
/s/ Randy J. Pace
- ------------------------------
By: Randy J. Pace
Its: Vice President
<PAGE>
TC RESIDENTIAL PHOENIX II, INC.
a Texas corporation
/s/ Randy J. Pace
- ---------------------------------
By: Randy J. Pace
Its: Vice President and Secretary
<PAGE>
TC RESIDENTIAL PHOENIX III, INC.
a Texas corporation
/s/ Randy J. Pace
- --------------------------------
By: Randy J. Pace
Its: Vice President
<PAGE>
"TRANSFEREE"
BRE PROPERTIES, INC.,
a Maryland corporation
/s/ Frank C. McDowell
- ----------------------------------
By: Frank C. McDowell
Its: Chief Executive Officer
<PAGE>
BRE PROPERTY INVESTORS LLC,
a Delaware limited liability company
By: BRE Properties, Inc.
Its: Member
/s/ Frank C. McDowell
---------------------------------
By: Frank C. McDowell
Its: Chief Executive Officer
<PAGE>
EXHIBIT 10.45
BRE PROPERTIES, INC.
AMENDED AND RESTATED
1992 EMPLOYEE STOCK PLAN
ARTICLE I
GENERAL
1.1 Purpose of the Plan. The purpose of the 1992 Employee Stock Plan (the
"Plan") is to provide officers and other key employees of the company with
incentives to continue their employment with the company and to afford them the
opportunity to acquire a continuing stock ownership interest in the company,
thereby providing them a proprietary interest in the success of the company.
1.2 Definitions. As used in the Plan and the related Award Agreements, the
following terms will have the meanings stated below:
(a) "Award" means any Option, SAR, Shares or Restricted Shares granted
pursuant to the Plan.
(b) "Award Agreement" means the written agreement between the company
and an employee pursuant to which an Award may be granted. The Committee
shall determine the terms of each Award Agreement, subject to the terms and
conditions of the Plan.
(c) "Board" means the Board of Directors of the company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Company" means BRE Properties, Inc., a Maryland corporation.
(f) "Committee" means the Compensation Committee appointed by the
Board to administer the Plan. The Committee shall consist solely of two or
more members of the Board who are not employees. The Board shall have the
power from time to time to add or remove members of the Committee and to
fill vacancies arising for any reason.
(g) "Exchange Act" means the Securities Exchange Act of 1934.
(h) The "Fair Market Value" of a Share on any date means the closing
price per Share on the New York Stock Exchange for that day (or, if no
Shares were publicly traded on that Exchange on that date, the next
preceding day that Shares were so traded on that Exchange).
(i) "Incentive Stock Option" or "ISO" means an Option that meets the
requirements of Section 422 of the Code.
(j) "Non-qualified Stock Option" or "NQSO" means an Option that is not
intended to qualify as an ISO.
(k) "Option" means an option to purchase Shares and shall be either an
ISO or a NQSO.
(l) "Optionee" means the holder of an Option.
(m) "Option Price" means the price to be paid for Shares upon exercise
of an Option as determined in accordance with Section 2.2.
(n) "Restricted Shareholder" shall have the meaning set forth in
Section 4.1.
(o) "Restricted Shares" means Shares issued pursuant to Article IV.
1
<PAGE>
(p) "Share Appreciation Right" or "SAR" means rights granted pursuant
to Article III.
(q) "Shares" means shares of common stock, $.01 par value, of the
company.
(r) "Subsidiary" means any corporation in which the company owns,
directly or indirectly, stock possessing more than 50 percent of the total
combined voting power of all classes of stock.
1.3 Administration of Plan.
(a) The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have the sole authority to
determine:
(i) The employees to whom Awards shall be granted;
(ii) The number of Shares or Restricted Shares to be covered by
an Award;
(iii) Whether and to what extent an Optionee may use already-
owned Shares in payment of the Option Price upon exercise of Options;
(iv) Which Options granted shall be ISOs and which shall be
NQSOs;
(v) The Option Price;
(vi) The period and conditions, if any, under which each Award
shall vest or be exercisable; and
(vii) The terms and conditions of each Award Agreement between
the company and each employee.
(b) The Committee's decision construing, interpreting and
administering the Plan shall be conclusive and binding on all parties. No
member of the Committee or the Board shall be liable for any action taken
or determination made in good faith with respect to the Plan or to any
Award granted pursuant to the Plan.
1.4 Eligibility. The individuals who shall be eligible to participate in the
Plan shall be those key salaried employees, including officers and directors if
they are employees, of the company, or of any Subsidiary, as the Committee shall
determine during the period of the Plan. Awards under the Plan may be made to
the same eligible employee on more than one occasion.
1.5 Types of Grants and Awards Under Plan. Awards under the Plan may be in the
form of Options, SARs, Shares and Restricted Shares. Options may be granted with
or without related SARs. SARs may be granted only with respect to a related
Option. The date of grant of an Award hereunder shall be deemed to be the date
of action by the Committee, notwithstanding that issuance may be conditioned on
the execution of an Award Agreement.
1.6 Transferability. Except as permitted by the Committee in accordance with
the rules and regulations promulgated under the Exchange Act with respect to any
exemption from the short swing profit provisions of Section 16(b) of that Act,
Awards under the Plan shall not be transferable by the holder other than by
will or the laws of descent and distribution and shall be exercisable during the
holders lifetime only by the holder or the holders guardian or legal
representative. This restriction shall apply to all employees receiving grants
under the Plan, whether or not the employee is subject to Section 16(b).
1.7 Shares Subject to Plan. The maximum number of Shares which may be issued
under the Plan shall be 1,750,000, subject to adjustment in accordance with
Section 6.4. In the event that any outstanding Award shall expire or terminate
for any reason, the Shares or Restricted Shares allocable to the unused or
2
<PAGE>
forfeited portion of that Award may again be available for additional Awards
under the Plan. However, in the event of a surrender of an Option, or a portion
of it, for SARs, the Shares represented by the Option or that part of it which
is so surrendered shall not be available for reissuance under the Plan.
1.8 Effective Date and Term of Plan.
(a) The Plan, as amended hereby, shall be effective and shall be
deemed to have been amended on February 24, 1997, if within twelve months
after that date the Plan has been approved by the affirmative vote of the
holders of a majority of those outstanding shares of voting stock of the
company voting in person or by proxy at a duly held shareholder meeting; if
not so approved, the increase in the number of Shares covered by the Plan
shall not become effective.
(b) The Board may terminate the Plan at any time. If not sooner
terminated by the Board, the Plan will expire on September 27, 2002.
Expiration or termination of the Plan will not affect the validity of any
Awards then outstanding.
ARTICLE II
STOCK OPTIONS
2.1 Option Agreements. The grant of an Option shall be evidenced by a written
Option Agreement. Each Option Agreement shall state the number of Shares subject
to the Option, the Option Price, the option period, the method of exercise, the
manner of payment, the restrictions on transfer, and such other terms and
conditions as the Committee shall determine consistent with the Plan. The
maximum number of Shares for which Options may be granted under the Plan to any
employee in any calendar year is 200,000 Shares.
2.2 Option Price. The price to be paid for Shares upon the exercise of an
Option shall be fixed by the Committee at the time the Option is granted, but
shall in no event be less than 100% of the Fair Market Value of the Shares on
the date the Option is granted.
2.3 Duration of Option. No Option shall be exercisable after the expiration of
ten years from the date of grant.
2.4 Date of Exercise. Any Option may be exercised at any time following the
date of grant, in whole or in part, unless the Committee shall otherwise provide
for vesting or other restrictions under which an Option may be exercised by the
Optionee, in whole or in part. In the discretion of the Committee, an Option may
become immediately and fully exercisable upon the occurrence of certain times or
events, including, without limitation, (i) in the event of death or permanent
disability of the Optionee or (ii) upon the occurrence of a change of control of
the company. For purposes of the Plan, a change of control shall be deemed to
occur if any person or group together with its affiliates and associates (other
than the company or any of its subsidiaries or employee benefit plans), after
the effective date of the Plan, acquires direct or indirect beneficial ownership
of 32 percent or more of the then outstanding Shares or commences a tender or
exchange offer for 40 percent or more of the then outstanding Shares. The terms
"group," "affiliates," "associates" and "beneficial ownership" shall have the
meanings ascribed to them in the rules and regulations promulgated under the
Exchange Act.
2.5 Method of Exercise. The Committee shall establish procedures governing the
exercise of an Option consistent with the purposes of the Plan. Such procedures
may include, without limitation, delivery to the company of written notice of
exercise accompanied by payment in full of the Option Price for the Shares to
which the exercise relates and payment of any amount necessary to satisfy any
withholding tax liability that may result from exercise of the Option.
2.6 Payment of Option Price. Upon exercise of an Option, the Option Price for
the Shares to which the exercise relates shall be paid in full in cash or, as
specified in the Option Agreement or as otherwise permitted by the Committee at
the time of exercise, (i) by delivering to the company already-owned Shares
having a Fair Market Value equal to the Option Price on the date of exercise,
(ii) by cashless
3
<PAGE>
exercise methods which are permitted by law, including, without limitation,
methods whereby a broker sells the Shares to which the exercise relates or
holds them as collateral for a margin loan, delivers the Option Price to the
company, and delivers the remaining proceeds to the Optionee (and in
connection therewith the company may establish a cashless exercise program
including a program where the commissions on the sale of Shares to which the
exercise relates are paid by the company), or (iii) by any combination of cash
and already-owned Shares or such cashless exercise methods having a combined
value equal to the Option Price. In the discretion of the Committee, already-
owned Shares must have been owned by the Optionee at the time of exercise for
at least the period of time specified by the Committee (which generally shall
be not less than six months). Whenever payment of the Option Price would
require delivery of a fractional Share, the Optionee shall deliver the next
lower whole number of Shares and a cash payment shall be made by the Optionee
for the balance of the Option Price.
2.7 Option Exercise Loans. An Option Agreement may provide for the extension
of a loan from the company to the Optionee to finance exercise of the Option.
Any such loan shall have a term that does not exceed ten years, shall be secured
by a pledge of the Shares acquired pursuant to exercise of the Option, shall be
with full recourse against the Optionee, shall bear interest at rates determined
by the Committee, and shall contain such other terms and conditions as the
Committee shall determine consistent with the Plan.
2.8 Termination of Employment. Options shall normally terminate immediately
upon termination of an Optionee's employment with the company for any reason, or
not more than three months following the date of termination if permitted by the
Committee, acting in its discretion. However, (i) if an Optionee dies or becomes
permanently disabled while in the continuous employ of the company, the
Committee may in its discretion allow the Optionee or the Optionee's estate,
personal or legal representative or beneficiary, to exercise the Option (to the
same extent the Optionee could have exercised it on the date of death or
permanent disability) for a period of up to twelve months from the date of death
or disability and (ii) if an Optionee retires at or after normal retirement age
the Committee may in its discretion allow the Optionee to exercise the Option
(to the same extent the Optionee could have exercised it on the date of
retirement) for a period of up to three years from the date of retirement, but,
in either (i) or (ii), not beyond the original option term.
ARTICLE III
SHARE APPRECIATION RIGHTS
3.1 Grant of SARs. Share appreciation rights may be granted in connection with
all or any part of any Option granted under the Plan. The number of SARs granted
to an Optionee shall not exceed the number of Shares which the optionee may
purchase upon exercise of the related Option. SARs granted under the Plan shall
be included in the related Option Agreement between the company and the
Optionee.
3.2 Exercise of SARs. A holder of SARs may exercise such rights, in whole or
in part, in lieu of exercise of the related Option, only to the same extent and
subject to the same conditions as the related Option is then exercisable and
unexercised. At the time of exercise, the Optionee shall surrender the Option
with respect to the number of Shares equal to the number of SARs exercised and
shall receive in return the number of Shares or amount of cash determined
pursuant to Section 3.3. The number of Shares available for the grant of future
Options and SARs under the Plan shall be reduced by the number of Shares with
respect to which an Option is so surrendered. The Committee, in its discretion,
may prescribe terms, conditions and limitations on the exercise of SARs.
3.3 Payment of SARs. Upon exercise of SARs, in consideration of the surrender
of the related Option, the holder thereof shall be entitled to receive, with
respect to each such right, an amount equal to the excess of the Fair Market
Value of one Share at the time of exercise over the Option Price per Share for
the Shares subject to the related Option and SAR being exercised. This amount
shall be payable as the Optionee shall elect, in cash, Shares or any combination
of cash and Shares; provided, however, that the Committee shall have sole
discretion to consent to or disapprove any election to receive cash in full or
partial payment of such amount. If the Optionee is to receive all or any portion
of such amount in Shares, the number of Shares shall be determined by dividing
such amount or portion thereof by the Fair Market
4
<PAGE>
Value per Share at the time of exercise. If the number of Shares so determined
is not a whole number, such number shall be reduced to the next lower whole
number.
ARTICLE IV
RESTRICTED SHARES
4.1 Award of Restricted Shares. The Committee may, from time to time and
subject to the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, award Shares to be held under the restrictions set
forth in this Article IV to any eligible employee of the company. Upon making
such an award, the company shall cause to have Restricted Shares issued and
registered in the name of the employee to whom Restricted Shares are awarded
(the "Restricted Shareholder").
4.2 Restrictions. Restricted Shares shall be subject to forfeiture upon such
terms and conditions, e.g., continued employment and performance goals, and to
such restrictions against sale, transfer or other disposition as may be
determined by the Committee at the time Restricted Shares are awarded. The
Committee may, in its discretion, remove, modify or accelerate the release of
restrictions on any Restricted Shares, including upon a change of control as
defined in Section 2.4.
4.3 Performance Goals.
(a) When the Committee determines to provide for forfeiture of
Restricted Shares based on performance goals, and when in the Committee's
judgment the provisions of Code Section 162(m) may be applicable to an
Award of Restricted Stock, the Committee shall be guided by this Section
4.3. The Committee shall establish performance goals prior to the start of
the restriction period; provided that such goals may be established after
the start of the fiscal year but while the outcome of the performance goal
is substantially uncertain to the extent permitted under proposed or final
regulations issued under Section 162(m).
(b) Each performance goal shall identify one or more business
criterion that is to be monitored during the restriction period. Such
criteria may include, among other things, any of the following:
Funds from operations per share Net income
Return on net assets Earnings per share
Operating ratios Debt reduction
Cash flow Return on investment
Shareholder return Revenue
Revenue growth
(c) The Committee shall determine the target level of performance that
must be achieved with respect to each criterion that is identified in a
performance goal in order for a performance goal to be treated as attained.
4.4 Forfeiture of Restricted Shares. In the event of the forfeiture of any
Restricted Shares, the company shall have the right to reacquire all or any
portion of such Shares, as determined by the Committee in its sole discretion,
without the payment of consideration in any form to such Restricted Shareholder,
and the Restricted Shareholder shall unconditionally forfeit any right, title or
interest to such Restricted Shares. All forfeited Restricted Shares shall be
transferred and delivered to the company. The Committee may, in its sole
discretion, waive in writing the company's right to reacquire some or all of a
holder's Restricted Shares, whereupon such shares shall become fully vested in
such Restricted Shareholder.
4.5 Escrow. In order to administer the provisions of this Article IV the stock
certificates evidencing Restricted Shares, although issued in the name of the
Restricted Shareholder, shall be held by the company in escrow subject to
delivery to the Restricted Shareholder upon vesting. An employee's receipt of an
award of Restricted Shares pursuant to the Plan shall constitute the grant of an
irrevocable power of
5
<PAGE>
attorney to the company to permit the transfer and delivery to the company of
any or all Restricted Shares which are forfeited to the company.
4.6 Dividends on Restricted Shares. While the Restricted Shares are held in
escrow, all cash dividends the company pays on the Restricted Shares shall be
subject to such terms, conditions and restrictions on payment as the Committee
shall determine, and shall be delivered directly to the Restricted Shareholder,
to the escrow account, or otherwise held in the manner specified by the
Committee. Share dividends or other dividends in kind on any Restricted Shares
held in escrow shall be paid into such escrow in the name of the Restricted
Shareholder and shall be subject to the same restrictions on disposition and
forfeiture provisions applicable to the Restricted Shares on which such dividend
was paid.
ARTICLE V
OTHER STOCK-BASED AWARDS
The Committee, in its discretion, may grant Awards under the Plan in
the form of Shares, either current or deferred, restricted or unrestricted, and
in tandem or combination with, or as an alternative to, any other employee
compensation plan of the company.
ARTICLE VI
MISCELLANEOUS
6.1 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or messenger or facsimile
transmission, addressed
(a) if to the company, at
BRE Properties, Inc.
Telesis Tower, Suite 2500
One Montgomery Street
San Francisco, CA 94104-5525
Attn: Secretary
(b) If to the Award holder, at the last address shown on the
company's personnel records, or
(c) to such address as either party shall later designate by notice to
the other.
6.2 Amendment or Termination. The Board may, at any time and from time to
time, modify, amend, suspend or terminate the Plan in any respect. Amendments to
the Plan shall be subject to stockholder approval to the extent required to
comply with any exemption to the short swing-profit provisions of Section 16(b)
of the Exchange Act pursuant to rules and regulations promulgated thereunder,
with the exclusion for performance-based compensation under Code Section 162(m),
or with the rules and regulations of any securities exchange on which the Shares
are listed. The Board may also modify or amend the terms and conditions of any
outstanding Award, subject to the consent of the holder and consistent with the
provisions of the Plan.
6.3 Leave of Absence. The Committee shall be entitled to make such rules,
regulations and determinations as it deems appropriate under the Plan in respect
of any leave of absence from the company taken by the recipient of any grant
under the Plan. Without limiting the generality of the foregoing, the Committee
shall be entitled to determine (a) whether or not any such leave of absence
shall be treated as a termination of employment with the company within the
meaning of the Plan and (b) the impact, if any, of any such leave of absence on
grants and awards under the Plan.
6.4 Recapitalization. In the event of any change in capitalization which
affects the Shares, whether by stock dividend, stock distribution, stock split,
subdivision or combination of Shares, reclassification, merger or consolidation
or otherwise, such proportionate adjustments, if any, as the Committee in its
discretion deems appropriate to reflect such change shall be made with respect
to the total number of
6
<PAGE>
Shares in respect of which Awards may be granted under the Plan, the number of
Shares covered by each outstanding Award and the Option Price per Share under
each Option and related SAR; however, any fractional shares resulting from any
such adjustment shall be eliminated.
6.5 Reorganization. If the company merges or consolidates with another
corporation and is not the surviving corporation, or if the company is
liquidated or sells or otherwise disposes of substantially all its assets while
unexercised Options remain outstanding under the Plan, (a) subject to the
provisions of clause (c) below, after the effective date of the merger,
consolidation, liquidation, sale or other disposition, as the case may be, each
holder of any outstanding Option shall be entitled, upon exercise of an Option,
to receive, in lieu of Shares, the number and class or classes of shares of
stock or other securities or property to which the holder would have been
entitled if, immediately prior to the merger, consolidation, liquidation, sale
or other disposition, the holder had been the holder of record of a number of
Shares equal to the number of Shares as to which the Option may be exercised;
(b) the Committee may in its discretion waive any limitations set out in or
imposed pursuant to this Plan so that all Options, from and after a date prior
to the effective date of the merger, consolidation, liquidation, sale or other
disposition, as the case may be, specified by the Committee, shall be
exercisable in full; and (c) all outstanding options which are exercisable at
any time prior to the effective date of any merger consolidation, liquidation,
sale or other disposition may be canceled by the Committee in its discretion, as
of such effective date.
6.6 General Restriction. Each Award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that (a) the
listing, registration or qualification of the related Shares upon any securities
exchange or under any state or federal law, (b) the consent or approval of any
government regulatory body, or (c) an agreement by the recipient of an Award
restricting disposition of Shares, is necessary or desirable as a condition of,
or in connection with, the making of an Award or the issue for purchase of
Shares thereunder, then such grant shall not be effective in whole or in part
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
6.7 Withholding Taxes. The company, with the approval of the Committee, may,
at the request of an employee, retain Shares which would otherwise be delivered
to the employee upon exercise of an Option or SAR or vesting of Restricted
Shares or other Award, to satisfy any withholding tax liability that may result
from such exercise or vesting. The Shares shall be valued for this purpose at
their Fair Market Value on the date of the exercise or vesting, as the case may
be. Whenever, under the Plan, payments by the company are made in cash, such
payments shall be net of an amount sufficient to satisfy any federal, state
and/or local withholding tax requirements.
6.8 No Right to Employment. Nothing in the Plan nor in any agreement entered
into pursuant to the Plan shall confer upon any Award holder the right to
continue in the employment of the company, nor affect any right which the
company may have to terminate the employment of such person.
6.9 Rights as Stockholder. No Optionee shall have rights as a stockholder with
respect to Shares acquired under the Plan unless and until the certificates for
such Shares are delivered to him or her.
6.10 Exchange Act. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successor under the Exchange Act. To
the extent any provision of the Plan or action by the Plan administrators fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.
7
<PAGE>
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
- --------------------------------------------------------------------------------
STATEMENT OF EARNINGS PER SHARE
(amounts in thousands, except per share)
Average shares outstanding are computed by adding the shares outstanding at each
month end and dividing that result by the number of months elapsed in the
year-to-date period.
Primary Earnings per Share:
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
September 30, September 30,
--------------------------------- -------------------------------
1997 1996 1997 1996
------------- ------------ ------------ --------------
<S> <C> <C> <C> <C>
Net income before gain on sale of
real estate investments (a) $ 12,986,000 $ 9,767,000 $35,603,000 $ 27,003,000
============= =========== =========== ==============
Weighted average shares outstanding
37,020,000 32,810,000 34,790,000 29,740,000
============= =========== =========== ==============
Computation $ .35 $ .30 $ 1.02 $ .91
============= =========== =========== ==============
Net gain on sales of real estate
investments (a) $ 2,557,000 $49,352,000 $28,160,000 $ 49,578,000
============= =========== =========== ==============
Computation $ .07 $ 1.50 $ .81 $ 1.67
============= =========== =========== ==============
Net income $ 15,543,000 $59,119,000 $63,763,000 $ 76,581,000
============= =========== =========== ==============
EARNINGS PER SHARE (a) $ .42 $ 1.80 $ 1.83 $ 2.58
============= =========== =========== ==============
</TABLE>
Additional Primary Computation:
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
September 30, September 30,
-------------------------------------------- ------------------------------------------
1997 1996 1997 1996
------------------- ---------------------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Net income (a) $15,543,000 $59,119,000 $63,763,000 $ 76,581,000
=========== =========== =========== ==============
Weighted average shares outstanding
37,020,000 32,810,000 34,790,000 29,740,000
Additional adjustment for dilutive
effect of outstanding options
(as determined by the
application of the treasury
stock method) 610,000 360,000 665,000 210,000
----------- ----------- ------------- --------------
Weighted average number of shares
outstanding, as adjusted
37,630,000 33,170,000 35,455,000 29,950,000
============ ============ =========== ==============
Primary earnings per share, as
adjusted (b) $ .41 $ 1.78 $ 1.80 $ 2.56
=========== =========== =========== ==============
</TABLE>
1
<PAGE>
Fully Diluted Earnings per Share:
<TABLE>
<CAPTION>
For the Quarter Ended For the Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------
1997 1996 1997 1996
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (a) $15,543,000 $59,119,000 $63,763,000 $76,581,000
=========== =========== =========== ===========
Weighted average shares outstanding
37,020,000 32,810,000 34,790,000 29,740,000
Additional adjustment for dilutive
effect of outstanding options
(as determined by the
application of the treasury
stock method) 699,000 360,000 794,000 270,000
----------- ----------- ----------- -----------
Weighted average number of shares, as
adjusted 37,719,000 33,170,000 35,584,000 30,010,000
=========== =========== ========== ===========
Fully diluted earnings per share as
adjusted (b) $ .41 $ 1.78 $ 1.79 $ 2.55
=========== =========== =========== ===========
</TABLE>
(a) These amounts agree with the related amounts in the Statements of Income.
(b) This calculation is submitted in accordance with Regulation S-K, item
601(b)11 although not required by footnote 2 to paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 875
<SECURITIES> 0
<RECEIVABLES> 41,217
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 42,092
<PP&E> 868,618
<DEPRECIATION> (44,627)
<TOTAL-ASSETS> 866,083
<CURRENT-LIABILITIES> 10,671
<BONDS> 269,710
0
0
<COMMON> 370
<OTHER-SE> 585,332
<TOTAL-LIABILITY-AND-EQUITY> 866,083
<SALES> 97,811
<TOTAL-REVENUES> 97,811
<CGS> 31,115
<TOTAL-COSTS> 31,115
<OTHER-EXPENSES> 15,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,344
<INCOME-PRETAX> 35,603
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 28,160
<CHANGES> 0
<NET-INCOME> 63,763
<EPS-PRIMARY> 1.83
<EPS-DILUTED> 1.83
</TABLE>
